Buy American: The Procurement Angle

Posted on September 24, 2009

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I was recently asked a very interesting question regarding the implications associated with increasing US-based vendor access to Government Contracts.  I am happy to share both the original question and answer with you, and look forward to receiving your feedback.

Question:

I am sure you are aware of NAFTA – Based on my understanding of it, essentially every procurement over 89K is open to American and Mexican companies. We already have access to each others markets in that sense. So when we speak of more access to Canadian Contracts by Americans, what do we mean?

My Answer:

The access to which the Buy American strategy pertains is at the Provincial level.  Here is an excerpt from a July 30th post on the Canadian Conference Board of Canada blog site (there are more reference points):

“Ottawa wants to seek an exemption from new US stimulus package requirements to Buy American. The provinces hold the cards here. Currently, provincial governments do not allow US companies to bid on their contracts. If the provinces promise to open up to US companies, Ottawa may be able to win an exemption for Canada from Buy American. Ottawa hopes to have just such an agreement between the provinces in the coming weeks. Then it can negotiate with Washington. Meanwhile, Ottawa waits for the provinces, and Canadian businesses may be losing deals today.”

The questions are many including what the impact will be on the domestic supply base should the Provinces agree to open bids to US suppliers.  It has been suggested that sectors such as the construction industry in Canada will suffer.

However, the implications have far greater reach, especially when you consider the growing importance of the Tertiary and now Quaternary Sectors associated with Clark and Forasties’ “three-sector hypothesis of industry” (which has been extended to four with the advent of knowledge-based industries). Developed by Colin Clark and Jean Fourastie, the hypothesis includes the extraction of raw materials (Primary), manufacturing (Secondary), services (Tertiary) and knowledge-based (Quaternary).

Under a “general pattern of development,” a wealthy nation progresses through each phase. Effectively managing this progression is critical to what Fourastie referenced in his 1949 publication “The Great Hope of the Twentieth Century” as “the increase in quality of life, social security, blossoming of education and culture, higher level of qualifications, humanization of work, and avoidance of unemployment.”

Therefore, and based on the premise that SME’s are in fact the driving force behind the innovation associated with the Tertiary and Quaternary Sectors, what is the potentially negative impact on the Canadian SME Market as a result of opening up contracts to US-based vendors?  Are we in reality sacrificing our future economic engine in an effort to preserve access to US markets for what are the still influential but disappearing Primary and Secondary Sectors?

Have we in essence become sector prisoners of our past economic prosperity model making it difficult to bridge the divided interests of an economy in transition?

This should make for an interesting discussion on Monday’s PI Window on Business Segment.  Remember the 90-minute Special airs at the later time of 3:00 PM EDT instead of our usual 12:30 PM EDT start time.

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