The Quebec government recently introduced Bill 26 titled the Act to ensure mainly the recovery of amounts obtained as a result of fraud or fraudulent tactics in connection with public contracts which is an extension of its attempts to clean up the construction industry in the wake of the troubling revelations that came to light during the Charbonneau Commission's hearings whose final report is expected in 2015.
The Act provides for what it terms as "exceptional" measures to seek and obtain the reimbursement and recovery of any amounts improperly obtained as a result of fraud or fraudulent tactics in the course of tendering, awarding or the management of public contracts.1
The Act covers those public contracts between a private party or enterprise/corporation and a public body as defined in the Act respecting contracting by public bodies.2 A statutory presumption is created whereby any corporation which has engaged in fraudulent activity during the course of the adjudication, award or administration of a public contract is presumed to have caused a damage to the public body. The amount of that damage is presumed to correspond to 15% of the total amount paid for the contract at issue.
The corporation's directors at the time of the fraudulent activity are also solidarily liable for the damage. They may avoid the liability if they establish having acted with the degree of care, diligence and competence of a prudent person acting in similar circumstances. The corporation's administrators are similarly liable if it is shown that they knew or should have known that the fraudulent activity was carried out with respect to the concerned contract3.
As a result, a public body can initiate an action seeking 15% of the value of the contract without having to establish the actual amount of its loss. It will also benefit from the presumption of liability against the corporation, the directors and its administrators.
The public body is not precluded, however, from seeking damages in excess of 15% of the value to contract, but it will have to prove its damages in those circumstances4.
The government, armed with these presumptions, and as an incentive to those corporations or persons who have engaged in fraudulent activities to avoid the legal proceedings, will implement a voluntary reimbursement program whereby any corporation or person may voluntarily reimburses certain amounts that were obtained by fraudulent activity in the course of the tendering, awarding or management of a public contract.
The Minister of Justice will publish a notice setting out the duration and the terms of the program. An administrator is designated by the government who is charged with facilitating an agreement between any corporation or person seeking to avail itself of the program and the government or public body which, if successful, will result in a release of the corporation, and presumably its directors and administrators, for the contracts at issue.
In order to facilitate the resolution of these discussions, the Act stipulates that the administrator cannot be compelled to disclose, before a court or administrative body, what may have been revealed during the course of those discussions nor produce any document prepared for and during the course of same5. Moreover, the administrator is provided with a certain degree of immunity for any of his actions carried out in good faith during the course of his functions6.
Any corporation which either chooses not to avail itself of the voluntary program or cannot resolve the amount to be paid pursuant thereto will be subject to the judicial recovery of the amounts either by the public body, or by the government, where the public body refuses to act.
In addition to the presumptions provided by the Act, the public body's claim asserted in any judicial action will benefit from a legal hypothec which may, upon authorization, be registered against the assets of any corporation or person. The authorization is obtained from a judge in chambers and may be obtained, where urgently required, ex parte. The Act requires that the judge authorize the registration against the assets where the public body's recourse seems founded and there is a risk that, in the absence of the registration, recovery of the amount may be imperiled.
The Act also requires that the court, in addition to the amounts that it may award as result of the proceedings, add a further amount corresponding to 20% of the amount of the award to cover the costs incurred for the application of the Act.
The public body's will be entitled to seek recovery of any fraudulent amounts going back 20 years from the date of the Act's implementation but will have to initiate the recourse, no later than 5 years from the date of the coming into force of the Act.
Finally, in order to ensure the transparency of the process, the identity of the corporation or person involved, the amount involved and the period concerned will be publicly disclosed by the minister or the public entity at issue.
At the present time, the Act has yet to be enacted but we can anticipate seeing the first notices issued by the government with respect to voluntary program issued shortly. The extent to which the private sector will step up and avail itself of the voluntary program remains to be seen.