On November 5, 2020, the Ontario government published Ontario Regulation 612/20 Centralized Supply Chain Ontario (the “Supply Chain Regulation”), under the Supply Chain Management Act, 2019 (the “Act”).
The Supply Chain Regulation establishes Supply Ontario, a centralized procurement agency that will provide and support Supply Chain Management on behalf of government, broader public sector and health sector entities and collect Supply Chain Management and vendor performance data from these entities. In addition, Supply Ontario is responsible for providing and supporting Supply Chain Management in respect of personal protective equipment on behalf of entities other than government entities, broader public sector entities and health sector entities.
“Supply Chain Management” is broadly defined and includes 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, managing contracts and relationships, and more.
Centralized Procurement in Ontario
Centralizing government procurement has been evolving in Ontario for some time. For several years health sector entities have been engaging in joint procurement initiatives and establishing shared procurement agencies. In 2019, the Province released the Broader Public Sector Interim Measures (“Interim Measures”) which require certain entities (including hospitals and shared services/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 organization’s funding Ministry. The Supply Chain Regulation continues the development of centralized procurement in the Province and has perhaps been accelerated by the need for greater centralization to support response to COVID-19.
Who does the Supply Chain Regulation apply to?
The Regulation applies to government, broader public sector, and health sector entities.
“Government entity” includes the Crown, any ministry under the Government of Ontario, a public body within the meaning of the Public Service of Ontario Act, 2006, the Independent Electricity System Operator, and Ontario Power Generation Inc. and its subsidiaries.
“Broader public sector entity” includes school boards, post-secondary educational institutions that receive regular operating funding from the provincial government, children’s aid societies, a corporation controlled by a broader public sector entity that exists primarily for procurement, and any other persons prescribed as a broader public sector entity.
“Health sector entity” includes any prescribed person or entity that receives funding from a government entity to provide or support the provision of health services and corporations controlled by such entities to purchase goods or services. Currently, health sector entities are limited to public hospitals, private hospitals, the University of Ottawa Heart Institute and corporations that are controlled by one or more of the foregoing entities and exist solely or primarily for the purpose of purchasing goods or services for those entities (i.e., shared services/group purchasing organizations).
What are the requirements under the Supply Chain Regulation?
Parts of the Act came into force in March 2020 to enable swifter response to the COVID-19 pandemic. The Act is now fully in force and requires government, broader public sector and health sector entities to comply with the Act and regulations governing how the entity carries out Supply Chain Management, including procurement.
Under the Supply Chain Regulation, Supply Ontario may require entities to pay a fee or proprietary charge for providing or supporting Supply Chain Management including any costs incurred by Supply Ontario. Government, broader public sector and health sector entities will also be required to provide the following information upon request from Supply Ontario:
- 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 other information related to Supply Chain Management or vendor performance that the Corporation specifies.
Supply Ontario may mandate any specifications related to the form, content, or timing of the required reporting.
The obligations under the Act are subject also to the terms of the entities’ funding agreements, meaning a failure to comply with an obligation under the Act may result in funding implications.
How does the Supply Chain Regulation affect current procurement activities?
At this time, there are no changes to the way entities access and procure goods and services, and entities are still required to comply with the Broader Public Sector Accountability Act and its directives, as well as Interim Measures, as applicable. Entities will continue to receive personal protective equipment and other critical supplies and equipment as they have been. Supply Ontario and government officials have indicated that they will be engaging stakeholders, including third party vendors and suppliers, shared services and group buying organizations and entities themselves, impacted by the Supply Chain Regulation as new information becomes available.
Over time, the Supply Chain Regulation has the potential to change the way the affected entities procure goods and services as Supply Ontario becomes the single supply chain in the Province. However, at this time, little guidance is available on how the central agency is intended to operate.
It is important to remember that when entering into contracts through a centralized procurement process that your organization will be the legal party to the contract. Therefore, while centralized processes may be relied upon for efficiency and value for money, organizations must undertake their own due diligence on the legal terms and conditions that the organization will be asked to assume and determine whether they are appropriate to the organization from a risk management perspective. We recommend organizations engage independent legal review early in the process to ensure there is opportunity for the organization’s interests to be well represented and addressed.
Miller Thomson’s Health Industry Group will continue to monitor and keep you informed of any further developments affecting procurement by health sector entities in Ontario. Please contact us for more information about our Procurement Support Programs and Contract Management Programs.
