Government Operations Committee on June 4th, 2013

[The Chair, NDP, Pat Martin]

Ladies and gentlemen, we'll begin the proceedings. Because we lost a bit of time due to the vote today, we'll have a bit of a truncated meeting.

Welcome to the government operations and estimates committee. We're here today to discuss the integrity provisions for procurement and real property transactions. We're pleased to welcome as witnesses, representatives from the Department of Public Works and Government Services. Leading the delegation, I presume, is Deputy Minister Madame Michelle d'Auray.

Ms. d'Auray, welcome. I understand you have opening remarks. I'll perhaps leave it to you to introduce the rest of the guests you've brought with you today.

Let's proceed without delay.

You have the floor, Madame d'Auray.

[Michelle d'Auray, Deputy Minister, Deputy Receiver General for Canada, Department of Public Works and Government Services]

Thank you very much, Mr. Chair,

and members of the committee.

Good morning. I welcome this opportunity to present and discuss with the committee the measures that Public Works and Government Services Canada has put in place to uphold the public's trust in procurement and real property transactions—

[The Chair, NDP, Pat Martin]

There is a fire alarm. We will suspend the meeting.

[The Chair, NDP, Pat Martin]

Welcome back, ladies and gentlemen.

We will reconvene this session of the government operations committee dealing with the integrity provisions for procurement and real property transactions. When we were interrupted by what I assume was a false alarm, Madame d'Auray, our deputy minister, was just about to begin her opening remarks.

I give the floor back to you, Madame d'Auray, but I will caution committee members that we need about 10 minutes at the end of this meeting to talk about some planning. We'll go in camera for the last 10 minutes.

We should have about one clean hour with you, Madame d'Auray. Please proceed.

[Michelle d'Auray]

Thank you, Mr. Chair.

Good morning, again. It's still morning.

We are here to present and discuss with the committee the measures that Public Works and Government Services Canada has put in place to uphold the public's trust in procurement and real property transactions.

With me today is Barbara Glover, the assistant deputy minister from the departmental oversight branch. Barbara's branch encompasses the sectors that we call operational integrity, special investigations, forensic accounting, and industrial security. It also includes our office of internal disclosure, under the PSDPA.

Pierre-Marc Mongeau has appeared before you many times. He is here with me today as the assistant deputy minister, real property.

Pablo Sobrino is the associate assistant deputy minister, acquisitions. He was before you recently with regard to the integrated relocation program. Those are the colleagues with me today.

As deputy minister, I am proud of the key role my department plays as a common service provider so the departments and agencies can obtain the goods, services and accommodations they need to serve Canadians. The department is also the primary interface between government and business on a wide range of business activities.

Over the past three years, we have overseen an average of 49,000 procurements a year with an average value of $14 billion; we house some 270,000 public servants in more than 1,800 locations across the country, involving about 500 real property transactions per year.

As you can well imagine, the procurement processes by which we make these acquisitions and transactions can vary from the immensely complex, involving significant dollar values and sophisticated equipment and services, as is often the case with military procurements, to those of lower dollar value or greater volume and more recurrent requirements, such as supply arrangements and standing offers for a wide range of goods and services.

Given our roles and responsibilities, Public Works and Government Services Canada has a strong history of working to protect the public interest from those with criminal or corrupt motives. My department has a framework in place that supports accountability and integrity in procurement, with strong governance, codes of conduct, fairness monitoring, audits, financial controls, and internal investigations. These mechanisms apply to all those involved in our procurement activities.

I understand the committee has expressed interest in the fairness monitoring program and our integrity framework.

So I will start with the fairness monitoring program, which is a component of our integrity measures. The program was formally instituted in 2005 and expanded in 2009 to provide management, client departments, suppliers, Parliament and Canadians with independent, third-party assurance that our large or complex procurement activities are conducted in a fair, open and transparent manner. The program covers all complex or major departmental procurement and real property transactions. The findings are publicly released on our website.

Our policy on fairness monitoring requires a mandatory assessment for coverage with regard to activities in which risk related to sensitivity, materiality, or complexity is such that fairness monitoring coverage is warranted, as well as for all departmental activities subject to ministerial or Treasury Board approval.

Other departmental activities, for which an enhanced assurance of fairness, openness, and transparency is desired, can also be covered for fairness monitoring, whether mandatory or optional. The assistant deputy minister for oversight reviews these assessments and makes her recommendations to me on whether or not to proceed with fairness monitoring.

