Businesses that contract with the Government of Canada should take note of recent changes to the government’s Ineligibility and Suspension Policy (“Policy”). In force as of May 31, 2024, the Policy amounts to another overhaul of Canada’s debarment regime. Ultimately, while the program will have greater scope and more bureaucracy, it is difficult to see how it will resolve the fundamental tension between debarring businesses on the basis of misconduct or other concerns and the Canadian government’s interest in contracting with such entities in cases involving the needs of the Canadian government or the broader public interest.
Highlights
- Establishment of a new Office of Supplier Integrity and Compliance (“OSIC”) within Public Services and Procurement Canada (“PSPC”) to administer the Policy.
- Significant expansion of the set of offences for which a company may face suspension or a determination of ineligibility from Government of Canada contracting, including an economic sanctions trigger.
- Clarification of the process under which the Registrar may enter an administrative agreement with a supplier, either as an alternative to (or alongside) any suspension or determination of ineligibility from Government of Canada contracting.
- Maintenance of a public policy exception to debarment when in the public interest.
This note is intended to summarize key points. The Policy is lengthy and detailed. There are provisions related to the activities of affiliates of suppliers as well as owners, trustees, directors, managers and senior officers of suppliers that are beyond the scope of this note. We also do not cover in this note the provisions regarding contracting with debarred entities or individuals. Many questions will arise during the implementation of the Policy.
Background
Canada has long had statutory debarment for businesses that defraud the government. In particular, section 750(3) of the Criminal Code states that persons (including corporations) that are convicted of offences including governmental corruption or frauds on the Government of Canada are deprived of capacity to contract with the government unless such capacity is restored by cabinet order (i.e., an order of the highest executive authority of the government). The basic concept is that such persons are not trustworthy in light of their history of committing the specified offences.
In 2015, the government issued guidance around a parallel bureaucratic regime that sets out a much greater range of offences in relation to which the government would not enter into contracts with offending businesses.
The new iteration of this regime, as set out in the Policy, states that:
Canada has an obligation to protect and safeguard the use and expenditure of public funds, to ensure stewardship and transparency, and to uphold the public trust in relation to Canada's contracts. Unethical business behaviour undermines fair competition, threatens the integrity of markets, is a barrier to economic growth, increases the cost and risk of doing business, and undermines public confidence in government institutions.
This policy is intended to reduce the instances in which Canada enters into or maintains contracts with suppliers that offend the foregoing.
In short, in addition to safeguarding the expenditure of public funds, the Policy appears to have other broad objectives regarding promotion of ethical business behaviour.
Establishment of the Office of Supplier Integrity and Compliance
The government is establishing OSIC to administer and enforce the Policy by vesting the Registrar of Ineligibility and Suspension (the “Registrar”), an entity associated with OSIC, with the authority to declare a supplier ineligible or suspended (in this note we use the term “debarment” to refer both to ineligibility and to suspension).
The Policy gives the Registrar significant discretion to determine the length of debarment. In contrast with the previous integrity regime, which established a mandatory 10-year suspension from government contracting for certain offences, the Policy now gives the Registrar and OSIC significant discretion to determine the length of a penalty, up to a maximum of 10 years. The Policy also lists the factors which the Registrar will consider in determining the length of any debarment, including the seriousness of the impugned conduct and any steps taken to address OSIC’s concerns.
Additionally, the Policy vests the Registrar with the authority to enter into administrative agreements with suppliers. Coupled with the Registrar’s discretionary authority to determine the length of any penalty it imposes as described above, rather than a prescribed minimum, this has the potential to dramatically change the way businesses interact with PSPC. This is especially true because, as described below, the list of events which may trigger debarment has been substantially expanded.
Grounds for Debarment
The Policy greatly expands the scope and breadth of conduct which may trigger debarment from the Registrar compared to the previous integrity regime. Appendix 2 of the Policy sets out a list of “Material Events” for which the Registrar may debar a supplier, including for example, being convicted or pleading guilty to any of the following offences:
Also, the Registrar will determine that a supplier is ineligible if it or a person that owns or controls it is listed or designated under, or has engaged in activity prohibited by, the following Canadian economic sanctions laws:
Additionally, the Registrar has broad discretion to make a determination of ineligibility where the Registrar concludes that:
- contracting with a supplier may bring the Government of Canada’s procurement system into public disrepute or otherwise be contrary to Canadian public policy;
- a supplier lacks business integrity or business honesty in a manner that seriously and directly affects the present responsibility of the supplier;
- a supplier has provided a certification or declaration to the government in relation to the Policy which is false or misleading, in a material respect;
- a supplier has been convicted of an offence that resulted in its being listed on the government’s Environmental Offenders Registry, and the Registrar determines that the wrongful conduct was serious, repetitive or egregious; or
- a supplier has received a poor performance evaluation pursuant to the government's Vendor Performance Corrective Measure Policy and the Registrar determines that the performance deficiencies were serious, repetitive or egregious.
