Appearance before the Standing Committee on Government Operations and Estimates (OGGO), November 19, 2024

Indigenous Services Canada

• Associate Deputy Minister Michelle Kovacevic
• Assistant Deputy Minister Keith Conn
• Director General Jessica Sultan

Committee Membership

• Majid Jowhari (LIB – ON) (Vice-Chair)
• Jenica Atwin (LIB – NB)
• Parm Bains (LIB – BC)
• Irek Kusmierczyk (LIB – ON)
• Charles Sousa (LIB – ON)
• 
  Kelly McCauley (CPC – AB) (Chair)
• Kelly Block (CPC – SK)
• Garnett Genuis (CPC – AB)
• Stephanie Kusie (CPC – AB)
• 
  Julie Vignola (BQ – QC) (Vice-Chair)
• 
  Taylor Bachrach (NDP – BC)

Background

In order to be registered on the IBD, business owners must be First Nations, Inuit or Métis and ordinarily resident in Canada. At the time of registration on the IBD, the applying business provides Indigenous Services Canada (ISC) with documents that demonstrate eligibility as per the criteria outlined in the Procurement Strategy for Indigenous Business (PSIB) (at least 51% owned and controlled by Indigenous people).

Evidence considered for registration on the IBD of being an Indigenous person includes, but is not limited to:

• Indian registration in Canada
• Citizenship with the Manitoba Métis Federation, the Northwest Territory Métis Nation, the Métis Nation Saskatchewan; or a Governing Member of the Métis National Council, including: the Métis Nation Saskatchewan; the Métis Nation of Alberta; the Métis Nation British Columbia and the Métis Nation of Ontario
• Membership in an affiliate of the Congress of Aboriginal Peoples, or other recognized Indigenous organization in Canada
• Acceptance as an Indigenous person by an established Indigenous community in Canada
• Enrolment or entitlement to be enrolled pursuant to a comprehensive land claim agreement, or membership or entitlement to membership in a group with an accepted comprehensive claim

Ownership of an Indigenous business refers to "beneficial ownership" meaning who is the real owner of the business. ISC may consider a variety of factors to satisfy whether Indigenous persons have true and effective control of an Indigenous business. The business must also provide other information related to the business, including corporate structure and governance.

Evidence of being resident in Canada includes a provincial or territorial driver's license, a lease or other appropriate document.

To be eligible for the Procurement Strategy for Indigenous Business businesses must be at least 51% Indigenous owned and controlled, and when contracts are set-aside for only Indigenous businesses to bid on, at least 33% of the value of the work must be done by the Indigenous contractor, and/or a combination of the prime and Indigenous subcontractors.

Current Status

• Businesses listed on a modern treaty beneficiary business list are confirmed to be Indigenous by the Indigenous group that Canada has signed the modern treaty with.
• In addition to verifying eligibility prior to registering a business on the IBD, ISC verifies businesses have maintained their eligibility on an ongoing basis.
• ISC ensures the integrity of PSIB and the IBD multiple ways, including verifying that businesses meet the criteria when registering, as well as regularly revalidating eligibility.

What is the Indigenous Business Directory?

The Indigenous Business Directory (IBD) is an evergreen, online, public directory of businesses owned and controlled by Indigenous peoples. The IBD increases opportunities for Indigenous businesses through procurement by helping all levels of government and the private sector identify Indigenous businesses that can fulfill procurement needs.

How many Indigenous businesses are registered on the Indigenous Business Directory?

There are approximately 2939 Indigenous businesses registered on the IBD as of November 13, 2024.

How many Indigenous business are there in Canada?

According to the National Indigenous Economic Development Board, there are more than 50,000 Indigenous businesses in Canada.

What is the registration and verification process?

At the time of registration on the IBD, a business must demonstrate that it is at least 51% owned and controlled by Indigenous peoples.

Applicants seeking to be added to the IBD submit an application to ISC through an online portal. ISC then assesses the application against eligibility criteria, which require businesses to be at least 51% Indigenous owned and controlled.

Before a business is registered on the IBD, a business owner(s) must provide ISC with documentation proving that they are Indigenous and that they are Canadian residents. ISC works with Indigenous communities to validate documentation as authentic.

A business owner(s) must also prove Indigenous ownership and control by providing business information and supporting documents, such as corporate structure and governance documents.

If needed, a third party auditor may be asked to review and verify the information, based on the complexity of the business structure being assessed. For example, a third party auditor may be asked to review and verify the corporate structure or ownership structure to assess whether the 51% Indigenous ownership and control criteria is met in a joint-venture structure.

