Fee Abatement Formula

The fee abatement formula is a Treasury Board calculation used in Canadian federal contracting. It determines the maximum fee or daily rate that may be negotiated for services provided by a former public servant who is receiving a pension. It is also called the abatement formula or simply fee abatement.

The rule comes from the Treasury Board contracting policy framework and related federal procurement guidance. Historically it applied to contracts with former public servants receiving pensions under the Public Service Superannuation Act, particularly during the first year after retirement. Its purpose is to keep the combined cost of a pension and a contract fee in check.

How the fee abatement formula is calculated

The formula is written as D = ((M + F) / 260) minus (P / 260). The result, D, is the maximum payable per diem rate. In plain terms, the department takes a salary figure, adds usual fringe benefits, subtracts the former public servant's annual pension, and divides the result by 260 working days. The Treasury Board policy text sets out this expression.

Because the pension is deducted, a higher pension produces a lower maximum daily rate. The formula caps what can be negotiated. It does not set the rate a supplier must be paid.

What M, F and P stand for

The CanadaBuys buyer guidance defines each variable:

• D is the maximum payable per diem rate.
• M is the updated maximum salary of the former public servant, or the estimated salary cost of having the work performed by a qualified public servant.
• F represents usual fringe benefits, calculated at 30%.
• P is the former public servant's total annual pension in pay.

The archived Treasury Board Contracting Policy describes the salary figure as the lesser of the updated former salary or the estimated cost of having a qualified public servant do the work.

When the formula applies and when it does not

Current CanadaBuys guidance describes use of the formula as optional. It identifies the formula as a cost-control measure for non-competitive contracts. Federal departments and agencies working under Treasury Board contracting policy are the buyers that use it.

The archived Contracting Policy is more specific about competitive processes. It states that competitive contracts awarded through traditional or electronic bidding procedures may be awarded without applying the formula. The formula therefore appears mainly in non-competitive service contracts involving a former public servant who receives a pension.

Solicitation documents can also build it in. A CanadaBuys request for supply arrangement defines the formula as determining the maximum fee payable during the one-year fee-abatement period. It applies where the successful respondent is a former public servant retired for less than one year and receiving a pension under the Public Service Superannuation Act.

What it means for a supplier bidding on Canadian public contracts

If you are a former public servant receiving a pension, check the solicitation or contract clauses for fee abatement wording. Where a clause requires it, disclose your former-public-servant and pension status. Provide the information the department needs to calculate the rate, and negotiate within the resulting maximum.

If you are not a pensioned former public servant, the formula does not affect your pricing. Bid teams that include a recently retired public servant as a resource should confirm how the clause treats that person, since the one-year period and the pension deduction can lower the allowable daily rate.