The most recent improvement to the program is a new standing offer for the services of fairness monitors, which will be issued shortly with a start date of June 10, 2013. This includes formal terms of reference for fairness monitoring engagements. I believe the committee had asked for the statement of work for the procurement of those services, which I understand we have provided.

The terms of reference will ensure alignment between fairness monitors and the department on the standard of fairness to be used, and the standard of conduct for fairness monitors to follow during fairness monitoring engagements.

I will now turn to our overall integrity framework.

All PWGSC employees must adhere to the department's code of conduct that includes specific provisions for the proper management of procurement activities through compliance with all available practices, controls and policies; and to prevent situations of real, potential or apparent conflict of interest. Employees must disclose when considering or engaging in outside employment and/or ownership of businesses, and comply with guidelines related to gifts, hospitality and other benefits.

Over and above this general code, the department implemented in 2007 and then updated in 2012 a code of conduct for procurement that applies to suppliers and to departmental staff and that outlines what is acceptable conduct when contracting with the government. Our goal is to ensure that the department conducts its business to the highest ethical standards, standards that Canadian citizens expect us to uphold and protect. It is a role that we take very seriously. And we have implemented significant compliance measures.

Let me give you an overview of these significant compliance measures.

Starting in 2007, as part of the Federal Accountability Act and its action plan, Public Works and Government Services Canada included a code of conduct for procurement in its solicitation documents, which included “payment of a contingency fee to a person to whom the Lobbying Act applies” to existing offences, which rendered convicted suppliers ineligible to bid on procurement contracts. The code also included frauds against the government under the Criminal Code and under the Financial Administration Act. Bidders formally certified with their bids that they had read the code and agree to be bound by its terms.

Building on these measures, in 2010 the department added anti-competitive convictions under the Competition Act to its list of offences that render bidders ineligible. These convictions include corruption, collusion, bid-rigging, or any other anti-competitive activity.

In July 2012, the department further expanded the list of offences that, if convicted, would render companies ineligible to do business with PWGSC. These offences include money laundering, participation in activities of criminal organizations, income and excise tax evasion, bribing a foreign public official, and drug trafficking.

For the first time, PWGSC also applied its integrity provisions to all real property transactions, which includes leasing arrangements for all uses, letting of commercial crown-owned space and the acquisition and disposal of crown-owned properties.

In November 2012 the department further clarified its integrity measures by removing the leniency exemption and introducing a public interest exemption. Leniency provisions allow an applicant to come forward, cooperate, and plead guilty in exchange for lenient treatment in sentencing. Given the seriousness of the infractions identified in the integrity provisions, the department no longer does business with individuals and companies found guilty of these offences unless exceptional circumstances require it for the public interest. This applies even when leniency may have been granted to the company through a program.

Under these provisions, the department can no longer enter into a contract or real property transaction or accept bids from individuals, companies, and the current members of their board of directors, including company affiliates, convicted of listed offences. These measures do not apply to company employees.

Should a company or a member of its board of directors obtain a record suspension—it used to be a pardon—or have its capacities restored by the Governor in Council, they would become eligible to do business with Public Works and Government Services Canada. In instances of public interest such as health and safety, emergencies, national security, or if there is only one supplier, the department could maintain the contract.

Successful bidders are required to maintain relevant information and their certification for the duration of the contract. Bidders and their officers must remain free and clear of convictions specified in the code of conduct, which is incorporated into their contract.

If a company is convicted of an offence after a contract has been awarded, the department may cancel the contract for default if the terms and conditions of the contract include our enhanced integrity provisions.

However, these provisions are not retroactive. So in cases where the provisions are not in the contract, the department is legally obligated to honour the contract. In such instances, heightened scrutiny and oversight and rigorous controls may be imposed for the remainder of the contract to protect taxpayers' interests.

Should we suspect wrongdoing, the department will not hesitate to take action, including procurement and administrative reviews to detect any irregularities; examining all invoices to ensure their accuracy; requesting the voluntary inclusion of the department's integrity measures in contracts; audits; and formal or departmental investigations.

If the department suspects wrongdoing, we will not hesitate to take the necessary measures, including requesting formal investigations by the RCMP or the Competition Bureau.

These measures apply only to Public Works and Government Services-managed procurements and real property transactions. The department manages approximately 83% of the value of all government-wide procurement. Departments and agencies have a delegated authority to contract for goods up to $25,000. Some departments have exclusive authority for goods contracting. Departments and agencies may contract for services under their own delegated authorities. However, a number of organizations that have such delegations or authorities, such as the Canada Revenue Agency, have entered into a memorandum of understanding with our department so as to be able to benefit from our integrity provisions.

