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3.6. Annex: Canadian Content Policy

  1. Introduction
    The Canadian Content Policy is a Cabinet-mandated policy. The Policy encourages industrial development in Canada by limiting, in specific circumstances, competition for government procurement opportunities to suppliers of Canadian goods and services.
  2. Application
    1. The Policy applies to procurements carried out by Supply and Services Canada (SSC), which is now a part of Public Works and Government Services Canada (PWGSC). Therefore, this policy will normally apply to goods and services contracting carried out by Acquisitions Branch, except for those categories of procurements which were not done by the former SSC. Furthermore, the Policy does not apply when another government departments does its own contracting and would not normally apply to construction procurement that had been previously carried out by the former Public Works Canada.
    2. The Policy applies to competitive procurements with an estimated value of $25,000 or more, except for the following:
      1. government procurements subject to the international trade agreements;
      2. procurements made in furtherance of aid to developing countries, but does apply to purchases made by the Canadian International Development Agency (CIDA) on its own account;
      3. procurements made by PWGSC Acquisitions offices located outside Canada; and
      4. Cabinet-mandated sourcing, including sourcing related to industrial and regional benefits, shipbuilding, ship repair, refit and mid-life modernization.
  3. Determining Eligible Bidders
    1. Eligible bidders are those supplying Canadian goods and/or services.
    2. A good wholly manufactured or originating in Canada is considered a Canadian good. A product containing imported components may also be considered Canadian for the purpose of this policy when it has undergone sufficient change in Canada, in a manner that satisfies the definition specified under the North American Free Trade Agreement (NAFTA) Rules of Origin. For the purposes of this determination, the reference to "territory" in the NAFTA Rules of Origin is to be replaced with "Canada".
    3. A service provided by an individual based in Canada is considered a Canadian service. Where a requirement consists of only one service, which is being provided by more than one individual, the service will be considered Canadian if a minimum of 80 percent of the total bid price for the service is provided by individuals based in Canada.
    4. Other Canadian Goods and Services: Textiles are considered to be Canadian goods according to a modified rule of origin, copies of which are available from the Clothing and Textiles Division, Commercial and Consumer Products Directorate (CCPD).
  4. Preparing a Bid Solicitation
    1. When a requirement is covered by the Canadian Content Policy, the bidder must certify the Canadian content by submitting a certification that the good or service offered meet the definition of Canadian goods and/or services.
    2. When the requirement consists of one good or service, the bidder must certify that the good or service is Canadian. See section 9, "The Rules of Origin Determination", for examples of how to determine whether a good is Canadian.
    3. When requirements consist of more than one good and/or service, the contracting officer must decide, at the procurement planning stage, whether the Canadian content certification will be done on an aggregate or individual basis:
      1. aggregate:multi-item requirements will be certified on an aggregate basis. A minimum of 80 percent of the total bid price must consist of Canadian goods to meet the requirements of the Policy; or
      2. item by Item:multi-item requirements awarded on an item by item basis will be certified on an item-by-item basis. In these cases, suppliers will be asked to identify separately, each item that meets the definition of Canadian goods.
    4. For requirements consisting of more than one service, a minimum of 80 percent of the total bid price must be provided by individuals based in Canada.
    5. For requirements consisting of a mix of goods and services, 80 percent of the total bid price must consist of Canadian goods and Canadian services. See section 9, "The Rules of Origin Determination", for an example of, how to determine whether a mix of goods and services meets the 80 percent rule.
    6. A bid can be accepted in part without resubmission of a certification.
    7. The contracting officer must first decide whether a requirement will be solely or conditionally limited to Canadian goods and or services or whether the procurement will be open to all suppliers.
