12.8.1 The key factor when disputes arise is the expeditious handling of the disagreement. This is particularly important because prolonged disputes can delay performance as defined in the contract and payment to the contractor. As such, the Minister of Justice has committed to working with client departments to introduce Dispute Resolution (DR) clauses into the various contracts to which the Government is a party. To this end, the Directive Concerning the Use of Dispute Resolution Clauses in Contracts (the Directive) has been issued by the Department of Justice. The Directive states that, in advising client departments and in preparing contracts for client departments, Justice legal practitioners must make every effort to insert dispute resolution clauses into contracts, where appropriate. Dispute resolution clauses may range from provisions for resolution of disputes as they arise, by way of structured negotiations, to other alternatives such as mediation and arbitration. Any inquiries regarding the Directive Concerning Dispute Resolution policy or the appropriate clauses should be made to your departmental legal services unit of the Department of Justice.
12.8.2 In a contract dispute, the decisions of the contracting authority made after the contract has been awarded, are challengeable in court. Under North American Free Trade Agreement, the World Trade Organization - Agreement on Government Procurement, the Agreement on Internal Trade, the bidding process can be challenged at the Canadian International Trade Tribunal. It is important, therefore, that legal advisers be consulted and that the actions of a contracting authority and its decisions on a contractor's claim be defensible in court.
12.8.3 Negotiations. Efforts should be made to resolve disputes as they arise, first by negotiating with the contractor. This can be through discussion between representatives of the contractor and the contracting authority or by a more formal review established by the department or agency. Contracting authorities should develop systems that ensure:
1. prompt attention is given to disputes;
2. unresolved disputes are brought forward quickly to a designated senior level in the department or agency for decision; and
3. the decision is quickly communicated to the contractor so that the contractor may take further action if so desired.
12.8.4 Mediation. When a dispute has not been resolved by negotiation, mediation by a third party may be used when it is acceptable to both sides. Mediation should conform to the following principles:
1. it should be voluntary on the part of the contracting department or agency and the contractor with respect to entry into mediation, selection of mediator, and acceptance of the mediator's recommendations;
2. the powers of a mediator should be limited to persuasion and cannot include adjudication. (There should not, however, be any restriction on the mediator in terms of making contacts and collecting information relevant to the dispute);
3. the costs of mediation should be shared equally by both parties.
12.8.5 Arbitration. Arbitration that is binding on both parties is an alternative to litigation, provided that both the contractor and the contracting authority agree to it. The agreement to allow for its use may be inserted in a contract at the outset, or it may be negotiated between the parties at the time a dispute arises. If allowance is to be made for, or there is the prospect of arbitration, the contracting authorities should first discuss the details of it with their legal advisor. This advisor has guidelines from the Senior Assistant Deputy Minister, Legal Services, Commercial and Property Law, Department of Justice, covering the format (including procedures) and contents of an arbitration agreement and of any arbitration clause to be included in a contract.
12.8.6 Contracting authorities, with the advice of their legal advisor, may refer all questions of fact and certain questions of law to arbitration without the formal concurrence of the Department of Justice. Treasury Board approval is not required to use arbitration. Some of the questions of law which can now be the subject of arbitration include:
1. the formation, validity, interpretation, application or enforceability of the contract;
2. the performance, breach, termination or other discharge of the contract;
3. the rights, duties, obligations or remedies of the parties created by or pursuant to the contract;
4. any other issue of private law that may arise between the parties relative to the performance of the contract; or
5. the interpretation and application of statutes that relate primarily or solely to commercial transactions including, for example, the Commercial Arbitration Act and the International Sale of Goods Contracts Convention Act.
12.8.7 Deleted.
12.8.8 Deleted.
12.8.9 Legal Process. When dispute resolution is pursued through arbitration, the parties appear before an Arbitration Tribunal, which takes the place of a court and makes an "award." While an arbitration tribunal has no authority to enforce its award, the Commercial Arbitration Code (Chapter VIII, Article 35) provides that such an award will be recognized as binding, and upon application in writing to a competent Canadian court will be enforced by a judgment of that court. Because the Crown Liability and Proceedings Act (Sections 29 and 30) prevents such a judgment from being executed against the Crown, in these cases the court also issues a Certificate of Judgment against the Crown, which obligates the Minister of Finance to authorize the payment out of the Consolidated Revenue Fund of any money awarded by the judgment.
12.8.10 Costs and Disbursements. In preparing for arbitration, any expenses incurred by the contracting authority are a charge to a departmental appropriation, whether the eventual decision is rendered for or against the contracting authority.
12.8.11 When the Minister of Finance receives a Certificate of Judgment against the Crown and authorizes the payment out of the Consolidated Revenue Fund of any money awarded by a court judgment, this payment will incorporate any costs determined and levied by the arbitration tribunal and included in its award. In this context, contracting authorities should note that the cost associated with the actual conduct of arbitration is normally shared equally by the contracting authority and the contractor. Contracting authorities should also understand that the money paid on their behalf from the Consolidated Revenue Fund will eventually be accounted for, either by transferring funds from a departmental appropriation or by seeking supplementary funding. Any payment of an award to a contractor by the contracting authority as a result of an arbitration decision is to be reported annually in the Public Accounts; this will ensure both visibility and accountability.
12.8.12 Where a contracting authority terminates arbitration proceedings and agrees to pay a contractor without the necessity of an arbitral award, the money for such a payment will have to be taken from a departmental appropriation. In some instances, particularly where the interpretation of a contract is involved, this is accomplished by simply amending the amount allotted for the contract. It is the responsibility of the contracting authority to ensure that any such payment is within its amending authority for contracts as set out in Schedules 1 through 4 of Appendix C, otherwise the contracting authority is required to obtain Treasury Board approval for any such payments in excess of this amending authority.
12.8.13 Revenues. The contracting authority should collect or enforce payment of an award to the Crown consequent to the arbitration decision in accordance with the "Comptrollership" volume of the Treasury Board Manual. The money collected, including any insurance proceeds, should be deposited to the credit of the particular project, a departmental appropriation or the Consolidated Revenue Fund, as appropriate. The Standard Federal Government Construction Contract form describes how to deal with insurance proceeds arising from construction contracts.
12.8.14 Litigation. An alternative to arbitration is, of course, litigation. By convention, matters referred to arbitration are not then subject to litigation unless the arbitration was defective in form or content. Where the contractor or contracting authority decides that litigation should take place, the Department of Justice assumes responsibility for subsequent action in accordance with the Department of Justice Act.