Finally, there are some significant limitations on the Registrar’s authority. It does not extend to a variety of contract types, and additional types of contracts may be excluded from the Registrar’s authority at any time.
Public Interest Override
A government contracting authority can, notwithstanding any decision of the Registrar, enter into a contract with a debarred supplier where the authority considers that doing so is in the public interest and it is not contrary to law (e.g., statutory debarment or an applicable sanctions designation). Bases on which a public interest override may be ordered include, but are not limited to, the following:
- the need to respond to an emergency, where delay would be injurious to the public interest;
- the debarred supplier is the only person capable of performing the contract or providing the real property agreement;
- the contract is essential to maintain sufficient emergency stocks in order to safeguard against possible shortages; and
- not entering into the contract with the debarred supplier would have a significant adverse impact on the health, national security, safety, public security or economic or financial well-being of the people of Canada or the functioning of any portion of the federal public administration.
However, The Registrar may require a debarred supplier to enter into an administrative agreement before being awarded a contract under the public interest exception.
Administrative Agreements
The Policy also sets out the process under which the Registrar may enter an administrative agreement with a supplier. The Policy makes it clear that the Registrar's decision to enter into such an agreement will be assessed on a case-by-case basis, considering any relevant factors, and may take different periods of time to assess.
The administrative agreement concept involves the Registrar and supplier agreeing to terms and conditions, including measures to ensure that the supplier conducts business ethically and responsibly. This may include requiring a supplier to retain an independent third party to monitor, certify, audit and provide opinions regarding the administrative agreement. Administrative agreements may also include provisions relating to separation of specific employees from management or programs, implementation or extension of compliance programs, employee training and information, outside auditing, access by the government to specific documentation, information and records, and any other remedial or compliance measure that the Registrar considers to be in the public interest.
Business Takeaways
A more complex process
The Policy dramatically overhauls Canada’s debarment regime, significantly expanding the number and the scope of triggers for debarment that may be imposed. It establishes both a new bureaucracy and a new and complex bureaucratic process to implement debarment.
Importantly, it maintains the concept that the public interest may result in overrides of debarment. However, the debarment and override functions are now separated such that the public policy override will be considered only after a debarment decision. It remains to be seen whether this dynamic will make it more difficult for a business to obtain an override, as an override decision will presumably only be taken on the basis of a considerable record, given the dynamics and optics of one government bureaucrat overriding the decision of another.
Concerns about the effectiveness of the new process
More broadly, it remains to be seen how the Registrar will make debarment decisions and, in particular, whether the Registrar will be willing to consider submissions (which businesses facing debarment will certainly attempt to make) regarding the broader public interest including potential impacts on Canadian employees, communities and taxing authorities or whether such considerations must be left to a government contracting authority.
As debarment and override decisions are to some extent potentially political, it is reasonable to expect that the inherent challenges in government debarment may not be resolved by vesting debarment authority in the Registrar. Similarly, having government contracting authorities make override decisions based on the broad public interest is a significant burden to place on bureaucrats who may not be best placed to weigh the competing interests. Alternatively, it is foreseeable that bureaucrats will not make override decisions without some form of approval from the relevant Minister, which in the current highly centralized government decision making environment may result in overrides effectively being Cabinet-level decisions (generally, government bureaucrats go to great lengths to not, without Ministerial direction, take actions that may raise significant political debate).
In short, the debarment regime set out in the Policy may in relation to criminal offences at its core essentially mirror the statutory debarment regime in the Criminal Code, albeit for a much larger range of offences and with an additional bureaucratic structure.
Discretionary authority of the Registrar
Finally, there is the wide, and frankly concerning, discretion of the Registrar to impose debarment for public policy, general honesty or integrity concerns, or for egregious environmental offences. It is difficult to see how a government bureaucrat is well placed to make such determinations, which may have significant implications for government procurement and businesses that supply the government with goods and services. If this discretion is exercised, it will likely be contentious and raise serious concerns for government procurement and businesses that supply the government, as well as their employees, suppliers and communities in which they operate.
Going Forward
Businesses that contract or intend to contract with the government should familiarize themselves with the Policy to ensure that they understand the debarment risk arising from the kind of conduct described in the Policy. Businesses often have compliance programs in place that are intended to prevent criminal activity, and companies generally aim to comply with the law. The Policy creates an additional layer of risk in terms of ability to contract with the government where compliance is not achieved. A review and refresh of compliance policies may be timely.
[View source.]
