Canada: New Integrity Framework - Changes To Canada's Integrity Rules For Procurement

On July 3, 2015, the Government of Canada introduced a new "Integrity Regime" for procurement and real property transactions to overhaul the former Integrity Framework.ⁱ The Integrity Regime consists of the Public Works and Government Services Canada (PWGSC) Ineligibility and Suspension Policyⁱⁱ (Policy) and associated Integrity Provisions. It will be administered by PWGSC, a body that serves as the Government's main buyer of goods and services.

While the 2014 Framework applied only to PWGSC-managed contracts, the new Integrity Regime applies government-wide to a comprehensive list of departments and agencies listed in Schedule I, I.1 and II of the Financial Administration Act.ⁱⁱⁱ As there is no dollar threshold, construction contracts, goods and services contracts and real property transactions of any value are subject to the Regime.

The Regime is effective immediately for PWGSC-managed contracts. The Policy will be adopted by other departments and agencies over the coming months through Memoranda of Understanding with PWGSC. It is unclear when full government-wide coverage will be achieved. A more specific timeline for implementation has not been released.

In summary, the Policy provides a mechanism for barring and suspending suppliers who are convicted or discharged (absolutely or conditionally) of enumerated offences pursuant to the Financial Administration Act, the Criminal Code, the Competition Act, the Corruption of Foreign Public Official Acts, Income Tax Act, Excise Tax Act and the Controlled Drugs and Substance Act. Offences that will render a supplier ineligible for a contract award include fraud, bribery, bid rigging, drug trafficking and money laundering.

The new Regime significantly modifies the integrity provisions of the procurement process. Notably, it eliminates the automatic debarment of suppliers due to the conduct of affiliates. Under the Regime, a supplier will not be debarred unless it directed, influenced, authorized, assented to, acquiesced in or participated in the Affiliate's commission of a listed offence. In addition, "affiliates" is defined more narrowly than before. According to the Policy, it encompasses a supplier's directors, parent companies and subsidiaries, provided that they control each other or are under the common control of a third party. The determination of a supplier's involvement and degree of control will be based on an independent third party assessment.

Another major change is the ability to reduce the length of debarment. A supplier convicted or discharged (absolutely or conditionally) is ineligible to do business with the Government for a period of ten years from the date of determination. This period may now be reduced by five years if the supplier 1) cooperates with law enforcement authorities or 2) has undertaken remedial action(s) to address the wrongdoing. On the other hand, the rules in respect of suppliers convicted of frauds under Financial Administration Act and the Criminal Code remain strict. Such convictions result in permanent ineligibility unless a record suspension is obtained.

The time period used to assess ineligibility has also been reduced. Under the Regime, a supplier is ineligible for a contract award if it has been convicted in the last three years of a listed offence or foreign equivalent. This is a substantial reduction from the ten-year period previously used in the Framework.

While most of the provisions may be well-received, the suspension provisions may be disconcerting for some industry players. Under the new system, the Government has the ability to suspend a supplier up to eighteen months if it has been charged for a listed offence. This provision raises various issues. First, it is not clear whether this provision applies to sub-contractors who have been charged for a listed offence. Secondly, the provision does not provide any mechanisms for compensation in circumstances where the charge is lifted. And lastly, critics see it as fundamentally contrary to the presumption of innocence.

The Policy's stated purpose is to enable PWGSC to make prospective declarations of ineligibility. In other words, the Government intends to pro-actively identify ineligible suppliers, be it those who have had previous contracts with the Government or those who may reasonably be expected to bid for a contract. This will be accomplished through regular monitoring of the convictions record both in Canada and in foreign jurisdictions. Furthermore, the Regime encourages existing and potential suppliers to proactively disclose misconduct by allowing their ineligibility period to start immediately.

Overall, the Integrity Regime appears more flexible and more carefully developed than its predecessor. Moving forward, PWGSC will be contacting ineligible suppliers and reassessing their eligibility. It is important to note that the Policy will not impact pre-existing contracts.

On balance, the new Regime significantly improves Canada's supplier debarment and suspension system. Critics have already accused the Government of yielding to pressure from the business community and of watering down its integrity rules. However, while some issues remain problematic, most in the government procurement community will welcome the new rules.

This article was co-authored by Kailin Che, a Summer Student in Dentons' Toronto Office.

Footnotes

i Government of Canada Announces Improvements to Integrity of Federal Procurement
ii Integrity Regime: Ineligibility and Suspension Policy
iii Financial Administration Act

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