Chapter 11 - Contract Management
11.001 (1994-06-23) Contracting
officers must ensure that the terms of the contract are met and
that the Crown's interests protected. The level of involvement
in contract management activities will vary with the scope and
complexity of the procurement.
Effective client service will be enhanced when the contracting
officer verifies with the client, on all milestone dates in a
contract, that the contractor is meeting the terms of the contract.
Progress Claims and Invoicing
11.002 (1994-06-23) No payment,
other than a progress payment, may be made under a contract unless
a person authorized by the appropriate minister certifies that:
- the work has been performed,
- the goods supplied or the service rendered, as the case may
- the price charged is according to the contract or, if not specified
by the contract, is reasonable.
Where a payment is to be made before the completion of the work,
delivery of the goods or rendering of the service, the payment
must be in accordance with the contract.
11.003 (1994-06-23) Progress
claims are normally routed, through the contracting officer, to
the client for verification and authorization of payment. Contracting
officers processing payment claims must act promptly. The standard
due date for payment is 30 days after invoicing or receipt of goods,
whichever is later. Acceptable performance standards must be set
by the sectors/regions to allow adequate time for the certification
of the claim by an authorized representative of the client. All
other invoices are normally sent directly to the client by the
Some confusion for contractors and clients may result because
Public Works and Government Services Canada (PWGSC) is both the
contracting authority and, with the Minister's role as Receiver
General for Canada, the issuer of the cheque. If there is a payment
problem the contracting officer must determine the source of
the problem and take appropriate action.
11.004 (2003-05-30) Progress
payment claims must include the completed form PWGSC-TPSGC
1111, Claim for Progress Payment, which requires a certification
of contract expenditures. If the contractor's certification of
the claim is false, this cannot be used against third party claimants.
11.005 (1994-06-23) Invoices
that include billings for items not received are not considered
due until all items are received. If a contractor wishes payment
for a partial shipment, a revised invoice, if permitted by the
contract, must be submitted.
11.006 (1994-06-23) Clients
are required to notify suppliers of any error or missing information
in an invoice or supporting documentation, within fifteen (15)
days of receipt. Clients should return, within fifteen (15) days,
any invoice not in accordance with the terms of the contract to
the contractor for resubmission.
Claims for Exchange Rate Adjustment
11.007 (2003-05-30) For
contracts subject to the exchange rate fluctuation adjustment provision,
the Conversion Factor (Initial) shown in Column 3 of the form Claim
for Exchange Rate Adjustments, PWGSC-TPSGC
9411, will establish the conversion rate against which claims
for adjustment will be calculated, subject to the criteria set
out in clauses C3015C, C3020C or C3030C.
This Conversion Factor (Initial) will normally be the same as the
Bank of Canada rate on the date of bid closing or any other date
as otherwise specified in the contract. (See 7D.413.)
11.008 (2006-06-16) Simple
interest will be paid automatically on any amounts that are overdue
provided that Canada is responsible
for the delay. The amount of interest will be shown separately
on the cheque stub or accompanying remittance advice.
Interest will be calculated from the day after the due date to
the day before the date that the payment is issued. However,
interest will not be paid until the contract payment is made.
Interest is calculated according to the following formula:
Interest = Amount owed x ([that date's bank rate + 3%] x [number
of days interest payable/365])
Taxes and Duties
Services Tax/Harmonized Sales Tax
11.010 (1998-02-16) Goods
and Services Tax (GST) and the Harmonized Sales Tax (HST), as applicable,
is payable on the invoiced amount before any discount for prompt
payment or penalty for late payment.
11.011 (2004-05-14) GST/HST
is payable when the progress, milestone, or advance payment becomes
due or the client pays it.
Canada Revenue Agency (CRA) considers advance payments to
be progress payments.
11.012 (1998-02-16) GST/HST
is normally paid on the total amount claimed before any holdback
is deducted. No GST/HST is paid when the holdback is released.
The exception is a holdback under legislation or under a contract
for the construction, renovation or repair of a marine vessel or
real property. GST/HST is due when the amount held back becomes
due or when the contractor receives it, whichever is earlier.
11.013 (1994-06-23) The
general terms and conditions provide for adjustments in firm price
and ceiling price contracts in the event of changes in excise taxes
after the contract date.
After-Imposed and After-Relieved Taxes
11.014 (1994-06-23) A contract
will be increased by the actual amount of any after-imposed taxes,
provided the contractor forwards to the contracting officer a certified
statement showing that the increase in cost is directly attributable
to the after-imposed taxes and that no amount for such newly imposed
taxes was included in the contract price.
11.015 (1994-06-23) A contract
will be decreased by the actual amount of any after-relieved taxes.
After-Imposed and After-Relieved Duties
11.016 (1994-06-23) Provision
for price adjustments, upward or downward, may be made in firm
price contracts, in the event that changes in duties, which affect
the cost of the work to the contractor, are made after the contract
11.017 (1994-06-23) The
contract price shall be increased by the actual amount of any after-imposed
duties, provided the contractor forwards to the contracting officer
a certified statement showing that the increase in cost is directly
attributed to the after-imposed duties, and that no amount for
such newly imposed duties was included in the contract price.
11.018 (1994-06-23) The
contract price shall be decreased by the actual amount of any after-relieved
Services of Non-Residents
11.019 (1994-06-23) In the
performance of a contract, a contractor may wish to use the services
of a non-resident employee on a temporary basis. The determination
of eligibility to enter Canada is the responsibility of Immigration
11.020 (1994-06-23) United
States nationals may apply for employment authorization at the
port of entry; all others must obtain authorization before the
point of entry. To obtain the correct documentation and necessary
authorizations, the applicant must contact the nearest Canadian
Embassy or Consulate.
Canadian citizens residing outside Canada always have the right
to work in Canada.
11.021 (1994-06-23) In cases
of emergency service requirements, the client (or PWGSC) should
provide the contractor with written notice, including details of
the emergency. In some emergencies, this information may be provided
by telephone to the appropriate immigration authorities.
Withholding in Lieu of Taxes
11.022 (2005-06-10) Clients, on whose behalf a contract for services rendered in Canada has been awarded by PWGSC to a non-resident contractor, are
responsible for: withholding 15 percent of any amounts payable, in lieu of taxes; remittance of this amount to Canada Revenue Agency (CRA); and reporting the amounts paid, and withheld, to
CRA. (See 6D.430 and 7A.103.)
PWGSC contracting officers should remind clients of their
obligations in this regard. Reference should be made to CRA Income
Tax Information Circular IC75-6R.
11.023 (2005-06-10) When
a contract provides for services to be performed in more than one
country, including Canada, an allocation of the contract price
is required. Only the portion of the payment attributable to services
performed in Canada will be subject to a withholding of 15 percent.
(See sections 32-34 of Income Tax Information Circular IC75-6R2.)
11.024 (1994-06-23) Although
most tax treaties between Canada and other countries provide for
some relief from Canadian tax, Canada does not normally relinquish
its right to withhold tax pursuant to the provisions of section
153 of the Income Tax Act and subsection 105 (1) of the Income
11.025 (2004-05-14) Where
the non-resident contractor can adequately demonstrate, based on
treaty protection, that withholding normally required is in excess
of the ultimate Canadian tax liability, the withholding may be
reduced accordingly by CRA.
11.026 (2004-05-14) Requests
for a waiver or a reduction of the amount required to be withheld
will not be entertained unless deductions at source are remitted
11.027 (1996-06-03) When
a contractor incurs overtime work on Crown contracts, added costs
may be incurred by the Crown in the form of overtime premiums.
Recognition of the additional cost by the Crown depends upon the
attendant circumstances and the cause of the overtime. Crown work
should not attract higher overtime charges than would apply to
similar commercial work.
Scheduled overtime premium costs included in a contractor's overhead
account and applied to Crown contracts are allowed if Crown contracts
account for a pro rata share of the overtime.
Unscheduled overtime premium costs to specific contracts are allowable
only if the overtime is due to PWGSC or client demands for accelerated
delivery, increased delivery quantities, or other reasons initiated
by the client for which benefit to the Crown can be demonstrated.
If the need for unscheduled overtime appears likely, the contracting
officer should ensure that proper provisions concerning authorization,
rates and dollar limits are included in the contract.
The contracting officer should consult with the cost analyst to
ascertain whether the contractor's cost system includes overtime
premium costs in the overhead account or as a direct charge to
the particular contract.
deciding to authorize unscheduled overtime, the contracting officer
- consult with the client and jointly determine that authorization
and the need of overtime will result in benefit to the Crown;
- ensure that funds are available to reimburse the contractor;
- determine the aggregate limits of time and costs of the overtime
to be authorized;
- determine what delegation of authority, if any, should be made
to the client representative;
- ensure that provision for proper claiming and approval of overtime
claimed, and overtime payments to the contractor is included
in the contract.
Claims for Extra Payment
11.031 (2002-12-13) From
time to time, contractors submit claims for upward price revision
of firm price contracts, based on changes caused by Crown action.
A firm price contract may not be amended to provide for upward
price revision without prior approval of Treasury Board (TB), unless
either the contract contains an escalation clause covering the
adjustment requested or the contract terms and conditions allow
for the adjustment requested.
When unusual circumstances exist, other than those a contractor
might reasonably anticipate, a contractor or a sector/region may
submit a claim to the Contract Audit Group (CAG).
These Extra Payments shall cover only the additional reasonable
costs incurred by the contractor and will be considered only
where the circumstances were beyond the contractor's control
and where the contractor was without fault or negligence and
could not reasonably have foreseen the actual circumstances at
the time the contract was awarded.
11.032 (2003-05-30) The
approval of TB is required for all Extra Payment claims, irrespective
of the dollar amount. The advice of Legal Services should be obtained
as to whether the extra payments may be considered as an amendment
to the contract or an "ex gratia" payment.
TB has granted full authority to deputy heads to make ex gratia
payments, and to designate officials within the department to
act on their behalf. Refer to TB Policy on Claims
and Ex gratia Payments.
As a general rule, claims for Extra Payments arising solely
from the following causes will not be approved by TB:
- increases in labour or material costs;
- changes in freight rates;
- revisions in exchange rates;
- delays caused by the contractor;
- errors on the part of the contractor; or
- other difficulties which the contractor overlooked, but
should have foreseen.
Assignment of Monies
11.033 (1994-06-23) Contracting
officers may receive from contractors, banks, other financial institutions,
or other sources, statements or documents showing that persons
or companies other than the contractor claim to be entitled to
receive monies under a contract with PWGSC or Canadian Commercial
11.034 (2001-12-10) Payments
to persons other than those named in the contract will only be
made in cases of bankruptcy, the appointment of a receiver manager,
or an assignment of debt pursuant to Part VII of the Financial
11.035 (2004-05-14) This
does not include those cases where the contractor owes a debt to
Canada for tax arrears where Canada Revenue Agency has obtained
TB approval to collect taxes due or has requested a deduction for
taxes due to Canada.
11.036 (1994-06-23) If the
claim relates to a bankruptcy or insolvency situation, see 11.112.
11.037 (2006-06-16) The
contracting officer, immediately upon receipt of any other claim,
such as a power of attorney to receive monies under a contract,
a notice of assignment of money under a contract, or an assignment
of book debts with a request to pay the assignee, should
contact the Payment Standards Division, at 819-956-2885; or send an e-mail to
General for Canada to obtain information on how to process an Assignment
of Crown Debt.
11.038 (1994-06-23) Contract
amendments are used to formally delete, modify, or introduce new
conditions to the original contract. The need for an amendment
may arise from continuing negotiations, changes in requirements,
or to deal with an unforeseen circumstance. Amendments are subject
to agreement by the contractor.
The amendment format will follow the form of the original contract.
The amendment should identify, by using complete clauses, any changes,
additions or deletions. Any aspect of the contract which will be
affected by the amendment must be identified and dealt with in
11.039 (1994-06-23) A single
amendment may contain many individual changes.
The cost of producing amendments can become significant, so wherever
practical, contracting officers should combine as many individual
changes into a minimum number of amendments, e.g. multiple changes
in a technical requirement due to design change or deviation.
Amendments must receive the same distribution as the original
Contract Amendment Request
11.040 (2000-12-01) If TB
approval was previously required for a contract, or if an amendment
to the original contract increases the dollar limit to TB approval,
a Contract Request, form PWGSC-TPSGC 1151-1, must be completed.
