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Dispute Resolution GuideJune 1995
Update November 2003 Previous | Table of Contents | Next
Treasury Board PoliciesPolicy on Claims and Ex gratia Payments (Archived document)E17. Materiel, Risk and Common Services CHAPTER 2-4 PrefaceAs a key component of risk management, this policy replaces the policy and related requirementswhich were the subject of Treasury Board and Governor-in-Council regulations and orders, i.e., the Claims Regulations, National Defence Claims Order, 1970 and the Ex gratia Payments Order, 1974. It also eliminates the inconsistencies, duplication, complexities, and prescriptive directions which existed in those instruments. In the spirit of the management philosophy of the Public Service, deputy heads now have the authority to resolve most non-contractual claims and make ex gratia payments. At the same time, the support of the Department of Justice is maintained by retaining the requirement for legal advice but at a higher-dollar level of involvement. The policy also empowers and encourages deputy heads to consider overall cost-effectiveness in resolving claims and to designate officials to exercise authority on their behalf. This clears the way for departments to ensure that claims by and against the Crown, its servants, and the public are dealt with efficiently and effectively. The ongoing requirement to report payments each year in the Public Accounts continues to provide visibility and a measurement of the new level of accountability. Policy objectiveTo ensure the efficient and effective resolution of claims by and against Her Majesty in Right of Canada (the Crown) arising from government operations. Policy Statement1. It is government policy to provide for adequate and timely settlement and payment of claims by or against the Crown and against its servants. 2. Deputy heads (which includes heads of agencies) have the authority to resolve claims by and against the Crown, and in particular to:
3. Any authority in this policy may be exercised by an official designated by the deputy head, except only the deputy head may approve ex gratia payments over $2,000. In the case of the Department of National Defence and the Canadian Forces, the Judge Advocate General may make ex gratia payments for any amount. ApplicationThis policy applies to:
DefinitionsClaims (réclamations) - includes claims for damages and includes requests or suggestions that the Crown make ex gratia payments as compensation for losses or expenditures incurred by anyone. It does not include claims in contract, claims under Section 11 of the Canadian Human Rights Act (Equal Wages), or claims governed by other authorities, such as losses and recovery of money, damages to servants' effects on relocation or the travel policy. Ex gratia payment (paiement à titre gracieux) - means a payment made to anyone in the public interest for loss or expenditure incurred for which there is no legal liability on the part of the Crown. Policy requirements Investigations 1. As soon as a department becomes aware of an incident which could lead to a claim by or against the Crown or against a servant, it shall conduct an investigation of the incident at the earliest reasonable opportunity. While keeping the level of investigation commensurate with the amounts involved, the department shall obtain, as appropriate:
Additional details on investigations appear in Section 4, of the Guidelines on Risk Management (Appendix B of chapter 2-1). General 2. Except as may be limited by this policy, departments must refer all claims involving legal proceedings to Legal Services, Department of Justice. 3. For claims in tort by or against the Crown, i.e. generally the claim is not based solely on a contract, departments must follow the authorities and procedures prescribed below under Claims against the Crown and Claims by the Crown. Special provisions regarding motor vehicle accident claims appear in Appendix A . 4. For the settlement and payment of claims associated with a contract, departments must ensure thatthe payment is within the authority provided by the relevant risk-underwriting provisions of the contract. Otherwise, departments must refer the matter to Legal Services. 5. For claims against servants of the Crown, departments must ensure that the indemnification and legal assistance policies are considered at the earliest opportunity. 6. Departments must not claim damages from another department, and must make every effort to resolve any claim between the department and a Crown corporation. Otherwise, the matter must be referred to the Deputy Attorney General. 7. For the negotiation and payment of settlements under the Canadian Human Rights Act, and Tribunal Orders that are not made Orders of the Federal Court, departments must:
Claims against the Crown Claimant's position 8. Where a claim is made against the Crown, the department shall, without prejudice and without admitting liability, request the claimant to furnish: a detailed statement of the facts upon which the claim is based; a detailed statement showing how the claim is calculated; and copies of documents verifying all disbursements. Legal opinion 9. A legal opinion shall be obtained before undertaking to pay more than $25,000 to resolve a claim. A legal opinion may also be obtained in any other case. 10. A legal opinion regarding policy requirement 9, shall be obtained from Legal Services. Where the claim concerns the Department of National Defence or Canadian Forces, the legal opinion may be obtained from the Office of the Judge Advocate General if:
11. A request for a legal opinion shall be accompanied by the report of the investigation and information, if any, received from the claimant. The legal opinion shall address:
Liability Payment 12. In deciding whether to make a liability payment, deputy heads shall consider:
Ex gratia payment 13. In deciding whether to make an ex gratia payment, deputy heads shall consider whether there are any other reasonable means of compensation, and that:
Damage to servants' effects 14. Claims for servants' effects which are damaged, lost, stolen, ordestroyed will be paid as a liability of the Crown or ex gratia, and the following additional criteria will apply:
Releases 15. In consideration of payment to settle a liability claim, a release shall be obtained except where it would not be administratively expedient. The release shall be in the form shown at Appendix B, or as directed in the legal opinion. For ex gratia payments a release is not normally required. Claims by the Crown Crown's position 16. Deputy heads shall make every reasonable effort to obtain satisfaction of claims by the Crown, taking into account administrative expediency and cost-effectiveness. Legal opinion 17. Deputy heads shall seek a legal opinion where substantial sums are at stake or where there is uncertainty as to the relevant facts or applicable legal principles. Recovery from servants 18. Where the Crown has a claim against a servant for which the servant is not indemnified under the Indemnification policy, and the deputy head intends to authorize retaining the amount of the claim by deduction from, or set-off against, any money that may be due or payable by the Crown to the servant, the deputy head shall: (a) notify the servant of the proposed retention and of the servant's right to make representation to the deputy head within 30 days; and (b) consider the servant's representation, if any, before making a final decision. Releases 19. The deputy head may sign a release as a condition of payment being made to resolve a claim by the Crown. ResponsibilitiesThe Department of Justice provides legal opinions and advice, and negotiation services, and is responsible for litigation concerning claims by or against the Crown and against its servants, and for advising on the provision of legal assistance to servants at public expense. MonitoringThe Treasury Board Secretariat will periodically review the effectiveness of this policy in assisting departments to manage the risks to which they are exposed. Feedback on the implementation and effectiveness of the policy will be obtained from departmental monitoring information, internal audits, reviews and from other reports and government organizations. For example, this will include data from the Public Accounts reports regarding: payment of claims against the Crown; losses of money and public property; court awards; and ex gratia payments. Payment of claims in respect of servants' effects will appear in each of the relevant reports. ReferencesAuthority This policy is issued under the authority of section 7 of the Financial Administration Act, Treasury Board minutes 816967 and 816968, August 13, 1991 (Claims and Ex gratia Policy as fully integrated in this chapter) and the Ex gratia Payments Order 1991, September 5, 1991, see Appendix C. Cancellation This policy replaces the Claims Regulations, National Defence Claims Order 1970, the Ex gratia Payments Order 1974 and Treasury Board Circular 1989-17, Payment of Complaints Pursuant to the Canadian Human Rights Act, which are cancelled. Enquiries All enquiries about this policy should be directed to the official designated by each department as responsible for risk management and, when appropriate and relevant, to Legal Services, or the Judge Advocate General in the case of the Department of National Defence or the Canadian Forces. When required, officials should then refer enquiries to Materiel and Risk Management, Administrative Policy Branch, Treasury Board Secretariat. For fundamental or more complex enquiries, a risk management analysis (see Chapter 2-1) should first be undertaken. Appendix A - Motor Vehicle Accident Claims1. Provincial unsatisfied judgement funds Before attempting to recover from provincial unsatisfied judgement funds any claims resulting from automobile accidents, departments should abide by all applicable provisions established by provincial legislation, including any limitation period. In this instance, the Crown is governed by the same liabilities imposed by provincial laws as any subject of the Crown. As the periods vary between provinces and are changed from time to time, departments should consult their legal services without delay. Because proceedings leading to attempts to recover from unsatisfied judgement funds are complex, technical and expensive, departments should take prompt action to obtain satisfaction of claims by the Crown by other means. If the size of the claim and the failure of alternative collection action makes it reasonable to seek redress from an unsatisfied judgement fund, the department should ensure that the claim is referred to the Deputy Minister of Justice within the limitation period prescribed for a subject of the Crown. In most provinces the prescribed period is one year. 2. Province of Quebec For motor-vehicle accidents in Quebec, the Quebec Automobile Insurance Act has the effect of modifying the manner in which motor-vehicle accident claims are dealt with in that province. For bodily injuries, employees can also claim compensation under the Act. Enquiries should be directed to the Pension and Benefits Division, Human Resources Policy Branch, Treasury Board Secretariat. For damage to government-operated vehicles, claims are negotiated with insurers rather than with their clients. 3. No fault claims or direct compensation claims The President of the Treasury Board, in consultation with the Minister of Justice, has the authority to commit federal entities within the application of this policy to adopting a no-fault (also referred to as direct compensation) motor vehicle damage scheme in the provinces and, if necessary, to enter into an agreement with a single representative of insurers in any province (TB 819058, September 17, 1992). Ontario The following provisions only pertain to property damage to motor vehicles sustained in an accident in Ontario, the claims arising from such damage, and the resolution of those claims in light of the Ontario Motorist Protection Plan. Under informal arrangements with the Insurance Bureau of Canada (I.B.C.) as representative of the majority of insurers in Ontario, the following will apply:
This arrangement is subject to the following qualification