    8. Solely Limited: the bid solicitation or request for standing offers will be solely limited to suppliers who could offer Canadian goods and/or services when the contracting officer believes there exists, in the marketplace, two or more such suppliers. Certifications for competitive procurement solely limited to Canadian goods and/or services are provided in the Standard Acquisition Clauses and Conditions(SACC) Manual, under clause numbers: A3051T, A3052T, A3053T, A3055T, A3056T and A3059T for bid solicitations; and M3051T, M3052T, M3053T, M3055T, M3056T and M3059T for requests for standing offers. Except for bids that will be publicly opened, the contracting officer will determine whether:
      1. the bidder will be required to submit the completed certification of Canadian content with the bid, or
      2. the bidder should submit the completed certification with the bid, but it is not mandatory. If the certification is not completed or submitted with the bid, the contracting officer will contact the bidder and provide the bidder with a timeframe within which to submit the completed certification.
      Note 1: For publicly opened bids, the bidder will be required to submit the completed certification with the bid.
      Note 2: The contracting officer will normally not require bidders to submit certifications with their bid unless the requirement is urgently needed by the client.
    9. Conditionally Limited: the bid solicitation or request for standing offers will be conditionally limited when the contracting officer is uncertain whether two or more suppliers of Canadian goods and/or services exist. Certifications for competitive procurement conditionally limited to Canadian goods and/or services are provided in the SACC Manual, under clause numbers: A3061T, A3062T, A3063T, A3065T, A3066T and A3069T for bid solicitations; and M3061T, M3062T, M3063T, M3065T, M3066T and M3069T for requests for standing offers. The bidder will be required to submit the Canadian content certification with the bid; or
    10. Open: when the contracting officer is of the opinion that two or more suppliers of Canadian goods and/or services do not exist, the bid solicitation or request for standing offers must be open to all suppliers. Bidders are not required to provide a certification.
    11. Once the sourcing strategy is determined, the contracting officer will prepare a Notice of Proposed Procurement (NPP). The procurement opportunity will be coded on the Government Electronic Tendering Service (GETS) as:
      1. Solely Limited, Code O-5;
      2. Conditionally Limited, Code O-4; or
      3. Open, Code O-1.
  5. Bid Handling
    1. The supplier is responsible to demonstrate that its bid meets the definition of Canadian goods and/or services and must submit a completed certification. When the SACC Manual clauses: A3052T and A3062T for bid solicitations; and M3052T and M3062T for requests for standing offers are used, the supplier must clearly identify the status of each individual product.
    2. Bids to which the Canadian Content Policy applies will be evaluated as follows:
      1. If the procurement process was solely limited to Canadian goods and/or services, and
        1. the bidder was required to submit the certification with the bid, only bids with a valid certification will be evaluated. The bid evaluation process can proceed where there is at least one bid with a valid certification otherwise the bid solicitation must be reissued; or
        2. the bidder was not required to submit the certification with the bid, the contracting officer will contact the bidder and provide the bidder with a timeframe within which to submit the completed certification. If the bidder does not comply by submitting the completed certification within the prescribed timeframe, the bid will be declared non-responsive. A bid will only be provided to the client department for evaluation once the completed certification is received. The bid evaluation process can continue as long as there is at least one bid with a valid certification otherwise the bid solicitation must be reissued.
      2. If the procurement process was conditionally limited to Canadian goods and/or services, the contracting officer will determine, first, if there are two or more bids with a valid Canadian content certification. In that event, the evaluation will be limited to the bids with the certification; otherwise, all bids will be evaluated. If the bids with a valid certification are later declared non-responsive or withdrawn, and, and after such there are less than two responsive bids with a valid certification of Canadian goods and/or services, the evaluation will continue among those responsive bids which contain a valid certification. If all bids with a valid certification are subsequently found to be non-responsive or withdrawn, then all other bids received will be evaluated. (See SACC Manual clause A3070T.)
    3. PWGSC may verify the validity of the certification. If the certification is declared non-responsive, then the offered goods and/or services are deemed not to meet the definition of Canadian content. Verification of the certification must in no way alter the price quoted or any substantive element of the bid.
  6. Contract Award
    Contracts awarded on the basis of the bid having met the definition of Canadian content under the Canadian Content Policy will include SACC Manual clause A3060C or M3060C, as applicable.
