The path towards centralized public sector procurement in Ontario

Ontario public sector procurement of goods and services has traditionally been carried out on a decentralized basis. While not-for-profit shared services organizations (which specialize in purchasing services and supply chain management on behalf of their members and certain public sector customers) have provided a limited form of collective procurement services, the Government of Ontario has a grander vision in mind. The recent and upcoming changes to public sector procurement will be of great interest both to public sector organizations which procure goods and services from the private sector and to the private sector entities which seek to sell such goods and services.

The Government of Ontario first introduced the new centralized procurement legislation in its budget in November 2019. The resulting legislation, the Supply Chain Management Act (Government, Broader Public Sector and Health Sector Entities), 2019 (the "Act"), came into force on March 27, 2020.

On March 18, 2019, the Government of Ontario introduced the Broader Public Sector Interim Measures (the “Interim Measures”). The Interim Measures outline requirements supporting ‎the ‎development of a centralized procurement system in Ontario by requiring certain entities (including hospitals, shared services and group purchasing organizations) to use existing vendor of record arrangements whenever possible and appropriate, regardless of the value of the procurement. The Interim Measures also set out limitations on new contract terms and require certain reporting to be submitted to the procuring organization's funding Ministry. The Interim Measures apply to select broader public sector organizations for procurements valued at $100,000 or greater, and apply to the Ontario Public Service for procurements valued at $25,000 or more. These thresholds are subject to change.

The need for a centralized procurement system was made all the more apparent by the challenges posed in 2020 by COVID-19. Early on in the pandemic, it became clear that achieving greater efficiencies in public sector purchasing could be particularly beneficial to public sector organizations in need of personal protective equipment (“PPE”) and to the companies capable of supplying the same. This led to Ontario Regulation 92/20 (Coronavirus (COVID-19) Response and Recovery) under the Act. In November 2020, the Government of Ontario announced the creation of a new centralized procurement agency named Centralized Supply Chain Ontario (“Supply Chain Ontario”). Supply Chain Ontario was established by Ontario Regulation 612/20 (Centralized Supply Chain Ontario) (the “Regulation”) under the Act.

Supply Chain Ontario is part of Ontario Onwards: Ontario's COVID-19 Action Plan for a People-Focused Government and is designated as an agent of the Crown. Its objects and duties are to provide and support supply chain management on behalf of government entities, broader public sector entities and health sector entities, and collect supply chain management and vendor performance data from these entities.

Supply chain management is defined broadly in the Act and includes, among other things, planning and sourcing, setting standards and specifications, conducting market research, developing procurement policy, determining procurement methodologies, coordinating and conducting procurements, controlling logistics and inventory, managing information systems, and managing contracts and relationships.

The Act identifies and defines the entities that are covered by the management services of Supply Chain Ontario, as follows:

• ‎"government entity" means any ministry of the Government of Ontario, within the ‎meaning of the Public Service of Ontario Act, 2006, as well as the Independent Electricity ‎System Operator and Ontario Power Generation Inc. and its subsidiaries;‎
• ‎"broader public sector ("BPS") entity" means district school boards or school ‎authorities, government-funded post-secondary educational institutions, children's aid ‎societies, and corporations controlled by any of these entities whose primary purpose is ‎to purchase goods or services for those entities; and
• ‎"health sector entity" means any person or entity that receives government funding ‎to provide or support the provision of health services (e.g., hospitals), as well ‎as corporations controlled by any of these entities whose primary purpose is to purchase ‎goods or services for those entities.‎

Under the Regulation, Supply Chain Ontario may provide notice to any of the abovementioned entities specifying that it will provide or support supply chain management, as specified in the notice, on behalf of the entity and provide the start date of such management. Any such entity that receives such notice must obtain supply chain management functions from Supply Chain Ontario as set out in that notice, until notified otherwise. The Regulation also requires managed entities to provide Supply Chain Ontario with certain information upon request, such as information on current inventories of any goods, and future inventory requirements; current and future procurement activities; supply chain opportunities, contingencies and constraints; information about contracts related to the procurement of goods and services; and any information related to supply chain management or vendor performance specified by Supply Chain Ontario.

According to its November 16, 2020 news release, the Government of Ontario expects the new centralized procurement through Supply Chain Ontario to reform the fragmented nature of Ontario's supply chain system to deliver the best value, provide stable access to critical products, stimulate job creation and economic growth by purchasing more Ontario-made goods, drive the innovation of emerging technologies, connect small businesses and entrepreneurs with the government, and ensure that small and medium businesses face less administrative burden in the procurement process. According to its October 19, 2020 news release, the Government of Ontario expects that this new centralized procurement will both improve government purchasing by leveraging the combined bulk-buying power of the province of Ontario and generate savings of approximately $1 billion annually.

As at the time of writing, in addition to complying with any Supply Chain Ontario requirements described above, Ontario Ministries must continue to comply with the Ontario Public Service Procurement Directive (“OPS Directive”), and all designated broader public sector organizations in Ontario (e.g. hospitals, universities, colleges, school boards, among others) must continue to comply with the Broader Public Sector Accountability Act, 2010 and the Broader Public Sector Procurement Directive.

The Government of Ontario is in the process of planning the future centralization of procurement across the Ontario Public ‎Service and the broader public sector. To that end, the Government has been engaging stakeholders for input in this regard.‎ As the centralization process remains a work in progress, all stakeholders will need to keep a watchful eye on this space. The rules and processes impacting the public sector and its private sector suppliers will continue to evolve for the foreseeable future.

For further information on procurement law matters in Ontario and across Canada, please contact Mitchell Mostyn.

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