Preparation of this form is outlined in Annex
11.1. Information pertaining to Contract Requests is outlined
in 7E.636 and Annex
7.7. The amendment approval and signing levels are detailed
in Section 6A.
11.045 (1994-06-23) If there
is no design change or deviation provision in the contract, the
procedure may be instituted only after an authorization document
is received from the client and is incorporated in the contract.
The client's Design Authority must be designated in the contract
and adequate funds should be authorized and set aside for changes.
If additional funds are required, a requisition amendment is needed.
11.046 (1994-06-23) Each
design change or deviation request must have technical approval
by the Design Authority and, normally, procurement authorization
by the contracting officer.
Delegation of Authority
11.048 (1994-06-23) After
the client has authorized a design change or deviation, the contractor's
estimated cost of design changes or deviations is subject to negotiation
by the contracting officer.
If possible, price changes should be negotiated before the
work affected by the change has been completed.
11.050 (1994-06-23) Design
changes or deviations can result in upward, downward or nil adjustment
to contract costs. After approval by the client, the contracting
officer is responsible for prompt negotiation of price adjustments,
and ensuring that these changes are reflected in the total contract
11.051 (2003-05-30) All
design changes and deviations must be supported by the form Design
9038, and reflected in an amendment.
It may be convenient to include a number of design changes
or deviations in one amendment.
Implementing the Procedure
11.052 (1994-06-23) When
it is necessary to depart, either temporarily or permanently, from
the governing technical data in a contract, a request for design
change or deviation may be originated by the contractor or by the
11.053 (1994-06-23) The
contractor may initiate the Design Change/Deviation process by
completing section 1 of the Design Change/Deviation form, including
a ceiling price for the change, subject to negotiation and sending
three copies to the Design Authority and one to the contracting
officer. When required, copies of the supporting technical data
must be submitted.
A subcontractor must submit the Design Change/Deviation form through
the contractor, who will ensure that all the information required
is entered prior to submission.
11.054 (1994-06-23) The
Design Authority, with the sole right to deny approval, will review
the design change or deviation request and either approve it and
forward it to the contracting officer or reject it and return it
to the contractor so noted.
11.055 (1994-06-23) The
Design Authority may initiate the process by sending five copies
of the Design Change/Deviation form to the contractor. After providing
the contractual information required, the contractor will retain
one copy, and send three copies to the Design Authority and one
to the contracting officer.
11.056 (1994-06-23) Where
equipment or stores affected by the change are being procured under
more than one contract, a separate Design Change/Deviation form
is required for each contract, unless the use of one form for all
contracts held by a single contractor has been specifically authorized
by the Design Authority. In all cases, the form must show all contract
references, including the file number and the serial number assigned
by the contracting officer.
11.057 (1994-06-23) The
contracting officer will:
- negotiate a firm price, if possible, or another pricing basis
that is consistent with the existing basis of payment in the
- provide contractual authority for the design change or deviation;
- sign the Design Change/Deviation form and send a copy to the
contractor and the Design Authority. Upon receipt, the contractor
will implement the change.
11.058 (1994-06-23) The
contractor should direct enquiries regarding the Design Change/Deviation
procedure to the Design Authority. The contracting officer or the
Design Authority will provide blank forms to the contractor, who
will provide forms to subcontractors.
11.060 (1994-06-23) Surplus
materiel resulting from an authorized design change or deviation
must be accounted for and reported to the contracting officer.
Loan of Department of National Defence Materiel
11.061 (2003-05-30) When
a contract does not provide for the loan of Department of National
Defence (DND) materiel, the contractor may request such a loan.
Such requests should be directed to DND, Director Disposal, Sales,
Artifacts and Loans at (819) 994-8692. (See 6B.188.)
11.062 (1999-12-13) Except
for those subcontracts previously permitted in the contract or
as allowed for in the general terms and conditions forming part
of the contract, a contractor must apply to subcontract using form
PWGSC-TPSGC 1137, Application for Permission to Subcontract. In
completing the application for subcontracting the contractor is
required to certify that the proposed subcontract is to be subject
to the same general conditions and supplemental general conditions
as contained in the contract. The contracting officer will only
consent if satisfied with the subcontractor and the proposed subcontract.
11.063 (1994-06-23) If a
contractor wishes the subcontract to include terms and conditions
which deviate from those contained in the contract, the contractor
should be informed that any deviations are entirely at its own
11.064 (1994-06-23) The
placement of a subcontract does not relieve the contractor of any
contractual obligations or impose any liability upon the Crown
in relation to the subcontractor.
11.065 (1994-06-23) The
profit margin for a subcontract should not exceed the top rate
of profit allowed in the contract or the type of subcontract, unless
exceptional circumstances prevail.
11.066 (2005-06-10) If
the value of the work subcontracted will exceed the amount authorized
by more than 15 percent, the contractor must submit a revised form
PWGSC-TPSGC 1137. Once approved, a copy of the revised form must
be sent to Contract Audit Group (CAG).
11.067 (2004-05-14) For
the protection of contractors and subcontractors, the contracting
officer must instruct the contractor to inform each subcontractor,
at the time of negotiating a subcontract, of the appropriate general
conditions and supplemental general conditions, and the applicability
of the Contract Cost Principles 1031-2.
11.068 (2005-06-10) Copies
of all subcontracts, multi-tier subcontracts, applications and
revisions to subcontracts must be forwarded by the contractor to
the contracting officer and CAG, in order to maintain up-to-date
data on the contractors' financial status.
Subsequent Tier Subcontracting
11.069 (1994-06-23) Direct
PWGSC control over second and subsequent tier subcontractors is
not practical. Contractors must be advised by the contracting officer,
at the time of subcontracting, that when second-tier subcontractors
award further subcontracts, all terms and conditions must be approved
by the contractor.
Defence Production Act
11.070 (1994-06-23) The
Defence Production Act imposes upon defence subcontractors obligations
similar to those imposed on contractors. The contractor must fully
inform subcontractors that the terms and conditions in the contract
are enforceable under the Defence Production Act.
Assignment of Contracts
11.075 (1994-06-23) When
a contractor assigns a contract, the responsibility for all or
part of the performance is transferred to a third party. However,
the assignment of a contract must not relieve the original contractor
of any obligations under the contract or impose any liability on
the Crown in relation to the assignee.
11.076 (1994-06-23) In order
to protect the Crown's interest, the transfer of the liabilities
and rights under the original contract to the assignee will be
done so that the original contractor is ultimately liable for the
performance of the contract.
An acceptable manner of protecting the Crown's interest is
to obtain the original contractor's guarantee of performance
in the event the assignee fails to perform.
11.077 (2002-05-24) The
contracting officer, with the assistance of the Canadian and International
Industrial Security Directorate, must ensure that the assignee
meets all security requirements specified in the contract.
Approval of Contract Assignments
11.078 (1994-06-23) Under
the general conditions, the written permission of PWGSC is required
prior to any contract assignment. All proposed assignments supported
by a contracting officer must be referred to the cost analyst for
review, and then, if appropriate, to Legal Services for concurrence
and drafting of the necessary legal documents.
11.079 (1994-06-23) The
contracting officer will forward the assignment agreement to the
appropriate PWGSC signing authority with the reasons for the assignment,
the number and value of contracts involved, and the financial condition
of the assignee.
11.080 (2005-06-10) A copy
of the approved assignment is to be forwarded to CAG, in order
to maintain data on supplier financial status, or to the appropriate
vice-president (Canadian Commercial Corporation).
11.081 (2005-12-16) The
authority for discretionary audits results from either the contractual
terms, or statute (Defence Production Act, section
19). If a contracting
officer determines that a discretionary audit is required, a request
is to be made to the CAG. The cost of discretionary audits will
be borne by CAG.
Contracting officers may refer any supplier certification of
Canadian content to CAG for audit of compliance to
Contractor Cost Records
11.082 (2005-06-10) If
required audits have not been completed before a contract commences,
the contracting officer must ask CAG to carry them out as soon
11.083 (2005-06-10) If
inadequate contractor records are discovered during a contract,
or the contractor's cost accounting system has changed, or is likely
to change, an examination of the adequacy of a contractor's accounts
is to be performed by qualified personnel approved by CAG.
11.084 (1994-06-23) If the
audit confirms inadequate records, the contracting officer must
advise the contractor of the deficiencies or inadequacies in the
accounting records and obtain a commitment to an agreed plan of
action to correct them.
11.085 (1994-06-23) When
the contractor refuses to make a commitment to an agreed plan of
action to correct a situation of inadequate records, or fails to
meet commitments, the sector/region will decide, based on the circumstances,
the appropriate course of action to follow. Among the various options
- withholding of future contracts;
- negotiation of special terms and conditions after taking into
account the known deficiencies, e.g. negotiation of a larger
holdback on progress claims, negotiation of a firm pricing basis
to replace a proposed cost reimbursable basis for which adequate
substantiation of costs would not be available;
- full or partial termination of the contract for breach of contractual
provisions relating to maintenance of proper accounts and records.
11.086 (2005-06-10) The
contracting officer will advise CAG of the findings and of the
Financial Security Issues
11.087 (1994-06-23) During
the contract management period, contracting officers must ensure
that contract provisions relating to Crown responsibilities, a
breach of which could nullify a surety bond, are strictly adhered
Changes in Contract Terms
11.088 (1994-06-23) Before
authorizing any material changes in contract terms, contracting
officers must ensure that such changes do not invalidate security
obligations by obtaining the consent of the surety company.
"Material changes" means any change to the contract except
a change which on the face of it and without further explanation
or investigation is clearly for the benefit of the surety. Examples
of changes which require the surety company's approval are: changes
in the contract price; changes in the scope of the work; revision
to the completion and/or delivery dates specified in the contract;
and, changes in the payment schedule.
11.089 (1994-06-23) Where
the change is to be made by way of contract amendment, a copy of
the draft amendment should be sent to the surety company for concurrence.
Where the contract contains a provision for design or engineering
changes within certain limits, it is not necessary to obtain the
surety company's prior consent. In this case, the company only
needs to be kept informed. If the limits are to be changed, the
surety company's consent is required.
11.090 (1997-09-15) In cases
where the contract price is being increased, it may be advisable
to increase the amount of security to reflect the revised contract
price. The face amount of a contract support letter of credit may
be increased commensurate with the change in risk that has occurred.
The face amount may be changed by an amendment to the letter of
credit. Alternatively, the letter of credit may contain an express
provision for change by a specified or determinable amount or amounts
on a specified date or dates or upon presentation of the document(s)
specified for this purpose such as an interim certificate of completion.
Contract amendments should be contingent upon issuance of a new
letter of credit or an amendment to the current letter of credit.
11.091 (1997-09-15) If a
security deposit exceeds the amount required due to changes in
the contract price, the excess is to be returned to the contractor.
(See 11.296.) The face amount of a contract
support letter of credit may be reduced commensurate with the change
in risk that has occurred. The face amount may be changed by an
amendment to the letter of credit. Alternatively, the letter of
credit may contain an express provision for change by a specified
or determinable amount or amounts on a specified date or dates
or upon presentation of the document(s) specified for this purpose
such as an interim certificate of completion.
11.092 (1994-06-23) As soon
as the contracting officer becomes aware that a contractor may
have difficulty in successfully completing a contract, the surety
company must be informed immediately.
11.093 (1994-06-23 Whenever
a bonding company has failed to honour its undertakings, the matter
must be referred to Legal Services for appropriate action, and
to the Corporate Secretary who shall notify TB.
Protecting Crown Goods
11.095 (1994-06-23) If a
contractor is delinquent in discharging its accrued liabilities,
liens may be attached, by subcontractors or suppliers, to goods
that the Crown has taken title to through full or partial payment.
Steps must be taken to protect the Crown's interests.
This is not required for service contracts, and is generally not
cost effective for goods contracts under $25,000.
11.096 (1994-06-23) Where
a contractor has given security under section 427 of the Bank Act,
a waiver is to be obtained waiving the bank's priority over the
Crown's title to the goods. The contracting officer must consult
with Legal Services.
If the contractor should change banks and a new waiver is not
obtained, or if the contractor fails to disclose that security
was given, the Crown's title could be affected.
11.097 (2005-06-10) To
protect the Crown's interest with potentially insolvent or bankrupt
contractors, the contracting officer must obtain a waiver when
a bank or other financial institution has a prior lien on the contractor's
assets. If the waiver is unobtainable, consult with Legal Services,
the cost analyst, and Contract Audit Group (CAG) to determine if
the contractor's credit position warrants relieving the contractor
of the contractual obligation relating to bank liens.
