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Retaining Employment Equity Measures in Trade Agreements

2. FEDERAL CONTRACTORS PROGRAM

The Federal Contractors Program (FCP) ³³ came into being in 1986 following an executive decision of the federal government. While the Employment Equity Act affects federally regulated employers, the FCP concerns all businesses, whether under federal jurisdiction or not, that receive goods and services contracts worth $200,000 or more from the government. Obviously, these businesses must hire at least one hundred employees to be subject to the FCP. To tender a bid, they must attest, in writing, to their commitment to employment equity. The FCP is administered by HRSDC staff and by a network of employment equity officers across Canada. Contractors who refuse to fulfil their commitment to employment equity or who do not meet FCP criteria may lose the right to bid on other federal government contracts. ³⁴

The FCP is a special feature of Canadian policy on government procurement. Government procurement contracting is a process by which the federal government and all federal public service agencies appeal to the private sector for the purpose of striking contracts to provide goods and services. To (1) distinguish the FCP from the Employment Equity Act and (2) explain how government procurement contracts are awarded in Canada, we split this part of our report into two sections: a review of the FCP, and a review of Canadian policy on government procurement contracts. We conclude the section with a focus on contracts set aside for aboriginal peoples who, although they are an interesting model, do not fit within the tradition of employment equity.

What Is the FCP?

The fate of businesses that are subject to the FCP is different from that of businesses that are subject to the Employment Equity Act (in this context, the legislated employment equity program). Under this program, contractors must aim for a positive and definitive audit and follow-up by the CHRC. However, under the FCP, simply their commitment to employment equity is enough, at first, to be issued a certificate ³⁵ from HRSDC. Businesses subject to the FCP are under no obligation to submit annual or other types of report.

In early 2000, it was estimated that Canada had 845 businesses in the FCP. Since the program began in 1986, the total dollar amount of contracts granted to these businesses is estimated at $40 billion. These businesses employ close to one million Canadians (HRDC, 2002). Approximately two-thirds of the businesses involved operate in Quebec and Ontario (HRDC, 2002). Furthermore, Quebec is the only Canadian province to have established a provincial program of contractual obligation (HRDC, 2002).

The assessment report requested by HRSDC in 2002 is quite clear: the FCP is deteriorating, ³⁶ although no one disputes its pertience and social utility.

Indeed it notes that the mechanisms for the audit and follow-up of program compliance are essential to the progress made in the workforce by members from the designated groups. Yet, it is precisely this follow-up that is sorely lacking from the program. In the opinion of the businesses interviewed during the evaluation study, few have a contract from HRSDC to this end. This has been especially true since 1995, when the administrative decline of the program began.

Eleven criteria ³⁷ are involved in implementing the FCP. Contractors are expected to meet these requirements to be compliant with the requirements of the FCP. Businesses that are subject to the FCP commit to a process that is different from that of businesses subject to the Employment Equity Act . Only businesses that are both subject to the Employment Equity Act and bid on government procurement contracts must adhere to the requirements of the Act. This difference in status has consequences for women, since several measures that ensure their true equality in the workforce depend on qualitative strategies that are subject to the CHRC evaluation process under the Act. In short, the link between the FCP and women in the workforce is highly tenuous. All of the benefits that women can gain from the award process for government contracts, from the standpoint of their status as workers, depend on this one federal program.

The evaluation study conducted by HRSDC in 2002 revealed interesting data. For example, the FCP had only a marginal impact on the increase in the representation of members from the "women" and "visible minority" designated groups, while this impact was positively negligible in the "aboriginal persons" and "persons with disabilities" groups (HRDC, 2002). Moreover, only 5% of contractors recently felt that the FCP had discouraged them in their pursuit of federal contracts. The evaluators themselves noted that the FCP has experienced significant difficulties since it was introduced, particularly from 1995 to 2001, which coincides exactly with the period during which businesses subject to the legislated employment equity obligation (the Act) were commanded to make major efforts. By contrast, data from the study reveal that businesses that were subject to the FCP were literally deserted by HRSDC in the period from 1996 to 1999. ³⁸ To be sure, the evaluation report shows some uncontrollable factors that may at times have had an influence on the program's poor effectiveness. For example, the increased movement of company mergers or divisions led to significant fluctuations in the total number of businesses subject to the FCP (over one hundred employees). In addition, the massive transformation of work modes in some sectors led to a decrease in the total number of salaried employees, by multiplying the status of self-employed or contract workers. According to the assessment of the FCP, however, these factors do not impair its social utility.

