On April 19, 2021, Deputy Prime Minister and Finance Minister Chrystia Freeland tabled the Liberal Government’s 2021 budget (Budget 2021). Budget 2021 is titled “A Recovery Plan for Jobs, Growth, and Resilience” and unveils CA$101.4 billion in new spending, along with certain policy developments. One of these new policy developments is Canada’s procurement for new fighter aircraft.
Budget 2021 reaffirms Canada’s economic interests as a core principle of its procurement policy.
2017 policy
In December 2017, the Government of Canada (the Government) launched a competition process for 88 advanced fighter aircraft, CF-18s, the biggest investment in the Royal Canadian Air Forces in more than 30 years (2017 Procurement). The contract value for the 2017 Procurement is between CA$15 to CA$19 billion. The 2017 Procurement was originally due to close in March 2020. However, in February 2020, the Government granted a 3-month extension to the deadline at the request of the industry. In May 2020, the Government granted another one-month extension due to COVID-19. Finally, on July 31, 2020, the 2017 Procurement closed and three eligible suppliers entered into the bid evaluation phase. The three eligible suppliers are the following:
- Swedish Government—SAAB AB (publ)—Aeronautics with Diehl Defence GmbH & Co. KG, MBDA UK Ltd., and RAFAEL Advanced Defence Systems Ltd.
- United States Government—Lockheed Martin Corporation (Lockheed Martin Aeronautics Company) with Pratt and Whitney
- United States Government—The Boeing Company with Peraton Canada Corp., CAE Inc., L3 Technologies MAS Inc., GE Canada and Raytheon Canada Limited Services and Support Division
The Government is currently in the evaluation and negotiation stage and anticipates announcing the 2017 Procurement award in 2022, with the first replacement aircraft to be delivered as early as 2025. However, until permanent replacement aircraft are in place and fully operational, the Government invested to continue to deliver its missions and meet international obligations until 2032 by purchasing 18 F/A-18 fighter aircraft from the Government of Australia. Further, on June 16, 2020, the United States Government announced its intent to provide goods and services to support the extension project.
Through the 2017 Procurement competition process, it was the Government’s priority to get the right aircraft at the right price, with a goal to maximize economic benefits for Canadians. In terms of bids assessment, beyond the key evaluation points such as cost, technical requirements, and industrial, technological, and economic benefits, one of the key criteria was potential harm to Canada’s economic interests. The Government stated that when bids were to be assessed, any bidder responsible for harm to Canada’s economic interests would be “at a distinct disadvantage”. Thus, any bidder that would pose any harm to Canadian corporations and subsequently, the Canadian economy would be penalized in the process. However, no indication was made as to how this harm would be calculated.
Budget 2021 procurement policy
Minister Freeland reanimated and restated the 2017 policy in Budget 2021. In section 9.3, Budget 2021 states:
“Budget 2021 confirms the government will apply this policy to major military and Coast Guard procurements going forward. Companies found to have prejudiced Canada’s economic interests through trade challenges will have points deducted from their procurement bid score at a level proportional to the severity of the economic impact to a maximum penalty. This policy will protect Canada’s economic interests and make sure the government does business with trusted partners who value doing business with Canada.”
This policy makes good on previous statements made to this effect related to subsidies and civil aircraft. In April 2017, Boeing filed a trade complaint with the U.S. Commerce Department alleging its business was being harmed because the Government unfairly subsidized Bombardier’s C Series passenger jet. At the peak of the dispute, former President Trump issued an order to impose a 300 per cent duty on Bombardier jets. The Government retaliated by creating the 2017 Policy regarding the penalization of companies that harm Canada’s Economic interest. In the end, the U.S. International Trade Commission ruled against Boeing and Europe’s Airbus took the majority stake in the C Series passenger jet.
This policy of retaliation, while not new, is being reinstated and reaffirmed with the Budget 2021. However, this practice is arguably inconsistent with Canada’s World Trade Organization obligations as it can be conceived as retaliation for accessing domestic or international dispute resolution for trade. This runs contrary to the Government’s support for a rules based international system.
Key considerations
So far, Public Services and Procurement Canada has not provided further clarification or commentary on the 2021 Budget’s procurement policy. However, defence and security contractors should stay informed on the development and implementation of this policy as it may have a significant impact on bidder scoring in major capital projects undertaken by the Government of Canada.
Further, in keeping with a “Canada-first” approach, Budget 2021 also proposes to leverage procurement opportunities. These opportunities include:
- Increased funding used to modernize federal procurement and to create opportunities for specific communities by diversifying the federal supplier base;
- Incorporating accessibility considerations into federal procurement, ensuring goods and services are accessible by design; and
- Leveraging supplier diversity opportunities through domestic procurement, such as running competitions open to businesses run by Canadians from equity-deserving groups.
According to the Government, all these opportunities will contribute to a more inclusive Canadian economy. While the overall objective may be laudable, how the opportunities might translate into preferences for certain suppliers or classes of suppliers in specific procurements remains to be seen.
The Dentons International Trade team keeps abreast of leading global developments. If you have any questions, please feel free to reach out to Paul Lalonde, Anca Sattler, Sean Stephenson or Daniela Acevedo with any inquiries.
