North of 60 Blog

Across the North, government procurement is big business. Governments strive to strike a balance between retaining procurement benefits (and dollars) in their own territories, while still providing value for tax payers. The Yukon Government recently overhauled its procurement policy to include advantages for Indigenous-owned businesses. Nunavut, through Nunavut Tunngavik Inc. (NTI), maintains the Inuit Firm Registry. The Northwest Territories (NWT) has some catching up to do.

Government of the Northwest Territories (GNWT) procurement represented 11% of the territory’s 2022 GDP: $482.5 million.^[1] In an ideal world, these big government dollars would be spent in and stay in the NWT. However, the GNWT needs to strike a balance between keeping procurement dollars in the North and running up against Northern capacity issues that inevitably see spending go down south to larger contractors.

As a result, the GNWT’s procurement policy has been under discussion and development for years.^[2] Despite a comprehensive Report of Procurement Review Panel’ delivered in June of 2021, progress remained elusive.^[3] MLA Rylund Johnson, speaking in the Legislative Assembly in May, 2023, wondered if the procurement review was ever going to end.^[4] This is a good question.

In July, 2023 the GNWT released the Report on the Review of GNWT Procurement Policies and Practices (PPP Report).^[5] In the report, the GNWT sets out an implementation plan for a wide range of the recommendations made in the 2021 Review Panel’s report.

Maximizing Benefits for NWT Residents and Businesses

The GNWT’s main tool to keep contracts with local businesses and residents is the Business Incentive Policy, or BIP. Qualified BIP businesses receive bid value reductions of up to 20% over non-BIP registered companies to account for higher costs incurred doing business in the NWT. To be qualified as a “Northern business”, an applicant must:

• Operate a business, from year to year, from a physical location in the NWT;
• The business must be majority owned by NWT residents, with at least 51% of voting shares beneficially owned by residents;
• The business must comply with legal requirements to operate in the NWT, and hold the relevant licenses; and
• Business owners must be resident within the NWT for the past year prior to applying.^[6]

Despite BIP’s good intentions, the policy has issues that needed addressing. First, BIP may not be effective in providing a bid advantage to NWT businesses. BIP lacks an evaluation framework, and the 2021 Procurement Review found that from 2016-2020, less than 1% of all contracts awarded were impacted by application of the BIP bid value adjustment.^[7] But without an evaluation framework, there’s no way to determine why BIP has had such a small impact. Second, monitoring and enforcement of BIP conditions are weak or non-existent, and third, the NWT lacks an Indigenous procurement policy. In addressing these issues, the GNWT has a real opportunity to create an effective procurement policy that is transparent and predictable.

In the PPP Report, the GNWT explains “a review has been completed resulting in a proposed updated definition of a northern business.”^[8] This aspect of the PPP Report has the status of “ongoing,” so NWT businesses will have to wait longer yet for clarity on a new definition of Northern business. However, the PPP Report indicates that Schedule 3 will be removed from the BIP. Schedule 3 is a list of 54 businesses that have been allowed to benefit from bid value reductions, irrespective of the residency of their owners. Schedule 3 businesses include Air Tindi Ltd, Clark Builders, Northwestel Inc., Wal-Mart Canada Corp. and Loblaws Inc., among others.^[9]

Indigenous Procurement Policy

A recent court case in the Yukon identifies potential pitfalls in implementing an Indigenous procurement policy. This case holds lessons for the NWT as it develops its own Indigenous policy, and for the Inuit Firm Registry in Nunavut. See our companion piece on the case and some eloquent reasoning for the remedy.

The Yukon First Nations Business Registry (YFNBR) was established in 2021 to provide opportunities for Yukon First Nations to participate more fully in the Yukon’s economy. The YFNBR does this through bid value reductions, not unlike those in the NWT’s BIP.^[10] An applicant to the YFNBR must have a majority of their beneficial ownership vested in Yukon First Nations business owners.

In 837386 Yukon Inc. v Yukon (Government of), 2023 YKSC 11, at issue was the beneficial ownership of 837386 Yukon Inc. (837) and its rejection from the YFNBR.^[11] Nicholas Zaccarelli, a member of the First Nation of Na-Cho Nyak Dun, owned 75% of the company and Paramjit Sidhu, a non-Indigenous person, owned 25%. After a close review of the company’s application, YFNBR administrators determined Mr. Zaccarelli did not have beneficial ownership of the company, despite holding 75% of the voting shares. The reviewer found Mr. Zaccarelli’s percentage-based compensation, set forth in a shareholder’s agreement, did not give him the “majority of the benefits” of the company, as required for YFNBR qualification.^[12]

