Modernization of Indigenous participation in procurement: discussion paper

This paper is intended only to stimulate discussion and feedback. The views expressed in this paper do not constitute official policy positions of the Government of Canada.

Executive summary

In 2016, a Government of Canada-wide approach to update the way in which the Government of Canada purchases goods and services was launched. As part of this procurement modernization process, Crown-Indigenous relations and Northern Affairs Canada (CIRNAC) started a review of the federal approach to Indigenous participation in procurement (Indigenous procurement), including the 22 year-old Procurement Strategy for Aboriginal Business (PSAB). CIRNAC's goal is to strengthen procurement policies, guidelines and mechanisms to maximize the participation of and benefit to Indigenous peoples, businesses and communities. The modernization of Indigenous participation in procurement contributes to reconciliation between Canadians and Indigenous peoples by encouraging Indigenous business development and socio-economic outcomes that support the path to self-determination.

Each year, the Government of Canada purchases approximately $18 billion in goods and services from the private sector to support the ongoing delivery of federal programs and services. While Indigenous peoples represent nearly 5% of the Canadian population, targeted Indigenous procurements under PSAB totaled $93.5 million in 2015, representing less than 1% of all federal procurements. However, under PSAB, Indigenous benefit plans in larger contracts such as Indigenous training, employment and sub-contracting targets could account for another $500 million per year in benefits, although data is not consistently tracked.

The Indigenous market income was expected to be above $30 billion for 2016, according to the Toronto Dominion Bank (PDF). Economists estimate that Canada would be $27.7 billion richer every year if Indigenous income levels were comparable to the rest of the population, resulting in a 1.5% boost in Canada's GDP. Closing this gap would also result in fewer Indigenous peoples living in poverty.

As part of the modernization of the federal approach to Indigenous procurement, CIRNAC has:

studied the impacts of the Government of Canada's efforts to encourage Indigenous participation in procurement
reviewed successful practices in the private sector and other jurisdictions in Canada and overseas
held roundtable engagements with Indigenous peoples, business, and other organizations
sought input from Government of Canada officials responsible for Indigenous procurement within their departments and agencies

These engagements have highlighted five principles that should drive a modernized Indigenous procurement policy:

fair
demonstrates leadership and commitment
accountable and transparent
supportive and innovative
streamlined, strengthened and devolved

CIRNAC has identified 23 considerations that could improve and modernize the Government of Canada's support for Indigenous participation in procurement that can be grouped into either supply or demand categories.

Supply: Considerations that increase the supply of Indigenous businesses that can do business with government

Defining an Indigenous business
1. Defining an Indigenous business as at least 51% owned and controlled by Indigenous peoples without a requirement for a minimum number of Indigenous employees. An Indigenous joint venture with at least 51% Indigenous ownership would also be eligible to participate in Indigenous procurement and there would be no labour requirement
2. Putting in place a point system to identify Indigenous businesses. For example, points allocated for ownership, number of Indigenous employees and control criteria, rather than current rigid requirements
3. Asking rights-bearing Indigenous nations and organizations to define eligibility criteria for their businesses and maintain lists of qualified businesses. Indigenous business directories would be under Indigenous management and control
Simplifying processes and reducing barriers to Indigenous participation in federal procurement
1. Simplifying processes and reducing barriers to increase Indigenous participation in procurement, not only for Indigenous business, but also for procurement officers. For example, increasing time to submit bids, reducing technical requirements, reducing spending requirements for security and bid deposits and creating favourable conditions for first time Indigenous bidders
2. Supporting institution building and third-party delivery of procurement support services to Indigenous businesses by Indigenous-led organizations
Identifying and building Indigenous business capacity and qualified workers
1. Systematically and regularly assessing Indigenous business suppliers and business capacity to identify opportunity areas
2. Systematically and regularly identifying Indigenous businesses for participation in procurement and increasing the number of businesses registered in the Indigenous Business Directory (or directory alternatives)
3. Supporting Indigenous business capacity building to participate in procurement (for example, through skills development and training programs with Employment and Social Development Canada, other jurisdictions and academic institutions)