Personal Injury In the event that a servant suffers personal injury caused by a motor vehicle accident while on duty, it should be handled as an injury on duty according to the standard procedures in the Treasury Board Manual,"Personnel Management", chapters 4-2 and 4-3. A legal opinion Is required, with respect to motor vehicle property damage exceeding $5,000 caused to a Crown vehicle as a result of a motor vehicle accident in Ontario, for a period of one year from the date of issuing this amendment. (This requirement is to be interpreted as being for cases when direct compensation is being contested.) Appendix B - ReleaseKnow all persons by these presents that (name and address of claimant) does hereby remise, release and forever discharge Her Majesty the Queen in Right of Canada and (name of any officer or servant of the Crown involved), from all manners of action, claims or demands, of whatever kind or nature that (name of claimant) ever had, now has or can, shall or may hereafter have by reason of damage to or personal injury, or both, (here set out subject matter of the damage) as a result of or in any way arising out of (here set out incident and the date, time and place of occurrence). It is understood and agreed that this Release shall only be effective when payment shall have been made on behalf of Her Majesty to (name of claimant) of the sum of $________ It is also understood that Her Majesty the Queen in Right of Canada does not admit any liability to (name of claimant) by acceptance of this Release or by payment of the said sum of $____________ In Witness Whereof I have hereunto set my hand and seal this _____ day of __________, 19____ Signed, Sealed and Delivered Appendix C - Order in CouncilP.C. 1991-8/1695 HIS EXCELLENCY THE GOVERNOR GENERAL IN COUNCIL, on the recommendation of the Treasury Board, is pleased hereby to revoke the Ex gratia Payments Order, 1974, made by Order in Council P.C. 1974-4/1946 of September 3, 1974, and to make the annexed Order(1) respecting ex gratia payments, 1991, in substitution therefor. (1) ORDER RESPECTING EX GRATIA PAYMENTS, 1991 Short Title 1. This Order may be cited as the Ex gratia Payments Order, 1991. Authorization 2. The Treasury Board may authorize any ex gratia payment. 3. The Treasury Board may designate the deputy head of any department or departmental corporation named in Schedule I or II to the Financial Administration Act or of any other division or branch of the public service of Canada, including a commission appointed under the Inquiries Act, that is designated by the Governor in Council as a department for the purposes of the Act, and the Judge Advocate General, to authorize ex gratia payments. 4. The Treasury Board may authorize any deputy head designated pursuant to section 3 to designate an employee of the deputy head's department, division or branch to authorize ex gratia payments on the deputy head's behalf. Appendix D - Guidelines1. General After a harmful incident has occurred, a normal part of risk management is dealing with any claim that may arise between a department and other entities. A claim is the amount due, or alleged to be due, or the action taken regarding damages sustained by the Crown or a claimant. A clear distinction should be drawn between settlement and payment of a claim. Settlement is the adjustment process whereby an agreement is reached through negotiation between the respective parties. Payment is the disbursement of money in respect of the settlement or a judgment of the relevant court. Claims may be broadly segregated between those in tort and those in contract. Claims in tort are those in which there is no form of written, oral or implied contractual agreement between the Crown and claimants, as may be determined by the Department of Justice, and for which the Crown may be liable. Claims in contract should be dealt with according to the terms of the contract and the applicable law. Departments should ensure that the interests of the Crown are protected and any rights at law are exercised. Where a claim is made in both tort and contract, this policy is to be followed. Claims by or against the Crown or against its servants should generally be negotiated by, or in conjunction with, the Department of Justice without recourse to the courts, and according to the relevant authorities and procedures. 1.1 Exceptions The claims and ex gratia payments policy does not apply to the relocation of household property and travel claims, or to the traditional remedies to settle bidding or contract performance disputes. These are treated in the Treasury Board policies on employee services and on contracting. However, if, after reviewing or applying traditional remedies in a contracting case, there exist exceptional circumstances and the Crown has no liability, an ex gratia payment may be considered under this policy. The approval of such a payment would be subject to the deputy head's discretion to designate authorized officials, determine the need for a legal opinion, and take into account the policy requirements governing liability and ex gratia payments and the sensitive nature of ex gratia cases. Claims for recovery of losses of public money are governed by the Treasury Board policy on "Losses of money and offences and other illegal acts against the Crown". 1.2 Loss of services As a general practice, the Crown does not claim for loss of services of its employees save for employees who are members of the Canadian Forces or the Royal Canadian Mounted Police. 1.3 Disbursements Judgements against the Crown in either federal or provincial court in respect of matters falling within the scope of Part II of the Crown Liability and Proceedings Act are payable out of the Consolidated Revenue Fund as statutory expenditures pursuant to section 30 (1) of the Act upon production of a certificate of judgement. Similarly, judgements against the Crown in the Supreme Court of Canada are payable out of the CRF pursuant to section 98 of the Supreme Court Act. Departments should understand that the money paid on their behalf from the Consolidated Revenue Fund will eventually be accounted for either by transferring funds from a departmental appropriation or by seeking supplementary funding. Fees for Crown witnesses; travel, legal and other expenses incurred by, or on behalf of, the department in preparing, prosecuting or defending a court case; out-of-court settlements (including settlements for breach or termination of contract adjudicated by the Contracts Settlement Board or pursuant to the Commercial Arbitration Act ); and, unless an Order of a Human Rights Tribunal is made an order of the Federal Court, amounts payable under the Canadian Human Rights Act, are not covered by either of these statutory authorities and, as with liability and ex gratia payments, must be charged to the appropriation of the department concerned. Departments should also note that only court awards in respect of claims that arose prior to April 1991 are exempt from the Spending Control Act. Any other judgements paid, whether chargeable to one of the two statutory authorities or a departmental appropriation, are counted for the purpose of the annual total spending limit under that Act. A large judgement on a claim that arose after April 1991 could thus affect the ability to spend in other areas, even though funding may not be an issue, by using up available authority under the Spending Control Act. When costs are awarded against the Crown by a judgement of the Federal Court, or of a provincial court when the case is within its jurisdiction, the costs are payable in accordance with the direction of the court. Finally, it is important to recognize the distinction between a judgement in a proceeding brought before a court and a decision of a judge acting in a non-judicial capacity. Just as judges are often appointed as Commissioners of Inquiries or arbitrators in labour disputes, they may likewise be appointed as assessors or arbitrators under various Acts. A decision by a judge under, for example, section 57 (3) of the Health of Animals Act or section 41 (3) of the Plant Protection Act is not a court award and is not covered by the statutory authorities for court judgements. 1.4 Revenues Departments should collect or enforce payment of a claim made by the Crown in accordance with chapter 10, "Accounting and control of revenue and accounts receivable", in the Treasury Board Guide on Financial Administration for Departments and Agencies of the Government of Canada (to be reformatted). The money collected, including any insurance proceeds, should be deposited to the credit of the Receiver General and may not be credited back to an appropriation. An exception is the Standard Construction Contract which describes how to deal with insurance proceeds arising from construction contracts. (See the "Contracting" volume of the Treasury Board Manual ). 2. Claims under the Canadian Human Rights Act While following the mandatory provisions of the claims policy for the negotiation and payment of settlements and Tribunal Orders under the Canadian Human Rights Act (CHRA), departments should respect the investigation and conciliation procedures set out in the CHRA. The procedures do not apply to complaints lodged under section 11 of the CHRA with respect to equal pay for work of equal value, which are dealt with through Treasury Board personnel policy procedures or other separate authorities. While a discriminatory practice, as defined by the CHRA, is not a tort, the claims and ex gratia payments policy provides that departments must deal with a complaint lodged under the CHRA as if it were a tort. For Tribunal Orders which are made Federal Court Orders, payments are a statutory charge against the Consolidated Revenue Fund under the Federal Court Act. Deputy heads may, with discretion, designate payment approval authorities within their departments consistent with departmental practices and the sensitive nature of human rights issues. 3. Claims within and between departments and Crown corporations 3.1 Claims within a department When no other department or non-government entity is involved in an incident resulting in damage to public property, compensation and restoration are the responsibility of the department. In very exceptional circumstances, interim financing may be available through Treasury Board contingency vote 5. 3.2 Claims between departments One department of government cannot claim damages and receive payment from another department of the same government. The general rule is that damages shall be dealt with on the basis of mutual forbearance of claims. 3.3 Claims between departments and Crown corporations 3.3.1 The parties to claims between departments and Crown corporations are encouraged to arrive at a negotiated settlement. When a claim arises, each party should voluntarily supply the other with all information in its possession. 3.3.2 When it is found impossible to agree by correspondence on the claim's merits and liability, the legal officers of the department and of the corporation should attempt to arrive at an agreement. 3.3.3 If negotiation fails, the issues of fact and law on which there is disagreement should be submitted to the Deputy Attorney General of Canada, who could arbitrate the dispute through Department of Justice officials or appoint a third party to arbitrate the dispute. Contracting Policy Notice 1993-1, January 28, 1993FILE No.: 3800-027 DATE: 28 January 1993 TO: Functional Heads, Administration / Finance of all Departments and Agencies SUBJECT: Expanded Use of Arbitration for Contract Dispute Resolution Summary EFFECTIVE IMMEDIATELY, SEVERAL MODIFICATIONS ARE BEING MADE TO EXPAND THE ABILITY OF DEPARTMENTS AND AGENCIES TO USE ARBITRATION TO RESOLVE CONTRACT DISPUTES: 1. ALL QUESTIONS OF FACT AND CERTAIN QUESTIONS OF LAW WILL NOW BE SUBJECT TO ARBITRATION; 2. THE FORMAL CONCURRENCE OF THE DEPARTMENT OF JUSTICE WILL NO LONGER BE REQUIRED TO USE ARBITRATION TO RESOLVE QUESTIONS OF FACT AND QUESTIONS OF LAW (OTHER THAN QUESTIONS OF PUBLIC LAW); AND, 3. FOR QUESTIONS OF PUBLIC LAW, THE USE OF ARBITRATION WILL REQUIRE THE FORMAL CONCURRENCE OF THE SENIOR ASSISTANT DEPUTY MINISTER, LEGAL SERVICES, COMMERCIAL AND PROPERTY LAW, DEPARTMENT OF JUSTICE. Background 1. On August 10, 1986, the Commercial Arbitration Act came into force, which, inter alia, permits departments and agencies to enter into arbitration agreements to resolve disputes in contracts for the supply of goods and services, including construction. 2. Heretofore, - the use of arbitration was limited to questions of fact and excluded matters of law; and, - the concurrence of the Assistant Deputy Minister, Commercial Law and Advisory Services, Department of Justice, was required before any issue could become the subject of arbitration. Modifications3. At the suggestion of the Department of Justice, a number of modifications are being made to the existing policy in order to allow departments and agencies to make greater use of arbitration to resolve contract disputes. 4. Departments and agencies, with the advice of their legal advisor, may now refer all questions of fact and certain questions of law to arbitration without the formal concurrence of the Department of Justice. 5. Some of the questions of law which the Department of Justice indicates can now be the subject of arbitration include: - the formation, validity, interpretation, application or enforceability of the contract; - the performance, breach, termination or other discharge of the contract; - the rights, duties, obligations or remedies of the parties created by or pursuant to the contract; - any other issue of private law that may arise between the parties relative to the performance of the contract; or, - the interpretation and application of the statutes that relate primarily or solely to commercial transactions, including, for example, the Commercial Arbitration Act, and the International Sale of Goods Contracts Convention Act. 6. Departments and agencies must have the prior concurrence of the Senior Assistant Deputy Minister, Legal Services, Commercial and Property Law, Department of Justice, before proceeding with the arbitration of any question that involves the interpretation or application of the public law of Canada (i.e. constitutional, administrative, criminal and tax law) including, without limitation, the interpretation of any statute relating to public law, or the exercise of any power under such law. 7. These modifications expanding the use of arbitration apply to all contracts entered into pursuant to the Government Contracts Regulations and to grants, contributions and other financial assistance agreements if they are of a commercial nature. Additional guidelines with respect to greater use of arbitration in real property transactions will be issued seperately. 