The Government of Ontario has issued new procurement rules that prohibit Ontario public sector entities from purchasing goods and services from U.S. businesses, except in a limited set of circumstances.
Although the Procurement Restriction Policy, and the associated mandatory guidance and FAQ documents, were issued on April 7, 2025, they apply retroactively from March 4, 2025 – the date that Premier Ford announced that U.S. businesses were banned from participating in Ontario government procurements in response to U.S. tariffs on Canadian goods.
This new policy has important implications for procuring entities and suppliers – including Canadian small and medium businesses with corporate ownership or control located in the United States. In this update, we discuss key takeaways and unanswered questions below.
What is a "U.S. Business"?
The policy defines a "U.S. business" is defined as a supplier, manufacturer or distributor of any business structure (e.g., corporation, partnership) that meets the following criteria:
- Has its headquarters or main office in the U.S. (or is controlled by another corporation that has its headquarters or main office located in the U.S.); and
- Has fewer than 250 full-time employees in Canada at the time of the applicable procurement.
Because this definition is not based on the supplier's legal jurisdiction of incorporation or existence, it could apply to a wide range of businesses including Canadian small and medium businesses, not typically considered to be U.S. businesses.
What Procurements Does the Policy Apply To?
The prohibition applies to all procurements of goods and services, regardless of value or procurement method (e.g., competitive, non-competitive) by:
- Provincial government entities (like provincial ministries, agencies, Ontario Power Generation and the Independent Electricity System Operator); and
- Designated broader public sector organizations (like hospitals, universities, and colleges).
What Procurements Are Excluded?
The policy does not apply to:
- Procurements that are in progress, where the relevant procurement document (e.g., request for proposals) was issued before March 4, 2025;
- Procurements that use existing vendor of record arrangements "or other arrangements available to public entities" – which presumably means relying on existing procurement arrangements which already involve a predetermined group of vendors being eligible for contract award;
- Contract extensions that were included and identified in the original procurement; or
- Procurements that are based on an unforeseen situation of urgency (as described in the Ontario Public Sector Procurement Directive or the Broader Public Sector Procurement Directive).
How Does the Government Buyer Determine Supplier Status?
Public sector entities may rely on representations from bidders or vendors that they are not a U.S. business. Further due diligence is not required, although seeking proof of business status is an option.
When Does the Policy Permit Procuring From a U.S. Business?
Although the policy imposes a general prohibition on procuring from U.S. businesses, there is an exception. As discussed below, procuring from a U.S. business is permitted if both of the following apply:
- The U.S. business is the "only viable source" for the good or service; and
- The procurement cannot be delayed.
Only Viable Source
If obtaining goods or services from a source other than a U.S. business is "not feasible", the procuring entity may purchase from a U.S. business. The guidance does not define how feasibility must be determined, but includes examples of factors that may be considered, notably:
- The supplier has unique skills or technology that no other supplier possesses;
- The supplier holds exclusive rights or patents, making them the sole provider;
- The supplier is the only one available in a specific area or at the time of the procurement;
- Laws or regulations strictly require using that specific supplier;
- Confidentiality obligations; and
- Health and safety considerations.
Some of these factors are not well defined, although they are similar to the limited tendering exceptions contemplated by Ontario's public sector procurement directives and Canada's national and international trade agreements.
Procurement Cannot Be Delayed
The guidance does not define what constitutes a procurement that cannot be delayed, but includes examples of factors that may be considered, including:
- Is the procurement essential for business continuity or to deliver key programs?
- Are there critical health or safety concerns that this procurement addresses?
- How critical is it to obtain this good/service from a U.S. business at this time?
Thus, even if a U.S. business is the only viable source at the time, the purchasing entity must also consider whether the procurement could be delayed – presumably to enable a non-U.S. business to be located, or to further the underlying purpose of the policy (e.g., exerting economic pressure in the context of the trade dispute with the U.S.).
Other Elements
The policy and associated guidance includes additional recommendations and requirements to give effect to the new prohibition, including obligations for consultations and approvals, reporting, and modifications to procurement process documents.
Consultations & Escalated Approvals for Procuring From U.S. Businesses
Procuring entities are encouraged to consult Supply Ontario (the provincial Crown agency that supports supply chain management and procurement) if contemplating the exception to procure from a U.S. business. This includes using Supply Ontario's "Procurement Rationale Report Form" to describe relevant market research.
Deputy minister or CEO approval, as appropriate, are required to procure from a U.S. business, regardless of the value of the procurement. The approval must be supported by a documented and approved business case.
Reporting
The new policy imposes reporting requirements:
- Core public sector organizations must respond to requests for information or data from Supply Ontario, the Ministry of Public and Business Service Delivery and Procurement, and/or the Treasury Board Secretariat; and broader public sector organizations must respond to such requests from their funding ministries.
- Supply Ontario must be notified, on a weekly basis, of all exception requests, even if an exception is declined. Of note, the guidance requires that the Procurement Rationale Report Form number be included (underscoring the expectation that Supply Ontario will be consulted in advance).
Procurement Process Documentation
Public sector entities may give effect to the prohibitions on U.S. businesses in various ways. However, competitive procurement documents will need to be assessed and modified – and legal counsel should be consulted as part of making any such revisions.
Key Takeaways & Outstanding Questions
The policy has important implications for public sector procurement in Ontario and raises a number of outstanding issues and questions, including:
- Many Canadian businesses have less than 250 employees in Canada. It appears that the policy may have (un)intended consequences of excluding Canadian small and medium businesses with U.S.-based corporate ownership or control in the U.S., or a main office in the U.S.
- The exclusion for existing vendor of record arrangements "or other arrangements available to public entities" is unclear – the guidance would benefit from examples or additional details of what "other arrangements" could include.
- How are joint ventures between U.S. and non-U.S. businesses to be assessed?
- How are procuring entities to reconcile the new policy with long-standing trade agreement obligations?
Given the rapidly evolving U.S.-Canada trade relationship, this policy may be adjusted or rescinded, but until then, procuring entities must comply with the policy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
