This information circular provides an overview of the integrity provisions recently implemented by Public Works and Government Services Canada (“Public Works”), as they apply to real estate transactions across Canada (“Integrity Provisions”). The information circular is divided into the following three sections:
Part I: Integrity Provisions - Overview;
Part II: Compliance with Integrity Provisions; and
Part III: Liability for Non-Compliance.
Part I: Integrity Provisions – Overview
On July 11, 2012, Public Works extended its integrity provisions for procurement contracts to all solicitations and real property transactions for purposes of further demonstrating its commitment to having business in Canada conducted by companies and individuals that respect the law and act with integrity. As a result, effective as at July 11, 2012, all solicitations to lease and leases with Public Works are required to comply with the Integrity Provisions. Leases with Public Works which existed as at July 11, 2012, are honoured, but any lease amendments made subsequent to July 11, 2012, are required to comply with the Integrity Provisions.
Public Works has prepared draft Integrity Provisions relating to offers to lease and leases, copies of which can be found at www.tpsgc-pwgsc.gc.ca/biens-property/ci-ic-eng.html.
The Integrity Provisions apply to real property transactions managed by Public Works. Among other things, Public Works manages the acquisition and disposal of Crown-owned properties, the letting of commercial crown-owned space and leasing transactions for all uses.
The Integrity Provisions require the entity entering into the lease or offer to lease (hereinafter referred to as the “Contracting Party”), to certify that it, as well as its parents,1 subsidiaries,2 affiliates,3 and any and all directors thereof (collectively, the “Related Persons”), have never been convicted of any of the following integrity-related offences:
frauds against the government under the Criminal Code of Canada;
frauds under the Financial Administration Act;
payment of a contingency fee to a person to whom the Lobbying Act applies;
corruption, collusion, bid-rigging or any other anti-competitive activity under the Competition Act;4
participation in activities of criminal organizations;
income and excise tax evasion regardless of the amount in question;5
bribing a foreign public official; and
offences in relation to drug trafficking, (collectively, the “Offences”).
In the event that a Contracting Party or any of its Related Persons have been convicted of an Offence, they may nonetheless be eligible to solicit or enter into leases with Public Works if:
a record suspension or a criminal pardon has been granted; or
capacities have been restored by the Governor in Council (“GIC”) at any time before a record suspension is granted.
A Contracting Party or its Related Person, as applicable, may apply for a record suspension five or ten years after the expiration of the sentence or probation period depending on whether the infraction is prosecuted through summary proceedings or indictment. Once a Contracting Party or Related Person, as applicable, receives a record suspension or alternatively, once it has its capacities restored by the GIC, it becomes eligible to solicit and enter into leases with Public Works.
“Required by Law” and Public Interest Exceptions
There are instances when a Contracting Party may still enter into real property transactions with Public Works notwithstanding that it, or any of its Related Persons, may be convicted of an Offence. Such instances arise when required by law or when Public Works considers it necessary to the public interest for reasons which include, but are not limited to, the following:
when only one entity is capable of performing the offer to lease agreement or lease;
health and safety; and
The foregoing exceptions are applied by Public Works on a case-by-case basis and may be coupled with additional controls, administrative measures, and monitoring on the real property agreement in question.
So far as we are aware, Public Works has not yet used the public interest exception in relation to a real property transaction. However, since November 2012, public interest exceptions have been used in three instances relating to procurement contracts where it was determined by Public Works that the Contracting Party was the only entity available to provide a particular good or service.6
Parties subject to the Integrity Provisions
The Contracting Party
If a Contracting Party has been convicted of an Offence, then it cannot solicit or enter into any leases with Public Works.
As long as a conviction stands against the parent of a Contracting Party, the Contracting Party itself would be ineligible to solicit or enter into any leases with Public Works. The only way to circumvent the Integrity Provisions in such circumstances is to change the control of the Contracting Party, which may, for example, be accomplished through the sale of the parent’s shares in the Contracting Party.
As long as a conviction stands against a subsidiary of a Contracting Party, the Contracting Party itself would be ineligible to solicit or enter into any leases with Public Works. However, if a Contracting Party were to sell the subsidiary prior to soliciting or entering into a lease, then such Contracting Party would be eligible to do so.
As long as a conviction stands against an affiliate of a Contracting Party, such Contracting Party itself would be ineligible to solicit or enter into any leases with Public Works. A business concern, organization or individual would be considered an “affiliate” of the Contracting Party if directly or indirectly:
either one controls, or has the power to control, the other, or
a third party has the power to control both.
