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This section's objective is to provide guidance on when to use a procurement
contract and when to use a transfer agreement.
A procurement contract is used to obtain goods or services. It is an
agreement between a federal government contracting authority and an outside
party to purchase goods, provide a service or lease real property. Most often,
the outside party is chosen through a competitive selection process, as
described in Government Contract Regulations.
A transfer (payment) arrangement is used to transfer monies or make
in-kind contributions from the federal government to individuals, organizations
or other levels of government (e.g., provincial governments) to further
government policy and the department's objectives. Although transfer payments
are primarily used for projects, they are also used extensively to deliver basic
ongoing essential services.
Consider the following principles when determining whether to use
procurement contracts or transfer agreements:
Principle 1: A department should not benefit directly from the award of
a transfer agreement.
To "benefit directly" implies that a department receives or
acquires a needed good or service that supports its operations. Any indirect
benefits a department may receive should be incidental to, or a by-product, of
the main objective.
Principle 2: A core service that departmental staff are mandated to
provide directly should not be funded through a transfer payment.
Goods or services are provided to the Canadian public either through
departmental operations or through a transfer payment. It is ultimately
Parliament that decides what core services or goods a department will deliver
directly.
A department mandated to directly deliver goods or services must carry out
its responsibilities by using its own staff or issuing procurement contracts for
other parties to undertake these duties. In either case, the department must
fulfil its obligations. Because the department is mandated to deliver these
goods or services directly, transfer payments cannot be used to discharge
departmental responsibilities.
Principle 3: An individual or an organization that receives a transfer
payment does not act on the government's behalf.
A transfer payment is awarded to a recipient to further the mandate of the
department or government. However, the recipient is not acting on the
government's behalf.
On the other hand, if the government awards a procurement contract to an
organization or an individual to provide a service or deliver a good, then the
organization or individual may be construed to be acting on the government's behalf.
Principle 4: A transfer agreement does not allow the awarding of
damages in case of non-compliance.
Under a contribution, there is nothing acquired by the Crown. The department
is obliged to reimburse the other party's eligible expenditures, as specified in
the agreement. If the expenditures are not made or are not eligible, the party
has no right to the contribution payment and the department may recover any
money already paid. However, in that case, the department would have no right
for damages because no harm to the department can follow from a recipient not
complying with the agreement. There is then some risk in using the grant and
contribution approach if a department is expecting to use the results of a
project funded in this manner, notwithstanding that it would be an inappropriate
use of transfer payments.
It is important that you consider all of these principles jointly and not in
isolation of each other to make informed decisions.
3.2.1 Case study-contracts versus transfer agreements
A department is considering the best means to organize and carry out a
symposium on Canadian research capacity in the area of "memory in normal
ageing and dementia." This is a critical issue for the department as the
minister plans to make a public policy announcement on the issue very soon.
The symposium will bring together the best Canadian and international
scientists to express their views and to report on their research findings in
this important area. The department expects to use the information coming out of
this symposium as one input among many to arrive at a policy statement and
future action plan. It will also greatly benefit the health research community,
the pharmaceutical industry and public policy makers, as the information
presented at the symposium will bring forward a wide array of current thinking
on the issue.
Organizing the symposium will entail tasks such as securing presenters,
arranging the facilities, procuring simultaneous translation services, selecting
chairs, advertising and promoting, and preparing and publishing proceedings.
There are two possibilities in financing and organizing this symposium:
Service Contract: Professional firms are available to organize
conferences and meetings. A contract could be issued to one of these firms
rather than overload overworked staff. Sufficient funds are available in the
operating budget to support it.
Grant or Contribution: The ABC Society of Canada is interested in this
symposium to advance its work in this area. If the society was given a grant or
contribution, it could take responsibility to organize the symposium from top to
bottom. Through the Health Grants and Contributions Program's existing terms and
conditions, the department has the authority to make transfer payments, which
the ABC Society is eligible to receive. Since funds are likely to lapse in the
grants and contributions budget, this would be a good way of using these funds
productively.
What do you think?
Case Analysis
Decision makers must consider the four fundamental principles that
distinguish a contract from a transfer payment to adequately determine the right
instrument to use.
Depending on the facts and assumptions that are made, there are two possible
outcomes. First, if it is determined that the event's intent is to benefit
non-governmental organizations and interested parties, and holding a symposium
is not the normal means for departmental staff to develop policy, then a
transfer payment arrangement could be considered. On the other hand, if the
symposium's intent is to develop public policy and sponsoring these types of
events is the normal staff practice for developing policy, then a contract would
be more appropriate.
