Companies that bid on defence and Canadian Coast Guard contracts are well aware of Canada’s Industrial and Regional Benefits (IRB) Policy, which requires them to undertake business activities in Canada that are valued at 100 percent of the prime contract with Public Works and Government Services Canada. Under Canada’s new Defence Procurement Strategy, IRBs, now called “Value Propositions for Industrial Technological Benefits (ITBs),” will, for the first time, be a rated requirement in the evaluation of a bidder’s proposal. This means that bidders with an otherwise competitive bid are now exposed to losing to a competitor whose bid contains a stronger Value Proposition. The rules are still being developed and therefore bidders would be well advised to keep abreast of the implementation of this new rated requirement. Bidders should ensure that they understand up front the Value Proposition requirement in the solicitation document as well as rules for challenging it, if necessary. Finally, Canada’s new Integrity Provisions will now apply to prime contractors that flow down some of their offset requirements to subcontractors; prime contractors would therefore be well advised to ensure that their subcontractors are willing and able to sign onto terms similar to those set out in the Integrity Provisions. Failure to do so could result in the termination of the contract and imposition of damages very unfavourable to the prime contractor. All of these issues are discussed in the presentation to the European Countertrade and Offsets Club to be given in Vienna, on November 20, 2014.

1. Offsets in Canada – Considerations
European Club for Countertrade & Offsets
McCarthy Tétrault LLP / mccarthy.ca
Symposium #9
November 20, 2014
Vienna, Austria
Brenda C. Swick
Partner- Government Contracting /International Trade
416 601 7545
bswick@mccarthy.ca
Brenda C. Swick

2. Overview
¬ Overview of Defence Procurement
¬ Legal Regime & Key Players
¬ New Defence Procurement Strategy
¬ How ITBs fit into the procurement process
¬ Rating of ITBs
¬ Application of ITBs
¬ Value Propositions in Pre-soliciation; RFPs; Proposals
¬ Evaluation of Value Propositions
¬ Challenge of Contract Award based on Evaluation of VP
¬ Corruption and Offsets
¬ Implication of Canada’s New Debarment Rules on Offsets
¬ Concluding Remarks
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Brenda C. Swick

