Ethical procurement and forced labour: Committee of the Whole—May 19, 2022
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Labour exploitation in procurement
In this section
Key data points
- July 2020: clauses on ‘ethical procurement’ and ‘origin of work’ were added in new personal protective equipment (PPE) contracts and in all newly issued request for proposals for PPE
- August 2021: updated Code of Conduct for Procurement that outlines Canada’s expectations for suppliers and their sub-contractors regarding human and labour rights is launched
- November 2021: anti-forced labour clauses are included in all goods contracts issued on or after November 4, 2021
- In January 2022: contracts between Canada and Supermax Healthcare Canada were terminated by mutual consent
Policy and contractual framework
- As the government’s procurement authority, Public Services and Procurement Canada (PSPC) is committed to ensuring that human rights and labour standards are protected, and ethical practices are maintained by suppliers and manufacturers from which we procure vital goods, such as personal protective equipment
- Notably, PSPC requires bidders responding to tenders for PPE to certify that they and their first-tier subcontractors comply with a set of fundamental human and labour rights requirements
- Among these requirements are freedom from child labour, forced labour, discrimination and abuse, as well as access to fair wages and safe working conditions
- This requirement builds on PSPC’s Policy on the Ethical Procurement of Apparel, which since 2018, requires apparel suppliers to certify that they and their direct Canadian and foreign suppliers comply with a set of fundamental human and labour rights
- in July 2020, clauses on ‘ethical procurement’ and ‘origin of work’ were added in new PPE contracts and in all newly issued request for proposals for personal protective equipment
- the ‘origin of work’ clause requires bidders to provide the name, address and country of manufacturers of the item, including subcontractors
- the ‘ethical procurement’ clause, requires bidders to certify that they and their first-tier subcontractors comply with the same human rights and labour standards set out in the Policy on Ethical Procurement of Apparel
- PSPC has made changes to strengthen its contractual framework to address the issue of forced labour in government supply chains, including updating the Code of Conduct for Procurement to include new expectations for suppliers and their subcontractors on human and labour rights
- It has also implemented new anti-forced labour contract clauses to ensure that it can terminate contracts where there is credible information that goods have been produced in whole or in part by forced labour or human trafficking
- These clauses protect the department from financial liability if imported goods are not released at the border because their importation is prohibited under the forced labour prohibition in the Customs Tariff Act
- In addition, PSPC works closely with other government departments such as Employment and Social Development Canada (ESDC) and the Canada Border Services Agency (CBSA)
- At CBSA’s request, EDSC-Labour provides support by conducting research and analysis on the risk of forced labour for specific complaints or allegations received pertaining to the forced labour import prohibition administered by the CBSA
- Given the complexity and scope of the problem, addressing forced labour will take sustained effort over time. PSPC is committed to its ongoing work in this area
National Strategy to Combat Human Trafficking
- In September 2019, the Government of Canada announced a new National Strategy to Combat Human Trafficking. The national strategy includes a commitment that PSPC will enhance federal procurement supply chains with the goal of ensuring that they are free from human trafficking and labour exploitation
- As part of planned actions under the National Strategy to Combat Human Trafficking, PSPC will also create information resources for suppliers to become better aware of potential risks in their supply chains (2021 to 2022); and create requirements for suppliers of high-risk goods to address risks in their supply chain (2022 to 2023)
Mapping human rights due diligence and compliance monitoring
- In February 2022, Public Services and Procurement Canada posted a request for proposals to map human rights due diligence and compliance monitoring
- The work will examine international due diligence obligations for businesses to report on actions taken to address the risks of forced labour, human trafficking and human rights violations
- Commonalities across different reporting requirements, including among governments and international organizations, will be identified. In addition, promising practices for monitoring compliance with due diligence reporting requirements will be examined
- This request for proposals builds upon findings and recommendations from the May 2021 risk assessment, and will inform the subsequent development of an ethical procurement policy and a human rights due diligence framework
Supermax Healthcare Canada
- In December 2020, it was brought to PSPC’s attention that there were possible forced labour issues with suppliers in Malaysia, including Supermax
- In January 2021, after reminding the nitrile glove suppliers of their obligation with regard to ethical practices, PSPC issued a communication to contracted suppliers, including Supermax Healthcare Canada, to provide attestation of actions against forced labour. In the same month, Supermax Healthcare Canada provided their attestation confirming their commitment to ethical working conditions to PSPC
- On October 21, 2021, PSPC learned that the United States Customs and Border Protection had issued an order that prohibits imports from Supermax based on reasonable information that indicated the use of forced labour in the company's manufacturing operations in Malaysia. In light of this new allegation, PSPC requested Supermax Healthcare Canada to suspend all future deliveries until Canada was satisfied that its contracted gloves were produced without forced labor
- On December 16, 2021, Supermax Healthcare Canada provided Canada a summary response to the findings of the first of a series of 4 audit reports. This audit was conducted at the Malaysian sites by an independent firm. Canada reviewed the report and did not believe it had sufficient information to fully assess the matter
- Rather than waiting for the full audit report, Canada and Supermax Healthcare Canada mutually agreed to terminate their contracts, which were executed on January 17, 2022
Sinopharm
- Sinopharm International Corporation was awarded a contract for nitrile gloves in April 2020, and the contract was further amended in June and December 2020 for additional quantities
- In December 2020, it was brought to PSPC’s attention that there were possible forced labour issues with suppliers in Malaysia
- In January 2021, after reminding the nitrile glove suppliers of their obligation with regard to ethical practices, PSPC issued a communication to contracted suppliers, including Sinopharm International Corporation, to provide attestation of actions against forced labour
- Sinopharm International Corporation’s manufacturer, INTCO, located in China, was not part of the January 2021 ethical concerns in regard to forced labour in large manufacturing plants. INTCO signed and provided to PSPC a declaration of no forced labour on April 12, 2021. INTCO also has the international certification ISO13485, the internationally agreed standard that sets out the requirements for a quality management system specific to the medical devices industry
- Sinopharm International Corporation completed final contract delivery requirements in December 2021. There are no outstanding contract requirements to be fulfilled
Integrity in federal procurement
In this section
Key data points
- Under the current Regime, 3 companies are ineligible to do business with the Government of Canada due to convictions for a listed offence (Les Entreprises Chatel Inc., R.M. Belanger Limited and Les Industries Garanties Limitée)
- Currently there are 2 active administrative agreements with suppliers; one has had its period of ineligibility reduced from 10 to 5 years (Hickey Construction Ltd); and another signed an administrative agreement with the registrar in lieu of suspension (SNC-Lavalin Group Inc.)
