Procuring An Edge For Indigenous Businesses

1. Diversifying Procurement Market Share

The Canadian government implemented the federal Procurement Strategy for Indigenous Business ("PSIB") in 1996, 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. Further, the federal government encourages Public Services and Procurement Canada ("PSPC") to set aside additional contracts under the PSIB.

As of April 2022, the Government of Canada requires 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 in Appendix E to the Directive on the Management of Procurement. Indigenous Services Canada reported that 6.29% of all government contracts were awarded to Indigenous businesses in the 2022 to 2023 fiscal year, totalling approximately $1.6 billion.

To be considered for most contracts limited to PSIB set‑asides, a business must typically be listed in the Indigenous Business Directory ("IBD") or on a recognized modern treaty business list.

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 for PSIB purposes. 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. For joint ventures, effective Indigenous ownership must be calculated by looking through any Indigenous corporate partners to their own Indigenous ownership percentage. "Indigenous persons" is a term defined for PSIB and IBD purposes, and has its own criteria that must be met.

1. "Indigenous person"

For PSIB's purposes, an Indigenous person is defined as "an Indian, Métis or Inuit who is ordinarily resident in Canada." Accepted evidence demonstrating eligibility may include:

• Indian registration in Canada;
• membership in an affiliate of the Métis National Council or the Congress of Indigenous 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;
• membership or entitlement to membership in a group with an accepted comprehensive claim; or
• evidence of being resident in Canada, which may include a provincial or territorial driver's license, a lease or other appropriate document.

1. 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, the federal government is increasingly concerned with "actual control" by the Indigenous party. A business that is controlled by Indigenous persons on paper, but that operates without Indigenous control in practice, is increasingly unlikely 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 assessed with reference to capital structure, voting rights and governance, including:

• capital stock and equity accounts, classes of shares, warrants and options;
• dividend policy and payments;
• corporate and partnership documents such as charters, shareholders' or partnership agreements and joint venture agreements;
• cash management practices and financial arrangements; and
• tax returns, business history and governance records such as minutes of directors' and shareholders' meetings.

For a fuller list of factors, please refer to the federal guidance in Annex 9.4: Requirements for the Set‑aside Program for Indigenous Business and the "How to Register for the Indigenous Business Directory" guide.

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 in its bid that at least 33% of the value of the work performed under the contract 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."

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. 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 Recent trends

On October 23, 2025, the Committee on Indigenous and Northern Affairs presented a report on PSIB abuse to the House of Commons, which highlighted, among other things, government concern over alleged abuses of the PSIB program. Since then, the IBD appears to have heightened its scrutiny of businesses applying for the Set-aside program. Anyone looking to qualify for Indigenous procurement, therefore, should be prepared to meet the more detailed ownership, control and content requirements that IBD officials may apply in an audit.

Many of the new requirements seen in IBD audits are now outlined on the Government of Canada guide "How to Register for the Indigenous Business Directory." Below are key themes that we have seen in IBD audits:

• Control: Indigenous partners or joint venturers must be "involved in the strategic direction and operational management" of the partnership/joint venture. This includes "key decisions, including the appointment of key personnel."
• Roles: The IBD is now requiring that Indigenous partners or joint venturers occupy a "lead role," and that any non-Indigenous entities contribute only "under the direction and control" of the Indigenous entity.
• Value and Financial Benefit: Under Annex 9.4, Indigenous businesses in a joint venture must perform at least 33% of the "value of the work" on a PSIB contract. In recent IBD audits, however, officials have gone further and stated that "the majority of the contract's value must be delivered by Indigenous business(es)" and that "the majority of financial benefit must go to Indigenous business(es)." In other words, for joint ventures the 33% test is now being treated as a minimum floor, not a safe harbour, and IBD auditors expect the Indigenous partner's workshare and financial return to align with its ownership and lead role.

The IBD's message in 2025 and beyond is clear: to participate in the PSIB program, Indigenous ownership and control must be substantial, and strictly evidenced both on paper and in practice. The 33% value requirement now appears to be a minimum threshold, not a guarantee of qualification.

2.4 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 have worked closely together on Indigenous procurement initiatives. Recognition by CCIB as an Indigenous business under its Certified Indigenous Business ("CIB") program constitutes evidence that may be used for PSIB's purposes.

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. 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.

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.

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. The federal 5% Indigenous procurement target also creates sustained demand for qualified Indigenous suppliers and PSIB‑eligible partnerships.

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