National Security Exception
On this page
- The Office of the Procurement Ombudsman
- Fairness, Openness and Transparency
- National security exception in practice
- Appendix A: Canada’s trade agreements
- Appendix B: National security exception in the USA
The Office of the Procurement Ombudsman
The Office of the Procurement Ombudsman (OPO) is a neutral and independent organization of the Government of Canada that works collaboratively with federal departments and Canadian businesses (suppliers) to promote fairness, openness and transparency in federal procurement. OPO delivers on this mandate by connecting stakeholders, investigating complaints, resolving problems, making recommendations and sharing best practices.
- Reviews the practices of federal departments for acquiring goods and services to assess their fairness, openness and transparency and makes any appropriate recommendations to the relevant department;
- Reviews any complaint respecting the award of a contract for the acquisition of goods below the value of $30,300 and services below the value of $121,200 where the criteria of the Canadian Free Trade Agreement would otherwise apply;
- Reviews any complaint respecting the administration of a contract for the acquisition of goods or services by a department, regardless of dollar value; and
- Ensures that an alternative dispute resolution process is provided, if the parties to the contract agree to participate.
In 2018, OPO launched a knowledge deepening and sharing (KDS) initiative to better understand key issues in federal procurement. Through the publication of KDS studies, OPO intends to share knowledge and provide meaningful guidance for federal procurement stakeholders.
OPO would like to thank the participating federal and provincial organizations and interviewees for their input in developing this study.
Enquiries should be directed to:
Office of the Procurement Ombudsman
410 Laurier Ave. W., Suite 400
Ottawa, Ontario K1R 1B7
Toll-free for hearing-impaired: 1‑800‑926‑9105
Government procurement chapters in international trade agreements set out the rules that member countries must follow when purchasing goods, services, and construction services. These rules ensure that suppliers from member countries are treated in an open, transparent, and non-discriminatory manner when selling to governments of other member countries. These agreements require that suppliers have access to dispute settlement mechanisms, which ensure that these obligations are respected.
The procurement chapters have two main parts. The first includes the procedural rules that must be followed to ensure that the procurement is carried out in accordance with the “principles of non-discrimination, impartiality and transparency.” footnote 1 The second includes the market access schedules, which list the types of purchases that are subject to these rules. In order for these rules to apply, the procurement must be made by one of the covered entities identified in the agreement, the estimated value of the purchase must fall above a certain monetary threshold, and the purchase must be for goods, services or construction services covered under the agreement.footnote 1
These agreements identify the conditions under which a procurement can be excepted from these rules. One of these conditions is for protecting national security. The ‘national security exception’ (NSE), allows Canada and the other member countries to the agreements to exclude a procurement from some or all of the obligations of the trade agreement(s), where member countries consider it “necessary to do so in order to protect its national security interests.”footnote 2
The language establishing the NSE is consistent across all of Canada’s international trade agreements.footnote 3 It is not written as an exception or exclusion to the trade agreements which would automatically remove the application of the trade agreement entirely. To quote one agreement, “nothing in this Agreement shall be construed to: (a) require the Government of Canada to provide, or allow access to, information the disclosure of which it determines to be contrary to national security; or (b) prevent the Government of Canada from taking any action that it considers necessary to protect national security interests or, pursuant to its international obligations, for the maintenance of international peace and security.”footnote 4 On invocation, the application of the trade agreement rules to the particular solicitation are suspended to the extent necessary to protect Canada’s national security interests.
Despite widespread use of the term “national security,” the term is not explicitly defined in these agreements.footnote 5 Referred to by some as ‘the catch-all clause,’ the wording of the NSE is intentionally flexible to allow it to capture evolving threats to national security.footnote 6 NSEs have typically been applied for “national defence and military threat, sovereignty, protection of security intelligence, environmental security, human security, and economic security.”footnote 7
This study explores the construct and application of the NSE and its relationship with the fairness, openness, and transparency (FOT) of federal government procurement. This study examines how the NSE can result in a lack of transparency while insulating these procurements from traditional accountability and recourse mechanisms offered by the Canadian International Trade Tribunal (CITT) and OPO.
