Canada has made Indigenous procurement a significant part of its federal strategy, but recent scrutiny of the Procurement Strategy for Indigenous Business (PSIB) shows the rules are under pressure from two directions: the government must demonstrate that Indigenous businesses are receiving meaningful economic opportunities, and businesses must demonstrate that their Indigenous ownership, control, and participation are real in practice.

The rules operate at more than one level. The federal buyer must select the correct procurement route, including whether a PSIB set-aside is mandatory and whether Modern Treaty obligations apply. The bidder must establish eligibility, maintain meaningful Indigenous ownership and control, and satisfy the Indigenous-content requirements in the resulting contract.

The result is a more substantive compliance exercise than the familiar shorthand of “51% Indigenous-owned” suggests.

A procurement system under scrutiny

On March 26, 2026, the Office of the Procurement Ombud released its Procurement Practice Review of Contracts Awarded to Indigenous Businesses. The review identified what it described as significant deficiencies in the administration of PSIB, including unclear roles, inconsistent departmental practices, fragmented or outdated guidance, weak monitoring, and limited supplier recourse.

One of the central concerns was the 33% Indigenous-content requirement. The Ombud found that departments had not consistently been directed to monitor and report against that requirement, making it difficult to determine whether contracts awarded under PSIB were producing the intended economic benefit for Indigenous businesses.

The review also questioned how the federal government reports progress against its 5% Indigenous procurement target. Under the current reporting methodology, the full value of a contract can be counted toward the target even though, under a PSIB set-aside, up to 67% of the qualifying value of work may be performed by non-Indigenous subcontractors. The Ombud recommended that reported results be tied more closely to the value of work actually carried out by Indigenous businesses.

The Ombud called for a comprehensive Indigenous procurement policy that consolidates eligibility, audit, documentation and enforcement requirements, an impartial recourse mechanism for suppliers, and a more accurate reporting methodology for the 5% target.

The government response is underway, but incomplete

The report includes the government’s response and action plan. Indigenous Services Canada (ISC) accepted the recommendation for a transformed Indigenous procurement policy and strategy. The action plan targets finalization by winter 2026 and full implementation by April 1, 2027, following engagement with Indigenous partners and federal institutions.

The response to the proposed recourse mechanism is more qualified. Public Services and Procurement Canada (PSPC) did not support unilaterally designating the Ombud as the interim complaint body outside the broader co-development process. ISC agreed to co-develop an Indigenous-led impartial recourse mechanism, with finalization targeted by winter 2027 and implementation by April 2028.

ISC also agreed that the methodology used to calculate the 5% target could be improved, but committed first to a feasibility assessment in fall 2026. The action plan leaves implementation to be determined and recognizes that a government-wide change could take two to three years, if it is feasible.

Since the Ombud’s review, PSPC has moved its operational procurement guidance to the CanadaBuys Buyer’s Portal, which is now the official source for the Acquisitions Program. That is a useful step, but it is not the same as completing the broader policy, recourse, and reporting reforms contemplated by the Ombud’s recommendations. The Ombud also committed to reporting on policy progress at six-month intervals.

As of September 18, 2026, the first six-month progress report had not been released. That six-month reporting commitment is separate from the independent five-year review of the federal Directive on Government Contracts in the Nunavut Settlement Area, which is discussed in our companion article.

When a PSIB set-aside is mandatory

A PSIB set-aside is not always discretionary. Current federal guidance states that a procurement for goods or services must be set aside where the primary recipients or end users are an Indigenous population and the value exceeds $5,000, provided that operational needs, prudence, probity, best value, and sound contract management can be assured.

For this purpose, an Indigenous population means an area or community in which Indigenous people make up at least 51% of the population, or a target group in which Indigenous people make up at least 51% of the group. Delivery does not need to be made directly to an Indigenous community if the goods or services are ultimately intended primarily for that population.

Voluntary set-asides remain available where qualified Indigenous capacity exists. The Ombud also described conditional set-asides, under which non-Indigenous suppliers may bid but the competition becomes limited to Indigenous businesses if at least two Indigenous businesses submit compliant bids. The review noted that public guidance on conditional set-asides remained inadequate.

This matters to prospective bidders. A supplier should not assume that the contracting authority’s chosen procurement route is simply a matter of discretion. Where the mandatory trigger appears to be met, the supplier should consider raising the issue with the contracting authority and reviewing the stated rationale for the procurement approach.