  7. Set-asides and Canadian Content
    1. If the value of the procurement is equal to or greater than $25,000, the Canadian Content Policy will be applied to procurements set-aside for Aboriginal business.
    2. In applying the Policy under a set aside procurement, it must be recognized that there are two levels of certification.
    3. The first level of certification will be to qualify the bidder(s) as eligible for set-aside consideration, i.e. bidders must provide a certification that they are an Aboriginal business.
    4. As the second level, contracting officers must then apply the Policy, in the same manner as any other procurement, in the context of the supplier community which is eligible to respond (i.e. the Aboriginal business community). Contracting officers must determine, on the basis of their knowledge of this community, whether there are a sufficient number of eligible firms to carry out the procurement as: solely limited(e.g. two or more Aboriginal businesses exist which are able to provide Canadian goods and/or services); conditionally limited(e.g. there may be two or more Aboriginal suppliers of Canadian goods or services); or open(e.g. there is an insufficient number of Aboriginal businesses able to provide Canadian goods and/or services; the procurement is open to all Aboriginal businesses regardless of the origin of the goods and services supplied).
  8. Discretionary Audits and Reviews
    The authority for discretionary audits results from either the contractual terms, or statute (Defence Production Act, section 19). If a contracting officer has concerns about the certification of Canadian content under the Canadian Content Policy, the contracting officer should discuss the use of a discretionary audit or review with their management and with the Acquisitions Program Policy Directorate.
  9. The Rules of Origin Determination
    1. The Canadian Rules of Origin for Goods (Chapter 4 of the North American Free Trade Agreement) and Canadian Customs Tariff Harmonized System are used to determine if imported components that go into the production of an item for resale to the government are sufficiently altered or converted in Canada to be considered "Canadian".
    2. The Harmonized Commodity Description and Coding System is a structured classification system for goods that has been adopted by Canada and most of the world's trading nations, for customs purposes.
    3. For the purposes of this determination, the reference to "territory" in the Rules of Origin must be replaced with "Canada".
    4. Products containing imported components may be considered Canadian when they have undergone sufficient change in Canada in a manner that satisfies this amended definition. There are three basic steps to determine if any product that is partially or wholly constructed from imported components meets the Rules of Origin definition:
      1. Locate the heading number in the Harmonized System that best reflects the final product for sale.
      2. Find the appropriate heading number in the Harmonized System that identifies imported components used to construct the final product.
      3. Look up the section in the rules of origin that defines whether the conversion that took place in Canada allows the goods to be defined as Canadian.

Step 1 – Determining Whether a Good is Canadian

  1. A bidder proposes hats, which are manufactured in Canada that use imported calves leather.
  2. Analysis of Canadian content:
    1. Look up "hats" in the index of the Canadian Customs Tariff Harmonized System (HS) and find the type that matches the kinds of hats to be sold: Hats and other headgear, plaited or made by assembling strips of any material, whether or not lined or trimmed. The HS number is 6504.00.00. The first two numbers indicate the good is listed in Chapter 65.
    2. Look up "leather, bovine" in the index: it falls under HS heading 4104.
    3. Finally, refer to the Rules of Origin which lists the conditions for transforming goods listed in the HS into Canadian goods (Chapter 65 is for Headgear and Parts Thereof and is listed in Section XII of the rules). The second rule for Chapter 65 applies: A change from 65.03 to 65.07 from any heading outside that group. As the leather is classified outside 65.03 to 65.07, the final product (the hats) for sale are considered to be sufficiently transformed and therefore the hats are deemed to be Canadian for the purposes of this policy.

Step 2 – Determining Whether a Mix of Goods and Services meets the 80 percent Rule of Origin

  1. There is a PWGSC solicitation for:
    • 100 wooden office desks;
    • 100 electric space heaters with maintenance and repair included;
    • 100 telephone sets with maintenance and repair included, and
    • 100 metal swivel chairs.
