In brief: defence procurement law fundamentals in Canada

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Defence procurement law fundamentals

Mandatory procurement clauses

Are there mandatory procurement clauses that must be included in a defence procurement contract or that will be read into the contract regardless of their actual inclusion?

At the most basic level, the Government Contracts Regulations require that Canada solicits bids for government contracts by giving public notice or inviting suppliers to participate.

Also, the Government Contracts Regulations include terms that are deemed to be included in any government contract such as:

  • the contractor has not paid any contingency fee to obtain the contract;
  • the contractor’s accounts and records shall be subject to audit;
  • the contractor has not committed any specified offences; and
  • the Access to Information Act applies to information received under the contract.

 

Cost allocation

How are costs allocated between the contractor and government within a contract?

The allocation of costs between the contractor and government will vary depending on the contract.

For example, in the context of service type contracts that include the provision of commodity type goods that can vary in costs over time (such as fuel), the government may reimburse the contractor for such costs without any markups.

Also, in certain circumstances, the government may use a ‘cost-plus’ model where the contractor is compensated for its costs plus a reasonable markup for profit. In such circumstances, standard government contracting provisions apply to define what is an appropriate ‘cost’ for reimbursement.

Disclosures

What disclosures must the contractor make regarding its cost and pricing?

This depends upon the contract. If a ‘cost-plus’ model is used, then there is significant disclosure regarding the contractor’s costs and pricing. This is most often an issue in the context of contracts that have a large service component (such as retrofitting and repairs).

Also, standard government contracting clauses and legislation (such as the Defence Production Act) allow the government to conduct audits.

Audits

How are audits of defence and security procurements conducted in this jurisdiction?

Audits are conducted by government officials pursuant to accounting and audit rules of general application, and pursuant to any applicable contract provisions.

IP rights

Who gets the ownership rights to intellectual property created during performance of the contract? What licences are typically given and how?

The Treasury Board’s Policy on Title to Intellectual Property Arising Under Crown Procurement Contracts provides that:

 

The objective of this Policy is to enhance Canada’s economic growth by increasing commercialization of Intellectual Property. To this end, the contractor is to own the rights to Foreground Intellectual Property created as a result of a Crown Procurement Contract.

 

This position is subject to certain exceptions and exemptions.

‘Foreground intellectual property’ means intellectual property ‘first conceived, developed, produced or reduced to practice as part of the work under a Crown Procurement Contract’. The government would maintain a broad licence to any foreground intellectual property.

A variety of exceptions and exemptions exists with regard to this general position, including national security requirements; statutory and regulatory requirements or prior obligations of the government regarding the intellectual property at issue; and where the purpose of the procurement contract is incompatible with the contractor owning the foreground intellectual property, such as when the purpose of the contract is to generate knowledge and information for public dissemination or relates to the development of intellectual property owned by the government.

Economic zones

Are there economic zones or other special programmes in this jurisdiction commonly utilised by foreign defence and security contractors for financial or other procurement related benefits?

No.

Forming legal entities

Describe the process for forming legal entities, including joint ventures, in this jurisdiction.

Legal entities, such as corporations, are formed pursuant to the Business Corporations Acts in effect throughout Canada’s various jurisdictions (ie, federal, provincial and territorial). Joint ventures may take on the form of a corporate entity or may be formulated on the basis of a contractual relationship.

Access to government records

Are there statutes or regulations enabling access to copies of government records? How does it work? Can one obtain versions of previous contracts?

The Access to Information Act allows a person to request documents in the possession of departments and agencies of the government. The process for making a request is simple. A requester completes a form describing the documents or information sought and the office in the government department where the documents or information are likely to be stored. An initial nominal payment is required with the request. A further fee for making reproductions may also apply.

Contracts (or redacted portions thereof) may be exempt from disclosure on various grounds, including that the disclosure of the information would be contrary to national security interests, include personal information or include third-party information such as trade secrets, confidential commercial information or information the disclosure of which would prejudice the third party’s competitive position.

The Access to Information process has been criticised as being slow in providing access to documents.

Supply chain management

What are the rules regarding eligible suppliers and supply chain management and anti-counterfeit parts for defence and security procurements?

There are no rules of general application. This would be addressed on a contract-by-contract basis.

Law stated date

Correct on

Give the date on which the information above is accurate.

9 December 2020.

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