Procuring an edge for Indigenous businesses

14 minute read
19 April 2023


Updated as of April 2023

1. Diversifying Procurement Market Share

The Canadian government implemented the federal Procurement Strategy for Indigenous Business ("PSIB") in 1996,[1] aiming to increase the number of Indigenous businesses participating in procurement processes. Since its inception, the PSIB program has awarded more than $3.3 billion in contracts to Indigenous businesses.[2] Under PSIB, contracts that serve primarily Indigenous populations or that are subject to a land claim agreement must be set aside for bids from Indigenous businesses only.[3] Further, the federal government encourages Public Works and Government Services Canada ("PWGSC") to set aside additional contracts under the PSIB.[4]

As of April 2022, the Government of Canada implemented a mandatory requirement[5] for federal departments and agencies to ensure a minimum target of 5% of the total value of contracts is awarded to Indigenous businesses annually. The mandatory procedures relating to this requirement were developed in collaboration with Indigenous partners and are available at Appendix E of this link.[6]

This article considers what constitutes an eligible Indigenous business as well as the criteria that must be met in order to compete under, and benefit from, the federal PSIB set-aside program.

2. What is an Indigenous Business?

A business must meet the criteria below before being eligible to register as an Indigenous business. The business must also be able to provide evidence to satisfy the criteria.

2.1 Eligibility Under Federal Legislation

An eligible Indigenous business must meet two criteria. First, it must be an organization where Indigenous persons have at least 51% ownership and control (or a joint venture of which at least 51% is owned and controlled by an Indigenous business or businesses). Second, if the organization has six or more full-time employees, Indigenous persons must make up at least 33% of the full-time staff. "Indigenous persons" is a term defined in the PSIB, and has its own criteria that must be met.

  1. "Indigenous person"

For PSIB's purposes, an Indigenous person is defined as "an Indian, Métis or Inuit who is ordinarily resident in Canada."[7] Accepted evidence demonstrating eligibility may include:

  • Indian registration in Canada;
  • membership in an affiliate of the Métis National Council or the Congress of Aboriginal Peoples, or other recognized Indigenous organizations in Canada;
  • acceptance as an Indigenous person by an established Indigenous community in Canada;
  • enrollment or entitlement to be enrolled pursuant to a comprehensive land claim agreement; or
  • membership or entitlement to membership in a group with an accepted comprehensive claim.
  1. Business Structure and Control

A qualifying Indigenous business may be structured as any of the following:

  • a Band as defined by the Indian Act;
  • a sole proprietorship;
  • a limited company;
  • a co-operative;
  • a partnership; or
  • a not-for-profit organization.

While these are all accepted business structures, it is not just about who owns the business on paper, there must be actual control over the business to qualify. The federal government looks to "beneficial ownership" in order to determine whether Indigenous persons have true and effective control of the business. The business' structure will determine how PSIB evaluates whether it meets the 51% control threshold. For example, control may be determined with reference to capital stock and equity accounts, tax returns to identify ownership and business history, cash management practices, or if stock options are available to employees. For a full list of factors, please refer to Appendix A here.[8]

  1. Percentage of Indigenous Employees

As noted above, the second criterion requires that, if the organization has six or more full-time employees, at least 33% of them must be Indigenous persons. This percentage must be met not only when the business submits a bid, but it also must be continuously maintained throughout the duration of the contract. PSIB considers a full-time employee to be someone who is on the payroll, receives full-time benefits, and works at least 30 hours per week. Whether a person is a full-time employee can be demonstrated with reference to payroll records, written offers for employment, and Canada Revenue Agency records. In order to demonstrate that the business meets this requirement, the Indigenous business must complete and submit an Owner/Employee Certification form for each full-time employee (and owner) who is an Indigenous person.

