On March 3, 2014, the federal department of Public Works and Government Services introduced significant amendments to its Integrity Provisions, which govern all government procurement. These amendments will have significant impacts on the way companies involved in government procurement manage their global risk.
The Amended Integrity Provisions
The amended Integrity Provisions now render bidders for government contracts ineligible where that bidder has been convicted of certain actions. Indeed, section two of the Integrity Provisions reads as follows:
- The Bidder and any of the Bidder’s Affiliates will also be required to remain free and clear of any acts or convictions and any conditional or absolute discharges specified in these Integrity Provisions during the period of any contract resulting from this bid solicitation.
What is particularly important to note is that unlike the analogous American or European Union legislation, the Canadian Integrity Provisions stipulate that a bidder’s eligibility for government contracts depends on both it, as well as any of its Affiliates, being free and clear of convictions for certain acts. Moreover, not only do these provisions apply to affiliates of Canadian entities, but the impugned actions need not occur on Canadian soil in order for the bidder to face the 10-year automatic ban from awards of government contracts. That is to say, an affiliate who has been convicted of a those actions listed in the Integrity Provisions in another state can still render the bidding entity ineligible for a government contract.
The actions stipulated in the Integrity Provisions and leading to this automatic ban include offences under the Criminal Code, the Competition Act, the Financial Administration Act, the Income Tax Act, and the Corruption of Foreign Public Officials Act, such as:
- Bribery of officers or bribery of a foreign public official;
- Fraudulent manipulation of stock exchange transactions; and
- Corruption, collusion, bid-rigging or any other anti-competitive activity. HP to Test New Integrity Provisions
Hewlett-Packard, one of the leading technological suppliers to the Government of Canada, is positioned to be the first company to test the reach of these new Integrity Provisions. An HP Russian subsidiary recently pleaded guilty to bribery of a foreign official under the US Foreign Corruption Practices Act and was fined $58.7 million USD. Under the Integrity Provisions, this means that HP faces an automatic ban of 10 years for any procurement contract with the Canadian government. It remains to be seen how the Integrity Provisions will impact HP’s government contracts; officials from Public Works and Government Services Canada have indicated that they need more time to determine the status of the other companies with the foreign convictions and how this will impact HP’s ability to supply the Government of Canada. What is clear, however, is that the government does not plan to soften these integrity provisions, for instance, by allowing disbarred companies to win reinstatement for good behaviour.
While the Canadian Government has yet to ban HP from bidding on government contracts, it is clear that these Integrity Provisions create yet another facet to risk management for companies engaged in government procurement. Not only must these corporations be free and clear of any convictions in Canada, but they must ensure that any subsidiaries or affiliates are also free and clear of any convictions, in any jurisdiction. The implications of these Integrity Provisions remain to be seen as they play out for HP, but the writing is on the wall: corporations could face much greater difficulty regarding government procurement should the actions of their affiliates lead to convictions for bribery, fraud or anti-competitive behaviour.