On Friday, July 3, 2015, the Government of Canada (“GoC”) issued its long-awaited changes to the federal integrity regime. The Ineligibility and Suspension Policy establishes a new ethical framework for bidders/contractors (hereinafter referred to as “suppliers”) doing business with the federal government. This memo summarises the key points in the recently-issued policy statement.
With these changes, the GoC addresses some of the harsher and more intransigent provisions that Canada’s business community railed against in previous versions of the integrity regime. However, there is real concern that the changes do not go far enough to mitigate the tough consequences that can potentially arise from the application of the federal integrity provisions. Moreover, in view of additional grounds for debarment in this revised policy, there is also concern that companies may face debarment without first having been convicted by any court of any of the enumerated offenses.
Before looking at the new policy, it is worth remembering that earlier integrity provisions issued by Canada’s procurement department – Public Works and Government Services Canada (“PWGSC”) – created an immovable 10-year period of debarment for suppliers who were convicted of particular itemised offenses. And then in 2014, PWGSC ramped up the reach of the integrity regime to include the actions of world- wide affiliates and directors if convicted of the enumerated offenses in Canada, or of similar offenses, in a foreign jurisdiction. The 2014 changes crystallised the business community’s opposition to the unforgiving and harsh effects of Canada’s integrity regime, long-considered to be the toughest among our trading partners.
To give one example: under the previous integrity regime, it was virtually impossible for companies to avoid the 10-year period of debarment even if they had taken proactive steps to “clean up” the misconduct by way of voluntary disclosure and cooperation with government authorities, or by putting in place measures to avoid future ethical breaches. Moreover, Canadian businesses did not want to be held accountable for the ethical breaches committed by related companies in foreign jurisdictions.
Over the past year, Canada’s business community has lobbied the GoC long and hard for changes to the integrity regime, ones that would not have such devastating effects on companies doing business with the federal government. The recently-announced changes to the GoC’s integrity regime respond in part to that lobbying effort, but still allow the government to maintain its stance that it is tough on those who break the law, which remains one of this government’s foundational pillars.
a) Scope of Application
The Ineligibility and Suspension Policy applies to virtually all government solicitations and resulting contracts and comes into effect immediately. However, because these new provisions are forward-looking, they do not affect current contracts or solicitations. Although the Ineligibility and Suspension Policy applies to most government contracts, some contracts are exempted, such as work to be performed outside Canada, insurance contracts, financial contracts, lease-to-own contracts for real property, contracts in existence before the new policy came into effect last week etc. In order to give effect to these new provisions, all solicitations and contracts undertaken after the changes were announced will contain contractual terms and conditions reflecting the form and substance of the policy.
b) Permanent or Temporary Debarment, and the Implications Arising from the Actions of Affiliates
The Ineligibility and Suspension Policy imposes permanent debarment of suppliers for certain offences, such as fraud against the GoC, and certain frauds committed in respect of election funding. In respect of other offenses like bribery of judicial officers; extortion; laundering proceeds of crime; bid rigging; false or deceptive statements under the Income Tax Act or Excise Tax Act; bribing a foreign public official; if convicted within the past 3 years, a supplier will be ineligible for a contract award for 10 years. If a bidder has obtained a pardon, or was given an absolute or conditional discharge, they may still be eligible to receive federal contracts.
If a supplier is convicted of an offense in a foreign jurisdiction that is similar to the ones enumerated in the Ineligibility and Suspension Policy, it may also be debarred, assuming that the prosecution process in the foreign country was not motivated by improper means and that the supplier had the right to mount a full defense to the allegations. These foreign-prosecution qualifications are intended to respond to concerns voiced about unfair prosecutions initiated abroad which were initiated for political or retaliatory reasons.
A supplier can also be debarred permanently or for a prescribed period of time, if any of its affiliates have been convicted of one of the enumerated offenses if there is evidence showing that the supplier somehow directed, influenced, authorized or assented to the unauthorized behavior of the affiliate. Requiring the supplier to have some involvement in the actions of the affiliate is an important change with these revised provisions.
