McCarthy Tétrault LLP / mccarthy.ca April 30, 2015 American Bar Association – Section of International Law Risky Business: The Legal Challenges Posed by Offsets Accompanying Foreign Sales Offsets in Canada – Considerations Brenda C. Swick McCarthy Tétrault Partner- Government Contracting / International Trade Brenda C. Swick

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

McCarthy Tétrault LLP / mccarthy.ca Overview- Legal Regime ¬Financial Administration Act ¬Government Contracting Regulations ¬Standard Acquisition Clauses & Condition ¬Supply Manual ¬Offsets ¬Defence Production Act ¬Controlled Goods ¬Security Clearances ¬Export and Import Permits Act ¬Export permits ¬ Trade Agreements ¬Agreement on Internal Trade Act ¬Defence and security contracts ¬Federal Court of Canada/Canadian International Trade Tribunal ¬Bid disputes Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Overview – Key Players ¬Industry Canada ¬ ITB Management, Policy & Authority ¬Regional Agencies ¬Assist in evaluation & management of ITB ¬Atlantic Canada Opportunities Agency ¬Western Economic Diversification Canada ¬Canada Economic Development for Quebec Regions ¬Federal Economic Development for Southern Ontario ¬Department of National Defence (DND) ¬Project Management: Operational Requirements: Technical Authority & Project Funding ¬Canadian Coast Guard ¬Civilian, non-military organization ¬Public Works & Government Services ¬Contracting Management: Contract Authority Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca New Defence Procurement Strategy ¬Overhauls Canada’s Industrial Regional Benefits Policy ¬Required defence/security contracts to undertake business activities in Canada valued at 100% of contract ¬Going forward IRBs will be rebranded as Industrial Technological Benefits (ITBs) ¬Retains reinvestment requirement but certain industrial considerations (“Value Propositions”) ¬Value Propositions will be rated and weighted as part of bid evaluation process ¬Significant difference from pass/fail ¬Actual weight to VPs will be determined on a procurement-by-procurement basis ¬Default weighting in the overall evaluation will be 10% ¬Based on extent to which it supports the KICs ¬POSSIBILITY OF LOSING TO OTHERWISE COMPETITIVE BID DEPENDING ON STRENGTH OF VPs Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Evaluating Value Propositions ¬VPs will typically account for 10% of an overall bid score ¬The Industrial and Technological Benefits Policy seeks to: ¬Increase competitiveness of Canada’s defence sector; ¬Strengthen Canadian supply chains, including SMEs; ¬Increase export potential for Canadian companies; ¬ Increase opportunities for innovation, research and technological development; and ¬Create high-value investments to generate long-term benefits beyond the life of the contract Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Application of ITBs ¬ITBs will be applied differently: ¬Procurements valued +$100M – value propositions will be mandatory ¬$20M - $100 M – application on a case-by-case basis ¬25,000 - $20 M – revised Canadian Content Policy will apply ¬Where “sufficient competition”, procurements are limited to Canadian goods and/or services Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Value Propositions now included in RFP & Proposals ¬RFI/other released in advance of solicitation to assess Canadian capability ¬Transparency ¬RFP/Solicitation document will contain ¬Value Proposition Requirements ¬Must be reasonable ¬Comply with Chapter 5 of the Agreement on Internal Trade ¬Defence and Security contracts subject to the AIT ¬Must “clearly identify” ¬the VP requirement; ¬the criteria that will be used to evaluate the VP requirement ¬The weighting criteria used in evaluating the VP ¬Required in order for bidders to know what points will be given for the different components making up their Value Proposition ¬If VP requirement unclear/unfair/discriminatory ¬May file protest to PWGSC within 10 days ¬Further recourse to Canadian International Trade Tribunal ¬Must be a “Canadian” supplier Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Value Propositions now included in RFP & Proposals (cont’d.) ¬Regional Plans ¬Enhanced Reporting Obligations ¬To monitor delivery of benefits to Canada Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Evaluation of VPs ¬Bids will be evaluated taking into account: ¬how they meet the stated requirements in the RFP ¬support identified Key Industrial Capabilities ¬support others productivity drivers ¬timeframe in which Value Proposition will be