Vol. 145, No. 7 — February 12, 2011

Regulations Amending the Government Contracts Regulations

Statutory authorities

Financial Administration Act and National Capital Act

Sponsoring department

Treasury Board Secretariat

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issue and objectives

In carrying out its programs and providing services to Canadians, the Government of Canada is one of the largest purchasers of goods and services in the country. As such, the Government made a commitment in the Federal Accountability Action Plan to increase the transparency and oversight of government contracting through a regulatory amendment process. Regulation best ensures that all bidders and contractors are made aware of any new conditions regarding entry into contracts with the federal government.

The objective of the appended proposed Regulations is to improve the fairness, openness and transparency of government contracting by deeming integrity clauses to be included implicitly in all federal government bid solicitation documents and procurement contracts. The integrity clauses would thus be considered part of these documents and contracts even if the clauses are not explicitly expressed.

Description and rationale

The proposed Regulations would amend the Government Contracts Regulations (GCRs) to deem certain specified integrity clauses to be expressly set out in government contracts for construction, goods or services. It would also give contracting authorities the power to terminate a contract and require the return of any advance payment if a contractor makes a false declaration or fails to comply with a term that is deemed to be present. This is pursuant to amendments to the Financial Administration Act (FAA) made through the Federal Accountability Act (FedAA), which was assented to on December 12, 2006. In other words, the clauses would be an implicit part of a solicitation or contract even if the clauses are not explicitly contained in the solicitation or contract documents.

The FAA is “an Act to provide for the financial administration of the Government of Canada, the establishment and maintenance of the accounts of Canada and the control of Crown corporations.” The related GCRs establish the conditions of contract entry and the security requirements for government contracts. The approach of including a deemed contract provision is not novel since a similar provision has been included in section 40 of the FAA for over 10 years (i.e. it is a term of every contract that any payment under that contract is subject to there being an appropriation for the particular service in the fiscal year in which any commitment under that contract would come due).

Treasury Board’s Contracting Policy already prohibits the payment of contingency fees to consultant lobbyists, and the Criminal Code already prohibits people convicted of fraud from contracting with the government. In addition, Treasury Board provides guidelines to departments regarding the public disclosure of contracts over $10,000.

The proposed amendments would increase administrative transparency, oversight and accountability for procurement by deeming terms to be expressly stated in contracts that

• Prohibit the payment of contingency fees to consultant lobbyists (pursuant to the FAA, paragraph 42(1)(a));
• Declare that the bidder has not been convicted of certain criminal offenses (pursuant to the FAA, paragraph 42(1)(c));
• Provide the contractor’s consent to publicly disclose basic information about a procurement contract (pursuant to the FAA, paragraph 42(1)(e)); and
• Require a contractor to return any advance payments and provide the contractor’s consent that the government may cancel the contract in the event of non-compliance with a deemed term (pursuant to the FAA, paragraph 42(1)).

Amendment to the GCRs under 42(1)(a) of the FAA

In Treasury Board’s Contracting Policy, section 8.11 and Appendix M prohibit contractors from paying contingency fees to consultant lobbyists. The proposed amendment would convert these policy requirements into regulations by deeming clauses that have the same effect as the policy to be expressly set out in contracts.

Amendment to the GCRs based on paragraph 42(1)(c) of the FAA

Following the intent of the current contracting policy requirements (as informed by the recent amendment to the Criminal Code through the FedAA), this amendment to the GCRs would deem a clause to be expressed in every procurement contract to prohibit people who are convicted of fraud against the government from entering into the contract. This prohibition is already in the Criminal Code and is reflected in the Contracting Policy, section 12.5.1, as follows:

The Criminal Code, section 748, subsection 3 [now section 750(3)], prohibits anyone who has been convicted of an offence under

• Section 121, Frauds upon the Government;
• Section 124, Selling or Purchasing Office; or
• Section 418, Selling Defective Stores to Her Majesty,

from holding public office, contracting with the government or receiving a benefit from a government contract, unless the Governor in Council has restored (in whole or in part) these capabilities to the individual or the individual has received a pardon.