Evidence considered for registration on the Indigenous Businesses Directory of being an Indigenous person includes, but is not limited to:

• Indian registration in Canada
• citizenship with the Manitoba Métis Federation, the Northwest Territory Métis Nation, or a Governing Member of the Métis National Council, including: the Métis Nation Saskatchewan; the Métis Nation of Alberta; the Métis Nation British Columbia and the Métis Nation of Ontario
• membership in an affiliate of the Congress of Aboriginal Peoples, or other recognized Indigenous organization in Canada
• acceptance as an Indigenous person by an established Indigenous community in Canada
• enrolment or entitlement to be enrolled pursuant to a comprehensive land claim agreement, or membership or entitlement to membership in a group with an accepted comprehensive claim

Evidence of being resident in Canada includes a provincial or territorial driver's license, a lease or other appropriate document.

Businesses listed on a modern treaty beneficiary business list are confirmed to be Indigenous by the Indigenous group that Canada has signed the modern treaty with.

Is it easy for a company to be listed on the IBD?

The application process is user friendly, and available line. Applications are closely vetted by ISC staff for completeness and eligibility. Applicants must submit basic company information online, as well as documentation that demonstrates proof of Indigenous ownership and control. ISC works with Indigenous communities to validate proof of Indigeneity documentation as authentic. If needed, ISC will enlist a third party auditor to review and verify the information. For example, ISC may ask a third party auditor to review and verify the corporate structure or ownership structure to assess whether the 51% Indigenous ownership and control criteria is met.

Should businesses encounter difficulties registering for the IBD, they are encouraged to request support from the department directly by contacting ISC at REA-IBD@sac-isc.gc.ca to discuss their application.

What is ISC doing to verify businesses already on the IBD that may not qualify? Is ISC taking steps to improve its registration processes?

Eligibility for registration on the IBD is validated at least every two years for each verified business.

ISC requires businesses to provide acceptable documentation in support of Indigeneity, such as a status card or documentation from organizations and communities that have an established relationship with Canada. ISC does not accept self-identification or membership in organizations not currently recognized by Canada. ISC has been conducting a verification exercise to ensure that businesses on the IBD continue to meet the eligibility criteria.

Registered businesses who were not able to provide proof of eligibility have been removed from the IBD. ISC's IBD maintenance work continues on an ongoing basis. *For information on audits, please see the Audits 101 issue sheet.

Ownership and Control: ISC has strengthened its assessment of Indigenous ownership and control. Evidence of ownership reviewed by the program includes articles of incorporation, shareholder agreements, shareholder registries, bylaws, resolutions, and partnership or joint venture agreements. For businesses owned by multiple individuals, ISC assesses which individuals meet the PSIB Indigenous eligibility criteria and possess at least 51% ownership and control.

Legacy Project: In 2022, ISC conducted a comprehensive review of over 1,500 businesses registered in the IBD prior to 2019. As a result, more than 1,100 businesses were deactivated from the IBD due to non-responsiveness or failure to meet the PSIB eligibility criteria.

3rd party auditor: In July 2024, ISC contracted a new professional consulting firm to conduct compliance audits, including pre- and post-award audits. As of November 2024, ISC is working with these auditors to review and verify all Joint Ventures currently listed in the IBD, ensuring they meet the PSIB eligibility criteria.

We've heard from many Indigenous people and organizations that the ISC-administered Indigenous Business Directory is deeply flawed. Why does the Government create their own list of Indigenous businesses rather than relying on lists developed by Indigenous organizations?

The Government of Canada understands the importance of Indigenous Peoples verifying Indigeneity. The United Nations Declaration on the Rights of Indigenous Peoples and the United Nations Declaration on the Rights of Indigenous Peoples Act calls for a commitment to self-determination.

As part of the five year engagement and co-development process to improve Indigenous procurement policies and programs, Indigenous partners have underlined the crucial importance of Indigenous Peoples being the ones who verify and validate businesses as Indigenous.

Together with Indigenous partners, we are exploring incorporating Indigenous created and administered business lists such as the Manitoba Métis Federation's list and the Inuit Firm Registry Database.

Indigenous Services Canada does in fact use Indigenous business lists that have been created and are maintained by Indigenous Peoples. Specifically, ISC uses Modern Treaty business lists as a way for Indigenous businesses to qualify for PSIB contracts.

What reasons are there for a company to be removed from the IBD?

ISC must maintain compliance with the Privacy Act and the Access to Information Act, and therefore cannot disclose the reasons behind removal for individual companies. Specifically, ISC is required to protect third-party information "that contains trade secrets, financial, commercial, scientific or technical information; that could result in material financial loss or gain to, prejudice the competitive position; [and] that could interfere with contractual negotiations" (Access to Information Act 20(1)).

Generally, A company may be removed from the IBD if for any reason ISC is not able to verify compliance with eligibility criteria.

