In this blogpsot, Saanvi Singla, UILS, Chandigarh, writes about what is incumbent contract, laws applicable, its purpose and how are the dispute settled.

What is an incumbent contract?

Incumbent is an individual who is in current possession of a particular office & who is legally authorized to discharge the duties of that office. Further, Incumbent contractor is a person who takes over the employees of the predecessor contractor so that they are not displaced from employment and at the same time the successor contractor gets the services of qualified staff.

Though this concept of incumbent contract seems older in Canada, but it got noticed after the executive order 13495 of United States of America which came into being in May 2012.According to this EO predecessor contractor’s employees were not to be displaced when the service contract expired and the follow-on contract was awarded for the same purposes. It mandates that a clause should be added to the service contracts that the contractor and its subcontractor have to offer a right of first refusal of employment to incumbent service workers who qualified under the follow-on contract for the performance of the same or similar service at the same location.

Purpose of incumbent contract

The government’s acquisition interests in economy and proficiency are served when the successor contractor hires the predecessor’s staff. A concomitant workforce reduces interruption to the delivery of the particular services during the period of shift between the contractors. This method provides benefits of a trained and experienced workforce that is familiar with the requirements and the environment. Many times the contractors or the subcontractors carry over the predecessor’s staff due to their efficiency when a service contract expires and due to this reason  a follow-on contract is awarded for the similar services in the same locality.

Incumbent contract between a Canadian firm and an Indian firm working in Canada

An incumbent contract is a valid contract in both the countries. In India, it will be governed by Indian Contract Act 1872, and in Canada it will be governed by Government Contracts Regulation, Treasury Board Contracting Policy and Public Works & Government Services Canada (PWGSC).As Canada has the Federal structure of government, Provincial Laws override the Federal Laws. Due to this reason each state in Canada has its own set of laws and it will depend upon the location of the work for the application of different laws. In Canada incumbent contracts are signed between government agencies and the private firms. If the Canadian firm enters into a contract with an Indian firm in relation to the particular government contract the Canadian firm will be the prime contractor and the Indian firm will be the subcontractor. The vital and primary functions will be accomplished by the Canadian firm, and the Indian firm will assist them in fulfilling the particular contract as the workforce is hired by the Canadian firm in Canada.

Laws applicable to incumbent contracts in India

In India these contracts will be covered under Indian Contract Act 1872 which is defined under Section 2 (h) which defines a contract as “an agreement enforceable by law” thus to make a contract there must be an agreement which shall be enforceable by law.

According to Section 2(e), an agreement is defined as “every promise and every set of promises forming the consideration for each other”.

A promise is defined as an accepted proposal as Section 2(b) which says “a proposal when accepted becomes a promise “Therefore it can be said that an agreement is an accepted proposal.

In other words, an agreement that the law will enforce is a contract.

The conditions of enforceability are stated in Section 10 of The Indian Contract Act 1872.   According to this section, “all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

Laws applicable to incumbent contract in Canada-

In Canada incumbent contracts are generally prevalent in tendering for public sector contracts. Discrepancies in tender contracts led to the development of incumbent contracts in Canada. Tendering law in Canada is largely determined on the four major decisions of Ron Engineering, M.J.B. Enterprises, Martel, and Double N. The pioneering decision on competitive bidding and the tendering process in Canada is the Supreme Court of Canada decision in Queen (Ontario) v. Ron Engineering & Construction (Eastern) Ltd. (“Ron Engineering”), which revolutionized the modern law of tendering by introducing the Contract A/Contract B analysis into the construction law domain. Contact A is formed when a contractor submits a compliant bid in response to an invitation to tender. Contract B is the formal contract governing the legal obligations awarded by the owner to the successful tendering party in accordance with the tender documents.

Prior to Ron Engineering, a renderer was free to withdraw its tender at any time prior to the acceptance by the owner. This placed the owner at great risk in attempting to find a replacement prepared to perform the work at the same price, should the original renderer withdraw its bid at the last moment. Ron Engineering changed this approach to tendering. With this goal in mind, Ron Engineering established that an invitation to tender may constitute an offer to contract which, upon the submission of a bid by a renderer, becomes a binding contract on the parties.

The legal aspect of incumbent contract has been specifically given in Chapter 6 of the Public Works and Government Services Canada. It states that all the authorities granted to and exercised by the contracting officers are given to them by this part of PWGSC. This part also states the limits to such contracts and the approval and signing authorities granted to incumbents of designated position are set under Annex 6.4 – Conditions Imposed on the Approval Authority Limited for Public Works and Government Services Canada Personnel. This chapter further describes that a person is normally designated as incumbent of a position following staffing action. Supervisors are bound to inform new incumbents of the levels of contract approval and signing authorities to be exercised by signing an individual delegation form. Contracting officers who have already signed the delegation form may exercise signing authority of another position upon promotion. The Director General has the power to withhold full contract approval and signing authority from anyone who has no PWGSC purchasing/ contracting experience until competence has been demonstrated at a lower level of authority for at least 6 months.

Double Taxation Treaty

Agreement between the Government of Canada and the Government of the Republic of India for the Avoidance of Double Taxation and the prevention of Fiscal Evasion with respect to Taxes on Income and on Capital will apply to these types of contracts. They will be covered under Income Tax Act of Canada and India respectively. In India Wealth Tax Act will also be applicable till 31-03-2014 as it stands abolished after this date. The laws in force is either of the contracting states will continue to govern the taxation of income in the respective contracting states except where provisions to the contrary are made in the agreement. At the end of each year, the contracting states shall notify each other of the significant changes which have been made in their respective taxation laws as per the agreement in the treaty.

Settlement of disputes

 In the case of incumbent contract, disputes can arise on many issues. As in this case, parties are from two different countries, disputes can be relating to the laws of any of the countries.  It can be between the Canadian firm and the Canadian Government in which case the laws applicable in Canada will apply. In other cases, a dispute can arise between the Canadian Firm and the Indian Firm. This kind of disputes is difficult to handle as both the firms operate in different countries, so different rules and regulations apply to them. One way of settling the disputes is to follow the terms and conditions decided at the time of signing of the contract. But sometimes such terms and conditions are not specifically decided or the situation at that time may be different from what it was at the time of entering into the contract, or there can be a change in the laws of either of the countries. In that case, the Private International Laws will come to the rescue of either of the parties. The Private International Law is just the inter-jurisdictional dimension of the relevant legal regimes. They will affect the rules as to where the action can be brought in the contract and according to which country’s jurisdiction the dispute will be decided. The courts generally follow a bi-lateral approach in such cases. The bi-lateral approach means that a specific country bends its Private International Law of the country so that a fair decision can be given to solve the dispute.