It concludes that reductions to FOT are justified and allowable when the procurement is tied to Canada’s national security interests, but the application of the NSE should be targeted and transparent.
Although the authority to invoke the NSE is derived from the various trade agreements, these agreements do not offer guidance for invoking the NSE.footnote 8 However, the CITT offers some clarification on invocation.
The CITT is the institution created to investigate complaints by potential suppliers regarding Canada’s adherence to its trade agreement obligations.footnote 9 The complaint process at the CITT is regulated by the Canadian International Trade Tribunal Procurement Inquiry Regulations (the Regulations). The Regulations were amended in June 2019, to establish the criteria for the proper invocation of the NSE and provide “clarification” regarding the CITT’s jurisdiction with respect to the NSE.footnote 10
According to the Regulations as amended, the authority to invoke the NSE rests with the assistant deputy minister (ADM), or person of equivalent rank, who is responsible for awarding the contract, and the NSE is considered “properly invoked” when this individual has signed a letter approving the invocation of the NSE, prior to the date of contract award.footnote 11
The Regulations as amended further require the CITT to “order the dismissal of a complaint” if the NSE was “properly invoked” (Subsection 10(2)). Accordingly, the CITT’s jurisdiction with respect to investigating complaints related to the award of NSE contracts is limited to a review of whether the NSE was properly invoked from a procedural standpoint; that is, by the applicable ADM, or person of equivalent rank, and whether this was documented through a signed letter prior to contract award.footnote 12 Once the CITT determines that the NSE was properly invoked, it is required to dismiss the complaint. Properly invoking the NSE does not remove the obligations of the trade agreements, it just removes the CITT’s jurisdiction to conduct an inquiry into the complaint whether the complaint relates to the invocation of the NSE or any other aspect of the procurement process. However, if the CITT determines the NSE was improperly invoked, there is nothing to prevent it from continuing with its inquiry in respect of another aspect of the procurement process.
The Regulations do not require that the government provide a justification for invoking the NSE, nor do they require that notice of the NSE invocation appear within the procurement documents.footnote 13 However, Public Services and Procurement Canada (PSPC)’s Supply Manual does contain these requirements.
PSPC’s Supply Manual includes the policies and procedures that are to be applied by PSPC’s contracting officers when undertaking procurement on behalf of other Government of Canada organizations.footnote 14 Section 3.105 National Security Exceptions provides some guidance on the invocation of the NSE.
Based on the authority provided to the Minister of Public Services and Procurement under section 6 of the Department of Public Works and Government Services Act, the authority to invoke the NSE will not be delegated to a lower level official than an ADM. footnote 15 Furthermore, where PSPC’s Acquisitions Program is the contracting authority, an NSE will not be invoked by anyone other than the ADM of PSPC’s Acquisition Program. footnote 15 The Supply Manual also requires that contracting officers “insert the following statement in all notifications to suppliers and in all tender documents where the NSE has been invoked: "This procurement is subject to national security exception and is, therefore, excluded from all of the obligations of the trade agreements."”footnote 16
In terms of the specific procedures that must be followed when invoking the NSE, the Supply Manual requires that the request be made in the form of a letter from the responsible ADM level equivalent at the client department. This letter must explain the nature of the proposed procurement and how it relates to Canada's national security interests.footnote 17
Upon receipt of this letter, the ADM Acquisitions Program is to consider “only the issue of whether or not to invoke the NSE and will not consider at that time, other matters such as procurement methods, procurement plans or authority to enter into the contract.”footnote 18 Once a decision has been reached, the client department will be informed in writing by the ADM Acquisitions Program. The contracting officer is then required to state in all procurement documents that an NSE has been invoked.footnote 19 The procurement approval documents must contain the rationale for the invocation and the specific trade agreements from which the procurement is being excluded.footnote 19
Fairness, Openness and Transparency
The principles of fairness, openness, and transparency form the basis upon which the rules and regulations of government procurement are based, and they are the guiding principles of the trade agreements.footnote 20 Since the NSE impacts trade agreement obligations, there can be corresponding impacts to FOT. Several of these impacts are explored below.