8. To assist departments and agencies to implement these changes, their legal advisors have been provided with guidelines from the Department of Justice covering the format (including procedures) and contents of an arbitration agreement and of any arbitration clause to be included in a contract, etc. Therefore, departments and agencies wishing to make allowance for the possible use of arbitration in the preceding documents, or facing the prospect of arbitration should discuss this with their legal advisor. 9. These modifications to the use of arbitration are effective immediately and apply to all departments and agencies which are subject to the Government Contracts Regulations. Contracting volume 10. The changes identified in this letter will be incorporated into a forthcoming revision to the Treasury Board Manual - Contracting. In the meantime, departments and agencies are requested to make copies of this letter for their immediate requirements. This letter will be cancelled upon incorporation of its contents into the Volume. Enquiries 11. Specific enquiries with respect to modifications in the use of arbitration to resolve contract disputes should be directed to the legal advisor of each department and agency. Policy questions of a more general nature may be addressed to the Contracting Management Group of the Treasury Board Secretariat at (613) 957-2526. R.J. Kelly Distribution: TB06, 07; T004, 005, 009, 010, 023, 024, 035, 036, 037, 039, 040, 161. Contracting Policy Notice 1994-8FILE NO: 3850-001 Summary REVISED GUIDELINES (SEE ATTACHED) FOR CONTRACTING FOR THE SERVICES OF INDIVIDUALS HAVE BEEN DEVELOPED AND ARE INTRODUCED ON A TRIAL BASIS UNTIL OCTOBER 31, 1996. Background 1. Contracting for the services of individuals, either through a firm or with an individual directly, continues to be a cost-effective technique to obtain expertise that is not available within the Public Service. 2. Contracting for services is not to be used to circumvent the staffing process as provided under the Public Service Employment Act. 3. There is always the danger in contracting for the services of an individual that the contract may be, or may develop into, a contract of service (i.e. a contract of employment). This situation would conflict with the government's employment legislation and could bring into play the application of other laws and may give rise to liability for employee-related benefits. As well, if an employer-employee relationship develops between the contracting authority and the contractor, then the contracting authority may incur liability for the actions of the contractor. 4. Section 16 of the Treasury Board Manual - Contracting, contains several requirements and guidelines that must in some cases, and should in others, be observed when contracting for the services of individuals. Effects of Recent Court Decisions and Revenue Canada Audits 5. In March 1991, the Supreme Court of Canada conclusively determined the meaning of employer-employee relations in the federal public sector for the purposes of labour relations, as governed by the following statutes: the Public Service Employment Act, the Financial Administration Act and the Public Service Staff Relations Act. One has to be appointed pursuant to this trilogy of statutes to be an employee for labour relations purposes. However, for other purposes, such as superannuation, Crown liability, or source deductions from pay (e.g. Unemployment Insurance, Canada Pension Plan, Income Tax), an employer-employee relationship may be created, or may evolve, under a contract for services if certain criteria exist. 6. From time to time, the Department of National Revenue audits federal departments and agencies with respect to contracts for services. It has determined that certain contracts for services were, in fact, employer-employee relationships. Consequently, the Department of National Revenue assessed the departments for source deductions related to the fee paid to the individual contractor. 7. All contracting authorities must continue to exercise extreme caution, especially when contracting for the services of an individual, to ensure that contracts for services do not evolve into contracts of service, or what could be considered to be an employer-employee or master-servant relationship. 8. For labour relations purposes, a contractor cannot be an employee unless appointed pursuant to the trilogy of statutes mentioned in paragraph 5. However, for other purposes (e.g. the Income Tax Act, the Canada Pension Plan, Unemployment Insurance Act and other statutes that provide employee-related benefits) a Court may determine that a contractor is an employee at common law, even though the contractor has not been appointed according to the statutory trilogy. Revised Directives and Guidelines 9. With the assistance of the Department of Justice, the attached directives and guidelines were developed to assist contracting authorities in carrying out legitimate contracting for the services of individuals, and to reflect that the ultimate responsibility for contract decisions should rest with the contracting authority, as represented by the appropriately delegated official. 10. After discussion, the Treasury Board Advisory Committee on Contracts-General agreed to implement the attached draft, which revises paragraphs of Section 16 of the Treasury Board Manual - Contracting. The revisions will be observed until October 31, 1996, when a decision will be made on whether or not they should be adopted into the contracting processes of government. 11. Once these guidelines are released, contracting authorities will be responsible for determining if a contract for services may create an employer-employee relationship. The Treasury Board Manual - Contracting provides criteria for making this determination. Only in exceptional cases should the Department of Justice be asked to vet contracts for services. An exceptional case is where it is not feasible for officials to determine whether a contract is a contract for services or a contract of employment (ie. employment status is not easily identifiable). The role of the Department of Justice, however, is only advisory. It is the responsibility of the respective management level in each department or agency to ensure that contracts do not create employer-employee relationships. 12. The contracting authority shall ensure that the contract document reflects the intention of the parties to not enter into an employer-employee relationship, and that the contracting authority not be responsible for any employee-type obligations to the contractor, such as source deductions for Income Tax, Unemployment Insurance, Canada Pension Plan, or any other employee-related benefits. A suggested clause which would reflect this intention is as follows: "This is a contract for the performance of a service and the contractor is engaged under the contract as an independent contractor for the sole purpose of providing a service. Neither the contractor nor any of the contractor's personnel is engaged by the contract as an employee, servant or agent of Her Majesty. The contractor agrees to be solely responsible for any and all payments and/or deductions required to be made including those required for Canada or Quebec Pension Plans, Unemployment Insurance, Workers' Compensation, or Income Tax." Treasury Board Manual - Contracting 13. As indicated above, the attached revisions to section 16 of the Treasury Board Manual - Contracting are for a trial period; they will not be incorporated into the manual until a review of their effectiveness has been completed. Inquiries 14. For further information or assistance, please contact the Contracting Management Group, Administrative Policy Branch, Treasury Board Secretariat at (613) 957-2526. R. J. Kelly Attachment Distribution: TB06, TB07, T004, T005, T009, T010, T023, T024, T035, T036, T038, T040, T041, T161 Interim Guidelines Replacing Sections 16.2/16.3 - Treasury Board Manual - Contracting, effective until October 31, 199616.2 Contracting for the Services of Individuals and Public Service Employment 16.2.1 The goal of this guideline is to explain the difference between contracting for the services of individuals and Public Service employment. It outlines how to avoid entering into contracts of services with the Crown which create an employer-employee relationship, and how to avoid conflicting with staffing legislation. A contract of service results in the establishment of employee-related benefits, which include, for example, health and dental care, long-term disability coverage, government pensions, Unemployment Insurance, Canada Pension Plan and income tax source deductions. Factors that may create an employer-employee relationship include the degree of supervision; provision of working space and equipment; type of work (i.e. is the contractor doing the same work as employees); and basis of payment and benefits. 16.2.2 The Public Service consists of the positions in departments and other government entities that are listed in Schedule I of the Public Service Staff Relations Act. Part I of the Schedule, which lists those positions for which the Treasury Board is employer, represents the vast majority of Public Service employees. Part II of the Schedule lists "separate employers," that is, entities that establish their own terms and conditions of employment. 16.2.3 Employment in the Public Service is generally determined according to a statutory regime. In particular, employment in that part of the Public Service for which the Treasury Board is employer is governed by three statutes: - the Public Service Employment Act, which gives the Public Service Commission, with exceptions, the exclusive authority to appoint persons to positions in the Public Service; - the Financial Administration Act, which gives the Treasury Board the power of personnel management in the Public Service; and - the Public Service Staff Relations Act, which governs collective bargaining in the Public Service. 16.2.4 The Supreme Court of Canada has ruled that, for labour relations purposes (i.e. whether an individual is an employee for collective bargaining purposes), a person can be employed in that part of the Public Service for which the Treasury Board is employer only if - a position has been created by a Minister or deputy head, - the position has been classified by the Treasury Board, and - the Public Service Commission, or its properly authorised delegate, has appointed the person to the position. Only a duly appointed employee of the Public Service can enjoy the benefits of a public servant under the Public Service Employment Act (employee rights) and the Public Service Staff Relations Act (right to collective bargaining). 16.2.5 While the Public Service Commission's appointment authority can be delegated to departments and agencies, contracting authorities cannot employ persons in the Public Service without complying with the Public Service Employment Act. Appointments to positions in the Public Service must be made under the statutory regime established by that Act and not under contract. Contracting authorities, therefore, do not have the legislative authority to create employer-employee relationships by way of contract, however an improperly construed contract for services may evolve into an employer-employee relationship at common law. 16.2.6 There are exceptions to these rules. For example, Cabinet directly appoints a number of high ranking officials in the Public Service and ministers can hire members of their own offices. In addition, while many of these rules apply to employment by "separate employers," each separate employer has a distinctive employment regime. 16.2.7 Contracting authorities cannot use contracts for services to circumvent the requirements of the statutory employment regime established by the Public Service Employment Act. In other words, contracting authorities cannot sign contracts with individuals that would, in the absence of the Public Service employment regime, create employer-employee relationships according to the rules of the common law. 16.2.8 Contracting authorities who circumvent the requirements of the Public Service Employment Act, by signing contracts that create employer-employee relationships at common law risk incurring liability under the following statutes the Canada Pension Plan, the Canadian Human Rights Act, the Crown Liability Act, the Government Employees Compensation Act, the Income Tax Act, the Official Languages Act and the Unemployment Insurance Act. Under those statues, the Crown may incur liability for persons having the attributes of employees, or "servants," at common law. For example, the Minister of National Revenue may assess a department for source deductions pursuant to the Unemployment Insurance Act. 16.2.9 On the other hand, contracting authorities may be able to respond to challenges, especially to challenges or liabilities related to employee-related benefits, by using the rationale of the "trilogy" of statutes argument cited in paragraph 16.2.3 (above). Because these arguments have not yet been used to refute claims for benefits or liabilities, there are no precedents to confirm if the trilogy argument would be successful. Hopefully by the time these interim guidelines expire in 1996, more definitive guidance will be available. 