Under the previous integrity regime, if an affiliate was convicted in Canada or abroad, the supplier would face debarment, even if it had nothing to do with the acts committed by the affiliate. Now, if the supplier can show it was in no way involved in the actions of the affiliate, it may avoid a period of debarment altogether.
This is a welcome change, particularly because the definition of affiliate is so broad. The term “affiliates” is defined in the Ineligibility and Suspension Policy to include a person, (including, but not limited to, organizations, bodies corporate, societies, companies, firms, partnerships, associations of persons, parent companies or subsidiaries, whether partly or wholly-owned), as well as individuals, directors, officers and key employees if: one controls or has the power to control the other, or a third party has the power to control both. It is apparent therefore that these integrity provisions take into account the actions of the company and affiliates, but also the actions of individuals who lead the company. So, if a director of a supplier is convicted of bribery or corruption, this may result in the supplier becoming ineligible to receive a contract.
This wide-reaching definition is a carryover from the previous iterations of the integrity regime and is one of the areas of most concern to Canadian businesses who have claimed, with some justification, that they ought not be punished for the wrongs committed by a related company over whom they had no control.
c) Right to Request a Redetermination for Actions of Affiliate
Another important change in the Ineligibility and Suspension Policy is the provisions which will allow for what is termed a Limited Review. In this process, a supplier can ask the Minister to reconsider a declaration of ineligibility based on a conviction of an affiliate. Upon receipt of a request, the Minister will consider whether the supplier directed, influenced, authorized, assented to, or acquiesced in the affiliate’s illegal conduct. If the supplier can demonstrate that none of those factors apply, the supplier will again be eligible to receive contracts.
d) Potential Reduction to the Period of Debarment
The Ineligibility and Suspension Policy includes some interesting changes regarding the potential reduction of the period of debarment. First, suppliers may request a reduction of up to 5 years if the Minister approves of an Administrative Agreement. Second, as we noted above, a period of debarment may not be imposed or maintained if the supplier has been granted an absolute or conditional discharge or granted a pardon in Canada, or in the country where the conviction was entered. This change will be welcome news to companies who, through their cooperation with authorities, will remain eligible for GoC contracts even though they have committed one of the enumerated offenses.
Unfortunately though, because Canada’s justice system does not permit deferred or non-prosecution agreements for companies, suppliers in Canada cannot avoid debarment by voluntarily disclosing and remediating the ethical conduct. That said, a supplier might be able to avoid debarment if it does cooperate with authorities and, in consequence of that cooperation, it receives an absolute or conditional discharge which, as we noted earlier, may be a reason for avoiding debarment altogether. However, unlike other integrity regimes where suppliers can avoid prosecution altogether, a supplier in Canada accused of misconduct will have to endure the criminal prosecution process and hope that, at the end of that process, it receives a discharge.
e) Suspensions from Procurement Process Participation
In a significant departure from the previous integrity provisions, under the new regime, the Minister may suspend a supplier from participating in a procurement process for up to 18 months if the supplier has admitted to, or been charged with, any of the enumerated offenses. This period may be extended if the court proceedings continue beyond the 18-month period. However, this section also allows the Minister to abridge or suspend the period of suspension and allow a supplier the opportunity to compete for future government contracts if it enters into an Administrative Agreement. If a supplier does not have an Administrative Agreement in place when a particular procurement process is initiated, the supplier will be ineligible to receive a contract if it is suspended under this provision.