To illustrate these principles in trade agreement obligations, specific examples have been provided from the World Trade Organization Agreement on Government Procurement (WTO-AGP).footnote i The WTO-AGP is one of many trade agreements to which Canada is a party, and each agreement has its own specific obligations. For a list of Canada’s trade agreements, see Annex A of this report.
The principle of fairness in public procurement is the consistent application of procedural rules and the non-discriminatory treatment of bidders. These rules are designed to ensure that decisions are made by impartial actors and that decisions are based on relevant information.footnote 21
Duty of non-discrimination
The requirement of non-discrimination appears in each of Canada’s trade agreements and prohibits discrimination against the goods, services, and suppliers of those party to the trade agreement.footnote 22 For example, Article IV General Principles Non-Discrimination of the WTO-AGP requires that procuring entities “shall accord immediately and unconditionally to the goods and services of any other Party… treatment no less favourable than the treatment the Party, including its procuring entities, accords to: a) domestic goods, services and suppliers; and b) goods, services and suppliers of any other Party.”footnote 23
The requirement of non-discrimination is intended to ensure that the suppliers of trading partners are treated on the same grounds as national suppliers and commodities.footnote 22 Non-discrimination is one of the primary means of achieving fairness in the procurement process.footnote 22
Duty to provide clear and meaningful reasons for decisions to impacted parties
Article XVI Transparency of Procurement Information of the WTO-AGP states that “a procuring entity shall promptly inform participating suppliers of the entity's contract award decisions and, on the request of a supplier, shall do so in writing…[and] shall, on request, provide an unsuccessful supplier with an explanation of the reasons why the entity did not select its tender and the relative advantages of the successful supplier's tender.”footnote 24
Since 2020, OPO has been contacted by numerous stakeholders about Canada’s invocation of the NSE for the acquisition of items related to the COVID-19 pandemic. OPO has received several complaints from suppliers regarding the transparency of the procurement process and outcomes of bid solicitation.footnote 25 None of these complaints met the criteria set forth in the Procurement Ombudsman Regulations and the Ombudsman was therefore unable to launch formal reviews of these complaints.
Duty to provide a timely, effective, transparent and non-discriminatory administrative or judicial review procedure
Under the trade agreements, parties are required to establish an administrative or judicial review procedure through which a supplier can bring forward complaints regarding a breach of the agreement.footnote 26
In Canada, this role is fulfilled by the CITT. The CITT is an impartial administrative tribunal that inquires into complaints concerning breaches of Canada’s obligations under the trade agreements.footnote 27
As noted above, in 2019, the CITT Regulations were amended to limit its ability to inquire into an NSE beyond proper invocation, that is, beyond whether an ADM or person of equivalent rank, who is responsible for awarding the contract, has signed a letter approving the invocation of the NSE, prior to the date of contract award.footnote 28
The proper invocation of an NSE removes a supplier’s access to impartial review of its complaint by the CITT by prohibiting the CITT from reviewing anything other than proper invocation.footnote 29 The Regulations require that the CITT “order the dismissal of a complaint in respect of which a national security exception… has been properly invoked by the relevant government institution.”footnote 30 The CITT is precluded from investigating the rationale for invoking the NSE, as well as all other aspects of the procurement process that would otherwise have been subject to its jurisdiction, such as those pertaining to the procedural fairness of the process.footnote 31
This change to the CITT’s regulations leaves suppliers with only one avenue of recourse, which is through a judicial review, that is, the courts. This can be more costly and could take significantly more time.
