Mandate Issues: Thresholds Report by the Sussex Circle

Rick Smith and Jim Mitchell
October 7, 2013

Executive Summary

This report presents our assessment of the advantages and disadvantages of expanding the mandate of the Procurement Ombudsman to include complaints with a higher dollar-value threshold than are currently contained in the Procurement Ombudsman Regulations.

Context

• The position of Procurement Ombudsman was established under the Federal Accountability Act to help promote fairness, openness and transparency in federal procurement. In particular, it was designed to fill the gap in the procurement dispute resolution process for contracts that do not fall within the Canadian International Trade Tribunal's (CITT) jurisdiction. That gap involved contracts for goods with a value below $25,000 and services with a value below $100,000.

• These contracts account for about 90 per cent of the more than 400,000 contracts issued by federal government departments and agencies each year, and fall within the Procurement Ombudsman's current mandate. Nevertheless, formal complaints are relatively rare, averaging 33 per year over the past two years.

• When a complaint is received by the Office of the Procurement Ombudsman (OPO or the Office), it is reviewed against the criteria outlined in the Procurement Ombudsman Regulations. Criteria for rejecting a complaint include such things as lack of jurisdiction, late filing, etc. Approximately 80 per cent of complaints received do not meet the regulatory criteria, and are not, therefore, investigated.

• The monetary thresholds have been a decisive factor in not conducting reviews or investigations on four or five complaints each year. Most of those complaints involved contracts that are substantially higher than the current monetary thresholds.

Advantages and disadvantages of increasing the thresholds

It is difficult to predict what would be the impact of changes to the dollar-value thresholds on the efficiency and effectiveness of the federal government's procurement process, on suppliers' satisfaction with it, and on the workload of the OPO and other institutions. All of these are important considerations in assessing the potential advantages and disadvantages of changes to the thresholds.

The main advantage of an increase in the thresholds cited in the Formative Evaluation is that it would facilitate the informal resolution of procurement disputes, reducing the time and effort required by suppliers and the federal government to settle them.

During the course of our interviews with federal officials, we found some agreement with this view. Fewer disputes, and an increase in the efficiency of their resolution, would be welcome.

Having said that, a number of disadvantages of the changing the monetary thresholds were noted by those with whom we spoke:

• The original policy rationale for the Procurement Ombudsman – to fill the gap in the procurement dispute resolution process for contracts that do not fall within the CITT's jurisdiction – remains compelling. Increasing the thresholds would create more overlap in jurisdiction that would provide more opportunities for forum-shopping.^{Footnote 1}

• The current system of dispute resolution – beginning with the department and then involving the OPO or the CITT – is seen by interviewees as working reasonably well.

• An increase in thresholds would lead to an increase in the OPO's workload, potentially at the cost of less attention to the valuable work it does in identifying and sharing good procurement practices for small- and medium-sized businesses and to issues associated with contract administration.

In addition, our analysis suggests that a modest increase in thresholds would not likely have a big impact on the number of complaints actually considered.

Recommendation

In our view, there is no persuasive reason for changing the monetary thresholds that underpin the Procurement Ombudsman's mandate. The original policy rationale – that the Procurement Ombudsman fills a gap in the dispute resolution system for contracts rather than providing a substitute forum – remains compelling. And the system overall is seen to be working reasonably well.

1.0 Introduction

Sussex Circle was engaged to undertake an analysis of the advantages and disadvantages of expanding the mandate of the Procurement Ombudsman as recommended by the Formative Evaluation conducted in 2012.^{Footnote 2}  This report presents the first part of that analysis – the dollar-value thresholds of the Procurement Ombudsman's mandate – along with the conclusions and recommendations that stem from it.^{Footnote 3}

The introductory section of the report provides background information on the assignment, the approach used, and the challenges and limitations associated with it.

1.1 Background

The position of Procurement Ombudsman was established under the Federal Accountability Act to promote fairness, openness and transparency in federal procurement by, among other activities, providing an avenue for suppliers to have procurement-related concerns addressed by a neutral and independent body. In particular, the government sought to help Canadian suppliers address procurement-related issues associated with lower dollar-value contracts. Suppliers of these contracts are typically small- and medium-sized enterprises across Canada.

The Ombudsman's mandate is to:

• Review any complaint with respect to the award of a contract for the acquisition of goods below $25,000 and services below $100,000;

• Review any complaint with respect to the administration of a contract, regardless of dollar value;

• Review the practices of departments for acquiring goods and services to assess their fairness, openness and transparency and make recommendations to improve those practices; and

• Ensure that an alternative dispute resolution process is provided, if requested and agreed to by both parties.