The department has put in place numerous measures that demonstrate its commitment to doing business with companies and individuals that respect the law and act with integrity. The department will continue to build upon these measures. That is our responsibility as stewards of public funds.

We continue to enhance our approaches and measures. For example, last month we entered into a memorandum of understanding with the Competition Bureau of Canada to promote cooperation between our two organizations on the prevention, detection, reporting, and investigation of possible bid-rigging or cartel activity. Our minister has also asked us to explore improvements to the framework and to see how it could be applied more broadly across government.

Mr. Chair, this concludes my remarks.

Thank you for the opportunity to present our integrity measures and fairness monitoring program.

[The Chair, NDP, Pat Martin]

Thank you, Madame d'Auray.

I know there's great interest and a lot of questions.

We'll proceed right away to the first name on the list. From the official opposition we have Linda Duncan.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Thank you, Mr. Chair.

I'll go right to it.

I've noted that over time there have been some improvements to ensure the integrity of the procurement process. What troubles me is this is by code of practice.

My question to you, Madam d'Auray, is this. Why have no regulations ever been promulgated under sections 41 or 42 of the Financial Administration Act to make these measures legally binding regardless of whether they are included in a code that is attached to a contract? Why have no amendments to the Financial Administration Act been made to add the offences that are in the code of conduct?

[Michelle d'Auray]

Thank you for the question.

The offences that are listed and for which companies are bound to respect the legislation are based on legislation. The charges can be put in the existing legislation whether it's the Criminal Code, the Financial Administration Act, or the Competition Act. The legislation to support these infractions or to charge the companies already does exist. They are bound when they sign their contracts to uphold and to be free of convictions under these offences, and we can essentially terminate the contracts for a default.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Okay. I won't pursue it further, but it doesn't really answer my question.

Yes, indeed, if you violate the Criminal Code, you violate the Criminal Code. But the decision by this government has been to use a non-legally binding code of conduct instead of, in fact, issuing regulations under the legislation. I remain puzzled as to why, given the potential seriousness and the scale of the size of these contracts, we wouldn't proceed in that way.

My next questions are about the fairness monitoring. We welcome Ms. Glover, who I understand is the ADM who would be responsible for the fairness monitors.

There have been a good number of questions raised about the fairness monitors. I know that you will not feel comfortable discussing the specific case brought by Envoy, which is potentially under appeal—not yet filed, as I understand—but I would like to ask you questions about the issues that were raised and whether you think those are worth pursuing.

The justice of the Ontario Superior Court of Justice in that case raised serious questions about the partiality of the monitors, due to the fact that they are directly retained and remunerated by Public Works, and therefore, he said, “He who pays the piper picks the tune”. There is at least the appearance of bias in that, if you're a monitor, you're not going to want to find that there are problems with the way Public Works is administering the contracts.

There have been suggestions also by the OECD that there should be independent mechanisms set up. In their “OECD Principles for Integrity in Public Procurement”, in principle 9, they have recommendations for the better handling of complaints from potential suppliers in a fair and timely manner, and actually recommend the establishment of an impartial review body with enforcement capacity independent of the procuring entities, which would rule on procurement decisions and provide adequate remedies.

I'm curious to know if you have taken into consideration, given various issues that have arisen over the last couple of years and in the recent case—which is, I understand, under appeal, and it's not the only case proceeding—are you giving consideration to the OECD principles, which I presume we subscribe to in this country, and to the issues raised by the court generally about the role of the fairness monitors?

[Michelle d'Auray]

Perhaps, Mr. Chair, I'll start with the OECD principles.

We do have two bodies that oversee procurements. The first one is the trade tribunal, the CITT, and the second organization is the Procurement Ombudsman. So we do have independent bodies. One is a tribunal, so it has a power of remedy, and the other one, the Procurement Ombudsman, does have the power to address complaints.

I will ask Ms. Glover to talk about the fairness monitoring program, the independence of it, and how we go about selecting the monitors, and how they're reporting. Their work in relation to the department is, indeed, independent.

[The Chair, NDP, Pat Martin]

If I could interrupt you, Ms. Glover, could you give us maybe a 45-second or one-minute introduction to that theme. I'm sure you'll have opportunities to expand on it with other questions, but Ms. Duncan is almost out of her time.

One minute or so?

[Barbara Glover, Assistant Deputy Minister, Departmental Oversight Branch, Department of Public Works and Government Services]

Sure.