Some critics of the 2019 regulatory change emphasize that the CITT has been mandated by Parliament to perform its role as an oversight body for federal procurement, and its ability to fulfill this role is significantly curtailed by the change to the Regulations.footnote 32
The amendment to the Regulations has been further criticized by some who point to the nature of the sensitive proceedings brought before the CITT as evidence of its ability to securely manage proceedings relating to national security issues, which mandate confidentiality.footnote 32 Practitioners give undertakings, which means that they could face, fines and/or debarment for breaching confidentiality requirements.footnote 32 In other words, if the confidentiality of the procurement is the issue, there are guardrails that insulate the proceeding from inappropriate disclosures.footnote 32
Prior to the 2019 amendment to the Regulations, the CITT had indicated that its bid review mechanism is not incompatible with national security concerns, writing that it was designed to be “expeditious, accessible, confidential and, crucially, designed to minimize disruption to the procurement process.”footnote 33 The CITT had further criticized the use of the NSE for removing the suppliers’ right to impartial review by the CITT and had cautioned overuse of the NSE, writing “that the NSE provisions of the trade agreements serve as a carefully designed safety valve.”footnote 34 These concerns have been echoed in the Federal Court of Appeal, which noted:
“The invocation of the national security exception carries the potential for serious abuse. When invoked, the exception results in protecting the procurement from any challenges before the Tribunal specialized in this matter. It may be concealing oblique or improper motives that distract from the real purpose of the invocation and justify a judicial review.”footnote 35
Openness ensures that all qualified suppliers have an opportunity to participate in a procurement process. Trade agreements contain obligations that are intended to ensure that a procurement respects the principle of openness. Trade agreements support openness through open competition, the prohibition of offsets, and solicitation timelines.
Duty to solicit bids
Trade agreements support open competition and allow all qualified suppliers to bid. A misconception about NSEs is that they provide an automatic exemption from competition.footnote 36. In fact, the requirement to solicit bids is found in the Government Contracts Regulations (GCRs), which, subject to specific exceptions, state that “before any contract is entered into, the contracting authority shall solicit bids.”footnote 37. The GCRs require that this be done by “a) giving public notice, in a manner consistent with generally accepted trade practices… or b) inviting bids on a proposed contract from suppliers on the suppliers’ list.”footnote 37
Since invoking the NSE does not exempt a procurement from the requirements under the GCRs, the NSE does not provide contracting officers with the authority to direct a contract. In order to award a contract without soliciting bids, procurements for which the NSE has been invoked are still required to meet the exceptions noted in Section 6 of the GCRs, e.g. below certain dollar thresholds, only 1 supplier is capable of meeting the requirement etc.footnote ii Many procurements subject to NSEs are awarded through competitive processes. For example, in 2015-16, $920 million of the roughly 1 billion dollars worth of NSE-related contracts awarded by Shared Services Canada were competed.footnote 38
Duty to prohibit offsets
Trade agreements contain obligations known as the prohibition of offsets.footnote 39 These obligations support openness by preventing parties from requiring that work be done in a certain region or contain a certain amount of local content. PSPC’s Supply Manual describes offsets as “any condition or undertaking that encourages local development, such as the use of domestic or local content.”footnote 40
Related obligations include those that mandate that the solicitation cannot impose arbitrary conditions on bidders in order to qualify.footnote 41 Similarly, technical specifications must be based on international or national standards and set out in terms of performance or functional requirements; that is, they cannot prescribe a design or technology solution that only a particular bidder, or group of bidders, can deliver.footnote 41 These obligations prevent parties from defining their requirement in a manner that provides an advantage, or disadvantage, to suppliers in other regions and prevent the procurement from being unnecessarily restrictive. For international trade agreements like the WTO-AGP and internal agreements like the Canadian Free Trade Agreement (CFTA), the prohibition of offsets gives suppliers an equal chance to bid and secure an opportunity regardless of their location.
Invocation of the NSE can remove this obligation, providing public officials with the ability to restrict a procurement to suppliers located in a specific region or county. This was recently witnessed in the invocation of the Canadian Content Policy (CCP) in procurements responding to COVID-19.footnote 42
Solicitation time periods
Trade agreements contain obligations regarding how contracting opportunities must be advertised, as well as the duration of the solicitation period to ensure that bidders have adequate time to prepare a responsive proposal.footnote 43 The duration of the solicitation period can have an impact on the openness of the procurement.