16.3 Employer-employee relationships 16.3.1 Outside the Public Service, the existence of employer-employee relationships is determined according to a number of tests established by the common law (droit coutumier). It is virtually impossible to lay down general rules on the meaning of employment at common law that apply uniformly and without exception; each relationship is assessed individually. That said, an employee (or "servant") at common law is a person who works for salary and wages and is under the supervision and direction of his or her employer; an independent contractor, in contrast, is his or her own master. 16.3.2 As provided in paragraph 4.1, Contract Policy Requirements, contracting authorities are to ensure that an employer-employee relationship will not result from a contract for services. A contract for services that is initially sound should not develop over a period of time into a work situation that would constitute an employer-employee relationship according either to the Public Service Employment Act or the common law. Therefore there should be appropriate safeguards in contracting procedures to avoid such relationships. 16.3.3 Appointment under the Public Service Employment Act. In order to be appointed to a position under the Public Service Employment Act, (i.e. to be employed in the Public Service), there must be evidence of: - financial approval (classification) for the position by the Treasury Board or its delegate; - an administrative decision to make an appointment to a position; - a process of selection according to merit; - a process of personnel selection by competition or otherwise. 16.3.4 Factors determining an employer-employee relationship at common law. Three factors affect the determination of an employer-employee relationship at common law. They are: - the intention of the parties to the contract; - the contract documents; and - the actual work situation. 16.3.5 It should be evident from the outset of a proposed contract for services that the contracting authority and the contractor do not intend to form an employer-employee relationship of any kind. 16.3.6 The various forms and letters that comprise the contract documents should not contain any wording that indicates an intention by either party to enter into an employer-employee relationship. No reference should be made to those elements usually found in employment situations, such as place of work, hours of work or benefits (e.g. rest periods, higher remuneration for longer periods of duty). 16.3.7 The most sensitive factor is the actual work situation. Managers should ensure that relationships with individuals who provide services under contract do not evolve into employer-employee relationships in the work situation, even when the intention and documentation requirements are met. 16.3.8 Legal advice. Departments and agencies should seek legal advice from the Department of Justice only in exceptional cases, where it is not feasible for officials to determine whether a contract is a contract for services or a contract of employment ( i.e. employment status is not easily identifiable). However, the role of the Department of Justice in these cases is only advisory. It is ultimately the responsibility of contracting authorities to ensure that contracts do not create employer-employee relationships. 16.3.9 If the contract situation is challenged as an employer-employee relationship, the Department of Justice will assess the merits of the claim to determine whether the matter should be taken to court. 16.3.10 Time limitations for contracts with individuals. To safeguard the integrity of the contract, a case-by-case review is expected before contracting for the services of an individual for longer than 20 weeks. In those exceptional cases where the contract must be extended, the delegated authority who approves the extension should be at a more senior level than the individual who approved the initial entry into the contract. 16.3.11 Situations that may result in an employer-employee relationship at common law. 16.3.11.1 Contract of service or employment. Essentially, an employer-employee relationship exists when the employer can specify when, where, how and under what conditions the work will be performed. A contract of service normally contemplates "servants" putting their personal services at the disposal of the "master" for a period of time, rather than the accomplishment of a specified amount of work. 16.3.11.2 Contract for services (independent contract). A contract for services exists when an individual is retained to achieve a prescribed objective with no day-to-day supervision by the contracting authority; the independent contractor therefore decides how to achieve the specified work. Departments and agencies have the authority to enter into contracts for services. 16.3.11.3 Factors to determine an employer-employee relationship. The following criteria should be used as a guide to determine if an employer-employee relationship exists. If one or more of the factors listed below apply to a "contract for services," the contract may risk creating an employer-employee relationship. The degree of importance for each factor varies according to the nature of the contract and evolving court interpretations. (a) The contracting authority exercises supervisory control (as distinct from inspection of work) over the contractor. That is, the contracting authority supervises not only achieving the objective but also how the work is carried out. (b) The contracting authority has the power to discipline the contractor's workers. (c) The contracting authority is responsible for furnishing the tools, facilities or material needed to perform the work done by the contractor. (d) The contractor has no opportunity to profit, and is not exposed to any risk of loss, in work performance. (An example of how an independent contractor could make a profit or loss is when a specified result is to be achieved in return for a fixed fee that is paid only on successful completion of the work.) (e) The contractor has no opportunity or authority to subcontract or hire other persons. (f) The contractor becomes integrated into the contracting authority's organisation and the work being performed is an integral part of the work of the contracting authority's organisation; that is the work is comparable to work being carried out by public servants or it can be described as rendering a personal service. (g) The contracting authority makes payments to the contractor: (1) on the basis of time, (2) at regular intervals, (3) directly to individuals, or (4) subject to source deductions (e.g. Canada Pension Plan or Unemployment Insurance). (h) The contracting authority makes provisions for holiday pay or sickness or injury incurred by the contractor. (i) The contract lasts longer than 20 weeks and one or more of the above factors apply. 16.3.12 If a firm consists of an individual who has incorporated, any contract with this firm should be considered as a contract for the services of an individual, not as a contract with a firm. The contract should, therefore, not exceed 20 weeks. 16.4 Contracts for research and development [RETURN TO UNAMENDED VOLUME] Treasury Board Manual, Contracting Guideline, May 31, 1993, section 1212. Contract administration 12.1 General 12.1.1 Contracting authorities should manage and administer their contracts in a manner that ensures that they are successfully executed in accordance with the agreed terms of time, cost and performance. 12.1.2 Contract documentation. The terms and conditions of any contract issued pursuant to the Government Contracts Regulations and the Contracts Directive should be in writing. The actual contract should be signed by the authorized departmental officials and the representatives of the contractor as soon as possible after notice of the award has been given to the successful bidder. When it is a term of the contract, the time limit for obtaining contract security or contract insurance should be set out in the contract and enforced. 12.1.3 Sanctions. If the contracting policy is ignored or if contracting practices or contract administration are not acceptable, the Treasury Board may direct that sanctions be imposed either on the contracting authority (the institution) or on the officials responsible. Sanctions may include any or all of the following:
Officials responsible for the management of contracts should be made aware of possible institutional or personal sanctions. 12.2 Financial considerations 12.2.1 The Financial Administration Act. Sections 32, 33 and 34 of the Financial Administration Act prescribes various financial controls in contract expenditures. Usually the financial aspects of contract administration are the responsibility of financial managers, but contract administrators should have a basic knowledge of the law and the financial management policies of the government. Much of this information is set out in the Comptrollership volume of the Treasury Board Manual issued by the Treasury Board Secretariat. 12.2.2 Advance Payments. Section 8 of the Government Contracts Regulations permits advance payments. If advance payment clauses are to be included in contracts, they must adhere to the principles of parliamentary control, the requirements of the Financial Administration Act (paragraph 33(3)(a)), and the provisions of the appropriation Acts themselves. Where contract approval is within departmental authority, advance payments can be approved by the department. However, as required by the Regulations, where contract approval is beyond departmental authority, advance payments require Treasury Board approval. 12.2.3 Preconditions For Using Advance Payments. Advance payments should be considered only in extraordinary circumstances, that is, when they are considered essential to program objectives. Contractors are expected to finance their work from their reserves or through commercial financing based on the anticipated payments from the contracting authority for full or partial completion of the work. Contracting authorities should consider the financing and interest costs to the Crown, as well as the method of recovery, when negotiating advance payments and should evaluate these costs when comparing other alternatives. 12.2.4 Further to the preceding, contracting authorities should consider including advance or progress payments in a contract only if:
Advance payments are not necessarily warranted even if the preceding preconditions are met. While progress payments may be more common, advance payments are normally very much the exception. 12.2.5 Timing and Amount of Advance Payments. Except in extraordinary circumstances, in accordance with the principles of annual appropriations and the basis on which funds are appropriated by Parliament,
12.2.6 Payments. As required by article 4.2, Related requirements, work performed or goods received under a contract are to be paid for in accordance with the government's payment on due date policy on the payment of accounts (see the "Comptrollership" volume of the Treasury Board Manual) as follows:
Payments are scheduled so that they are made as close as possible to, but no later than, the due date. Except where statutes, contracts or fee schedules approved by federal regulatory agencies provide otherwise: - interest is paid automatically on accounts that are not paid within 15 calendar days of the due date if the government is responsible for the delay (i.e., accounts outstanding for 45 days or more when the standard payment period of 30 days applies); - interest is not paid on accounts paid within 15 days of the due date; and - the period for which interest is paid automatically is measured from the due date to the date that the payment is issued. 12.2.7 The terms of the contract, where applicable, should state the dates when interim and progress payments are due. Progress payments should normally be made within the due date except where other terms are agreed to in the contract. 12.2.8 Interest is computed by multiplying the amount due by the applicable rate (see article 12.2.9 below) and the time period expressed as a fraction of a year in days, i.e., the number of days in the period for which interest is payable over a denominator of 365. 12.2.9 The rate of interest is the Bank of Canada discount rate in effect the day the amount is paid plus 1 1/4%. 12.2.10 Exceptions. When it is more advantageous to the government, because of factors such as discounts, to pay accounts earlier, or when the terms and conditions for payment and interest under a contract are different from the 30-day standard, the standard payment period may be set aside. 12.2.11 Interest is not paid on an interim basis, on interest charges, or on advance payments that are late. 12.2.12 When goods or services are not considered to be in accordance with the contract, certification under Section 34 of the Financial Administration Act cannot be given. As required by the payment on due date policy, departments must notify suppliers within 15 days if the contract performance is disputed. 