The findings of this study reveal that, aside from the limited importance and support that the federal government gave to the FCP, two trends put a strain not only on the quality and legitimacy of the program, but also on its transparency and equity, as businesses view it. First, it must be considered that there is poor follow-up of the certificate of commitment agreed to by a business that wants to bid on goods and services contracts with the federal government. Second, even on the assumption that an annual or biennial obligation to submit a report were introduced, this would only result in recreating the existing tension between HRSDC and the CHRC in the case of businesses that are under the legislated obligation of employment equity, just as it would leave the objective of managing compliance with the desired program unmet. Moreover, major differences, in particular in effectiveness, persist between the sole obligation to report and the CHRC's audit process with businesses that are subject to the Act.

Even if businesses under the FCP were obliged to submit a report, major differences still exist between the methodology proposed by HRSDC and that imposed by the Act, such that the requirements are not equivalent. In this regard, we note the following points, as did the authors of the audit report ordered by HRSDC (HRDC, 2000):

• Unlike the Employment Equity Act , the FCP does not require a business to take into account the number of part-time workers when tallying the number of members from designated groups by employment category and setting the numeric objectives to be attained.
  
  
• Contrary to the CHRC's interpretation of the Act, the FCP does not require businesses to consult representative employee organizations in establishing the employment equity plan.
  
  
• The FCP includes no obligation to file a report.

This lack of equivalence between the two programs, as well as the major differences in their control and monitoring process, indicate that businesses under one or the other of these measures are subject to separate treatment . Still, this is not the case for all businesses; those that are subject to the Employment Equity Act and then entered into an agreement under the FCP must attain the objectives of the most restrictive standard, namely the Employment Equity Act .

Still, other comments were made concerning the opportunity to generally reduce the FCP threshold for contracts or to reduce the 100-employee requirement for the purpose of applying the FCP. Likewise, the need was mentioned to consider subjecting the sub-contractors of a main contractor to the program. However, various experiences have shown the practical impossibility of this proposal, particularly in Quebec.

Recommendation 7 of the June 2002 report by the Standing Committee on Human Resources Development and the Status of Persons with Disabilities (SCHRDSPD, 2002a) was telling. The Committee recommended that the Minister of Labour review the FCP in order to restructure it, and to ensure that the employment equity obligations of federal contractors are equivalent to those of employers regulated by section 4 of the Act. ³⁹ In its response to the Report submitted in November 2002, the federal government made a vague commitment to consider such reform. ⁴⁰

We feel that such reform is urgent, not only because employment equity strategies must be reinforced in Canada, but also for specific reasons stemming from the nature of trade agreements ratified by Canada, including the AGP. This argument will be developed in part 2 of this study. For the moment, we will highlight the consequences of the separate treatment reserved for various groups of Canadian businesses.

For the sake of this discussion, all of the businesses in these groups employ at least one hundred employees. The first such group includes businesses that are under Canadian control and hire in Canada. Their activities fall under federal jurisdiction. These businesses are subject to the Act (or legislated employment equity obligation). The second group includes businesses that are under Canadian control and hire in Canada, but whose activities do not fall under federal jurisdiction. This second group is exempt from legislated employment equity obligations and need only commit to implementing this strategy if they want to bid on federal contracts. When Canadian businesses from one of these groups tender such a bid, their employment equity obligations are treated separately. The situation is the same for foreign businesses who employ at least one hundred employees in Canada. For the purposes of the separate treatment argument, these businesses can be compared not only with each other, but also with Canadian businesses. Do they have specific rights under trade agreements, in particular the AGP? All these matters would be resolved if the government agreed to carry out section 42(2) of the Employment Equity Act , which sets out that equivalent requirements must be imposed on all private businesses.

There are two consequences to this disparity in the status of businesses with regard to employment equity strategy: first, it risks "pulling employment equity downwards" by enabling some businesses to invoke the benefit of the least restrictive standard in the name of their business rights set out in trade agreements; and second, it has impeded the evolution and progress of women in the workforce, and could continue to do so.

We find that these concerns are all the more important since the FCP is the only place where, indirectly, gender considerations coexist with the award strategy for granting federal goods and services contracts. No consideration of this type is imposed on small- and medium-sized enterprises, as if the problem did not exist in their field.

