On July 3, 2015, Public Works and Government Services Canada (PWGSC) announced the implementation of a new government-wide Integrity Regime for all federal government procurement, effective immediately.

The Integrity Regime replaces the Integrity Framework initially introduced by PWGSC in 2012 and amended in March 2014, which was heavily criticized as being unfairly harsh for its lack of due process and failure to account for remedial actions taken by many companies subject to its application. The Integrity Regime is a definite improvement on its predecessor, particularly insofar as it eliminates automatic debarment for the actions of affiliated companies and also allows for a reduction in the debarment period for companies that undertake appropriate remedial conduct. Where it falls short, however, is the Integrity Regime continues to impose a lengthy mandatory debarment period, which for some companies could be akin to a death sentence, no matter what lengths these companies have undertaken to identify, fix and report a problem. This is particularly problematic given that companies may be held criminally liable for the actions of mid-level managers, even in the absence of knowledge or involvement by officers or directors. In certain cases at least, mandatory debarment represents an unduly harsh penalty on innocent shareholders and employees. Under the Integrity Regime, a supplier is barred from doing business with the Government of Canada for 10 years if it or any board members have been convicted or discharged in the past three years for a range of integrity-related offences in Canada or abroad, including bribery, fraud, bid-rigging, tax evasion, insider trading and money laundering. However, the decade-long ban can now be cut in half if the supplier shows it has taken action to co-operate with authorities and takes remedial action. While the new regime amounts to a retreat from the integrity rules enacted just last March, in which any prior conviction against a supplier or any of its international affiliates would have earned a 10-year ban with no chance of its reduction, the five-year debarment penalty remains punitive and is far stricter than the U.S .and European equivalent integrity provisions, where governments allow convicted companies to win reinstatement and reduce their disbarment for coming clean and taking action to fix problems.

Another concern with the Integrity Regime is that any existing supplier can be suspended for 18 months (or longer) just for being charged in Canada or abroad with an integrity offence. This raises issues relating to the presumption of innocence and throws a supplier's status into question, even though they may actually be innocent. Although the Integrity Regime has introduced the prospect of an "administrative agreement" in place of a suspension, which would see a third-party monitor overseeing the charged company, it has yet to be seen how these administrative agreements will be utilized in practice.

The following are the key elements to the new Integrity Regime:

  • Government-Wide Application: Previously, the Integrity Framework applied only to solicitations by PWGSC and certain other government departments that adopted PWGSC's Integrity Framework. Effective as of July 3, 2015, PWGSC will administer the regime on behalf of the Government of Canada and will apply it within the department to all new solicitations and contracts issued by PWGSC. The Integrity Regime will then be rolled out to the rest of the Government of Canada's departments and agencies over the coming months.
  • Certification: Under the Integrity Regime, a supplier certifies with their bid that they and members of their board of directors have not been charged, convicted or absolutely/conditionally discharged from one of the "listed offences" or a similar foreign offence in the past three years. A supplier will be deemed ineligible to contract with the Government of Canada for a period of 10 years if it provides false or misleading information in its certification.
  • Affiliates: The former Integrity Framework provided that suppliers contracting with the Canadian government were subject to debarment if an affiliate company was charged with an integrity offence, regardless of whether or not the supplier seeking to contract with the government was in any way responsible for the offence committed by its affiliate. The most significant improvement to the integrity provisions is that the new Integrity Regime eliminates mandatory ineligibility of a supplier for the actions of an affiliate (including a parent company) unless there is evidence that the supplier/potential supplier had involvement in the wrongdoing that led to the conviction of its affiliate.
  • Supplier Rehabilitation: Previously, suppliers were debarred from participating in federal government procurements for 10 years from the date when the contractor or its affiliate had been convicted of an integrity offence. The new Integrity Regime also provides that a bidder remains ineligible for 10 years when they have been convicted of a listed offence, however, the 10-year ban can be reduced by five years if the supplier has cooperated with legal authorities or addressed the causes of the misconduct that led to their ineligibility.
  • Suspension: Despite the general presumption of innocence in Canadian law, the Government of Canada will now have the ability to suspend a supplier for up to 18 months if the supplier has been charged (not convicted) with a listed offence. An administrative agreement may be imposed in lieu of a suspension.
  • Subcontractors: Prime contractors are required to subcontract only with eligible suppliers. A prime contractor who knowingly subcontracts with an ineligible subcontractor will be declared ineligible to contract with the Government of Canada for five years.
  • Treatment of Existing Contracts after Conviction: If a conviction occurs during a contract, the government retains the right to terminate a contract or real property agreement for default. Suppliers will now, however, be afforded an opportunity to show why the termination should not be exercised and enter into an administrative agreement, setting out how the company will take corrective action to ensure ethical behaviour, as a means of preserving existing contracts.
  • Exceptions: There remains a Public Interest Exception to debarment, which applies in exceptional circumstances where it is necessary to the public interest to enter into business with a supplier that has been convicted or has been conditionally or absolutely discharged of an offence under the Integrity Regime, though the available grounds for use of this exception remain narrow.
  • Administrative Agreements: Suppliers and the Government of Canada can now enter into administrative agreements where:
    • An ineligible supplier has had its ineligibility period reduced
    • In lieu of a suspension
    • The public interest exception was invoked
    • When the government decides to continue with an existing contract with a supplier which has become non-compliant

The administrative agreements will stipulate terms and conditions that a supplier must meet to remain eligible to contract with the government, which may include certain remedial measures, the implementation of a compliance program and reporting requirements. The monitoring of the terms of the administrative agreement is conducted by a recognized third party, paid by the supplier. If a supplier does not abide by the terms of an administrative agreement, a lengthened ineligibility period could be imposed.

Although the new Integrity Regime is an improvement on the former integrity policies, the Integrity Regime continues to impose significant consequences, even for companies that do everything practicable to identify and resolve a compliance problem. As such, the Integrity Regime still has long-lasting, potentially disproportionate effects on suppliers charged or convicted with an integrity offence.

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.