Consultation with Legal Services regarding the project agreement(s) as well as preparation by the project team of the Executing Agency (EA) selection documentation should be started as early as possible.
This
chapter addresses the key steps in operationalizing a project: the project
agreement with the recipient country; and contracting for the procurement
of goods and services. It also discusses some common contracting issues.
11.2
Country Program Level Agreements with Recipient Countries
The normal Country Program level agreement with a recipient government is the General Agreement on Development Cooperation (GADC). This is a treaty prepared by Legal Services (and the Department of Foreign Affairs and International Trade [DFAIT]) which sets forth the major points required in order to implement the Canadian program of cooperation. These agreements are often in place for countries where CIDA has a significant development assistance program.
Once a GADC has been signed, it must be referred to in each subsequent project Memorandum of Understanding (MOU), Exchange of Letters (EOL), or any other subsidiary arrangement. (If a GADC does not exist, the project MOU will have to contain additional clauses, as noted below.)
For further information on standard Country Program Level Agreements, please refer to the document, MOUs & Agreements. For information on other types of program level agreements, please consult Legal Services.
11.3 Project Agreements with a Recipient Government
CIDA (on behalf of the Government of Canada) will normally sign a project agreement with the recipient country1 following project approval and prior to signing a contract.
Negotiating the project agreement provides a further opportunity (before the project begins) to confirm the understanding, obligations, contributions, responsibilities and duties of each government. Project implementation should not begin before the signature of the project agreement with the recipient country.
There are two kinds of project agreements which CIDA enters into with recipient countries.
The normal project level agreement with a recipient country is the Memorandum of Understanding2. This is an official document (but not a treaty), signed by the government of Canada and the government of the recipient country, specifying the expected results of the project3 and the obligations, responsibilities and duties of the two governments with regard to the implementation of the project. It should be consistent with the Project Approval Document (PAD) (see Chapter 10) including the Logical Framework Analysis (LFA) (see Chapter 5) and the CIDA Project Management Strategy (see section 9.7).
Note:The MOU will normally make specific reference to the role of the subsequent Executing Agency Project Implementation Plan which will guide project implementation (see section 12.3).
If the CIDA Project Management Strategy is to be included in the project MOU, the PM should review the Strategy to assure that any strictly internal information (such as any sensitive elements of the Contracting Plan) are deleted or summarized in the version to be shared.
The Framework Policy for International Development Assistance allows for an Exchange of Letters (EOL) to be used in place of a MOU4. As EOLs are less structured and less detailed, it is preferred CIDA practice to use Memoranda of Understanding.
However, an EOL can be used to amend or clarify a specific aspect of an existing MOU.
Project agreements are mandatory for projects approved under LOB 1 to 7 and are recommended for LOB 8 projects (see section 4.3 and section 4.4). The Project Manager (PM) is responsible, in consultation with Legal Services and the Canadian Post, for ensuring that a project agreement (appropriate to the project) is prepared. The field representative normally negotiates the MOU with the recipient country.
Please refer to the document, MOUs & Agreements, for further information on the process for, and content of, project level agreements.
Note:11.4 Project Delivery Agreements
Until 1986, CIDA entered into loan agreements with many recipient countries, some of which have been forgiven and some of which are still in effect. For further information on loans and loan agreements, please refer to the document, MOUs & Agreements.
11.4.1 Contracting the Project
The planning, design and implementation of development assistance projects are carried out under the terms of one or more, or a combination of, service contracts, contribution agreements, goods contracts or administrative arrangements. Grant agreements or, in rare circumstances, a construction contract may be appropriate.
The decision to use various types of contractual arrangements should be made in consultation with the Contracting Officer assigned to the project team and should be outlined in the project's Contracting Plan. Basically:
- a contract should be used when CIDA is buying a good or service or is benefiting from the good or service;
-
a
contribution agreement should be used when CIDA is contributing to another
organization's initiative and where the ultimate beneficiary is
the recipient country (see the Manager's
Guide to Contribution Agreements
);
and - an administrative agreement is used when engaging another government department since legally the Crown cannot contract with itself.
