On December 7, 2012, the National Assembly of Quebec unanimously adopted Bill no 1, the Integrity in Public Contracts Act (the "Integrity Act"). It is the Quebec government’s most recent attempt to ensure integrity in matters concerning public contracts. To attain this objective, this new act modifies over a dozen other acts, including the Act respecting contracting by public bodies (the "Act"), and establishes a process to verify if an enterprise1 wishing to enter into a contract with a public body or with a municipality satisfies the required integrity conditions. Thus, enterprises that wish to enter into such contracts or subcontracts transaction has closed must henceforth be authorized to do so by the Autorité des marchés financiers (the "AMF"). The AMF can refuse to grant or revoke such authorization if, in its opinion, the public confidence is undermined on account of a lack of integrity on the part of the enterprise concerned, any of its shareholders, partners, directors or officers or another enterprise that controls it.
Application of the Integrity Act
First, the obligation to obtain an authorization from the AMF applies to any enterprise that enters into a construction contract or a service contract with a public body or a municipality whose value is equal to or greater than $40 million and for which the bidding process is ongoing on January 15, 2013 or commences after that date. Second, this obligation also applies to subcontracts whose value is equal to or greater than $40 million which are directly or indirectly related to such public contracts. However, it must be noted that pursuant to the transitional provisions of the Integrity Act, the Government can establishing a different monetary threshold from the one provided, target other types of public contracts or subcontracts and require enterprises that are parties to an ongoing public contract or subcontract to obtain an authorization according to the conditions that it determines.
Obligation to be authorized and exceptions
The enterprise that wishes to enter into a public contract or subcontract must be authorized to do so by the AMF by the date it enters into such contract and said authorization must be maintained throughout the contract’s execution. Where an enterprise responds to a call for tenders, it must be authorized at the time the bid is submitted unless otherwise indicated in the call for tenders. Under the Act every enterprise in a consortium must hold an authorization. Should an enterprise fail to maintain an authorization during the performance of a contract, it will be deemed to have defaulted under the contract upon expiry of a 60 day delay.
There are several exceptions to the authorization requirements under the Act. A non-authorized enterprise can enter into a public contract or subcontract if it does not have an establishment in Quebec and the contract in question needs to be performed outside of Quebec or when a public body deems that urgent action is required and there is a threat to human safety or property.
The Conseil du trésor can also allow a public body to enter into a public contract or subcontract with a non-authorized enterprise when it is in the public interest that said contract be entered into with that particular enterprise. Similarly, the Conseil du trésor can allow the performance of a public contract or sub-contract following receipt of notice from the AMF that the enterprise involved is no longer authorized if it is in the public interest to do so. In these two circumstances, the Conseil du trésor may impose certain conditions to its approval, notably that the contractor agree to the implementation, at the contractor’s expense, of oversight and monitoring measures. However, the Act does not provide any indication as to what elements may be considered in order to evaluate public interest motives.
Obtaining the authorization
To obtain an authorization, an enterprise must submit an application to the AMF in the prescribed form. The enterprise must submit its application together with the information and documents prescribed by regulation and the fee determined by the Conseil du trésor ($400, plus $200 per person or entity subject to verification, notably the officers, directors and partners). The documents concerning the application for an authorization are available on the website of the AMF, under the public contracts section.
The AMF, with the assistance of the Permanent Anti-corruption Unit (UPAC), will start processing applications for authorization as of January 15, 2013. The applications filed by enterprises that are already in a bidding process concerning a construction or services public contract or subcontract whose value is equal to or greater than $40 million, will be evaluated in priority. Thereafter, the Government will determine the value and types of contracts which will eventually require that enterprises be authorized by the AMF.
The AMF recommends enterprises that are not currently in a bidding process to wait before filing their applications for authorization so as to avoid returning certain documents for which the validity period will expire by the time the AMF will process the application. These enterprises can sign up for E-mail info "Public Contracts" on the website of the AMF in order to know when to file their applications for authorization.
In order for the AMF to consider an application for authorization, the enterprise must not have been refused an authorization in the preceding 12 months and, in the case of an enterprise having an establishment in Quebec, it must provide an attestation from Revenue Quebec issued not more than 30 days before the date on which the application is filed.