Canada’s trade agreements contain provisions that specify the minimum duration of the solicitation period. For example, the WTO-AGP requires that the solicitation period be no less than 25 days for selective tendering, and no less than 40 days for open solicitation processes.footnote 44 Even in the case of an emergency, the minimum duration of the solicitation period can be no less than 10 days.footnote 45
In the federal procurement context, transparency is the public disclosure of information.footnote 46 It ensures that interested bidders have access to all of the information they need to prepare a responsive proposal, including evaluation criteria and the selection methodology.footnote 47 It also requires that adequate records of key decisions be maintained to establish an audit trail, and ensure that members of the public can access information related to contract awards.footnote 48
Duty to provide notice
Trade agreements include obligations related to the requirement to provide notice of intended procurement. Certain agreements, such as the WTO-AGP, require this notice to be published and “widely disseminated…and remain readily accessible to the public, at least until the expiration of the time-period indicated in the notice.”footnote 49 This allows interested parties to become aware of opportunities and provides sufficient time to prepare a responsive proposal.footnote 50
There are also specific provisions related to what information must be included in a notice. The WTO-AGP lists 12 provisions including “a description of the procurement, including the nature and the quantity of the goods and services to be procured.”footnote 51
NSEs are often invoked to protect and limit the public disclosure of the technical requirements of a procurement, information about transactions, and suppliers.footnote 52 For vital security and law enforcement equipment, the technical specifications may not be disclosed publicly.footnote 53 Easily accessible information about the operational requirements may jeopardise the security of the end users.footnote 54 This is of critical importance for the Canadian Security Intelligence Service (CSIS); for example Canada’s intelligence efforts would be hindered if the story of our technological capacities is told through the goods and services that are procured.footnote 55
Duty to publish award information
The trade agreements require Parties to publish an award notice following contract award. For example, the WTO-AGP requires that such notice be published within 72 days following contract award and requires that this notice include information such as a description of the goods or services procured, the name and address of the procuring entity, the name and address of the successful supplier, the value of the successful tender or the highest and lowest offers, the date of the award, and the type of procurement method used.footnote 56
In some cases the NSE may be invoked to limit the disclosure of award information for security reasons. This was the case in for the invocation of the NSE in response to the Syrian refugee crisis in 2015. After invoking the NSE, the procuring department made clear that it would not disclose the identity of the supplier nor the location of work.footnote 57
The invocation of the NSE can reduce the public disclosure of information, and therefore the transparency of the procurement. When the nature of the procurement is tied to national security interests, such reductions to transparency are justified and allowable.
Each of the above mentioned trade agreement obligations can be subject to an NSE. However, how the NSE is used may also impact FOT. Trade agreements do not require the invocation of the NSE to be announced in solicitation documents, nor made public.footnote 58 Furthermore, as noted above, the NSE can be triggered at any time before contract award.footnote 59 There have been instances where suppliers or other government bodies have been unaware that the NSE had been invoked until a complaint was filed with the CITT.footnote 60 This is a point of frustration for the CITT, as suppliers waste time and resources filing complaints that are out of the CITT’s mandate to investigate.footnote 61 In acknowledgement of this frustration, the CITT has awarded bid costs to suppliers in some situations.footnote 62
Exception is not the absence of rules
While the use of the NSE allows for the exclusion of some or all of the obligations under a trade agreement, it does not affect national procurement obligations.footnote 63 Two examples of obligations that remain when a NSE is triggered are the Government Contract Regulations (GCRs) and the Treasury Board Directive on the Management of Procurement, neither of which contain allowances for exclusions on the basis of national security.
Since the invocation of the NSE does not exempt a procurement from obligations under the GCRs and other national policies, there remain a number of important requirements respecting fair, open, and transparent procurement that persist in national obligations. An example noted above is the duty to solicit bids, subject to the exceptions identified in Section 6 of the GCRs. It is important to repeat that the NSE only affects trade agreement obligations. In practice, this means that NSE-subjected procurements are often competitive and remain subject to the standards of FOT delineated in national procurement policy.
National Security Exception in practice
Targeted use of the National Security Exception
The NSE can be applied to exclude a procurement from some or all of the obligations of the relevant trade agreement(s).footnote 64 The practice of excluding some obligations while leaving others intact can be characterized as the “targeted” use of the NSE.footnote 65 For example, security concerns may necessitate that technical requirements be removed from public posting, however, other aspects, such as the minimum solicitation time period may be left intact.
