What are group purchasing organizations (GPO) and why should you care?

What is a group purchasing organization and why should I care?

Group purchasing organizations (GPO) are entities whose fundamental purpose is to allow its members to combine their purchasing power to benefit from volume pricing for goods and services. In addition to reduced prices, buying through a GPO can shorten the procurement cycle, save staff time and help entities avoid the risks associated with a public procurement process.

In Canada, GPOs have become significant players in the healthcare and education sectors. Beyond these sectors, however, there appears to be scarce take-up for GPOs and one has to ask why?

GPOs and government procurement

Perhaps group purchasing organizations haven’t enjoyed widespread adoption because of a historical lack of clarity around whether and in what circumstances public procurement rules allow public sector entities to use GPOs. The Agreement on Internal Trade (AIT) which, until July 2017, was Canada’s primary domestic trade agreement, only addressed GPOs (referred to as “buying groups”) in a cursory fashion and only in respect of Crown corporations and MASH sector organizations (MASH sector = municipalities, academic institutions, social and health organizations). The government directives and policies which flowed from the AIT made scarce reference to buying groups and this may have contributed to uncertainty around the legality or acceptability around the use of group purchasing organizations.

The Canada Free Trade Agreement (CFTA) endorses the use of GPOs

The Canada Free Trade Agreement (CFTA), which replaced the AIT in July 2017, clarifies the rules around using group purchasing organizations and makes it easier for public sector entities to add GPOs to their menu of sourcing options. The buying group provisions in the CFTA apply to all covered entities: governments, Crown corporations and MASH sector.

Obligations when using group purchasing organizations under CFTA

When purchasing through buying groups,  the CFTA requires that covered entities ensure the procurement process is carried out in accordance with the CFTA. But the CFTA introduces an exception to this rule where the entity has little or no control over the process. Covered entities using group purchasing organizations are required to publish a notice of their participation with a GPO at least annually on their tendering website.

The advantage of using GPOs for procurement should be explored

With the CFTA explicitly recognizing the acceptability of using buying groups, procurement officers would be remiss not to explore adding GPOs to their menu of sourcing options. Before doing so, it’s important to check with legal counsel to ensure the organization’s procurement framework allows the use of GPOs.

If the policy framework allows it, it’s equally important to analyze the pros and cons of using a GPO since there is no one-size-fits-all method for sourcing options in procurement. GPOs may generate significant benefits for some organizations but not for others.

A version of this article originally appeared on NECI LegalEdge.