On November 1, 2012, the new Quebec government tabled in the National Assembly its first proposal for legislative reform: Bill 1 – Integrity in Public Contracts Act1 (Bill 1). The government says that it wants to make sure that public contracts are awarded to enterprises that act with integrity and deserve the public’s trust.

Bill 1 proposes the creation of a new register containing the names of individuals and enterprises that will be authorized to do business with the government,directly or by subcontract. Thus, in practice, an enterprise that is not duly registered will not be able to bid on public contracts or be awarded subcontracts related to such contracts. Public contracts include all construction, supply or services contracts awarded by public bodies.

If Bill 1 is adopted in its present form, it will result in the abolition of the Register of Enterprises Ineligible for Public Contracts (referred to by its French acronym RENA), which had been set up by the previous government following the adoption of Bill 35.3

Who will be eligible for public contracts in future?

Any enterprise that wishes to be included in the register must make an application to the Autorité des marchés financiers (AMF).  If the authorization is granted, it will be valid for three years. The list of enterprises that have obtained an authorization will be public.

An enterprise that conducts its activities on a permanent basis in an establishment situated outside Québec will also be subject to this requirement.

The AMF will refuse to register an enterprise or will revoke an outstanding authorization, including if, in the preceding five years, the enterprise or any of its shareholders (holding 50% or more of the voting rights), directors or officers has been found guilty of any of the offences listed in a schedule to the Bill.4

Lack of integrity will be severely punished

The AMF may also refuse to grant or may revoke an authorization if it considers that “public confidence in the enterprise concerned is undermined on account of a lack of integrity on the part of the enterprise or any of its partners, directors or officers or another enterprise that has direct or indirect legal or de facto control over the enterprise.”  The legislator has provided some examples of factors that will be considered in the AMF’s decision:

  • whether indictments have been issued in the preceding five years for any of the listed offences against the enterprise or any of its shareholders, partners, directors, officers or another enterprise that has direct or indirect legal or de facto control over the enterprise;
  • whether the enterprise or any of its shareholders, partners, directors, officers or another enterprise that has direct or indirect legal or de facto control over the enterprise has, in the preceding five years, been found guilty of or been indicted for any other criminal or penal offence or has behaved in a reprehensible way in the course of the enterprise’s business;
  • whether a reasonable person would conclude that the enterprise is the extension of another enterprise that would be unable to obtain an authorization;
  • whether the enterprise can be perceived as lending its name to another enterprise that would be unable to obtain an authorization;
  • whether the enterprise is unable to prove that it has legal sources of financing enabling it to carry out the contracts it has obtained;
  • whether the enterprise’s structure enables the enterprise to evade the application of the proposed legislation.

The powers of inquiry of the Associate Commissioner for Audits appointed under the Anti-Corruption Act

Bill 1 also proposes to give the Associate Commissioner for Audits appointed under the Anti-Corruption Act powers of inquiry to perform such audits as he sees fit with respect to enterprises on the register, at any time during the validity period of their authorization. In practice, this means that an enterprise that wishes to obtain public contracts must agree to be audited during the entire period of its registration in the register.

The right to submit observations

Before refusing to grant or renew or before revoking an authorization, the AMF will give the enterprise an opportunity to submit observations in writing and to provide other documents as necessary.  

Abolition of the restricted licence provisions

If Bill 1 is adopted in its present form, it will result in the repeal of ss. 65.1 to 65.4 of the Building Act, which introduced a class of licences that are subject to restrictions on obtaining public contracts. In practice, this means that the Régie du bâtiment du Québec will no longer be able to place restrictions on contractors’ licences to prevent them from obtaining public construction contracts. Presumably, that is because restricted licences will be made redundant by the new register of authorizations.

Conclusion

Bear in mind that Bill 1 is only at the introductory stage. The amendments it proposes may undergo changes or may never be adopted.

The financial partners of enterprises performing public contracts should be aware that they may be indirectly affected by the proposed amendments. A contractor that can no longer obtain public contracts or whose authorization is revoked during the performance of a contract will expose its financial partners, such as financial institutions and insurers, to significant financial risks.

Enterprises whose revenues are dependent on public sector contracts would be well advised to follow the progress through the legislature of the proposed reform closely. As we mentioned in our earlier Legal Update on the RENA, it is essential for such enterprises to adopt best practices and ensure that the conduct of their officers, directors, shareholders and employees is above reproach.