The FedAA amended the Criminal Code and the FAA to create new fraud provisions and included them in subsection 750(3) of the Criminal Code. However, since few people have been convicted of an offence under the old provisions of the Criminal Code, and since there have been no convictions under the new provision, there is little possibility that any current contractor would be affected by converting the policy requirement into a regulation. Further, the consequence of any non-compliance with the proposed Regulations would be limited to a breach of contract. Finally, there is no known reason why any person would object to including this prohibition in contracts. Suppliers and Canadians would reasonably expect that people who have been convicted of certain criminal offences should not be allowed to enter into a contract with the federal government.

Amendment to the GCRs based on paragraph 42(1)(e) of the FAA

Government departments currently disclose contracts over $10,000. Under the proposed deemed clause, the contractor would consent to the publication of basic information about the contract (including the vendor’s name, the reference number, the contract date, the description of work, the contract period, the contract value and comments). Publication of this information enables all Canadians to be better informed about federal government acquisitions.

Amendment to the GCRs based on subsection 42(1) of the FAA

A contractor’s non-compliance with a deemed term would give the contracting authority the power to terminate a contract and require the contractor to return any advance payment. This deemed clause mitigates the risk of a contractor making false declarations to obtain a contract or revoking his or her agreement to allow publication of basic information about the contract after its award, both of which Canadians would be expected to find unacceptable. In addition, the deemed clause mitigates the risk to the reputation of the Government of Canada should these circumstances occur.

Other amendments

This proposal contains other amendments to the GCRs:

• To extend the definition of “contracting authority” to include both individuals who are authorized under various laws to enter into contracts and departments that have the authority to enter into contracts on their own (instead of on behalf of the Crown). For example, the Director of Public Prosecutions Act gives the Director the power to enter into service contracts. The proposed amendment would continue to exempt a commission of inquiry since commissions are conducted under very short time frames and are required to operate independently from Government to be credible. In addition, the proposed amendment would continue to exempt the staffs of the Senate, the House of Commons, the Library of Parliament, the Office of the Senate Ethics Officer and the Office of the Conflict of Interest and Ethics Commissioner as they are part of the Government’s legislative branch;
• To remove the definition of “contract” to avoid the potential effect of changing the scope that this term is meant to have. In the FAA, there are a number of sections that use the term “contract” without defining it and it is a legal principle of legislative drafting that a regulation should not, without express authority, define a term that is used without being defined in the Act under which it is made;
• To change the application of the Regulations from “on behalf of Her Majesty” to contracts that “provide for the payment of any money by Her Majesty.” This change clarifies that the Regulations apply when construction, goods or services are for use in or by a department;
• To remove the National Capital Commission (NCC) from the GCRs, consistent with the NCC Mandate Review Panel’s recommendation;
• To use a more precise French expression in the Regulations for “la prestation de services juridiques”;
• To replace the reference to the Federal Real Property Act with the updated name of this Act, the Federal Real Property and Federal Immovables Act; and
• To exempt Agents of Parliament, the Director of Public Prosecutions and the Communications Security Establishment Commissioner from the requirement to seek the approval of the Minister of Justice to enter into a contract for legal services. The proposal to exempt Agents of Parliament and the offices of the Communications Security Establishment Commissioner and the Director of Public Prosecutions from the requirement to engage legal services only by authority of the Minister of Justice is consistent with the legislation that established these organizations to be at arm’s-length from the Government.

Alternatives

Option 1: Maintain current Regulations without changes

This option was rejected because it would not fulfill the implied will of Parliament to deem certain clauses to be in contracts, as per the Government’s commitment in the Federal Accountability Action Plan. Further, during committee hearings into the relevant sections of the FedAA, committee members understood that the intent of section 312 of the FedAA was to improve the transparency and oversight of the government procurement process and that additional analysis was needed before incorporating the requirements directly into the FAA.

Option 2: Amend the GCRs to fix terms that are deemed to be in contracts

This option involves making the coordinating amendments and the non-controversial regulatory amendments described above to bring into force the intention of the FedAA. The proposed Regulations have been analyzed to determine that the risk of creating unintended consequences is low.

Benefits and costs

The proposed amendments would not impose any new costs on departments that are not already required under the Contracting Policy and other government policies. There would be no imposition of additional requirements on other stakeholders. The amendments would improve the fairness, openness and transparency of the procurement process by including integrity clauses in procurement contracts.