The CITT has shown that the targeted application of the NSE is permitted under the trade agreements, and has subsequently encouraged its use.footnote 66 In the case of Eclipsys Solutions Inc. vs. Shared Services Canada, the Tribunal stressed that “the NSE provisions of the trade agreements require that government institutions limit the NSE only to the extent necessary to protect the national security interests. This means that government institutions should conduct an objective assessment and exclude only specific provisions of the trade agreements that cannot be upheld without compromising national security.”footnote 67
The consequences of not limiting or targeting the application of the NSE were highlighted in M.D. Charlton CO. LTD. v. Department of Public Works and Government Services (PWGSC).footnote 68 The procurement was for equipping the Royal Canadian Mounted Police (RCMP) with night vision binoculars. The solicitation was sent to a pre-determined list of bidders and prohibited from public disclosure.footnote 69 As the procuring department, PWGSC excepted all trade agreement obligations; however, its invocation was not aligned with the RCMP’s prior assessment.footnote 70 In its assessment, the RCMP’s national security concern was for protecting the technical specifications from public disclosure. footnote 71 Thus, it was on PWGSC “to exclude only those provisions of the agreements necessary to protect the national security interest at play.”footnote 70 This case highlights the distinction between limiting or targeting the NSE to only the trade agreement obligations that impact national security, versus the opposite case where all trade agreement obligations are removed. This case was notable because it demonstrated a circumstance where removing all trade agreement obligations was inappropriate. Ultimately, the complaint was determined to be valid, and a recommendation was made to cancel the solicitation and replace it with a new one.footnote 72
Blanket National Security Exception
Blanket application of the NSE removes all trade agreement obligations. There are two prongs to this approach: application at the project level, and application to an entire category of goods and/or services.
In the first approach, the NSE is applied to exempt all procurements under a specific project from trade agreements obligations. For example, in 2008 a blanket application of the NSE was used to support military operations in Afghanistan and again in 2015 to relocate Syrian refugees.footnote 73
The second approach involves exempting an entire category of goods/services. Though more rare, this is generally used by departments with on-going national security concerns like Shared Services Canada (SSC), CSIS, and the Royal Canadian Mounted Police (RCMP).footnote 74 More recently a blanket NSE was invoked by PSPC for procurements responding to the COVID-19 pandemic.footnote 75
An example of the second approach is from 2012, when SSC invoked a blanket NSE for the procurement of anything related to “e-mail, network/telecommunications, data center systems, infrastructure and services.”footnote 74 The department’s justification noted that the NSE would apply to a variety of procurements and involve pre-selected suppliers meeting security clearance criteria. footnote 74
This broad application of the NSE treats all procurements under the blanket the same. Despite being permitted under the trade agreements, this use may substantially and unnecessarily impact the fairness, openness, and transparency of many procurements. While the regulations and existing guidance surrounding the invocation of the NSE leave it to departments to decide how best to meet their needs and address national security concerns, the breadth of the blanket exception has three key impacts. Firstly, it treats every procurement under a category as having the same impact on national security, when this may not be the case. Secondly, exempting an entire category of goods and services may exempt whole procurements or aspects of a single procurement that are not national security issues. Lastly, it may exempt goods and services for which other exceptions apply. For example, in a recent CITT case concerning the NSE and pandemic procurement, the CITT contemplated the breadth of the blanket exception. It noted that the use of the NSE for pandemic related goods/services may not be applicable. The report notes “that any exception to recognized trade rules when procuring pandemic-related supplies ought to be done, not under the guise of a national security exception, but rather under the exceptions to the trade agreements relating to the protection of human life and health.”footnote 76
In response to the COVID-19 pandemic, the federal government invoked a blanket NSE for all procurements responding to the pandemic “until the World Health Organization no longer declares the COVID-19 pandemic a Public Health Emergency of International Concern.”footnote 77
