On December 7, 2012, the Quebec National Assembly unanimously adopted Bill 1 concerning integrity in public contracts, the purpose of which is to promote "public confidence in the public procurement process by attesting to the integrity of tenderers" (the Integrity Act or the Act). It amends several Quebec statutes relating to public bodies and public contracts, in particular, An Act Respecting Contracting by Public Bodies (the Public Contracts Act), several sections of which apply to municipal authorities.

An enterprise wishing to enter into a contract with a public body or a municipality must now first determine whether it needs to obtain the required authorization under the Integrity Act. It must also continue to ensure that it, any related entity, and, in the performance of a public contract, any subcontractor, meets the integrity requirements set out by the National Assembly. It should be noted that the register of enterprises that are ineligible for public contracts will remain in place for the time being.

With respect to public bodies, the Integrity Act sets out several measures that aim to more strictly and effectively control public procurement processes. For example, the chief executive officer of each public body must appoint a contract rules compliance monitor, and the Conseil du trésor (Treasury) now plays a central role with respect to public contracts, as it ensures, among other things, the coherence of the applicable legal regime.

This bulletin identifies the most unique measures under the Integrity Act which are likely to affect enterprises doing business with the government, its bodies and municipalities.

New Authorization Regime

An enterprise wishing to enter into a contract with a public body must hold an authorization from the financial markets authority in Quebec – the Autorité des marchés financiers (AMF) – on the date the public contract is entered into. Enterprises responding to a call for tenders must also meet this requirement when responding to a call for tender for a public contract, unless the call for tenders requires a different date, which must nevertheless precede the date on which the public contract is entered into. The same rules apply to subcontracts directly or indirectly related to a public contract.

The AMF authorization is valid for three years. Enterprises authorized to enter into contracts with public bodies or subcontracts directly or indirectly related to such contracts are entered in a register maintained by the AMF and accessible to the public.

Applicable Contracts

Not all public contracts or subcontracts are subject to the Integrity Act. The government has provided for the regime to be implemented in two stages. Effective January 15, 2013 (while waiting for the implementing regulations to be adopted), the obligation to obtain prior authorization applies only to construction and service contracts and subcontracts that involve an expenditure equal to or greater than C$40-million. Municipal contracts have the same expenditure threshold, but the subject matter extends to the performance of work or the provision of insurance, equipment, materials or services. At the request of the City of Montréal, the Quebec government has allowed for the Act to apply to a list of contracts in respect of which the City of Montréal has already issued calls for tender or that it wishes to issue in the near future, despite the amount of such contract being below the Act's C$40-million threshold (order-in-council of December 14, 2012).

The Act is ambiguous with respect to the scope of the authorization regime from the AMF for certain types of contracts. Pursuant to its section 85, only construction and service contracts are covered. However, in addition to construction and service contracts, the Public Contracts Act also applies to other types of contracts, such as supply contracts or public-private partnership contracts. The terminology used in section 85 thus seems to exclude from the scope of the Act such other contracts. If that were the case, construction or service subcontracts directly or indirectly related to PPP contracts, for example, would also be excluded from the application of the provisions of the Integrity Act by reason of section 21.17 of the Public Contracts Act (subcontractors are required to obtain an authorization only if the main contractor is required to obtain authorization). It should be noted that by Order in Council No. 97-2013 (February 13, 2013), the Government of Quebec subjected certain public-private partnership contracts to the Integrity Act.

As set out above, the government reserves the right to determine other categories of contracts or subcontracts for which prior authorization must be obtained and may reduce the threshold value for certain contracts or subcontracts for the purposes of the application of the provisions regarding mandatory authorization.

Application for Authorization: Procedure

An enterprise that has an establishment in Quebec must, when filing an application for authorization with the AMF, submit a recent attestation from Revenu Québec showing that it has filed all returns and has no overdue accounts with the tax authorities. Moreover, any application, whether or not the enterprise has an establishment in Quebec, must be submitted together with the necessary information in the form prescribed by the AMF and include the prescribed fees. The relevant forms are now available on the AMF website (http://www.lautorite.qc.ca/en/public-contracts.html).