Modern Treaty obligations are a separate layer

PSIB and the procurement obligations in Comprehensive Land Claims Agreements, now generally referred to as Modern Treaties, are distinct frameworks. A procurement may be subject to both. If the two conflict, the Modern Treaty obligations take precedence, and setting the procurement aside under PSIB does not necessarily by itself satisfy them.

Applicability depends on the particular agreement and the procurement. Federal guidance looks principally to final delivery points and may also capture government activities, service performance, or contractor travel within a settlement area. Modern Treaty procurement obligations can apply at any dollar value, and more than one agreement may apply in an overlapping area.

The obligations vary. They may require or favour solicitation from businesses on a beneficiary list, rights of first refusal or priority sourcing, or evaluation criteria tied to beneficiary subcontracting, employment, training, professional services, suppliers, or local facilities. A national PSIB competition cannot be used as a substitute for those agreement-specific requirements.

For bidders, the practical point is to examine location and treaty coverage at the outset. Eligibility under PSIB and eligibility under a Modern Treaty business regime may overlap, but they are not interchangeable, and the solicitation should clearly identify which requirements apply.

IBD registration and PSIB eligibility are related, but different

There is no separate “PSIB registration” process. A bidder ordinarily establishes its Indigenous-business eligibility through the Indigenous Business Directory (IBD) or, where accepted, a recognized Modern Treaty business list. PSIB operates at the procurement level. When bidding on a PSIB set-aside, the bidder certifies that it meets the applicable Indigenous-business requirements and will continue to meet them throughout the contract.

For a corporation with both Indigenous and non-Indigenous shareholders, current ISC guidance requires Indigenous persons to own at least 51% of all shares and a majority of the voting shares. “Ownership” means beneficial ownership, so ISC may look beyond the corporate register to determine who the real owners are.

Control is equally important. The governing documents must give the Indigenous owners final decision-making authority over key decisions and unrestricted authority to appoint or remove a majority of directors. The business must also demonstrate meaningful Indigenous participation in leadership or governance, not simply a numerical ownership position.

Substance matters more than the cap table

IBD eligibility is assessed across the entire arrangement. ISC may consider the capital structure, voting arrangements, options, dividend policy, actual roles of directors and officers, executive compensation, banking and cash-management arrangements, management and services contracts, financing, transfer pricing, guarantees, and collateral agreements.

A 51/49 share register therefore does not answer the eligibility question by itself. A structure can satisfy the numerical ownership threshold yet still create difficulty if the non-Indigenous shareholder has the practical ability to make the important decisions, control essential systems or personnel, dominate financing arrangements, or otherwise operate the business.

The same point applies after registration. Board minutes, officer appointments, bank mandates, signing authorities, budgets, management reporting, and actual reporting lines should reflect the authority described in the governing documents. Control on paper that is not exercised in practice creates an obvious audit risk.

Joint ventures face additional substance tests

A joint venture may qualify if Indigenous people hold at least a 51% interest in the joint venture and control its direction. The calculation is not necessarily limited to the percentage shown in the joint venture agreement. Where the Indigenous partner is itself a corporation or other entity, current ISC guidance requires its own Indigenous ownership percentage to be taken into account in determining the effective Indigenous interest in the joint venture. The qualifying Indigenous partner must also be registered on the IBD.

The Indigenous partner must actively lead the joint venture’s strategic direction and operational management. The joint venture agreement should give it decision-making authority over material matters and direct responsibility for managing and carrying out the core business activities. An arrangement in which the Indigenous partner contributes only administrative, supportive, or overhead functions will not satisfy that expectation.

A non-Indigenous partner may provide technical expertise, operational support, financing, or other value, but those contributions should remain under the Indigenous partner’s direction and control and should not displace its role in performing the contract. The allocation of contributions, work, revenue, and returns should also reflect the parties’ ownership and actual participation.

The joint venture agreement and related arrangements must tell a consistent story. ISC may require an entire-agreement clause and a recent confirmation that no other agreement alters the rights described in the joint venture agreement. Side agreements, service arrangements, or financing terms that shift practical control or economic benefit can undermine eligibility even if the joint venture agreement appears compliant on its face.

The 33% Indigenous-content requirement

For a PSIB set-aside contract, at least 33% of the value of the work must be performed by the Indigenous business or by other businesses that themselves satisfy the applicable 51% Indigenous ownership and control requirement. This is a value-of-work test. It is not based on Indigenous employee headcount or on how profits are allocated.

An Indigenous business awarded a PSIB set-aside contract may subcontract work to non-Indigenous subcontractors, provided the 33% Indigenous-content requirement continues to be met across the contract as a whole. Where work is subcontracted to another Indigenous business registered on the IBD, that work counts toward satisfying the 33% threshold.