  2. A bidder has proposed:
    • unfinished wooden office desks which are imported into Canada and finished in Canada;
    • electric space heaters which were constructed using domestic labour/materials and imported parts. The maintenance/repair of the electric space heaters is being done by Canadian-based personnel;
    • telephone sets which were constructed using domestic labour/materials and some imported parts. The maintenance/repair of the telephones is being done by United States-based individuals;
    • metal swivel chairs which were constructed using domestic labour/materials and some imported parts.
  3. Below are the prices for the goods and services offered in the bid:
    • 100 wooden office desks @ $150 each = $15,000
    • 100 electric space heaters @ $200 each = $20,000
    • Maintenance/Repair = $5,000
    • 100 telephone sets @ $50 each = $5,000
    • Maintenance/Repair = $1,000
    • 100 metal swivel chairs @ $25 each = $2,500
    • Total Bid Price= $48,500
  4. Analysis of Canadian content:
    1. Wooden office desks:
      1. Unfinished wooden office desks (HS 9403.30) were imported and finished in Canada. The final good (finished wooden office desks) falls in same the subheading (HS 9403.30) as the unfinished good.
      2. The NAFTA rules of origin covering HS 9403.30 (wooden office desks) require a change from another chapter, or a change from parts heading 9403.90, provided there is sufficient regional value content. These rules are not satisfied.
      3. Therefore, the wooden office desks are notconsidered Canadian goods.
    2. Electric space heaters:
      1. Electric space heaters (HS 8516.21) were constructed using domestic labour/materials and imported parts (HS 8516.90).
      2. The NAFTA rules of origin covering HS 8516.21 (electric space heaters) allow a change from subheading 8516.90, provided there is a regional value content of not less than 60 percent where the transaction value method is used or 50 percent where the net cost method is used.
      3. After calculations are done, the regional value content is found to be 65 percent using the transaction value method.
      4. Therefore, the electric space heaters are considered Canadian goods.
    3. Telephone sets:
      1. Telephone sets (HS 8517.11) were constructed using domestic labour/materials and some imported plastic tubes (HS 3917).
      2. The NAFTA rules of origin covering HS 8517.11 (telephone sets) require a change to subheading 8517.11 from any other subheading, except 8517.90.11, 8517.90.12, 8517.90.13, 8517.90.14 or 8517.90.41.
      3. Therefore, the telephone sets are considered Canadian goods.
    4. Metal swivel chairs:
      1. Metal swivel chairs (HS 9401.30) were constructed using domestic labour/materials and some imported parts (HS 9401.90).
      2. The NAFTA rules of origin covering HS 9401.30 (metal swivel chairs) allow a change from subheading 9401.90, provided there is a regional value content of not less than 60 percent where the transaction value method is used or 50 percent where the net cost method is used.
      3. After calculations are done, the regional value content is found to be 37 percent using the transaction value method.
      4. Therefore, the metal swivel chairs are notconsidered Canadian goods.
    5. Maintenance/repair of telephones:
      The maintenance/repair of telephones is being done by U.S.-based individuals. Therefore, this service is not considered a Canadian service.
    6. Maintenance/repair of electric space heaters:
      The maintenance/repair of electric space heaters is being done by Canadian-based individuals. Therefore, this service is considered a Canadian service.
  5. Calculation of Percent of Bid Price Considered Canadian
    1. Canadian goods and services
      • 100 electric space heaters = $20,000
      • 100 telephone sets = $5,000
      • Maintenance/Repair = $5,000
      • Total Canadian Goods and Services= $30,000
    2. Non-canadian goods and services
      • 100 wooden office desks = $15,000
      • 100 metal swivel chairs = $2,500
      • Maintenance/Repair = $1,000
      • Total non-Canadian Goods and Services= $18,500
      • Total Bid Price= $48,500
    3. Percent of the Bid Price that is composed of Canadian goods and services = $30,000/$48,500 = 62%
  6. Conclusion
    The supplier has not met the Canadian content requirement that "no less than 80 percent of the bid price consists of Canadian goods and services".