Interpretation Bulletin - Procurement Strategy for Aboriginal Business

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Introduction:

The Procurement Strategy for Aboriginal Business (PSAB) is a program designed to increase Aboriginal business participation in supplying government procurement requirements through a program of mandatory and selective set-asides and supplier development activities leading to increased representation of Aboriginal business in contract awards by individual departments and agencies.

Interpretation of Aboriginal Content Requirement

In regards to the issue at question, CPN 1996-2 specifically notes:

"Required Aboriginal Content means at least 33 percent of the total value of the work to be performed under a contract is performed by an Aboriginal business contractor or by a combination of that contractor and other Aboriginal businesses".

The interpretation of this section is that, in instances where one or more Aboriginal businesses (as defined under the rules of PSAB) are involved in a contract with one or more non-Aboriginal businesses, or individual contractors, 33% of the total monetary value of the work contracted for must be performed by the Aboriginal business or businesses. For instance, where contracts have been let under PSAB to an Aboriginal business or businesses and the business or businesses are either involved in partnerships, joint ventures, or subcontracting relationships with non-Aboriginal entities, no more than 2/3 of the total monetary value of the work contracted can be done by the non-Aboriginal firms or contractors.

Rationale for Interpretation:

The Federal Government Procurement Community as well as the Aboriginal Business Community shared concerns about the clarity of the policy on the application of "Required Aboriginal Content".

Following consultation sessions with the business community and government officials, the Department of Indian and Northern Affairs Canada (INAC), who administers the Procurement Strategy for Aboriginal Business, requested, from the Treasury Board Secretariat (TBS), a clarification in regards to the interpretation of "Required Aboriginal Content" as it appears in the Contracting Policy via Contracting Policy Notice (CPN) 1996-2.

Confusion regarding this section of CPN 1996-2 appears to stem from different understandings of specific language found in this section.

To clarify:

  • In this section, the term "Aboriginal business contractor' refers to an Aboriginal business (as defined under the rules of PSAB) with which the Government has contracted.
  • In this section the term "value of the work" refers to the monetary compensation assigned to contracted deliverables.

Additional confusion around this and other Contracting Policy Notices regarding PSAB may also stem from the two distinctive instances in which a requirement involving "33%" is noted. Under the Policy, an Aboriginal contractor must certify that it meets certain criteria to qualify as an Aboriginal business.

According to CPN 1996-2 an Aboriginal Business is defined as:

  1. sole proprietorship, limited company, cooperative, partnership, or not-for-profit organization

    • in which Aboriginal persons have majority ownership and control meaning at least 51 percent, and
    • in which, in the case of a business enterprise with six or more fulltime employees, at least 33 percent of the fulltime employees are Aboriginal persons,

    or
     
  2. a joint venture or consortium in which an Aboriginal business or Aboriginal businesses as defined in (a) have at least 51 percent ownership and control, and
     
  3. which certifies in bid documentation that it meets the above eligibility criteria, agrees to comply with required Aboriginal content in the performance of the contract, and agrees to furnish required proof and comply with eligibility auditing provisions.

The criteria that entities must meet to be considered an Aboriginal business and the Aboriginal content requirement should not be confused. Under the rules governing Aboriginal businesses, businesses with 6 or more employees must maintain an Aboriginal employment rate of 33%. This is not the Aboriginal content requirement. The Aboriginal content requirement states that in instances where several businesses (both Aboriginal and non-Aboriginal) are working together on a single contract issued under the PSAB, 33% of the value of the work must be completed by one or more Aboriginal businesses.

The Aboriginal content requirement should not be interpreted to apply to the "status" of the employees of an Aboriginal business working on a contract. This requirement applies only in instances in which multiple businesses or contractors, Aboriginal and non-Aboriginal, are involved in a contract via partnerships, joint ventures, or subcontracting relationships.

It may be of value to suggest the use of 1/3 to describe the requirement for Aboriginal employment when a business' employees exceed 6, and 33% to describe the requirement of Aboriginal firms to do that percentage of the value of the work in a contract - relevant in situations involving partnerships, joint ventures, and subcontracting.

CPN 1996-2 could have been interpreted to mean that 33% of the people doing the actual work must be Aboriginal people. As noted above this is not TBS's interpretation.

Considerations:

To calculate the 33% of the total monetary value of the work contracted to be done by the Aboriginal firm or firms, managerial and administrative costs incurred by the Aboriginal firm or firms is included.

Examples: (could include but not limited to)

  • Contract management
  • Recruiting (resources needed for the actual contract)
  • Resources pay (resources working on the actual contract)
  • Administrative work (related to the actual contract)

Examples of the partnership (one Aboriginal Prime and Subcontractor) structure:

(If the contract valued at $100,000 requiring 10 resources)

Partnership (one Aboriginal Prime and Subcontractor)

$33,333.33 worth of work has to be done by the Aboriginal business or businesses, which means in this instance The firm's employees are part of the Aboriginal firm even the non Aboriginal one - if the firm and its employees can not meet the 33% content, they can rely of the Aboriginal subcontractor - the 7 non Aboriginal subcontractor can not do more than 2/3 or the value of the work.

But if the contract requires only 2 resources - the 2 resources do not have to be Aboriginal if the Aboriginal firm can show that they are doing work related to this contract that is valued at $33,333.33

Example of a Joint Venture (one Aboriginal company with a non-Aboriginal firm) structure:

Joint Venture (One Aboriginal company with a non-Aboriginal firm)

JV "AN" as a new entity owned and controlled by "A" an Aboriginal firm hold the contract and can subcontract as long as 33% of the value of the work is done by JV "AN" in combination with a number of Aboriginal subcontractors.

But for the majority of Joint Venture that we see, no new entity is created and the two firm "A" and "N" work together and put their resources together.

Joint Venture

In this case, the Aboriginal firm "A", holding the contract, has to show that they are doing work related to this contract for a value of 33% - They can use non Aboriginal resources from the non Aboriginal firm "N" as long as these resources do not do more than 2/3 of the value of the work.

What program does this apply to:

The Procurement Strategy for Aboriginal Business - Required Aboriginal Content on Service contracts