Drafting Research Funding Agreements: Potential Landmines

Funding R&D through private sector or charitable donations

Innovations in healthcare are often the result of research and development initiatives. Such initiatives cannot be carried out without funding. Many broader public sector organizations that carry on health-related research in Ontario rely heavily on:

  • partnerships with private sector corporations, and
  • charitable donations from philanthropic individuals and organizations,

to fund their research activities.

Risks

If your broader public sector organization receives funds from corporate partners or charitable donors, then you should ensure that the agreements, through which your organization receives such funds, are properly drafted. If not drafted with some forethought, your organization could agree to contractual obligations that conflict with its legislative or regulatory requirements.

For example, a corporate partner that is providing funding to a public hospital for a research initiative may expect the hospital to utilize the funder’s brand of equipment to carry out the research. However, the purchase of equipment by a public hospital in Ontario must be carried out in compliance with the Broader Public Sector Procurement Directive and the Canada Free Trade Agreement. A hospital cannot purchase a significant piece of equipment without abiding by fair and transparent procurement processes, unless the procurement falls within an exemption or circumstance of non-application under applicable procurement regulations.

As us for guidance

If created with care, a funding agreement could be drafted in a manner that allows a purchasing organization to satisfy conditions imposed on the funds by a funder, while still allowing the purchasing organization to be in compliance with its procurement (and other regulatory) obligations.

DDO would be happy to provide advice on options for drafting your organization’s funding agreements. Contact mgleeson@ddohealthlaw.com.

Procuring through a distributor: Set expectations early!

When procuring goods our clients are sometimes faced with purchasing a good through a third party distributor rather than directly from the manufacturer of the good. An indirect purchase through a distributor can be problematic from a contractual perspective if the distributor is not willing to take full responsibility for all aspects of providing the relevant good (e.g., the delivery, performance, installation, and maintenance of the good, as applicable). Distributors sometimes attempt to avoid providing all of the product representations and warranties that would routinely be provided by a manufacturer of goods. A distributor may be hesitant to provide warranties on a good that it has neither manufactured nor tested itself.

In some such situations, a distributor may seek to share the risks related to the supply of a good by requesting that the purchaser enter into separate agreements with each of the distributor and manufacturer. The agreement with the distributor would identify such things as the products being purchased, pricing, and delivery terms, while the agreement with the manufacturer would address such things as product warranties, specifications, and service or maintenance terms. In our experience one of the primary difficulties of a two contract approach in this type of arrangement is that, unless the risk allocation terms of the two contracts are very carefully drafted and responsibilities are clearly delineated, the result could be that the purchaser is unclear as to which party is responsible for which obligations and risks. If something goes wrong, a purchaser could find itself in a situation in which all parties are pointing fingers at each other because the relevant contracts do not provide sufficient clarity as to which party bears responsibility for a particular type of damage.

The best case scenario from a purchaser’s perspective is for the purchaser to enter into only an agreement with the distributor, rather than agreements with both the distributor and manufacturer. This agreement with the distributor will require the distributor to take full responsibility for all risks related to the good and its supply to the purchaser. If the distributor wants the manufacturer to share responsibility for the good, then the distributor can enter into a separate agreement with the manufacturer to allocate risk between the distributor and manufacturer. This agreement would be separate and apart from the purchase agreement between the purchaser and distributor.

One solution that DDO has used to help avoid debate about what contractual arrangements will be utilized when purchasing through a distributor is to address this issue at the request stage of a procurement. If a purchaser requires, as a condition of participation in its RFP (or other requesting document, as applicable), the distributor to agree that it will be directly accountable to the purchaser for all risks and obligations related to the provision of the required good, then the purchaser can avoid having to negotiate this aspect of the contractual arrangements at a later stage in the procurement process. In this way we find that we can avoid some headaches related to a purchase through a distributor.

Drafting Research Funding Agreements

Innovations in health care are often the result of research and development initiatives. Such initiatives cannot be carried out without funding. Many broader public sector organizations that carry on health-related research in Ontario rely heavily on:

  • partnerships with private sector corporations; and
  • charitable donations from philanthropic individuals and organizations,

to fund their research activities.

If your broader public sector organization receives funds from corporate partners or charitable donors, then you should ensure that the agreements, through which your organization receives such funds, are properly drafted. If not drafted with some forethought, your organization could agree to contractual obligations that conflict with its legislative or regulatory requirements.

For example, a corporate partner that is providing funding to a public hospital for a research initiative may expect that the hospital will utilize the funder’s brand of equipment to carry out the research. However, the purchase of equipment by a public hospital in Ontario must be carried out in compliance with the Broader Public Sector Procurement Directive. A hospital cannot purchase a significant piece of equipment without abiding by fair and transparent procurement processes, unless the procurement falls within an exemption or circumstance of non-application under applicable procurement regulations.