fulfilled Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Evaluation of VPs (cont’d.) ¬Evaluation of VP must be: ¬Reasonable ¬Meet the requirements of Chapter 5 of Canada’s AIT ¬Be clear ¬Be fair ¬Be non-discriminatory ¬Not based on undisclosed criteria Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Challenge of Contract Award based on Evaluation of VP ¬… Disappointed bidder who loses based on its VP rating … may complain that ¬VP was assessed unfairly by evaluation team ¬Technical specifications in VP favour one supplier over another ¬Solicitation documents do not clearly indicate how VPs submitted will in fact be assessed ¬VPs were not assessed in accordance with the evaluation criteria set out in the RFP ¬Weight was given to certain evaluation criteria in a manner inconsistent with the terms of the RFP Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Challenge of Contract Award based on Evaluation of VP ¬If evaluation of VP not in accordance with requirements ¬Disappointed bidder may file protest before CITT/Federal Court ¬To rely on AIT, bidder must be “Canadian” supplier ¬CITT remedies: may order that the government ¬Re-write the VP requirements in the solicitation ¬Re-write the VP evaluation criteria and clearly state how those criteria will be evaluated ¬Re-evaluate the VPs in the bids ¬Issue a new solicitation ¬Cancel the contract and award it to the complainant ¬Award the complainant compensation (e.g., lost profits) Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Corruption and Offsets - Debarment ¬Integrity Provisions: ¬Bidder certifies that neither it nor its affiliates have not been convicted of certain prescribed offences in last ten years including: ¬Bribery of Canadian government officials (Criminal Code of Canada) ¬Bribery of Foreign government officials (Corruption of Foreign Public Officials Act) ¬Bid Rigging (Competition Act) ¬Tax Evasion ¬If convicted during term of contract- ¬Government may terminate contract on terms very unfavourable ¬Bidder also certifies that neither it nor affiliates in ten years prior to bid submittal have been convicted of any “similar foreign offence” ¬Means convictions of similar offence in US or other country could give rise to ten year debarment in Canada Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Corruption and Offsets - Debarment ¬What does this means for Offsets? ¬Prime bidder must ensure that its subcontracts “include Integrity provisions no less favourable to Canada than those imposed in the resulting contract” ¬Prime may flow down offset to subcontractors in subcontract ¬With government approval ¬If so, prime must ensure that subcontractor is able to sign onto Integrity Provision terms ¬Prime should obtain certifications from subcontractor that they have read and fully comply with the Integrity provisions and confirmation inter alia, that neither the subcontractor not any of its affiliates have been convicted of an Integrity Offence or a similar foreign offence ¬Subcontract should include provision about what happens if during the subcontract, the Prime learns from its subcontractor that it or its affiliates has been convicted of an Integrity Provision of similar foreign offence Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Concluding Remarks - ITBs ¬ITBs are are complex, evolving and must be accepted if a company wishes to pursue Canadian military and Coast Guard procurements ¬Many details still to be clarified ¬Well advised to monitor evolution of ITBs ¬Participate in industry consultations on the new KICs ¬Ensure that you understand new requirements in future solicitations ¬OMX is a valuable resource to help find and qualify eligible recipients for your offset obligations, manage those transactions through built-in tracking tools and compliant reportshttps://theomx.com/ ¬Know your rights to challenge the RFP/award if VP is, or has been evaluated, in a manner which is not consistent with Canadian legal requirements ¬Preferable to bid through Canadian supplier ¬Remember 10-day rule (don’t sit on your rights) Brenda C. Swick

McCarthy Tétrault LLP / mccarthy.ca Concluding Remarks - Debarment ¬New debarment rules require bidders ¬To understand the rules as they apply to both themselves and their affiliates ¬To give early and thorough consideration to the integrity terms that are to be include in subcontracts ¬To ensuring that subcontractors can meet those requirements ¬To establishing the necessary due diligence procedures ***** Brenda C. Swick

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