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Guide on Grants, Contributions and Other Transfer Payments


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3 Selecting the right instrument

This section's objective is to provide guidance on when to use a procurement contract and when to use a transfer agreement.

3.1 Procurement contracts versus transfer agreements

A procurement contract is used to obtain goods or services. It is an agreement between a federal government contracting authority and an outside party to purchase goods, provide a service or lease real property. Most often, the outside party is chosen through a competitive selection process, as described in Government Contract Regulations.

A transfer (payment) arrangement is used to transfer monies or make in-kind contributions from the federal government to individuals, organizations or other levels of government (e.g., provincial governments) to further government policy and the department's objectives. Although transfer payments are primarily used for projects, they are also used extensively to deliver basic ongoing essential services.

Consider the following principles when determining whether to use procurement contracts or transfer agreements:

Principle 1: A department should not benefit directly from the award of a transfer agreement.

To "benefit directly" implies that a department receives or acquires a needed good or service that supports its operations. Any indirect benefits a department may receive should be incidental to, or a by-product, of the main objective.

Principle 2: A core service that departmental staff are mandated to provide directly should not be funded through a transfer payment.

Goods or services are provided to the Canadian public either through departmental operations or through a transfer payment. It is ultimately Parliament that decides what core services or goods a department will deliver directly.

A department mandated to directly deliver goods or services must carry out its responsibilities by using its own staff or issuing procurement contracts for other parties to undertake these duties. In either case, the department must fulfil its obligations. Because the department is mandated to deliver these goods or services directly, transfer payments cannot be used to discharge departmental responsibilities.

Principle 3: An individual or an organization that receives a transfer payment does not act on the government's behalf.

A transfer payment is awarded to a recipient to further the mandate of the department or government. However, the recipient is not acting on the government's behalf.

On the other hand, if the government awards a procurement contract to an organization or an individual to provide a service or deliver a good, then the organization or individual may be construed to be acting on the government's behalf.

Principle 4: A transfer agreement does not allow the awarding of damages in case of non-compliance.

Under a contribution, there is nothing acquired by the Crown. The department is obliged to reimburse the other party's eligible expenditures, as specified in the agreement. If the expenditures are not made or are not eligible, the party has no right to the contribution payment and the department may recover any money already paid. However, in that case, the department would have no right for damages because no harm to the department can follow from a recipient not complying with the agreement. There is then some risk in using the grant and contribution approach if a department is expecting to use the results of a project funded in this manner, notwithstanding that it would be an inappropriate use of transfer payments.

It is important that you consider all of these principles jointly and not in isolation of each other to make informed decisions.

3.2 Appendices and Tools

3.2.1 Case study-contracts versus transfer agreements

A department is considering the best means to organize and carry out a symposium on Canadian research capacity in the area of "memory in normal ageing and dementia." This is a critical issue for the department as the minister plans to make a public policy announcement on the issue very soon.

The symposium will bring together the best Canadian and international scientists to express their views and to report on their research findings in this important area. The department expects to use the information coming out of this symposium as one input among many to arrive at a policy statement and future action plan. It will also greatly benefit the health research community, the pharmaceutical industry and public policy makers, as the information presented at the symposium will bring forward a wide array of current thinking on the issue.

Organizing the symposium will entail tasks such as securing presenters, arranging the facilities, procuring simultaneous translation services, selecting chairs, advertising and promoting, and preparing and publishing proceedings.

There are two possibilities in financing and organizing this symposium:

Service Contract: Professional firms are available to organize conferences and meetings. A contract could be issued to one of these firms rather than overload overworked staff. Sufficient funds are available in the operating budget to support it.

Grant or Contribution: The ABC Society of Canada is interested in this symposium to advance its work in this area. If the society was given a grant or contribution, it could take responsibility to organize the symposium from top to bottom. Through the Health Grants and Contributions Program's existing terms and conditions, the department has the authority to make transfer payments, which the ABC Society is eligible to receive. Since funds are likely to lapse in the grants and contributions budget, this would be a good way of using these funds productively.

What do you think?

Case Analysis

Decision makers must consider the four fundamental principles that distinguish a contract from a transfer payment to adequately determine the right instrument to use.

Depending on the facts and assumptions that are made, there are two possible outcomes. First, if it is determined that the event's intent is to benefit non-governmental organizations and interested parties, and holding a symposium is not the normal means for departmental staff to develop policy, then a transfer payment arrangement could be considered. On the other hand, if the symposium's intent is to develop public policy and sponsoring these types of events is the normal staff practice for developing policy, then a contract would be more appropriate.