Invoking the NSE removed the obligation of non-discrimination; as a result, the Canadian Content Policy was invoked. footnote 78 This policy limits, in some circumstances, “competition for government procurement opportunities to suppliers of Canadian goods and services.”footnote 79 In some instances, if two or more bids are received from certified Canadian suppliers, then foreign bids do not have to be considered.footnote 79
Since it’s invocation in response to the pandemic, the NSE has resulted in CITT cases. One complaint of note was Vesta Health Systems Inc. which showed the CITT’s limited role in reviewing NSE-related procurements since the 2019 amendment. In Vesta Health Systems Inc. v. Department of Public Works and Government Services, the CITT initiated an inquiry and soon thereafter the procuring department filed a motion for the dismissal of the complaint on national security grounds.footnote 77 Despite the NSE having been properly invoked, the CITT awarded costs to the complainant on the grounds that the procurement documents made no mention of the NSE, and the disclosure of the exception was ruled “untimely.”footnote 80
The COVID-19 response is unique in that it combined national security concerns and an emergency response. This overlap of the NSE and emergency procurement is rare.footnote 81 The factor that generally prevents this overlap from occurring is that NSE related procurements are usually known in advance and planned for; whereas in order for a procurement to be subject to emergency provisions, the event that precipitated the need must have been unforeseeable.footnote 82
In the COVID-19 context, both the NSE and the emergency procurement exceptions in the GCRs applied to procurements at the same time. As discussed, the NSE allows public officials to remove a procurement from trade agreement obligations but does not affect obligations under domestic procurement regulations and policies. Whereas the allowances provided for under emergency procurement exceptions appear in both Canada’s trade agreements and the GCRs.footnote 83 The implication of this overlap of the NSE and emergency procurement that occurred in response to the COVID-19 pandemic on fairness, openness, and transparency was significant.
In contrast to the NSE, the GCRs allow for an exception to the requirement to solicit bids in an emergency situation.footnote 84 In these situations, where “delay would be injurious to the public interest,” procurements may be directed to a specific supplier.footnote 85 As a result, not only were departments permitted to set aside the trade agreement obligation to provide notice of procurements and contracts awarded by invoking the NSE, they were also able to direct contracts to specific suppliers under the emergency procurement exception.
However, despite these impacts, FOT could still be supported by a few factors: thorough documentation of all decisions, statements of work, and deliverables; and in cases where pressing emergency still allows for a competitive process, by the creation of clear and measurable criteria and documentation of bid evaluations.
The simultaneous invocation of the NSE and the emergency procurement provisions in the GCRs is unique, and the reduction of rules requires the utmost prudence and probity of those conducting procurements. It is therefore imperative to document all decisions to ensure an audit trail is created.
Targeted and proportional use of the National Security Exception
The trade agreements provide the flexibility for departments to exclude a procurement from some obligations while leaving other obligations intact.footnote 86 This allows for targeted and proportional use of the NSE on a procurement-by-procurement basis.
The CITT has encouraged the targeted use of the NSE, suggesting that the trade agreements themselves also support a more limited approach.footnote 87 In a decision from 2016, the CITT wrote that “the language of the trade agreements suggests that the government institution should curtail the application of the disciplines of the trade agreements only to the extent necessary for the protection of the national security interest identified with respect to the particular procurement .” footnote 88 The CITT further noted that “the NSE remains an exception to the principle of open competition that is at the heart of the disciplines of the trade agreements. This imposes a burden to ensure that the exception is used with care and that it is restricted to only what is truly necessary to preserve national security interests.”footnote 88
Publish in all solicitation documents that the procurement is subject to a National Security Exception
Trade agreements do not require that the NSE invocation be announced in the solicitation, and the CITT has confirmed that it can be invoked at any point before contract award.footnote 89 The CITT has noted that the “procurement process would certainly be more transparent and fair if the NSE were published in a timely manner in the solicitation documents themselves.”footnote 90 In cases where the NSE is invoked after the solicitation process has begun, publication could be done by way of amendment. However it should be done in all instances where the invocation of the NSE is known beforehand.