There are five main types of contractual relationships which CIDA enters into in order to deliver projects:
- For CIDA-directed projects with the profit or not-for-profit sectors , an organization is selected (normally following a competitive process) and signs a service contract with CIDA to provide project delivery services;
- For Bilateral Responsive Mechanism projects (LOB 8), CIDA signs a contribution agreement with the for-profit or not-for-profit organization which has submitted a project proposal accepted by CIDA. Due to the ownership issues, if CIDA approves a project it cannot consider other organizations for the project's implementation. Therefore, selection is an issue only to the extent that the project team must be convinced that the organization submitting the proposal is fully capable of successfully achieving the desired results. The organization receiving the contribution is expected to make a contribution to the project ;
- For CIDA-directed projects with Canadian federal, provincial or municipal governments , selection is generally made on a sole-source basis. Since the Crown cannot contract with itself, an Administrative Arrangement is signed between CIDA and the federal, provincial or municipal government;
- For CIDA cooperation with International Financial Institutions (IFIs) or other multilateral organizations (i.e. UNICEF) (multi-bi projects), an administrative agreement or contribution arrangement is signed in accordance with CIDA's practice with the organization and, in some cases, discussion with Legal Services. In some cases CIDA uses the Consultancy Trust Fund agreements with the World Bank; and
- For the services of individuals to work in cooperation with the recipient partner (and often as heads of PSUs), a Cooperant contract is signed following a selection process. CIDA's cooperant contracting authority is granted under the Technical Assistance Regulations. The terms of the contract are governed by the Handbook for Cooperants. Cooperants5who are employees of the federal government are governed by benefits allowed under the Foreign Service Directives (FSDs). Cooperant projects must always be covered by an MOU with the Recipient Government.
In projects involving major purchases or construction, CIDA may also use a goods contract or a construction contract/agreement.
All project delivery agreements must define the scope of the project including expected results, the agreed-upon budget (and sources of funds), the basis and method of payment, reporting requirements, project timeframe, and the legal obligations of all parties.
11.4.2 The Role of the Contracting Officer
The Contracting Officer is an integral member of the project team. The Contracting Officer's role is to support the planning and implementation of development projects in a manner which respects government contracting policies, encourages openness, competition and fairness, and results in best value for the funds expended.
More specifically, the Contracting Officer is the contracting expert on the project team whose services include ensuring that the proposed TORs and/or Statement of Services are contractable, providing advice on the interpretation of contracting policies and guidelines, recommending contracting approaches and methods, and assisting with Contracting Plans, negotiation strategies and problem solving. The Contracting Officer will ensure the preparation of quality contracting documents and assist the project team with contract financial security issues, interpretation of clauses, conflict prevention and resolution of disputes, and contract and contribution cost audits.
Involving
the Contracting Officer early on and throughout the planning and contracting
processes should ensure that contracting activities will withstand public
scrutiny and should facilitate the successful implementation of the project.
The Contracting Officer assigned to the project team should be consulted
on all contracting issues.
11.5
Procurement of Services
The first step in operationalizing a CIDA-directed project is usually the selection and contracting of an organization to design and/or implement the project. The selection and contracting of a project monitor or the procurement of other services may also be required.
The purpose of this section is to provide a brief overview of processes and to provide references to the source of more detailed information. The contracting officer on the project team should be consulted on any contracting matters.
The two most important issues for the procurement of services are the correct procedures (based on authorities derived from either the Government Contract Regulations [GCRs], the TB Contracts Directive or CIDA's Delegated Financial Signing Authorities) and the duration and time frame for selection and contracting. The detailed procedures can be found in the Contracting Guide for Managers in CIDA.
Prior to undertaking any formal contracting activity for project delivery, the Project Manager must ensure that the project has been published on CIDA's project pipeline for at least one month. See Guidelines for Publication of the Projects at the Planning Stage "Pipeline".
