Canada: Public Contracts And Bill 26: Recovery Of Amounts Improperly Paid And Changes To The AMF Authorization Regime

Bill 26, entitled An Act to ensure mainly the recovery of amounts improperly paid as a result of fraud or fraudulent tactics in connection with public contracts[1] (the "Act") was passed on March 24, 2015 and some provisions came into force on April 1, 2015.

The Act applies to all public contracts, not only to contracts in the construction industry, as provided for in former Bill 61 on the same subject, which died on the order paper.

Exceptional measures have been introduced to allow Quebec public bodies, including municipalities, to recover amounts they would have overpaid owing to fraud and fraudulent tactics in the course of the tendering, awarding or management of public contracts:

  • A fixed-term program will be implemented to encourage companies wanting to avoid damage claims to voluntarily reimburse illicit profits they may have billed public bodies.
  • Special rules will make it easier to institute civil actions against companies, as well as their officers and directors in office at the time of the impugned acts, which have not been granted a discharge under the voluntary reimbursement program. These provisions will come into force at a later date.

The Act also introduces various amendments to other laws, including in respect of the authorization from the Autorité des marchés financiers ("AMF"), the Quebec securities regulator, required by companies that wish to enter into contracts and subcontracts with provincial public bodies.

Voluntary reimbursement program

Companies, as well as their officers and directors in office at the time of the impugned acts, may agree to a single settlement for all of the contracts that would have been affected by fraud or other fraudulent tactics, including bribery, and bid-rigging and cartel offences under the Competition Act.

Over the next few months, a draft program will be published in the Gazette officielle du Québec for public consultation. Even though the details of the program are not yet known, the following are included:

  • Fixed term: The Minister of Justice has indicated in a press release that companies will have 12 months to avail themselves of the program.
  • Single settlement for all concerned public bodies: The Minister of Justice will have the power to agree to reimbursement on behalf of all concerned Quebec public bodies, and to validly grant a discharge for all contracts that may have been subject to fraud or fraudulent tactics. A company's settlement proposal will be voted upon by all public bodies affected and will have to be approved by the Minister.
  • Additional 10% indemnity: In her press release, the Minister indicated that companies will have to pay an additional indemnity equal to 10% of the amounts to be reimbursed in order to finance the program.
  • Program director: An impartial director will be appointed to facilitate an amicable settlement with the Minister and recommend a settlement proposal to the Minister.
  • Confidentiality: The Act provides that anything said or written within the framework of the voluntary program will be confidential and may not be admitted in evidence, unless the company and the Minister agree otherwise. Furthermore, the company, the Minister and the program director cannot be compelled to disclose anything said within the framework of the program or to produce documents prepared or obtained within the framework of the program, including in connection with civil or administrative proceedings and in response to inquiries by administrative or law enforcement agencies.
  • Public report: Within six months after the end of the program, the Minister will have to issue a report that must include the names of the companies that participated in the program, the names of the public bodies involved, and the total amount reimbursed.

Special rules applicable to damage claims

The Act provides for various measures to make it easier to institute civil actions against companies that would have committed fraudulent acts in connection with public contracts and which have not been granted a discharge under the voluntary reimbursement program.

These provisions will come into force at a date that will be set later by the Government, most likely once the voluntary reimbursement program expires.

The Minister of Justice will be able to institute actions for damages on behalf of the various public bodies, but these bodies will also be able to institute an action directly, provided they first obtain the Minister's authorization, and benefit from the exceptional rules.

The following is a summary of the rules that will apply to such actions:

  • Exceptional prescription period: Public bodies may claim damages for a period of up to 20 years before the date on which the new provisions come into force, provided an action is instituted within 5 years after that date. This 20-year period is consistent with the period covered by the Commission of Inquiry on the Awarding and Management of Public Contracts in the Construction Industry ("Charbonneau Commission").
  • Injury presumed to be equal to 20% of the total amount of the relevant contracts: Where it is established that a company has participated in fraud or fraudulent tactics, the injury will be presumed to be equal to the amount claimed by the public body, if this amount does not exceed 20% of the total amount paid by the public body for the contract in question. The company will have the burden of proving that the actual injury is less than 20%. Moreover, the public body may claim an amount exceeding this percentage, provided it submits evidence. Interest will be calculated from the date the work is accepted by the public body.
  • Additional 20% indemnity: Companies will have to pay an additional amount equal to 20% of the damages awarded to cover expenses incurred for the purposes of the Act.
  • Officers and directors solidarily liable: The officers of the company in office at the time of the impugned acts will be solidarily liable, unless they prove that they acted with the care, diligence and skill that a prudent person would have exercised in similar circumstances. The directors of the company in office at the time of the alleged facts will also be solidarily liable if it is established that they knew or ought to have known that fraud or fraudulent tactics were committed, unless they prove that they acted with the care, diligence and skill that a prudent person would have exercised in similar circumstances.
  • Legal hypothec: The public body's claim will confer on it a legal hypothec that may, on authorization, be registered on the company's property as well as on the property of the officers and directors named as defendants and who were in office at the time of the alleged acts.