Government Procurement Contracts and Canada's Goods and Services Procurement Policy

Principles

Within the federal public service, procurement is being increasingly decentralized, and departments and agencies are establishing their own policies for government procurement. However, Public Works and Government Services Canada (PWGSC) supervises all procurement. ⁴¹ PWGSC decisions are made in light of Treasury Board (TB) policy on procurement and project management. The TB, as the overseeing department, establishes procurement policies. In other words, PWGSC oversees procurement made through government procurement contracting, while the TB supervises the main contractor. ⁴²

According to the PWGSC Supply Manual, six main principles guide the Government of Canada in its procurement policy. The first and cardinal principle is governmental integrity. The five remaining principles stem therefrom: client service, national objectives, ⁴³ competition, ⁴⁴ equity, and responsibility. To better inform the buyer (from a department or agency) about the principles of federal government acquisitions and government procurement contracting, the government made available the manual of the client (the agency in this instance) and of the new buyer. ⁴⁵ The buyer must also comply with the Standard Acquisition Clauses and Conditions (SACC). ⁴⁶

The box below lists the exceptions to the principle of competition.

Source: http://contractscanada.gc.ca/en/chap1-e.htm#except, accessed on June 1, 2004.

Against this backdrop exists a complex set of rules and commitments for implementing three principles that distinguish Canada's policy on government procurement, beginning with the make or buy program, whereby the federal government has chosen to reduce its basic mission to the duties it carries out itself. ⁴⁸ Principle two involves respecting the rules of transparency and equity in awarding these contracts, and the final principle is to respect national socio-economic policies. The second principle, as we shall see below, is essential to compliance with the trade commitments that Canada made under the AGP or even NAFTA (chapter 10). The third principle, which promotes vulnerable groups and visible minorities, is based on two strategies: setting aside government procurement contracts, which we will examine below, and the FCP strategy (analysed above).

All of the government contracts awarded by the Government of Canada and by its agencies are subject to the bidder's obligation to demonstrate its commitment under the FCP, if the conditions apply: (1) the contract is worth over $200,000 and (2) the bidder is a business that hires over one hundred employees.

Government Procurement Contracts and Trade Agreements

The tables in Annex V show the conditions under which rules from various trade agreements related to government procurement must be obeyed. These agreements ease restrictions on certain government procurement contracts in Canada, based on certain thresholds . In the case of agreements other than the Agreement on Internal Trade (AIT), this means that foreign bidders could be awarded contracts to provide goods or services offered by the federal government. However, only bidders who are businesses hiring over one hundred employees in Canada (which businesses could be under foreign control) must show their FCP certification if the contract awarded is worth at least $200,000.

When awarding a government procurement contract is not subject to the trade agreements examined above, the contract is still subject, for the purposes of its delivery, to the priority principle of competition.

Calls for bids from the federal government are subject to a process that assures transparency and equity. This process is based on a certain number of rules that are uniform in accordance with all pertinent trade agreements, including:

• Proposed procurement must be announced publicly. Only urgent proposed procurement, with proper justification in writing, can be advertised for a shorter notice period in the context of NAFTA or the AGP.
  
  
• Procurement requirements cannot be split up or underestimated to avoid exceeding the thresholds. Agreements expressly prohibit this.
  
  
• Technical characteristics must be established based on yield, rather than on detailed design characteristics, and according to accepted international or national standards.
  
  
• An Advance Contract Award Notice (ACAN ⁴⁹) must be issued for each contract that is subject to the provisions of NAFTA and the AGP.
  
  
• Client departments must provide justification when they use single sources or solicit limited bids in the context of an acquisition request.

In general, trade agreements require:

• that clear and detailed information be provided so that all bidders are aware of the requirements to be met;
  
  
• that the proposed procurement not discriminate with regard to bidders who are capable of fulfilling the contract;
  
  
• that all of the conditions be clear and provided at the time of the call for bids;
  
  
• that the terms and conditions of selection be applied uniformly for each bid submitted;
  
  
• that the mandatory technical requirements be made known.

Analysis of the principles that govern the granting of government procurement contracts in Canada, including those that are subject to the requirements of trade agreements, reveals a complete indifference to gender-based analysis. The government hides behind the FCP, although the growing importance of procurement contracts in Canada may "pull the employment equity strategy downward," given this program's poor performance. Additional consideration adds to this indifference in the case of contracts that are subject to the requirements that stem from trade agreements. Thus, in negotiating the thresholds and sectors subject to agreements, we did not feel it useful to examine a priori the possible consequences on the employment of women of awarding contracts to businesses that are not established in Canada and do not hire there.