11.098 (1994-06-23) To preclude
the attachment of liens, the contracting officer should check,
to the extent possible, that the contractor has met payment obligations
under the contract to its workmen, subcontractors and suppliers.
11.099 (1994-06-23) All
intimations of unpaid invoices or wages, or unreasonable delays
in the payment thereof, shall be reviewed promptly by the contracting
officer, and a cost analysis carried out if appropriate, in cooperation
with a cost analyst.
11.100 (1994-06-23) The
frequency, scope and extent of checks will be determined and carried
out by the contracting officer, based on cost/benefit, and the
contractor's payment record, credit rating and financial strength.
11.101 (2005-06-10) When
the financial analysis indicates potentially serious financial
problems, a report is to be sent to CAG, which will distribute
copies to all procurement sectors/regions. The sectors/regions
in turn must compile lists of all open contracts with the contractor
involved, including the contract values and anticipated completion
dates, and return these lists to CAG.
CAG will then determine whether a discretionary verification
should be carried out, and the scope and extent of the verification.
Sectors/regions should only enter into new contracts with
the contractor with due caution and proper justification.
11.102 (2005-06-10) A discretionary
verification is carried out by qualified personnel approved by
CAG. Discretionary verifications may be commissioned only by CAG,
and will be performed on a timely and prompt basis so as to lessen
potential risks to the Crown.
11.103 (1997-09-15) If the
total risk exposure is $2 million or over, a discretionary verification
will normally be undertaken. A determination will be made as to
the protection provided to the Crown by any security deposits (government
guaranteed bonds, bills of exchange, irrevocable standby letters
of credit), performance bonds, labour and material payments bonds,
or registration action taken or intended.
11.104 (2005-06-10) If
the total risk exposure is under $2 million, CAG will, in consultation
with the sector/region involved, determine the need to commission
a discretionary verification, after taking into account any financial
security provision or registration action.
11.105 (2005-06-10) When
the verification points to a breach of the contractor's specific
contractual obligation to effect prompt payment to its workmen,
subcontractors, or suppliers, CAG will provide written advice to
the sectors/regions and senior financial officers of the client(s)
holding the contracts in default.
Registering Notice of Interest in Goods
11.106 (1994-06-23) In provinces
other than Quebec, the Crown can register notice of its interest
in the goods with a view to protecting itself against the risk
of liens. The registration requirements differ for each province.
The contracting officer must consult with Legal Services. (See 7F.733.)
In practical terms, because of the complexities involved,
this action is appropriate only on high dollar value contracts.
Bankruptcy, Receivership, Insolvency
11.112 (2005-06-10) The
contracting officer must consult Legal Services when:
- a contractor proposes a settlement while in an impending or
actual receivership, bankruptcy or insolvency condition;
- the contract is secured by surety bond guarantees or other
- a contractor has given security to a bank under section 427
of the Bank Act.
Upon receipt of a bankruptcy, receivership or insolvency notice
or when there is an indication of such, the contracting officer
- inform the Director;
- develop a plan, in consultation with the client, for completion
of the work; and
- advise CAG and Legal Services.
11.113 (1994-06-23) When
a contractor is in formal bankruptcy, the contracting officer must,
in consultation with Legal Services, pursue the rights of the Crown,
- realizing on any contractual securities;
- proving title to any Crown property in the contractor's possession;
- ensuring payment, if the Crown is unsecured, in priority of
other unsecured creditors; or
- offsetting money payable to the contractor against any amount
due the Crown.
11.114 (1994-06-23) After
formal bankruptcy or receivership, monies due to the contractor
are to be sent to the Trustee in Bankruptcy or the Receiver-Manager,
11.115 (1994-06-23) Disputes
must be handled expeditiously. The contracting officer is responsible
for ensuring that all parties meet their contractual obligations.
Proper record keeping during disputes is vital for clarification,
audit or termination purposes.
11.116 (1994-06-23) If the
client has a valid complaint, the contracting officer should formally
advise the contractor in writing, with a reminder of the default
provisions in the general conditions. If during a reasonable period
of time, corrective action has not been undertaken, consultation
with Legal Services is recommended to ensure the protection of
the interests of the Crown.
11.117 (1994-06-23) If a
contracting officer is unable to resolve a contract dispute, the
matter should be brought to the attention of the contracting officer's
11.118 (2002-12-13) When
any dispute associated with goods and services contracts cannot
be resolved expeditiously through negotiation, the contractor should
be advised, in writing, to submit a formal claim to Contracts Settlement
Board (see 11.201).
When any dispute associated with architectural and engineering,
construction, building and maintenance and leasing contracts cannot
be resolved expeditiously through negotiation, the contractor/consultant
may request the Minister, in writing, to authorize a Contract Disputes
Advisory Board hearing (see 11.202).
Goods/Services not in accordance with the Contract
11.120 (1994-06-23) It
is the responsibility of the client to inform the contractor, within
fifteen (15) days of receipt, or as specified in the contract,
that the goods or services are not in accordance with the contract.
Failure to do so may prejudice any subsequent claims by the Crown.
The settlement made following such a disagreement may take into
account any outstanding interest.
11.121 (1994-06-23) Under
the general conditions, time is of the essence of the contract.
If a contractor fails to deliver the goods or perform the services
on time, the contracting officer must ascertain, in consultation
with the client and Legal Services, the facts surrounding the delay.
If the delay was caused by factors beyond the control and without
the fault or negligence of the contractor, the contracting officer
must extend the time of performance of the contract for a period
equal to the length of the delay. Excusable delays are detailed
in the general conditions. In all other circumstances, the contractor
is responsible for the delivery default. If the contractor is in
default in carrying out the delivery commitments, the contracting
officer may, upon giving notice in writing to the contractor, terminate
the contract fully or partially.
11.122 (1994-06-23) Where
time of performance is to be extended due to delays beyond the
control of the contractor, and if the contract is secured by surety
bonds, the contracting officer must:
- advise the surety company and obtain its concurrence before
the completion dates specified in the contract are actually extended;
- if applicable, advise the surety company and obtain its concurrence
before adjusting the contract price due to additional work requirements.
Loss of Narcotics
11.123 (2005-06-10) In
the case of any loss, theft or breakage involving narcotics or
controlled drugs while in transit, the Scientific, Medical and
Photographic Division of the Commercial Acquisition and Supply
Management Sector, will initiate action in accordance with the
Controlled Drugs and Substances Act and Food
and Drugs Act.
11.130 (2003-12-12) To determine
which type of termination might be involved, see 11.131 (Termination
for Convenience of the Crown), 11.133 (Termination
for Default) and 11.135 (Termination by Mutual
Consent). Refer to subsection
5-J of the Standard Acquisition Clauses and Conditions (SACC)
Manual for termination clauses.
Termination for Convenience of the Crown
11.131 (2002-12-13) Occasionally
the Crown may wish to terminate a contract for convenience. (See 11.146.)
This may be due to curtailment of funds, discontinuation of a government
program, or other circumstances which make the acquisition of the
product or service unnecessary. To protect the integrity of the
bid solicitation system, the Crown may also terminate a contract
for convenience if it is determined that it has been mistakenly
awarded to other than the lowest responsive bidder. The general
conditions contain a section titled "Termination for Convenience" which
becomes applicable as soon as the "Notice of Termination" is received
by the contractor.
11.132 (1998-06-15) Termination
for Convenience is to be applied where:
- the client has requested termination;
- a Termination for Default cannot be considered because the
contractor is not in default; and,
- a Termination by Mutual Consent would not be more advantageous
to the Crown.
Termination for Default
11.133 (1994-06-23) Termination
for Default applies when the contractor breaches the contract,
usually through non-performance or delayed delivery. "Default by
Contractor" in the general conditions provides the basis for Termination
for Default. (See 11.180.)
11.134 (1994-06-23) Termination
for Default is to be applied where:
- the contractor has breached the contract; and
- in the Crown's opinion, the contractor would have no valid
defence, should the Crown claim loss or damages. Any opinion
regarding a contractor's valid defence shall be rendered only
by Legal Services.
A valid defence usually exists if failure to perform arises
out of causes beyond the control and without the fault or negligence
of the contractor, for example:
- faulty or incomplete specifications were provided by the
- government-supplied materiel was faulty or substandard,
or supplied after the time agreed to in the contract;
- samples were not provided on time; or
- no action was taken by the Crown after the first default
by the contractor.
Termination by Mutual Consent
11.135 (1994-06-23) On rare
occasions both parties may agree to termination without claims
or penalties, usually where the client has requested full or partial
termination of a contract, the contractor has incurred minor or
no expenses and is willing to forego a claim, and the matter may
be settled at no cost to the Crown. (See 11.195.)
11.136 (1994-06-23) Termination
by Mutual Consent will not be actioned where it is in the interest
of the Crown to issue a default termination or when additional
costs are claimed by the contractor following the reduction or
cancellation of all or a portion of the contract.
Contractor's Request for Termination
11.137 (1994-06-23) When
a contractor requests termination because of anticipated losses
in performing the contract, consent will not be granted. Instead,
the contractor should be instructed that the obligations in the
contract must be fulfilled. The contractor may, on completion of
the contract, request an "extra payment" for additional costs incurred
or losses suffered, if some responsibility for the additional cost
or for the loss can be ascribed to the Crown. (See 11.031.)
If the contractor refuses to carry out the contractual obligations,
termination for default should be instituted.
Financial Security Issues
11.138 (1997-09-15) If the
contract is secured by a security deposit (government guaranteed
bonds, bills of exchange, irrevocable standby letters of credit)
it should not be terminated without the prior advice of Legal Services.
11.139 (1994-06-23) If the
contract is secured by surety bonds, it is not to be terminated
as this would also terminate the existing contractual relationship
with the bonding company. When a contractor fails to perform a
contract, or when a claim is received for non-payment of labour
or material, and a payment bond is in place, contracting officers
must immediately inform the surety company in writing, requesting
that corrective action be taken. Contracting officers must not
enter into negotiations with the contractor or claimant.
Involvement of Legal Services
11.140 (1998-06-15) The
following terminations shall not be issued without a written legal
opinion: all Terminations for Default, Terminations by Mutual Consent,
and confirming Notices of Terminations for Convenience.
In seeking the opinion of Legal Services, the contracting officer
must submit the contract file with a chronological, typed index
of the documents forming the basis for the termination request,
together with a short note outlining the events leading to termination.
Based on this information, Legal Services will render an opinion
and advise as to the appropriate method of termination.
Note: A legal opinion is not required for initial Notices of Termination
for Convenience. The issuance of an initial Notice of Termination
for Convenience may only be taken in response to the client's written
While a legal opinion prior to the issuance of any termination
is desirable, in the interest of limiting costs incurred by the
Crown, the initial Notices of Termination for Convenience (see
Standard Acquisition Clauses and Conditions (SACC) Manual clauses J0200C and J0205C)
do not require a legal opinion and may be issued by the contracting
officer in accordance with 11.145.
Involvement of the Contract Claims Resolution Board
11.141 (2005-06-10) The
Termination Claims Officer (TCO), Policy, Risk, Integrity and Strategic
Management Sector (PRISMS), must be involved immediately in the
claim settlement process resulting from contracts that are partially
or completely terminated for convenience. Accordingly, the contracting
officer must contact the TCO as soon as the initial Notice of Termination
(see SACC Manual clauses J0200C and J0205C)
is issued, and is to provide the TCO with a copy of each initial
and confirming Notice of Termination. The TCO's facsimile number
is (819) 956-0355.
Adjustment to Source Lists
11.142 (1994-06-23) Terminations
for Convenience of the Crown should not result in any adjustment
of the source lists, while Terminations by Mutual Consent may require
correction of source lists. Terminations for Default usually are
cause for the deletion or suspension of the contractor from the
11.143 (1994-06-23) Standing
Offers are not contracts in the legal sense, and either party may
withdraw from a Standing Offer by simple notification to the other
party. However, call-ups received by a supplier prior to the date
of its formal withdrawal must be fulfilled in accordance with the
terms of the Standing Offer.
PWGSC Offices Outside Canada
11.144 (2002-12-13) Termination
procedures for contracts awarded by Public Works and Government
Services Canada (PWGSC) offices outside Canada may differ from
those for contracts issued in Canada, and the termination procedures
serve only as a general guide.
