The New Public Contracting World

As part of an ongoing initiative aimed at ensuring Canada only does business with ethical suppliers, Public Works and Government Services Canada (“PWGSC”) has introduced changes to its Integrity Regime and Code of Conduct for Public Procurement. A new Integrity Regime (the “New Regime”) for procurement and real property transactions came into effect on July 3, 2015, replacing the former PWGSC Integrity Framework (the “Old Regime”). It applies to real property contracts, goods and services contracts and construction contracts that are completed by federal government departments and agencies as identified in Schedule I, I.1 and II of the Canada Financial Administration Act.

The New Regime provides flexibility and seeks to alleviate the supplier’s burden. Its key features include: reduced debarment from an automatic 10 years to a possibility of five years, a more contextual approach regarding affiliates, a five year debarment for contracting with an ineligible supplier, and incentives to self-report transgressions. For more information on the New Regime see our more detailed assessment here. The New Regime can be found here.

Key Features of the New Regime

Ineligibility Offences
If a supplier or members of its board of directors are convicted or discharged (either absolutely or conditionally) of any of the listed offences (or similar foreign offences) in the previous three years it is prohibited from doing business with the Canadian Government. The New Regime now explicitly states that any existing contracts between the supplier and the federal government can be terminated. There is no minimum dollar amount for committing any of the listed offences.

Some examples of the listed offences include: payment of a contingency fee to a person to whom the Lobbying Act applies; corruption, collusion, bid-rigging or any other anti-competitive activity under the Competition Act; money laundering; income and excise tax evasion; bribing a foreign public official, and secret commissions.

Period of Ineligibility
The period of ineligibility will last for 10 years unless the supplier applies for reduced ineligibility to have this period lessened by up to five years. Reduced ineligibility may be granted if the supplier can demonstrate that it cooperated with the authorities and it has undertaken corrective action. This would require an administrative agreement. Debarment will be permanent if a supplier has been convicted of fraud against the Canadian Government under either the Criminal Code or the Financial Administration Act, unless the supplier obtains a record suspension.

Offences by Affiliates
If an affiliate commits one of the listed offences, the PWGSC will conduct an assessment to determine the degree to which the supplier exercised control over the affiliate. For the assessment, the PWGSC will look at whether or not the supplier assented to, acquiesced in, directed, influenced, authorized, or participated in the commission or omission of the offences committed by the affiliate. This is a significant change from the Old Regime in which a conviction of an affiliate was an absolute bar to a supplier dealing with the federal government.

Bid Requirement
A supplier’s bid must contain certification that it, its directors and its affiliates have not been charged, convicted, or absolutely/conditionally discharged of any of the listed offences (or similar foreign offences) within the past three years.

Contractors at Risk of Debarment
A supplier cannot subcontract with another supplier who has been deemed ineligible. The PWGSC will provide a list of ineligible suppliers, and suppliers are required to verify its subcontractor’s eligibility. If a supplier enters into a subcontract with an ineligible supplier, the prime supplier will be debarred for five years. Suppliers should now create and follow strict due diligence processes to screen any potential subcontractors.

Suspensions
If a supplier is charged with or admits guilt to any of the listed offences, the PWGSC could suspend the supplier from doing business with the Canadian Government for 18 months. After a suspension, there is no mechanism by which the supplier could be compensated if the supplier is exonerated.

Advance Determination of Debarment Status
At any time, a supplier is able to request an advance determination of its ineligibility. The request must contain an accurate account any unfavourable information regarding the supplier. This is meant to incentivize suppliers to disclose its own transgressions earlier because cooperation will be regarded favourably. The advanced determination is final and binding with only the option for a limited re-evaluation through judicial review.

International Implications
In determining whether a supplier will be deemed ineligible based solely on a foreign conviction, the New Regime will scrutinize the foreign charge and compare it with the Canadian charge to determine if debarment is appropriate. This assessment must be made by an independent third party.

Application
The New Regime does not operate retroactively. It applies to contracts entered into and procurements in process as of July 3, 2015. It does not affect pre-existing contracts. The PWGSC will re-assess the eligibility of suppliers who have been deemed ineligible under the Old Regime.

Administrative Agreements
An Administrative Agreement is an agreement between the supplier and the PWGSC. As a means of reducing risk, the agreements will be used in situations where caution must be exercised in contracting with a certain supplier. Remedial and compliance measures for eligibility would be included in such an agreement.

Public Interest Exception
There is an exception that operates to retain a debarred supplier when it is in the public interest to do so. Such instances of public interest include: if there is no other contractor capable of the work, if there are emergent national security circumstances, or if the government’s financial interests are in jeopardy.

The foregoing is intended for general information only and is not intended as legal advice. If you have any questions related to these changes, please contact any one of our Business lawyers.