If created with care, a funding agreement could be drafted in a manner that allows a purchasing organization to satisfy conditions imposed on the funds by a funder, while still allowing the purchasing organization to be in compliance with its procurement (and other regulatory) obligations. DDO would be happy to provide advice on options for drafting your organization’s funding agreements.

The Broader Public Sector Interim Measures – Mandatory or Voluntary Compliance?

The Interim Measures, effective March 18, 2019, were released by the Ontario Government to centralize the Ontario Public Service and broader public sector (“BPS”) purchasing and supply chains. It is part of the government’s plan to transition to a centralized procurement model and is applicable to hospitals, school boards, universities, colleges and post-secondary institutions, children’s aid societies and shared services organization/group purchasing organizations.

This blog focuses on the impact of the Interim Measures on BPS organizations, based on information available to us.

What are the Interim Measures?  

New procurements of goods and services valued at $25,000 or higher are subject to the Interim Measures, which request BPS organizations to use an existing Vendor of Record (“VOR”) arrangement where possible and appropriate; and ensure all new contracts have a term not exceeding two years, including any extensions. “New procurement” is broadly defined and includes any new RF[X], new limited tendering, new piggyback or extension of any existing contract beyond the current term.

Does your organization have to comply with the Interim Measures?

Funding ministries will inform BPS organizations on whether compliance with the Interim Measures is mandatory or voluntary. In order for it to be mandatory, there must be a legislative authority for the funding ministry to provide direction to the BPS organization – and the funding ministry must clearly exercise that legislation authority. For voluntary compliance, there is either no legislative authority available or legislative authority has not been exercised.

So, how will your organization know if compliance with the Interim Measures is mandatory or not? You will have to ask yourself the following questions:

  • What does your cover letter from the funding ministry say?
    • Check the cover letter and materials provided by your funding ministry to see if it explicitly states whether the requirements are mandatory or voluntary. The covering letter may state that compliance is expected as opposed to required.
    • Does the cover letter refer to any legislative authority to issue a directive to your organization?
  • Does your Ministry have legislative authority to provide directive to your organization to comply with the Interim Measures?
    • For example, for hospitals, the Interim Measures are not mandatory as the Ministry of Health and Long-Term Care does not have the legislative authority to issue procurement directives to the hospitals. Only the Management Board of Cabinet has the authority under the Broader Public Sector Accountability Act.

So, if compliance is voluntary, what does that mean for your organization? Even if the Interim Measures are voluntary, we recommend that BPS organizations should try to comply with the Interim Measures where they can in order to demonstrate that they are good “BPS citizens”.  Remember that BPS organizations still have to comply with the BPS Procurement Directive.

If you are unsure about whether your organization has to comply with the Interim Measures, feel free to reach out to DDO’s procurement team:

Kathy O’Brien – kobrien@ddohealthlaw.com

Michael Gleeson – mgleeson@ddohealthlaw.com

Pamela Seto – pseto@ddohealthlaw.com

 

Ontario’s Fairness in Procurement Act, 2018

In response to the “Buy American” policies enacted in the United States, the Ontario government has responded with the Fairness in Procurement Act, 2018 to protect Ontario-based businesses and suppliers.

The Act came into force on April 1, 2018. This Act reduces procurement opportunities for suppliers from “Offending American Jurisdictions”, which means a jurisdiction of the United States of America that has been designated by a regulation (“OAJ”). Ontario has the power to enact regulations to target those states that have adopted or enacted legislation that is discriminatory or prevents Ontario suppliers from participating or succeeding in procurement processes.

This Act applies to broader public sector entities such as hospitals, colleges, universities, and children’s aid societies, and any other entity prescribed by the regulation (“BPS Entities”), as well as government entities such as the Crown, public bodies, the Independent Electricity System Operator, and the Ontario Power Generation (“Government Entities”).

Broad Powers by the Government of Ontario under the Act

The objective of the Act is to defend the province’s economic interest and protect the interests of Ontarians and Ontario businesses. The Act provides broad powers to the Government of Ontario to respond proportionally to discriminatory procurement practices enacted by the United States.

If a supplier from an OAJ participates in an Ontario procurement process initiated by BPS Entities or Government Entities, that foreign supplier si subject to policies, sanctions, or requirements as set out in the regulations, such as:

  • Exclusion from participating or being awarded procurement contracts
  • Providing additional information to Government Entities or BPS Entities
  • Meeting additional requirements when participating in procurement processes
  • Proposals being subject to additional or more stringent evaluation criteria than applies to other proposals.

Such regulations would require Government Entities or BPS Entities to impose such measures on suppliers from OAJs. However, BPS Entities and Government Entities may obtain exemptions from the Act and its regulations.

The Act also grants broad powers to void a procurement contract if such contract or the procurement process contravenes the Act or a regulation made under the Act. It also stipulates that if there are any conflicts with any other legislation, the Act would prevail.

Under the Act, every regulation made under the Act must be reviewed at least once every four years after it is made until it is revoked.

