On April 1, 2015, An Act to ensure mainly the recovery of amounts improperly paid as a result of fraud or fraudulent tactics in connection with public contracts (hereinafter the "Act") was enacted by the National Assembly.
Through this public order statute, the Government of Quebec is hoping to recover the amounts overpaid in awarding all public contracts – not only contracts in the construction industry – as a result of fraud or fraudulent tactics committed by certain enterprises or their directors and officers. This goal will be achieved in two phases, which will come into force consecutively.
First, Chapter II of the Act sets up a reimbursement program (hereinafter the "Reimbursement Program" or the "Program") providing offending enterprises the opportunity to voluntarily report their wrongful conduct, without a formal civil action being taken against them. Enterprises and natural persons who take advantage of this option will have to put their cards on the table and then submit a proposal under the Reimbursement Program. The negotiations between the parties will be supervised by an impartial and independent director (the "Director"), a role the government has entrusted to François Rolland, former Chief Justice of the Superior Court. Everything that is discussed or written in connection with the Program will be inadmissible as evidence in a court of law. Moreover, the Director cannot be compelled to produce a document prepared or obtained within the framework of the Program. However, as soon as an agreement is entered into, the name of the parties, the amount agreed upon and the period covered must be publicly disclosed. The enterprise's participation in the Program will also be public.
As for the second phase of the Act, Chapter III will establish various rules applicable to judicial proceedings, which may be commenced in the event that a party does not participate in the Program or where the parties cannot agree. However, enterprises which prefer to remain silent about their fraudulent activities or tactics and avoid the Program must be aware that this chapter will establish a rather impressive array of rules facilitating civil claims against them.
The Act provides for several presumptions against enterprises. First, as soon as it is proven that an enterprise participated in fraud or fraudulent tactics in the course of the tendering, awarding or management of a public contract, it will be presumed to have caused injury to the public body in question, without the public body have to prove the injury or causality. Once this proof is made, the officers of the enterprise in office at the time the fraud or fraudulent tactics occurred will be deemed liable unless they prove that they acted with diligence. As for the directors in office at the time the fraud or fraudulent tactics occurred, the burden is on the public body, which will have to prove that directors knew or ought to have known about the alleged acts. Where applicable, the enterprise and/or its officers and/or directors will be solidarily (joint and severally) liable.
The Act also establishes a presumption regarding the amount of the injury. The injury is presumed to correspond to the amount claimed by the public body, up to 20% of the total amount paid for the contract. The body may claim a greater amount, but it will have to prove it. To secure the claim, the Act creates a legal hypothec, albeit its registration must be authorized by a judge in chambers.
Also, derogating from the general rule that a personal or real movable right is time barred if not exercised within three years, the Act gives the public body an extended statute of limitations. In fact, the public body will be permitted to bring, within five years after the date the Act comes into force, an action for acts which occurred up to 20 years preceding the coming into force of Chapter III.
Chapter III will come into force after the Program in order to encourage enterprises and public bodies to reach an agreement.
Also, in connection with both the Reimbursement Program and judicial recourses, the Minister may join several claims against an enterprise in a single file, even those stemming from separate contracts with separate public entities.
The Reimbursement Program
On September 23, 2015, the government published the details of the Reimbursement Program. The following is an overview of its various steps.
The notice of intent
In keeping with the spirit of the Act, participation in the Program by enterprises and individuals will be voluntary. An enterprise or individual (hereinafter the "Participant" or "Participants") who wishes to take advantage of the Program must first indicate its wish by sending the Director a notice of intent. At this stage, it is not necessary to specify an amount or the terms of an offer. However, the notice must include a list of the public bodies and the years covered by the proposed reimbursement. Moreover, a Participant who wishes to ensure its list is complete can ask the Director to publish a notice on its web site addressed to public bodies in general. This publication will allow any public body that believes it unjustly paid money to the Participant to come forward within 90 days of publication of the notice.
Note that the fact that a person takes advantage of the Program does not constitute an acknowledgement of liability or admission of wrongdoing. On the other hand, participation in the Program does not protect the Participant or its officers against any penal or criminal action that may be taken regarding their public contracts.
