Feds under fire for invoking national security exceptions on many IT procurements

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A trade tribunal is conducting an inquiry into how the federal government handled the purchase of a powerful new weather-forecasting supercomputer for Environment Canada.

Computer company Hewlett-Packard Canada alleges the government’s IT department, Shared Services Canada, wrongly invoked a national security exception in the procurement process.

Hewlett-Packard is the latest in a long list of Canadian companies to allege the federal government routinely imposes such exceptions for no good reason.

“Government contracts are a huge business in Canada. This is a real market that a lot of businesses in Canada depend on to survive,” said Chris McLeod, an Ottawa lawyer who specializes in international trade and public procurement.

A national security exception means buyers are exempt from trade rules that require all bidders to be treated equally and may mean equipment must be made in certain countries and data must be stored or processed within Canada.

GEM model

An image shows the high-resolution results of a test of a Environment Canada’s new supercomputer for weather forecasting. (Environment and Climate Change Canada)

Hewlett-Packard has also asked the Federal Court to determine if Shared Services Canada (SSC) applied the exception appropriately.

“The NSE (national security exception) applies to all procurements for SSC relating to email, networks and data centres … by invoking a blanket NSE, Public Services and Procurement Canada has improperly and unlawfully sought to immunize itself from scrutiny and compliance with the procurement rules set out in domestic and international trade agreements,” the company said in its submission.

Chris McLeod

Chris McLeod, an Ottawa lawyer who specializes in international trade and public procurement, spoke to CBC about the difficulties in challenging the federal government’s IT procurement process.

Shared Services Canada says it cannot comment because the matter is before the courts.

Hewlett-Packard was among four qualified companies invited to bid on leasing the federal government a new supercomputer, storage cloud, storage networks, processors and software, over 8½ years with an option to renew the contract for 30 months. The contract includes two upgrades as well as maintenance and support.

In its Federal Court filing, Hewlett-Packard said it was told in June that its bid was non-compliant and had been disqualified.

Last week, CBC News reported SSC secretly awarded the $430 million contract to IBM Canada in May.

Blanket approval for exceptions

According to government documents and e-mails filed at Federal Court, SSC asked for and received blanket approval in the spring of 2012 to invoke a national security exception on virtually all its big purchases. That means procurements are excluded from the obligations of all domestic and international trade agreements signed by Canada, “including those that may come into force in the future,” according to the internal government correspondence. The stated goal was to protect the IT supply chain from cyber threats.

The initial pitch for such a ban was made by Benoît Long, who was a senior executive at SSC.

“There is a significant risk that potential suppliers with relationships with foreign intelligence agencies hostile to Canada could tamper with system components (whether hardware or software) in advance of delivery to the Crown in order to facilitate future covert access,” he wrote to Tom Ring, former assistant deputy minister of Public Works.

What followed was a high-level meeting with senior executives from Canada’s spy agencies CSIS and CSEC, the Privy Council Office, Treasury Board and Shared Services. Two invitees from DND were absent but they, like all the others, signed attestations saying they agreed to the idea of invoking a blanket exception.

‘There’s a potential that government actors may use the national security exception to avoid rules that they would otherwise be subject to.’ – Chris McLeod, lawyer

Soon after, Ring approved the plan.

“I agree to invoke the national security exception for all purposes to exempt the procurement of goods and services related to the Government of Canada’s electronic mail (email) network, and data centre infrastructure, systems and services from the application of Canada’s domestic and international trade agreements, including those that may come into force in the future,” Ring wrote in his response to Long.

Ever since, SSC and Public Services and Procurement Canada have invoked national security exceptions on a whole host of federal contracts — everything from night-vision binoculars and a new federal government email system, to data storage and supercomputers.

Tide could be turning

Not only do national security exceptions permit SSC and Public Services and Procurement Canada to limit who may bid on a contract, they also prevent people from seeking redress from any trade tribunal.

“All the rules go out the window and your ability to challenge these procurements goes out the window,” lawyer McLeod told CBC News.

CITT

The Canadian International Trade Tribunal is conducting an inquiry into the federal government’s process to procure a new weather-forecasting supercomputer for Environment Canada. (Canadian International Trade Tribunal)

For years, companies in the same situation as Hewlett-Packard sought redress from the Canadian International Trade Tribunal (CITT), only to be told it had no jurisdiction when a national security exception had been invoked. After several years, though, the tribunal started to make noises about the integrity of the competitive procurement system.

“There’s a potential that government actors may use the national security exception to avoid rules that they would otherwise be subject to instead of simply following their rules, even when there’s no national security risk at play,” said McLeod.

Tribunal is unhappy

In February 2016, the tribunal indicated it had had just about enough, when Toronto IT firm Eclipsys Solutions complained it was unfairly excluded from bidding on a SSC contract. While the CITT conceded it had no jurisdiction, the tribunal made it abundantly clear it wasn’t happy about it.

“Opposing nothing more than the NSE applicability as a complete response to a supplier’s grounds of complaint is an empty and silent response indeed; it leaves potentially unanswered doubts lingering as to the transparency and fairness of the impugned procurement,” wrote the tribunal’s presiding member Serge Fréchette.

“The tribunal is concerned that relying on an authorization that is already several years old and is both ‘blanket’ in nature and open-ended into the future (i.e: with no specified end date) increases the risk that the NSE will be invoked automatically or by rote, or without proper considered justification, or altogether inappropriately.”

Ground-breaking victory

McLeod’s own client, M.D. Charlton, had also been excluded, by virtue of a national security exception, from a federal contract to provide the RCMP with night-vision binoculars.

And in August, McLeod successfully established for the first time that the government had improperly invoked a national security exception. The tribunal found the government “breached the trade agreements by failing to properly tailor the scope of the exception.”

“There are lots of national security exceptions that are legitimate … I’m the first one to say that. There are also situations where the national security exception invocation goes too far, [beyond] what’s needed,” McLeod said.

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Feds under fire for invoking national security exceptions on many IT procurements

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