If the OAJ removes offending policies and legislation, the responding regulation will be revoked by the Ontario government. For example, the Ontario government had initially sought public consultations for a proposed regulation responding to the policies enacted by Texas, restricting the use of iron and steel from Texas, related to any construction, remodeling, or altering of any building, structure, or infrastructure, or supply of material. However, the province has decided to not move forward with the proposed regulation in response to the positive advocacy efforts in Texas, which illustrates that the province will only take retaliatory actions against discriminatory procurement practices from OAJs.

O.REG 117/18: Suppliers from New York

Currently, O.REG 117/18 is the only regulation enacted under the Act. The regulation designates New York as an OAJ, which governs the procurement contracts related to structural iron entered into by suppliers from that state. This is in response to the New York Buy American Act, which prevents Ontario iron suppliers participating in procurement for public works contracts for surface roads or bridges.

O.REG 117/18 does not apply to the BPS Entities. It applies only to Government Entities’ procurement processes for construction, reconstruction, alteration, repair, maintenance, or improvement of a surface road or bridge where the value of the contract is expected to be greater than $US1 million. The regulation prevents the procurement of any structural iron in the performance of a procurement contract and incorporation into any surface road or bridge from a supplier from New York.

What should Procuring Entities in Ontario Do?

Government Entities must review how O.REG 117/18 will impact their procurement policies and procedures. It is unclear as to how many more regulations will be passed under this Act, but if more American states enact “Buy American” policies, it can be expected that Province of Ontario will respond proportionally by creating regulations to protect Ontario suppliers and businesses.

Procuring entities in Ontario must be diligent in keeping abreast of any current and proposed regulations to determine how it will affect their organization’s procurement policies and practices to ensure its compliance with the Act.

If you require assistance regarding your organization’s procurement policies and procedures or further information, please contact: Pamela Seto at pseto@ddohealthlaw.com.

Government of Ontario’s Bid Dispute Resolution Process for Broader Public Sector Organizations

As per the Broader Public Sector (“BPS”) Procurement Directive, public sector organizations such as hospitals, school boards, universities, colleges and children’s aid societies must outline bid dispute resolution procedures in their competitive procurement documents, which must be compliant with Ontario’s trade commitments.

Under the Canadian Free Trade Agreement (“CFTA”) and the Canada-European Union Comprehensive Economic and Trade Agreement (“CETA”), a supplier is able to challenge a procurement on the basis that it was not conducted in accordance with the applicable trade agreement. A complaint process is required under CFTA and CETA to properly address and resolve a complaint.

Current process only applicable to OPS entities

The Government of Ontario’s Bid Dispute Process currently available on the Ministry of Government and Consumer Services (the “Ministry”) website responds only to complaints from vendors participating in Ontario government procurement processes. This bid dispute resolution process is not available to BPS public sector organizations. Supply Chain Ontario has confirmed that this process is only available to ministries and agencies that are required to follow the Ontario Public Sector Procurement Directive.

What do BPS entities do?

The Ontario government is currently developing a revised bid dispute resolution process that can be utilized by all organizations covered by any trade agreements.  It is anticipated that it will be available to all procuring entities in July 2019.

In the interim, Supply Chain Ontario has advised that BPS public sector organizations establish their own bid dispute resolution process using the Ministry’s Bid Dispute Resolution Guide for Public Sector Organizations (“Guide”). The Guide is meant to provide assistance to public sector organizations that are subject to Ontario’s trade agreements to develop their own trade-related bid dispute resolution process. Certain requirements must be provided for in the bid dispute resolution process such as using an independent and impartial administrative body to review procurement complaints.

This is fine in theory, but in practice how do individual BPS organizations afford to engage an independent party to review every vendor dispute made?

Until the Ontario government’s revised bid dispute process is available, your organization should review its existing procurement bid dispute resolution policies and procedures, or establish a procurement bid dispute resolution process using the Guide if one is not already in place to ensure it is compliant with Ontario’s trade agreements. Note that if your organization fails to meet the requirements for trade-related bid disputes, vendors have no direct recourse against you. The Province of Ontario could face financial penalties for failure to comply applicable trade agreements.

Expected future state when BPS process prepared

Once the Ontario government’s revised bid dispute resolution process is available, procuring entities will have the following options:

  1. Continue using the procuring entity’s existing bid dispute resolution process (as long as it is current and compliant with Ontario trade agreements)
  2. If there is not an existing bid dispute resolution process, establish their own process that is compliant with applicable Ontario trade agreements
  3. Use the Ontario government’s revised bid dispute resolution process to deal with procurement complaints and dispute from suppliers.

The Ontario government’s revised bid dispute resolution process is not mandatory, but if the procuring entity choses to use the government’s process, it is expected that it will comply with all of the applicable requirements related to its use.

 

If you have any questions related to the Bid Dispute Resolution Guide for Public Sector Organization and Ontario’s trade agreements, please reach out to Pamela Seto at pseto@ddohealthlaw.com.