Canada's recent changes to its Integrity Framework for federal government contracts have made it one of the most restrictive debarment regimes in the world, if not the most restrictive. While everyone acknowledges the need for the federal government to contract with only "responsible" suppliers, the changes introduced on March 14, 2014, have caused significant damage and uncertainty for many of Canada's largest government contractors.
The government needs to revise several problematic provisions and clarify many of the ambiguities littered throughout the Integrity Framework. In addition, their application needs to be more consistent and predictable in order to avoid suspicions of arbitrariness on the part of the bureaucrats implementing them.
Under the provisions of the Integrity Framework, a bidder is ineligible to do business with Public Works and Government Services Canada, Canada's key contracting department, for 10 years following a conviction or absolute or conditional discharge for the following prescribed Canadian or "similar foreign offences." There is no guidance or definition on what constitutes a similar foreign offence to the following prescribed Canadian offences:
- Frauds against the government under the Criminal Code of Canada;
- Frauds under the Financial Administration Act;
- Payment of a contingency fee to a person to whom the Lobbying Act applies;
- Corruption, collusions, bid-rigging or any other anti-competitive activity under the Competition Act;
- Money laundering;
- Participation in activities of criminal organizations;
- Income and excise tax evasion;
- Bribing a foreign public official;
- Offences in relation to drug trafficking;
- Bribery of judicial officers;
- Bribery of officers;
- Secret commissions;
- Criminal breach of contracts;
- Fraudulent manipulation of stock exchange transactions;
- Prohibited insider trading;
- Forgery; and
- Falsification of books and records.
The bidder must certify that neither it nor any of its affiliates has been found guilty in the last 10 years of a prescribed Canadian or similar foreign offence. "Affiliate" is broadly defined to include parent companies, sisters and subsidiaries, including all of their directors. The overwhelming breadth of the certification makes it next to impossible for contractors to comply. For example, large Canadian contractors are forced to conduct due diligence going back 10 years on several hundreds of directors operating in their global groups of companies. Furthermore, subjective judgments need to be made regarding whether a foreign offence is similar to one of the prescribed integrity offences.
Debarment is mandatory. Either the bidder can sign the certificate or not. If a conviction arises during the term of the contract, there is some discretion on the part of the government not to terminate the contract, on such grounds as the "public interest," but there is little guidance on the factors to be considered in exercising that discretion and no rules surrounding the opportunity for the potentially debarred bidder to be heard on the issue.
The debarment regime in Canada is not codified in law as it is in the United States under the Federal Acquisition Regulation. This needs to be changed so that it provides contractors with the certainty of a predictable workable framework that is subject to legislative review and scrutiny.
Finally, contractors are left in the impossible position of being required to flow down the provisions of the Integrity Framework to their subcontractors with no guidance on the steps to be taken if a subcontractor or its affiliates are convicted of an integrity offence or similar foreign offence during the term of the subcontract.
The current regime mandates an automatic 10-year debarment period. This needs to be changed. The Integrity Framework should be amended to make determinations of ineligibility discretionary based on the circumstances of the particular case, the seriousness of the infractions, compliance ethics in the company, whether the company has an internal compliance program and the strength of it, and remedial and mitigating factors.
The period of debarment should vary depending on the seriousness of the offence and the remedial measures undertaken by the contractor. Clearly this is not a case where "one size fits all."
A bidder ought to be asked to disclose in writing whether it or its affiliates have been convicted of a prescribed offence. If foreign convictions are to be considered, then there needs to be some form of connection to Canada. And which foreign offences are covered needs to be clarified.
Currently the provisions of the Integrity Framework are retroactive in their application; several large contractors have been told they are being debarred for foreign offences committed by affiliates and settled years ago. This too needs to change so that the integrity provisions cover only offences that occur after the entry into force of the changes.
Instead of automatic debarment, decisions to declare a bidder ineligible or to terminate a contract should be based on whether they are in the best interests of Canada. Such a determination should be based on the gravity of the offence, the involvement of the bidder, mitigating factors and the remedial measures in place. Such a determination needs to be in writing and subject to judicial review.
Finally, clarity needs to be established in regard to the flow down of the integrity provisions to subcontractors. For example, if a subcontractor commits an integrity offence during the course of the subcontract, the prime contractor needs to know what steps are to be taken, including whether the offence needs to be disclosed to the Canadian government and whether remedial measures ought to be jointly agreed upon between the two parties to the contract.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.