In 2012, the Ombudsman launched an independent, third-party Formative Evaluation to assess whether the Office's mandate had to date been implemented as intended. Although the Evaluator found that to be the case, he made recommendations to strengthen the Office's operations. One of those recommendations was that additional analysis be undertaken to assess the advantages and disadvantages of expanding the Ombudsman's mandate. In particular, the report stated that:

A significant number of suppliers and some government officials indicated that the mandate of the OPO should be expanded to better address the complaints of small and medium sized businesses regarding federal procurement. Because the Canadian International Trade Tribunal (CITT) process is more formal and time consuming, it might be more expeditious for both the federal government and suppliers to slightly increase the maximum threshold of OPO. This would allow the slightly larger contracts to be handled by the OPO thereby enabling the resolution of procurement disputes in a more informal manner and reducing the time and effort required by suppliers and the federal government to settle their disputes. In addition, suppliers felt that additional measures should be undertaken to ensure government departments address the recommendations and issues identified by OPO.^{Footnote 4}

1.2 Approach

To prepare this report, we reviewed:

• The Formative Evaluation Final Report.

• The legislative authority of the Procurement Ombudsman, the policy rationale for providing the Ombudsman with the mandate to review complaints, and the rationale for the establishment of the current dollar-value thresholds.

• The role and operations of the CITT.

• Other relevant laws and agreements.

At our request, the OPO compiled statistics drawn from the Office's complaint and investigation files. These statistics, coupled with information drawn from other sources, helped us assess how important the current dollar-value thresholds have been as a factor not allowing the Procurement Ombudsman to launch an investigation.

We also consulted with other federal officials to gather information on the desirability and implications of expanding the Procurement Ombudsman dollar-value thresholds. These officials included representatives from five federal organizations that together account for approximately 60 per cent of the volume of lower value goods and services purchases (those under $25,000).

1.3 Challenges and Limitations

It is difficult to predict the impact of changes to the dollar-value thresholds on the efficiency and effectiveness of the federal government's procurement process, on suppliers' satisfaction with that process, and on the workload of the OPO and other institutions. We do not know, for example, how many suppliers would have submitted a complaint to the Procurement Ombudsman had the monetary thresholds been higher. All of these are important considerations in assessing the advantages and disadvantages of changes to the thresholds.
In conducting this engagement, we did not involve suppliers. Rather, we relied upon their views as captured in the Formative Evaluation, upon which this report builds.

2.0 The Procurement Complaint Process

Through provisions in the Financial Administration Act, the Government Contracts Regulations and Canada's international and national trade agreements, Parliament has sought to ensure that procurement is conducted in an open, fair and transparent manner and, wherever possible, in a way that maximizes competition.

The Government of Canada spends more than $16 billion dollars a year on the procurement of goods and services. More than 400,000 contracts are issued each year, of which 90 per cent are in amounts of less than $25,000. Larger contracts on the other hand – those above $25,000 – account for 90 per cent of the total value of contracts issued. Close to 100 departments and agencies are subject to the federal government's contracting regulations.^{Footnote 5}  Some have extensive contracting experience; others less so.

Given the volume and complexity of contracts awarded and administered by the federal government, it is inevitable that difficulties will occasionally arise. A potential supplier may have reason to believe that a contract has been or is about to be awarded improperly or illegally, or that it has been wrongfully denied a contract or an opportunity to compete for one. When that happens, there are several mechanisms available for suppliers to address complaints related to federal government procurement.^{Footnote 6}

The first step in the complaint process is to contact the contracting officer in the relevant department or agency to discuss the concern. Some departments have also established their own internal dispute resolution processes/mechanisms. If the complaint cannot be resolved at the department/agency level, the potential supplier can contact one of the procurement complaint bodies, depending on the nature of the issue. The procurement complaint body having jurisdiction depends on several factors, including the dollar value of the contract.

• The Competition Bureau if the complaint concerns anti-competitive behaviour.

• The Canadian International Trade Tribunal for a contract covered by a trade agreement. The Tribunal's role is to determine whether the government institution followed the procurement procedures and other requirements specified in the applicable trade agreements.

• The Office of the Procurement Ombudsman for a complaint concerning a contract not covered by a trade agreement. These are complaints involving the award of contracts for goods below the value of $25,000, and for services below the value of $100,000. The Procurement Ombudsman can also review complaints regarding the administration of a contract for goods or services, regardless of dollar value.^{Footnote 7}

3.0 Why the Current Procurement Ombudsman Thresholds?

The Procurement Ombudsman's mandate to review complaints was intended to fill a gap in the procurement dispute resolution process for contracts falling below the CITT's complaint thresholds. The North American Free Trade Agreement, the Agreement on Internal Trade, the Agreement on Government Procurement, and the Canada-Chile Free Trade Agreement all deal with government procurement and require the signatories to maintain an independent bid challenge (complaint) authority. The North American Free Trade Agreement Implementation Act establishes the CITT as that authority for Canada.