Demand: Considerations that increase government demand for services from Indigenous businesses

Introducing mandatory targets
1. Committing to secure a percentage of total procurement from Indigenous business by establishing mandatory targets
2. Setting mandatory targets for the percentage of total departmental procurements for which a capacity study or market analysis was performed.
3. Reporting annually to Parliament on departmental performance against established targets
Fostering a culture of awareness trust and understanding
1. Establishing a high-level federal champion for Indigenous participation in procurement
2. Establishing stronger awareness of Indigenous business capacity by procurement officers, build better relationships, and work to eliminate behavioral biases
3. Creating mandatory, comprehensive, and ongoing training of procurement officers regarding Indigenous procurement
4. Defining the concept of "value for money" in procurement to include socio-economic impacts of Indigenous procurement
5. Systematically and regularly assessing federal procurement demand to identify opportunity areas
Establishing measurement tools and data collection systems
1. Establishing more rigorous and timely data collection and analysis along with mandatory reporting requirements from procuring departments and common procurement service providers
Transforming the federal procurement process
1. Requiring a broader application of mandatory set-asides when Indigenous populations are above a certain percentage in the procurement area
2. Requiring Indigenous benefit plans in all major procurement processes at the conception stage
3. Requiring all spending proposals, which include major procurement, to have mandatory Indigenous procurement plans or strategies at the Treasury Board approval stage
4. Supporting regional and distinction-based approaches (for example, taking into account historical settlement patterns of certain dispersed Indigenous peoples)
5. Applying Indigenous procurement requirements to entities outside of the core federal government
6. Combining Indigenous procurement with other groups such as women, minorities and persons with disabilities

Background

The importance of the Government of Canada's relationship with Indigenous peoples is a key commitment in each ministerial mandate letter. By updating procurement policies and practices, the government hopes to contribute to the renewal of that relationship based on recognition of rights, respect, cooperation and partnership.

In October 2016, the government launched a procurement modernization process to update the way in which it purchases goods and services. This process has three themes: open and fair procurement, socio-economic procurement and innovation.

As part of the government-wide approach to procurement modernization, CIRNAC is reviewing Indigenous participation in procurement including the 22 year-old Procurement Strategy for Aboriginal Business (PSAB). By doing this, CIRNAC hopes to improve and strengthen procurement policies, guidelines and mechanisms to maximize the participation and benefit of Indigenous peoples, businesses and communities from federal programs, expenditures and investments.

Government procurement is a process leading to a contract for the acquisition of a good or a service to fulfill a need internal to the operations of the federal government.

Each year, the government purchases approximately $18 billion in goods and services from the private sector to support the ongoing delivery of federal programs and services. These procurements have the potential to promote Indigenous socio-economic development. Competing for and working on contracts with the government can help build the skills of workers, increase the experience and size of a business, and secure partnerships which provide access to additional resources and equipment. Many Indigenous business leaders have indicated that the federal procurement process is one of the main tools that has helped their business become stable and profitable.

Indigenous participation in procurement provides opportunities to Indigenous entrepreneurs who face more challenges than non-Indigenous entrepreneurs. Indigenous business owners have less access to capital and fewer established business networks than non-Indigenous entrepreneurs. Moreover, Indigenous businesses are often located remotely, which means Indigenous entrepreneurs may not have access to infrastructure like roads, airports, distribution systems or a reliable internet connection. This results in much higher costs.

Employees and owners of Indigenous businesses sometimes do not have the skills, training or experiences that are on par with the broader economy. The Indian Act, which impacts businesses on reserve, is difficult to work under and can also deter entrepreneurship. Some groups, Indigenous women for example, face additional challenges including a lack of resources for childcare, lower rates of financial literacy, shortages of technical skills and insufficient business support. Finally, Indigenous entrepreneurs must work with people and companies who might not appreciate Indigenous culture and circumstances and that do not recognize their business potential.