Consider Principle 1: A department should not benefit directly from the award of a transfer payment.

The essential questions are, who will benefit from holding the symposium and to what extent will they benefit? That is, will the department receive a direct benefit by acquiring needed information or will the department receive a benefit only as a by-product of the activity?

In this case, the symposium does not appear to be critical to developing the department's public policy. The evidence suggests that the information coming out of this symposium would be used as one input among many to formulate policy. It could be implied, therefore, that the symposium is not essential to develop the department's policy.

A second question is what direct benefit would accrue to other parties and other interests? It is stated that the symposium will be a "great benefit to the health research community, the pharmaceutical industry and public policy makers." In addition, the ABC Society is "interested in this symposium to advance its work in this area." It could be construed that the symposium is to benefit non-governmental organizations, and the information that the department would have access to is only a by-product of providing funding (i.e., incidental to developing policy).

Consider Principle 2: A core service that departmental staff are mandated to provide directly should not be funded through a transfer payment.

We can question whether developing public policy by organizing events such as the symposium is a job requirement of departmental staff or is beyond their responsibility.

The case reveals that "a department is considering the best means of organizing and carrying out a symposium" and is considering an outside party to take on the work "rather than overload overworked staff." These two facts support the proposition that it should be a procurement contract.

On the other hand, such an event may not be a core, ongoing departmental activity. While departmental staff may be competent to undertake this activity, there is no evidence that it is a core service. The department may believe that a symposium is a viable approach to encourage debate and research in the field of dementia and ageing. But staff may not normally organize and run symposia to achieve that end.

Unfortunately, without more information on the department's mandate, this principle cannot be assessed with any degree of confidence.

Consider Principle 3: An individual or an organization that receives a transfer payment does not act on the government's behalf.

From the information above, there is no evidence to suggest that the ABC Society would be acting on the department's behalf if it were given a grant or contribution.

Consider Principle 4: A transfer agreement does not allow the awarding of damages in case of non-compliance.

In the case, no information regarding this point is provided. Let us assume that the option to seek damages is not essential.

Summary

Since the assessment using principle 2 was inconclusive, the decision rests with the information examined under principles 1, 3 and 4.

The facts under principle 1 point to the department holding the symposium to advance public policy-not develop it. The symposium's primary objective is to support the interests and activities of organizations such as the ABC Society and , as such, any benefit to the department would be a by-product. Under principle 3, there is no evidence that the ABC Society would be acting upon or be perceived to be acting upon the department's behalf. Finally, under principle 4, the awarding of damages should the activity not proceed as envisioned is not an issue.

Under these circumstances, the department could legitimately authorize a transfer payment.

3.2.2 Checklist-contracts versus transfer agreements

This checklist is a tool to determine if a procurement contract or transfer payment should be used. A greater number of "yes" answers indicates that a procurement contract is likely more appropriate than a transfer payment.

Principle

YES

NO

1. The department is acquiring a good or service.    
2. The department is directly benefiting in some way from the arrangement.    
3. Departmental staff have been mandated to provide the Good or service directly to the public (e.g., food inspection).    
4. An outside party is acting on the department's behalf (e.g., agent).    
5. The department would consider seeking damages (i.e., recovery of more than the original payment) from a court if the project objectives or initiative were not met.    

3.2.3 Table-comparison of contracts and transfer agreements
 

Choosing Between Contracts and Transfer Payments

ELEMENT

CONTRACTS

TRANSFER AGREEMENTS

Purpose

Acquisition of goods or services by and for the department

Allows the participant to undertake an activity that furthers government policy and departmental objectives

Who benefits?

Government department itself and contractors who will claim for costs and profit

An identified sector, group or individual(s) of the Canadian public who will only claim for the reimbursements of their costs incurred (no profits earned)

Authorities

Subject to the department and minister's legal or legislative authorities and sufficient funds exist under the operating expenditures vote

Also TB Contracting Policy

Subject to the department and minister's legal or legislative authorities and to sufficiency of funds in the vote providing for grants or contributions; in the case of grants, Parliamentary approval is required through the Estimates.

Also TB Transfer Payment Policy

Risk Assessment

Little to no risk that the service will not be performed or the good not received because of the agreement's legal nature

Influences the type of instrument chosen (e.g., grant versus contribution) and program terms and conditions including the nature of the beneficiaries

Accountability

Results monitored within the scope of each specific agreement only

Results monitored on a project-specific basis and through program evaluation



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