On December 3, the Government of Quebec tabled Bill 26, An Act to ensure mainly the recovery of amounts obtained as a result of fraud or fraudulent tactics in connection with public contracts (the Bill). A similar bill had been tabled on November 13, 2013, under the previous government, but there was no effective follow-up. The current Bill applies to all public contracts, whereas the previous bill applied only to public contracts in the construction industry.

Among other things, the Bill proposes an amendment to the Act respecting contracting by public bodies (the Act) to allow the Autorité des marchés financiers (AMF) to exercise its discretionary power with respect to enterprises found guilty of offences listed in the Act that wish to be able to obtain or preserve an authorization to enter into a contract/subcontract with public bodies.

Recovery of amounts improperly paid

To facilitate the recovery of amounts improperly paid by a public body as a result of fraud or fraudulent tactics in the course of the tendering, awarding or management of a public contract, the government is proposing various measures, including:

  • Creation of a presumption of injury and a presumption of the value of such injury. Upon proof that an enterprise has committed fraud or engaged in a fraudulent tactic in the above circumstances, the enterprise will be presumed to have caused injury to the public body concerned. The injury is presumed to correspond to the amount claimed by the public body if the amount does not exceed 15% of the total amount paid for the contract concerned. Since the existence and the value of an injury are “presumed” rather than “deemed,” it seems that the lawmakers wish to give the enterprises an opportunity to try to demonstrate the absence of injury or the value of the injury is less than 15%.
  • Solidary liability of officers and directors. The Bill provides that the officers of the enterprise in office at the time the fraud or fraudulent tactics occurred will be held liable unless they prove that they acted with the care, diligence and skill that a prudent person would have exercised in similar circumstances. The same holds for the directors of the enterprise if it is established that they knew or ought to have known that fraud or fraudulent tactics were committed in relation to the contract concerned. The officers and directors will be solidarily liable with the enterprise.
  • Prescription period extended and past public contracts brought within the scope of the Bill. Under the Bill, an action to recover improperly paid amounts may be brought by a public body for injuries caused up to 20 years before the coming into force of these new provisions, provided the action is brought within five years of the coming into force of the new provisions. Moreover, actions that, before the date of coming into force of the new provisions, were dismissed on the grounds that the right was prescribed may be instituted again within five years after that date.
  • Registration of a legal hypothec on the property of the enterprise and the officers and directors concerned. A public body may, in an action brought under the new provisions, register a legal hypothec on the property of any enterprise or of its officers or directors, on the authorization of a judge. Such authorization may be granted if the public body’s claim appears to be well-founded and if there is reason to fear that recovery of the claim might be jeopardized without such authorization.

Voluntary reimbursement program

The government will establish a reimbursement program so that any enterprise or any of its officers or directors may reimburse the amounts obtained from a public body in the previously described circumstances. A discharge may then be obtained regarding the contracts concerned. The program will be of a limited duration. If a transaction is entered into under the reimbursement program, the names of the parties to the transaction, the reimbursement amount and the period concerned will be made public.

The details of this reimbursement program have yet to be announced. The Bill states that this reimbursement program will be published as a draft program in the Gazette officielle du Québec so that any interested person may comment on it within the time period prescribed for such purpose.

AMF’s discretionary regime strengthened

We bring to your attention that, under the Act respecting contracting by public bodies, enterprises wishing to enter into a contract/subcontract with a public body must first obtain an authorization for such purpose from the AMF in the circumstances set out in that Act. For more information on this topic, we refer you to our previous Legal update, with the reminder that the monetary threshold currently in effect is $5 million.

Furthermore, in its current form, the Act respecting contracting by public bodies requires the AMF to refuse to grant or renew or to revoke an authorization if the enterprise concerned has, in the preceding five years, been found guilty of an offence listed in Schedule I of the Act or if it has, in the preceding five years, been found guilty by a foreign court of an offence which, if committed in Canada, could have resulted in criminal or penal proceedings for an offence listed in Schedule I of such Act.  While such convictions will continue to be considered by the AMF before granting, renewing or revoking an authorization, the AMF will now have discretionary power in this area. This appears to be a major change that will provide the enterprises concerned with the opportunity to try to convince the AMF that they are still meeting the high standards of integrity the public is entitled to expect from enterprises wishing to enter into public contracts/subcontracts.

Conclusion

Given that the previous Quebec government had tabled a similar bill and the current government is taking up the issue again with this Bill, it is expected that these provisions will be passed shortly.

The provisions could provide an incentive to the enterprises concerned to take advantage of the reimbursement program in order to prevent a situation where their officers and directors may be held personally liable.

Moreover, while there may now be hope for enterprises found guilty of offences listed in Schedule I of the Act respecting contracting with public bodies that they will nevertheless be able to obtain or preserve their authorizations, they will still have to implement the measures needed to satisfy the high standards for integrity.  More than ever, it is in the interests of enterprises to adopt and comply with ethics and governance rules—for example, by adopting a code of ethics and professional conduct—in order to remain ethically above reproach.