A person uses the ArriveCan app on Feb. 9, 2024.Laura Proctor/The Globe and Mail
Two staffing companies hired to work on the federal government’s ArriveCan app have failed a group of audits, which found they did not meet the criteria of a program that gave their joint venture preferential access to a dozen government contracts as an Indigenous business.
The audit findings against the two companies, Coradix Technology Consulting Ltd. and Dalian Enterprises, could have broader implications for a host of other joint ventures that compete for more than $1.6-billion worth of federal contract work the government directs annually toward Indigenous businesses.
The Assembly of First Nations, Indigenous business leaders and a former auditor have warned there is widespread abuse of the program through shell companies and the minister responsible has called for an external review of the entire program.
Coradix and Dalian featured prominently throughout months of parliamentary hearings into cost overruns on ArriveCan, a pandemic-era app for cross-border travellers that was built for nearly $60-million and has raised questions about the billions Ottawa spends on outsourcing.
Dalian, which is Indigenous-owned and had two full-time employees as of 2023, shared an office with the much larger Coradix, which is not Indigenous, and employed about 40 people that same year. The two have often partnered in a joint venture, which is allowed under the rules of Ottawa’s Procurement Strategy for Indigenous Business (PSIB) so long as the Indigenous business retains majority ownership and control, and provided the Indigenous partners or subcontractors are performing one-third of the work or “content.”
In an e-mailed statement to The Globe and Mail, Carolane Gratton, a spokesperson for Indigenous Services Canada, said that the Coradix-Dalian joint-venture had failed the compliance audits, explaining that it “did not meet the ownership and control, as well as the Indigenous content criteria.”
Coradix sued the federal government in May, 2024, seeking $64-million in compensation for Ottawa’s decision to suspend the company from further federal contract work. Dalian, which was also suspended, is not a party to the lawsuit.
In response to questions from The Globe, Dalian founder David Yeo said in an e-mailed statement his company’s joint venture with Coradix has provided more than two decades of exceptional services to the government and he questioned the timing of the release of the audit findings given that Coradix is suing the government in Federal Court for unfair treatment. Requests for comment sent to Coradix and its lawyer were not returned.
Few other details from the audits were provided by the government, including which contracts were reviewed. The department said it is still determining what can later be released publicly about how it reached this conclusion. It also said that, as a result of the findings, the joint venture will continue to no longer be listed on the government’s Indigenous Business Directory – which is an eligibility requirement for the program. There are several ways an entrepreneur can qualify as Indigenous under the program, such as status under the Indian Act, membership in a recognized Métis nation or “acceptance as an Indigenous person by an established Indigenous community in Canada.”
The government has not determined what action it will take, if any, in the aftermath of the audit findings, saying this depends on “the remedies available in the contract terms and conditions,” according to Ms. Gratton.
Indigenous Services Canada launched the audits more than a year ago, after receiving questions from The Globe in late 2023 about whether Dalian and Coradix had ever been the subject of a post-award audit under the program. The Indigenous Services department said the Coradix-Dalian joint venture had never been the subject of such a review, but later added that post-award audits had been launched at the request of federal procurement officials.
Most contracts under the program are subject to a pre-award audit that checks qualifications such as whether the company is on the federal Indigenous Business Directory. Post-award audits occur far less frequently. They are an after-the-fact review of whether the company met the terms of the program. Only six other companies have failed a post-award audit since 2017, three of which were joint ventures.
The PSIB was launched in 1996 and designed to use government spending on contracts as a way to help Indigenous businesses grow.
The number of companies registered to take part in the Indigenous Business Directory has jumped sharply in recent years, after the government set a goal that a minimum of 5 per cent of the total value of federal contracts should be awarded to Indigenous businesses by 2024.
In his statement to The Globe, Mr. Yeo said the joint-venture had passed every pre-award audit they’ve faced over the past 23 years.
He said it was “particularly concerning” that the audit findings are being released at the same time as the government is facing a lawsuit from Coradix.
“Even more troubling is that the audit results were released to the media at the same time they were sent to Dalian without affording Dalian the opportunity to respond. This simultaneous release to the media is highly concerning, as it appears to be a tactic to publicly malign Dalian and its joint venture partner while a matter is before the courts,” he said, adding that Ottawa is attempting to rewrite the way it has historically reviewed and audited the program.
A February, 2024, report by the Auditor-General said the government spent about $59.5-million on ArriveCan, with $7.9-million going to Dalian. The report did not mention Coradix, but a Coradix official told MPs it worked with Dalian on ArriveCan.
According to figures provided to the public accounts committee, the Coradix-Dalian joint venture was awarded $189.5-million in federal contracts between Jan. 1, 2011, and March 4, 2024.
On its own, Coradix has been awarded $596.8-million and $127.8-million was awarded to Dalian.
Contract award values are generally higher than amounts actually received.
The annual public accounts record transfers of money from federal departments to specific companies. According to those records, Coradix has received $543.5-million since 2003, while Dalian has received $161.1-million.
In December, Indigenous Services Minister Patty Hajdu called for an external review of the program after a former program auditor told The Globe in an interview that he had repeatedly raised concerns about alleged fraud and abuse by non-Indigenous companies. He did not raise concerns specific to Coradix or Dalian, but said joint ventures should be removed from the program.
Ms. Hajdu called the revelations “concerning” and “quite shocking.”
Dalian has long been led by Mr. Yeo, whose great-grandfather is Robert Franklin, a past chief of Ontario’s Alderville First Nation. He also said he does not have status under the Indian Act because of a rule known as the second-generation cut-off, which means that Indian status cannot be passed down to children after two consecutive generations of parents where only one is registered under the Act.
The federal government suspended Dalian and Coradix from federal contracting in March, 2024. The government news release did not provide a reason for the suspension.
However, it followed revelations that Mr. Yeo had been working as a full-time public servant at the Department of National Defence (DND) from September, 2023, to March, 2024, without fully severing ties with his company, which continued to conduct contract work with the department. After his public-service position was reported in the media, then-Treasury Board president Anita Anand announced that the government had suspended Mr. Yeo from his government job and was planning to suspend Dalian from further contract work.
In its statement of claim, Coradix said Public Services and Procurement Canada did not conduct a proper investigation before announcing the suspension. It said the suspensions were done for the “improper purpose” of attempting to deflect negative publicity regarding the government’s alleged lapses in budgetary oversight of the ArriveCan app project.
In a statement of defence dated Sept. 6, 2024, the federal government says the suspensions were not linked to ArriveCan.
It said the suspensions were warranted because neither Coradix nor Dalian properly disclosed that Mr. Yeo was employed by DND.
The government’s statement of defence also took issue with how Coradix described its relationship with Dalian to qualify for contracts set aside for Indigenous companies.
“At all material times, Coradix, either directly or through its officers and directors, effectively controlled the activities of the joint venture,” the government states.