Even though Indigenous entrepreneurs face many obstacles, they have a big impact on their communities. Indigenous businesses are responsible for one quarter of Indigenous jobs. They are diverse: Indigenous businesses exist in all regions of the country and in all sectors and markets. While Indigenous businesses mostly serve their local markets in their own province or territory, half have customers in other provinces and territories and many have an international reach.

According to Census 2016, there are 1,673,785 Aboriginal peoples (which include First Nations, Inuit and Métis) in Canada, representing approximately 5% of the total population of Canada. With an average age almost a decade younger than the non-Indigenous Canadian population and a growth rate of 42.5% from 2006 to 2016, this population is young and is rapidly growing.

The size of the Indigenous economy was expected to be over $30 billion dollars in 2016. The National Aboriginal Economic Development Board, in its Aboriginal Economic Benchmarking Report (PDF), observed that "the rapidly growing numbers of self-employed Indigenous Canadians suggests a strong entrepreneurial spirit within Indigenous communities, and potential for continued growth under the right conditions". The growth in self-employment among Indigenous peoples is more than three times the national average for non-Indigenous Canadians.

Clearly, there is significant potential to use procurement to create more opportunities for Indigenous peoples in Canada. The relative youth of the Indigenous population and entrepreneurs more specifically, the impressive growth rate of Indigenous small business and self-employment, the impact of Indigenous business on local employment, the widespread presence of Indigenous businesses, Indigenous proximity to Canada's natural resources and increasing control over lands and resources are all significant developments.

Moreover, successes in other countries speak to the strong potential of the procurement modernization initiative here in Canada. Australia set a target to increase Indigenous procurement from 0.5% to 3% over a 5-year period. The target was based on the population of Indigenous peoples, which according to their 2016 census, is nearly 3% of the total Australian population. Australia exceeded its 3% target after two years.

The modernization of the policy to increase Indigenous participation in procurement has included:

a review of past performance
interviews with public and private sector leaders in Indigenous procurement and from other jurisdictions in Canada and overseas
regional roundtable engagements with Indigenous businesses and economic development
input from Government of Canada officials responsible for Indigenous procurement within their departments and agencies

This discussion paper summarizes everything learned to date and identifies 23 policy modernization areas for consideration.

Current approach to Indigenous participation in procurement

The Government of Canada generally approaches Indigenous participation in procurement through the 1996 Procurement Strategy for Aboriginal Business (PSAB) and to satisfy economic measures identified in some modern treaties. PSAB is the primary tool used by the government to address the under-representation of Indigenous participation within federal procurement processes. PSAB enhances the creation, growth and long-term viability of Indigenous businesses by empowering them to successfully compete for federal procurement opportunities.

The strategy is implemented through 5 key approaches:

Mandatory set-asides
- Procurements are required to be set-aside which means that only Indigenous businesses can compete against other Indigenous businesses for the contract
- This will occur only if Indigenous peoples make up at least 80% of the population in the procurement area, the Indigenous population will be the recipient of the good, service or construction and the value of the contract is over $5,000
Voluntary set-asides
- A procurement may be voluntarily set-aside under PSAB if Indigenous capacity exists and where operational requirements, best value, prudence, probity and sound contracting management can be assured
Indigenous Participation Components (IPC) or Indigenous benefit plans
- In tendering large and complex contracts, the government may set-aside a portion of the value of a contract for Indigenous participation which can be direct or indirect
- Direct IPC refers to Indigenous sub-contracting and employment, while indirect IPC refers to scholarships, training and bursaries
Joint venturing
- Through PSAB, an Indigenous business may form a joint venture with a non-Indigenous business in order to increase business capacity
Targets, data collection and reporting
- PSAB requires federal departments to set annual non-mandatory targets and relies on data collected from federal departments to produce performance reports on Indigenous procurement. The last report was published in 2014
- Data collection and integrity issues have created reporting delays

To be considered an Indigenous business under PSAB, the following criteria must be met:

at least 51% of the firm must be owned and controlled by Indigenous peoples
if the firm has six or more full-time staff, at least a third of the employees must be Indigenous peoples
in the case of a joint-venture agreement, at least a third of the value of the work must be performed by an Indigenous business

More details can be found in the Procurement Strategy for Aboriginal Business Booklet.