Legislative amendments

The Act has also amended the Act respecting contracting by public bodies ("ACPB"), the Building Act, the Act respecting elections and referendums in municipalities, the Act respecting school elections, and the Election Act effective April 1, 2015.

The AMF authorization rules have been relaxed:[2]

  • Automatic refusal: Going forward, the AMF will automatically refuse to give authorization to a company only if a majority shareholder of the company who is a natural person, or one of its directors or officers has been found guilty, in the preceding 5 years, of an offence listed in Schedule I to the ACPB, including fraud, bribery, and bid-rigging and cartel offences under the Competition Act.
  • Discretionary refusal: A company found guilty of the offences listed in Schedule I to the ACPB may now obtain its authorization from the AMF if it can show that appropriate measures have been implemented so as to meet "the high standards of integrity that the public is entitled to expect from a party to a public contract or subcontract."[3].

McCarthy Tétrault's comments

Since the program will be of limited duration, companies subject to inquiries or actions with respect to public contracts have every interest in reviewing the terms of the voluntary reimbursement program once it is published, so as to determine whether it is beneficial for them to avail themselves of this option. These companies should also consider preparing evidence with respect to the excess amounts billed, if any, for any contracts that could have been subject to fraud or fraudulent tactics. Such evidence will be used not only to negotiate a voluntary settlement, but also in connection with civil claims to overturn the presumption that the injury is equal to 20% of the contract value.

The constitutional validity of the special rules that apply to claims for damages to facilitate the recovery of the amounts overpaid by public bodies could be challenged. These rules are similar to those provided for in the Tobacco-related Damages and Health Care Costs Recovery Act. McCarthy Tétrault is currently acting for a tobacco manufacturer that has contested the constitutionality of this law before the courts.

Since the directors and officers can raise a due diligence defence to avoid being held personally liable in connection with any action for damages, they should ensure that they are protected by an indemnity agreement under which the company undertakes to take up their defence. Where such an agreement is already in force, it would be wise to ensure that the terms and conditions cover a situation arising from the Act and, if necessary, to renegotiate them. Directors and officers should also verify whether they can rely on the protection offered by the directors' and officers' liability insurance policy subscribed to by the company. It must be pointed out that, in Quebec, liability insurers are bound to take up the defence of a director or officer only if the claim is likely to be covered under the policy, unlike in other jurisdictions, where the insurer has no obligation to take up the defence. It is thus advisable to carefully read the wording of the insurance policy to determine whether a claim under the Act would be covered and to consider negotiating appropriate terms or endorsements. Since insurance policies are usually on a claims-made basis, the policy that will apply is the one in effect at the time a situation arising from the Act forms the subject of a claim, rather than the one that was in effect at the time of the alleged acts. Since the Act permits public bodies to institute actions for alleged acts that date back up to 20 years before its coming into force, some directors who have not been members of a board of directors for many years may find themselves in a delicate situation if the current policy does not also cover past directors of the company. It would be wise to quickly verify this aspect.

The amendments to the AMF authorization regime allow companies to "rehabilitate themselves" by implementing appropriate measures to avoid the repetition of wrongful conduct on the part of their representatives. A company's conviction therefore no longer automatically means that it is ineligible for contracts with Quebec public bodies. However, if a company is found guilty of certain offences, the company and all of its affiliates risk being ineligible for 10 years for federal contracts awarded by Public Works and Government Services Canada ("PWGSC")[4].


[1] 2015, chapter 6.

[2] Since October 24, 2014, all companies must obtain authorization from the AMF in order to enter into a public contract or subcontract involving an expenditure of $5 million or more. The threshold is lower for certain contracts and subcontracts of the city of Montreal.

[3] An Act respecting contracting by public bodies, sections 21.27 and 21.28.

[4] PWGSC's Integrity Framework: See our publication:

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