For the purpose of the application of the authorization regime, "enterprise" means "a legal person established for a private interest, a general, limited or undeclared partnership or a natural person who operates a sole proprietorship." Furthermore, every enterprise that forms part of a consortium must obtain an authorization from the AMF.

Even though the authorization is issued by the AMF, an Associate Commissioner for Audits, appointed pursuant to the Anti-Corruption Act (Quebec), reviews the information submitted by the enterprise to the AMF together with its application for authorization or renewal thereof and conducts the audits he or she deems necessary.

Upon completion of the audit, the Associate Commissioner for Audits provides an advisory opinion to the AMF, which then renders its decision. The Commissioner must state the grounds for any recommendation that an authorization be refused or not be renewed. It is then up to the AMF to either grant or renew, or refuse to grant or renew, an authorization to an enterprise or to revoke an authorization under the circumstances described in the Integrity Act, which sets out the following grounds for an automatic refusal or revocation:

  • if the enterprise, or any of its directors, officers or shareholders holding 50% or more of the voting shares have been found guilty, in the five years preceding the application, of an offence listed in Schedule I to the Act (among others, such offences include federal offences pursuant to the Criminal Code, the Competition Act and the Corruption of Foreign Public Officials Act);
  • if, in the five years preceding the application, the enterprise has 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 to the Act.

The Integrity Act goes even further, however, providing the AMF with the power to refuse to grant or renew authorization or to revoke such authorization if the enterprise "fails to meet the high standards of integrity that the public is entitled to expect from a party to a public contract or subcontract" regardless of the recommendation issued by the Associate Commissioner for Audits. This provision is one of the most controversial of the Act and has been challenged by various groups who deem this provision inappropriate and subject to interpretation, given its discretionary and subjective nature. Of course, the Act suggests certain factors that the AMF may take into account, but the list of suggested factors is neither exhaustive nor compulsory. Some additional provisions balance this discretion somewhat, for example, the obligation, except in the case of an emergency, to grant the enterprise in question a delay to submit its observations or to complete its filing before an authorization is refused.

The factors the AMF may take into account include the integrity of the enterprise and that of its directors, officers, partners, shareholders as well as that of other persons or entities that have direct or indirect legal or de facto control over the enterprise. The AMF may also consider the following factors:

  • the enterprise's links to a criminal organization or to any other entity that engages in the laundering of proceeds of crime or in the trafficking of illegal substances
  • the fact that the enterprise, any of its directors, officers, partners or shareholders, or a person or entity that has direct or indirect legal or de facto control over the enterprise has been prosecuted for an offence listed in Schedule I to the Act in the five years preceding the application
  • the commission, by a related enterprise, of an offence listed in Schedule I to the Act in the five years preceding the application
  • the fact that a director, officer or partner of the enterprise held such a position in an enterprise that committed an offence listed in Schedule I to the Act in the five years preceding the application
  • the fact that a reasonable person would conclude that the enterprise is the extension of another enterprise that would be unable to obtain authorization
  • the fact that legal sources of the enterprise's financing are insufficient for its activities
  • the fact that the enterprise's structure enables it to evade the application of the Act.

The Act sets out other factors that the AMF may consider when exercising its discretion to refuse, revoke or not to renew an authorization. It is, of course, much too early to describe how the AMF will exercise this discretion, i.e., the degree of "tolerance" the AMF will show when applying this general criterion of "high standards of integrity that the public is entitled to expect."

Finally, the Integrity Act provides for penal sanctions for the violation of certain of its provisions. It further states that, subject to certain exceptions, failure by an enterprise that has entered into a public contract or a subcontract related thereto to hold an authorization from the AMF when required to do so will lead such person to be in default pursuant to such contract or subcontract.