The Government of Canada never intended to set aside contracts for women-owned businesses or businesses that favour female workers (such contracts would thus avoid the call for bids process and the requirements of trade agreements where applicable). This strategy was not considered from an historical viewpoint (the rules for awarding procurement contracts in Canada preceded the striking of trade agreements) or a contemporary viewpoint (the partly reservist principle of procurement contracts for women or women-owned businesses could have been preserved during the ratification of the AGP or NAFTA, for example). In this regard, Canada preferred to fall in behind the United States without considering the fact that, in the fight against discrimination, one trend distinguishes the two countries: in Canada, it was women who led the fight for equality, while in the United States, it was racial minorities (Lamarche, 1990, pp. 73 ff). This distinction explains the historical position of the United States in terms of setting aside. "Set aside" is a strategy in which a state declares that it will set aside part of the procurement contracts for businesses from minority groups (Lamarche, 1990, pp. 108 ff). In Canada, a highly restrictive vision of this strategy was retained because the only concrete application of the equivalent of "set aside" concerns aboriginal businesses. Yet, nothing in the trade agreements compels Canada to apply such limitations. As mentioned in the introduction, a ratification note in the AGP by Canada provided that Canada be able to set aside contracts for small businesses owned by minorities.

Procurement Strategy for Aboriginal Business

In 1973, the federal government adopted a policy intended to regulate aboriginal land claims. The government's objective was to exchange claims to indeterminate aboriginal rights for a specific set of rights and advantages described in a settlement agreement (INAC, 2002a). This "exchange of rights" came to be guaranteed by a series of agreements, some particular, others signed in the context of the Comprehensive Land Claims Agreements (CLCA). In 1995, the Government of Canada adopted a new policy related to the inherent right to self-government and reviewed the methods of allocating land and resources for territories that are subject to the agreements. Under these agreements, the government is obligated to ensure that "claimant group enterprises have access to bid opportunities in the CLCSAs." ⁵⁰ The Contracting Policy Notice 1996-1997 adopted by the TB stipulates that all of the departments and agencies that have contract budgets of $1 million or more must allow for an "aboriginal quota" in that regard. ⁵¹ Developing the set aside in Canada essentially depends on economic agreements that result from lengthy and sometimes difficult negotiations between the Government of Canada and aboriginals. This explains in part why no other minority group has benefited from this exception to date.

Two types of contract are set aside for aboriginals: mandatory set-aside contracts that concern all contracts worth $5,000 or more in goods and services, and voluntary set-aside contracts, when their value is lower than $5,000. Indian and Northern Affairs Canada (INAC, 2002b) feels that the Procurement Strategy for Aboriginal Business (PSAB) is a socio-economic tool used to respect the guidelines set out in the Government of Canada's contracting-related policies. The objective of the government's contracting activities is to procure goods and services, as well as construction services, in a way that will withstand public scrutiny of equity, openness and transparency, and will make it possible to obtain a better quality-price ratio to the benefit of Canadians. While respecting the primacy of operational needs, the Government of Canada pursues its socio-economic objectives through procurement activities. These socio-economic objectives include long-term industrial and regional development, as well as important national objectives, such as aboriginal economic development.

The PSAB applies outside of land claim areas, when the contract is "mainly" intended for an aboriginal population. ⁵² When goods or services are not intended for a targeted area (CLCA), the decision lies with the procurement "team". In some cases (Canadian Heritage, for example), the team decided to favour the development of new business sectors for aboriginal businesses and chose the contracts as a result. Moreover, the TB assigns each department a "quota" objective that varies from year to year, based on the department's procurement policies. In accordance with the 2000 PSAB performance report, the participation rate of departments in this program did not exceed 34%. ⁵³

The impact of the PSAB is generally limited because more than half of the contracts made by the government involve services that aboriginal businesses do not offer. ⁵⁴ In total, between 1997 and 2000, 32,158 contracts were granted, for a total of $378,271,000. Fewer than 10% of the contracts amounted to 80% of the total value of contracts awarded. However, the performance objectives increased for the same period (from $78 million to $135 million). ⁵⁵

Among the identified obstacles that may explain the PSAB's poor performance, the program assessment completed in 2002 revealed the following weaknesses: knowledge of methods for marketing to the government (67%, positive response from respondents); limited knowledge of contracting procedures (67%); awareness of the markets related to federal procurement (65%); government bureaucracy and decision-making process (81%); obtaining financial investment (65%); and security requirements associated with bid tenders and contracts (62%).

Once again assessment of the PSAB revealed a total lack of consideration for aboriginal businesses run by one or more women or that hire women. Of course, this does not mean that they in no way benefit from the PSAB. But how can we be sure? This question is particularly striking when we consider that the PSAB is the only "set aside" government procurement policy that is operational in Canada.

In our view, management of the FCP and set aside government procurement contracts raise questions about increasing their effectiveness. These policies are important when they involve increasing employment of more vulnerable groups in Canada who are victims of discrimination, whether directly (the FCP) or indirectly (aboriginal businesses and aboriginal employment). The importance of such measures for women and the interests of women contractors must not be overlooked in favour of set aside contracts. For this reason, in the next section we analyse desirable improvements to these programs as a function of trade agreement requirements.