For example, if problems arise in such cases, the Director
, PWGSC Washington, will obtain guidance from the TCO and, if
necessary, obtain legal advice for the outside offices from Legal
11.145 (2004-05-14) Initial
and confirming Notices of Termination shall be approved and signed
by a contracting officer with the signing authority (as indicated
in Annex 6.1.2) for the
total contract value at the time of the termination.
Termination for Convenience
11.146 (2004-05-14) On 15
January 2002, PRISMS was designated to provide termination settlement
services associated with goods and services contracts that have
been terminated for the convenience of the Crown. PRISMS was also
designated to handle claims arising from United States and Canadian
Commercial Corporation (US/CCC) contracts that are terminated for
the convenience of the US Government. For terminations involving
US/CCC contracts, the Director General, PRISMS will ensure compliance
with the certification and termination settlement functions that
are required to conform with the US Department of Defense and Department
of National Defence Letter of Agreement (refer to US Defense Federal
Acquisition Regulation Supplements 225.870-6 and 249.7000). The
Director General, PRISMS, will also be responsive to requests by
the US Government for arranging for audits of US Government contracts
or subcontracts placed directly with Canadian-based suppliers that
are terminated for convenience.
The contracting officer and the TCO are responsible for the following
||Termination Claims Officer
|Issue initial and confirming Notices of Termination
|Administration of the non-terminated portion of the contract
|Assessment of the contractor's request for any upward adjustment
of the contract price for the non-terminated portion of the
|Request claim from contractor and forward claim forms
|Assist contractor with preparation of claim
|Ensure acceptability of claim
|Determine if audit is required
|Define audit requirements and arrange audit
|Arrange for inventory verification and screening by client
|Negotiate final settlement with contractor
|Preparation of Settlement and Release document
|Disposal of surplus inventory
|Forward Settlement and Release document to contractor for
|Obtain invoice from contractor
|Process invoice through client department
|Distribute Settlement and Release document
11.147 (1994-06-23) Occasionally,
the client will require a status report before making a decision
to cancel. In this event, the client will inform PWGSC of its intention
to reduce or cancel a contract by: issuing a "Notice of Intent
to Cancel"; telephone; or, a written message to that effect. The
client will usually request all or part of the following contract
status information before making a final decision to terminate:
- quantity of stores produced against the contract;
- quantity of stores in production;
- value of raw materials and/or components acquired by the contractor
to carry out the specific contract;
- the position with respect to tooling and capital equipment,
especially where the contractor had to tool-up to carry out the
- status of subcontracts
- the most economical point at which to effect termination; and,
- the approximate amount of termination claims if known.
11.148 (1998-06-15) The
contracting officer will immediately request the information from
the contractor and closely follow up to ensure that it is received
as soon as possible.
When the information is received, the contracting officer will
forward it, together with any recommendations, to the client.
Normally, the client's first request will be to cancel all or
a portion of a contract, in which case the contracting officer
must immediately issue an initial Notice of Termination in accordance
with 11.150 if the termination is due to
curtailment of funds, discontinuance of a government program or
circumstances that make the acquisition of the product or service
An initial Notice of Termination must be followed by the issuance
of a confirming Notice of Termination.
Notice of Termination
11.150 (2002-12-13) On receiving
the client's initial written instructions to cancel all or part
of a contract for the convenience of the Crown (see 11.131),
the contracting officer must immediately issue an initial Notice
of Termination for Convenience to advise the contractor to "stop
work" (see SACC Manual clause J0200C for
a complete termination or clause J0205C for
a partial termination). Following the issuance of the initial Notice
of Termination for Convenience a confirming Notice of Termination
must be issued (see SACC Manual clauses J0001C or J0002C).
The confirming Notice of Termination cannot be issued until the
formal requisition amendment is received, and a legal opinion has
been sought. The contracting officer must also contact and provide
the Termination Claims Officer (TCO) with a copy of the initial
Notice of Termination.
To expedite the termination action and minimize potential
costs to the Crown, the contracting officer is authorized to
issue an initial Notice of Termination for Convenience prior
to receipt of the formalized amendment to the requisition, and
without seeking legal advice (see 11.140).
Suspension of the Work - Stop Work Order
11.151 (2002-05-24) When
a client wishes to suspend the work of a contract rather than cancel
it, SACC Manual clause J0500C is
to be used. The suspension of the work of a contract allows the
client to obtain a review of the contract status before deciding
the type and extent of termination (including a termination for
default). Should a client wish to reinstate a contract after a
Suspension of the Work - Stop Work Order has been issued, the Stop
Work Order must be rescinded. (See SACC Manual clause J0501C).
In this event, it may be necessary to adjust the delivery terms
and/or contract price. It is the responsibility of the contracting
officer to determine the reasonableness of all claims for additional
costs which the contractor may make. Amendments to cover payment
of such costs shall be approved in accordance with the contract
amendment approval and signing authorities (Annex
No Claim is Involved
11.152 (2002-12-13) When
a contractor advises the contracting officer that a claim will
not be submitted following the receipt of an initial Notice of
Termination, the contracting officer is to prepare a confirming
Notice of Termination, for approval by Legal Services, which includes
SACC Manual clause J0003C and
eliminates the funding for the terminated items. This Notice of
Termination is then forwarded to the contractor for acceptance.
Since no claim is made, the TCO is not involved in this process.
11.153 (1994-06-23) It is
the client's responsibility to decide at what stage a full or partial
termination should take place. Formal amendments to the requisition
confirming the decision to terminate must be provided as quickly
11.154 (1998-06-15) The
contracting officer must not issue a confirming Notice of Termination
for Convenience until an amendment to the client's requisition
has been received.
The contracting officer should ensure that sufficient funds remain
in the amended requisition to cover the estimated claim costs and
costs resulting from post-termination activity carried out by the
contractor. This includes the cost of producing the claim, segregation,
packing, secured storage or residual inventory of material, parts
assemblies, tools, equipment, etc., prior to disposal procedure.
Confirming Notice of Termination
11.155 (1998-06-15) As soon
as the requisition amendment is received, the contracting officer
will prepare and on advice from Legal Services send the contractor
the confirming Notice of Termination or the confirming Notice of
Partial Termination, using the standard clauses provided in Subsection
5-J of the SACC Manual.
11.156 (2002-12-13) After
the confirming Notice of Termination or Partial Termination is
issued, the contracting officer will immediately send one copy
of the notice to the TCO.
In order to avoid further costs to the Crown and hardship
to the contractor, a confirming Notice of Termination must be
issued as promptly as possible to finalize the implications of
an initial Notice of Termination.
Adjustment of Funds
11.157 (2004-05-14) The
funds in the contract should not be adjusted when the confirming
Notice of Termination is issued. The contract funds are adjusted
only after a settlement offer has been made to a contractor.
The funding will be adjusted by the TCO at the time that the
Settlement and Release document is prepared for the approval
and signature of the Director General, PRISMS.
Adjustment to the Price of the Non-Terminated Portion of the
11.158 (2002-12-13) Whenever
a contractor requests an upward adjustment to the cost or unit
price of the non-terminated portion of a contract, the resulting
claim for adjustment is to be referred to the TCO for review prior
to reaching any agreement with the contractor concerning such upward
cost or price adjustment.
11.159 (2002-12-13) For
non-complex, fully terminated contracts, the contracting officer
is to transfer the complete procurement file to the TCO, if a claim
For complex procurements or partial terminations where the non-terminated
portion of the file is still active, the contracting officer will
prepare a termination case file including copies of the contract,
amendments, specifications, pricing details, documents, correspondence
and any other information relevant to the termination, and send
it to the TCO.
Informing the Contractor
11.160 (2002-12-13) If a
claim is involved, the contracting officer is to forward two sets
of PWGSC Prime Contractor termination claim forms and the Procedures
Manual on Termination of Contracts, to the contractor.
These may be obtained from the TCO: each set of claim forms includes
||Settlement Proposal for Fixed Price Contracts
||Inventory Schedule A for Inventory of Metals in Mill Product
||Inventory Schedule B for Inventory of Raw Materials, Finished
Product, Purchased Parts, Plant Equipment, Finished Components,
||Inventory Schedule C for Inventory of Work in Process
||Inventory Schedule D for Inventory of Special Tooling and
||Schedule of Accounting Information
||Application for Partial Payment
11.161 (1996-06-03) The
accompanying letter to the contractor should contain the following
'In the event subcontractors are involved with this termination,
please advise of the number of subcontractors who will require
termination claim forms. Please arrange to complete all sections
of the claim in as much detail as possible and, after signature
by your executive authority, return the original and one (1) copy
to this office.
You are hereby requested to forward your completed claim within
a two month period from the date of this letter. In order to assist
you in meeting that date, we would be pleased to provide guidance
and explanations necessary to ensure proper action is taken by
your company and that the correct information is included in the
Please note that all communications and documents with respect
to your claim should be directed to: __________.
(Insert appropriate name and address of the responsible contracting
11.162 (2002-12-13) After
the termination claim forms are forwarded, the contractor must
be contacted by telephone to ensure that the forms have been received
and that the necessary action is being taken on the contractor's
part to submit a claim. If the contractor has any questions concerning
the presentation of the claim, or the details of the termination
settlement procedures, the contracting officer may advise the contractor
to contact the TCO directly. When the contractor has completed
the forms, the signed original and one copy are returned to the
contracting officer. On receipt of the contractor's claim, one
copy is to be forwarded promptly to the TCO, who shall then become
responsible for the resolution of the claim.
Audit of Claims
11.163 (2002-12-13) Upon
receipt of a claim, the TCO will determine the need for an audit.
If the TCO concludes that an audit is required, the TCO will prepare
the terms of reference for the audit and arrange for its completion
by Consulting and Audit Canada.
When an audit is performed, the TCO reviews the cost factors
reported by the auditor and reconciles the contractor's claim
with the auditor's report and the Inventory Verification Report
form (SPMS-50). The cost implications of any inventory adjustments
must be discussed with the auditor as well as with the contractor.
11.164 (2002-12-13) If the
claim from a termination for convenience involves inventory that
is rendered surplus by the termination, the contracting officer
must send copies of the termination inventory schedules to the
client in order to obtain instructions as to disposition, which
will be either:
- arranging for the verification and shipment of all, or any
part, of the inventories to a recipient designated by the client.
The costs associated with packaging, routing, shipping, etc.,
are a proper post termination charge to be added to the contractor's
Inventory verification is to be arranged by the contracting
officer with the Inspection Authority of the client and a
copy of the Inventory Verification Report must be provided
to the TCO so that the settlement offer may be adjusted to
reflect any inventory discrepancies.
- arranging for the disposal of the residual inventory by the
Crown Assets Distribution Centre (CADC). In this case, the contracting
officer must prepare the form PWGSC-TPSGC 11001, Report of Surplus
(Materiel and Equipment).
The Report of Surplus must be signed by the director general
or director concerned, to certify that: the inventories are
reasonable in relation to the requirements of the terminated
portion of the relevant contract; that their use is not required
for other existing PWGSC contracts, due to the nature of the
goods; and consequently, that disposal is recommended. The
contracting officer will forward the signed Report of Surplus
In due course, the contracting officer receives a Final Inventory
Certificate (FIC) from CADC, signed by the CADC inspector or
assessor and the contractor.
By signing the FIC, the contractor agrees to the final
quantities for disposal and, at the same time, agrees to
retain and be responsible for the residual inventories for
ninety (90) days, at no cost, on behalf of CADC. At the time
of receipt of the FIC, the contracting officer is relieved
of the responsibility for the residual inventory. Any proceeds
realized from the sale of the surplus inventory are credited,
on behalf of the client, to the Consolidated Revenue Fund
or to the revolving fund, as applicable.
11.166 (2004-05-14) Upon
receipt of the audit report, the TCO will prepare a proposed settlement
offer. This offer informs the contractor of the amount of settlement
the TCO is prepared to recommend to the Director General, Policy,
Risk, Integrity and Strategic Management Sector (DG/PRISMS), for
11.167 (2004-05-14) If the
contractor accepts the proposed settlement offer, the TCO will
prepare a Settlement and Release, form PWGSC-TPSGC 9223-2, and
submit it to Legal Services for review, the DG/PRISMS, for approval
and signature, and then to the contractor for acceptance. When
the contractor's written acknowledgement is received, the original
is placed on the PRISMS file and a copy forwarded to the contracting
officer, for the contract file.