12.3 Contract documentation 12.3.1 Subject to the specific directives of the contracting authority, contract files should be established which will provide a complete audit trail containing details on matters such as options, decisions, approvals, amendments, if any, etc., and identifying the officials or authorities who made them. This is extremely important for answering questions and evaluating the results. 12.4 Contract documentation content 12.4.1 All contract documents should contain conditions and clauses that reflect the requirements of the work to be produced or supplied under the contract. In addition, certain clauses are applicable for all contracts. As stated in article 4.2, Related requirements, other necessary clauses will include: a provision for paying interest when the Crown causes a delay in paying the contractor; a clause to permit the Crown to pay the Goods and Services Tax; a clause covering possible conflict of interest situations; and, if relevant, a clause addressing intellectual property issues, including the ownership of intellectual property. An appropriate termination clause is especially important so that the contracting authority may end the contract if, for example, there is a change in the government's priorities or a cutback in funding. The Department of Justice representative in each department or agency should be consulted about contract terms. 12.4.2 As stated in article 4.2, the Standard Government Construction Contract has been prescribed for all construction contracts that exceed $100,000 (see Appendix O). 12.4.3 When the Crown or the contracting authority is referred to in a contract, the proper designation is "Her Majesty the Queen in right of Canada, referred to in the contract as "Her Majesty," represented by the Minister of (the legal name of the contracting authority) referred to in the contract as the "Minister". The applied titles of departments or agencies should not be used. Legal and applied titles for departments and agencies are set out in "Titles of Organizations", Federal Identity Program, issued by Treasury Board. 12.5 Criminal Code and the Financial Administration Act 12.5.1 The Criminal Code of Canada, Section 748, Sub-Section 3 prohibits anyone who has been convicted of an offence under: - Section 121, Frauds upon the Government; - Section 124, Selling or Purchasing Office; or - Section 418, Selling Defective Stores to Her Majesty, from holding public office, contracting with the government or receiving a benefit from a government contract, unless the Governor in Council has restored (in whole or in part) these capabilities to the individual or the individual has received a pardon. 12.5.2 As stated in article 4.2, Related requirements, contracts are subject to the screening requirements of the Security Policy of the Government of Canada. The contracting authority is responsible for ensuring compliance. Contract administrators, therefore, must ensure that any necessary security clearances and/or reliability checks are carried out so that contractors and their employees, where applicable, are acceptable under the policy (see the Security Policy of the Government of Canada issued by Treasury Board). 12.5.3 As required by the Prime Minister's Conflict of Interest and Post Employment Code for Public Office Holders, September 1985, contracting authorities are to ensure that all requirements are met. These include inserting clauses, approved by Treasury Board, into every contract entered into by the Crown. They are contained in Appendix G. 12.5.4 Section 80 of the Financial Administration Act makes it an indictable offence if any regulations under the Act, including the Government Contracts Regulations, are violated. This section also applies to officers or employees who know of violations and neglect to report them. Section 81 makes the offering of bribes to influence the decisions of officials an indictable offence. 12.6 Contract performance 12.6.1 The management and administration of contracts involves many activities to ensure the fulfillment of a contract. This also covers those activities or events that can alter or disrupt the performance of a contract e.g., default of a contractor, disputes and contract amendments. These guidelines apply equally well to those other activities associated with the management and administration of contracts. 12.6.2 Whenever the satisfactory fulfillment of a contract is jeopardized, contracting authorities should take the necessary steps to serve and protect the interests of the Crown in meeting the terms of the contract, and then to protect (where appropriate) the interests of other parties involved in the contract. Contract disputes should be dealt with fairly and as promptly as possible. Contract amendments should be made with the same care that went into the original contract. 12.7 Non-performance of contractor 12.7.1 In every case of the impending or actual bankruptcy of a contractor, the contracting authority should contact the departmental legal adviser and ensure that any proposed action will not prejudice the Crown's legal position. When the bankrupt contractor is a company resident outside Canada, action should be taken in accordance with the bankruptcy law of the country concerned. Legal advice should be obtained locally, if necessary. 12.7.2 As stated in article 4.2, Related requirements, where a contractor has provided contract financial security in the form of a bill of exchange or a government-guaranteed bond, the contracting authority is to redeem these securities to satisfy the requirements of the contract. Any excess amounts are returned to the contractor after all federal claims have been satisfied. 12.7.3 When a defaulting contractor has provided financial security in the form of a surety performance bond or a surety payment bond, the bonding company becomes liable, up to the amount of and in accordance with the terms and conditions of the bond. In the case of a performance bond, the bonding company's liability is only to the Crown; under a payment bond, claims may be made on the bonding company by all those who have a direct contract with the principal contractor or a sub-contractor for the supply of labour, material or services. 12.7.4 Claims by Sub-subcontractors. During the course of a construction contract or when it is completed, a second-tier claimant, either a sub-subcontractor or a third level supplier, may make a claim against the prime contractor. When one or more such claims are made against the prime contractor, the posting of a claimant's payment bond by the prime contractor will permit regular payments under the contract while the disputes are being settled between the various parties. 12.7.5 When the contract of a defaulting contractor is secured by surety bonds, the bonding company:
12.7.6 In case of bankruptcy, the claims of the Trustee in Bankruptcy for any amounts due and payable by the contracting authority to the contractor at the date of its bankruptcy are subject to the above conditions. 12.7.7 As required in article 4.2.1 recognition is to be given to miscellaneous, indirect contractual obligations of a contractor and its sub-contractors (including suppliers) that arise from assessments by agencies of the government (e.g., Unemployment Insurance, Canada Pension Plan contributions, wages due the employees or by agencies ofp; other governments in cases where a precedent of mutual cooperation has been established (e.g., workers' compensation acts). 12.7.8 Authorities concerned should follow closely any bankruptcy proceedings involving contractors with whom they are involved, promptly submit any claims to the trustee and ensure these are acknowledged. 12.7.9 If the contractor must be removed from the job on account of bankruptcy or other default, action should be taken under the appropriate terms of the contract. If the contract is secured by surety bonds, the contract itself should not be terminated because this would also terminate the existing contractual relationship with the bonding company. 12.7.10 As stated in article 4.2, contracting authorities are reminded of their duty to pursue the rights of the Crown as a creditor under the Bankruptcy Act :
12.7.11 Contracting authorities should obtain a fair reduction in the contract price for less-than-specified performance. 12.8 Disputes 12.8.1 The key factor when disputes arise is the expeditious handling of the disagreement. This is particularly important because prolonged disputes can delay performance as defined in the contract and payment to the contractor. 12.8.2 In a contract dispute, the decisions of the contracting authority made after the contract has been awarded, are challengeable in court. It is important, therefore, that legal advisers be consulted and that the actions of a contracting authority and its decisions on a contractor's claim be defensible in court. 12.8.3 Negotiations. Efforts should be made to resolve disputes as they arise, first by negotiating with the contractor. This can be through discussion between representatives of the contractor and the contracting authority or by a more formal review established by the department or agency. Contracting authorities should develop systems that ensure:
12.8.4 Mediation. When a dispute has not been resolved by negotiation, mediation by a third party may be used when it is acceptable to both sides. Mediation should conform to the following principles:
12.8.5 Arbitration. Arbitration that is binding on both parties is an alternative to litigation, provided that both the contractor and the contracting authority agree to it. The agreement to allow for its use may be inserted in a contract at the outset, or it may be negotiated between the parties at the time a dispute arises. If allowance is to be made for, or there is the prospect of arbitration, the contracting authorities should first discuss the details of it with their legal advisor. This advisor has guidelines from the Senior Assistant Deputy Minister, Legal Services, Commercial and Property Law, Department of Justice, covering the format (including procedures) and contents of an arbitration agreement and of any arbitration clause to be included in a contract. 12.8.6 Contracting authorities, with the advice of their legal advisor, may refer all questions of fact and certain questions of law to arbitration without the formal concurrence of the Department of Justice. Treasury Board approval is not required to use arbitration. Some of the questions of law which can now be the subject of arbitration include:
12.8.7 Contracting authorities are required to have the prior concurrence of the Senior Assistant Deputy Minister, Legal Services, Commercial and Property Law, Department of Justice, before proceeding with arbitration of any question that involves the interpretation or application of the public law of Canada (i.e., constitutional, administrative, criminal and tax law) including, without limitation, the interpretation of any statute relating to public law, or the exercise of any power under such law. 12.8.8 These modifications expanding the use of arbitration apply to all contracts entered into pursuant to the Government Contracts Regulations and to grants, contributions and other financial assistance agreements if they are of a commercial nature. Additional guidelines with respect to greater use of arbitration in real property transactions are being developed and will be issued separately by the Real Property Management Division, Administrative Policy Branch, Treasury Board Secretariat. 12.8.9 Legal Process. When dispute resolution is pursued through arbitration, the parties appear before an Arbitration Tribunal, which takes the place of a court and makes an "award." While an arbitration tribunal has no authority to enforce its award, the Commercial Arbitration Code (Chapter VIII, Article 35) provides that such an award will be recognized as binding, and upon application in writing to a competent Canadian court will be enforced by a judgment of that court. Because the Crown Liability and Proceedings Act (Sections 29 and 30) prevents such a judgment from being executed against the Crown, in these cases the court also issues a Certificate of Judgment against the Crown, which obligates the Minister of Finance to authorize the payment out of the Consolidated Revenue Fund of any money awarded by the judgment. 12.8.10 Costs and Disbursements. In preparing for arbitration, any expenses incurred by the contracting authority are a charge to a departmental appropriation, whether the eventual decision is rendered for or against the contracting authority. 12.8.11 When the Minister of Finance receives a Certificate of Judgment against the Crown and authorizes the payment out of the Consolidated Revenue Fund of any money awarded by a court judgment, this payment will incorporate any costs determined and levied by the arbitration tribunal and included in its award. In this context, contracting authorities should note that the cost associated with the actual conduct of arbitration is normally shared equally by the contracting authority and the contractor. Contracting authorities should also understand that the money paid on their behalf from the Consolidated Revenue Fund will eventually be accounted for either by transferring funds from a departmental appropriation or by seeking supplementary funding. Any payment of an award to a contractor by the contracting authority as a result of an arbitration decision is to be reported annually in the Public Accounts; this will ensure both visibility and accountability. 