2.2 Federal Subcontracting Requirements

In addition to meeting the PSIB's eligibility criteria, an Indigenous business must also conform to certain subcontracting policies. If an Indigenous business is bidding for a contract and intends to subcontract a portion of the work, the Indigenous business must certify that at least 33% of the work will be performed by an Indigenous business. This will be assessed based on the value of the work performed, which consists of "the total value of the contract less any materials directly purchased by the contractor for the performance of the contract."[9]

An Indigenous business that is subcontracted by a bidder must also meet the same eligibility criteria as the Indigenous business submitting the bid. To enforce the eligibility criteria for subcontractors, the bidding organization must request proof of the subcontractor's eligibility and authorize an audit performed by Canada to verify the records. If the bidder does not verify the Indigenous subcontractor's eligibility, this would constitute a breach of contract.

PSIB also encourages non-Indigenous suppliers to sub-contract with Indigenous businesses through evaluation incentives.[10] In the bidding process, the inclusion of Indigenous businesses as sub-contractors must be clearly identified, and the sub-contractor must meet all the criteria above.

2.3 Canadian Council for Aboriginal Business Eligibility

The Canadian Council for Aboriginal Businesses ("CCAB") is a non-profit, non-government organization whose aim is to facilitate Aboriginal businesses in the mainstream corporate sector. CCAB and the Government of Canada developed the current PSIB program together.[11] Recognition by CCAB as an Aboriginal business under its Certified Aboriginal Business ("CAB") program constitutes evidence that may be used for PSIB's purposes.[12] 

CCAB's eligibility criteria for the Certified Aboriginal Business program require the business to be a CCAB member, have at least 51% Indigenous ownership and control, and provide proof of Indigenous heritage of the owner or owners. Proof may include documents such as an Indian Status Card or valid identification provided by an accepted organization; for a full list of the organizations recognized under CAB visit this link.[13] Finally, CCAB also requires proof of ownership and control, which varies based on the type of organization. A sole proprietorship requires a Master Business Licence or provincial/territorial equivalent. If the business is a corporation then it must provide articles of incorporation, a shareholders agreement, a shareholders registry, and/or Schedule 50 of its corporate tax return, if available. Partnerships must provide the partnership agreement.

3. Consequences if Unable to Prove Indigenous Business

When an Indigenous business is submitting its bid, it must certify that it:

  • meets the PSIB requirements and will continue to do so throughout the duration of the contract;
  • will, upon request, provide evidence that it meets the eligibility criteria;
  • is willing to be audited regarding the certification; and
  • acknowledges that, if it is found not to meet the eligibility criteria, it will be subject to one or more of the civil consequences set out in the certification and the contract.[14]

If a business is unable to substantiate the claim that it is an eligible Indigenous business, it risks facing legal consequences. Such consequences may include forfeiture of the bid deposit, retention of the holdback, disqualification from participating in future contracts under the program, and/or termination of the contract.[15]

4. Advantages and Considerations for an Indigenous Business

PSIB and its related directives and policies aim to bring more Indigenous businesses into the procurement market and gain a larger market share. As a result, there are many opportunities that Indigenous businesses can engage in when they meet the above criteria. One such opportunity is being able to apply for set-aside contracts, which leads to fewer businesses to bid against and a higher chance of being awarded a contract.

[1] Initially created and referred to as the Procurement Strategy for Aboriginal Business ("PSAB").

[2] Government of Canada, "Procurement Strategy for Aboriginal Business" (July 7, 2014).

[3] Government of Canada, "Directive on the Management of Procurement" (May 13, 2022).

[4] Government of Canada, "Chapter 3 - Procurement Strategy for Indigenous Business" (May 12, 2022).

[5] Government of Canada, "Government of Canada announces federal-wide measures to increase opportunities for Indigenous businesses" (August 5, 2021).

[6] Supra note 3 at Appendix E: Mandatory Procedures for Contracts Awarded to Indigenous Businesses.

[7] Government of Canada, "9.4. Annex: Requirements for the Set-aside Program for Indigenous Business" (April 28, 2022) at s. 6(a).

[8] Ibid.

[9] Ibid at s. 2(a).

[10] Government of Canada, "9.40. Procurement Strategy for Indigenous Business" (May 12, 2022) at 9.40.20.

[11] Canadian Council for Aboriginal Business, "Supply Change" (2020).

[12] Ibid.

[13] Canadian Council for Aboriginal Business, "Certified Aboriginal Business (CAB)".

[14] Supra note 7.

[15] Ibid at s. 3(b).

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