The settlement proposal
Within 30 days of submitting its notice of intent, a Participant must file a settlement proposal indicating, for each public body involved:
- a list of all contracts awarded for each year covered by the notice of intent, whether or not they are covered by the settlement proposal;
- a list of all contracts covered by the proposal and the total amount of each contract;
- the settlement proposal, the method used to determine the amount, the terms of payment as well as the guarantees offered to ensure payment;
- the terms of the release sought.
The decision to submit a settlement proposal must be considered carefully. Once filed, a Participant's proposal cannot be withdrawn. In addition, although participation in the Program may avert litigation, a Participant must submit, along with its proposal, a cheque covering a non-refundable lump sum amount equal to 10% of the amount offered to assist in financing the Program.
If a Participant wishes, it may make a public statement if its proposal is accepted. Where applicable, the terms of the statement must be included in its proposal.
Within 150 days of being filed, the Director must send the Minister the proposal, along with his preliminary recommendation. If the Director is unable to make a favourable recommendation, he notifies the Participant to give the Participant a chance to make any necessary changes so that the Director may make a favourable recommendation.
If the Director only favourably recommends parts of the proposal, the Minister may only submit the parts of the settlement proposal that were the subject of a favourable recommendation to the vote of the public bodies.
Response of public bodies
Within 30 days following receipt of the proposal and on the Director's recommendation, the Minister sends each public body concerned the aspects of the proposal involving it as well as the global amount offered. Each body must then inform the Minister whether or not it agrees within 60 days following receipt of the proposal, failing which the body will be deemed to agree.
If no body covered by the settlement proposal disagrees, the proposal is approved. However, if one or more bodies have sent a refusal notice, the Director may convene the parties involved to mediation. If the mediation is successful with all the bodies that had indicated their refusal, the proposal is approved. If there is no mediation or the mediation is unsuccessful, the proposal is submitted to a vote.
Apart from proposals which are only intended for governmental departments or those for which no refusal notice has been given, a settlement proposal must be put to a vote by the public bodies in question. To be accepted, the settlement proposal must receive the approval of the bodies holding at least 2/3 of the votes. Each public body has one vote for each dollar that is the subject of a proposal involving it.
If the proposal is approved, either through a vote or in the absence of a refusal notice, it constitutes a transaction. The name of the parties, the agreed upon amount as well as the period covered will then be made public. It is important to note that any release obtained based on misrepresentations or a clearly incomplete disclosure will be of no effect with respect to the contracts that were the subject of the misrepresentations or clearly incomplete disclosure.
If the proposal is not approved, the transaction does not take place and the Participant may be subject to civil proceedings as provided for under the second phase of the Act.
When a Participant files a settlement proposal, it discloses information and agrees to disclose to the Director all facts and information relevant to assessing it. However, section 4 of the Program provides that anything that is said or written privately in connection with the application of the Program is confidential and cannot be admitted into evidence unless the Minister and the individual or enterprise expressly agree.
It is important to bear in mind that, although the information disclosed is confidential, the fact that an enterprise or individual is participating in the Program will be made public.
Important dates and deadlines
The Program will come into effect on November 1, 2015 and end on October 31, 2017. An enterprise or individual wishing to participate in the Program must send a notice of intent by November 1, 2016. However, there is some inconsistency in terms of the end of the Program and its deadlines. If time limits for each stage of the process are summed up, they amount to 390 days, not taking into account the power given to the Director and the Minister to extend them. However, the time provided for the Program, depending on when the notice of intent is filed, is between one and two years.
The Reimbursement Program under An Act to ensure mainly the recovery of amounts improperly paid as a result of fraud or fraudulent tactics in connection with public contracts gives enterprises and individuals an interesting opportunity to negotiate with public bodies and avoid civil claims. However, an enterprise or individual should also be aware that, in addition to being public, its participation in the Program could be a lengthy and costly process due to both the protracted timelines provided for in the Program and the fact that it will have to pay 10% of the amount of the proposal in fees, whether the process is successful or not. Lastly, it should be kept in mind that participation in the Program does not rule out the possibility of criminal or penal proceedings.