1. Diversifying Procurement Market Share
The Canadian government implemented the federal Procurement Strategy for Aboriginal Business ("PSAB") in 1996, aiming to increase the number of Aboriginal businesses participating in procurement processes. Since its inception, the PASB program has awarded more than $3.3 billion in contracts to Aboriginal businesses.1 Under the PSAB, contracts that serve primarily Indigenous populations or that are subject to a land claim agreement must be set aside for bids from Aboriginal businesses only.2 Further, the federal government encourages Public Works and Government Services Canada ("PWGSC") to set aside additional contracts under the PSAB.3
This article considers what constitutes an eligible Aboriginal business as well as the criteria that must be met in order to compete under, and benefit from, the federal PSAB set-aside program.
This article uses the term "Aboriginal" because that is the term used by the PSAB and related materials. However, Gowling WLG acknowledges the importance of language and that "Aboriginal" may not be the preferred or appropriate term for some Indigenous peoples and First Nations.
2. What is an Aboriginal Business?
A business must meet the criteria below before being eligible to register as an Aboriginal business. The business must also be able to provide evidence to satisfy the criteria.
2.1 Eligibility Under Federal Legislation
An eligible Aboriginal business must meet two criteria. First it must be an organization where Aboriginal persons have at least 51% ownership and control (or a joint venture of which at least 51% is owned and controlled by an Aboriginal business or businesses). Second, if the organization has six or more full-time employees, Aboriginal persons must make up at least 33% of the full-time staff. "Aboriginal persons" is a term defined in the PSAB, and has its own criteria that must be met.
- "Aboriginal person"
For PSAB's purposes, an Aboriginal person is defined as "an Indian, Métis or Inuit who is ordinarily resident in Canada."4 Accepted evidence demonstrating eligibility may include:
- Indian registration in Canada;
- membership in an affiliate of the Métis National Council or the Congress of Aboriginal Peoples, or other recognized Aboriginal organizations in Canada;
- acceptance as an Indigenous person by an established Aboriginal community in Canada;
- enrollment or entitlement to be enrolled pursuant to a comprehensive land claim agreement; or
- membership or entitlement to membership in a group with an accepted comprehensive claim.
- Business Structure and Control
A qualifying Aboriginal business may be structured as any of the following:
- a Band as defined by the Indian Act;
- a sole proprietorship;
- a limited company;
- a co-operative;
- a partnership; or
- a not-for-profit organization.
While these are all accepted business structures, it is not just about who owns the business on paper, there must be actual control over the business to qualify. The federal government looks to "beneficial ownership" in order to determine whether Aboriginal persons have true and effective control of the business. The business's structure will determine how the PSAB evaluates whether it meets the 51% control threshold. For example, control may be determined with reference to capital stock and equity accounts, tax returns to identify ownership and business history, cash management practices, or if stock options are available to employees. For a full list of factors, please refer to Appendix A here.
- Percentage of Indigenous Employees
As noted above, the second criterion requires that, if the organization has six or more full-time employees, at least 33% of them must be Aboriginal persons. This ratio must be present when the business submits a bid and must be continuously maintained throughout the duration of the contract. PSAB considers a full-time employee to be someone who is on the payroll, receives full-time benefits, and works at least 30 hours per week. Whether a person is a full-time employee can be demonstrated with reference to payroll records, written offers for employment, and Canada Revenue Agency records. In order to demonstrate that the business meets this requirement, the Aboriginal business must complete and submit an Owner/Employee Certification form for each full-time employee (and owner) who is an Aboriginal person.
2.2 Federal Subcontracting Requirements
In addition to meeting the PSAB's eligibility criteria, an Aboriginal business must also conform to certain subcontracting policies. If an Aboriginal business is bidding for a contract and intends to subcontract a portion of the work, the Aboriginal business must certify that at least 33% of the work will be performed by an Aboriginal business. This will be assessed based on the value of the work performed, which consists of "the total value of the contract less any materials directly purchased by the contractor for the performance of the contract."5
An Aboriginal business that is subcontracted by a bidder must also meet the same eligibility criteria as the Aboriginal business submitting the bid. To enforce the eligibility criteria for subcontractors, the bidding organization must request proof of the subcontractor's eligibility and authorize an audit performed by Canada to verify the records. If the bidder does not verify the Aboriginal subcontractor's eligibility, this would constitute a breach of contract.
