12. Contract splitting—Assessor Guidance Document—Supply Arrangement Requirements

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12.01 Circumventing approval / Contract splitting

The Contracting Authority must not issue either multiple contracts or amendments to contracts against a single requirement or back-to-back contracts to the same supplier in order to avoid obtaining the approval required by statute, the Treasury Board (TB) Contracts Directive, or appropriate management approval within the department or agency.

Assessment guidance and notes

The Contracting Authority may only award contracts that are within their legal authority. For example:

  • Requirements over $3.75M, for all departments except for Fisheries and Oceans, National Defence, Shared Services Canada and Transport Canada must be referred to Public Services and Procurement Canada (PSPC) for procurement
  • Requirements under $3.75M must be referred to PSPC for procurement if the value of the requirement exceeds the client department's delegated authority
  • Contracting Authority may have an approval level for contracts that is less than that delegated to their department

It is not possible for an Assessor to determine whether or not the Contracting Authority has or does not have the delegated authority to approve (i.e. sign) the contract(s). Given the sensitivity of this issue, guidance shall be sought by the Assessor before requesting confirmation of a Contracting Authority's delegation of authority.

Circumventing approval

The following are examples of behaviors that could be interpreted as an attempt to circumvent appropriate management approval levels within the department or agency:

  • Issuance of multiple contracts for the same or similar work in order to invoke the “does not exceed $40k” rule
    • For example, two contracts (each valued at $40,000) are issued for the same or similar work. The issuance of these two contracts gives the appearance that the requirement has been split in order set aside the competitive bidding process
  • Splitting up a large requirement or braking up a project into phases so as to reduce the value of the requirement so that a specific Supply Arrangement (SA) could be used or a smaller number of supplier invited
    • Example #1—A requirement is valued at $150,000, which means that a minimum of 15 suppliers would need to be invited because the value of the requirement exceeds the North American Free Trade Agreement (NAFTA) threshold or the Canada Korea Free Trade Agreement (CKFTA) (effective July 1st, 2020). If that same requirement was split and one contract for $75k was issued in March and the second contract issued in November (after completion of the first contract) for $75k, the contracting authority (using the ProServices SA) would only be required to invite two (2) suppliers for each requirement
    • Example #2—A project requires work covered by several different categories. A procurement is done for each category and the aggregate value of all resulting contracts either exceeded the NAFTA or CKFTA threshold or the $3.75M limitation for most departments
    • Example #3—Issuing two contracts (each valued at $75,000) using the ProServices SA for the same or similar work so as to avoid using the Task and solutions professional services (TSPS) or the Task based informatics professional services (TBIPS) SAs
    • Example #4—Issuing two contracts (each valued at $3.75M) using the PASS SA or Learning Services SA for the same or similar work to avoid sending the requirement to PSPC for procurement.
  • Issue back-to-back contracts for the same or similar work
    • Example #1—The Contracting authority issues a contract to a supplier and, at the end of the contract (or within a very short period of time) issues another contract to the same supplier for the same or similar work. If the procurement process is centralized, the contracting authority may receive the same or similar requirement from different "clients". In such cases, the contracting authority may argue that they could not anticipate that requirements for the same or similar work would be received from different "clients". This argument can be accepted when there is no history of such periodic requirements. However, once this issue has been raised with the contracting authority, if future assessments reveal similar findings, the assessor cannot accept the argument that the need could not be anticipated. The assessor must take into account that, while the work is required periodically, the requirement may be sporadic (i.e. it may occur once one year, several times the next year but not at all the year after). In such situations, the assessor must accept the argument that the contracting authority user could not anticipate or forecast future requirements for the same work
    • Example #2—The contracting authority issues a contract to a supplier and, at the end of the contract (or within a very short period of time) issues another contract to the same supplier or a different supplier for different work but, after closer examination, the assessor determines that the covered under each contract represents a different phase of a project. Contracting authorities may argue, for example, that the initial contract was issued to define the scope of future work required and that, based on the results of the initial contract, a decision was made that a second contract was required. If there is a possibility that additional phase(s) of the work may be required, the initial requirement should include options for each additional phase of the work
12.01 Circumventing approval Potential findings
Type Description Rationale
Major non-conformance—policy (other) Non-competitive requirements:

Multiple contracts were issued against either a single requirement or a single contract was issued against each of multiple requirements (for the same or similar work) each valued at less than $40,000 and the total value of all contracts issued exceeded $40,000.

 Requirement has been split to set aside the competitive procurement process. (Contravention of TB Contracting Policy sub-section 11.2.7).
Major non-conformance—policy (other) Non-competitive requirements:

Back-to-back contracts were issued for the same or similar work each valued at less than $40,000 and the total value of all contracts issued exceeded $40,000.

 Requirement has been split to set aside the competitive procurement process. (Contravention of Government Contract Regulation section 6 and TB Contracting Policy sub-section 10.2.1b).
Major non-conformance—policy (other) Competitive requirements:

Multiple contracts were issued against either a single requirement or a single contract was issued against each of multiple requirements, for the same or similar work, where the total value of all contracts issued exceeded the maximum allowable threshold.

Requirement has been split to reduce the number of Suppliers to be invited would result in Suppliers not being provided an equal opportunity to meet the requirements of the bid solicitation document. (Contravention of TB Contracting Policy sub-section 4.1.3).
Major non-conformance—policy (other) Competitive requirements:

Back-to-back contracts were issued for the same or similar work where the total value of all contracts issued exceeded the maximum allowable threshold.

Requirement has been split to reduce the number of Suppliers to be invited would result in Suppliers not being provided an equal opportunity to meet the requirements of the bid solicitation document. (Contravention of TB Contracting Policy sub-section 4.1.3).
Observation (insufficient info)

Non-competitive requirements:
Back-to-back contracts were issued for the same or similar work each valued at less than $40,000 and the total value of all contracts issued exceeded $40,000.

 There is insufficient information for assessor to assign a higher level of non-conformance.
Observation (insufficient info) Compliance to this requirement cannot be determined because there is insufficient information on file. Without a complete file, compliance to the requirement cannot be determined.

12.02 Employer-Employee Relationship

With respect to contracting for services, contracting authorities must ensure that an employer-employee relationship will not result when contracting for the services of individuals in accordance with criteria established by the Canada Customs and Revenue Agency and pertinent court rulings

Assessment guidance and notes

  • Criteria for assessing an employer-employee relationship have been established by the Canada Revenue Agency (CRA) and pertinent court rulings. For guidance, seek legal advice or consult the CRA publication RC 4110, Employee or Self-Employed. If there is any uncertainty, the contract should be signed at a level higher than the individual who would normally approve the initial entry into the contract
  • Legal advice should be sought where it is not feasible for contracting officers to determine whether a contract is a contract for services or a contract of employment (i.e. employment status is not easily identifiable). It is ultimately the responsibility of the contracting officer to ensure that contracts do not create employer-employee relationships
12.02 Contract splitting Potential findings
Type Description Rationale
Observation (other) Bid solicitation process confirmed that there were incumbents performing the required work and bid response from supplier(s) confirmed that it is the same resource(s).  There is the appearance that an employer-employee relationship can exist. Without copy of the previous contract or documentation, there is insufficient information for the assessor to assign a higher level of non-conformance.
Observation (insufficient info) Compliance to this requirement cannot be determined because there is insufficient information on file. Without a complete file, compliance to the requirement cannot be determined.

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