The various trade agreements contain different monetary thresholds, ranging from $25,000 to $217,400 for goods and $76,500 to $217,400 for services. Given the similarity of the procurement provisions of the various agreements, the effective monetary floors for a CITT complaint are $25,000 for goods, and $76,500 for services (see Figure 1).

Figure 1: Trade Agreement Procurement Complaint Thresholds

Agreement	Goods	Services
North American Free Trade Agreement Canada-Chile Free Trade Agreement	$76,500	$76,500
Agreement on Internal Trade	$25,000	$100,000
Agreement on Government Procurement	$217,400	$217,400

Source:   Canadian International Trade Tribunal, Procurement Review Process: A Descriptive Guide, 2009.

The Procurement Ombudsman's mandate to review complaints was intended to fill a gap in the procurement dispute resolution process for contracts with values falling below the CITT's complaint thresholds. They were explicitly linked to the thresholds contained in the Agreement on Internal Trade in the Procurement Ombudsman Regulations (2008):

• 9. (1) The Procurement Ombudsman shall review a complaint referred to in subsection 7(1), if
  1. the contract, the award of which is the subject of the complaint, is not covered by any of the exemptions or exceptions in the Agreement, as defined in section 2 of the Agreement on Internal Trade Implementation Act, including those made under articles 1802 to 1806 of the Agreement, and is one to which the Agreement would apply if its value, as determined under article 505 of the Agreement, were not less than the amount set out in article 502 of the Agreement;^{Footnote 8}
  2. the requirements set out in subsection 22.2(1) of the Act and section 7 have been met;
  3. the facts and grounds on which the complaint is based are not and have not been the subject of an inquiry before the Canadian International Trade Tribunal or a proceeding in a court of competent jurisdiction; and
  4. there are reasonable grounds to believe that the contract was not awarded in accordance with regulations made under the Financial Administration Act.^{Footnote 9}

The policy intent was to avoid overlap between the work of the CITT and the Procurement Ombudsman. This intention was reflected not only in the choice of thresholds, but also:

• in the prohibition of the Procurement Ombudsman from reviewing complaints that have been subject to a CITT inquiry or a court proceeding (see 9. (1) (c) above); and

• in the inclusion in the Procurement Ombudsman's mandate of complaints related to contract administration regardless of dollar value (contract administration falls outside the CITT's jurisdiction).

There is a small overlap in the mandate of the Procurement Ombudsman and the CITT with regard to services valued between $76,500 and $100,000. To deal with this overlap, the OPO checks with the CITT for complaints in the range between $76,500 and $100,000 and does not deal with the complaint if it is being addressed by the CITT.

4.0 What is the Impact of the Current Thresholds?

Both the CITT and the Procurement Ombudsman encourage suppliers who have questions, issues or concerns regarding a procurement to first contact the government institution responsible for the contract to discuss their concerns and seek a resolution at that level. Each federal department or agency has its own methods of addressing contract disputes.

Given the volume of the federal government's contracting (more than 400,000 annually), formal complaints to either the CITT or to the Procurement Ombudsman are relatively rare. Over the last five years, between 83 and 243 written complaints were received annually by the two bodies (see Figure 2).

The statistics also illustrate that larger value procurements are more likely to result in a formal complaint than are smaller value ones. Although the volume of contracts falling within the Procurement Ombudsman's mandate is of the order of ten times larger than those falling within the CITT's mandate, more complaints are made to the CITT than to the Procurement Ombudsman.

Figure 2: Complaints Received Concerning Contract Award

	2008-09	2009-10	2010-11	2011-12	2012-13
Canadian International Trade Tribunal	63	154	94	62	53
Office of the Procurement Ombudsman	71	89	81	36	30
Total	134	243	175	98	83

Source: Canadian International Trade Tribunal, Annual Reports, 2008-09 to 2012-13; Office of the Procurement Ombudsman, Annual Reports, 2008-09 to 2011-12 and information provided by the Office.

When a written complaint is received, it is assessed against the legislative criteria for filing. Criteria for refusing a complaint include such things as lack of jurisdiction (such as a service that is specifically excluded from a trade agreement), late filing, etc. Over the last five years, a significantly larger share of the complaints filed with the Procurement Ombudsman failed to meet the regulatory criteria (and thus could not be investigated) than those filed with the CITT (see Figure 3).

Figure 3: Complaints Received Concerning Contract Award Leading to Investigations/Inquiries

	Complaints Received 2008-09 to 2012-13	Accepted for Inquiry/ Investigation 2008-09 to 2012-13	Percentage Accepted for Inquiry/Investigation 2008-09 to 2012-13
Canadian International Trade Tribunal	426	180	42%
Office of the Procurement Ombudsman	307	15	5%
Total	733	195	27%

Source: Canadian International Trade Tribunal, Annual Reports, 2008-09 to 2012-13; Office of the Procurement Ombudsman, Annual Reports, 2008-09 to 2011-12 and information provided by the Office.