Many large projects involve the administration of project field personnel by Executing Agencies which is governed by the document, Management of Overseas Personnel: Manual for Executing Agencies, available from the Contracting Management Division. If there is a discrepancy between the Manual and the contract, the contract will prevail Therefore, the PM should ensure that benefits agreed to during negotiations do not exceed the provisions of the Manual. Any exceptions should assure value for money and consistency with other major CIDA contracts in the country or with the organization.
The procurement of goods for CIDA is normally undertaken by the organization implementing the project but can also be carried out by the recipient country or the department of Public Works and Government Services Canada (PWGSC). In the first case, a procurement delegation must be obtained from PWGSC. All procurement must be carried out to the standards outlined in the TB Contracting Policy and the GCRs.
More
details on the goods procurement process can be found inCIDA's
Procurement Handbook for Goods and Related Services.
11.7.1 LOB 8: Bilateral Responsive Mechanism
On
LOB 8, Bilateral Responsive Mechanism projects, the approval of the project
and the implementing organization are inseparable. (See section
4.4.8 and A
Guide to CIDA's Bilateral Responsive Mechanism for further details
on this mechanism. See the Manager's
Guide to Contribution Agreements
for further discussion of contribution agreements.)
On projects exceeding $100,000, the Bilateral Desk will seek the Minister's agreement to enter into discussions with the project proponent that would lead to the conclusion of a contribution agreement. If the project team intends to ask the organization to submit a detailed proposal, the agreement of the Minister is sought before making the request. If the proposed project is to proceed directly to the approval stage, the Minister's agreement is sought before the project is approved by the Vice-president, Director-General or Program Director.
When an organization will be receiving more than $200,000 annually, from any and all CIDA sources, the PM will request a financial risk assessment of the organization be carried out by the Financial Risk Assessment Unit (FRAU) of the Finance Division.
The resulting contribution agreement must be consistent with the PAD and other documentation supporting the PAD, such as the original proposal, the LFA and the CIDA Project Management Strategy.
Contributions can be made to either for-profit (private sector) companies and not-for-profit organizations under LOB 8 (Bilateral Responsive Mechanism projects). The organization receiving the contribution should make a contribution to project and this contribution should be specified in the Contribution Agreement. As well, the TB Transfer Payments Policy requires recipients of contributions to disclose all contributions from other sources and any outstanding Crown debts. Project teams must monitor project costs over the life of the project.
Working in collaboration with the PM, the Contracting Officer prepares the resulting Contribution Agreement for signature by the implementing organization and CIDA.
For
more information related to contribution agreements, see the Manager's
Guide to Contribution Agreements.
11.7.2
Other Implementing Organizations
There may be other situations where NGOs within recipient countries, International NGOs or Regional Intergovernmental bodies (Canadian or otherwise) are chosen by CIDA and a contribution agreement is the appropriate type of project delivery agreement. PMs should consult a Contracting Officer as these situations normally would require special approval.
As
indicated above, the agreement must be consistent with the PAD (and other
documentation supporting the PAD, such as the LFA and the CIDA Project
Management Strategy). Agreements with NGOs within recipient countries are
handled by the Contracting Officer, whereas agreements with International
NGOs or Regional Intergovernmental bodies are prepared in consultation
with Legal Services.
11.7.3
Authority to Sign Contribution Agreements
Following
project approval and Ministerial agreement, the signing of the contribution
agreement is based on the delegated authorities found in theDelegation
of Selection Authorities and Contractual and Financial Signing Authorities.
11.8
Cooperants and Trainees
The
Technical
Assistance Regulations (TARs) grant CIDA the authority to hire cooperants
(referred to as Advisors when engaged by an Executing Agency) and fund
students and trainees under a bilateral project. The Foreign Service
Directives (FSDs) govern Canadian Government employees under CIDA contract.
11.8.1
Cooperants
While the normal approach of CIDA is to contract with EAs to implement projects, there are times when CIDA will implement a small project directly, often through Cooperants. When the project requires the use of Cooperants, the PM should refer to the Guidelines for the Recruitment of CIDA Cooperants6.
