In its March 2023 interim decision in 837386 Yukon Inc v. Yukon, the Supreme Court of Yukon ruled that the administration of the First Nations Procurement Policy resulted in unfairness to the rejected applicant. The policy established preferential scoring to bidders who are registered with the Yukon First Nations Business Registry. To qualify, the policy required “a corporation that has at least 51% of the corporation’s voting shares owned by a Yukon First Nation Person.” The complainant was rejected from qualifying under the policy by the Yukon First National Chamber of Commerce (YFNCC), the organization responsible for administering the registry. The complainant brought a legal action challenging that decision.
While the complainant met the 51% ownership requirement, the issue turned on who would be receiving the financial benefits under any awarded contracts. Since a non-eligible subcontractor would be performing a significant share of the work for the complainant, the YFNCC argued that the complainant was not eligible under the policy. More specifically, YFNCC raised the complainant’s alleged “lack of capacity in the heavy construction industry” which would require it to rely on a subcontractor that did not qualify under the policy for “the lion’s share of financial benefits related to any contracts.”
However, the court found that this financial benefits analysis “created a definition for beneficial ownership which is different than the ordinary meaning for that phrase.” While the court noted that there is nothing wrong with adopting a different definition, it stated that applicable qualification standard “needs to be clear to applicants.”
From a practical perspective, this case raises broader concerns over establishing clear eligibility requirements for preferential scoring under various government procurement programs. In this case, concerns were raised over whether the applicant’s lack of experience reflected an attempt to establish a fronting scheme in favour of ineligible contractors who could win additional evaluation points by working as sub-contractors for companies who are eligible for preferential scoring but not capable of performing the required work. In fact, the court recognized that there could be valid concerns over the complainant “not having any track record in construction” and stated that it was “legitimate to examine that issue.” However, the court also stated that this lack of experience could mean that the complainant “will always only be an empty shell benefitting someone who is not otherwise eligible under the Policy or it could mean that it is a young company with a First Nation person who is starting out and learning the business.” In the case in question, the court concluded that there was no evidence that the complainant “is the former and not the latter.”
Noting that the administration of the policy remained a work-in-progress, the court found that the rules and procedures for qualifying under the policy were unclear and unfair to applicants, concluding that the process “was flawed and opaque and was not fair.” The court therefore directed the parties to make further submissions to address the outstanding issues.
This ruling, which underscores the importance of establishing formal protocols requiring the creation of fair and transparent criteria and evaluation processes for preferential scoring policies, will be covered in the Complying with Open Competition Duties module of our new Fundamentals of Canadian Government Procurement certificate program that runs in April and returns in October. Please see our current training schedule for more details.
