On July 3, 2015 Public Works and Government Services Canada (PWGSC) released its anticipated revisions to the Integrity Regime, which seeks to ensure it does business with ethical suppliers of goods and services in Canada and abroad. The Government relaxed some of the more controversial provisions from the previous Integrity Framework introduced in March 2014; including reducing the coverage period for prior convictions, removing automatic debarment for convictions of affiliates and allowing the ineligibility period to be reduced from 10 years to five years under certain conditions, nevertheless Canada still has one of the world’s more stringent debarment regimes for public sector contracts.

This bulletin reviews the new Integrity Regime and how companies involved in federal procurement in Canada can meet their obligations imposed by it.

The Breadth of the New Integrity Regime

The new Integrity Regime is intended to apply across all federal departments and agencies for procurement and real property transactions. There is no monetary threshold. Previously, the Integrity Framework applied only to PWGSC contracts and a small number of government agencies. The Integrity Regime continues to apply to all suppliers to the Canadian Government, including sub-contractors.  Prime contractors will be required to only subcontract with eligible suppliers and a supplier will be debarred for five years if they knowingly subcontracts with an ineligible supplier.

Under the new Integrity Regime, any time a supplier bids for a contract with the federal government they will have to certify that neither the company nor any of its directors or affiliates have been charged, convicted or discharged of one of 16 listed offenses or similar foreign offenses in the past three years (which was previously 10 years). This list of offenses includes violations of the Competition Act, money-laundering, participation in organized crime, tax evasion, bribery and extortion, drug-trafficking and various fraudulent activities.  It is important to note that all such offenses are treated equally regardless of whether the activity occurred in Canada or abroadAny supplier who does not provide such a certification will be ineligible to bid on public contracts. 

Exceptions

Under the previous Integrity Framework, a supplier would be debarred regardless of whether the supplier itself or an affiliated company committed the offense. This has now changed. Under the new Integrity Regime, a company may still bid on Canadian Government contracts if an affiliate is convicted of a listed offense so long as it provides an independent assessment to show that the bidding company was not involved in the actions that led to the affiliate’s conviction. 

A supplier’s 10-year debarment may now be reduced to five years by demonstrating that they either cooperated with law enforcement that investigated the offense or have undertaken remedial measures to address their wrongdoing. In order to qualify for this relief a supplier will have to enter into an administration agreement with PWGSC to abide by strict remedial and compliance measures that will be overseen by an independent monitor.

Finally, a supplier can still try to rely on the ‘Public Interest Exception’ to contract with the federal government despite violating a listed offense by showing that no other supplier is capable of performing the contract, or to use a competitor would cause “a material injury to the financial interests of the Government of Canada.”  It is unclear if this Public Interest Exception has ever been applied.  For it to apply going forward the supplier will have to enter into an administration agreement, as discussed above.

Navigating the Compliance Obligations

The Integrity Regime requires government contractors to conduct rigorous due diligence of their suppliers, directors and affiliates’ compliance history before certifying their bids for public contracts.  Any supplier who provides false or misleading information in their certification will be debarred for 10 years without any ability to apply for a reduced ineligibility period. 

Moreover, given the federal government’s ability to terminate a contract for default if a violation occurs during its term, suppliers must carefully conduct diligence of their own compliance programs and that of their subcontractors to ensure employees receive proper compliance training, and that there are sufficient internal controls and management oversight to avoid and detect any potential violations. Legal counsel can assist in this regard. 

In addition to basic diligence, suppliers should obtain proper compliance representations and warrants from sub-contractors and additional contractual protections and indemnities to help protect against a potential suspension or even termination of a prime contract with the Canadian Government as a result of a violation.

Towards a More Cooperative Approach?

The previous automatic 10-year debarment period may have served as a strong disincentive to cooperation with prosecuting authorities. For contractors seeking to continue a business relationship with the Government, it was tantamount to a hefty fiscal penalty that prosecutors could not take off the table in a plea negotiation. A decade is a long time in the horizon of business planning, long enough to be the practical equivalent of forever. Such circumstances, combined with the widespread perception of passivity in the prosecution of certain types of business crime in Canada, incentivize a protracted, “go for broke” defence strategy. It is unclear whether the five year debarment period will have the same effect. That said, the Government seems intent to incentivize more cooperation with investigation authorities under the Integrity Regime by making this a potential route to a shorter debarment period.