For purposes of the calculation, the value of work is generally the total contract value less materials purchased directly and solely for performance of the contract. Labour, professional services, management, supervision, transportation, and other deliverables provided by the Indigenous business or its qualifying subcontractors remain part of the numerator. The denominator is the adjusted contract value after the materials deduction, not the original contract value.

This requirement should be addressed when the delivery model is designed, not after the contract has been awarded. Businesses should identify qualifying Indigenous work scopes before bidding and maintain records capable of showing who performed the work and its value. Depending on the project, that may mean separate cost codes, a workshare register, and organized records of subcontracts, invoices, and payments.

The terms of the particular solicitation and contract remain critical. They may impose additional requirements beyond the general PSIB framework, including specific certifications, subcontracting provisions, audit rights, and reporting obligations.

Economic benefit must follow ownership

Current ISC guidance also looks at where the economic benefit goes. In a mixed-ownership corporation, financial benefits to the Indigenous owners, including profits and dividends, are expected to be commensurate with their ownership interest.

That does not prevent a non-Indigenous shareholder or related business from being paid legitimate arm’s-length amounts for services, financing, technology, equipment, or other inputs. But management fees, transfer pricing, preferred returns, guarantees, financing terms, and similar arrangements should not be structured in a way that strips the Indigenous shareholder of the economic benefit associated with its ownership.

Audits make documentation part of the compliance model

ISC identifies three forms of PSIB compliance audits. A pre-award audit is mandatory for a PSIB procurement valued at $2 million or more, although ISC may also conduct one below that threshold. Post-award audits may examine continuing ownership and control and compliance with the 33% Indigenous-content requirement. ISC may also conduct a discretionary audit at any time.

The audit process makes contemporaneous records important. Businesses should be prepared to produce incorporation and ownership records, governance documents, banking and signing-authority information, management and financing agreements, related-party arrangements, and proof of Indigenous identity and ordinary residence for qualifying owners.

For contract-performance audits, project records must also substantiate the Indigenous workshare. A standing compliance file is therefore much safer than trying to reconstruct the record after an audit notice arrives.

The removal data requires context

Non-compliance can affect both the business and the contract. Current federal guidance contemplates consequences that can include removal from the IBD, forfeiture of a bid deposit, retention of holdback amounts, disqualification from future PSIB set-asides, contract termination, and liability for Canada’s incremental completion costs.

A response to House of Commons Question Q-566, tabled on January 26, 2026, reported 635 IBD removals in the 2025 portion of ISC’s table. However, that figure only accounts for removals up to November 13, 2025, the date of the question. The figure should not be cited as a final 2025 calendar-year total.

The number is also not a count of fraud findings. The parliamentary response identified different reasons for removal, including failure to meet eligibility requirements, a request by the business to be removed, and non-responsiveness.

The Ombud’s report and the removal data should not be collapsed into a single finding. The Ombud expressly excluded ISC’s management of the IBD from the scope of its review. Taken together, however, they reinforce the same practical point: IBD status and PSIB compliance require ongoing verification, not a one-time registration exercise.

What Indigenous businesses and their partners should do now

Before pursuing a significant Indigenous procurement opportunity, the parties should test the proposed structure and delivery model against five questions:

  • Procurement route:

    Is the opportunity properly characterized as a mandatory, voluntary, or conditional PSIB set-aside, and do any Modern Treaty obligations apply?

  • Eligibility:

    Is each bidder, partner, and qualifying subcontractor listed on the correct IBD or recognized Modern Treaty business list, and can it support that status?

  • Ownership and control:

    Do the Indigenous owners have and actually exercise the required beneficial ownership, governance authority, and operational control?

  • Joint venture and economics:

    Do the joint venture, services, financing, and related-party arrangements preserve the Indigenous partner’s leading role and commensurate economic benefit?

  • Performance and evidence:

    Can the business deliver the required Indigenous workshare and prove it through contemporaneous project and financial records?

The Procurement Ombud’s 2026 review may lead to further policy changes. For now, the current framework already points in a clear direction: access to Indigenous procurement opportunities depends on choosing the correct procurement route and demonstrating meaningful Indigenous ownership, control, economic participation, and contract performance.

For procurement in the Nunavut Settlement Area, where Article 24 of the Nunavut Agreement creates a distinct treaty-based framework, see our companion article, Procuring an Edge: Inuit Firms and Nunavut Procurement.

If you have any questions, please contact the author or a member of Gowling WLG’s Indigenous Law team.