1. Diversifying Procurement Market Share
The Canadian government implemented the federal Procurement Strategy for Indigenous Business ("PSIB") in 1996,1 aiming to increase the number of Indigenous businesses participating in procurement processes. Under PSIB, contracts that serve primarily Indigenous populations or that are subject to a land claim agreement must be set aside for bids from Indigenous businesses only.2 Further, the federal government encourages Public Works and Government Services Canada ("PWGSC") to set aside additional contracts under the PSIB.3
As of April 2022, the Government of Canada implemented a mandatory requirement4 for federal departments and agencies to ensure a minimum target of 5% of the total value of contracts is awarded to Indigenous businesses annually. The mandatory procedures relating to this requirement were developed in collaboration with Indigenous partners and are available at Appendix E of this link.5 Indigenous Services Canada reported that 6.29% of all government contracts were awarded to Indigenous businesses in the 2022 to 2023 fiscal year, totalling $1.6 billion.6
This article considers what constitutes an eligible Indigenous business as well as the criteria that must be met in order to compete under, and benefit from, the federal PSIB set-aside program.
2. What is an Indigenous Business?
A business must meet the criteria below before being eligible to register as an Indigenous business. The business must also be able to provide evidence to satisfy the criteria.
2.1 Eligibility Under Federal Legislation
An eligible Indigenous business is an organization in which Indigenous persons have at least 51% ownership and control. A joint venture of which at least 51% is owned and controlled by an Indigenous business or businesses is also eligible to benefit from the PSIB program. "Indigenous persons" is a term defined in the PSIB, and has its own criteria that must be met.
- "Indigenous person"
For PSIB's purposes, an Indigenous person is defined as "an Indian, Métis or Inuit who is ordinarily resident in Canada."7 Accepted evidence demonstrating eligibility may include:
- Indian registration in Canada;
- membership in an affiliate of the Métis National Council or the Congress of Aboriginal Peoples, or other recognized Indigenous organizations in Canada;
- acceptance as an Indigenous person by an established Indigenous community in Canada;
- enrollment or entitlement to be enrolled pursuant to a comprehensive land claim agreement; or
- membership or entitlement to membership in a group with an accepted comprehensive claim.
- Business Structure and Control
A qualifying Indigenous business may be structured as any of the following:
- a Band as defined by the Indian Act;
- a sole proprietorship;
- a limited company;
- a co-operative;
- a partnership; or
- a not-for-profit organization.
While these are all accepted business structures, it is not just about who owns the business on paper, there must be actual control over the business to qualify. The federal government looks to "beneficial ownership" in order to determine whether Indigenous persons have true and effective control of the business. The business' structure will determine how PSIB evaluates whether it meets the 51% control threshold. For example, control may be determined with reference to capital stock and equity accounts, tax returns to identify ownership and business history, cash management practices, or if stock options are available to employees. For a full list of factors, please refer to Appendix A here.8
2.2 Federal Subcontracting Requirements
In addition to meeting the PSIB's eligibility criteria, an Indigenous business must also conform to certain subcontracting policies. If an Indigenous business is bidding for a contract and intends to subcontract a portion of the work, the Indigenous business must certify that at least 33% of the work will be performed by an Indigenous business. This will be assessed based on the value of the work performed, which consists of "the total value of the contract less any materials directly purchased by the contractor for the performance of the contract."9
An Indigenous business that is subcontracted by a bidder must also meet the same eligibility criteria as the Indigenous business submitting the bid. To enforce the eligibility criteria for subcontractors, the bidding organization must request proof of the subcontractor's eligibility and authorize an audit performed by Canada to verify the records. If the bidder does not verify the Indigenous subcontractor's eligibility, this would constitute a breach of contract.
PSIB also encourages non-Indigenous suppliers to sub-contract with Indigenous businesses through evaluation incentives.10 In the bidding process, the inclusion of Indigenous businesses as sub-contractors must be clearly identified, and the sub-contractor must meet all the criteria above.
2.3 Canadian Council for Indigenous Business Eligibility
The Canadian Council for Indigenous Business ("CCIB") is a non-profit, non-government organization whose aim is to facilitate Indigenous businesses in the mainstream corporate sector. CCIB and the Government of Canada developed the current PSIB program together.11 Recognition by CCIB as an Indigenous business under its Certified Indigenous Business ("CIB") program constitutes evidence that may be used for PSIB's purposes.12
CCIB's eligibility criteria for the CIB program require the business to be a CCIB member, have at least 51% Indigenous ownership and control, and provide proof of Indigenous heritage of the owner or owners. Proof may include documents such as an Indian Status Card or valid identification provided by an accepted organization; for a full list of the organizations recognized under CIB visit this link.13 Finally, CCIB also requires proof of ownership and control, which varies based on the type of organization. A sole proprietorship requires a Master Business Licence or provincial/territorial equivalent. If the business is a corporation then it must provide articles of incorporation, a shareholders agreement, a shareholders registry, and/or Schedule 50 of its corporate tax return, if available. Partnerships must provide the partnership agreement.
3. Consequences if Unable to Prove Indigenous Business
When an Indigenous business is submitting its bid, it must certify that it:
- meets the PSIB requirements and will continue to do so throughout the duration of the contract;
- will, upon request, provide evidence that it meets the eligibility criteria;
- is willing to be audited regarding the certification; and
- acknowledges that, if it is found not to meet the eligibility criteria, it will be subject to one or more of the civil consequences set out in the certification and the contract.14
If a business is unable to substantiate the claim that it is an eligible Indigenous business, it risks facing legal consequences. Such consequences may include forfeiture of the bid deposit, retention of the holdback, disqualification from participating in future contracts under the program, and/or termination of the contract.15
4. Advantages and Considerations for an Indigenous Business
PSIB and its related directives and policies aim to bring more Indigenous businesses into the procurement market and gain a larger market share. As a result, there are many opportunities that Indigenous businesses can engage in when they meet the above criteria. One such opportunity is being able to apply for set-aside contracts, which leads to fewer businesses to bid against and a higher chance of being awarded a contract.
Footnotes
1. Initially created and referred to as the Procurement Strategy for Aboriginal Business ("PSAB").
2. Government of Canada, "Directive on the Management of Procurement" (May 13, 2021).
3. Government of Canada, "Chapter 3 - Procurement Strategy for Indigenous Business" (May 12, 2022).
4. Government of Canada, "Government of Canada announces federal-wide measures to increase opportunities for Indigenous businesses" (August 6, 2021).
5. Supra note 2 at Appendix E: Mandatory Procedures for Contracts Awarded to Indigenous Businesses.
6. Government of Canada, "Indigenous Services Canada Report on the Mandatory Minimum 5% Target fiscal year 2022 to 2023" (July 12, 2024).
8. Ibid.
9. Ibid at s. 2(a).
10. Government of Canada, "9.40. Procurement Strategy for Indigenous Business" (May 12, 2022) at 9.40.20.
11. Canadian Council for Indigenous Business, "Supply Change".
12. Ibid.
13. Canadian Council for Indigenous Business, "Certified Indigenous Business".
14. Supra note 7.
15. Ibid at s. 3(b).
Originally published on April 19, 2023 and updated as of Dec. 4 2024
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