The AMF can refuse to grant or renew an authorization to an enterprise or can revoke such an authorization in several circumstances, including where an enterprise, its majority shareholder or one of its directors or officers has been convicted of an offence referred to in Schedule 1 of the Act in the preceding five years or if the enterprise has been convicted of an offence similar to those referred to in Schedule 1 of the Act by a foreign court in the preceding five years. The Act gives very broad discretion to the AMF to refuse or to revoke an authorization not only in the case of a conviction but also if an enterprise does not meet the stringent requirements, in terms of integrity, that the public has the right to expect from a party to a public contract or subcontract. To this end, section 21.26 of the Act provides an extensive, non-exhaustive list of factors that the AMF can consider, including:
- the connections an enterprise or one of its, partners, directors, officers, shareholders or other persons or entities which directly or indirectly controls it maintains with a criminal organization, or with a person or entity that engages in laundering proceeds of crime or in drug trafficking;
- whether indictments have been issued, in the preceding five years, against an enterprise or the abovementioned persons for offences referred to in Schedule 1 of the Act ;
- whether an enterprise is under the control of an enterprise or one of the abovementioned persons and that this enterprise or persons have the control of another enterprise or hold similar functions within it, and this, at the time the other enterprise committed an offence referred to in Schedule 1 of the Act for which it was found guilty in the preceding five years;
- whether an enterprise is under the control of another enterprise that has, in the preceding five years, been found guilty of an offence referred to in Schedule 1 of the Act or any of whose directors, partners or officers has been found guilty of such an offence during that period;
- whether an enterprise or the abovementioned persons has, in the preceding five years, been found guilty of or indicted for any other criminal or penal offence;
- whether an enterprise or one of the abovementioned persons has repeatedly eluded or attempted to elude to the application of the law in the course of its business;
- whether an enterprise can be perceived as lending its name to another enterprise that would be unable to obtain an authorization;
- whether the legal sources of financing of the enterprise and its activities match;
- whether an enterprise’s structure enables the enterprise to evade the application of the Act.
Before refusing or revoking an authorization, the Act allows the AMF to order the enterprise concerned to take the necessary corrective measures, within the time it specifies, in order to avoid such refusal or revocation. The AMF is also obliged to notify the enterprise and give it at least 10 days to submit its comments in writing or provide other documents to complete its file, except where urgent action is required or when it is necessary to take an immediate decision to avoid causing irreparable harm. In such cases, the
AMF must allow the enterprise to submit its comments at a later date and to reevaluate the file in light of these.
The authorizations are valid for a period of three years, subject to revocation by the AMF. During the validity period, the Associate Commissioner for Audits appointed pursuant to the Anti-Corruption Act can conduct audits of authorized enterprises and the AMF may require an enterprise to disclose any information necessary for the application of the Act. An enterprise must also notify the AMF of any change in the information already transmitted. The AMF will maintain a public registry of all the enterprises authorized to enter into contracts or subcontract with public bodies or municipalities.
The Act further contains penal provisions pursuant to which penalties can be imposed in several circumstances, including in the event that an enterprise provides false or misleading statements to the AMF, lacks the required authorization or enters into a public subcontract with a non-authorized enterprise. The amount of the penalty varies according to the offence alleged. It can go up to $100,000 for a first offence and be doubled in the event of a subsequent offence.
Gradual replacement of the former ineligibility regime
Although the Integrity Act was adopted on December 7, 2012, some of its provisions will come into force at a later date, which will be determined by the Government. This is the case for the provisions repealing the former regime of ineligibility for public contracts and the register concerning enterprises ineligible for public contracts (the "RENA"). Until the entry into force of these provisions, the RENA will remain in effect and the name of any enterprise which saw its authorization refused or revoked will be registered for a period of 5 years or until it obtains an authorization.
Schedule 1 of the Regulation respecting the register of companies ineligible for public contracts and monitoring measures and support is replaced by Schedule 1 of the Act. An enterprise that was registered in the RENA solely by reason of an offence which is no longer in effect as a result of the replacement of Schedule 1 will be removed from the RENA. Other enterprises whose names appeared on the RENA will remain registered until the end of the period for which they had been declared ineligible prior to the replacement of Schedule 1. An enterprise convicted, after December 7, 2012, of an offence listed in Schedule I of the Act will be registered in the RENA for a period of five years from the date of the final judgment.
The adoption of the Integrity in Public Contracts Act represents entails important changes for construction and other companies doing business with public bodies and municipalities. It is no longer sufficient for these companies not be declared ineligible for public contracts, they must now be authorized in advance by the AMF to enter into public contracts and subcontracts. The very broad discretion granted to the AMF to evaluate applications for authorization could result in the refusal to authorize companies that have thus far been eligible to enter into public contracts and subcontracts under the criteria set forth by the former regime. It will be interesting to observe, in the coming months, the extent to which the AMF uses its discretion as well as the grounds that may be asserted by companies that saw their authorizations refused or revoked to challenge the AMF’s decisions.
For companies that are engaged in a tender or bid process on January 15, 2013 with respect to a public construction or services contract or subcontract whose value is equal to or greater than $40 million, it is essential to submit their applications for authorization as soon possible. The companies that are not currently engaged in such tender or bid process but foresee obtaining such public contract or subcontract do not have to immediately submit their applications for authorization to the AMF, but should commence preparing their applications and should sign up for the E-mail info "Public Contracts" on the website of the AMF in order to know when to file their applications. Finally, companies that do not enter into construction or services public contracts or subcontracts whose value is equal to or greater than $40 million should be equally mindful of the application of the Act, since it is likely that the Government will review the monetary threshold as well as the type of contracts targeted once the first applications for authorization have been processed.