The federal government's revamped "Buy Canadian" policy, which took effect this week, aims to ensure taxpayer dollars support domestic businesses and jobs. However, industry observers warn that while the new rules are a step forward, they may not be stringent enough to fully close a significant loophole that allows companies with only a nominal presence in Canada to win lucrative contracts.
New Thresholds and Domestic Content Rules
Procurement Minister Joël Lightbound announced the first wave of the policy on December 16, with the changes officially rolling out on Tuesday, December 20, 2025. The policy grants Canadian companies a significant advantage when bidding on large federal contracts.
The new rules apply to contracts valued at over $25 million in key sectors like defence, pharmaceuticals, and infrastructure. This threshold is set to drop to $5 million by spring 2026, broadening the policy's impact. Furthermore, major defence and construction projects must now use Canadian steel, aluminum, and wool if the bid includes at least $250,000 worth of those materials and a domestic supply is available.
All bids will now be evaluated, in part, based on the percentage of Canadian goods and services they propose to use. "Companies with a real footprint in Canada — those that invest here, employ Canadians and innovate domestically will receive a clear advantage when they bid on federal contracts," Minister Lightbound stated at the policy's unveiling.
Closing the 'Origin Loophole'
A core component of the update is a rewritten definition of what qualifies as a "Canadian supplier." The previous, looser definition primarily required a Canadian address, which critics said created an "origin loophole." This allowed firms to establish a mailbox presence in Canada while subcontracting the actual work—and economic benefits—overseas.
Noah Fry, a postdoctoral fellow at Dalhousie University who specializes in procurement, notes that under the old rules, over 90% of federal procurement value already went to "notionally Canadian suppliers." The new definition seeks to raise the bar.
It now requires a "Canadian supplier" to employ personnel and/or conduct day-to-day business activities within Canada. Crucially, it also prohibits the subcontracting of work to non-Canadian suppliers or individuals located outside the country. "It's specifically getting at the origin loophole," Fry confirmed.
Ambiguity and Lingering Concerns
Despite these improvements, procurement experts express concern that the updated definition may still be too vague to be fully effective. The requirement to "conduct day-to-day business activities" could be subject to interpretation, potentially allowing some companies to maintain a minimal operational presence while still outsourcing core functions.
Fry pointed out that in sectors like information technology, where subcontracting is a common business model, the new rules might not provide sufficient clarity to ensure the intended economic benefits remain in Canada. The success of the policy will hinge on how strictly and consistently these definitions are applied during the contract evaluation process.
The government's move represents a clear intent to leverage its purchasing power to bolster Canadian industry. However, as the policy is implemented, stakeholders will be watching closely to see if the rewritten rules are robust enough to truly prioritize domestic investment and employment, or if further refinements will be necessary to close the loophole completely.