Indicia of control include: interlocking management or ownership, identity of interests among family members, shared facilities and equipment, common use of employees, or a business entity created which have the same or similar management, ownership, or principal employees, as the case may be.
Director of the Contracting Party, Parent, Subsidiary or Affiliate
If a director of a Contracting Party, or a director of any parent, subsidiary or affiliate of such Contracting Party, directly or indirectly controls or possesses the power to control the Contracting Party or the applicable parent, subsidiary or affiliate thereof, and such director is convicted of an Offence, the Contracting Party itself would be ineligible to solicit or enter into any leases with Public Works. Only one wayward director is required to render the Contracting Party ineligible to conduct business with Public Works. However, should such director resign and not retain control over such Contracting Party, parent, subsidiary or affiliate, as applicable, prior to such Contracting Party soliciting or entering into a lease, the Contracting Party would be eligible to do so.
An employee’s conviction would have no bearing on a Contracting Party’s eligibility to solicit or enter into a lease with Public Works so long as the employee does not control or possess the power to control the Contracting Party.
A director’s family member’s conviction would have no bearing on a Contracting Party’s eligibility to lease or enter into a lease with Public Works so long as the employee does not control or have the power to control the Contracting Party.
No Dollar Value Thresholds
All real property transactions with Public Works, of any value, are subject to the Integrity Provisions.
No Time Limitations for Convictions
The Integrity Provisions apply if a conviction occurred notwithstanding any lapse of time and regardless of whether the Contracting Party has been in good standing since the time of such conviction.
Impact of Charges, Investigations and Allegations
Unless there is a conviction against the Contracting Party or its Related Persons, charges, investigations or allegations have no bearing on the eligibility of the Contracting Party.
No Foreign Offences
The Integrity Provisions affect individuals and companies (Canadian or foreign) that are convicted of Canadian offences. Foreign offences are not covered by the Integrity Provisions.
Unfortunately no “standard” practice has yet developed in the real estate industry regarding the appropriate internal compliance measures which a Contracting Party should undertake.
Whether internal compliance measures are undertaken and the extent of the compliance measures to be taken is an issue to be addressed by each Contracting Party and will depend upon many factors including the Contracting Party’s risk tolerance which may, in turn, depend on the size, structure and complexity of the Contracting Party’s organization, the “value” to the Contracting Party of the offer to lease or lease in question and other circumstances surrounding the offer to lease or lease in question.
From our limited experience to date, the compliance measures which are being undertaken in the real estate industry range from simply doing nothing and accepting the risk (presumably depending upon many factors including the benefit versus the risk to the Contracting Party) to limited internal assessments and/or enquiries.
It should also be noted that the nature and extent of compliance measures which will be undertaken by a Contracting Party may also be affected by any “cure” provisions which are implemented and available to a Contracting Party. Obviously, if there is an effective “cure” right, the extent that a Contracting Party may wish go to in undertaking compliance measures may be lessened.
Part II: Compliance With Integrity Provisions
Certification and Verification
In order to comply with the Integrity Provisions, a Contracting Party must:
certify that neither it nor any of its Related Persons, have been convicted of an Offence; and
provide a complete list of the current directors sitting on its board.7
Upon receipt of the foregoing information by Public Works, Public Works will proceed to verify such information and is further entitled to request additional verification by way of a signed Criminal Record Verification Consent. Completed Criminal Record Verification Consent forms are maintained by Public Works for a two-year period.
Internal Compliance Measures
In order to ensure compliance with the Integrity Provisions, Contracting Parties may wish to consider the following:
Assess their corporate structure to identify which entities, would be considered Related Persons.
Ascertain all current members of the board of directors of the Contracting Parties and the Related Persons, as applicable.
Conduct (through internal means, independent research, government resources, or third parties) an audit to determine if the Contracting Party, or any of its Related Persons, has been convicted of an Offence.
If any of the Contracting Party or its Related Persons have committed an Offence, determine if such party is eligible to apply for a record suspension.
If a director has been convicted of an Offence, the Contracting Party may wish to initiate processes to have the director resign.
If a parent, subsidiary or affiliate has been convicted, the Contracting Party may have to conduct a cost-benefit analysis to determine whether, in order to comply, it is appropriate to proceed with a corporate restructuring.
Part III: Liability For Non-Compliance
The liability that flows from non-compliance with the Integrity Provisions depends on whether the Contracting Party is making an offer to lease or is entering into or has entered into a lease. In the event of an offer to lease, the Contracting Party is ineligible to make an offer to lease if:
the information requested by Public Works is missing or inaccurate;
the information contained in the offeror’s certifications is false;
if required, the offeror fails to timely provide Public Works with a completed Criminal Record Verification form; or
the offeror otherwise delays or obstructs the efforts of Public Works to determine the veracity of the offeror’s certifications.