12.8.12 Where a contracting authority terminates arbitration proceedings amd agrees to pay a contractor without the necessity of an arbitral award, the money for such a payment will have to taken from a departmental appropriation. In some instances, particularly where the interpretation of a contract is involved, this is accomplished by simply amending the amount allotted for the contract. It is the responsibility of the contracting authority to ensure that any such payment is within its amending authority for contracts as set out in Schedules 1 through 4 of Appendix C, otherwise the contracting authority is required to obtain Treasury Board approval for any such payments in excess of this amending authority. 12.8.13 Revenues. The contracting authority should collect or enforce payment of an award to the Crown consequent to the arbitration decision in accordance with the "Comptrollership" volume of the Treasury Board Manual. The money collected, including any insurance proceeds, should be deposited to the credit of the particular project, a departmental appropriation or the Consolidated Revenue Fund, as appropriate. The Standard Federal Government Construction Contract form (refer to Appendix O) describes how to deal with insurance proceeds arising from construction contracts. 12.8.14 Litigation. An alternative to arbitration is, of course, litigation. By convention, matters referred to arbitration are not then subject to litigation unless the arbitration was defective in form or content. Where the contractor or contracting authority decides that litigation should take place, the Department of Justice assumes; responsibility for subsequent action in accordance with the Department of Justice Act. 12.9 Contract amendments 12.9.1 Even though the Contracts Directive allows for amendments, contracts should not be amended unless such amendments are in the best interest of the government, because they save dollars or time, or because they facilitate the attainment of the primary objective of the contract. Work definitions should be carefully developed. Contracts should then be properly administered to avoid unanticipated amendments except to change the scope of the work. Amendments to existing contracts often call for more administrative work and little can be done through competition to encourage the contractor to do additional work or respond to changes at the lowest possible cost. 12.9.2 Every effort should be made to avoid:
12.9.3 Many contract amendments are, in fact, prudent. Often contract amendments or probable amendments can be foreseen when the initial contract is contemplated. In such cases, the proposal section of the approval document should indicate the likelihood of such amendments, including a maximum cost limit. Where Treasury Board or managerial approval is required and the original contract proposal to the Treasury Board or departmental management has been approved, subsequent amendments do not require the same level of approval as long as they are within the original intent of the proposal and applicable amendment authorities. 12.9.4 Extra costs. In accordance with the Contracts Directive, a submission to Treasury Board is to be made before a contractor can be paid for extra costs if the Crown has received no additional or apparent benefit and there is uncertainty whether a legal liability exists under the terms of the contract. Legal advice should be obtained as to whether the extra costs may be considered as an amendment to the contract or an "ex gratia" payment. Extra payments should, in any event, cover only the additional reasonable costs incurred by the contractor and should be considered only if the circumstances were beyond the contractor's control and the contractor was without fault or negligence and could not reasonably have foreseen the actual circumstances at the time the contract was entered into. Each case will be treated on its own merits but extra payments will not normally be approved by Treasury Board when they are solely caused by: - increases in labour or materiel costs; - changes in freight rates; - revisions in exchange rates (beyond adjustments provided for in the contract); - increases in taxes and duties (except as outlined in sub-article 10.6.12); - delays caused by the contractor; - errors on the part of the contractor; and - other difficulties that the contractor overlooked but should have foreseen. 12.10 Contractual arrangements involving Crown corporations 12.10.1 Subsection 41(2) of the Financial Administration Act states that the Government Contracts Regulations do not apply to Crown corporations unless the legislation of the Crown corporation specifically requires that it be subject to Subsection 41(1) of the Act. Consequently, the Treasury Board Contracts Directive and relevant policies do not apply to Crown corporations. Arrangements between departments and Crown corporations cannot be contracts in a strictly legal sense (the Crown cannot contract with itself). Nevertheless, when departments and agencies subject to the Regulations and the Treasury Board Contracts Directive make arrangements with Crown Corporations, the dollar limits in the Treasury Board Contracts Directive still apply. The purpose is to ensure that contract controls remain consistent. 12.10.2 Crown Corporation undertakes work on its own. If a contracting authority enters into a contractual arrangement with a Crown corporation that undertakes the work with its own resources, the contracting authority will ask Treasury Board approval for the proposal or project if it is beyond the limits established in the Treasury Board Contracts Directives. 12.10.3 Agency status. When a department or agency has been designated as an "agent" of a Crown corporation, the contracting procedures and authority limits of the contracting authority continue to apply. As stated in article 4.2, Related requirements, the contracting authority cannot assume the powers of a Crown Corporation even when undertaking work on its behalf. In practice, the department or the Crown corporation will seek Treasury Board authority when a proposed contract exceeds the limits prescribed in the Contracts Directive. 12.10.4 Contractual arrangements with other governments. There are situations where contracting authorities obtain goods and services from other government entities such as provinces, municipalities and provincial Crown corporations. There are also times when the federal government co-operates with a provincial or municipal body to carry out a project. Usually, these arrangements are embodied in federal-provincial agreements, normally governed by legislation or related to the overall mandate of the federal authority. When this formal federal-provincial relationship is not applicable, a contractual relationship between the federal contracting authority and the other government entity may be appropriate. As called for by article 4.2, the contract policies, including the dollar limits for contracting, apply to the federal organization. 12.11 Protecting the interests of the Crown 12.11.1 General. Part II of the Government Contracts Regulations deals with securing the due performance of contracts. The contracting authority is to determine the need for and amount of financial security, subject to the Regulations, policies and Related requirements. 12.11.2 The following includes guidelines on financial security and the use of insurance in contracting. 12.11.3 Financial security. The various forms of financial security exist to ensure that the contractor's obligations under the contract are carried out, to protect the interests of subcontractors, sub-subcontractors and suppliers, and to protect the Crown against loss should a low bidder fail to enter into a contract. The principal traditional techniques are holdbacks, security deposits and surety bonds. When security is obtained, contracting authorities will apply the procedures for the handling of bonds and security deposits set out in the Government Contracts Regulations. 12.11.4 Form and amount of security. The following criteria should be used to determine the form and amount of security:
As specified in the definitions in the Government Contracts Regulations, a security deposit may be a bill of exchange payable to the Receiver General and certified by an approved financial institution on itself, a government guaranteed bond which is convertible to cash, or any other form of security acceptable to the contracting authority and approved by the Treasury Board. The only other forms of security that have been approved for general use are bid and contract surety bonds and claimant's payment bonds issued by acceptable bonding companies. Standby irrevocable letters of credit have been also accepted as security after receiving case-by-case approval by the Treasury Board. 12.11.5 Holdbacks. Holdbacks serve two purposes:
Negotiated holdbacks should be large enough and last long enough to ensure that all contractual requirements can be met. This can be determined by assessing the firm's financial capability, performance record, payment record, markets or industry volatility and the degree of risk inherent in the work. 12.11.6 Security deposits. The contracting authority determines the amount of the deposit required and ensures that the actual deposit is acceptable under the Government Contracts Regulations (see Part II of the Regulations, sections 10 to 17, concerning the procedures governing these instruments. See also the "Comptrollership" volume of the Treasury Board Manual ). When cash, certified cheques, other bills of exchange or government-guaranteed bonds are submitted as contract security, the contracting authority usually specifies a minimum of 10% of the value of the contract. Surety bonds are usually required to have a total value of 100% of the value of the contract. In construction contracts, the amount of security provided by surety bonds is usually 50% of the total value of the contract in a performance bond, 50% of the total value of the contract in a labour and material payment bond, and the total value of the claims in a claimant's payment bond. When government guaranteed bonds are submitted as security, their value should be current value, not necessarily face value. 12.11.7 Surety bonds. If surety bonds are proposed by the bidder or contractor and are acceptable to the contracting authority, the appropriate model bond form should be used for consistency and uniformity. Model forms for bid bonds, performance bonds and payment bonds have been approved by Treasury Board for use in construction contracting and are shown in Appendix S. A list of insurance companies whose bonds (regardless of purpose) are accepted by the government is contained in Appendix L, which is revised as required. 12.11.8 Bid security. The amount required as bid security is also determined by the contracting authority as guided by the traditions or customs generally followed in the type of contracting being undertaken. For construction contracts the following bid and contract security is sually requested by the contracting authority: (a) For bid security when the amount exceeds $30,000 - if the security is a bill of exchange or a government guaranteed bond, 10 percent of the amount bid up to a bid total of $250,000. If the bid exceeds $250,000, the foregoing amounts are requested plus 5 per cent of the amount in excess of $250,000. (b) if the security is a surety bond, 10 per cent of the amount bid. 12.11.9 Normally, neither a bid bond nor a security deposit protects against the withdrawal of an offer before its acceptance, unless the offer is made under seal. The model bid bond form contains a provision obligating the bonding company to compensate the Crown for higher costs in case of withdrawal, but does not provide a basis for legally enforcing entry into the contract. Where use of the model form is not appropriate or where contracting authorities judge it to be in the public interest to require the additional protection of offers made under seal, assistance of legal officers should be sought in preparing bidding documents. (The seal concept does not apply in Quebec, but the bidder who undertakes to keep an offer open for a specified period of time cannot withdraw the offer without becoming exposed to a damage claim.) If a security deposit is made, withdrawal of an unsealed tender before acceptance entitles the tenderer to the return of the deposit. 12.11.10 Provisions for damages or penalty payments. A clause referring to payments for damages, where applicable, should be included in contracts. A clause of this nature is in the standard construction contract form. Such a clause is not, however, essential for obtaining damages which would be awarded by courts, upon proof, whether or not specific mention has been made in the contract. 12.12 Insurance 12.12.1 Contractors are responsible for ensuring that they manage and have relevant financial protection against the risks to which they are exposed, especially those over which they have control. Consequently, the general policy of the government is not to indemnify contractors against such risks. Normally, therefore, a general condition of every contract is that the contractors indemnify and save the Crown harmless from all manner of claims and damages. As commercial insurance is one option available to and frequently used by responsible contractors for this purpose, it should always be understood that, in the first instance, insurance is for the protection of contractors in support of their potential liability to indemnify the Crown and others, and only ultimately for the protection of the Crown. 