Canada: Integrity In Public Contracts Act: The AMF Awards Its First Authorizations

The Autorité des marchés financiers (the "AMF") awarded this past March its first "authorizations to enter into public contracts and subcontracts" in accordance with the new provisions of An Act Respecting Contracting by Public Bodies. Added on December 7, 2012, by the Integrity in Public Contracts Act (commonly referred to as "Bill 1"), these new provisions create a prior authorization system that seeks to bolster integrity in public contracts and promote the public's confidence in public markets.

A prior authorization system

Barring exceptional circumstances, any enterprise1 that wishes to enter into a public contract or a public subcontract2 that is subject to the new provisions must first be authorized by the AMF. Only enterprises that do not have an establishment in Québec and who have been retained by the chief executive officer of a public body to execute a contract outside of Québec are exempt from this obligation.

In the long term, Bill 1's prior authorization system is intended to govern all public contracts and related subcontracts that, in both cases, involve an expenditure equal or greater to an amount that remains to be determined by the government. In the interim, the following are currently subject to the obligation of obtaining prior authorization:

  • all contracts and subcontracts for construction or services that involve an expenditure equal to or greater than $40,000,000; as well as
  • any other contract or subcontract determined by the government before March 31, 2016, such as the City of Montreal's contracts governed by the Orders in Council concerning certain contracts of Ville de Montréal (Orders in Council 1226-2012, 96-2013 and 206-2013) and the public-private partnership contracts governed by the Order in Council concerning certain public-private partnership contracts (Order in Council 97-2013).

The enterprise must be authorized at the time the contract or subcontract is concluded. To bid in a call for tenders, the enterprise must be authorized on the date it submits its bid or, if the call so requires, on another date prior to the conclusion of the contract. If the bidder, contractor or subcontractor is a consortium, every enterprise in the consortium must be authorized.

The authorization is valid for a period of three years, after which point it must be renewed with the AMF. In the absence of reasons of public interest, it must be maintained throughout the execution period of the contract or subcontract. An enterprise that executes a contract or a subcontract while its authorization is expired, revoked or not renewed by the AMF is deemed to have defaulted on the contract or subcontract after a period of sixty days from the date of expiry or notification of the AMF's decision.

The failure to comply with the prior authorization system gives rise to, among others, the following fines: 3

Offences
Natural Person
Other Cases
Conclusion of a public contract or subcontract, or submission of a bid for a public contract by a non-authorized enterprise
$2,500 to $13,000
$7,500 to $40,000
Conclusion by a contractor of a public subcontract with a non-authorized enterprise
$2,500 to $13,000
$7,500 to $40,000
Failure by an enterprise to notify the AMF of any change relative to any information previously provided for the purpose of obtaining an authorization
$2,500 to $13,000
$7,500 to $40,000
False or misleading statement to the AMF to obtain, renew or keep an authorization, or to have their name removed from the register of authorizations
$5,000 to $30,000
$15,000 to $100,000

The grant criteria

The criteria for prior authorization are in fact exclusionary in nature. Applications will not be accepted for enterprises which, in the preceding five years, have been found guilty by a Canadian or foreign court of a listed offence, or if any of the enterprise's directors, officers or shareholders holding 50% or more of shares with voting rights4 has been convicted of a listed offence in the preceding five years. The offences listed in Bill 1 include the bribery of Canadian or foreign officials, arrangements between competitors, bid-rigging, false or misleading statements in tax returns as well as insider trading.

The AMF's powers to probe the integrity of enterprises

The AMF also retains the discretion to refuse an application, to revoke an authorization or to refuse to renew the authorization of an enterprise that does not meet the "high standards of integrity". In order to assess an enterprise's integrity, the AMF may examine the integrity of directors, partners, officers and shareholders as well as other persons or entities that have direct or indirect legal or de facto control over the enterprise (the "Controlling Parties").

When examining an enterprise's integrity, the AMF may consider whether:

  • the enterprise or a Controlling Party has ties with a criminal organization or with any other person or entity that engages in the laundering of proceeds of crime or the trafficking of controlled substances;
  • the enterprise or a Controlling Party has, within the past five years, been prosecuted for a listed offence or been found guilty or prosecuted for any other criminal or penal offence;
  • the enterprise or a Controlling Party has repeatedly evaded or attempted to evade compliance with the law in the course of its business;
  • a reasonable person would conclude that the enterprise is lending its name to another enterprise that is ineligible;
  • the enterprise's activities are incommensurate with its legal sources of financing; and
  • the enterprise's structure enables it to evade the application of Bill 1.

The information to be provided with the application for authorization

The application for authorization must be accompanied by, among others:

  • the fees provided for by the Conseil du trésor, namely $400 per application for authorization, plus $200 per person or entity that is subject to an integrity examination;
  • an organizational chart outlining the structure of the enterprise as well as the names of its subsidiaries, its parent company and any other subsidiaries of its parent company;
  • the audited financial statements for the latest fiscal year of the enterprise;
  • a list of the financial institutions with which the enterprise does business;
  • a list containing the name, date of birth (where applicable), domiciliary address and telephone number of each of its lenders; and
  • in the case of an enterprise not constituted under the laws of Québec and that does not have its head office or an establishment in Québec, a good conduct certificate issued in respect of the enterprise, each Controlling Party and any other person whose integrity may be examined for the purposes of the prior authorization system.

Enterprises with an establishment in Québec must additionally submit an attestation from Revenu Québec, issued not more than thirty days before the filing of the application for authorization, which states that it is not in default in the filing of its required returns and reports and that it has no overdue account payable to the Minister of Revenue.

Remedy against a revocation or a refusal to grant or renew an authorization

Except in an emergency, the AMF must, prior to revoking or refusing to grant or renew an authorization, inform the enterprise in writing of its pending decision and underlying reasons, and allow the enterprise at least ten days to submit written observations or additional information. Following the expiry of this delay, the AMF will inform the enterprise of its decision. This decision may be contested by way of judicial review.

Conclusion

Ultimately, Bill 1 has significantly changed the rules for awarding public contracts in Québec. Although these measures currently only govern certain types of public contracts, their scope of application is expected to expand rapidly in the coming years, if not months. Such a prior authorization system is also reminiscent of Public Works and Government Services Canada's new procurement policy that disqualifies from a call for tenders any bidders that have been found guilty of certain offences.

Footnotes

1 For the purposes of the prior authorization system , the term "enterprise" refers to a legal person established for a private interest, a general, limited or undeclared partnership or a natural person who operates a sole proprietorship.

2 For the purposes of the prior authorization system, the term "public subcontract" refers to a subcontract directly or indirectly related to a public contract that is subject to the prior authorization system.

3 In the case of a subsequent offence, the minimum and maximum fines listed above are doubled.

4 Bill 1 refers to voting rights that may be exercised under any circumstances.

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.

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