July 6, 2015
Last week the Canadian federal government announced a new and less strict Integrity Regime for suppliers doing business with federal government departments and agencies. Public Works and Government Services Canada (PWGSC) initially introduced an Integrity Framework in 2012.
The changes announced on July 3, 2015, which are the result of significant industry pressure and precede a fall federal election, will give the federal government more flexibility in determining which suppliers to do business with. It will also give suppliers, even those convicted of specified offences in some cases, more access to federal government contracts.
In general, suppliers that have been convicted of listed offences (including conspiracy, bid-rigging or criminal misleading advertising under the Competition Act) in the last three years are ineligible for bidding on federal contracts for ten years. Certain offences, however, can result in permanent ineligibility unless a record suspension is obtained.
Key Integrity Policy Changes
Some of the key changes and features of the new Integrity Regime announced last week include:
1. The general ten-year disbarment period can be reduced. Under the new Integrity Regime, the general ten-year disbarment can be reduced to five years where a supplier has either: (i) cooperated with law enforcement authorities; or (ii) taken remedial actions to address the wrongdoing. The former ten-year supplier suspension had been criticized as unnecessarily harsh and rigid.
2. No automatic ineligibility for affiliate conduct. Suppliers are no longer necessarily ineligible for the actions of affiliates (including a parent) unless the supplier had a degree of control over the convicted affiliate. The automatic disqualification of suppliers for affiliates’ activities (including global affiliates) had been another major industry criticism of the government’s former integrity policy. The PWGSC’s new Integrity Regime FAQs sets out factors that may be considered in determining control over an affiliate. These include whether a supplier directed, influenced, authorized, acquiesced in or participated in an offence. The new Integrity Regime, however, requires suppliers to engage independent third parties to assess their potential involvement in actions of convicted affiliates.
3. Suppliers may be suspended for up to 18 months in some cases. Under the new Integrity Regime, suppliers that are charged or admit guilt to a listed or similar foreign offence may be disbarred for up to 18 months. This may be extended if legal proceedings are underway.
4. Advance determinations are available. Suppliers may request advance determinations. According to the PWGSC, one advantage for a supplier in obtaining an advance determination is that their ineligibility period would begin immediately (i.e., this mechanism is intended as an incentive for proactive disclosure by suppliers). Under the former integrity policy, some industry commentators had highlighted the difficulty of determining potential eligibility in some circumstances – for example, in the case of extensive/complex corporate groups or where it was not clear whether some entities were in fact affiliates. Certification requirements around affiliates also caused concerns previously.
5. A Public Interest Exception may be available. In some cases, including where no other supplier is capable of performing a contract, emergencies or national security situations, the government may determine that it will do business with a supplier convicted of a specified offence. This exception will be applied on a case-by-case basis and determined by the government department issuing a contract. This exception has developed based on a concern that in some cases there may be no realistic alternative suppliers.
6. Suppliers may be disbarred for subcontracting with other ineligible suppliers. A supplier that intentionally contracts with an ineligible supplier faces potential disbarment for five years. The PWGSC will publish a list of ineligible suppliers that can be used by prime contractors to determine sub-contractor eligibility. This published list will also presumably potentially act as further incentive to comply with Canadian corruption, fraud and competition laws.
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