The suspension provision is an important change arising from the Ineligibility and Suspension Policy. Concern has been expressed that a suspension, without first having a conviction, runs counter to Canada’s justice system which presumes everyone to be innocent until proven guilty. That (important) point noted, the revised integrity regime provides that suppliers who have been charged (but not convicted) with an enumerated offense, and who have been suspended, may have that suspension revoked by the Minister if the supplier enters into an Administrative Agreement.
f) Ineligible Subcontractors
In another noteworthy change, suppliers face a 5-year debarment if they engage a subcontractor, or an affiliate of the subcontractor, who has been convicted of one of the enumerated offenses. This provision is of particular importance for general contractors who must now ensure that their subcontractors or their affiliates have not been convicted of the enumerated offenses.
g) Advance Determinations
A supplier may request an advance determination about whether or not it is ineligible to receive a contract from the GoC. A supplier can submit information to show why it should not be declared ineligible notwithstanding the charges or convictions. The Minister may request further information, or retain a Third Party Monitor, to validate the information provided. If the Minister determines that a supplier is ineligible, the supplier’s only recourse is to the Federal Court of Canada by way of judicial review. In other words, there is no appeal process to review the Minister’s decision.
h) Advanced Warning of Ineligibility or Suspension
If the Minister believes that a supplier is ineligible to receive a contract, he can issue a Notice of Intention to Declare Ineligible/Suspend. Upon receiving this Notice, a supplier will then have 30 days to respond to this Notice, setting out why the supplier should not be declared ineligible. Suppliers who are declared ineligible or suspended will be included on a list that will be made public.
i) Administrative Agreements
As we noted above, the Ineligibility and Suspension Policy permits a supplier to enter into an Administrative Agreement, the effect of which is to lessen the period of certain debarment and suspension. Under an Administrative Agreement, the supplier will generally agree to a separation of employees from management or programs; implementation or extension of compliance programs; employee training and information; outside auditing; access to contractor records; or some other form of remedial or compliance measure.
If an ineligible supplier wants to participate in a procurement process that is underway, but does not yet have an Administrative Agreement in place, it will not be permitted to receive a contract in that solicitation.
Another important change in the Ineligibility and Suspension Policy grants contract authorities some flexibility to permit the supplier to carry on with an ongoing contract, rather than automatically terminating the contract in the event the supplier is convicted of an enumerated offense.
j) Public Interest Exemption
Like the earlier integrity provisions, the Ineligibility and Suspension Policy permits the GoC to enter into contracts with a supplier even if it has been convicted of one of the enumerated offenses where to do so is in the public interest. This is known as the Public Interest Exemption (“PIE”) and it allows an otherwise ineligible supplier to receive contracts in cases where there is a pressing emergency, the supplier is the only party capable of performing the work, the contract is necessary to ensure sufficient stockpiles or where not entering into the contract would adversely impact the health, national security, safety, or economic or financial well-being of the people of Canada, or the functioning of the public service. If the PIE is invoked, the supplier will be required to enter into an Administrative Agreement. This exemption will apply only to the urgently undertaken contract in question and will not constitute a waiver of debarment or suspension for other contracts.
k) Registrar of the Ineligibility and Suspension List
The Ineligibility and Suspension Policy will create a position within PWGSC to act as Registrar of the Ineligibility and Suspension List. The Registrar will include on the List the names of all persons and companies who are ineligible to receive government contracts. Importantly, if a supplier intends to use a subcontractor, the supplier is required to make enquiries of the Registrar to ensure it is not dealing with an ineligible party. This requirement is very important, and one that must be followed by all general contractors, to ensure they do not become ineligible through the inadvertent hiring or an ineligible person or contractor.
The List can be accessed at: http://www.tpsgc-pwgsc.gc.ca/ci-if/four-inel-eng.html. Currently, there are no company names on the List.
If the subcontractor is a person, the supplier must get the person’s consent permitting disclosure of information to the supplier about whether the person is ineligible to receive a contract.
These changes require the attention of all federal contractors. The new provisions in some ways mitigate the harshness of the previous integrity regime, but in other ways impose new obstacles for companies selling to the federal government. Knowing how these provisions can affect your company is crucial. Adherence to high ethical standards is important not only to ensure compliance with the law, but also to ensure suppliers are not cut off from federal contracts, which for some suppliers is the blood that keeps them alive.
The Ineligibility and Suspension Policy and associated documents can be found at: http://www.tpsgc-pwgsc.gc.ca/ci-if/ci-if-eng.html.