The Integrity Regime
- The Government of Canada has a framework of laws, regulations and policies in place to protect the integrity of the federal procurement system. PSPC administers several programs under this framework, including the government-wide Integrity Regime, the federal contracting fraud tip line, and increased oversight for the detection of bid-rigging
- The Integrity Regime is designed to help ensure that the government does business with ethical suppliers and incentivizes suppliers to ensure strong ethics and compliance frameworks
- Under the regime, a supplier may be suspended or declared ineligible to do business with the government if, in the previous 3 years, it, members of its board of directors or its affiliates, have been charged with or convicted of one of the offences listed in the Ineligibility and Suspension Policy in Canada or a similar offence abroad
- In 2018, the government announced its plans to enhance the Integrity Regime by increasing the number of triggers for debarment, broadening the scope of business ethics covered by the regime, and integrating greater flexibility within the debarment process
- Following this announcement, there was considerable public discourse around corporate wrongdoing as well as governments’ response to such misconduct. As a result, the government announced that it was taking additional time to reassess elements of the proposed regime and potential next steps
- In the interim, the current Ineligibility and Suspension Policy remains in effect
Recent articles: Integrity Regime as “Grim Reaper”
- An article from the George Washington International Law Review entitled Canada’s Integrity Regime: The Corporate Grim Reaper was published on April 19, 2022
- The article was also referenced in a Foreign Corrupt Practices Act (FCPA) Blog, which publishes news and commentary about white collar crime, enforcement and compliance. Using SNC-Lavalin as a case study, the authors describe the Integrity Regime as “draconian” and a disproportionally “punitive approach to debarment” given it’s mandatory debarment periods
- The article further opines that the regime does not effectively protect the government’s interests, and fails to adequately encourage companies’ efforts to address compliance issues
- The authors recommend modifications to the Integrity Regime, including increasing discretion of decision makers around debarment decisions. These recommendations are consistent with the proposed enhancements that were put forward in 2018
- The Government of Canada recognizes that it takes sustained efforts to bolster its procurement policies and better mitigate emerging procurement risks stemming from rapidly changing market dynamics and evolving supply chain realities
- It also understands that public procurement can be a key contributor to supporting other federal priorities and reinforcing Canadian values
- The Government of Canada is committed to exploring and implementing policy measures that ensure that it holds its suppliers to the highest ethical standards and effectively combats corporate misconduct in an evolving marketplace
- We will take this feedback under advisement as we seek to improve our approach to better address corporate wrongdoing and strengthen corporate compliance within the federal procurement system
SNC-Lavalin
- The Government of Canada has consistently applied the Integrity Regime to its dealings with SNC-Lavalin pursuant to the Ineligibility and Suspension Policy
- In light of alleged wrongdoing by SNC-Lavalin and the recent approval of a remediation agreement with Quebec prosecutors relating to criminal charges filed in September 2021, the registrar of ineligibility and suspension signed an administrative agreement with the company under the Integrity Regime
- This agreement will allow the company to participate in federal procurements as long as its terms are met
- SNC had a prior administrative agreement with the registrar stemming from foreign bribery charges the company faced in 2015
- Throughout its duration, SNC-Lavalin complied with the terms and conditions of that administrative agreement, and it concluded in December 2020 in accordance with the terms of the agreement and following the final resolution of their criminal proceedings
Administrative agreements and remediation agreements
- Administrative agreements are available under the Integrity Regime and are negotiated between the registrar of ineligibility and suspension and affected suppliers. These agreements allow the supplier to continue to do business with the Government of Canada while protecting the integrity of the federal procurement system
- Common terms in administrative agreements include improvements to corporate compliance programs as well as independent oversight and reporting on progress. Administrative agreements are also subject to termination by PSPC should terms and conditions not be met, or if the circumstances surrounding the agreement change
- Remediation agreements are available under Canadian criminal law and are used to address criminal charges. Specific questions about SNC’s remediation agreement should be put to the Directeur des poursuites criminelles et pénales au Québec
- While the 2 instruments have similarities, they have effect in distinct areas. If a remediation agreement were to be signed between prosecutors and an accused entity to deal with the criminal law implications of alleged misconduct, an administrative agreement with the registrar would still be required with respect to their status under the Integrity Regime
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