Canada-U.S. Agreement on Government Procurement

Summary

This fact sheet has been prepared in order to provide an overview of the recent Canada-U.S. Agreement on Government Procurement and what this means for companies wishing to do business in the U.S. The Agreement represents an important step in resolving Canadian concerns about the Buy American requirements of the Recovery and Reinvestment Act (Recovery Act), commonly called the economic stimulus bill. This fact sheet will help explain how to identify and take advantage of opportunities made possible by the Agreement in light of the Recovery Act Buy American requirements, the existing WTO Government Procurement Agreement (GPA), as well as pre-existing Buy American requirement found in other legislation. Finally, this fact sheet will outline some the resources available to Canadian companies that wish to learn more about the Agreement and how to take advantage of the new opportunities now available.

Read the full text of the Canada-U.S. Agreement on Government Procurement.

Overview of Pre-existing Buy American requirements

For many years, the United States has had legislative requirements that required government agencies to purchase goods manufactured in the United States. The Buy American Act of 1933 applies to all U.S. federal government agency purchases of goods valued over the micropurchase threshold, but does not apply to services. Under the Act, all goods procured for public use (articles, materials, or supplies) must be produced in the U.S., and must be manufactured from U.S. materials. Many states and municipalities include similar geographic production requirements in their procurements. Many other contracting preferences are variations based on the Buy American Act. However, Canadian suppliers are largely exempt from these requirements as a result of U.S. international commitments under the NAFTA Chapter 10 and the WTO GPA.

In addition to the Buy American Act, several U.S. laws impose requirements to purchase U.S. iron, steel and manufactured goods in relation to transportation-related projects funded by certain federal Department of Transportation programs (commonly referred to as "Buy America" requirements). These include grants to sub-federal governments or airport authorities administered by the Federal Transit Administration (FTA), the Federal Highway Administration (FHWA) and the Federal Aviation Administration. Such grant programs and associated procurement are not covered by NAFTA or the WTO GPA, limiting the ability of Canadian suppliers to participate.

Overview of Buy American in the Recovery Act to Date

The American Recovery and Reinvestment Act of 2009 ("Recovery Act") seeks to provide a significant stimulus to the U.S. economy, which has been going through a major downturn. The cost of the Recovery Act is US$787 billion, but most of this comprises extensive tax cuts, assistance to state and local authorities for education investment, new healthcare investments, unemployment benefits, and a segment is for infrastructure and energy investments.

Of concern to Canada has been the provision in the legislation that imposes a requirement that "all iron, steel and manufactured goods" used in the construction and repair of "public works and public buildings" funded by the Recovery Act be produced in the United States. Despite the requirement that the Buy American provisions be applied consistently with the United States' international obligations, Canada remained concerned about the potential negative impact on Canadian suppliers given the lack of international obligations at the sub-federal level between Canada and the United States and the fact much of the Recovery Act infrastructure spending is by way of transfers from the federal government to state and local governments. Prior to the Canada-U.S. Agreement on Government Procurement, Canada and the United States only had government procurement commitments to each other at the federal level through NAFTA and WTO GPA. As a result, Canadian suppliers had access to federal-level procurement as per these agreements; however, the absence of procurement commitments at the sub-federal level (state and local level) meant that Canadian suppliers were no longer eligible to compete for procurements funded by the Recovery Act but carried out by state and local governments. The Canada-U.S. Agreement on Government Procurement provides relief for Canadian suppliers in this area.

Overview of the Canada-U.S. Agreement on Government Procurement

In light of these problems, the Government of Canada initiated negotiations with the United States in an attempt to provide relief for Canadian exporters. Canada and the United States succeeded in reaching an Agreement on government procurement, which came into effect on February 16, 2010. This Agreement has three major components:

• Provincial and territorial procurement commitments under the WTO GPA for all provinces and territories, except Nunavut in exchange for U.S. sub-federal GPA commitments;
• U.S. exemptions for Canada from the Buy American provisions of the Recovery Act for seven (7) programs of interest in exchange for temporary Canadian procurement commitments for construction projects for some provincial/territorial agencies not included in the WTO GPA and a number of municipalities; and
• A commitment by both governments to explore the scope for a long term government procurement agreement between Canada and the U.S., to deepen on a reciprocal basis, procurement commitments beyond those in the WTO GPA and NAFTA.

The deal also includes a process for expedited consultation on future concerns related to procurement issues, such as new legislation. The Agreement does not change pre-existing rights of Canadian companies to participate in U.S. federal government procurement, established under the NAFTA and WTO GPA.

