The federal government’s Integrity Framework (referred to as the Debarment Policy) has important implications for entities that are convicted of or plead guilty to certain offences under the Competition Act, most particularly conspiracy and bid-rigging (see earlier Antitrust Advisories regarding cartels and bid-rigging). In addition to the significant potential penalties (fines and imprisonment) and exposure to private actions for damages under the Competition Act, under the Debarment Policy guilty parties are prohibited from contracting with the federal government for 10 years (a similar regime also applies in the province of Québec). Accordingly, for parties that derive a significant portion of their revenues from federal government (or Québec) contracts, debarment may be even more economically damaging than the sanctions provided for under the Competition Act.
Key elements of the Debarment Policy include:
- Scope: The Policy applies not only to parties who are convicted of or plead guilty to “corruption, collusion, bid-rigging or any other anti-competitive activity under the Competition Act” (in addition to various other enumerated offences including insider trading, money laundering and fraud), but also to parties who successfully qualify for the Competition Bureau’s Leniency Program for such offences (Debarred Entities).Prior to November 2012, successful applicants of the Leniency Program enjoyed protection from the Debarment Policy; since then, the decision-making process for potential leniency applicants has become significantly more complicated as they must now weigh the consequences of debarment against the lighter penalties they may receive by applying for leniency. Note that parties that successfully qualify for the Competition Bureau’s Immunity Program remain exempt from the Debarment Policy (see Antitrust Advisory on Immunity and Leniency Programs).
- Enforcement: The Debarment Policy is enforced through a certification regime whereby parties bidding on government contracts must confirm that they have not pleaded guilty to or been convicted of any of the offences listed in the Debarment Policy.
- Consequences: At the federal level, Debarred Entities are prohibited from involvement in any construction contracts, goods and services contracts and real property transactions managed by Public Works and Government Services Canada (PWGSC). In the case of federal government contracts that are awarded to parties that subsequently become Debarred Entities, PWGSC may elect to terminate an existing contract. Similar provisions apply under Québec’s regime.
- Limited Flexibility/Discretion: Unlike certain similar regimes in the United States under which there is discretion regarding whether a party will be debarred and the length of the debarment (e.g., the Federal Acquisition Regulation), the Debarment Policy is mandatory (i.e., there is no flexibility regarding the length or terms of debarment, except for limited cases of a “public interest exception,” where it is necessary to contract with a Debarred Entity for public interest reasons (such as in emergency situations where no other supplier is capable of performing the contract and national security, health and safety and/or economic harm are at issue)).
- Application to Related Entities/Affiliates: The Debarment Policy applies not only to the Debarred Entity itself but also to any entity or individual who directly or indirectly holds legal or de facto control of the Debarred Entity and therefore may also extend to individual directors of the company and any affiliates or subsidiaries, regardless of their jurisdiction of incorporation or where they operate.
- Application to Foreign Offences: The Debarment Policy also applies to convictions under foreign laws that are substantively similar to the Canadian offences it identifies. In other words, the conviction of or guilty plea by a foreign affiliate to a foreign offence that is substantially similar to those listed in the Debarment Policy can lead to an affiliated Canadian entity’s debarment from doing business with the Canadian federal government. For instance, in the fall of 2014 PWGSC announced that it was examining the Canadian impact of a guilty plea by a Russian affiliate of Hewlett-Packard to bribery charges in the United States.
The Debarment Policy’s wide reach and severe penalties have not gone unnoticed and have been the subject of lobbying efforts by members the business community. Companies involved in government contracting need to be acutely aware of the risks of non-compliance with the Competition Act under the Debarment Policy and are advised to develop and maintain a strong compliance culture, both domestically and in foreign operations.