The First Test of the Supplier Integrity Rules

Public Works and Government Services Canada (PWGSC) has announced that it is examining the effect of Hewlett Packard’s (HP) guilty plea to charges of bribery regarding that company’s contracts with the federal government. This is PWGSC’s first publicly announced application of its recently enhanced debarment regime, as set out in its Integrity Framework, and clearly demonstrates that the policy is no empty threat. Debarred suppliers stands to lose millions in existing and future opportunities if contracting entities are forced to quickly change suppliers as a result of the commission of a debarment-qualifying offence.

The new Integrity Framework, which was reviewed in an earlier update, [1] establishes rules for debarring corporations and individuals who have committed an integrity offence. The offences are not presented as a comprehensive list of statutory provisions. Instead, PWGSC lists 18 broad categories of offences ranging from money laundering to falsification of books and documents. When an individual or a corporation is convicted of or pleads guilty to such an offence, the result is debarment for 10 years. The individual or corporation is, at a minimum, prohibited from bidding on any federal government contracts during this period, subject to a few narrowly defined exceptions.

HP Russia has apparently pleaded guilty to violations of the U.S. Foreign Corrupt Practices Act. Executives of the Russian subsidiary reportedly bribed Russian government officials in order to acquire government contracts. Such an offence is a “similar foreign offence” to the bribery prohibition in Canada’s Corruption of Foreign Public Officials Act and Criminal Code and therefore in violation of the PWGSC’s Integrity Framework. (HP Mexico and HP Poland reportedly admitted to similar charges in April.)

PWGSC has not announced its decision, but if HP is debarred in Canada, it would not be able to bid on federal government contracts for the next 10 years. Existing contracts could also be at risk, being either terminated or continued under strict monitoring and oversight measures. The nature of these cancellations or oversight measures will tell us a great deal about future applications of the Integrity Framework.

In the meantime, corporations that do business with the federal government would be well-served to remember the startling breadth of the Integrity Framework.

First, the policy is unaffected by normal considerations of jurisdiction. Since an integrity offence does not have to be committed under Canadian law, any company in Canada is as affected by a violation in Russia leading to a conviction or guilty plea under U.S. law as it would be if it, or a related company, violated a similar Canadian law in Canada.

Second, the policy makes no considerations for the corporate veil. The fact that HP’s Russian subsidiary, not the Canadian subsidiary, pleaded guilty is immaterial.

Third, the policy has not created any carve-outs for good conduct after an offence. There is no obvious way for a corporation to mitigate the harm once improper conduct by an employee or a subsidiary is identified. Companies must be proactive in preventing violations.

Creating or modifying a comprehensive ethics and compliance program can be a complex and demanding process. Federal government contractors ought to proactively reduce their risk by implementing a comprehensive compliance program and undertaking the necessary due diligence if they are considering acquiring a company or pleading guilty to an integrity offence in a foreign jurisdiction.

[1] An overview of the federal debarment regime can be found in A Practical Approach to Navigating Debarment by the Canadian Government.