11.168 (2002-12-13) If the
contractor rejects the proposed settlement, the TCO will advise
the contractor to submit the case directly, in writing, to the
Director, Contract Claims Resolution Board (CCRB), so that the
case may be handled in accordance with CCRB's procedures for handling
disputes (see 11.201).
Contract Termination Claims
11.169 (2004-05-14) When
an interim payment or final settlement on a contract terminated
or partially terminated for the convenience of the Crown is approved
and signed by the DG/PRISMS, the TCO will place the original of
the completed document on the PRISMS file and make arrangements
to implement the approved settlement payment.
Termination for Default
11.180 (1994-06-23) The
decision to terminate a contract for default should be made only
after all other possible solutions have been explored. In all cases,
the advice of Legal Services must be obtained at an early stage
to ensure that any proposed action will not prejudice the Crown's
legal position and that the termination is legally enforceable.
Failure to take action may prejudice Crown interests.
If a contract is secured by surety bonds, termination of the
contract may change the existing contractual relationship with
the bonding company.
11.181 (1994-06-23) The
Crown has the right to terminate all or any part of the contract
for default if:
- the contractor fails to make progress so as to endanger performance
of the contract.
The contracting officer may provide the contractor in writing
with a reasonable period of time, normally ten (10) days, to
rectify the situation. If this period must be longer, the contracting
officer may require the contractor, within ten (10) days, to
show evidence of corrective action.
If the contractor does not rectify the situation, the contracting
officer may, subject to the limitations in the Default Clause,
initiate action to terminate the contract for default.
- the contractor fails to perform any other provision of the
If the contractor does not rectify such a defect within ten
(10) days of receipt of a notice from the contracting officer,
the contracting officer may, within the limitations set forth
in the Default clause, initiate action to terminate the contract
in whole or in part for default.
- the contractor fails to deliver the goods or perform the services
within the time specified in the contract.
In the absence of excusable delays, the Crown has the right
to terminate the contract immediately, regardless of how slight
the delay may be. This includes the right to accept or reject
goods shipped but not yet delivered. In addition, if the contractor
does make timely delivery, but delivers defective goods or
improperly performs services, and is unable to take corrective
action within the unexpired delivery schedule period, the Crown
also has the right to terminate for default.
Whenever a contracting officer contemplates termination of
a contract for failure to deliver on time, the contractor must
be so advised as soon as possible after the default occurs.
Failure to take such action may prejudice the Crown's position.
When there is reasonable assurance that delivery will be made
even though late, it may be desirable to discuss extension
of the delivery time with the client. If the delivery date
is extended, a reduction in the contract price may be appropriate.
This situation would arise when delivery would be further
delayed by terminating and placing the contract elsewhere.
- the contractor becomes bankrupt or insolvent.
Upon receipt of a notice of bankruptcy or insolvency, the
settlement procedure outlined in 11.112 is
to be followed.
Action to Recover Loss or Damage
11.183 (1994-06-23) After
termination, the contracting officer will determine the actual
amount or best estimate of loss or damage suffered by the Crown,
and the distribution of the damages to be recovered from the contractor.
Estimates of loss or damage should include any amount in excess
of the contract price which the Crown may be obliged to pay in
procuring the goods or services elsewhere.
11.184 (1997-09-15) The contracting
officer must refer claims to Legal Services when a contract is
secured by a security deposit (government guaranteed bonds, bills
of exchange, irrevocable standby letters of credit) or when the
Crown has a claim against a contractor that is related to a work
package for which the contractor has a claim against the Crown.
In all other cases the contracting officer will attempt to negotiate
a settlement. When a satisfactory settlement cannot be reached,
the claim will be referred to Legal Services for action.
11.185 (2002-12-13) When
a contractor agrees with the proposed settlement, the recommendation
to recover monies will be submitted to Contract Audit Group (CAG),
or, in the case of a CCC contract, the Director, Finance and Resources
Administration (FRA). CAG or the Director, FRA, will issue an invoice
to the contractor for the monetary recovery.
If payment is not received within sixty (60) days of date of issue
of the invoice, CAG or the Director, FRA, will advise the contracting
officer to take appropriate follow-up action with the contractor.
When normal follow-up procedures have not been successful, the
matter must be referred to Legal Services.
11.186 (1994-06-23) Claims
must not be removed from departmental records until satisfied by
payment or a properly authorized deletion action.
Contract Payment under Surety Bond
11.187 (1994-06-23) When
a surety bond is being enforced, payments will be issued as follows:
- Performance bond - upon completion of the contract to the satisfaction
of the Crown, the bonding company may be paid all amounts to
which the contractor would be entitled under the terms of the
- Payment bond - the bonding company shall not be reimbursed
for the payment of creditors from any funds held by the Crown
until the work is complete and the surety company has fully discharged
its obligations under the bond.
Termination by Mutual Consent
11.195 (2002-12-13) On receiving
the client's request for termination by Mutual Consent, the contracting
officer shall request the contractor to confirm that no claim is
involved and shall refer the matter to Legal Services in accordance
Since no claim is made, the TCO is not involved in this process.
Contract Claims Resolution Board
11.200 (2002-12-13) All
enquiries, from contractors or contracting officers, concerning
the Contract Claims Resolution Board (CCRB) and submissions to
the CCRB, should be directed to CCRB.
The CCRB was formed in January 1994 by the integration of
the Contract Dispute Advisory Board of the former Public
Works Canada and the Contracts Settlement Board (CSB) of the
former Supply and Services Canada. A summary of these two
Contract Settlement Board Process
11.201 (2002-12-13) The
Contract Settlement Board (CSB) process is designed to provide
for the prompt resolution of disputes arising from goods and services
contracts. It provides for an independent review of a contractor's
claim as well as the Crown's response to the claim. Following that
review process, the Board issues a decision which is not binding
on the contractor. Accordingly, if the contractor reject the decision
of the Board, its rights at law are not compromised. Further details
on the CSB Process are set forth in 11.204.
Contract Dispute Advisory Board Process
11.202 (2002-12-13) The
Contract Dispute Advisory Board (CDAB) process is designed to provide
for the prompt resolution of disputes arising from architectural
and engineering, construction, building maintenance and leasing
contracts. The process provides a simplified, non-binding arbitration
dispute resolution process for contractors which involves the selection
of a private sector arbitrator by both parties. Following a Board
Hearing, the arbitrator submits a recommendation for the Minister's
final decision. Given that the Minister's decision is not binding
on the Claimant, its rights at law are not compromised. Further
details on the CDAB Process are set forth in 11.218.
Advice, Assistance and Training
11.203 (13/12/02) Upon request,
CCRB's staff will provide advice and assistance concerning any
of the matters falling within the purview of CCRB to all persons
seeking it, and is available to provide brief information and training
sessions on the claims process. The expertise associated with lessons
learned derived from previous cases may provide useful information
to assist in the resolution of disputes.
Contract Settlement Board Procedures
11.204 (2002-12-13) When
any dispute arising from goods and services cannot be resolved
through negotiation, the contractor should be advised in writing
to submit a formal statement and documentation of claim to the
Director, CCRB. The proposed letter to the contractor should be
referred to CCRB for approval.
Without this step, unresolved disputes can only be resolved
through formal legal action. The CCRB process exists to resolve
matters without that potentially lengthy and expensive process.
11.205 (2002-12-13) The
contractor may submit a claim at any time during or after the contract.
Normally a claim should not be submitted to CCRB until the contract
has been completed, since in most cases an audit of the total contract
will be required. The extend and nature of the Board's review process
is at the discretion of CCRB.
11.206 (2002-12-13) CCRB
will inform the contractor of the receipt of the claim and that
the sector/region has been requested to prepare the Crown's submission.
The sector/region is also notified to arrange preparation of a
submission to CCRB.
11.207 (2002-12-13) The
submission, to be signed at the director level, must include a
recommended settlement as well as confirmation that funds are available
for settlement under the encumbrance.
11.208 (2002-12-13) The
Chairperson, CSB, will advise the contractor in writing of the
date of receipt of the submission from the sector/region, and will,
if necessary, arrange a meeting of the participants.
11.209 (2002-12-13) Depending
on the complexity of the dispute, the contractor will be given
the opportunity to appear in person, or to have selected company
officials appear, and can be represented by legal counsel. The
same opportunity will also be afforded to PWGSC and the client
in relation to data or presentation against, or in support of,
the contractor's claim.
11.210 (2002-12-13) The
Chairperson, CSB, is responsible for ensuring that all participants,
at any Board meeting, are fully aware of the role and responsibilities
of the CSB, and the manner in which the proceedings will be conducted.
The Chairperson will also determine the time necessary to permit
a full and detailed discussion of the claim.
All copies of submissions to CSB, assemblies of data, memoranda
and working papers of CSB, are for the sole use of the Members
of CSB, the Director General, Audit and Ethics Branch (AEB),
the Deputy Minister and the Minister of PWGSC.
11.211 (2002-12-13) Normally,
full Board meetings are only convened to review complex claims
in excess of $100,000. Such meetings would be attended by the Chairperson,
CSB, one or more private sector consultants, an independent representative
from the project authority, as well as the Board's legal advisor.
For claims at $100,000 or less, the review of the contractor's
claim will normally be conducted less formally and without incurring
the expense of engaging any private sector consultants.
11.212 (2002-12-13) When
deliberations are complete, the final conclusions and recommendations
for settlement will be recorded in the Minutes of Proceedings.
11.213 (2002-12-13) When
the Chairperson, CSB, concludes that a settlement offer is to be
made, CSB will officially advise the contractor of the recommended
amount of settlement and will seek to obtain the contractor's written
acceptance. A copy of CSB's letter of offer to the contractor will
be sent to the client and the sector/region for information.
11.214 (2002-12-13) If the
settlement amount exceeds departmental approval authorities, the
contractor will be advised that the settlement is subject to the
approval of Treasury Board (TB). The contracting officer will prepare
the necessary TB submission, and send it to the CCRB for submission
11.215 (2002-12-13) When
the recommended payment has received all necessary approvals, CSB
prepare, in collaboration with Legal Services, a settlement and
release agreement which must contain an acceptance and release
clause approved by Legal Services.
11.216 (2002-12-13) Copies
of the settlement and release agreement must be distributed to
all interested parties.
Non-acceptance of Settlement
11.217 (2002-12-13) If a
CSB ruling is not acceptable to the contractor, the contractor
may institute legal proceedings against the Crown.
Contract Dispute Advisory Board (CDAB) Procedures
11.218 (2002-12-13) When
any dispute arising from architectural and engineering, construction,
building maintenance and leasing contracts cannot be resolved through
negotiation, the contractor/consultant may request the Minister,
in writing, to set up a CDAB. The Minister's Office will forward
such a request to Contract Claims Resolution Board (CCRB).
11.219 (2005-06-10) If
no final departmental position has been reached, the Region is
to advise, within three working days, what specific actions are
underway to attempt to reach a settlement by negotiation. This
Region must also document the nature of the claim and supply a
copy of it to the Director, CCRB, and the Assistant Deputy Minister,
Real Property Branch (ADM/RPB).
11.220 (2005-06-10) If
the negotiation process appears to be unduly protracted, the Director,
CCRB, will write to the ADM/RPB requesting direction. The memo
will attach a copy of the claim, summarize the regional position
and recommend a course of action. A legal opinion or other advise
may be included, as necessary.
11.221 (2005-06-10) If
the negotiation process has reached an impasse, the Director, CCRB,
will obtain the agreement of the ADM/RPB and will prepare a letter
for the Minister's signature offering the CDAB process. Copies
of the letter will explain that the CDAB process is non-binding
and is without prejudice to the rights of either party. The Minister's
letter will enclose an agreement containing the terms and conditions
for its initiation. The agreement must be accepted ands signed
by the contractor/consultant before a hearing will be scheduled.
11.222 (2005-06-10) Once
the CDAB process has been agreed to, the Director, CCRB, will:
- Obtain the names of at least three arbitrators to act as Chairpersons
from a recognized provincial Institute of Arbitrators, and forward
these names to the Region and the Contractor/Consultant who will
rank the proposed Chairpersons in order of their choice and will
advise CCRB accordingly. CCRB will engage the highest ranking
individual by combining the choices from both parties.