Consider Principle 1: A department should not benefit directly from
the award of a transfer payment.
The essential questions are, who will benefit from holding the symposium and
to what extent will they benefit? That is, will the department receive a direct
benefit by acquiring needed information or will the department receive a benefit
only as a by-product of the activity?
In this case, the symposium does not appear to be critical to developing the
department's public policy. The evidence suggests that the information coming
out of this symposium would be used as one input among many to formulate policy.
It could be implied, therefore, that the symposium is not essential to develop
the department's policy.
A second question is what direct benefit would accrue to other parties and
other interests? It is stated that the symposium will be a "great benefit
to the health research community, the pharmaceutical industry and public policy
makers." In addition, the ABC Society is "interested in this symposium
to advance its work in this area." It could be construed that the symposium
is to benefit non-governmental organizations, and the information that the
department would have access to is only a by-product of providing funding (i.e.,
incidental to developing policy).
Consider Principle 2: A core service that departmental staff are
mandated to provide directly should not be funded through a transfer payment.
We can question whether developing public policy by organizing events such as
the symposium is a job requirement of departmental staff or is beyond their
responsibility.
The case reveals that "a department is considering the best means of
organizing and carrying out a symposium" and is considering an outside
party to take on the work "rather than overload overworked staff."
These two facts support the proposition that it should be a procurement
contract.
On the other hand, such an event may not be a core, ongoing departmental
activity. While departmental staff may be competent to undertake this activity,
there is no evidence that it is a core service. The department may believe that
a symposium is a viable approach to encourage debate and research in the field
of dementia and ageing. But staff may not normally organize and run symposia to
achieve that end.
Unfortunately, without more information on the department's mandate, this
principle cannot be assessed with any degree of confidence.
Consider Principle 3: An individual or an organization that
receives a transfer payment does not act on the government's behalf.
From the information above, there is no evidence to suggest that the ABC
Society would be acting on the department's behalf if it were given a grant or
contribution.
Consider Principle 4: A transfer agreement does not allow the
awarding of damages in case of non-compliance.
In the case, no information regarding this point is provided. Let us assume
that the option to seek damages is not essential.
Summary
Since the assessment using principle 2 was inconclusive, the decision rests
with the information examined under principles 1, 3 and 4.
The facts under principle 1 point to the department holding the symposium to
advance public policy-not develop it. The symposium's primary objective is to
support the interests and activities of organizations such as the ABC Society
and , as such, any benefit to the department would be a by-product. Under
principle 3, there is no evidence that the ABC Society would be acting upon or
be perceived to be acting upon the department's behalf. Finally, under principle
4, the awarding of damages should the activity not proceed as envisioned is not
an issue.
Under these circumstances, the department could legitimately authorize a
transfer payment.
3.2.2 Checklist-contracts versus transfer agreements
This checklist is a tool to determine if a procurement contract or transfer
payment should be used. A greater number of "yes" answers
indicates that a procurement contract is likely more appropriate than a transfer
payment.
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Principle
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YES
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NO
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- The department is acquiring a good or service.
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- The department is directly benefiting in some way from the
arrangement.
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- Departmental staff have been mandated to provide the Good or service
directly to the public (e.g., food inspection).
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- An outside party is acting on the department's behalf (e.g., agent).
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- The department would consider seeking damages (i.e., recovery of
more than the original payment) from a court if the project objectives
or initiative were not met.
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3.2.3 Table-comparison of contracts and transfer agreements
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Choosing Between Contracts and Transfer Payments
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ELEMENT
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CONTRACTS
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TRANSFER AGREEMENTS
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Purpose
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Acquisition of goods or services by and for the department
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Allows the participant to undertake an activity that furthers
government policy and departmental objectives
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Who benefits?
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Government department itself and contractors who will claim for costs
and profit
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An identified sector, group or individual(s) of the Canadian public who
will only claim for the reimbursements of their costs incurred (no profits
earned)
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Authorities
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Subject to the department and minister's legal or legislative
authorities and sufficient funds exist under the operating expenditures
vote
Also TB Contracting Policy
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Subject to the department and minister's legal or legislative
authorities and to sufficiency of funds in the vote providing for grants
or contributions; in the case of grants, Parliamentary approval is
required through the Estimates.
Also TB Transfer Payment Policy
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Risk Assessment
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Little to no risk that the service will not be performed or the good
not received because of the agreement's legal nature
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Influences the type of instrument chosen (e.g., grant versus
contribution) and program terms and conditions including the nature of the
beneficiaries
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Accountability
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Results monitored within the scope of each specific agreement only
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Results monitored on a project-specific basis and through program
evaluation
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