A company may also be removed if a supplier is debarred or suspended by PSPC's Office of Supplier Integrity and Compliance, which is mandated to strengthen the integrity and oversight of the procurement process to ensure that Canada does not contract with suppliers of concern.

Does being listed on the IBD mean that a business will receive contracts?

Being listed on the IBD simply means that a business has been deemed Indigenous as per IBD criteria. It does not guarantee that the business will receive contracts set aside for Indigenous businesses, as the majority PSIB contracts, like non-PSIB contracts, are competitive.

Can businesses on the IBD receive federal contracts that are not set-aside through the Procurement Strategy for Indigenous Business?

Yes, businesses registered on the IBD routinely compete for and are awarded contracts that were not set-aside through the Procurement Strategy for Indigenous Business. Such contracts count towards the government's minimum mandatory 5% target. In fiscal year 2022-2023 (the first year that departments were required to report data to ISC as part of the mandatory minimum 5% Indigenous procurement target), roughly half of the value of Government of Canada contracts awarded to Indigenous businesses were awarded to IBD businesses through contracts not set-aside through PSIB.

What businesses are eligible to win PSIB contracts?

To be eligible for a PSIB contract, an Indigenous business must meet the PSIB requirements, which are 51% Indigenous ownership and control, as well as demonstrate ability to meet the 33% Indigenous content requirement throughout the life of the contract. Further, an Indigenous business must be actively registered on the IBD or a modern treaty business list at the time of the contract award.

How do joint ventures work with PSIB?

Joint ventures are one way Indigenous businesses can build their capacity and benefit from skills development and knowledge transfer. Indigenous-controlled joint ventures may bid on opportunities that have been set aside for Indigenous businesses, as long as the joint ventures continue to meet the PSIB criteria of 51% Indigenous ownership and control and they meet the 33% Indigenous content criterion throughout a contract.

What is the history of the PSIB?

In 1995, Cabinet approved the eligibility criteria for the Procurement Strategy for Aboriginal Business, now known as the PSIB. In 1996, PSIB launched and since then, it has supported Indigenous businesses in the federal procurement process. Between 2018 and 2021, the Government of Canada held consultations with Indigenous businesses, and minor updates were made in 2021 to reflect what we heard in those consultations. Since 2021, significant engagements have been underway on possible transformation of the program as part of the 2021 mandate to develop a transformative Indigenous procurement strategy . *See section on Reforms for latest information.

What specific reforms are being considered?

Discussion at the co-development tables focused on the following priorities:

1. Transfer of definition and verification function of an Indigenous business to Indigenous peoples and cease operations of the ISC-led Indigenous Business Directory;
2. Change current procurement policy requirements, to remove complex national set asides and put in place options for limited bidding locally and regionally and put in place mandatory requirements for Indigenous participation plans in contracts (such as employment, training or subcontracting expectations).
3. Continue to co-develop options such as a single window online portal to collect, managed outside of government, to share verified business information from recognized Indigenous organizations, and various kinds of business lists.
4. Simplify all procurement processes; this includes incorporating more guidance to support Indigenous businesses such as concierge and recourse mechanisms for Indigenous businesses working with government.
5. Develop interim implementation strategies to ease transition to new processes and policies for procurement officials. This includes providing a catalogue of direct links to existing business lists on ISC's website and update existing procurement processes and policy guidance on best practices related to engagement and Indigenous participation plans until co-development of larger policy changes and single-window portals is complete.

Other key issues raised at the co-development table and other consultations included concepts such as supporting a First Nations Procurement Organization, adopting new definitions of Indigenous businesses and developing a single authoritative source for business lists using Indigenous organizations' information. However, clear consensus did not emerge on these issues, and further discussion is needed (particularly on a distinctions basis with First Nation, Inuit and Métis leaders).

Which Indigenous partners is ISC working with on transformation? 

ISC has provided funding to and worked closely on reforms with 30 National Indigenous Organizations and Indigenous economic organizations and regional organizations. Some of these partners are the National Aboriginal Capital Corporations Association (NACCA), the Canadian Council for Indigenous Business (CCIB), the Assembly of First Nations (AFN), the Métis National Council (MNC), Inuit Tapiriit Kanatami (ITK).

As a co-development table, members first met in April 2024, with subsequent meetings in May, June and September (a combination of virtual and in person). The table was expanded to 30 members and relaunched for co-development based on the mandate provided by government in 2021 to co-develop implementation plans and further policy and program transformation related to Indigenous procurement.

Over the last two years, ISC, supported by various regional and national Indigenous organizations held over fifty (50) engagements and relationship-building sessions. Through these various sessions a mix of approximately five-hundred and fifty (550) National Indigenous Organizations, Indigenous businesses, Indigenous economic development officers/organizations, Indigenous leaders and Indigenous financial institutions were engaged.

