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A study released by the Montreal Economic Institute estimates the federal government’s “Buy Canadian” policy could increase the cost of large infrastructure projects by more than $12 billion per year.
The study states that, among Organization for Economic Co-operation and Development (OECD) countries, total expenditures on public procurement accounted for 12.9 per cent of gross domestic product in 2021.
In Canada, that number was slightly higher, at 13.4 per cent, highlighting how the Canadian government’s purchases of goods and services are a significant part of the Canadian economy, larger than the OECD average.
The study states that following trade tensions between Canada and the U.S., Canada had only engaged in public procurement “more sparingly.”
Now, with Canada’s new policy, this practice has grown in Canada due to public procurement, which refers to “the purchase by governments and state-owned enterprises of goods, services and works.”
The study states that the “Buy Canadian” policy “creates tighter controls to avoid tariff jumping,” which refers to foreign firms avoiding tariffs by establishing a formal local presence.
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As a result, the study finds that the federal policy “proposes a form of bid preference whereby Canadian suppliers are treated as being cheaper for the purpose of evaluating their bids.”
It is also noted that provincial governments have engaged with “similar types of procurement protectionism.”
The study references a program created in California that offered resident small businesses a five per cent bid preference over non-resident firms. As a result, total procurement costs rose on these projects by 3.6 per cent, while larger firms that were more competitive left the market.
Therefore, it is suggested that Canada could adopt a system similar to California’s for all procurement spending. It is estimated that costs per Canadian would increase between $124 and $320.
In addition, the study suggests that “as governments grow larger, individual accountability weakens, responsibility becomes more diffuse, and coordination among monitors deteriorates, all of which increases the scope for corrupt behaviour.”
“Procurement protectionism exacerbates this problem, as less competition means larger possible rents for winning firms, which can in turn offer to share some of the spoils with politicians and bureaucrats,” the study states.
“Procurement protectionism ends up reducing competition for bids, leading to costlier projects and less efficient results. In the end, taxpayers and service consumers are left worse off.”
Enacted in December 2025, the policy aims to make “Canada its own best customer by strengthening domestic industries, supporting Canadian workers, and building a more resilient and diversified economy in a rapidly changing global trade environment.”
The policy currently applies to “large, strategic procurements valued at $25 million and over,” and will “expand to contracts valued at $5 million and above by spring 2026.”
With “Buy Canadian” in action, the federal government states that it is “leveraging federal procurement as a strategic economic tool, the Buy Canadian Policy strengthens Canada’s industrial capacity, supports domestic workers and businesses, and positions Canada to compete more effectively in global markets, now and for the long term.”
Read the full article here