- Establish the time frame for the CDAB process through dialogue
with the Region, Contractor/Consultant and the Chairperson. With
regard to the time frame for the hearing itself, three days are
normally allotted with the claim being presented on the first
day, and responded to on the second day. On the third day, the
panel concludes its review of the facts as presented by the parties.
- Obtain the Regional Director's response to the claim and forward
copies of the claim together with the Region's response to the
- Arrange to have the CDAB session monitored to ensure that the
intent of the process is met and ensure that no new items of
claim are introduced during the hearings.
- Ensure that the Chairperson's report is promptly distributed
to both parties
- Prepare a briefing note and draft a letter of decision for
the Minister's signature for sign off by the ADM/RPB and the
Director General, Audit and Ethics Branch.
- Brief the Contractor/Consultant. If requested, concerning the
basis of the Minister's decision.
- If the Minister's decision involves a settlement amount, the
CCRB will arrange for a settlement and release document to be
prepared and will ensure that the settlement payment is made
in a timely manner.
Non-acceptance of Settlement
11.223 (2002-12-13) If a
CCRB ruling is not acceptable to the contractor, the contractor
may institute legal proceedings against the Crown.
Removal from Source List
11.225 (2002-12-13) Names
of suppliers are to be removed from source lists in the following
- when the supplier requests removal;
- in the event of bankruptcy or business failure;
- in the event of permanent shutdown;
- when fire or other disasters render the enterprise inoperable
for an extended period;
- when the supplier refuses to provide information necessary
to confirm its listing(s);
- when there is non-compliance with PWGSC policies or programs.
Strikes or lockouts normally do not constitute reason for removal.
11.226 (2004-05-14) Contracting
officers may normally remove a supplier's name from the source
lists. The supplier must be informed of this in writing.
Removal for non-compliance must have the director's approval and
the letter notifying the supplier must be signed by the director
general. Copies of the letter must be sent to the Deputy Minister,
Assistant Deputy Minister, Acquisitions Branch, and Acquisition
Policy and Process Directorate (APPD) .
If a supplier is removed for non-compliance, its inclusion on
other similar lists should be reviewed by the sectors/regions responsible
for the other lists. APPD will advise the sectors/regions of affected
11.227 (2002-12-13) Evidence
provided by a supplier that the circumstances leading to the deletion
have been rectified must be considered to determine whether the
removal action should be rescinded.
Return of Special Test Equipment and Special Production Tooling
11.240 (2003-05-30) Contractors
are required to provide Department of National Defence Director,
Disposal, Sales, Artifacts and Loans (DND/DDSAL) with at least
sixty (60) days written notice prior to the date when the production
assets will no longer be required. The notice should identify the
contract or loan agreement serial number under which the production
assets were held, location of the equipment, a brief but adequate
description of the surplus production assets and the total estimated
value, if applicable. (See 6B.188.)
A decision to retain production assets for future use should be
supported by a cost/benefit analysis which provides an estimate
of the storage and transportation costs involved, the duration
of the storage, the refurbishing/modification costs that may be
required to re-activate the assets, including installation/set-up
charges, if applicable, and the remaining operational use or life
of the equipment.
DND/DDSAL will advise the contractor on the most appropriate method
of retention and storage of the assets. DND/DDSAL will arrange
for the transfer of production assets to another contractor, or
a storage facility or will prepare the appropriate documentation,
declaring the items surplus, and forward it to Crown Assets Distribution
Return of Department of National Defence (DND) Loaned Materiel
11.241 (2003-05-30) Returns are to be made:
- when the materiel is no longer required;
- when repairs are beyond the contractor's capability;
- when recalled by DND/DDSAL;
- on completion of the contract.
11.242 (2003-05-30) The
contractor is required to return the materiel, as directed by DND/DDSAL,
and shall request from DND/DDSAL, in writing, instructions for
the disposition of the items to be returned. The request should
include a description of the items, identification or NATO stock
number, their condition, and the Loan Agreement number.
11.243 (2003-05-30) DND/DDSAL
will issue disposition instructions and inform all concerned. The
contractor shall arrange for the return of the items as directed
and confirm action by returning a signed copy of the "Notice to
Ship" to DND/DDSAL.
11.244 (2003-05-30) Inspection
on issue and return of DND loaned materiel will be carried out
by the local Canadian Forces Quality Assurance Representative at
11.245 (2003-05-30) The
Contractor shall report lost, damaged or destroyed DND loaned materiel,
in writing, to DND/DDSAL which is responsible for coming to a resolution
with the contractor.
11.265 (2005-06-10) The
total time charged under a fixed rate contract shall be verified
for acceptability and accuracy of recording before the final claim
is processed for payment. The findings of such verifications will
be noted on the contract file.
Verification of time for acceptability should be carried out
by the contracting officer or other qualified personnel designated
by the sector/region concerned.
Verification of time for accuracy of recording should be carried
out by qualified personnel from the financial division or section
in the directorate concerned or other suitably qualified personnel
with the prior approval of the Director, Cost and Forensic Accounting
Directorate, who is also responsible for setting the standards
of verification for the accuracy of recording.
Submissions Standards for Cost Reimbursable Contracts
11.280 (1994-06-23) The
contractor will be paid, in accordance with the contract, the cost
reasonably and properly incurred in the performance of the work.
Upon completion of the work on all cost reimbursable contracts
meeting the cost threshold, a certification by the contracting
officer that the final amount paid represents a reasonable price
shall be placed on the contract file. This certification shall
be based on the findings of either a formal or an informal audit.
The audit provision in contracts valued over $50,000 with Canadian
suppliers allows for the determination of the actual costs incurred,
to determine the final contract cost of cost reimbursable contracts
and the reasonableness of the price.
11.281 (1994-06-23) All
cost reimbursable contracts require a cost submission upon the
completion of the contract. All multi-year cost reimbursable contracts,
except for Repair and Overhaul (R&O) services, will include
a provision for an annual cost submission as a mandatory deliverable
For R&O service contracts, this is up to the discretion
of the contracting officer and the audit agency.
11.282 (2005-06-10) The
selection of cost reimbursable contracts for formal audit will
be made by Contract Audit Group (CAG), within Acquisition Program
Integrity Secretariat, in accordance with the following:
- all contracts associated with Major Crown Projects (MCP's);
- those contracts placed with contractors considered to be priority
as determined by CAG.
In addition, contracting officers may request a formal audit on
an ad hoc basis.
11.283 (2005-06-10) Sectors/regions
will supply to CAG, for those contracts selected for formal audit,
a copy of the contract document together with copies of all cost
11.284 (2005-06-10) A copy
of the audit report will be forwarded to the contracting officer,
along with an audit notification form prepared by CAG detailing
overpayments and/or comments requiring approval.
11.285 (2005-06-10) The
contracting officer will establish a final price with the contractor
based on the audit findings. Every effort will be made to do this
within ninety (90) days of the audit report being received. CAG
will be notified by the contracting officer of the terms of the
settlement and resolution of all audit issues raised in the contract
11.286 (1994-06-23) When
the final price has been agreed with the contractor, the contracting
officer will prepare the final price certification.
11.287 (1994-06-23) Informal
audits will be carried out by the contracting officer, with the
assistance of a cost analyst, as soon as possible after the work
is complete and the final cost submission received.
When, as a result of the informal audit, a final price is agreed
to by the contractor, the contracting officer will prepare the
final price certification.
11.288 (2005-06-10) CAG
has a random sample audit program to select contracts for formal
audit. These audits will be carried out by Consulting and Audit
Canada. The findings of these audits, which are a form of
quality assurance, will be sent to the appropriate sector/region.
Release of Contract Financial Security
11.295 (1994-06-23) Surety
bonds, according to their terms, automatically expire when the
contractor has fulfilled all obligations under the contract. When
the contract has been completed, surety bonds shall be destroyed.
11.296 (2005-06-10) Where
a contract, in respect of which a security deposit (government
guaranteed bonds, bills of exchange, irrevocable standby letters
of credit) was given, has been completed or terminated through
no fault of the contractor, the security deposit shall be returned
to the contractor. The contracting officer is to instruct the Finance,
Accounting, Banking and Compensation Branch to requisition a cheque
for the amount of a bill of exchange plus accumulated interest,
or to request that branch to arrange the release of bonds, letters
of credit and other negotiable instruments deposited.
Financial Claims by the Crown
11.300 (1994-06-23) There
are two general categories of claims by the Crown, as a result
of contracting activities:
- legal disputes, e.g. termination for default, bankruptcy, (only
when the amount owing is actually known and final); and
- overpayments/overclaims, e.g. as may occur when reported as
a result of audit.
Either instance can only be determined when a contract has
11.301 (2002-12-13) Where
monies may be owing to the Crown as a result of contracting activity,
sectors/regions are to determine the liability and amount owing,
with assistance as necessary from Legal Services.
There are special procedures to be followed whenever there are
suggestions of unreasonably high profits from any contract placed
pursuant to the Defence Production Act or from any contract other
than competitive firm price. The procedures, which are in Annex
11.2, also deal with situations where a contractor wishes to
return excess profits; for refunds from subcontractors; or where
a settlement from the contractor is to be financed partly from
the proceeds of its income tax refund.
The contracting officer is to liaise with the supplier to get
concurrence of the final amount that is owing. Once that amount
has been established, the contracting officer, following TB policy,
must formally advise the client to establish an accounts receivable.
The client must advise PWGSC that this has been done, and take
11.302 (2005-06-11) Many
organizations have roles to play relating to these claims by the
- The contracting officer is responsible for reviewing the acceptability
of contractor claimed amounts, responding to audit observations
as required, liaising with the client as to concurrence on the
final amount, and advising Contract Audit Group (CAG) of all
- Consulting and Audit Canada (CAC) provides audit reports on
- Legal Services is responsible for:
- identifying the changes in the legal relationship between
the Crown and the contractor resulting from claims by the
Crown, and the consequences in terms of risk and liability
being assumed by the Crown as a result of claims against
- informing the contractor, when requested by the contracting
authority, of the Crown claim, by way of a formal legal demand;
- initiating legal action against the contractor.
- Industry Canada, for Technology Partnerships Canada, is
- following up on the disposition of all audit qualifications
and/or observations raised by CAC, except for audit issues
involving interpretation of the Contract Cost Principles
which are a PWGSC responsibility; and
- resolving issues and disputes in the case of joint Canadian
Commercial Corporation and Industry Canada agreements.
Receipt and Deposit of Monies
11.350 (2005-06-11) When
contracting officers receive monies directly from contractors with
respect to a particular claim by the Crown, these monies must be
sent, in compliance with Treasury Board Chapter 3.3, Policy on
Deposits, to the departmental accounting unit as soon as possible.
The monies must be accompanied by a memorandum, with copies to
the client and CAG. The memorandum must include:
- a brief description explaining why monies are being remitted;
- the name of the client;
- the PWGSC file/contract serial number;
- the name and telephone number of the contracting officer.
In the National Capital Area, the monies are sent to:
- Finance, Accounting, Banking and CompensationBranch
Public Works and Government Services Canada
Portage III, 12B1
Gatineau, Quebec K1A 0S5
Outside the National Capital Area, the recipient is the appropriate
PWGSC regional director's office.
Vendor Performance Policy
11.450 (1997-03-31) The
goal of the Vendor Performance Policy (VPP) is to improve client
service, by preventing problems with vendors from arising. While
it is never possible to ensure that there is no poor performance,
we can improve suppliers' performance by instituting the appropriate
measures in the event of non-performance.
11.460 (1997-03-31) Public
Works and Government Services Canada (PWGSC) has the authority
and the duty to take reasonable measures to ensure that it can
rely on its contractors to perform their obligations. The Department,
within the framework of its policy that procurement be open, accessible
and fair, has the same right as other purchasers in the market
to assess a vendor's performance, and may take action to prevent
future problems, based on the vendor's past performance. The discretion
to take such action must be exercised in a fair and reasonable
manner within the policy. Any measure taken must rationally relate
to the nature and severity of the problem for which it is applied.
11.470 (1997-03-31) Poor
performance: means anything less than full performance
of a contract by a vendor.
While even minor instances of poor performance may be noted,
action would normally only be taken against a vendor as the result
of a major instance of poor performance on a contract, or a cumulative
record of poor performance.
vendor: includes subcontractors, owners, directors,
officers, employees, agents, parent corporation or subsidiary of
a vendor, which may be responsible for a vendor's poor performance.