12.12.2 Because the cost of insurance is normally included in prices and failure to carry adequate insurance could jeopardize performance, contracting authorities should satisfy themselves that contractors make prudent use of insurance. Contractors should not procure insurance on risks that are the responsibility of the government unless the respective responsibilities are so commingled that they are indistinguishable. However, when the Crown has acknowledged, or elected to assume the risk on a predetermined or case-by-case basis, especially when the risks are under the control of the government, e.g., contractors' property in the care, custody and control of the Crown, such risks may be self-underwritten by the government. 12.12.3 Contracting authorities should obtain an opinion on liability from their legal advisers and refer to the appropriate Treasury Board directives and guidelines on risk management when contracts or amendments are contemplated. Harassment in the Work Place PolicyE14. Human Resources Management (General) CHAPTER 3-2 Policy objective To provide a work environment that supports productivity and the personal goals, dignity and self-esteem of every employee. Policy statement Every employee must be treated fairly in the work place in an environment free of harassment. Harassment of another employee constitutes a disciplinary infraction subject to penalties up to and including discharge. Application This policy applies to all departments and portions of the Public Service listed in Part I, Schedule I of the Public Service Staff Relations Act. Responsibility and authority The ultimate responsibility and authority for applying this policy rests with the deputy head and his or her authorized representative. General This policy does not restrict the authority of those with managerial responsibilities in such areas as counselling, performance review, staff relations and implementing disciplinary actions. Financial assistance When management at its discretion provides fees for professional, but not legal, services such as counselling during the process of resolution to one of the parties, it must provide the same opportunity to the other party. Policy requirements Deputy heads must: 1. provide a work environment free of harassment (see Definitions, Appendix A); 2. inform all employees of this policy, including their rights and responsibilities (see Appendix B); 3. resolve harassment complaints without delay (see the investigation procedures in Appendix C); 4. monitor the situation regularly until they are satisfied that corrective measure(s) has(ve) been implemented; 5. take the necessary action to ensure the confidentiality of complaints. (This should not be confused with the disclosure of information required by law.); 6. ensure that complaints are dealt with promptly at an informal level through mediation; 7. ensure that persons conducting investigations are trained to do so, are impartial and have no supervisory relationship with the parties; Management responsibilities Managers are responsible for putting an end to any harassment that they are aware of, whether or not a complaint has been made. Managers who fail to take corrective action on any harassment that they are aware of may have disciplinary sanctions imposed upon them as well as the offender. If the employer deems it to be in the best interest of all parties when a person against whom a complaint has been lodged and an alleged harassee have a subordinate and supervisor relationship, both should be physically and hierarchically removed from each other during the investigation. Monitoring Departments must maintain a record of the number of complaints lodged, the nature of these complaints, the outcome of reviews and investigations, the type of corrective measures taken and the number of persons trained. Departments will also be required to provide the Treasury Board Secretariat annually with the number of ongoing unresolved cases as well as new cases filed during the year. This information may be subject to publication. ReferencesCanadian Human Rights Act Public Service Staff Relations Act Access to Information Act Privacy Act Treasury Board Manual,"Staff Relations" volume: - Chapter 4, Grievance procedure - Chapter 6, Discipline This policy replaces the policy on the same subject published on September 1, 1991 in Chapter 3-2 of the "Human Resources" volume of the Treasury Board Manual. Enquiries Please refer enquiries about this policy to the responsible officers in departmental headquarters who, in turn, may direct questions about policy interpretation to the Ethics and Incentive Group, Human Resources Branch, Treasury Board Secretariat. Appendix A - DefinitionsHarassment means any improper behaviour by a person employed in the Public Service that is directed at, and is offensive to, any employee of the Public Service and which that person knew or ought reasonably to have known would be unwelcome. It comprises objectionable conduct, comment or display made on either a one-time or continuous basis that demeans, belittles, or causes personal humiliation or embarrassment to an employee. It includes harassment within the meaning of the Canadian Human Rights Act, i.e. harassment based on the following prohibited grounds of discrimination: race, national or ethnic origin, colour, religion, age, sex, marital status, family status, disability or conviction for an offence for which a pardon has been granted. Sexual harassment means any conduct, comment, gesture or contact of a sexual nature, whether on a one-time basis or in a continuous series of incidents; (a) that might reasonably be expected to cause offence or humiliation to any employee; or (b) that the employee might reasonably perceive as placing a condition of a sexual nature on employment or on an opportunity for training or promotion. Abuse of authority is a form of harassment and occurs when an individual improperly uses the power and authority inherent in his or her position to endanger an employee's job, undermine the performance of that job, threaten the economic livelihood of the employee, or in any way interfere with, or influence the career of, the employee. It includes intimidation, threats, blackmail or coercion. Appendix BComplainants' rights Complainants have the right: a) to file a complaint and to obtain a review of their complaint without fear of embarrassment or reprisals; b) to be accompanied by a person of their choice during interviews related to their complaint; c) to ensure that a written complaint is not placed on their departmental personnel file; d) to obtain information about the review of their complaint, subject to the Access to Information Act and the Privacy Act; e) subject to the provisions of the Privacy Act, to be informed of the corrective, including disciplinary, measures implemented as a result of a founded complaint; and f) to receive fair treatment. Respondents' rights Respondents have the right: a) to be informed that a complaint has been filed; b) to be provided with a written statement of the allegations and be given the opportunity to respond to them; c) to be accompanied by a person of their choice during interviews related to the complaint; d) to receive fair treatment; and e) to receive information related to the review, subject to the Access to Information Act and the Privacy Act. Complainants' responsibilities Complainants have the responsibility: a) to make their disapproval or unease about a person's actions known within a reasonable time to the alleged offender, unless it is unreasonable to do so; b) to seek immediate assistance from a supervisor, personnel manager, staff relations officer, employee counsellor or union representative to obtain advice on an appropriate course of action; and c) to cooperate with those responsible for reviewing the complaint. Respondents' responsibilities A person against whom a complaint has been lodged has the responsibility: a) to cooperate with the person or persons responsible for reviewing the complaints; and b) to seek assistance from a supervisor, personnel manager, staff relations officer, employee assistance counsellor or union representative to obtain advice on an appropriate course of action. Appendix CRedress procedure First and foremost, employees will discuss harassment complaints with the respondents with the aim of finding mutually agreeable solutions. If unsuccessful in the preceding discussions, employees should discuss harassment complaints with the appropriate management representative(s) with the aim of solving the problems. In circumstances where discussions are unsuccessful or impossible, employees may submit a formal complaint in confidence directly to the deputy head or his or her authorized representative. The deputy head's representative will meet with the complainant and his or her representative to ensure that the problem is understood well and formulated properly. The deputy head's representative will conduct an in-depth review of the matter with both parties and will identify all avenues of immediate solution or possible resolution. Where it has been determined to be feasible and desirable and both parties concur, a person who is acceptable to the parties from within or outside the department will mediate the complaint. Otherwise, the services of a mediator will be sought through the Public Service Staff Relations Board. The deputy head's representative will ensure that a representative accompanies and assists the complainant and will appoint a departmental officer to accompany and assist the respondent during the mediation exercise. When a solution is not possible through mediation, the deputy head or his or her representative will have the matter investigated fully. No person directly or indirectly involved in the supervision of either party to a complaint shall conduct such an investigation. The respondent to a complaint will be provided with a statement of allegations at the appropriate time and will be given sufficient time to reply. The facts gathered through an investigation will be submitted to the deputy head in a report that will form the basis for a decision. The deputy head or his or her representative will advise the parties of the decision. Both parties have the right to challenge a decision through the grievance process established in accordance with the Public Service Staff Relations Act. Other redress processes In addition to the right to lodge a complaint under the Harassment in the Workplace Policy, employees also have the right to lodge: - a grievance; - a complaint with the Public Service Commission; - a complaint with the Canadian Human Rights Commission. Grievance If an employee decides to file a grievance on the same issue as the complaint, the department may choose one of the following approaches in consultation with the complainant: - deal with the complaint and the grievance simultaneously; - deal with the complaint while the grievance is held in abeyance (with the agreement of all the parties involved); or - deal only with the grievance. Public Service Commission Under an agreement between the Treasury Board Secretariat and the Public Service Commission, the latter will investigate complaints by Public Service employees about harassment other than harassment on a prescribed ground of discrimination within the meaning of the Canadian Human Rights Act. The Commission's Investigations Directorate shall deal with any complaints filed with it unless it appears to the Commission that: - the complaint does not relate to harassment as defined in Treasury Board's Harassment in the Workplace Policy; - the complaint is trivial, frivolous, vexatious or made in bad faith; - the complaint is based on acts or omissions the last of which occurred more than one year previously, or for a longer period of time that the Commission considers appropriate in the circumstances before it received the complaint; or - the department has not made significant efforts to resolve the complaint, in which case the Commission will refer the complaint back to the department. Under special circumstances, the Commission may investigate a complaint that an employee has not filed with his or her department. In such a case, the Commission will provide the deputy head of that department with a copy of the allegations before beginning the investigation. Canadian Human Rights Commission The Canadian Human Rights Commission (CHRC) has indicated that it will deal with a complaint if it meets the following criteria: - the alleged contravention of the Canadian Human Rights Act falls under federal jurisdiction; - the alleged contravention of the Act is related to one of the 10 discriminatory grounds in the Act; - the alleged contravention of the Act is considered to be a discriminatory practice; and - the complaint has been filed within a year of the alleged contravention of the Act. However, the CHRC has indicated that it may decide to extend the time limit when: - the complainant has been prevented from filing