Effective Date: April 1, 2016

Applicable FAM Policies 705 - Procurement

Applicability: GNWT Departments and Public Works

This interpretation provides guidance on the general principles to apply in determining whether to use a procurement contract or a contribution/grant (contribution) agreement.

INTERPRETATION

A procurement contract is used to obtain goods or services. It is an agreement between a government or public agency contracting authority and an outside party (i.e., legal entity) to purchase goods, provide a service or lease real property. The outside party is chosen

through a competitive selection process, as described in the Government Contract Regulations (GCR).

A contribution arrangement is used to contribute monies or make in-kind contributions from the government or public agency to individuals, organizations or other levels of government (e.g., municipal governments) to further government policy and the department's objectives. Contribution payments result in no incremental value being received by the contributor directly in return. Through contribution agreements, the government or public agency provides funding that must be spent according to agreed upon conditions. Spending is monitored and reviewed to ensure that these conditions are met. These agreements vary in terms of the level of control, flexibility, authority, reporting requirements and accountability.

In many cases, the organization signing a contribution agreement with the government/agency will do so understanding that there will be a non-profit clause. An organization will accept this approach as the risks associated with the agreement are shared and in many cases, if the services provided are in compliance with the agreement, all the risks are with the government, not the organization.

Consider the following principles when determining whether to use procurement contracts or contribution agreements:

Principle 1: A department/agency should not benefit directly from the award of a contribution agreement.

To "benefit directly" implies that a funding department/agency receives or acquires a needed good or service that supports its operations. Any indirect benefit a funding department/agency may receive should be consistent with fulfilling their mandate (e.g. residents receive health care, local small businesses receive needed support).

Principle 2: A core service that departmental/agency staff are mandated to provide directly should not be funded through a contribution payment.

Goods or services are provided to the public either through department/agency operations or through a contribution payment. It is ultimately the Legislative Assembly that decides what core services or goods a department/agency will deliver directly. A department/agency mandated to directly deliver goods or services must carry out its responsibilities by using its own staff or issuing procurement contracts for other parties to undertake these duties. In either case, the department/agency must fulfill its obligations.

Because the department/agency is mandated to deliver these goods or services directly, contribution payments cannot be used to discharge their responsibilities (e.g. Health & Social Services is mandated to fund health boards – which qualify as contributions, Lands is mandated to directly collect land leases – a contract would be required to obtain services related to this responsibility).

Principle 3: An individual or an organization that receives a contribution payment does not act on the government's behalf.

A contribution payment is awarded to a recipient to further the mandate of the department or agency. However, the recipient is not acting on the government's/agency’s behalf. On the other hand, if the department/agency awards a procurement contract to an organization or an individual to provide a service or deliver a good, then the organization or individual may be construed to be acting on the government's/agency’s behalf (e.g. when funding an organization to purchase a snowmobile, the organization is not purchasing the snowmobile on behalf of the funding agency, however, if the funding agency contracts a vendor to procure a snowmobile for the funding agency’s use then the vendor is acting on behalf of the funding agency).

Principle 4: A contribution agreement does not allow the awarding of damages in case of non-compliance.

Under a contribution agreement, there is nothing acquired by the government/agency. The department/agency is obliged to reimburse the other party's eligible expenditures, as specified in the agreement. If the expenditures are not made or are not eligible, the party has no right to the contribution payment and the department/agency may recover any money already paid. In that case, the department/agency would have no right to damages because no harm to the department/agency can follow from a recipient not complying with the agreement. There is then some risk in using the grant and contribution approach if a department/agency is expecting to use the results of a project funded in this manner, notwithstanding that it would be an inappropriate use of contribution payments.

It is important that all of these principles are jointly considered and not in isolation of each other to make informed decisions in selecting the proper instrument.