Liberal's new 'naughty and nice list' approach to defence contractors could face legal, trade challenges

by Murray Brewster (feat. Dave Perry)

CBC News
December 13, 2017

It is being called, in some quarters, the "naughty and nice list" of defence contractors.

And it figured prominently in Tuesday's announcement that Canada would buy a handful of used Australian FA-18 fighters until the country's entire fleet of CF-18s could begin retiring in 2025.

Along with the fighter jet announcement, Liberals said Tuesday they will now also evaluate bidding companies for their "overall impact on Canada's economic interests."

Some describe this new yardstick for the procurement system as "The Boeing Clause," a reference to the loud, angry trade dispute between the U.S. aerospace giant and Bombardier, of Montreal.

No matter how it's being characterized, the Liberal government's intention to evaluate all future defence purchases through the lens of whether individual companies have helped or hurt the overall Canadian economy has far-reaching political, trade, legal and even military consequences, say analysts.

And there is a series of important questions Public Services and Procurement Minister Carla Qualtrough and Innovation, Science and Economic Development Minister Navdeep Bains left unanswered at the announcement Tuesday.

What criteria will be used to decide economic harm? Will such a policy survive contact with the legal system? Will it further gum up an already cumbersome process? Will it cause Canada's biggest trading partner — and the world's biggest supplier of military products — to retaliate in some form or another?

Qualtrough said she was confident in the decision.

"We cannot, of course, stop anybody from engaging in litigation with us should they not think this is appropriate," said Qualtrough. "But we would not be sitting here with you today if we hadn't jumped through hoops legally and otherwise and have a level of confidence that we are here announcing to Canadians that we want to move forward with this policy."

For a government often obsessed with evidence-based decision-making, there was dearth of data on this crucial point.

The policy itself has not been written.

It will be, Qualtrough said, subject to consultation with defence contractors — the very companies whose livelihoods would depend upon staying off the naughty list.

'A degree of subjectivity'

Dave Perry, an analyst with the Canadian Global Affairs Institute who follows the procurement file, said it was too early to evaluate this new approach.

"A lot will depend on how this policy is written."

Unless the government comes up with some "mathematical formula based on market evidence," Perry said the policy would inject a "degree of subjectivity" into contracts that companies can contest either in court or before international trade tribunals.

And that is something the already sluggish defence procurement system has been built to avoid, particularly over the last five years since the auditor general slammed the previous Conservative government's attempt to buy F-35s.

At the time, Michael Ferguson criticized the lack of homework at National Defence and Public Works, the lack of transparency in decision-making, and the apparent bias in favour of the Lockheed Martin-built stealth fighter.

Public works now routinely subjects its decisions and assumptions to independent third-party evaluations and fairness monitors in an effort to demonstrate objectivity and limit litigious blowback.

Now, it seems, according to Qualtrough, that "there are both objective and subjective elements that could possibly be at play" in Canadian defence procurements.

Perry said lawyers could have a field day with that.

"I don't see any way of creating this new policy that's defensible and is not a nakedly subjective," he said. "When you get down to the nuts and bolts, the government is going to draw up with a naughty and nice list for whether company A or B is helping or hurting the Canadian economy."

It is yet another policy hurdle in an already glacial process, Perry added.

For her part, Qualtrough said she is "hoping very much that we're not going to make it more complicated."

A clear message

The political message to Boeing on Tuesday was undeniable.

"We're hoping this policy incentivizes all suppliers to behave in such a way that they won't be at a disadvantage at the time of assessment," said Qualtrough.

Translation: Boeing, drop your trade complaint against Bombardier and maybe you'll get a chance to bid on the full replacement of Canada's fighters, a contract worth up to $19 billion.

It should not be underestimated that the policy was delivered on the same day as the U.S International Trade Commission deadline for written submissions on the 300 per cent tariffs imposed by the Trump Administration on Bombardier passenger jets.

Another unanswered — and perhaps unexpected — question coming out of all of this might be: What if Boeing doesn't care and decides not to bid on the big contract?

It costs defence contractors tens of millions of dollars to compete and jump through all government hoops, regardless of the country.

A spokesman for Boeing left the question dangling on Tuesday.

"We're going to have to take a look at all the requirements, including — quote, unquote — the Boeing clause, and make a final determination at the appropriate time," said Scott Day in an interview. "We'll have to look at the overall requirements and how it implemented and interpreted before making a decision."