In addition to these engagements, has also funded research and capacity building initiatives with Canadian Council for Indigenous Business (CCIB), the Council for the Advancement of Native Development Officers (CANDO) and the First Nations Financial Authority (FNFA). They conducted research and developed proofs of concept to demonstrate transformation opportunities in procurement. For example, FNFA developed research and pilots related to bid bonding, CANDO developed proof of concepts for integrated single window business data and CCIB led its Supply Change initiative.

ISC established a funding agreement with AFN in December 2022 to support their engagement and research related to procurement and economic development. AFN staff have also participated at TIPS co-development table meetings throughout 2024.

How is a business deemed to be Indigenous, for the mandatory 5% minimum Indigenous procurement target?

For the purposes of the 5% target, an Indigenous business is defined as at least 51% Indigenous owned and controlled, and at least one of the following:

• owned and operated by Elders, band and tribal councils
• registered in the Government of Canada's Indigenous Business Directory
• registered on a modern treaty beneficiary business list

Which contracts count towards the mandatory minimum 5% target?

Any contract or subcontract awarded to a business which meets the definition above can count towards the minimum 5% target. This can include various procurement mechanisms, such as:

• Contracts awarded under Procurement Strategy for Indigenous Businesses (PSIB) set-asides
• Contracts awarded to beneficiaries of modern treaty to meet procurement obligations of applicable Modern Treaties
• Contracts awarded to Indigenous businesses registered on the Indigenous Business Directory (IBD) or a beneficiary of a Modern Treaty
• Other types of contracting opportunities that departments may track and that meet the same criteria for Indigenous businesses, for example subcontracting opportunities awarded to Indigenous businesses or contracts entered into by acquisition cards valued at $10,000.00 or less

Departments are responsible for tracking their contracts and verifying the suppliers meet the criteria for Indigenous businesses before seeking the approval of their Deputy Heads and submitting to ISC.

How is the total value of contracts awarded to Indigenous businesses calculated?

The percentage is determined by each department; they calculate the total value of contracts awarded to Indigenous businesses during the fiscal year (A) divided by the total value of all contracts awarded during the fiscal year (B) less deputy head-approved exceptions (C) for that fiscal year, and multiplying the result by 100. This figure is used to measure results in, and plans for, meeting the minimum 5% target.

Formula: A/(B−C)×100%

This information is approved by Deputy Heads and submitted to ISC for assembly into public reports published annually.

What are the results to date of the mandatory minimum 5% Indigenous procurement target?

Data for fiscal year 2022-2023 (the first year that departments were required to report data to ISC as part of the mandatory minimum 5% Indigenous procurement target) is publicly available on the Open Government portal in the online report on the mandatory minimum 5% target for fiscal year 2022-2023. In fiscal year 2022-2023, $1,6B was awarded to Indigenous businesses. This represents 6.27% of the value of all federal contracts awarded in fiscal-year 2022-23.

As fiscal year 2022-23 was the first year that departments were required to report data to ISC as part of the mandatory minimum 5% Indigenous procurement target, ISC does not have data for total contract values awarded to Indigenous businesses for other fiscal years.

In line with Treasury Board Directive on the Management of Procurement, ISC must publish government-wide data on the mandatory minimum 5% Indigenous procurement target within 12 months after fiscal-year end.

Some Indigenous partners have been critical of the results reported against the 5% target of $1.6B in 2022-2023. Is the Government's reporting accurate?

The Government of Canada's methodology is robust and detailed in the public report on the mandatory minimum 5% target fiscal year 2022-2023.

The reports are submitted by each department to ISC, and signed off by their Deputy Ministers. ISC officials verify the information meets the policy requirements and works with departments to update as required, before conducting further analysis and publishing findings. In addition, raw data is published on the GC's Open Government portal that demonstrates this result.

What is Indigenous Services Canada's role in Indigenous procurement?

Indigenous Services Canada's role is to:

• Register and validate Indigenous businesses on the IBD and perform audit function, including pre-award and post-award and discretionary audits;
• Lead the development of new measures and guidance on the PSIB;
• Lead coordination, outreach, and raise awareness to the federal procurement community and Indigenous business community;
• Coordinate departmental procurement plans in order to support monitoring and reporting activities;
• Point of contact for advice and interpretation of the PSIB;
• Consolidate and publicly report annually on departmental results on meeting the target of at least 5%; and
• Lead meaningful engagement and consultations that is accessible to Indigenous partners and the federal procurement community for a longer-term transformative Indigenous Procurement Strategy.

What is the role of the Treasury Board of Canada Secretariat in Indigenous procurement?

