On July 3, 2015, Public Works and Government Services Canada (PWGSC) introduced a new Integrity Regime which relaxes the integrity requirements applicable to entities doing business with the Government of Canada. This is good news for Corporations seeking to work for the Government of Canada.
Canada’s previous integrity framework was criticized by the business community for its strict ineligibility policy and the extension of its rules to affiliate entities. Potential suppliers to Canada were ineligible to do business with PWGSC for a period of 10 years if they were convicted of certain criminal offences, including extortion, bribery, and corruption and certain offences under the Competition Act.
This strict ineligibility policy created less incentive for companies to self-disclose or put more rigorous compliance mechanisms in place. Suppliers to Canada were well aware that a non-discretionary 10 year debarment would be imposed in the event that any integrity breach was disclosed or discovered.
After significant lobbying efforts, the government has relaxed some of the more onerous consequences. These new provisions have also tried to provide more clarity on how the integrity rules will be enforced.
For example, the new Integrity Regime permits suppliers who have been convicted of integrity-related offences to cut the 10 year ineligibility period in half by demonstrating that they have cooperated with law enforcement authorities, or that they have undertaken remedial action(s) to address the wrongdoing. A potential supplier may apply for this reduced five year ineligibility period at any time. If their request is granted, an administrative agreement will be imposed to monitor their progress and impose certain conditions. These might include various remedial and compliance measures that the supplier must meet in order to continue doing business with Canada, though it is uncertain at this time precisely what these administrative agreements will look like.
In addition to the reduced five year ineligibility period, the new Integrity Regime also permits suppliers to retain independent and qualified third parties to monitor their progress under the terms of their administrative agreements. Third parties may also be used to assess convictions under foreign offences and determine whether a supplier has participated in offences committed by their affiliate organizations. It is unclear at this point what degree of involvement and disclosure will be required in the context of these third party assessments.
The key changes implemented by the new Integrity Regime are as follows:
Applies to entire Federal Government. The Integrity Regime applies to government-wide procurement and real property transactions undertaken by federal departments and agencies. Previously, it had only applied to PWGSC managed contracts and real property transactions.
Potential for reduced debarment period. The debarment period remains 10 years from the date of conviction, however, if the Government finds that the supplier cooperated with legal authorities or assesses that it has addressed the causes of the misconduct that led to their ineligibility, the Government can reduce this to 5 years. Debarment is only retroactive for 3 years, as opposed to the previous 10 year application.
Control over affiliates. Previously, all affiliates of a Canadian company, anywhere in the world convicted in Canada or abroad of a prescribed offence could render the Canadian company ineligible, even if it had no control over the affiliate in question and did not participate in the wrongdoing. The new regime has added the necessary element of control required for a supplier to be deemed ineligible for the actions of an affiliate. Specifically, through a third party assessment, the Government will determine if the supplier participated or was involved in the conduct that led to the affiliate’s conviction. Absent a finding of control or participation, the Canadian supplier will remain eligible.
New offence. The Regime has added a new offence for the payment of a contingency fee to a person to whom the Lobbying Act applies. This is an addition to the pre-existing list of offences or any similar foreign offence that attract liability under the Regime, including: anti-competitive activity under the Competition Act (including conspiracies (section 45), bid rigging (section 47) and false or misleading representation (section 52)), tax evasion, extortion, bribery of judicial officers, bribery of a foreign public official, secret commissions, money laundering, criminal breach of contract, fraudulent manipulation of stock exchange transactions, prohibited insider trading, forgery and other offences resembling forgery, and falsification of books and documents. Leniency applicants under the Competition Act are still subject to the debarment policy but should be able to apply for a reduced period of ineligibility based on their participation in the Competition Bureau’s Leniency Program.
Administrative agreements. The new Integrity Regime allows the Minister to request that certain at-risk (i.e., suspended or previously ineligible) suppliers enter into administrative agreements with the Minister. These agreements may include provisions requiring the implementation or extension of compliance programs, employee training, outside auditing, the disclosure of contractor records and/or other remedial and compliance measures.
Suspension of suppliers. If a supplier has been charged with or admitted guilt to one of the listed or similar foreign offences, the Government is able to suspend them from participating in bids for up to 18 months. This suspension can be extended if a judicial process is underway; for example, if there is an investigation into the charges laid. In the alternative, the Government may impose an administrative agreement in the interim; this would enable the supplier to avoid suspension.
Sub-contractors. A supplier cannot sub-contract with an ineligible supplier on a federal government contract. Any supplier who does so knowingly could be ineligible for 5 years. Under the previous integrity framework, a violator would likely incur an automatic 10 year debarment. There is also an exception under the new regime: a supplier who requires the services of an ineligible sub-contractor can seek advance approval from PWGSC.
Permanent ineligibility. A new addition under the regime is permanent ineligibility for a supplier convicted of frauds against the Government under the Criminal Code of Canada or under the Financial Administration Act.
Notice and due process. PWGSC will now put into place a mechanism through which it will proactively notify suppliers of their ineligibility/suspension if they are assessed to be ineligible for a contract award. In addition, a supplier can now come forward at any time and ask for an advanced determination of eligibility for itself and its affiliates. There was no due process procedure under the former framework.
Public list. Under the new regime, PWGSC will now produce a public listing of ineligible and/or suspended suppliers. There are currently no names on the list but this will likely change in the coming weeks or months.
The changes implemented by the new Integrity Regime include some practical benefits for suppliers intending to bid on contracts. The process permitting suppliers to request advanced determination of eligibility provides an opportunity for suppliers to confirm their ability to do business with Canada in advance of any anticipated procurement process or contracting opportunity (and before incurring the costs associated with participating in the a tender process). Advanced determination of eligibility will also allow suppliers to obtain an assessment from Canada as to how the actions of its affiliates might potentially impact its eligibility.
There is also good news for suppliers intending to hire subcontractors, as the responsibility for obtaining advanced eligibility can be flowed down to potential subcontractors who may be used for the purposes of an upcoming contract. This will lessen the burden on suppliers who undertake comprehensive, external due diligence to ensure compliance with integrity provisions.
Notwithstanding theses changes, multinational companies with operations in Canada and around the world must continue to be vigilant about the broad application of the Integrity Regime, as many details regarding its implementation are still to come. For example, guidelines regarding the content, scope and reach of administrative agreements as well as how third party monitors will be appointed and operate are still unavailable. Canada has stated that it made these changes to better align with international best practices. While Canada has introduced discretionary elements regarding ineligibility into the Integrity Regime, a move which was responsive to industry concerns, the new regime continues to take a rules-based approach. This is in contrast to the United States, Great Britain, Germany, Australia and the European Union, each of which use discretionary and criteria-guided policies to determine debarment of suppliers. It remains to be seen whether a one-size-fits-all approach to ineligibility will affect some suppliers more harshly than others.