The monetary threshold is one of the regulatory criteria that must be met if the Procurement Ombudsman is to launch a review. To obtain a better understanding of the impact of the threshold, we asked the OPO to review its complaint files for 2011-12 and 2012-13 to determine the specific regulatory criteria that led to complaints not being investigated.

Of the 66 complaints received over the past two years, 54 (82%) were not investigated because they did not meet Procurement Ombudsman's regulatory criteria (see Figure 4). Of those, 9 met all criteria except the monetary threshold. In other words, had the monetary threshold not been a factor, the number of complaints investigated would have increased from 6 to 15.^{Footnote 10}  An additional 12 complaints did not meet the monetary threshold, but also did not meet at least one other regulatory criteria and would not, therefore, have been investigated.

Figure 4: Disposition of Procurement Ombudsman Complaints, 2011-12 and 2012-13

Total number of:	Percentage of complaints received
Complaints received - 66	100%
Complaints investigated - 6	9%
Complaints not investigated - 60	91%
Complaints withdrawn - 6	9%
Complaints that did not meet all regulatory criteria - 54	82%
Complaints that met all regulatory criteria except the $ threshold - 9	14%
Complaints that did not meet $ threshold and other regulatory criteria - 12	18%
Complaints that met $ threshold but not other regulatory criteria - 33	50%

Source: Calculated from information provided by the OPO.

Of the nine complaints that met all regulatory criteria except for the monetary threshold, the deviations from the current threshold were substantial. Four complaints fell within twice the current thresholds. One more was within ten times current levels. The remaining four were more than ten times the current thresholds. What this suggests is that a modest increase in thresholds would not likely have a big impact on the number of complaints actually considered.

5.0 What are the Advantages and Disadvantages of Increasing the Thresholds?

The Formative Evaluation set out the potential advantages of an increase in the monetary thresholds. Specifically, some suppliers and federal officials felt that changes to the thresholds would better address the complaints of small- and medium-sized businesses regarding federal procurement, since:

• the CITT process is seen to be more formal and time consuming than the OPO process, and

• an increase in the thresholds would enable the resolution of procurement disputes in a more informal manner, reducing the time and effort required by suppliers and the federal government to settle their disputes.^{Footnote 11}

During the course of our interviews with federal officials, we found some agreement with this view. Fewer disputes, and an increase in the efficiency of their resolution, would be welcome. Having said that, a number of disadvantages of changing the monetary thresholds were noted:

• The original policy rationale for the Procurement Ombudsman – to fill the gap in the procurement dispute resolution process for contracts that do not fall within the CITT's jurisdiction – remains compelling. Increasing the thresholds would create a larger overlap in jurisdiction that would provide more opportunities for forum-shopping.

• The current system of dispute resolution – beginning with the department and then involving the OPO or the CITT – works reasonably well.

• An increase in thresholds would lead to an increase in the OPO's workload, potentially at the cost of less attention to the valuable work it does in identifying and sharing good procurement practices for small- and medium-sized businesses and to issues associated with contract administration.

In addition, our analysis presented earlier suggests that a modest increase in thresholds would not likely have a big impact on the number of complaints actually considered.

6.0 Recommendation

In our view, there is no persuasive reason for changing the monetary thresholds that underpin the Procurement Ombudsman's mandate. The original policy rationale – that the Procurement Ombudsman fills a gap in the dispute resolution system for contracts rather than providing a substitute forum – remains compelling. And the system overall is seen to be working reasonably well.

Annex 1: Who did we talk to?

The people

Denis Bombardier, Acting Chief Financial Officer, Fisheries and Oceans Canada

Desmond Grey, Acting Director General, Services and Specialized Acquisitions, Public Works and Government Services Canada

Frank Jeffries, Director General, Administrative Services and Property Management Branch, National Research Council and Robert Hart, Director, Administrative Services

Todd Mitton, Comptroller, Correctional Services Canada

Nadir Patel, Assistant Deputy Minister and Chief Financial Officer, Corporate Finance and Operations, Foreign Affairs and International Trade Canada

Joe Wild, Assistant Secretary to the Cabinet, Machinery of Government, Privy Council Office

The questions

1. What do you see as the advantages and disadvantages of increasing the dollar-value thresholds for complaints subject to OPO investigation?

2. If the thresholds were to be increased, what levels do you think would be appropriate? 

3. Do you think that additional steps should be taken by the Government of Canada and/or the OPO to ensure government departments address the recommendations and issues identified by the OPO in the course of its work? If so, what steps would you envisage?

4. What do you see as the advantages and disadvantages of compelling federal organizations to address the recommendations made by the OPO in their investigation and practice review reports?

5. Are there any other comments that you would like to make?

Date modified:

2025-04-23