While persons other than a contractor may be treated as "vendors" under
the Policy, action against them can only be taken where they
have been notified of the poor performance and of any proposed
measures and given the same opportunity to respond that a contractor
Vendor Performance Corrective Measure (VPCM):
means a condition or limitation placed on a vendor's ability to
contract with (PWGSC on the basis of PWGSC's assessment of their
reliability. A VPCM can be applied to a vendor overall or only
in respect of certain products or services. There are three types:
- Debarment is the refusal by PWGSC to do business
with a vendor for a specified period, which may be expressed
in terms of a number of relevant procurements, and is generally
not to exceed three (3) years;
- Suspension is the refusal by PWGSC to do business
with a vendor pending the outcome of an investigation into serious
or multiple instances of poor performance, or until the vendor
meets conditions set for re instatement, such as remedying a
- Conditions can be imposed on vendors seeking
to do business with PWGSC, for a specified period, which may
be expressed in terms of a number of relevant procurements, and
is generally not to exceed three (3) years, or until the vendor
meets conditions set for re-instatement, such as remedying a
As part of a VPCM, the vendor may also be subject to probation
when the Measure ends. In such a case, if further instances
of poor performance occur, the VPCM may be extended, or another
11.480 (1997-03-31) Contracting
officers must enforce the terms of contracts wherever possible
and appropriate. The same incident may support both enforcement
of the remedies available under the contract and a VPCM. The contracting
officer will document events that may be instances of poor vendor
performance in the contract file.
Where the terms of the contract are enforced by notice to the
contractor of its poor performance, but no further action is taken,
this must be noted in the contract and vendor files, together with
the facts which justify it. That the contracting officer intends
to commence an action to impose a VPCM on the vendor is not a reason
to decline to enforce the contract.
The approval of the relevant Director is required for noting an
instance of poor performance on the vendor file for the vendor
on the Vendor Information Management (VIM) system. A notation of
poor performance on VIM will include the contract number, the subject
of the contract, the nature of the poor performance, any remedial
action taken by the vendor, its effects and the status or disposition
of the problem.
The vendor must be informed of each instance of poor performance
by the relevant Director and will have ten days to respond before
the notation will appear on VIM.
A vendor, which may be someone other than the contractor, who
is responsible for the contractor's failure to fulfil the contract,
must be notified each time a poor performance notation is made
on VIM, and be informed that PWGSC will take past performance into
account in its future dealings with vendors.
A vendor may respond to notification of the Director's intention
to have an instance of poor performance noted on VIM. The Director
will consider the input of the vendor in deciding whether to enter
Outstanding performance of a vendor should also be noted, as it
may be useful in making an overall assessment of a contractor's
performance in the event corrective measures are required.
A performance notation will generally remain on VIM for seven
(7) years. After that time, a vendor may request that it be removed.
Performance, good or bad, more than seven (7) years in the past
will not ordinarily be relevant to a decision whether to impose
a corrective measure.
Since the VPP limits itself to consideration of poor performance,
being failure to fulfil a contract, contracting officers should
make sure that their contracts cover all aspects of performance
which they would want to consider in evaluating the vendor's performance
on the contract.
Investigation for Vendor Performance Corrective Measures (VPCM)
11.490 (1997-03-31) Formal
corrective measures should be considered where there is evidence
that continued contracting with a vendor may pose a greater risk
to the Crown than is acceptable. This may be as the result of a
major instance of poor performance on a contract, or a cumulative
record of poor performance. Sectors and regions may also set general
or commodity-based standards, as the basis for consideration of
VPCM (see 11.560).
In investigating whether corrective measures should be applied,
the Sector or Region will:
- ensure a full review of contract file(s), and the record of
the vendor in general;
- notify all other sectors or regions and consult those which
have a particular interest in the matter;
- consult clients which have a particular interest in the matter,
either as major purchasers of the vendor's product or as the
initiator of the complaint; and,
- consult Legal Services, as to what evidence should be sought,
and what process should be used, to ensure fairness in light
of all the circumstances.
All components of an investigation and subsequent decision must
be fully documented, with the disposition being noted on the vendor
file in VIM.
Decision on Application of Vendor Performance Corrective Measures
11.500 (1997-03-31) A decision
to apply VPCM should be made where, on the basis of the vendor's
performance history, a prudent person acting on their own behalf
would not continue to deal with the vendor, or would not continue
to deal with the vendor without special conditions being attached.
A VPCM may take one of the following forms:
- Debarment is the refusal by PWGSC to do business
with a vendor for a specified period, which may be expressed
in terms of a number of relevant procurements. Debarment would
be used for problems of a criminal nature, or where there is
poor performance which demonstrates a lack of good faith effort
on the part of the contractor to perform its various obligations.
Since the vendor has demonstrated a lack of good faith effort,
it would not be realistic to allow reinstatement on the satisfaction
of some requirement. Debarment would not generally be for a period
exceeding three (3) years.
- Suspension is the refusal by PWGSC to do business
with a vendor pending the outcome of an investigation into serious
or multiple instances of poor performance, or until the vendor
meets conditions set for reinstatement, such as remedying a problem.
Suspension would be imposed where doing business with a vendor
before an investigation is complete or before the vendor has
made changes would pose too great a risk that the vendor would
not carry out its obligations under future contracts.
- Conditions can be imposed on vendors seeking
to do business with PWGSC. Conditions would be used in the case
of problems which could be prevented by a less onerous means
than a refusal to do business. Conditions would not generally
be applied for a period exceeding three (3) years.
When investigating to determine if a VPCM should be imposed, consideration
must be given to the extent to which the VPCM will apply to the
various elements of a vendor's organization and to related organizations.
As the objective of this Policy is to prevent problems with vendors
from arising, the breadth of the VPCM will depend on the nature
and source of the poor performance for which the VPCM is being
- Examples: (1) Where the source of the poor performance
is dishonesty within the highest management of a vendor, then
imposing the VPCM on the vendor as a whole would likely be
appropriate. (2) Where the poor performance relates to problems
with product quality in one of the vendor's several product
lines, where there is no element of wilful failure to produce
a suitable product, this would likely be more appropriately
dealt with by a VPCM limited to the product line with which
problems have been experienced. (3) Where the poor performance
was the result of safety problems that were the result of policy
set for the subsidiary vendor by its parent corporation, it
may be appropriate, provided proper notice has been given,
to apply a VPCM to the parent corporation and all its subsidiaries
with which similar safety issues might arise. These examples
are provided solely for illustration. Actual cases will depend
on their particular situations.
When, on the basis of the investigation, a Director General believes
that one of these measures should be applied, the Sector or Region
will notify the vendor of the VPCM proposed together with the reasons
for it, and give the vendor a reasonable opportunity (including
a reasonable period of time) to respond.
What constitutes a "reasonable opportunity" will vary with the
circumstances, and could range from an exchange of correspondence,
to formal consultations. A vendor will be given access to documents
relevant to its performance on the same basis as these would be
available in a contract dispute. In determining whether to provide
a particular document to the vendor, it should be borne in mind
that if absence of that document means the vendor is not in a position
to address the allegations made against it, this may allow successful
court challenge of a subsequent decision to impose a VPCM.
The notice to the Vendor will include, in addition to the type
- a list of the instances of poor performance which form the
basis for the proposed VPCM sufficient to identify them;
- the reasons why the vendor's performance record merits the
- whether the VPCM will be across the board (that is, affecting
all aspects of the vendor's operations) or limited by product,
division, geographic division, type of contract (such as urgent
delivery requirement) or some other factor;
- when and how the VPCM will end;
- whether the vendor will be subject to a formal period of probation
following the end of the VPCM, and who will determine if the
probation has been breached;
- in the case of a VPCM that can end when the vendor satisfies
conditions, who will decide if the conditions have been satisfied.
If, after considering the vendor's response, the Director General
still believes the proposed VPCM, or some less severe measure,
should be applied, that measure will be applied. If it is intended,
after reviewing the vendor's response, to apply a more severe measure
than originally proposed, the vendor must be notified, and given
a reasonable opportunity to respond to that change.
The decision to apply a VPCM will include, in addition to the
type of measure:
- the procurements for which the vendor is ineligible to bid
or contract, that is, whether the VPCM will be across-the-board
(affecting all aspects of the vendor's operations), or limited
by product, division, geographic division, type of contract (such
as urgent delivery requirement) or some other factor;
- when and how the VPCM will end;
- whether the vendor will be subject to a formal period of probation
following the end of the VPCM, and who will determine if the
probation has been breached;
- in the case of a VPCM that can end when the vendor satisfies
conditions, who will decide if the conditions have been satisfied.
11.510 (2004-05-14) Except
where there is an approved Sector Program (see 11.560),
the Assistant Deputy Minister, Acquisitions Branch (ADM/AB) will
review all decisions to apply a VPCM, and any additional representations
made by the vendor, and may decide to vary the decision. If the
ADM/AB intends to apply a more severe VPCM, the vendor must be
notified, and given a reasonable opportunity to respond to that
11.520 (2004-05-14) When
a VPCM is applied, the ADM/AB (or appropriate Director General,
where there is a Sector Program) will inform the vendor of the
decision. All sectors and regions, and clients which have a particular
interest in the matter, will also be informed.
The fact that a vendor is subject to a measure under the VPP will
be published on the Government Electronic Tendering Service and
in the Government Business Opportunities, together with the particulars
of the measure, but not the reasons. This notice will continue
to be published while the measure is in effect.
A debarment or suspension renders a vendor ineligible to bid on
or receive contracts related to certain types of procurements.
Where a vendor is subject to conditions and the vendor does not
meet those conditions for a particular procurement, the vendor
A debarred or suspended vendor will be removed from relevant source
lists, automated vendor rotation systems, and standing offers.
Bids received from vendors debarred or suspended from doing any
business with PWGSC will not be considered for evaluation. Bids
from vendors who are debarred or suspended in part will not be
considered for evaluation, if the bids pertain to procurements
from which the vendor has been debarred or suspended. Where a vendor
is subject to special conditions, any bid from that vendor which
does not conform to the conditions will not be considered for evaluation.
A VPCM does not affect existing contracts, though it does affect
amendments. If a current VPCM imposed on a vendor would have been
relevant to the award of the contract had the VPCM been in effect
at the time, or is relevant to the subject matter of the amendment,
then the amendment requires the approval of the relevant Director
General as an exception to the VPCM.
Information on a VPCM will only be entered into VIM by Policy,
Risk, Integrity and Strategic Management Sector (PRISMS), which
will be responsible for maintenance of the information (including
removal of notice where a VPCM has ended). This information will
be accessible to anyone who has access to Automated Buyer Environment
When a Measure ends, the Sector or Region that initiated it is
responsible for promptly notifying the vendor.
Role of the Contracting Officer
11.530 (2004-05-14) The
contracting officer must ascertain whether a bidder, or a vendor
being considered for a sole source contract, is subject to any
VPCM, and for determining if that measure affects the procurement
the contracting officer is working on.
When accessing the VIM file on a vendor, the contracting officer
will have a clear notice of any VPCM. ABE will not interfere with
the issuing of a contract to a vendor subject to a VPCM. As the
VPCM details area is limited to about 250 characters, additional
information may be contained on VPCM type comments, which should
also be consulted.
Suspensions in Cases of Urgency
11.540 (2004-05-14) Where
a problem with a vendor is particularly serious (e.g., involving
negligence or wilful misconduct, or carrying health or safety implications),
the ADM/AB may apply an immediate suspension on the advice of a
Director General, prior to a complete investigation. The suspension
will remain in effect until measures have been taken to remove
any unacceptable risk to the Crown or public. The vendor will immediately
be notified, and given the same opportunity to respond as in a
normal VPCM action.
11.550 (1997-03-31) In cases
of emergency, or great urgency in a procurement, an exception may
be made to a VPCM, by a Director General. In such cases, special
care must be taken to protect the Crown. Where an exception is
made, the reason must be recorded on the contract file and the
vendor file. The fact that a vendor subject to a VPCM is low bidder
is not enough reason to make an exception.
11.560 (2004-05-14) A Sector
or Region may establish a program for evaluating vendor performance
and determining appropriate VPCM to apply within that Sector or
Region. Where such a program has the approval of the ADM/AB, it
is not necessary that the ADM/AB review each case. The decision
can be made by the persons delegated that authority under the program.