The role of the Treasury Board of Canada Secretariat (TBS) is to:

• Support ISC in the development of new measures and guidance on the PSIB;
• Support PSPC in the provision of policy advice on complex procurements and those requiring TB approval;
• Establish reporting requirements to publicly disclose quarterly on Open Government portal to ensure transparency and accountability;
• Support ISC in developing mandatory government-wide training and tools for federal officials; and,
• Provide reporting expertise on the long-term transformative Indigenous Procurement Strategy with Indigenous partners and corporate Canada.

What is Public Services and Procurement Canada's role in Indigenous procurement?

Public Services and Procurement Canada's role is to:

• Support ISC in the development of new measures and guidance on the Indigenous Procurement Strategy, including the application of weighting and rating of Indigenous participation plans;
• In collaboration with ISC, coordinate outreach and raise awareness to Indigenous businesses on the federal government's procurement process;
• Coordinate outreach and raise awareness to the federal procurement community;
• Develop standing offers/supply arrangements to stimulate Indigenous development in key commodities;
• Draft and/or update contract clauses based on ISC guidance;
• Together with ISC, work with Indigenous partners to identify, reduce, and eliminate barriers to federal procurement; and,
• Provide operational expertise on the long-term transformative procurement strategy with Indigenous partners and corporate Canada.

What is ISC's role in the implementation of the 5% target?

Per the Directive on the Management of Procurement, 96 departments and agencies included in Schedules roman numeral 1I, roman numeral 1I.1. and roman numeral 2II are required to submit to ISC reports on their performance against the mandatory minimum 5% Indigenous procurement target.

Based on data received from departments and agencies, a report on the government-wide performance against the mandatory minimum target for the year 2022/2023 was published on GC's Open Government website in March 2024.

Per the Directive on the Management of Procurement, ISC is also responsible for issuing an annual call letter that requires deputy heads to submit procurement plans for meeting the mandatory minimum target for the following fiscal year and publishing information on government-wide performance against the mandatory minimum target within 12 months after fiscal year-end.

This planning data identifies not only areas in which a demand for Indigenous procurement is anticipated, but also areas where Indigenous business capacity gaps have been observed.

Is fraud prevention part of PSPC's role? Is it part of ISC's in relation to Indigenous procurement?

Every department and agency, including ISC, has an important role to play in fraud prevention.

If ISC suspects that a business has committed fraud, ISC will take all necessary steps, including referring the suspected fraud to law enforcement.

Public Services and Procurement Canada (PSPC) plays a major role in preventing fraud and safeguarding the integrity of all federal procurements. This not specific to contracts set aside under the PSIB. They have a framework of laws, regulations, policies, programs and services in place to prevent, detect and respond to potential wrongdoing. In May 2024, PSPC announced the establishment of the Office of Supplier Integrity and Compliance to strengthen the integrity and oversight of the procurement process to help ensure that Canada does not contract with suppliers of concern. PSPC also has a revised Ineligibility and Suspension Policy that came into effect in May 2024.

What percentage of PSIB contracts could be subject to a pre-award audit? Should pre-award audits be done on all PSIB contracts?

100% of PSIB contracts could be subject to a pre-award audit. However, the Government of Canada takes a risk-informed approach to pre-award audits. Just as the Government of Canada could audit every single tax return that is filed, the government could theoretically conduct a pre-award audit on every single contract awarded through PSIB. This however would be unnecessary, very costly, and would inadvertently punish Indigenous businesses by slowing the procurement process. While they are required for any contract over $2M that uses a PSIB set aside, ISC relies on departments to request them.

How often are audits conducted?

Verifications of Indigenous Business Directory eligibility (51% Indigenous ownership and control) are conducted on each business when they apply for the Indigenous Business Directory. Additionally, ISC verifies the eligibility of each business on the directory every two years as part of the department's ongoing directory maintenance.

Audits are conducted as needed. Specifically, pre-award audits are performed when contracts awarded under PSIB are valued at, or greater than, $2M, or when a need is identified by the requisitioning department, the contracting authority, or ISC.

Post-award audits are an additional layer of compliance monitoring and are requested by the requisitioning department when it is suspected that PSIB requirements have not been met throughout the delivery period. Discretionary audits are conducted as needed.

How many companies have been removed from the IBD since December 2023?

Of the 19 pre-award audits performed since December 2023, 2 of the 14 businesses audited 14%) were found to be non-compliant with eligibility criteria. These businesses were removed from the IBD.

Audit report details cannot be released due as they contain third party commercial information, and business owners' personal information.

Further information, including audit reports completed since 2021 (with identifiers redacted) has been provided to this committee, based on a request from ISC's October 24 appearance.