Consultation

The FedAA involved extensive consultations and public involvement. Dozens of witnesses were called to two parliamentary committees studying the Bill that led to the FedAA. The committees held over 40 meetings during 2006, and Parliamentarians debated the Bill for 22 days before passing it.

The provisions dealing with lobbyists, fraud and proactive disclosure were addressed in several committee hearings and became the subject of amendments discussed and passed in both the House of Commons and the Senate.

A first set of proposed regulatory amendments were pre-published in the Canada Gazette, Part I, on September 29, 2007, for public input. The consultation period lasted 30 days. Comments received from Public Works and Government Services Canada were technical in nature and have been incorporated into the appended proposed Regulations.

To ensure that there were no further concerns after the pre-publication period, the Treasury Board of Canada Secretariat invited comments from the Privy Council Office regarding commissions of inquiry and also from the Office of the Communications Security Establishment Commissioner. Feedback was also invited from the offices of Agents of Parliament, the Director of Public Prosecutions, the Department of Justice and the National Capital Commission. All responses have been incorporated into the appended proposed Regulations.

Additional technical issues arose in redrafting the Regulations following the initial pre-publication period. For example, it was discovered that the GCRs appeared to limit the application of Part III of the FAA, which is inconsistent with the power to make regulations. Deleting the definition of “contract” corrected this situation, but required coordinating amendments with other regulations and holding another round of consultations to ensure that there were no other impacts on stakeholders. The changes have been incorporated into the appended proposed Regulations.

The proposed Regulations will again be pre-published due to the time that has passed since the first pre-publication and the number of changes that have been made as a result of the consultations.

Compliance and enforcement

The compliance and enforcement of the GCRs would remain the same. In addition, should someone be found to have made a false declaration, the contracting authority would be authorized to terminate the contract and require the contractor to return any advance payments.

Contact

Glenn Richardson
Senior Policy Analyst
Acquired Services and Assets Sector
Office of the Comptroller General
Treasury Board of Canada Secretariat
L’Esplanade Laurier
140 O’Connor Street
Ottawa, Ontario
K1A 0R5
Telephone: 613-941-7179
Fax: 613-957-2405
Email: Glenn.Richardson@tbs-sct.gc.ca

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to subsections 41(1) (see footnote a) and 42(1) (see footnote b) of the Financial Administration Act (see footnote c) and subsection 15(3) (see footnote d) of the National Capital Act (see footnote e), proposes to make the annexed Regulations Amending the Government Contracts Regulations.

Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Glenn Richardson, Senior Policy Analyst, Acquired Services and Assets Sector, Office of the Controller General, Treasury Board of Canada Secretariat, Ottawa, Ontario K1A 0R5 (tel.: 613-941-7179; fax: 613-957-2405; e-mail: Glenn.Richardson@tbs-sct.gc.ca).

Ottawa, February 3, 2011

JURICA ČAPKUN
Assistant Clerk of the Privy Council

REGULATIONS AMENDING THE GOVERNMENT CONTRACTS REGULATIONS

AMENDMENTS

1. (1) The definition “contract” in section 2 of the Gover n ment Contracts Regulations (see footnote 1) is repealed.

(2) The definition “contracting authority” in section 2 of the Regulations is replaced by the following:

“contracting authority” means

1. (a) the appropriate Minister, as defined in paragraph (a), (a.1) or (b) of the definition “appropriate Minister” in section 2 of the Financial Administration Act;
2. (b) a department within the meaning of paragraph (a.1) of the definition of “department “ in section 2 of the Financial Administration Act that has the legal authority to enter into a contract;
3. (c) a departmental corporation named in Schedule II to the Financial Administration Act;
4. (d) any individual — other than a commissioner appointed under the Inquiries Act and any individual authorized under the Parliament of Canada Act to enter into a contract — who is authorized by or under an Act of Parliament to enter into a contract. (autorité contractante)

2. (1) The portion of section 3 of the Regulations before paragraph (a) is replaced by the following:

3. (1) These Regulations apply to all goods, service and construction contracts that are entered into by a contracting authority and that provide for the payment of any money by Her Majesty, except

(2) Paragraphs 3(1)(d) and (e) of the Regulations are replaced by the following:

1. (d) a contract for the performance of legal services;
2. (e) a contract for the fit-up of an office or a residential accommodation if the contract for fit-up is part of a transaction authorized pursuant to the Federal Real Property and Federal Immovables Act or the regulations made under it; or

(3) The Regulations are amended by adding the following after subsection 3(1):

(2) Despite paragraph (1)(d), section 4 applies to a contract for the performance of legal services.