The fairness monitoring program was formally put in place in 2005. As Michelle mentioned in her introductory remarks, we have recently updated the standing offer. The way we seek fairness monitors is through a standing offer. That process is complete. We seek folks from outside the department who are independent and who have various credentials, which are laid out in the statement of work that we provided you earlier. We ask these people to come in, observe the procurement process from beginning to end, essentially, prior to setting out a request for proposal.

They engage in real time with the folks in charge of the procurement. They are asked to observe every aspect, to read all of the documents related to a procurement, to make observations, again in real time, and then to prepare a final report, which is posted.

At the beginning of engagement they need to attest to their independence, i.e., have no possible conflict of interest in undertaking their work. They are engaged by my branch, which is to say not the folks undertaking the transaction, whether it's a real property or procurement transaction.

Is that...?

[The Chair, NDP, Pat Martin]

If I could, I'll stop you there. I think that's a good overview, Ms. Glover. As I say, I'm sure there will be further questions where you can expand on that.

Next, then, for the Conservatives, is Mr. Ron Cannan.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thank you to our witnesses for coming back to the committee again on a very important issue.

Integrity and public trust in the public procurement processes are paramount. I appreciate the changes that we've embarked on since forming government in 2007 and even recently, as you mentioned, some of the new additions. But there is still some perception that there are loopholes with some companies that are holding contracts with the government and getting around the policy. Maybe you could expand a little bit and clarify where that perception originates from. Thank you.

[Michelle d'Auray]

Thank you for the question. As I indicated in my remarks, the provisions, if they are not included in existing contracts, are not retroactive. So if the offences are committed by a company or if they're convicted with an existing contract, we can take measures. Some of them are to undertake more administrative reviews. We can put more scrutiny on the processes. But there are a number of instances where that exists. We can also ask the companies to open up the contracts under which they are currently providing services to include our measures.

But it is not a retroactive process. What we do in those instances if convictions occur during the course of a contract is that we undertake more significant monitoring and more oversight in the process. As we refresh our various procurement instruments, we include all of our integrity provisions in those requirements. We ensure at that point that with companies or board members who are convicted of offences, we can terminate the contracts for default.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you for that clarification.

On the difference between being convicted and pleading guilty, if somebody knows they have been caught and they say they'll plead guilty, then they can continue to do business, whereas if they were convicted they could possibly be prevented from doing business. Is that correct?

[Michelle d'Auray]

That is one of the reasons why in November of 2012, we enhanced the provisions in order to remove leniency as an element that would allow a company, its directors, or its affiliates to be able to contract with the government, because the nature of the offences upon which the company or directors would have been found guilty were sufficiently serious for us to then consider that leniency was not sufficient. Therefore we would remove those companies from the opportunity to bid or to be given contracts by the government.

It is, however, still tied to a conviction. But the leniency provisions are no longer an exemption that we allow.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thanks.

What kinds of consultations do you have with the provinces and territories?

[Michelle d'Auray]

We have provided a lot of the information to my counterparts in the provinces and territories. They all have different mechanisms and structures around how they deal with their procurement processes.

We have also undertaken a fairly significant consultation process with associations. A number of them have indicated to us that there are additional elements that they would like to see covered, such as offences in foreign jurisdictions. We are currently looking at that.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Excellent.

In your preamble you shared a little bit about your successes. Maybe you could expand a little bit more on how the integrity process is unfolding to other agencies and departments within the government.

[Michelle d'Auray]

As I indicated in my remarks, we cover almost 83% of procurement across government, but departments do have their own authorities and some organizations do not or are not required to use Public Works and our procurement services.

We have in a number of instances developed a memorandum of understanding and a number of organizations have signed those with us, so they will voluntarily apply our integrity provisions. They come to us when they are about to issue a contract to make sure that the companies with which they are contracting are indeed who they should be contracting with.

We are working with our colleagues at the Treasury Board of Canada Secretariat to see how we could more broadly apply the measures across the government. The procurement policy instruments really rest with the secretariat.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

So does the 83% include real property transactions as well?

[Michelle d'Auray]

No. Those are just the procurements. For the real property transactions I would ask my colleague to see what we cover.

We cover a fair chunk of the office accommodation, but we do not cover some of the specialized areas such as, for example, the CFIA or Parks Canada. They have their own ability to procure and to do their own real property transactions.

We have offered to those organizations that if they so wish to engage with us, we will agree, sign protocols, apply using our own instruments to their processes, but they are not required or bound to do so.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

So if somebody is disqualified....

[The Chair, NDP, Pat Martin]

I'm afraid that will have to do it for now, Ron. You're well over your time. Thank you very much.

We're going to go to Denis Blanchette for the NDP.