Ultimately, the Yukon Supreme Court held the decision to deny 837’s registration was unfair. The Court found the registration process, and the criteria for “beneficial ownership,” were not made clear to the applicants. Additionally, the Court stated the YFNBR decision was based on conjecture “without any basis in fact,” making the assumption 837 was simply a shell company formed to take advantage of registry benefits.^[13] Maybe that was the intent. But as the Court clearly pointed out, 837 could also be a young company with a “First Nation person who is starting out and learning the business.”^[14] Registry decisions can’t be made through a “flawed and opaque” process, said the Court.^[15]

Transparency and Predictability

All businesses operating in the North, whether Indigenous, Northern resident or those from the south, need transparency and predictability to navigate business incentive policies. The YFNBR application process has been ruled opaque and unfair by the Supreme Court of Yukon. To qualify for bid value reductions in Nunavut, NTI oversees the Inuit Firm Registry. NTI criteria to determine Inuit-owned businesses is broadly worded, providing a list of relevant factors that will be “primarily considered.”^[16] However, no single factor is determinative, and an applicant must be qualified as an Inuit firm based on both the “substance and intent” of Article 24 of the Nunavut Land Claims Agreement. Broad language leaves too much room for interpretation of an applicant’s submission, and may lead to similar legal challenges found in the 837 case. Clear, unambiguous criteria to qualify for incentive programs, and remain qualified for them, is required for both transparency and predictability.

Getting it Right

Procurement policies are complex beasts, and changes to policy can have powerful effects on the social and economic well-being of NWT residents. Changes to GNWT procurement are both overdue and necessary. Given the evolving nature of the NWT economy, now is the time to focus on making the most effective changes, and getting those changes implemented.

_{[1] Government of Northwest Territories, “newstats: NWT Bureau of Statistics” (released 2 May 2023) at 3, online (pdf): Government of Northwest Territories <statsnwt.ca/economy/gdp/May2023_GDP.pdf>.}

_{[2]Standing Committee on Economic Development and Environment, “Report on Supporting Northern Businesses” (2 June 2023) at 5, online (pdf): Legislative Assembly of the Northwest Territories <ntassembly.ca/sites/assembly/files/cr_53-192_scede_report_on_supporting_northern_businesses.pdf >.}

_{[3] Anderson, L., Beaulieu, D. & Vician, P, “Report of Procurement Review Panel” (30 June 2021), online (pdf): Government of the Northwest Territories Industry, Tourism and Investment <iti.gov.nt.ca/sites/iti/files/2021-11-23_-_TD_Procurement_Review_Panel_Report.pdf>.}

_{[4] MLA Rylund Johnson, Member’s Statement 1517-19(2): “Government of the Northwest Territories Procurement Policy Review” online: Legislative Assembly of the Northwest Territories <ntassembly.ca/hansard/hn230525-0?keyword=procurement%2520#1017690>.}

_{[5] Government of Northwest Territories, “Report on the Review of GNWT Procurement Policies and Practices” (July 2023), online (pdf): Government of Northwest Territories Finance <fin.gov.nt.ca/sites/fin/files/resources/procurement_review_report-final-230724-benjulie.pdf> [PPP Report].}

_{[6] Government of the Northwest Territories Industry, Tourism and Investment, “Business Incentive Policy, No. 63.02”, (Revised 8 June 2021) at s 6(2), online (pdf): Government of the Northwest Territories <iti.gov.nt.ca/sites/iti/files/63-02-bip.pdf>.}

_{[7] Supra note 3 at 62.}

_{[8] PPP Report, supra note 5 at 12.}

_{[9] Supra note 6, schedule 3.}

_{[10] Government of Yukon, “Government of Yukon Policy 2.6, General Administration Manual: Procurement Policy” (Effective 22 February 2021, updated 01 May 2023) at s 11(7.1), online (pdf): Government of Yukon <yukon.ca/sites/yukon.ca/files/hpw/hpw-gam-2.6-yukon-first-nations-procurement-policy-may-2023.pdf>.}

_{[11] 837386 Yukon Inc. v Yukon (Government of), 2023 YKSC 11.}

_{[12] Ibid at para 22.}

_{[13] Ibid at para 43.}

_{[14] Ibid.}

_{[15] Ibid at para 41.}

_{[16] Nunavut Tunngavik Incorporated, “Inuit Firm Registry Policy” (March 2014, amended August 2018) at 2, online (pdf): Nunavut Tunngavik Incorporated <inuitfirm.tunngavik.com/files/2017/01/22-Inuit-Firm-Registration-Policy.pdf>.}