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Renato Pontello

Does your compliance program comply?

The federal government, which primarily does business through its procurement department, Public Works and Government Services Canada, recently amended provisions of its Supply Manual to further strengthen the integrity of PWGSC’s procurement transactions and ensure the department does business with suppliers that abide by the law. The changes, which came into effect March 1, impose significant new requirements on companies doing business with the government with regard to certifications, listed offenses, and subcontractors and changed the law with regard to past absolute and conditional discharges.

In-house counsel who act for companies that do business with the federal government should update their compliance programs accordingly. Companies, as well as their affiliates, that fail to comply with the integrity provisions could be barred from doing business with the federal government for 10 years.

10-year disclosure period

Suppliers are required to sign a prescribed certification prior to submitting a bid or contract. The certification confirms, inter alia, whether the supplier has been convicted of a listed offence.

Strangely, the previous Supply Manual did not specify the time range applicable to certifications. This meant if a bidder had been convicted of a listed offence at any time in the past, it could be barred from bidding on a contract. The revised policy now states a company and its affiliates cannot obtain a federal government contract within 10 years of being convicted of a listed offence (nor can an individual who has been convicted, or been given a conditional or absolute discharge, see paragraph discussing discharges below).

This is a helpful improvement from the previous version as it provides some level of certainty with regard to the time frame.

Broadening of offences

The list of offences a bidder must certify which, neither it, its subcontractors, or their respective affiliates have breached, has been significantly expanded for bids and contracts submitted after March 1, 2014.  It now includes fraudulent manipulation of stock exchange transactions, insider trading, falsification of books, extortion, forgery and other offenses resembling forgery, criminal breach of contract, bribery of judicial officers, and secret commissions, as well as new offences under the Corruption of Foreign Public Officials Act. Readers may find it surprising that some of the offences (e.g. insider trading) have no relation to government contracting, and I would certainly agree with them.

Foreign offences

The certification must now state that in the previous 10 years, neither the bidder, subcontractor, or any of their affiliates has been convicted of (or received an absolute or conditional discharge) under any offence in a foreign jurisdiction that the federal government “deems” to have similar constitutive elements as the offences listed in PWGSC’s integrity provisions.

Previously, foreign offences were not included as a basis for debarment. Unfortunately PWGCS has provided no guidance as to when or how it will determine whether a foreign offence has “similar constitutive elements” to the offences listed.

Subcontractors

For all bids and contracts entered into after March 1, bidders must now ensure all subcontracts include integrity provisions that are “no less favourable to Canada” than the provisions contained in the Supply Manual. In other words, subcontracts must now contain a flow-down clause that indirectly requires all subcontractors to comply with PWGSC’s integrity provisions, including the aforementioned certification provisions.

Absolute and conditional discharges

In addition to convictions, suppliers and subcontractors must now also certify neither they, or their affiliates have received any absolute or conditional discharges in the last 10 years in relation to the expanded list of offences.

Legislation relating to discharges provides that discharges will be purged automatically one year after receipt of an absolute discharge or three years after receipt of a conditional discharge. It seems odd then that after being purged, bidders and suppliers are required to disclose absolute and conditional discharges. PWGSC apparently believes the past commission of a listed offence by a bidder is a rational predictor that the bidder may engage in this type of fraudulent behaviour again so debarment is now warranted.

Reporting

There are new requirements on bidders to provide the names of their directors and when requested, a consent to a criminal record verification form for directors or owners, and even fingerprints and other proofs of identity. Changes to the board must be notified on an ongoing basis.

Debarment

A breach of the integrity provisions will result in a debarment. The ineligibility is not limited however to the bidder, subcontractor, or affiliate in question. If a bidder is barred, that will also extend to its affiliate, and vice versa. The definition of affiliates includes parent companies, subsidiaries, sister companies, and directors provided they have control of each other or are under the common control of a third party. Criteria indicating control includes identity of interests, family members, shared facilities, equipment and locations, and interlocking management. Notice the definition also includes a director. This means if a director is banned, the company on whose board he or she sits will also be ineligible for 10 years.

Summary

The amping up of the integrity provisions of the Supply Manual should raise concerns with in-house counsel as to whether their current compliance programs comply with the new changes and it is his or her duty to make others within the company aware of the new regime.

Compliance needs to extend not only to the bidder, but also to subcontractors and their respective affiliates. Over and above adding a flow-down provision in their subcontracting agreements, bidders may also want to obtain certifications from their subcontractors.

Settlements need to be thought through carefully now that absolute and conditional discharges will result in debarment. Compliance programs need to be expanded to cover the additional listed offences, as well as to capture offences committed abroad in countries, which have “similar constitutive elements,” whatever that may mean. There are new reporting requirements to be cognizant of.

All in all, the changes are substantive, and failure to have a plan in place to avoid them can be ruinous.


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