3. Overview- Legal Regime
¬ Financial Administration Act
¬ Government Contracting Regulations
¬ Standard Acquisition Clauses & Condition
¬ Supply Manual
¬ Offsets
¬ Defence Production Act
¬ Controlled Goods
¬ Security Clearances
¬ Export and Import Permits Act
¬ Export permits
¬ Trade Agreements
¬ Agreement on Internal Trade Act
¬ Defence and security contracts
¬ Federal Court of Canada/Canadian International Trade Tribunal
¬ Bid disputes
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4. Overview – Key Players
¬ Industry Canada
¬ ITB Management, Policy & Authority
¬ Regional Agencies
¬ Assist in evaluation & management of ITB
¬ Atlantic Canada Opportunities Agency
¬ Western Economic Diversification Canada
¬ Canada Economic Development for Quebec Regions
¬ Federal Economic Development for Southern Ontario
¬ Department of National Defence (DND)
¬ Project Management: Operational Requirements: Technical Authority &
Project Funding
¬ Canadian Coast Guard
¬ Civilian, non-military organization
¬ Public Works & Government Services
¬ Contracting Management: Contract Authority
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5. New Defence Procurement Strategy
¬ Overhauls Canada’s Industrial Regional Benefits Policy
¬ Required defence/security contracts to undertake business activities in Canada
valued at 100% of contract
¬ Going forward IRBs will be rebranded as Industrial Technological Benefits
(ITBs)
¬ Retains reinvestment requirement but certain industrial considerations (“Value
Propositions”)
¬ Value Propositions will be rated and weighted as part of bid evaluation
process
¬ Significant difference from pass/fail
¬ Actual weight to VPs will be determined on a procurement-by-procurement basis
¬ Default weighting in the overall evaluation will be 10%
¬ Based on extent to which it supports the KICs
¬ POSSIBILITY OF LOSING TO OTHERWISE COMPETITIVE BID DEPENDING
ON STRENGTH OF VPs
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6. Application of ITBs
¬ ITBs will be applied differently:
¬ Procurements valued +$100M – value propositions will be mandatory
¬ $20M - $100 M – application on a case-by-case basis
¬ 25,000 - $20 M – revised Canadian Content Policy will apply
¬ Where “sufficient competition”, procurements are limited to Canadian
goods and/or services
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7. Value Propositions now included in
RFP & Proposals
¬ RFI/other released in advance of solicitation to assess Canadian
capability
¬ Transparency
¬ RFP/Solicitation document will contain
¬ Value Proposition Requirements
¬ Must be reasonable
¬ Comply with Chapter 5 of the Agreement on Internal Trade
¬ Defence and Security contracts subject to the AIT
¬ Must “clearly identify”
¬ the VP requirement;
¬ the criteria that will be used to evaluate the VP requirement
¬ The weighting criteria used in evaluating the VP
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¬ Required in order for bidders to know what points will be given for the different components
making up their Value Proposition
¬ If VP requirement unclear/unfair/discriminatory
¬ May file protest to PWGSC within 10 days
¬ Further recourse to Canadian International Trade Tribunal
¬ Must be a “Canadian” supplier
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8. Value Propositions now included in RFP
& Proposals (cont’d.)
¬ Regional Plans
¬ Enhanced Reporting Obligations
¬ To monitor delivery of benefits to Canada
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9. Evaluation of VPs
¬ Bids will be evaluated taking into account:
¬ how they meet the stated requirements in the RFP
¬ support identified Key Industrial Capabilities
¬ support others productivity drivers
¬ timeframe in which Value Proposition will be fulfilled
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10. Evaluation of VPs (cont’d.)
¬ Evaluation of VP must be:
¬ Reasonable
¬ Meet the requirements of Chapter 5 of Canada’s
AIT
¬ Be clear
¬ Be fair
¬ Be non-discriminatory
¬ Not based on undisclosed criteria
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11. Challenge of Contract Award based on
Evaluation of VP
¬ May complain that
¬ VP was assessed unfairly by evaluation team
¬ Technical specifications in VP favour one
supplier over another
¬ Solicitation documents do not clearly indicate
how VPs submitted will in fact be assessed
¬ VPs were not assessed in accordance with the
evaluation criteria set out in the RFP
¬ Weight was given to certain evaluation criteria
in a manner inconsistent with the terms of the
RFP
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12. Challenge of Contract Award based on
Evaluation of VP
¬ … Disappointed bidder who loses based on its VP
rating … may complain that
¬ VP was assessed unfairly by evaluation team
¬ Technical specifications in VP favour one supplier over
another
¬ Solicitation documents do not clearly indicate how VPs
submitted will in fact be assessed
¬ VPs were not assessed in accordance with the
evaluation criteria set out in the RFP
¬ Weight was given to certain evaluation criteria in a
manner inconsistent with the terms of the RFP
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13. Challenge of Contract Award based on
Evaluation of VP
¬ If evaluation of VP not in accordance with
requirements
¬ Disappointed bidder may file protest before CITT/Federal
Court
¬ To rely on AIT, bidder must be “Canadian” supplier
¬ CITT remedies: may order that the government
¬ Re-write the VP requirements in the solicitation
¬ Re-write the VP evaluation criteria and clearly state how those
criteria will be evaluated
¬ Re-evaluate the VPs in the bids
¬ Issue a new solicitation
¬ Cancel the contract and award it to the complainant
¬ Award the complainant compensation (e.g., lost profits)
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14. Corruption and Offsets
¬ Bribery of foreign public officials
¬ Risk of exposure to corruption in offset agreements in foreign
countries
¬ Corruption of Foreign Public Officials Act
¬ Strengthened in 2014
¬ The amended CFPOA
¬ Establishes nationality jurisdiction applicable to all offences
¬ Previously, the Canadian authorities only had jurisdiction over offences
that occurred in whole or in part in Canada
¬ Maximum sentence of imprisonment applicable to the offence of
bribing a foreign public official is increased from 5 years to 14 years
(there is still no maximum fine amount)
¬ A new offence relating to books and records and the bribing of a
foreign public official or the hiding of that bribery, also punishable by
up to 14 years imprisonment
¬ Facilitation payments exception to the offence of bribing a foreign
public official is to be repealed in the future
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15. Corruption and Offsets - Debarment
¬ Integrity Provisions:
¬ Bidder certifies that neither it nor its affiliates have not been convicted of certain
prescribed offences in last ten years including:
¬ Bribery of Canadian government officials (Criminal Code of Canada)
¬ Bribery of Foreign government officials (Corruption of Foreign Public Officials Act)
¬ Bid Rigging (Competition Act)
¬ Tax Evasion
¬ If convicted during term of contract-
¬ Government may terminate contract on terms very unfavourable
¬ Bidder also certifies that neither it nor affiliates in ten years prior to bid
submittal have been convicted of any “similar foreign offence”
¬ Means convictions of similar offence in US or other country could give rise to ten year
debarment in Canada
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16. Corruption and Offsets - Debarment
¬ What does this means for Offsets?
¬ Prime bidder must ensure that its subcontracts “include Integrity provisions no
less favourable to Canada than those imposed in the resulting contract”
¬ Prime may flow down offset to subcontractors in subcontract
¬ With government approval
¬ If so, prime must ensure that subcontractor is able to sign onto Integrity
Provision terms
¬ Prime should obtain certifications from subcontractor that they have read and
fully comply with the Integrity provisions and confirmation inter alia, that
neither the subcontractor not any of its affiliates have been convicted of an
Integrity Offence or a similar foreign offence
¬ Subcontract should include provision about what happens if during the
subcontract, the Prime learns from its subcontractor that it or its affiliates has
been convicted of an Integrity Provision of similar foreign offence
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17. Concluding Remarks - ITBs
¬ ITBs are are complex, evolving and must be accepted if a company
wishes to pursue Canadian military and Coast Guard procurements
¬ Many details still to be clarified
¬ Well advised to monitor evolution of ITBs
¬ Participate in industry consultations on the new KICs
¬ Ensure that you understand new requirements in future solicitations
¬ Know your rights to challenge the RFP/award if VP is, or has been
evaluated, in a manner which is not consistent with Canadian legal
requirements
¬ Preferable to bid through Canadian supplier
¬ Remember 10-day rule (don’t sit on your rights)
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18. Concluding Remarks - Debarment
¬ New debarment rules require bidders
¬ To understand the rules as they apply to both themselves and
their affiliates
¬ To give early and thorough consideration to the integrity terms
that are to be include in subcontracts
¬ To ensuring that subcontractors can meet those requirements
¬ To establishing the necessary due diligence procedures
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