On 18 November 2020, the House of Commons Standing Committee on Government Operations and Estimates (the Committee) undertook a study on a competitive procurement process led by Public Services and Procurement Canada in 2019 and 2020 on behalf of Global Affairs Canada and other federal departments for security screening equipment, namely conveyor-style X-ray machines (X-rays) and walk-through metal detectors. The focus of the study was on the standing offer awarded to Nuctech, a Chinese-based company, for X-rays in July 2020 as it raised concerns around the security of the federal government’s assets and market fairness. The Committee held three meetings, heard 16 witnesses, and received one brief in the course of its study. In addition, the Committee received correspondence from Nuctech’s representatives and federal departments.

This report discusses challenges with Nuctech and China, namely the link between Nuctech and the Chinese Communist Party, foreign government subsidies, the 2017 Chinese National Intelligence Law and Canada-China relations. It also looks at security concerns surrounding the standing offer awarded to Nuctech. Finally, it provides background on the federal integrity regime and on instruments designed to mitigate security risks in contracting such as supply chain integrity and the national security exception.

The Committee identified three main challenges with the current federal procurement process for security-related goods and services:

• the focus on price, to the detriment of national security risks when selecting contractors and suppliers;
• the level of collaboration between federal departments and agencies when assessing national security risks; and
• the fact that the Communications Security Establishment only performs supply chain integrity assessments when requested.

The Committee makes nine recommendations in the report. Three of the recommendations address the above-mentioned challenges by proposing:

• the implementation of strategies to encourage procurement officials and suppliers to place greater emphasis on best value for Canadians, by including value propositions that give greater weight to qualifications and quality rather than primarily focusing on price (Recommendation 4);
• the establishment of mechanisms to ensure that departments and agencies collaborate to assess the risk to Canada’s national security at the beginning of the procurement process for certain security-related goods and services, such as security screening equipment in Canada’s embassies (Recommendation 7); and
• the requirement for a supply chain integrity assessment conducted by the Communications Security Establishment at the beginning of the procurement process and the strengthening of considerations for the national security exception for goods and services that have a potential security impact on Canada’s assets (Recommendation 9).