What happens if a company is found compliant in a pre-award audit but found non-compliant in a post-award audit?

It's possible for a business to be found compliant in a pre-award audit, but non-compliant in a post-award audit as the company may have failed to ensure its compliance with the 33% Indigenous content requirement. Additionally, it's possible that a business's ownership or control has changed during the course of a contract. In cases where a business is found to be compliant in a pre-award audit, but non-compliant in a post-award audit, the Government of Canada could pursue the following:

• removal of business profile from the IBD
• forfeiture of the bid deposit
• retention of the holdback
• disqualification from participating in future set-aside requirements
• termination of the contract

What is a joint venture?

A joint venture is defined as a business consisting of 2 or more Indigenous businesses or an Indigenous business and a non-Indigenous business, where the Indigenous business or businesses have at least 51% ownership and control of the joint venture.

Types of documents used to demonstrate compliance include, but aren't limited to:

• incorporation documents
• shareholders' or members' register
• partnership agreements
• joint venture agreements
• business name registration
• banking arrangements
• governance documents
• minutes of meetings of board of directors and management committees
• other legal documents

What are the benefits of joint ventures?

Benefits of joint ventures can include:

• Businesses of any size can enter into a joint venture agreement
• Joint Ventures can provide companies with the opportunity to collaborate and combine resources, expertise, and professional networks, helping them grow.

How many joint ventures on the Indigenous Business Directory have received contracts?

Based on a review of joint venture contracting activity in proactive disclosures over the last two calendar years (2023 and 2024), combined with a review of notifications of contract award submitted to Indigenous Services Canada by departments, ISC was able to determine that at least 27 out of the 111 joint ventures listed on the IBD had at least one contract awarded to them in that time period.

It is important to note two limitations with this information.

1. The search was conducted on exact legal business name as contained in the IBD. This is important to note as proactive disclosure data is subject to data integrity challenges based on user entry (put simply, it is possible that a contract could be listed under a name slightly varied from the legal name; therefore, this search would not have identified those contracts with variations of the legal name).
2. While departments are required to report contracts under the PSIB to ISC, compliance is spotty. It is virtually certain that PSIB contracts were awarded without ISC being notified; therefore, the data available to ISC to conduct this search does have data integrity challenges.

What is a shell company?

The term 'shell company' can mean different things to different people and can therefore be subjective and nuanced.

Generally, shell companies can be understood as a situation where a non-Indigenous entity or individual takes unfair advantage by an Indigenous business entity or individual for the purpose of gaining access to otherwise inaccessible Indigenous procurement policies or contracts. Unfair advantage involves practices and arrangements that result in the disadvantage or detriment of an Indigenous business, or that do not represent a genuine demonstrated level of equitable partnership and benefit.

Testimony at OGGO previously has stated that the majority of companies on the Indigenous Business Directory are shell companies. Is this true?

Information presented by Regional Chief Joanna Bernard to OGGO on September 24th is not consistent with ISC's data on verified Indigenous businesses on the IBD. ISC reached out to the AFN to verify the source of data that was used to support information presented.

The AFN responded that the Regional Chief's testimony was based in part on the joint investigative report by Global News and the First Nations University of Canada (FNUC) released on August 22, 2024. ISC has reached out to the FNUC to obtain further information on the source data used to support this reporting.

The department looks forward to receiving the evidence available so that appropriate actions can be taken.

In addition, ISC has taken action to launch a reverification of all 111 JVs in the IBD. Work is underway.

Is there any transformation underway in this space?

Based on feedback from Indigenous partners, as well as input from officials overseeing Indigenous procurement in Australia, New Zealand and the United States, ISC is considering strengthened evaluation criteria for joint-venture assessment as part of ongoing transformative work.

Specifically, this could include introducing a requirement for a skills and capability transfer plan which would identify what the Indigenous Joint Venture partner is hoping to gain from their non-Indigenous business partner through the relationship; including how the joint venture company will transfer capability to the Indigenous business (such as the inclusion of milestones, annual reporting) and a requirement for Indigenous participation that would set out in the contract the plans (to outline requirements for education, training, and jobs for Indigenous Peoples.

Is there a requirement for a joint-venture to employ a certain number of Indigenous employees? If no, why not?

No. Indigenous employment is not part of the definition of a joint-venture or any other type of Indigenous business.

There is no requirement that Indigenous businesses operate any differently than non-Indigenous businesses, including who they choose to employ.

What actions are taken by ISC when a business is removed due to not meeting the PSIB eligibility criteria?

When ISC identifies that a business is no longer compliant with the PSIB eligibility criteria, the business is provided an opportunity to rectify the non-compliance. If the non-compliance cannot be rectified, the business is removed from the IBD and is no longer eligible for PSIB contracts. Contracting authorities are advised as appropriate.

