This article is an extract from the 5th edition of Government Procurement.
As recent reports from Montreal’s Inspector General reveal, public institutions need to establish debarment procedures to deal with problematic suppliers. However, in addition to establishing proper procedures to support their debarment decisions, public institutions need to guard against the circumvention of those debarment decisions by unscrupulous suppliers who continue to win government work by using third-party fronting schemes.
Turning first to an example of the type of misconduct that can lead to the debarment of a supplier, in its January 2019 report entitled Recommendation Report Regarding the Expansion and Renovation of the Pierrefonds Library (Call for Tenders 5887), Montreal’s Inspector General determined that a general contractor arranged to have its subcontractors reduce the fees they charged for change orders but passed through the full costs of the work to the municipality and kept the difference. The report dealt with a contract for the renovation of a municipal library. The Inspector General concluded that this scheme resulted in the subcontractors increasing the cost of the work that they charged to the municipality as compensation for being required to kickback a portion of their payments to the general contractor. The Inspector General determined that the general contractor failed to fulfil its duty to act in the best interest of the municipality and that its change order scheme put it in a conflict of interest with the municipality. The Inspector General found that the scheme constituted a fraudulent practice under the municipal bylaw and concluded that the general contractor should be barred from future municipal work for a period of five years.
However, contractors do not always abide by these debarment decisions. For example, in its June 2021 report entitled Report on the various contracts awarded to 11073192 Canada Inc. and the involvement in the award and performance of these contracts of a person ineligible for public contracts, Montreal’s Inspector General determined that an individual who was previously barred from bidding on or performing contracts for the municipality was able to circumvent the debarment rules and work on three separate contracts through a fronting company. The Inspector General found that the officers of the fronting company knowing allowed the barred individual to work on the contracts and tried to conceal this fact from its investigation. The Inspector General rescinded the three contract awards due to this breach of the debarment rules.
Similarly, in its June 2022 report entitled Report on Contract Award and Performance Related to Calls for Tenders 16-15062, 18-16618 and 21-18750, Montreal’s Inspector General found that a company that bid on and was awarded two municipal snow-hauling contracts allowed the awarded work to be performed by a person that was barred by the municipality. The Inspector General found that the parties in question knowingly entered into a fronting agreement and used a subcontracting company to enable the arrangement and circumvent the municipal debarment rules. The Inspector General concluded that the parties in question should be barred from any future municipal contract work for a period of five years.
These recent case studies serve as a reminder to all public institutions of the need to establish proper debarment monitoring procedures to guard against the circumvention of their debarment decisions.
