Canada Defense Elise Wagner Investment Procurement

Fine Balance: Weighing Canadian Interests in Procurement, Economics, and Integrity

Public Services and Procurement Canada (PSPC) has announced amendments to its Integrity Regime, removing some of the inordinately harsh consequences for defence procurement companies that violate the regime’s terms. By undertaking these reforms, PSPC is promoting economic growth while maintaining the high ethical standards for Canada’s defence institutions. However, policy makers are finding that it is a fine balance between goals of economic growth and ensuring ethical procurement strategies.

The Integrity Regime is a framework that defines the ethical standards for defence companies that do business with the government of Canada. Created in 2015 out of the Integrity Framework, the regime is an amalgamation of several distinct policies, each pertaining to the regulation of different steps of the defence procurement process. The most important policy is the Ineligibility and Suspension Policy, which outlines the transgressions that companies can commit and the penalties that may arise. The most significant penalty is a ten-year ban on doing business with the government of Canada if a company board member is convicted or discharged of bribery, fraud, tax evasion, insider trading, or bid-rigging. The crime can be committed in Canada or abroad for penalties under the Integrity Regime to be applicable.

A year after its implementation, the PSPC announced that the Integrity Regime would be amended. In the original regime, there was no recourse for companies to appeal their penalties after taking remedial actions within their corporate structure. Now, the ten-year ban can be reduced to five years if the company takes action and co-operates with Canadian authorities. Previously, harsh punishments such as the long penalty period could spell a permanent end of operations for a company, unjustifiably punishing employees and shareholders for the actions of individuals. The amendments also signal a positive step towards the implementation of Canada’s Defence Procurement Strategy (DPS). Introduced in 2014, the objective of the DPS was not only to effectively equip Canadian Armed Forces, but also use procurement to aid in job creation and economic growth. By amending the Integrity Regime, the Canadian government is creating a more business-friendly environment for an industry where the total revenue of the top 100 companies was over 400 billion USD in 2014.

The goal of having an integrity program is to ensure legitimacy of both the government of Canada and the companies that work with it. The resulting transparency breeds confidence and trust between the federal government, the public, and the defence industry. However in Canada, the relationship between defence procurement and the public has become strained in recent years. Issues with replacing the aging CF-18 fighter jets with the F-35 model became public in 2012 when auditor general Michael Ferguson released a scathing report on the opacity on the cost of the procurement venture by government officials, which has resulted in an underequipped Royal Canadian Air Force, the continued use of the aging jets, and the continued reluctance of the federal government to reengage in the procurement process.

There have, however, been a few positive steps in the application of the Integrity Regime process. In 2012, Canadian engineering firm SNC Lavalin, which provides procurement assistance among other services, became embroiled in a corruption scandal, culminating in the arrest of the former CEO. Under the integrity regime, SNC Lavalin was subsequently banned from working with the Canadian government. Today, the firm has taken remedial actions and has had its ban significantly reduced, allowing a Canadian company to continue to thrive while having endured the consequences of its actions.

Integrity in defence procurement is vital for procurement’s legitimacy as well as its success. Recent procurement scandals can attest to this. However it appears that the solutions, such as the Integrity Regime and the subsequent amendments, have begun to have a positive impact in Canada’s procurement process. While maintaining the fine balance of policy goals is a difficult task, it will no doubt benefit the future of Canada’s defence procurement.

Image courtesy of Mackcs212 (Wikimedia Commons)

Disclaimer: Any views or opinions expressed in articles are solely those of the authors and do not necessarily represent the views of the NATO Association of Canada.

Elise Wagner
Elise Wagner is the Program Editor for Procurement at the NATO Association of Canada. She is currently finishing her undergraduate degree in international relations, history, and French at the University of Toronto. In her studies, she has focused on global security and sources of instability in post-colonial Africa. Elise hopes to carve out a career in journalism in the near future. In her spare time, Elise coaches soccer and enjoys classical music.