a complaint due to such circumstances as illness; - administrative problems on the CHRC's part occurred about the time it received the complaint; or - the respondent (i.e. the employer) knew that discrimination was alleged and that a complaint was likely to be filed. Guidelines for Settling Disputes in Real Property Transactions by Arbitration - Appendix CE23. Real Property Background Section 12.8 of the "Contracting" volume of the Treasury Board Manual authorizes the use of arbitration in matters relating to contracts. That policy states that: "Additional guidelines with respect to greater use of arbitration in real property transactions... will be issued separately." These Guidelines set out a framework for the use of arbitration in real property matters to ensure disputes are resolved in the best interest of Her Majesty. Arbitration has gained international acceptance as a means of resolving disputes in many types of commercial arrangements. It is just one of the non-judicial methods of resolving disputes referred to by the phrase "alternative disputes resolution" or "ADR". That acronym is used for methods such as negotiation, mediation, conciliation and arbitration. The latter, which is normally "binding", is the subject of these guidelines. Arbitration may have the following advantages: - the process is designed by the parties and therefore can be speedier, less formal and less costly; - the dispute is conducted in private, avoiding public scrutiny or exposure of trade secrets or internal practices; - the award is final and binding on the parties to the arbitration agreement. It may, on the other hand, have the following disadvantages: - it can be expensive, slow and formal - there is no appeal (except in very limited circumstances). Although most real property transactions are essentially contractual in nature, real property law has developed differently than the law dealing with other types of commercial contracts. Specific statutes govern the interpretation, content and enforcement of real property transactions. There is also a body of case law upon which real property practitioners consistently rely to govern the conduct of their practice. Thus, in real property disputes, there may sometimes be an advantage in using the courts rather than arbitration. The courts can award remedies such as specific performance in real estate matters, whereas this is not always possible under arbitration. Therefore, demand for the use of arbitration in real property transactions has not increased as much as it has in other commercial matters. Furthermore, summary processes exist to resolve real property disputes. For instance: - questions about the interpretation of an agreement of purchase and sale may be determined by way of a summary procedure under the rules of civil procedure in many provinces; - questions of title, such as those between a vendor and a purchaser, may be determined by a summary procedure under vendor and purchaser legislation in most provinces. Even so, arbitration may be a useful form of ADR in some real property disputes. The Commercial Arbitration ActThe Commercial Arbitration Act, (the Act) S.C. 1986, c. 22, and the Commercial Arbitration Code (the Code), which is incorporated into the Act by reference, apply to - matters where at least one of the parties to the arbitration is Her Majesty the Queen in right of Canada, a departmental corporation or a Crown Corporation; - maritime or admiralty matters; and - arbitral awards and arbitration agreements whether made before or after the coming into force of the Act. There currently are no regulations under the Act. For further information regarding the Code please refer to Annex A. Definitions In this guideline Arbitration - means the submission for determination of a disputed matter to an arbitral tribunal selected in a manner provided by the law or by agreement whether or not the arbitration is administered by a permanent arbitral institution. Arbitral tribunal - means a sole arbitrator or a panel of arbitrators. Arbitration agreement - is an agreement by the parties to submit to arbitration all or certain disputes that have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Real property transaction - means an acquisition or disposition as defined in the Glossary of the "Real Property" volume to the Treasury Board Manual. Questions of valuation - means questions concerning - the determination of rent or other amounts payable under a lease; - market value of real property that is the subject of an option clause in a lease that is based on a determination of the market value; or - the determination of fees or other amounts payable under a license. Guidelines 1. Through discussion, good faith negotiations, mediation or conciliation, departments will make all reasonable efforts to resolve any real property dispute in the best interest of Her Majesty. Departments may also, in consultation with their respective Department of Justice legal services units or Justice regional offices, enter into an arbitration agreement for the resolution of disputes involving - questions of valuation; or - questions concerning obligations of maintenance, repair and condition of premises as set out in a lease or licence. 2. An arbitration agreement may be included in the principal document of the real property transaction or may be separate document. In either case, it should reflect clearly the scope of, and the process for proceeding with, arbitration as a method for resolving disputes. 3. In addition to the above, departments may, if they have the prior concurrence of - the Associate Deputy Minister of Justice, Civil Law and Legislative Services, in the case of the real property in the Province of Quebec, or - the Senior Assistant Deputy Minister of Justice, Legal Services, Commercial and Property Law, if the real property is outside the Province of Quebec, enter into an arbitration agreement to resolve disputes related to any other real property matter. 4. Departments must consult with their respective Department of Justice legal services unit or Justice regional office before negotiating any arbitration agreement. They should also consult these legal advisors before proceeding with an arbitration thereunder. 5. Departments should ensure that the parties with whom they negotiate an arbitration agreement are familiar with the provisions of the Commercial Arbitration Act and the Commercial Arbitration Code, as these parties may not otherwise be aware of the limitations in the Code concerning access to the courts. 6. Departments should have access to sufficient funds to pay any arbitral award. They should also have enough money to pay all incidental costs. If this is impossible, they should discuss the circumstances with the Treasury Board Secretariat before proceeding. Remarks The Department of Justice will provide its legal services units and regional offices with additional guidelines to help departments implement this policy. These guidelines are effective immediately and apply to all departments engaged in the conduct of real property transactions. Annex A - The Commercial Arbitration Code (the Code)The Code is a set of rules governing the conduct of an arbitration. However, many of the provisions of the Code are prefaced by such phrases as "subject to any contrary agreement of the parties..." and "the parties are free to agree...". These allow the parties to set out their own terms in their arbitration agreement. Under the Code, where a party brings an action before a court, and that action relates to a matter which is the subject of an arbitration agreement, the court shall refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. The Code provides that a party may have recourse to a court in relation to an arbitral award only by an application for setting aside made within three months from the date on which the applicant has received an award or the arbitral tribunal has disposed of a request to correct an award, and only if : - the party making the application furnishes proof that - a party to the arbitration agreement was under some incapacity; - the agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of Canada; - that party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present its case; - the award contains decisions on matters beyond the terms or scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award that contains decisions on matters not submitted to arbitration may be set aside; or - the composition of the arbitral tribunal or the arbitral procedure, was not in accordance with the agreement of the parties; - or the court finds that - the subject matter of the dispute cannot be settled by arbitration under the laws of Canada; or - the award is in conflict with the public policy of Canada. Contracting Policy Notice 1995-10FILE NO: 3800-027 Summary THE MINISTER OF JUSTICE HAS COMMITTED TO WORKING WITH CLIENT DEPARTMENTS TO INTRODUCE DISPUTE RESOLUTION (DR) CLAUSES INTO THE VARIOUS CONTRACTS TO WHICH THE GOVERNMENT IS A PARTY. Background 1. On August 10, 1986, the Commercial Arbitration Act came into force, permitting departments and agencies to enter into arbitration agreements to resolve disputes in contracts for the supply of goods and services, including construction. 2. In 1993, at the suggestion of the Department of Justice, a number of modifications were made to the existing policy in order to allow departments and agencies to make greater use of arbitration to resolve contract disputes. 3. As a result, departments and agencies, with the advice of their legal advisor, are able to refer all questions of fact and certain questions of law to arbitration without the formal concurrence of the Department of Justice. 4. These modifications were followed in May 1993 by a guideline on contract administration. This guideline emphasises that the key factor when disputes arise is the expeditious handling of the disagreement. The guideline also encourages contracting authorities to develop systems to deal with disputes. It further emphasises the role that negotiations between the parties can play and highlights mediation and arbitration as means of DR. 5. In March 1994, the Minister of Justice indicated that it is the intention of the Department of Justice "... to play a leadership role in promoting alternatives to courtroom litigation". He stated that "...the development of mechanisms for alternative dispute resolution are not simply options - they are an imperative". 6. In October 1994, the Treasury Board issued a guideline on settling disputes in real property transactions by arbitration. This same trend can be seen in other policies, such as the provision for mediation in the Harassment in the Work Place Policy of Treasury Board. Dispute Resolution 7. An effort should always be made to avoid disputes. If a dispute is not preventable, negotiation should continue to be the first approach to resolving a dispute. When this fails, or when the contractor refuses to negotiate further, mediation could be considered as a next step, if requested by either party. Finally, binding arbitration, rather than litigation, is to be considered, wherever appropriate, as a third step if mediation fails. Department of Justice Directive Concerning the Use of Dispute Resolution Clauses8. The Minister of Justice has committed to working with client departments to introduce Dispute Resolution (DR) clauses into the various contracts to which the Government is a party. To this end: 8.1 On July 4, 1995, the Deputy Minister of Justice wrote to the Deputy Heads of all departments informing them of the DR initiatives taken by the Department of Justice, including the issuance of the Directive Concerning the Use of Dispute Resolution Clauses in Contracts (the Directive) to the Justice Management Committee. 8.2 The Directive states that, in advising client departments and in preparing contracts for client departments, Justice legal practitioners must make every effort to insert dispute resolution clauses into contracts, where appropriate. 8.3 Dispute resolution clauses may range from provisions for resolution of disputes as they arise, by way of structured negotiations, to other alternatives such as mediation and arbitration. 8.4 To track the use of dispute resolution clauses, a questionnaire will be made available by the Dispute Resolution Project of the Department of Justice. This questionnaire will enable Justice legal practitioners to report on the use or the decision not to use such clauses in contracts. 8.5 Any inquiries regarding the Directive Concerning Dispute Resolution policy or the appropriate clauses should be made to your departmental legal services unit of the Department of Justice. Treasury Board Manual 9. A summary of the contents of this letter will be incorporated into the section of the Treasury Board Manual - Contracting that deals with disputes. Until that takes place, departments and agencies are requested to bring this matter to the attention of managers and contract administrators. Enquiries10. Further general enquiries on the subject of dispute resolution may be made to the Contracting Management Group of the Financial and Information Management Branch (613) 957-2526. R.J.Kelly Distribution: TB06, TB07, T004, T005, T009, T022, T023, T024, T035, T036, T038, T040, T041, T161 Previous | Table of Contents | Next
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