It should be noted that the offeror Contracting Party and its Related Persons are required to remain free and clear of any conviction for the term of the lease, including any extensions thereof. If it is determined, after entering into a lease, that the information contained in the offeror’s certifications is false, Public Works may terminate the lease in question.
In respect of a lease, Public Works has the right to terminate the lease for default if at any time during the term of the lease, including any extensions thereof, Public Works determines that:
the lessor made a false declaration in its offer to lease;
the lessor makes a false declaration under this lease;
the lessor fails to diligently maintain and provide up-to-date the information requested;
if required, the offeror fails to timely provide Public Works with a completed Criminal Record Verification form; or
the lessor, or any of its Related Persons, fail to remain free and clear of any convictions during the term of the lease, including any extensions thereof.
Public Works also has the right to demand the immediate return of any advance payments made under the lease. Moreover, if the lessor fails to diligently maintain and provide up-to-date information to Public Works or fails to deliver a Criminal Record Verification when requested, Public Works can apply to the court for an order of specific performance. An order for specific performance would enjoin the lessor to do what it has contracted to do under the lease in question.
The Integrity Provisions provide that the lessee, in addition to other remedies that may be available to it, will have the right to terminate the lease or offer to lease, as applicable, for default. Moreover, the Integrity Provisions do not limit the remedies available to the lessee at law which leads to the inference that Public Works has left itself the option, in addition to the right to terminate the offer to lease or the lease, as applicable, to pursue any remedies available to it at law or in equity. While we have not been able to find any case law on this point, it is reasonable to assume that in the event that Public Works enters into an offer to lease or a lease, as applicable, in reliance upon false certifications made by the Contracting Party, it will have available to it the right to terminate the offer to lease or the lease as well as the right to sue for any damages which it incurs as a result thereof (such as relocation costs, etc.), and any other equitable remedies which may be appropriate in the circumstances.
There has been some concern raised as to whether liability could extend personally to officers or directors of the Contracting Party or its Related Persons if the certification is false or untrue.
Our research on the remedies available in the event of non-compliance with the Integrity Provisions did not disclose any intention to extend liability personally to officers or directors of the Contracting Party or its Related Persons.
Ability to Cure
Pursuant to paragraph (h) of the Integrity Provision relating to offers to lease (Appendix “A”) where the lessee intends to reject an offer to lease for the reasons set out in paragraph (g) of such Integrity Provision, it will inform the Contracting Party and provide it with five (5) working days within which to make written representations as to why its offer to lease should not be rejected.
We also understand, based upon our discussions with Public Works departmental officials, that the Integrity Provisions will soon be revised to provide a cure period (expected to be 30 days) to remedy any certification that was false or untrue. For example, a director of a Contracting Party who is guilty of an Offense could be removed and/or replaced within the cure period. Until we see the proposed revision to the Integrity Provisions we are not able to comment on whether any proposed “cure rights” will be workable.
Under the Integrity Provisions, “parent” means a corporation that holds all issued and outstanding shares of the capital stock of a corporation (Income Tax Act RSC 1985, c-1 (5th Supp)).
Under the Integrity Provisions, “subsidiary” means a corporation in which all the issued and outstanding shares of its capital stock belong to (i) a person; (ii) a corporation that is a wholly-owned subsidiary of the same person; or some combination of persons as described under (i) and (ii) (Income Tax Act RSC 1985, c-1 (5th Supp)).
Under the Integrity Provisions, “affiliate” means an entity which, directly or indirectly, in relation to the Contracting Party: (i) either one controls, or has the power to control, the other; or (ii) a third party has the power to control both.
Prior to July 11, 2012, Contracting Parties who participated in programs such as the Competition Bureau’s Leniency Program would be exempted from the Integrity Provisions.
The Contracting Party would still be eligible to make offers to lease or enter into leases if it owes taxes or is in dispute with the Canadian Revenue Agency in respect of taxes.
Elizabeth Thompson, “Companies handed government contracts despite integrity violations”, iPolitics (4 Jun 2013) online at para 3: http://www.ipolitics.ca/2013/06/04/companies-handed-government-contracts-despite-integrity-violations/.
If the Contracting Party is already a party to a lease, it is obligated to diligently update by written notice to Public Works, the current members of the lessor’s board of directors.