Opportunities for Canadian companies

The Recovery Act and its provisions apply to all 50 U.S. states and all municipalities. Canada has received an exemption from the Buy American provisions of the Recovery Act via two avenues: (i) for seven programs funded by the Recovery Act for procurements valued at US $7,358,000 or greater; and (ii) for the 37 U.S. states subject to the WTO GPA in accordance with their respective undertakings therein. As well, Canadian companies are still able to benefit from the existing waivers to Buy American provisions based upon public interest, non-availability of material, or unreasonable costs as well as any national blanket or project-specific waivers that may be in place or may be granted upon application.

GPA Commitments

There are 37 states that are subject to the WTO GPA, specifically: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, New York, Nebraska, New Hampshire, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, Wisconsin, and Wyoming.

These commitments extend to the procurement of goods, services and infrastructure construction projects (including non-Recovery Act). However, consistent with WTO GPA general rules, the commitments only apply to procurement by U.S. states above certain defined value thresholds:

• For goods and services, the value of the procurement must equal or exceed: US$522,000
• For construction projects, the value of the project must equal or exceed: US$7,358,000

In addition, most states have imposed some limitations on procurements that are covered by these commitments, although in many cases all procurement by state executive agencies is covered. However, limitations may exclude construction-grade steel, motor vehicles and coal. Visit the WTO website for information on the Sub-Central Government Entities which Procure in Accordance With the Provisions of this Agreement (DOC, 80 KB, 6 pages). Pre-existing Buy America requirements (i.e. transportation) attached to transfers from the federal government to state governments for mass transit, highway projects, and other transportation still apply.

The remaining 13 states and all local governments are not subject to the WTO GPA commitments, therefore procurements by these states and any local governments are not covered under the GPA part of this Agreement.

Recovery Act Buy American Exemptions

The temporary part of the Agreement exempts Canadian companies from the Buy American requirements for a number of infrastructure projects (but not all) funded under the Recovery Act. The seven programs covered under the Agreement are:

• U.S. Department of Agriculture, Rural Utilities Services, Water and Waste Disposal Programs
• U.S. Department of Agriculture, Rural Housing Service, Community Facilities Program
• U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Energy Efficiency and Conservation Block Grants
• U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, State Energy Program
• U.S. Department of Housing and Urban Development, Office of Community Planning and Planning and Development, Community Development Block Grants Recovery (CDBG-R)
• U.S. Department of Housing and Urban Development, Office of Public and Indian Housing, Public Housing Capital Fund
• U.S. Environmental Protection Agency, Clean Water and Drinking Water State Revolving Funds, for projects funded by reallocated ARRA funds where the contracts are signed after February 17, 2010

For Canadian firms, it is critical to determine the specific U.S. federal government program that is funding the project on which they are bidding. This is complicated by the fact that projects not funded directly by the U.S. federal government, but through grants/loans to state, regional or local government authorities require searching through multiple information sources. It is important to trace the funding source to ensure that it qualifies. The project owner, prime contractor or distributor should be able to identify whether the project is being funded, at least in part, under the Recovery Act and through which program. If a Canadian company is being asked to provide a Certificate of Compliance with Buy American requirements, then the project is likely being funded under the Recovery Act, but it is not necessarily funded under one of the seven programs.

A Buy American "Certificate of Compliance" (sometimes referred to as a "certification") is a document that the prime contractor on a Recovery Act-funded project signs and submits to the granting U.S. agency to demonstrate they are in compliance with section 1605 of the Recovery Act (the Buy American provisions). Often prime contractors require sub-contractors to sign a Certificate of Compliance in order to pass on liability, though contractors should only sign such Certificates of Compliance when they are certain they comply with the requirements, as signing such a certificate falsely is a serious offence.

The exemption only applies to infrastructure projects where the value of the project as a whole exceeds the WTO GPA threshold (US$7.358 million). If the project value exceeds this threshold, then all purchases going into the project are covered by the exemption. The value of the project as a whole should be the value of the prime contract awarded by the government entity. The project owner, prime contractor or distributor should be able to provide the project value or estimated project value for a contract that has not yet been awarded.

Canadian suppliers will be eligible to participate in projects funded by the programs listed above (other than EPA SRF). In the case of EPA Clean Water and Drinking Water State Revolving-loan Funds (SRF), the Administration has informed us that there will be no reallocation of funds, so there are no opportunities to participate in this program, which has now lapsed.

Disclaimer: This document has been prepared by the Department of Foreign Affairs and International Trade to provide on overview of the recent Canada-U.S. Agreement on Government Procurement for Canadian clients. This does not constitute, and should not be used as, legal advice.

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