Cooperants
under direct contract to CIDA are managed according to the Handbook
for Cooperants available from the Contracting Management Division unless
the cooperant is a federal government employee governed by the FSDs.
11.8.2
Trainees and Students
CIDA does not normally manage trainees and students directly, but rather through an EA. Guidelines are provided in the document: Management of Students and Trainees in Canada: Manual for Executing Agencies7. These guidelines are also based on TARs.
Note:For information about the processes, procedures and benefits for trainees and students (including rates for trainees in third-world countries), call the Scholarships and Environment Program of the Canadian Partnership Branch.
These Guidelines also deal with recipient country technical missions visiting Canada.
11.9 Common Contracting Issues
This section provides a basic understanding of various issues which should be taken into consideration during the contracting process. These issues are presented in alphabetical order.
Advance payments should be considered only in extraordinary circumstances, that is, when they are considered essential to program objectives. Contractors are expected to finance their work from their reserves or through commercial financing based on the anticipated payments from the contracting authority for full or partial completion of the work. Prior to agreeing to an advance payment, project teams should consider the financing and interest costs to CIDA, the method of recovery and other alternatives. Project teams should consider including advance payments in a contract only if:
- adequate security for the payment is ensured;
- CIDA receives value commensurate with the amount of the payment;
- CIDA has adequate funds to provide the financing; and
- one or more of the following criteria are met;
(ii) contractor could suffer hardship or provide financing only with difficulty or at rates considered to be uneconomic in relation to prevailing chartered bank prime lending rates;
(iii) the value of the contract is considered to be beyond the assessed financial capabilities of the contractor;
(iv) long duration for the contract performance;
(v) an entrenched tradition or practice of receiving advance or progress payments exists in a particular industry or segment of industry.
Due
to the higher risk and complex nature of international development assistance
projects, CIDA has an approvedAdvance
Payment Policy (Administrative Bulletin 85-3) which project teams
must adhere to when determining the eligibility of and administering advance
payments.
Contracts should not be amended unless such amendments are in the best interest of CIDA, because they save dollars or time, or because they facilitate the attainment of the primary objective of the contract. Amendments to existing contracts often call for more administrative work and little can be done through competition to encourage the contractor to do additional work or respond to changes at the lowest possible cost. Every effort should be made to avoid:
- inadequate initial funding, resulting in amendments to increase the contract value;
- inadequate preplanning, resulting in amendments to change the design, specifications or quantity involved; and
- improper administrative procedures, necessitating amendments to change the specifications and delivery or other requirement in order to protect the contractor or CIDA
Contract
amendments should relate to changes in the services provided as reflected
in revised work plans (see
Administrative Bulletin 99-8, Change Requests to Workplans and
Milestone Meetings and Contract Amendments).
Corruption is increasingly being recognized as undermining development and reducing opportunities for economic growth. Over the past three years, both bilateral and multilateral organizations have expressed concerns about corruption and have committed themselves to ensuring that their programs avoid even the slightest hint of corruption, either on the part of staff or partners or in their dealings with developing countries.
In keeping with Canada's commitment made at the DAC, the following anti-corruption clause is to be inserted in all aid related contracts (including abridged contracts), standing offers and contribution agreements of all branches.
"No offer, gift or payment, consideration or benefit of any kind, which constitutes an illegal or corrupt practice, has or will be made to anyone, either directly or indirectly, as an inducement or reward for the award or execution of this contract / contribution agreement. Any such practice will be grounds for terminating this contract / contribution agreement or taking any other corrective action as required."In rare instances, such as for contracts or contribution agreements with local organizations, it is possible that this clause may need to be adapted slightly. In such instances, Legal Services should be consulted. For further details see Administrative Bulletin 99-7, Anti-corruption clause.