PSAB also encourages non-Aboriginal suppliers to sub-contract with Aboriginal businesses through evaluation incentives.6 In the bidding process, including Aboriginal businesses as sub-contractors must be clearly identified, and the sub contractor must meet all the criteria above.
2.3 Canadian Council for Aboriginal Business Eligibility
The Canadian Council for Aboriginal Businesses ("CCAB") is a non-profit, non-government organization whose aim is to facilitate Aboriginal businesses in the mainstream corporate sector. CCAB and the Government of Canadian worked together to develop the current PSAB program.7 Recognition by CCAB as an Aboriginal business under its Certified Aboriginal Business program constitutes evidence that may be used for PSAB's purposes.8
CCAB's eligibility criteria for the Certified Aboriginal Business program require the business to be a CCAB member, have at least 51% Aboriginal ownership and control, and provide proof of Aboriginal heritage of the owner or owners. Proof may include documents such as an Indian Status Card or valid identification provided by an accepted organization; for a full list of the accepted organizations, please follow this link. Finally, CCAB also requires proof of ownership and control, which varies based on the type of organization. A sole proprietorship requires a Master Business Licence or provincial/territorial equivalent. If the business is a corporation then it must provide articles of incorporation, a shareholders agreement, a shareholders registry, and/or Schedule 50 of its corporate tax return, if available. Partnerships must provide the partnership agreement.9
3. Consequences if Unable to Prove Aboriginal Business
When an Aboriginal business is submitting its bid, it must certify that it:
- meets the PSAB requirements and will continue to do so throughout the duration of the contract;
- will, upon request, provide evidence that it meets the eligibility criteria;
- is willing to be audited regarding the certification; and
- acknowledges that, if it is found not to meet the eligibility criteria, it will be subject to one or more of the civil consequences set out in the certification and the contract.10
If a business is unable to substantiate the claim that it is an eligible Aboriginal business, it risks facing legal consequences. Such consequences may include forfeiture of the bid deposit, retention of the holdback, disqualification from participating in future contracts under the program, and/or termination of the contract.11
4. Advantages and Considerations for an Aboriginal Business
PSAB and CCAB aim to bring more Aboriginal businesses into the procurement market and gain a larger market share. As a result, there are many opportunities that Aboriginal businesses can engage in when they meet the above criteria. One such opportunity is being able to apply for set aside contracts, which leads to fewer businesses to bid against and a higher chance of being awarded the contract. However, there are consequences if a business claims to be an Aboriginal business, but fails to meet the criteria listed above.
1. Indigenous and Northern Affairs Canada, "Procurement Strategy for Aboriginal Business: Booklet" (July 7, 2014), online: Canada (https://www.aadnc-aandc.gc.ca/eng/1354798736570/1354798836012).
2. Government of Canada, "Contracting Policy" (June 10, 2019), online: Policies, directives, standards and guidelines (https://www.tbs-sct.gc.ca/pol/doc-eng.aspx?id=14494).
3. Government of Canada, "Chapter 3 - Procurement Strategy" (November 11, 2010), online: (https://buyandsell.gc.ca/policy-and-guidelines/supply-manual/section/3) at s. 3.85.
4. Government of Canada, "9.4. Annex: Requirements for the Set-aside Program for Aboriginal Business" (May 5, 2013) online: Supply Manual (https://buyandsell.gc.ca/policy-and-guidelines/supply-manual/annex/9/4) [Annex 9.4] at s. 6(a).
5.Ibid at s. 2(a).
6. Government of Canada, "9.40. Procurement Strategy for Aboriginal Business" (September 27, 2013), online: ( https://buyandsell.gc.ca/policy-and-guidelines/supply-manual/section/9/40#section-9.40.20) at 9.40.20.
9. Canadian Council for Aboriginal Business, "Funding Criteria" online: Indigenous Business Support Fund ( https://www.ccab.com/indigenous-business-support-fund/#1606432865418-81aaca44-624f).
10.Annex 9.4, supra note 3.
11.Annex 9.4, supra note 3 at s. 3(b).
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