Additionally, if the audited business is deemed non-compliant with PSIB, the Government of Canada could pursue the following contractual measures:

• forfeiture of the bid deposit
• retention of the holdback
• disqualification from participating in future set-aside requirements
• termination of the contract

If warranted (such as suspected fraud), the case may be referred to PSPC's Office of Supplier Integrity and Compliance – where it will be assessed pursuant to the Ineligibility and Suspension Policy.

Based upon this assessment of the specific circumstances of the situation, the Registrar of Ineligibility and Suspension may exercise her authority to suspend or debar the supplier from future contract award with the Government of Canada.

Has the government every employed one of these four measures in a case where a business was found to be non-compliant with PSIB?

The Government of Canada must maintain compliance with the Privacy Act and the Access to Information Act; therefore, information pertaining to specific cases cannot be shared. The Act stipulates that the department is required to protect third-party information "that contains trade secrets, financial, commercial, scientific or technical information; that could result in material financial loss or gain to, prejudice the competitive position; [and] that could interfere with contractual negotiations" (Access to Information Act 20(1)).

Why would a business found non-compliant not automatically be removed from the IBD, and therefore not eligible for PSIB contracts?

When a business is found non-compliant with the 51% ownership and control requirement and is no longer able to provide the appropriate documentation to prove compliance, it is removed from the IBD and therefore not eligible for PSIB contracts; although, if a post award audit shows that the contractor was unable to meet the 33% content requirement. In some cases of non-compliance is determined only upon conclusion of a contract, through a post-award audit, the requisitioning department may take action such as the retention of a holdback, the termination of a contract, or disqualification from participating in future set-aside requirements.

How is the 33% Indigenous content measured?

When a contract is awarded under PSIB, a contractor will certify in its bid that it will meet the 33% Indigenous content requirement. Further, these content requirements are incorporated into the contract terms and conditions. It is the responsibility of the requisitioning department to monitor compliance with these terms and conditions throughout the life of the contract.

If there are concerns about the delivery of the required content criterion during the life of the contract, ISC or the contracting authority can request a discretionary audit.

Post-award audits are a further compliance measure that can be conducted to verify if the Indigenous business meets the ownership, control, and Indigenous content requirement. Note that this is a rarely used tool; in general the government relies on the management of this requirement through compliance with those contract terms.

Do we track subcontracts?

Subcontracts, under federal procurement, including the PSIB, are not tracked. A department's relationship is with the prime contractor or joint venture.

One way to get a line of sight into activity that may be subcontracted is through Indigenous Participation Plans (IPP). An IPP sets out, in the contract, specific requirements/tracks outputs related to Indigenous participation, training and benefits.

What is your position on shell companies? Do you think this kind of flow through, where an Indigenous prime contractor subcontracts with all non-Indigenous businesses should be allowed?

For all PSIB contracts, the Indigenous content criterion requires that at least 33% of the value of the work needs to be performed by Indigenous businesses. Subcontracting is allowed with PSIB contracts (unless the specific contract terms and conditions say otherwise), but even when there is subcontracting, at least 33% of the value of the work needs to be performed by a combination of the Indigenous prime and sub-contractors that meet the 51% Indigenous ownership and control criterion. This ensures that benefits remain with Indigenous businesses, as intended.

However, the practice of subcontracting in Federal procurement generally could represent an opportunity to explore further to ensure best value and understanding in contracting. This is not specific to the PSIB.

Who is accountable for Supplier Integrity?

Public Services and Procurement Canada plays a major role in preventing fraud and safeguarding the integrity of federal procurements. They have a framework of laws, regulations, policies, programs and services in place to prevent, detect and respond to potential wrongdoing. In May 2024, PSPC announced the establishment of the Office of Supplier Integrity and Compliance to strengthen the integrity and oversight of the procurement process to help ensure that Canada does not contract with suppliers of concern. PSPC also has a revised Ineligibility and Suspension Policy that came into effect in May 2024.

If warranted the case may be referred to PSPC's Office of Supplier Integrity and Compliance for assessment pursuant to the Ineligibility and Suspension Policy.

What is the Government of Canada doing to address the issue of non-Indigenous businesses posing as Indigenous businesses?

If it is determined that the supplier's conduct demonstrates a lack of business integrity or business honesty that calls into question their present responsibility, the department may refer the case to PSPC's Office of Supplier Integrity and Compliance – where it will be assessed pursuant to the Ineligibility and Suspension Policy.

Based upon this assessment of the specific circumstances of the situation, the Registrar of Ineligibility and Suspension may exercise their authority to suspend or debar the supplier from future contract award with the Government of Canada.

