On April 4, 2016, Public Services and Procurement Canada (PSPC) (formerly known as Public Works and Government Services Canada) made a number of important amendments to the Integrity Regime governing procurement and real property transactions with the Government of Canada.
The Integrity Regime was unveiled in July 2015 and replaced its much maligned predecessor, the Integrity Framework. For a discussion of the 2015 Integrity Regime, please see our July 2015 Blakes Bulletin: New Federal Integrity Regime: Two Steps Forward, One Step Back.
The new amendments to the Integrity Regime have a stated purpose of providing greater clarity to government departments when soliciting bids and entering into procurement contracts and property agreements and are effective immediately. Practically speaking, the changes are largely incremental and the Integrity Regime continues to impose onerous and complex obligations on companies that submit bids for government contracts, particularly major multi-national corporations.
Most fundamentally, the Integrity Regime continues to impose a lengthy mandatory debarment period, which for some companies could be akin to a death sentence, no matter what lengths these companies have undertaken to identify, fix and report a problem. In certain cases at least, mandatory debarment represents an unduly harsh penalty on innocent shareholders and employees. The 2016 amendments do not address this fundamental shortcoming, but take certain steps in the right direction.
OFFENCES COMMITTED BY SUPPLIERS’ AFFILIATES
Pre-amendment, a supplier could be prohibited from contracting with PSPC if any of its affiliates had ever been convicted of certain offences resulting in a prohibition to contract with the government. Accordingly, even if a supplier detected, self-corrected and instituted a robust compliance program following an affiliate’s transgression, it could still be prohibited indefinitely from participating in federal procurement contracts.
The new amendments somewhat reduce the harshness of this prohibition. Now, wrongdoings committed by affiliated companies won’t be considered forever. The new amendments reduce the period that will be considered to determine whether a supplier’s affiliate has been convicted of a prohibited offence to three years. Where offences have occurred, the period of ineligibility from procurement contracts has been decreased from an indefinite period to 10 years, with the possibility of a further five-year reduction.
Nevertheless, affiliates continue to pose a significant risk to ensuring compliance with the Integrity Regime, particularly given the broad definition of “affiliate,” which includes a parent company, subsidiary or senior officer. An affiliate can also be found where one directly or indirectly controls the other, or both are under the common control of a third party. Significantly, the amendments have expanded the scope of “affiliate” to capture amalgamations and mergers. This is part of the Integrity Regime’s new Anti-Avoidance Provisions, which allow PSPC to impose suspensions and find successors ineligible where it deems a succession to have occurred for the purpose of avoiding penalties.
Where a supplier is determined to be ineligible or is suspended for a foreign offence committed by its affiliate, the supplier can argue it should still remain eligible. To do so, the supplier must demonstrate to PSPC that it did not direct, influence, authorize, assent to, acquiesce or participate in the commission of the offence.
TREATMENT OF DOMESTIC AND FOREIGN CONVICTIONS
Under the original Integrity Regime, a supplier was barred from doing business with the government for 10 years if it or any board members had been convicted in a prior three-year period for a range of integrity-related offences including bribery, fraud, bid-rigging, tax evasion, insider trading or money laundering, in Canada or abroad. The penalty period for being deemed ineligible from participating in procurement contracts has been decreased from an indefinite period to 10 years, with the possibility of a further five-year reduction in certain cases.
Suppliers can still be deemed ineligible or suspended where foreign convictions are deemed to be “similar” to any of the listed integrity-related offences. Precisely what will amount to a “similar” offence is unclear and should be carefully considered by suppliers prior to submitting bids.
The amendments have also imposed a new obligation on suppliers at the time of submission of a bid to inform PSPC of all known foreign criminal charges and convictions, including those of its contractors and affiliates. The supplier must certify that the information provided is accurate. If PSPC determines otherwise, it could result in a determination of ineligibility or suspension. Accordingly, suppliers must ensure they comply with all of the requirements when submitting a bid, including accurate disclosure of similar foreign offences for the supplier and its affiliates and subcontractors. A corporate supplier that is determined to be ineligible or is suspended will have its information published online, including its period of ineligibility.
As with the original Integrity Regime, the revised Integrity Regime provides that if a conviction occurs during a contract, the government can terminate a contract for default. Suppliers will still be afforded an opportunity to show why the termination should not be exercised as a means of preserving existing contracts.
OFFENCES COMMITTED BY FIRST-TIER SUBCONTRACTORS
Suppliers must also comply with the Integrity Regime’s rules against subcontracting with ineligible first-tier subcontractors. Upon the submission of a bid, suppliers must certify that none of the listed integrity-related offences apply to any of the suppliers’ first-tier subcontractors. It is therefore imperative that suppliers are diligent and determine whether first-tier subcontractors have any criminal charges or convictions before submitting a bid. If a supplier enters into a contract with an ineligible or suspended first-tier subcontractor, where information about that subcontractor’s ineligibility or suspension was “reasonably available” to the supplier, the supplier will be prohibited from entering into further procurement contracts for a period of five years.
The new amendments are supposed to bring a measure of clarity to the Integrity Regime. However, in this instance, what constitutes “reasonably available” information is rather unclear. On the one hand, it may be as simple as consulting the online registry to confirm whether a prospective first-tier subcontractor is eligible or not. However, the new amendments also impose a continuing disclosure obligation to inform PSPC within 10 days of any charge or conviction to a supplier’s first-tier subcontractor. The scope of this duty and the extent to which a supplier must monitor its first-tier subcontractors is uncertain. For example, can a supplier simply check the Integrity Regime’s online registry to discharge its duty? Or must the supplier be informed by its first-tier subcontractors immediately after the charge or conviction occurs and before such information can be updated in the registry?
GREATER CLARITY AND DETAIL
The new amendments include better information about which contracts are exempt from the Integrity Regime and stipulate how Public Interest Exceptions are granted. Additionally, the revised Integrity Regime provides greater clarity regarding how to identify a charge or conviction that has occurred in the past three years, the obligations of suppliers with respect to first-tier subcontractors and how a suspended or ineligible supplier can enter into an administrative agreement to mitigate disruption.
HOW SUPPLIERS CAN PROTECT THEMSELVES
While some of the amendments to the Integrity Regime implement positive procedural changes, many of the substantive provisions previously criticized as being punitive and overly strict remain. This is particularly true in comparison to the American and European integrity regimes, where convicted companies can win reinstatement and reduce their disbarment for coming clean and taking action to fix identified problems.
Whether the amendments simplify the process of engaging in procurement contracts with the Canadian government is unclear. At the very least, these amendments suggest that the government is trying to break down some of the more troublesome barriers that have stymied and undermined active participation in the procurement process for some time.
Going forward, suppliers should:
- Ensure they understand what criminal charges and convictions are listed by the Integrity Regime that could result in a suspension or determination of ineligibility
- Understand that the criminal charges and convictions of their affiliates and contractors could also result in a suspension or determination of ineligibility
- Certify their bids as being in compliance with the Integrity Regime subject to strict penalties for non-compliance
- Be aware that amalgamations and mergers deemed to have occurred for the purpose of avoiding penalties will be caught by the new amendments.
This bulletin examines the scope of the obligations for suppliers and some of the considerations companies should have in mind when submitting bids to tender with the federal government.