Program integrity is maintained through various methods, including certification forms, audits and registration in the Indigenous Business Directory.

Certification forms: When a contract is set-aside under PSAB, Indigenous businesses must self-declare they adhere to PSAB criteria by signing certification forms. Certified businesses can be audited at any time. If a complaint regarding non-compliance is received, an audit is done

Audits: For contracts valued at or greater than $2 million a mandatory pre-award audit is conducted. The contracting authority may also request a post-award audit to ensure that the contractor meets PSAB criteria during the contract duration. Finally, a random audit is used to ensure the integrity of the Indigenous Business Directory by guaranteeing that businesses registered under the PSAB are compliant with the requirements set out in the Treasury Board of Canada Secretariat's Contracting Policy Notice 1996-6

Indigenous Business Directory: The Indigenous Business Directory is a search engine available to private industry, municipal and provincial governments and the federal procurement community for identifying qualified Indigenous suppliers in various sectors. When a business registers in the Indigenous Business Directory, they self-declare that they adhere to the eligibility requirements set out under PSAB. Government departments can also proactively seek out Indigenous businesses and register them in the directory at any time prior to awarding the contract

CIRNAC is currently working with departments on over 25 major procurement processes to incorporate employment, training and business sub-contracting targets. Since, data is not consistently tracked and is subject to uncertainty, the benefits to these procurements have not yet been determined

Three departments have roles in implementing PSAB:

Treasury Board Secretariat (TBS)
CIRNAC
Public Services and Procurement Canada (PSPC)

CIRNAC supports the implementation of PSAB by:

helping departments and agencies establish procurement targets
hosting regular meeting of the National PSAB Coordinators Network which has 100 representatives from 43 departments
providing training and outreach to potential suppliers and buyers
managing the Indigenous Business Directory
monitoring and negotiating opportunities for Indigenous procurement
completing compliance audits to evaluate the success of the program's actions
collecting data and compiling performance reports

TBS is responsible for providing policy direction to support federal departments in the application of PSAB. Where CIRNAC proposes an amendment to directives or related policy instruments, Cabinet is responsible for the review and approval of the proposed changes.

PSPC coordinates its efforts with CIRNAC to inform Indigenous businesses across Canada about the policy and federal contracting requirements and opportunities. PSPC provides training on how to do business with the federal government and provides annual federal Indigenous business procurement data results from government departments and agencies to CIRNAC.

In addition to PSAB, the government can take additional measures where a procurement related activity occurs in a Comprehensive Land Claim Agreement (CLCA) areas. These modern treaties are agreements made between the Government of Canada, Indigenous groups and often provinces and territories that define ongoing rights, benefits and obligations on all sides. Specific treaty rights, benefits and obligations vary depending on the time and circumstances in which they were negotiated. Treaties can be divided into two main categories: historic treaties and modern treaties.

No two CLCA's are exactly the same and are legally binding on all parties to the agreements. Some CLCAs include measures dealing with procurement, which are aimed at maximizing economic opportunities for the Indigenous groups involved in the agreement. Separating requirements into commodity or geographic groupings and using CLCA business directories and lists are examples of additional measures the government applies in CLCA areas over and above PSAB.

Indigenous participation in procurement is also pursued through other government initiatives such as the First Nations Tendering Policy, which encourages Indigenous business participation when recipients undertake procurement with grants and contribution funding.

What we have learned so far

Five principles were identified during the engagement sessions describing what successful Indigenous procurement looks like:

1. Fair

"No relationship is more important to me and to Canada than the one with Indigenous Peoples. It is time for a renewed, nation-to-nation relationship with Indigenous peoples, based on recognition of rights, respect, co-operation and partnership".

Prime Minister Justin Trudeau

Roundtable participants recognized that Indigenous procurement is "just good business", and that building Indigenous business capacity, stronger Indigenous communities and better lives for Indigenous people benefits Canada as a whole.