Non-compliance

In cases where a company is found to be non-compliant with PSIB eligibility criteria, the Government of Canada could pursue the following:

• removal of business profile from the IBD
• forfeiture of the bid deposit
• retention of the holdback
• disqualification from participating in future set-aside requirements
• termination of the contract

What is the Government of Canada doing to address the issue of non-Indigenous businesses posing as Indigenous businesses or other fraudulent behaviour?

If it is determined that the supplier's conduct demonstrates a lack of business integrity or business honesty that calls into question their present responsibility, the department may refer the case to PSPC's Office of Supplier Integrity and Compliance – where it will be assessed pursuant to the Ineligibility and Suspension Policy.

Based upon this assessment of the specific circumstances of the situation, the Registrar of Ineligibility and Suspension may exercise their authority to suspend or debar the supplier from future contract award with the Government of Canada.

If ISC or the requisitioning department suspect that the business has committed fraud, ISC and the requisitioning department will report it to law enforcement.

Terms & Conditions specific to any contract govern whether financial penalties can be levied, if warranted (such as suspected fraud/theft). These are managed by contracting authorities on a case by case basis.

ISC is aware that PSPC has, in fact, referred several cases of possible time theft by subcontractors (e.g. subcontractors billing multiple departments for the same hours or work) to the RCMP. Again, these are issues that are managed by contracting authorities as per their contract terms and conditions.

ISC officials are working with PSPC and the Office of Supplier Integrity to develop processes for communicating suspected issues of fraud and processes for responding effectively as part of longer term efforts to transform Indigenous procurement policies for the Government of Canada.

Business Testimony Success Story 1:

PSIB has supported Indigenous businesses by providing opportunities to expand their operations to other geographic locations in Canada, including facilitating meaningful Indigenous participation in federal projects.

A business owner based in the Prairies shared a story about learning of a project in the National Capital Region that included Indigenous engagement through a PSIB set- aside. This opportunity allowed the company to expand beyond their local operations and compete on national and regional opportunities.

After securing a contract for work on the initial project, the company began to win award for more federal projects, leveraging their Indigenous knowledge and experience. This enabled them to employ and train Indigenous people, contributing to local economic development.

Business Testimony Success Story 2:

Limiting bidding exclusively among Indigenous businesses can be an effective way of increasing the participation of Indigenous business owners in federal procurement, as well as supporting their further development as a business.

A business owner shared a story about how PSIB set-asides provided his company a competitive edge. Starting as a one-person operation, he leveraged PSIB contracts compete for increasingly large opportunities to grow his company into one of the main office furniture suppliers in his province.

Business Testimony Success Story 3:

The PSIB is a way for Indigenous business owners to help generate sustainable revenues and advance self-determination and economic independence for Indigenous peoples.

A business owner shared that he strategically leverages the PSIB, setting up searches and bidding practices to compete specifically on PSIB set-aside opportunities. He always includes benefit payments as part of his bid for the participation of local First Nations with a focus on job creation and economic opportunities to propel the local Indigenous community forward.

Positive Media Stories and examples of best practices:

Leading practice example: The Manitoba Métis Federation (MMF), the National Government of the Red River Métis, and their Red River Métis business registry is a demonstration of Indigenous self-government and self-determination in action. Their established approach serves as a leading practice for Indigenous business directories in Canada.

Based on direction and definitions set by the MMF, the directory is administered by one of their Affiliates, the Louis Riel Capital Corporation which makes the business registry available publicly through an online directory.

The MMF's Red River Métis business registry is a trusted and expanding resource currently featuring 764 verified Red River Métis-owned businesses. Each business listed is validated for Red River Métis Citizenship with the MMF's Central Registry Office, and 51% or more majority ownership verified by the Louis Riel Capital Corporation. The verification process ensures that the online platform is a legitimate and reliable tool to connect buyers with Red River Métis-owned businesses.

Over the past five years, the registry and its online directory have boosted procurement opportunities for Red River Métis businesses, driving economic participation for MMF Citizens and contributing to Canada's economy. Governments, corporations, and other organizations committed to diversifying their supply chains increasingly rely on the MMF's Red River Métis business registry to access high-quality suppliers.

In an op ed, Tabatha Bull, president and CEO of the Canadian Council for Indigenous Business, stated that "Positive stories of Indigenous business innovation and success are not only missing but overshadowed by negative or controversial coverage." She further states "certain media narratives are focussed on questioning the legitimacy and necessity of such policies—and Indigenous businesses themselves—against standards I have not seen non-Indigenous businesses held to. " She continues to say that the framing of alleged misuse or failure perpetuates harmful stereotypes and prejudice and creates questions surrounding the competency and legitimacy of Indigenous businesses.