Study: Ottawa's Anti-Corruption Rules On Suppliers Threaten Canadian Economy

The analysis explored possible scenarios, concluding that annual sales for a typical disqualified company would drop by $351 million and force it to fire more than 400 Canadian workers.

OTTAWA — New federal rules that threaten to ban companies convicted of crimes from public contracts could kill jobs and hurt the Canadian economy, warns a study conducted for a powerful business group.

The report lists the potential consequences of Ottawa's so-called integrity framework, a measure strengthened last spring to disqualify would-be suppliers busted in Canada or abroad for offences such as fraud, bribery and extortion.

The companies would face a 10-year ban, or debarment, from vying for the often-lucrative procurement deals offered through the government's primary contracting department: Public Works.

But such bans would not only inflict damage on suspended firms, they also risk "far-reaching harm" on Canada's economy, says the study, commissioned by the Canadian Council of Chief Executives.

The report was one of two research documents the council forwarded to Public Works last week. The department says its officials are reviewing both reports.

"Debarment imposes a direct cost on the debarred firms, but also on innocent parties and society at large," says the report, which explores the potential economic effects of the framework.

The analysis explored possible scenarios, concluding that annual sales for a typical disqualified company would drop by $351 million and force it to fire more than 400 Canadian workers.

Other firms that stepped in to replace it would only partly fill the void, it argues.

On top of that, suspension of a single firm would result in a net loss of more than $1 billion to Canada over the 10-year period, said the report, co-authored by Ciuriak Consulting Inc. and Dawson Strategic.

In March, Public Works quietly enhanced the framework with several new rules. The changes included expanding the list of convictions that would result in disqualification and the threat of a decade-long suspension on companies or affiliates found guilty of offences.

"The government of Canada has an obligation to ensure that it is doing business with ethical suppliers, especially in the increasingly global marketplace," Public Works spokeswoman Annie Joannette wrote in an email.

"At the same time, it must also consider procurement integrity and accountability for Canadian taxpayers."

She said the changes were based on feedback from companies and industry associations. The old rules, she added, actually called for a permanent debarment, not just 10 years.

The framework is rules-based, not discretionary, Joannette said.

The department has already acknowledged at least one company's situation has been reviewed under the stricter framework.

Hewlett-Packard Co. pleaded guilty in September to felony charges in a U.S court that ex-employees of its Russian subsidiary bribed Russian government officials for a contract. The company admitted violating the U.S. Foreign Corrupt Practices Act and was fined US$58.7 million.

That development could result in a 10-year ban from government contracts in Canada.

"We reviewed the U.S. court decision," said Marcel Poulin, a spokesman for Public Works Minister Diane Finley. "There's definitely a review that has been done."

The department, however, said it would not provide any information about specific cases.

A spokeswoman for HP in Canada referred questions about the status of the review to the government.

"HP is aware of the new guidelines, and we are working to fully understand them," said HP's Sandra Benjamin.

The rules worry leaders of big business in Canada.

John Manley, president and CEO of the Canadian Council of Chief Executives, said it's totally acceptable that nobody wants the government doing business with companies with cultures that breed corruption.

But the rules don't appear to give companies the chance to show they've cleaned things up, such as "when bad people have been fired, when systems have been created to ensure that that behaviour was not condoned or practised again, and to recognize the fact that sometimes employees act outside the bounds of propriety," he said in an interview.

"While they should be punished, and while there might be an appropriate punishment for the enterprise itself, keeping them out of providing service to government for 10 years without any kind of discretion over-reaches."

Among the concerns, the study undertaken for Manley's group argues the integrity framework could have a number of other negative implications, including:

— A reduction in the number of potential suppliers, which could lead to less variety, weaker quality and higher prices;

— Supply-chain impacts, such as small and medium firms losing contracts due to suspensions of larger companies;

— A "chilling effect" on foreign investment in Canada by firms concerned about the stigma of being debarred in a G7 country.

The second document delivered last week to government officials by the Canadian Council of Chief Executives argues that Ottawa's procurement rules are stricter than those in many other countries.

Manley, whose group represents around 150 chief executives, says companies weren't consulted on the changes in March. He added they didn't even appear on corporate radars until the summer.

"There wasn't a lot of fanfare before companies began to realize that this could be bigger than it first seemed."

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