SNC-Lavalin Avoids Federal Bidding Suspension

Author(s): Kaeleigh Kuzma, Peter Franklyn

Dec 15, 2015

On December 9, 2015, SNC-Lavalin Group Inc. entered into an administrative agreement with Public Works and Government Services Canada pursuant to the federal government’s revised Integrity Regime announced in July 2015.

The SNC-Lavalin administrative agreement represents the first administrative agreement entered into under the revised Integrity Regime. The prior integrity framework was broadly criticized as being overly harsh, including for example a non-discretionary ten-year debarment from federal government contracts for parties convicted of a listed offence. As a result of these criticisms, the framework was revised in July 2015 to include, among other things, the establishment of an administrative agreement framework whereby a supplier that contravenes the Integrity Regime may in certain circumstances apply for an administrative agreement in order to continue to be eligible to bid for federal government contracts provided certain anti-corruption compliance obligations and other conditions are met. For example, a supplier may be required to establish policies addressing competition/antitrust issues and political contributions, appoint compliance officers, and engage in regular compliance training. A supplier must contract with a private sector third party that has expertise in corporate governance and integrity to ensure the terms of the administrative agreement are met.

The revised Integrity Regime provides that a supplier may be suspended from doing business with the federal government for up to 18 months (and potentially longer if legal proceedings are in process) if the supplier is charged with or admits guilt to a listed offence. However administrative agreements may now be used in lieu of suspending a supplier from contract eligibility or in circumstances where a decision is made to continue an existing contract with a supplier who has become non-compliant under the Integrity Regime.

The SNC-Lavalin agreement follows criminal fraud and corruption charges that were filed in February 2015. In connection with the prior integrity framework which provided for an automatic ten-year debarment upon conviction, SNC-Lavalin’s former chief executive officer commented that the impact of criminal charges (even if ultimately not convicted) would be catastrophic because the company would be unable to do business and “if the company can’t do business, you really only have two choices. You are going to do some dismemberment and cease to exist entirely, or you are going to be owned by somebody else.”^[1] The fact that the revised Integrity Regime provides for suspension from eligibility pending a resolution of criminal charges means that it will still have significant consequences for companies that provide services to the federal government. SNC-Lavalin referred to the agreement as a “milestone” that would enable the company “to continue to be an important contributor to the Canadian economy. It protects the public, and is good for our employees, clients, investors and all of Canada.” While the terms of the administrative agreement are confidential, SNC-Lavalin has stated that provided it complies with the terms of the agreement, “it will be able to continue to bid on and win contracts to provide procurement goods and services to all Canadian government departments and agencies, in Canada and abroad, until the final conclusion of those charges.^”[2]

Administrative agreements under the Integrity Regime are distinguishable from deferred prosecution agreements available in other jurisdictions such as the United Kingdom and the United States. Deferred prosecution agreements allow a defendant to avoid prosecution in exchange for ongoing cooperation with the enforcement authority, and are sometimes accompanied by the payment of fines and other behavioural commitments such as improvement of internal anti-corruption controls. It is generally the case that so long as the defendant complies with the agreement for its term, the criminal charges are dropped or stayed. Deferred prosecution agreements are not used in Canada although SNC-Lavalin has been a staunch advocate for establishing this approach in Canada. For details on the first U.K. court-approved deferred prosecution agreement, refer to our December 11, 2015 Osler Update.

For further details on the Integrity Regime refer to our Antitrust Advisory and our July 6, 2015 Osler Update.

For further information on the Integrity Regime and how it could affect your business, contact a member of Osler’s Competition & Foreign Investment Group.