11.9.4 Employer-Employee Relationships/Consultants Working on the Premises
The creation of employer-employee relationships as a result of the contracting process is NOT unique to government contracts. The courts have ruled on cases arising from both public and private sector contracting actions. Basically, if the contracting relationship is determined to be one of an employer and an employee rather than client and contractor, then the contracting authority (CIDA) can be held liable for the financial obligations of an employer such as providing fringe benefits (pension plan contributions, employment insurance, health plan coverage, union benefits, etc.). As a penalty, CIDA may be required to cover both the employer's and the employee's contributions to these plans.
Normally
the risk of creating an employer-employee relationship is higher when engaging
the services of individuals. Each case is assessed on its own merit and
involves consideration of the intention of the parties to the contract,
the terms and conditions included in contract documents; and the actual
work situation. Project managers should avoid direct supervision, the provision
of the working tools, and control of the performance of the services. To
the extent possible, the services should be based on outputs as opposed
to activities. Details of the CIDA's directive on Employer-Employee
relationships can be found inAdministrative
Bulletin 87-40.
It
is important to note that if a consultant will be provided with the use
of CIDA workspace or facilities (including access to computers, photocopiers,
telephones, facsimiles, etc.), it may be necessary to adjust the consultant's
fee to reduce the overhead component. Details of CIDA's policy onConsultants
Working on CIDA Premises is found in Administrative Bulletin 92-6.
This
policy also places a responsibility on the contracting authority to ensure
that physical security (access to the building and documents) is not breached
by the individual working on the premises.
Extra costs under a contract are considered to be costs for which CIDA has received no additional or apparent benefit and there is uncertainty whether a legal liability exists under the terms of the contract. Extra costs should cover only the additional reasonable costs incurred by the contractor and should be considered only if the circumstances were beyond the contractor's control and the contractor was without fault or negligence and could not reasonably have foreseen the actual circumstances at the time the contract was entered into. Extra payments will not normally be approved when they are solely caused by:
- increases in labour or materiel costs;
- changes in freight rates;
- revisions in exchange rates (beyond adjustments provided for in the contract);
- increases in taxes and duties;
- delays caused by the contractor;
- errors on the part of the contractor; and
- other difficulties that the contractor overlooked but should have foreseen.
Fees paid to consultants for services rendered should cover a consultant's costs plus a reasonable profit margin and reflect the market for the particular service. The market may bear higher or lower fees depending on the availability of and demand for experts in the field and can change over time. It is important that CIDA NOT set or influence the fair market price for a service in Canada or overseas.
The best way to ensure that a fee represents fair market value is through the competitive process. This is the method which should be used in almost all cases.
In a non-competitive situation, fees must be established through negotiation and consultants must be challenged to demonstrate their market rate. The Contracting Officer assigned to the project team must be consulted prior to any fee negotiations and can provide current definitions of CIDA's criteria for determining that a proposed rate can be considered an individual's market rate. Basically, the criteria are that the consultant regularly receives the proposed fee from a variety of Canadian clients for similar services.
Only as a last resort, when an individual cannot meet CIDA's criteria for substantiating their market rate, should a fee analysis be considered. The fee analysis will be coordinated by the Contracting Officer assigned to the project team and involves consideration of the qualifications of the individual, the qualifications necessary to satisfactorily accomplish the work, and the nature of the work as defined in the terms of reference. As an extreme example, if a lawyer is proposed for clerical work, the resulting fee analysis will recommend a clerical fee. If a PTL feels that a rate resulting from a fee analysis is too low, it could be that the wrong individual has been selected for the assignment or the terms of reference do not adequately reflect the service to be provided.
Fee information is CONFIDENTIAL. A specific consultant's rate cannot be disclosed to or discussed with another consultant without permission (it is advisable that permission be granted in writing). It is important during negotiations not to divulge any confidential information about specific consultants or their market value. Discussions must be limited to rates in the field of expertise in general.
Flow-through
costs are often confused with out-of-pocket or direct project expenses.
CIDA's Profit
Policy (Administrative Bulletin 88-28) defines flow-through costs
as "costs which are included in the contract exclusively for the purpose
of providing an administrative mechanism for the transfer of funds, and
for which the consultant has only administrative and financial management
responsibility."
