On December 7, 2012, the Québec National Assembly adopted An Act Respecting Contracting by Public Bodies (the “ACPB”), which outlines conditions for granting certain public contracts based upon the contractors’ and tenderers’ integrity (see our previous publication on this topic). Now, less than a year after the Act came into force, the Quebec government is proposing new measures to address misconduct in relation to public construction contracts. If adopted, these new measures will allow the Minister of Justice to recover amounts paid unjustly by public bodies and will modify certain criteria for the application of the ACPB.
Proceedings to recover amounts paid unjustly
On November 13, 2013 in the National Assembly, the Minister of Justice presented An Act Mainly to Recover Amounts Paid Unjustly by Public Bodies in Relation to Certain Contracts in the Construction Industry (“Bill 61”). If adopted, Bill 61 would allow the Minister of Justice to seek compensation from businesses which defrauded public bodies or used fraudulent tactics in the course of the tendering, awarding, or management of public construction contracts (the “fraudulent practices”). Public bodies affected by the fraudulent practices will also be able to bring such actions, with the permission of the Minister.
In order to facilitate the compensatory actions, Bill 61 will notably provide for:
- A presumption of damage: On proof that a business has engaged in fraudulent practices, it will be presumed to have caused damage to the affected public body;
- A presumption of damage quantum: Damage will be presumed to amount to a percentage of the price paid under the contract by the affected public body, while at the same time allowing the Minister to claim a greater amount;
- A joint and several liability between the business and its executives: Both executives and representatives will be held jointly and severally liable with the concerned business, unless they prove that they acted with the care, diligence, and skill that a prudent person would have exercised in similar circumstances;
- A legal hypothec: The Minister will have the power to register a legal hypothec before judgment, with the authorization of a judge, on the concerned business’ property if the recovery of the Minister’s claim may be in jeopardy.
Actions for damages must be taken within the 5 years following the fraudulent practice. The Minister, however, will be able to bring compensatory actions for damages caused in the 15 years prior to Bill 61’s entry into force, provided that such actions are brought in the 5 years that follow its enactment. In addition to the action for damages, Bill 61 will allow the Minister to create a “reimbursement program” under which he will be able to “transact and validly grant a discharge in respect of contracts reported by an enterprise” or by its directors or representatives. Except with the consent of the Minister and the concerned parties, no information exchanged in the course of such program will be admissible before a court of justice or before a person or body of the administrative branch exercising adjudicative functions.
Amendments to the criteria for prior authorization
In light of the new recovery measures, Bill 61 also provides for amendments to the ACPB’s prior authorization system. Under the present system, requests for prior authorizations are automatically rejected when received from businesses that:
- were found guilty by a Canadian or foreign court of the listed offences in the preceding five years; or
- have a director, an officer or a shareholder, holding at least 50% of the voting rights attached to the shares who was found guilty in the preceding five years of one of the listed offences.
Following the coming into force of Bill 61, these exclusionary factors will automatically cease to apply. It will be up to the Autorité des marchés financiers (the “AMF”) to determine, pursuant to its discretionary powers, if such guilty verdicts prevent businesses requesting an authorization from meeting the “high standards of integrity”. In other words, the amendments will allow businesses found guilty of certain offences to convince the AMF, nonetheless, of their integrity.
Extending the Reach of the ACPB
The presentation of Bill 61 to the National Assembly comes a few days after Québec reduced the thresholds of the ACPB’s applicability. Such measure extends the scope of the preauthorization system:
- since October 23, 2013, to contracts for the construction, reconstruction, demolition, repair or renovation of roads, waterworks and sewer services of the City of Montréal involving an expenditure of at least $100,000 and to subcontracts directly or indirectly related to such contracts and involving an expenditure of at least $25,000; and
- beginning December 6, 2013, to construction or service contracts, including subcontracts, as well as public-private partnership contracts, involving in both cases an expenditure of at least $10 million dollars.
Originally, only those contracts and subcontracts for construction or services involving an expenditure of at least $40 million dollars were, pursuant to transitional measures, subject to the ACPB. Since then, the Québec government adopted a series of orders-in-council extending the application of the ACPB to public-private partnership infrastructure projects, as well as to certain contracts of the City of Montréal.
The reduction of the ACPB’s applicability thresholds should continue progressively until March 31, 2016, a date which the Québec government has set in the ACPB as an ultimatum. A threshold as low as $25,000 was evoked during parliamentary consultations.
Until now, the integrity measures in public contracts were, essentially, of an administrative nature. With Bill 61, the Québec government is looking to tool-up with retrospective measures to recover amounts that may have been misappropriated in relation to public construction contracts. These aggressive measures will certainly garner much attention.
Davies Ward Phillips & Vineberg LLP is an integrated firm of approximately 240 lawyers with offices in Toronto, Montréal and New York. The firm is focused on business law and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its clients, regardless of borders.