This consideration is not to be confused with the public disclosure of sensitive information. Including notice in the solicitation documents that an NSE has been invoked supports FOT by notifying both suppliers and potential recourse bodies of the rules governing the procurement. This can save time and effort for suppliers that might otherwise submit a complaint or those bodies mandated to review a complaint. In the Supply Manual, PSPC has made this a requirement in all procurements for which the NSE has been invoked (at the time of solicitation), but this requirement does not extend to other departments where PSPC’s Acquisition Program is not the contracting authority.footnote 16
Departments have room to develop guardrails
Departments have room to develop internal policies to guide NSE use, as PSPC has done with its Supply Manual. Though departmental policy is only applicable to one department, practices can be shared and adopted. With the implementation of the new Directive on the Management of Procurement, departments will have increased discretion when it comes to shaping procurement practices.
Appendix A: Canada’s trade agreements
Canada is Party to the Canadian Free Trade Agreement (CFTA) with the provinces and territories.
Note: The CFTA replaced the Agreement on Internal Trade (PDF) (AIT) on July 1, 2017. The AIT continues to apply only to procurements commenced before July 1, 2017, until those procurements are complete.
Canada is also Party to several international trade agreements (ITAs):
- Canada—European Union Comprehensive Economic and Trade Agreement (CETA)
- Revised World Trade Organization Agreement on Government Procurement (WTO-AGP)
- Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
- Canada—Chile Free Trade Agreement (CCFTA)
- Canada—Colombia Free Trade Agreement (CCOFTA)
- Canada—Honduras Free Trade Agreement (CHFTA)
- Canada—Korea Free Trade Agreement (CKFTA)
- Canada—Panama Free Trade Agreement (CPAFTA)
- Canada—Peru Free Trade Agreement (CPFTA)
- Canada—United Kingdom Trade Continuity Agreement (Canada-UK TCA)
- Canada—Ukraine Free Trade Agreement (CUFTA)
Note: The Canada-United States-Mexico Agreement (CUSMA) replaced the North American Free Trade Agreement (NAFTA) on July 1, 2020. Government procurement obligations of the CUSMA do not apply to Canada. NAFTANAFTA continues to apply to procurements commenced before July 1, 2020, until those procurements are complete.
Appendix B: National Security Exception in the USA
Compared to Canada, the USA’s use of the NSE is quite different. A few differences are worth noting: how the exception materializes in federal regulations; justifications and approvals; and accountability.
The trade agreements are international laws that allow parties to the agreement certain exceptions, one being national security. Stepping down from that are national regulations that dictate how federal procurement is to be done within national borders. For example, the Federal Acquisition Regulations (FAR) are the rules that govern federal procurement in the USA. In Canada, when the NSE excepts trade agreement obligations, there is no exception to national regulations. There is still a body of rules in play (for example the Government Contracts Regulations) that must be followed. This is where Canada and the USA diverge.
In the USA, the NSE has two prongs. The first is that the NSE excepts trade agreement obligations. The second is that an NSE exists in the FAR, excepting the requirement for full and open competition.footnote 91 In Canada, the NSE does not provide for an exception to full and open competition; procuring bodies would require another reason to limit competition or to sole source a procurement.footnote 92 In the USA, this exception to competition may be offset by more stringent justifications and reviews by the Government Accountability Office (GAO).
In the USA, using the NSE to limit competition requires written justifications and approvals (J&As) established at the start of the procurement process. footnote 91 The J&A document is detailed and clearly outlined in the FAR. There are a number of features that must be included or contemplated by a contracting authority.footnote 91 Some of the most notable are: sufficient facts to justify the tool’s use; the agency and contracting activity; description of the action being approved; description of the required goods/services with estimated costs; identification of the statutory authority limiting full and open competition; and demonstration that the procurement requires the use of the cited authority.footnote 93 Under most circumstances, this justification is made publicly available within 14 days of contract award.footnote 94 But where disclosing this information would compromise national security, this obligation is exempt.footnote 94
The use of an NSE does not specifically prohibit oversight bodies from reviewing the procurement. In the USA, the GAO is tasked with this oversight role. The GAO can investigate and call into question a department’s use of an NSE.footnote 95 However, in any case, its ability to rule on NSE use is anchored to the J&A document. The GAO has noted that “when the J&A sets forth reasonable justifications for the agency’s actions, we will not object to the award.”footnote 96
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