(3) Despite subsection (1), section 18 applies to any contract referred to in that subsection.

3. The heading before section 4 of the French version of the Regulations is replaced by the following:

PRESTATION DE SERVICES JURIDIQUES

4. Section 4 of the Regulations is replaced by the following:

4. It is a condition under which a contract for the performance of legal services may be entered into that the Minister of Justice approve the entering into of the contract, except in respect of a contracting authority referred to in the schedule.

5. The Regulations are amended by adding the following after section 17:

PART III

DEEMED TERMS

18. (1) The following terms are deemed to be expressly set out in every construction, goods or service contract that provides for the payment of any money by Her Majesty:

1. (a) the contractor declares that the contractor has not, directly or indirectly, paid or agreed to pay, and will not, directly or indirectly, pay a contingency fee to any individual for the solicitation, negotiation or obtaining of the contract if the payment of the fee would require the individual to file a return under section 5 of the Lobbying Act;
2. (b) all accounts and records relating to any payment by the contractor of fees or other compensation for the solicitation, negotiation or obtaining of the contract shall be subject to any accounting and auditing provisions of the contract;
3. (c) the contractor declares that the contractor has not been convicted of an offence, other than an offence for which a pardon has been granted, under section 121, 124 or 418 of the Criminal Code;
4. (d) the contractor consents, in the case of a contract that has a value in excess of $10,000, to the public disclosure of basic information — other than information described in any of paragraphs 20(1)(a) to (d) of the Access to Information Act — relating to the contract; and
5. (e) if the contractor makes a false declaration under paragraph (a) or (c) or fails to comply with the terms set out in paragraph (b) or (d), it is an act of default under the contract and the contractor agrees, in addition to any other remedies that may be available against the contractor, to immediately return any advance payments and agrees that the contracting authority may terminate the contract.

(2) The following terms are deemed to be expressly set out in every bid solicitation for a construction, goods or service contract that provides for the payment of any money by Her Majesty:

1. (a) the bidder declares that the bidder has not, directly or indirectly, paid or agreed to pay, and will not, directly or indirectly, pay, a contingency fee to any individual for the solicitation, negotiation or obtaining of the contract if the payment of the fee would require the individual to file a return under section 5 of the Lobbying Act; and
2. (b) the bidder declares that the bidder has not been convicted of an offence referred to in paragraph (1)(c), other than an offence for which a pardon has been granted.

6. The Regulations are amended by adding, after section 18, the schedule set out in the schedule to these Regulations.

COMING INTO FORCE

7. These Regulations come into force on the day on which they are registered.

SCHEDULE
(Section 6)

SCHEDULE
(Section 4)

CONTRACTING AUTHORITIES EXEMPTED FROM SECTION 4

The Auditor General of Canada
Le vérificateur général du Canada

The Chief Electoral Officer of Canada
Le directeur général des élections

The Commissioner of Lobbying
Le commissaire au lobbying

The Commissioner of Official Languages
Le commissaire aux langues officielles

The Commissioner of the Communications Security Establishment
Le commissaire du Centre de la sécurité des télécommunications

The Director of Public Prosecutions
Le directeur des poursuites pénales

The Information Commissioner of Canada
Le commissaire à l’information du Canada

The Privacy Commissioner of Canada
Le commissaire à la vie privée du Canada

The Public Sector Integrity Commissioner of Canada
Le commissaire à l’intégrité du secteur public

[7-1-o]

Footnote a
S.C. 2006, c. 9, s. 311

Footnote b
S.C. 2006, c. 9, s. 312

Footnote c
R.S., c. F-11

Footnote d
R.S., c. 5 (4th Supp.), s. 6(2)

Footnote e
R.S., c. N-4

Footnote 1
SOR/87-402

NOTICE:
The format of the electronic version of this issue of the Canada Gazette was modified in order to be compatible with extensible hypertext markup language (XHTML 1.0 Strict).