More recently, CIDA has UNOFFICIALLY further clarified flow-through costs as an expenditure which does not result in CIDA receiving a direct benefit from the contractor because the contractor:
- does not provide a service or good directly to CIDA; and
- is not technically responsible for the end product (the service or good); and
- doesn't receive any profit or loss as a result of the expenditure/cost.
The objective of CIDA contracting is not only to receive the deliverable specified in the contract but also to be able to use and share the deliverable with other parties and other projects in order to benefit the international development knowledge base and to improve project implementation practices and project results. The current policy of the Government of Canada is to allow contractors to retain ownership of intellectual property to pursue socio-economic objectives such as generating employment without restricting the right of the government to use and benefit from the intellectual property which results from a contract.
Prior to entering into a contract, it is important for project teams to determine what type of intellectual property a potential contractor might bring to the project, what intellectual property might be developed over the life of the contract and what intellectual property it would be appropriate to share with other donors, project participants, other executing agencies, etc. These considerations must be discussed during the negotiation of a non-competitive contract or, in a competitive situation, be raised as issues in RFPs. The resulting agreements for ownership and rights to use any intellectual property first conceived, developed, produced or reduced to practice as part of the work of the contract must be clearly included in the contract or in separate licence agreements. These rights can be negotiated on a royalty-free basis and should be monitored over the life of the contract to ensure that any changes or additions are addressed.
As an example, a micro-finance project may result in the development of training materials which would be of interest for other micro-finance projects being implemented by other executing agencies or other donors. CIDA should ensure that it has the right to use the training materials, translate the training materials, include the material in presentations or on the Internet, share the materials with other executing agencies or donors and, in general, use the materials for the benefit of international development.
TB policy recognizes that under certain circumstances it may be appropriate for the Crown to own the intellectual property developed under a contract. Acceptable reasons are:
- national security;
- where statutes, regulations, or prior obligations of the Crown to a third party or parties preclude contractor ownership;
- when the contractor declares in writing that he/she is not interested in ownership;
- where the main purpose of the Crown contract, or of the deliverables contracted for, is:
b) to augment an existing body of Crown-owned intellectual property as a prerequisite to the transfer of the augmented intellectual property to the private sector, through licensing or assignment of ownership (not necessarily to the original contractor), for the purposes of commercial exploitation;
c) to deliver a component or subsystem that will be incorporated into a complete system at a later date (not necessarily by the original contractor), as a prerequisite to the planned transfer of the complete system to the private sector (not necessarily to the original contractor), through licensing or assignment of ownership, for the purposes of commercial exploitation.
- where the intellectual property derived from the contract consists of material subject to copyright, with the exception of computer software and all documentation pertaining to that software.
For further details on the Intellectual Property policy please refer to theInformation Bulletin on Government-wide Policy on Title to Intellectual Property arising under Crown Procurement Contracts.
11.9.9 Suspension or Termination
During the life of the project, circumstances may arise which necessitate the suspension or termination of all or part of the project. These circumstances may relate to contractor default or to circumstances beyond the control of the contracting parties. For example, a contractor may not be able to perform due to the outbreak of civil strife or a destructive weather event. If this inability to perform is expected to last for an extended period, it may be appropriate to suspend the contract (or the component impacted by the circumstance) in order to relieve both contracting parties from their respective obligations to perform under the contract.
Before initiating any discussions or actions with the contractor, the Contracting Officer assigned to the project team should be consulted. It is normally prudent to involve Legal Services as well, particularly if there is any chance of downstream legal action. The Contracting Officer will advise the project team regarding the extent to which the Minister needs to be involved in specific suspension or termination actions.
Agreements funded by CIDA from the Official Development Assistance budget (program budget) are exempt from the North American Free Trade Agreement (NAFTA) and the World Trade Organization - Agreement on Government Procurement (WTO-AGP). All CIDA agreements are subject to the Agreement on Internal Trade (see the Contracting Guide for Managers in CIDA). When CIDA delegates its contracting authority to the recipient country, the resulting contractual agreements are not subject to the trade agreements.