The performance standards and the VPCM to be applied must be established
on a commodity basis, and other areas of the department which may
be affected by the proposed Program must be consulted. This is
to prevent differing standards for the same commodities, in different
sectors or regions. Once established, a program is administered
by the Sector or Region, in accordance with the provisions of this
Use of Vendor Performance Clause
Authority to Reject a Bid
11.570 (1997-03-31) Authority
to reject a bid under the Vendor Performance clause A9100T rests
with the officer responsible for evaluating bids; except that in
the case of bids being considered for rejection pursuant to 1(d)(2);
1(d)(3); or 1(d)(4) the authority to reject a bid rests with the
appropriate Director General.
Notice to the Bidder
11.580 (1997-03-31) Notice
of intent to reject a bid pursuant to this clause will be given
by telephone, and followed by confirming facsimile or letter, except
that a bidder excluded under 1(b) will not be notified. The call
must be made to an employee of the bidder, with clear and directly
related management responsibilities. Notice is considered to have
been received by the rejected supplier at the time of the telephone
call. The person making the call must note on the file the date
and time of the call, and the person spoken to.
Contents of the Notice
11.590 (1997-03-31) The
notice must set out the facts and the reasons for the decision
to reject the bid. For example: Where a supplier with a record
of persistent lateness, but as yet not subject to a VPCM is excluded
from a procurement where timeliness is critical, the notice would
cite the contracts on which the supplier was late (facts) and state
that this record shows an unacceptable risk in light of the critical
nature of the time requirement in the present procurement (reason).
Where a bid is being rejected under 1(c), it is sufficient to
cite the VPCM.
11.600 (2004-05-14) A bidder,
except a bidder excluded under 1(b), may have the decision to reject
reviewed by the Assistant Deputy Minister, Acquisitions Branch
(ADM/AB). It is entirely in the ADM/AB's discretion, whether the
bid evaluation and contract award process will be held up, to give
time to review the decision.
A review by the ADM/AB will result in an investigation, and a
decision. Such a decision can have effect beyond the particular
procurement from which the supplier has been rejected. When the
decision has been made, the bidder will be informed of the results,
Annex 11.1: Preparation of a Contract Amendment Request
Contract Amendment Requests can be presented for Deputy Minister/Minister's
approval in either French or English; however, Treasury Board (TB)
submissions must be in bilingual side-by-side format.
Part 1 - Submission Data
Contract Amendment Request - form PWGSC-TPSGC 1151-1
The key elements that the contracting officer needs to know from
a Contract Amendment Request are:
- the purpose of the amendment; and
- the amendment cost.
The preparation of Part 1 should focus on these general key elements.
The following sections provide additional considerations that should
be brought to the contracting officer's attention when applicable.
- Authority to Amend Contract
Form PWGSC-TPSGC 1151-1 can be used to obtain approval to
utilize a standing offer that has been revised by the supplier.
- State the purpose of the proposed amendment and briefly describe
the goods or services as provided in the original Contract Request
(e.g. to amend the contract with ABC for the supply of 20 additional
widgets). Include, in the case of goods or services being added,
the prices, sales tax position, delivery points, etc.
- Identify any differences between funds previously authorized
and contract commitments.
- If a large number of items are involved, state: "Unit (and/or
Lot) prices totalling $ ____________, sales tax ____________,
F0B ______________, as detailed in the attached appendix or in
an appendix attached to the proposed amendment."
- If the proposed amendment involves any deviations from Cabinet
or TB contracting policies not included in the original approval,
describe the deviations fully.
Additional Costs (or Reduction in Cost)
- Show total cost of the proposed amendment in Canadian dollars
or foreign currency, as applicable. If using foreign currency,
give the equivalent in Canadian currency.
- Show the proposed amended estimated cost of the contract. If
the previously authorized total contains an amount for specific
future work or foreseen yet unscheduled work (such as design
changes or work arisings), always include this amount in the
total estimated cost. If not, authority for the amount set aside
- Also, provide the name of the client involved, cash flow, etc.,
as explained in Annex 7.7,
Preparation of a Contract Request, under the Cost section.
- Provide a brief description of previous amendments and their
- Give any other important information required for a proper
assessment of the proposed amendment. For example, if the proposed
amendment is for a substantial increase, state why this additional
requirement did not form part of the original requirement. Refer
to the Remarks section in Annex 7.7 for a guide to the information
which should be provided, if applicable.
- When a Contract Amendment Request requires a higher approval
level than originally authorized in the contract, detail the
basis for the selection of the contractor and the Basis of Payment.
It is not necessary to repeat in Part 1 the present Basis of
Payment if it was previously approved at a higher level or by
the contracting authority being approached now for approval of
- If any alteration in the Basis of Payment is proposed, provide
justification and support.
- If a difference exists between funds authorized and contractual
commitments, explain why.
- If items are being added or when establishing a firm Basis
of Payment for a contract previously issued on a price-to-be-negotiated
basis, provide price support.
- Show the original authority for entry into the contract and
the authority for each approved amendment. When TB authority
has been obtained, give the TB number and date and when the Minister's
approval has been obtained, state "ministerial authority." In
all other cases, state "departmental authority." Do not show
amounts in Part 1.
Part 2 - Supporting Data
Contract Amendment Request - form PWGSC-TPSGC 1151-4
This part is to be completed to provide all of the supporting
information requested on the form. It consists of two pages and
both pages must be completed. In particular, note the following:
Section A - Physical Progress to Date
- In this section summarize the progress of the contract, such
as quantities already delivered and the percentage completed;
work in process or completed; advance or progress payments made
or any other preliminary expenses; other matters of a similar
Section B - Authorities for and Status of Contract plus Amount
of Proposed Amendment
- Give specific authorities and authorized amounts under the "Authority
and Amount" column for the contract and each amendment (i.e.,
TB, Minister, Deputy Minister, Director General, Director, etc.).
Any differences between authorities (approvals) and commitments
should be reconciled in Section B. Also, if the amount of the
proposed amendment exceeds the funds available, it should be
noted in this section. (Refer to Annex
7.7, Section A, Details of Contract Demand or Requisition.)
Section C - Basis and Method of Payment as Last Amended
- Describe briefly the Basis and Method of Payment as Last Amended
(including sales tax position, delivery terms [e.g. F0B], advance
and progress payments) unless it is proposed to amend the Basis
or Method of Payment. In this case give a detailed description
of the present Basis and Method of Payment for any portion of
the work for which a new Basis or Method of Payment is being
Section D - Basis of Recommendation
D1. Support price and changes in terms or method
- Detail all price support for any items being added or when
establishing a firm Basis of Payment for a contract previously
issued on a price-to-be-negotiated basis.
D2. Explain any discrepancies between (A) the
amount approved for the contract and amendments (if any) and (B)
the total committed.
Note: If numerous items and unit prices have not been detailed
in Part 1 of form PWGSC-TPSGC 1151-1, or in an appendix to Part
1, make reference in Section D to the specific document of the
file which details the information.
Annex 11.2: Refunds by Contractors of Excess Profits Earned on
11A.1 All intimations from any source of unreasonably
high profits realized from any contract placed pursuant to the Defence
Production Act or from any contract other than competitive
firm price awarded pursuant to the Department of Supply and
Services Act and the Department of Public Works and Government
Services Act should be reviewed in consultation with the Director,
Acquisition Program Integrity Secretariat (APIS).
11A.2 Negotiated Refunds
- Normally the first step in negotiating a refund is for the
contracting officer and APIS to review the evidence available
and decide whether the profits realized by the contractor can
be recommended for acceptance or are in excess of what is considered
to be fair and reasonable. In the event that the evidence is
incomplete or inconclusive, consideration is to be given as to
whether the contractor will be approached for a statement of
its position or whether a request will be forwarded to Consulting
and Audit Canada for additional verification. When all the evidence
necessary is assembled, a final review will be made to determine
what, if any, amount is to be refunded and the method of payment.
- In an attempt to ensure that suppliers are being treated consistently
throughout the Department, Contract Audit Group (CAG) will distribute
to the Contract Audit Review Committee's members, a contracting
officer's proposed action plan in respect to a contractor's excess
profit identified through audit. Any comments or concerns with
the action plan should be communicated to CAG within (10) working
days. CAG will consolidate the input and forward it to the lead
contracting authority for consideration.
- In some cases it will be in order to recover excess profits
by deduction from current claims or a part recovery may be effected
through an assignment of income tax refunds. Ordinarily, however,
the contractor will be expected to remit the full amount by cheque.
If it appears that this action will create an unreasonable hardship,
extended terms of payment may be considered.
- The agreed amount to be refunded and the terms of settlement
will be set out in a letter to the contractor approved by Legal
Services and signed by the responsible officer of the sector/region.
Copies of this letter are to be sent to the Director, APIS.
- After settlement is completed, it may be desirable to release
the Contractor from further obligation by detailing, in a formal
agreement, the contracts to which the settlement relates. This
agreement should be drafted by Legal Services.
- Cheques forwarded by the contractor should be made payable
to the Receiver General and mailed to the contracting officer.
The contracting officer will pass them to CAG who will forward
them to the Chief Financial Officer of the client.
11A.3 Voluntary Refunds
- Where a contracting officer receives notice from a contractor
that it desires to return excess profits, or if a contractor
voluntarily forwards a cheque in refund of such profits, the
contracting officer should request a statement showing:
- a summary of the excess profits by contracts, and
- an explanation of the principal reasons which accounts
for the excess and how the amount was arrived at.
- Pending an appraisal of the information given by the Contractor
and of the particular circumstances of the case, any cheques
received should be sent immediately to the Director, APIS, accompanied
where possible by a statement showing the distribution of the
refund over the contracts affected. The Director, APIS, will
then forward the cheques to the Chief Financial Officer of the
- In deciding how extensive a review should be carried out in
each case, the determining factors will be:
- the value of the contracts affected and the total amount
of the contracts let to the Contractor;
- the explanations given by the Contractor as to the procedure
followed in arriving at the amount of the refund;
- the Contractor's known capacity for assembly and interpretation
of costs in accordance with Contract Cost Principles 1031-2,
- If there is doubt as to the accuracy of the Contractor's computations
or if it appears that there may be other excess profits which
have not been declared, then a full inquiry must be instituted.
- A final decision will be agreed upon by consultation between
the sector/region concerned and the Director, APIS, and this
conclusion will be communicated to the Chief Financial Officer
of the appropriate customer department.
11A.4 Refunds from Subcontractors
Refunds from subcontractors will be handled in accordance with
the above procedures. In addition, however, it will be necessary
for Public Works and Government Services Canada (PWGSC) to keep
the prime contractor informed of its negotiations with the subcontractor
and in some cases it will be preferable to deal with the subcontractor
through the prime contractor. If the refund results from a contractual
provision in effect between the prime contractor and the subcontractor
then the refund should be effected by the prime contractor. If
the refund arises from circumstances not envisaged in the subcontractor's
contractual arrangements with the prime contractor, the refund
should be effected by PWGSC and should not result in a windfall
being realized by the prime contractor.
11A.5 Assignment of Income Tax Refund
- In the event that a settlement from the Contractor is to be
financed partly from the proceeds of its income tax refund, the
sector/region concerned will endeavour to obtain a voluntary
assignment of the income tax refund in the following terms:
'Receiver General of Canada
(Company) ______________ of the City of _________ in the Province
of ______________ does hereby authorize and direct that any
amounts presently due or accruing due to it in the future from
the Canada Revenue Agency of the Government of Canada, be applied
in reduction of its debt to Her Majesty the Queen in right
of Canada in the amount of $ ___________ on account of _________________'.
- In the case of a Corporation, the direction should be under
the seal of the Corporation and the signature of duly authorized
officers. The form, which should be a separate document and not
embodied in a letter, should then be passed by the sector/region
to the Director General, Finance, Corporate Services, for processing
in accordance with normal government practice. Treasury Board
authorization is not required.
- Whether the assignment is voluntary or pursuant to section
155 (Deduction and set-off) of the Financial Administration
Act, the Finance Sector assumes the responsibility of notifying
Canada Revenue Agency (CRA) of the assignment. The manner in
which money is transferred from CRA to PWGSC, or to the Department
of National Defence (in the case of refunds to its own votes)
is a matter for decision by the Finance Sector. However, the
transfer will be made either by means of a Receiver General cheque
or an interdepartmental Journal Voucher. Under either method,
the transfer advice will be passed to the sector/region concerned
who will forward it to the Director General, Finance.