A review of the PSIB found departments were awarding contracts without consulting government data to confirm a company’s eligibility for the Indigenous business program.Sean Kilpatrick/The Canadian Press
The Procurement Ombud has identified a sweeping failure by the federal government to enforce its own rules in preventing abuse in an Indigenous business contracting program – and says Ottawa is being disingenuous in boasting about how much work it directs to such ventures.
In a report released Thursday, Procurement Ombud Alexander Jeglic said a review of the Procurement Strategy for Indigenous Business found widespread problems with federal oversight of the program, which is meant to benefit Indigenous entrepreneurs.
The PSIB is a 30-year-old program that is part of a broader and more recent federal government pledge to award 5 per cent of federal contracts to Indigenous businesses. Ottawa says this works out to more than $1.6-billion in contract work.
Mr. Jeglic criticized “the disingenuousness” of the five-per-cent figure, which he said is overstated because it includes work that is subcontracted to non-Indigenous companies.
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The review found examples where departments are awarding contracts without evidence that they checked the government’s own database of registered Indigenous businesses to confirm the company’s eligibility. In one case, a federal department told the Ombud that they weren’t aware of a mandatory requirement in the program to conduct a pre-award audit before issuing a contract, to ensure the company complies with the program’s criteria.
“We were profoundly both frustrated, and I think saddened, by the outputs that we ultimately found,” Mr. Jeglic said in an interview, describing the situation as “a cascading failure” to enforce the program’s own rules.
“I think what was shocking was that this isn’t a new strategy. This is a mature strategy that’s been around in a form for a very long time. So, I think that was the aspect that was quite frustrating on our side, to see that it was allowed to continue in this way,” he said. “And then the lack of oversight was also quite stunning from our perspective.”
The report’s findings are in line with the conclusions of a Globe and Mail investigation into the PSIB, which identified wide-ranging shortfalls related to oversight.
The Globe investigation found that the government ignored decades of internal and external warnings about the PSIB, and the risk that non-Indigenous companies would be able to access contract work earmarked for Indigenous businesses.
Non-Indigenous businesses can benefit from the program by partnering with an Indigenous company in a joint venture. They can also act as a subcontractor to an Indigenous company.
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The strategy’s rules state that a qualifying company must ensure that at least 33 per cent of the work is completed by Indigenous businesses. That means up to 67 per cent can be carried out by non-Indigenous subcontractors.
It is one of two main criteria for the program. The other is that a business must be at least 51-per-cent Indigenous-owned and controlled.
Some Indigenous leaders have warned that the program’s joint-venture rules are vulnerable to abuse by non-Indigenous companies. They say a small Indigenous company could be used as a shell to access the program and bypass a traditional open competition for government work.
Thursday’s report said departments rely on advice from Indigenous Services Canada on how to implement the rules, but the lack of clear guidance from ISC “has led to widespread confusion and inconsistent application across departments.”
“The consequences are serious – impacting the integrity of the strategy itself,” it said.
The Ombud’s report is based on reviewing a sample of 30 files, including 10 each from Correctional Service Canada (CSC), Employment and Social Development Canada (ESDC) and Shared Services Canada (SSC).
In one example, a contracting official at ESDC e-mailed a central Indigenous procurement mailbox at ISC to ask about a specific case.
“Seven weeks later, ISC responded they were not trained or specialized in federal procurement,” and advised the person to consult their own department’s Indigenous procurement co-ordinator or consult the government’s supply manual.
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In another case, an SSC official overseeing three contracts reached out to ISC three times over two months and received no response. The report said SSC went ahead and awarded the contracts under the Indigenous strategy “without receiving ISC’s confirmation of the bidders’ Indigenous business status so as not to prolong the contract award timeline.”
The strategy has three main options related to oversight, led by ISC.
A pre-award audit is mandatory for all contracts valued at $2-million or more. This includes confirming that the company is on the government’s Indigenous Business Directory.
Other more thorough options include a post-award audit or a discretionary audit. Neither is mandatory and The Globe reported in 2024 that such after-the-fact audits rarely occur.
This was confirmed in Thursday’s report.
It said the three departments that were reviewed confirmed to the Ombud that they have never requested post-award audits to be conducted by ISC for any contracts they have awarded within the scope of this review. It covered a period from April 1, 2023 to March 31, 2025.
As for the mandatory requirement to conduct a pre-award audit of contracts of $2-million or more, CSC told the Ombud that “they were not aware” of this rule.
In the sample of such contracts across the three departments, the Ombud found no evidence that any pre-award audits were conducted.
By not requesting and obtaining these audits, the Ombud said these three departments “bypassed a key accountability mechanism, potentially allowing contracts to be awarded to ineligible suppliers. This is revealing of a systemic failure to comply with a mandatory control designed to uphold the integrity of the PSIB.”
The report said there is “a widespread lack of understanding across departments and even within Indigenous Services Canada regarding the requirements of the PSIB.”
ISC has said that it is consulting Indigenous leaders on ways to improve the PSIB.
The Ombud recommends that it could play an interim role in handling complaints related to the program. In a response to the findings, Public Services and Procurement Canada rejected that recommendation, pointing to ISC’s consultation efforts.
The Ombud also recommends the creation of a permanent impartial body to manage complaints. ISC said it agrees and is working to implement an Indigenous-led impartial recourse mechanism by April, 2028.
The department said it also agrees that “there is an opportunity to improve the methodology used to calculate the 5-per-cent target to better reflect the impact on Indigenous businesses.”
It said that “a change of this scale would likely require 2-3 years to implement fully.”
Pascal Laplante, an ISC spokesperson, told The Globe in a statement that the department appreciates the Ombud’s comprehensive review.
“We welcome the Procurement Ombud’s recommendations and we are taking concrete steps to address the recommendations,” he said.
“While tangible progress has been made, including exceeding the 5-per-cent federal Indigenous procurement target in 2023-24 and reverifying businesses on the Indigenous Business Directory, we recognize that more remains to be done.
“We are co-developing, along with Indigenous partners, policy changes to improve our practices, including exploring the devolution of responsibility for verifying Indigeneity.”