A person holds a smartphone set to the opening screen of the ArriveCan app.Giordano Ciampini/The Canadian Press
Two IT staffing companies that worked on the ArriveCan app and received more than $400-million in federal contract work over the past decade, including frequent use of a set-aside program for Indigenous business, have never been audited to determine whether they delivered on the program’s requirements to support Indigenous entrepreneurs.
After receiving questions from The Globe and Mail on the issue late last month, federal procurement officials asked Indigenous Services Canada to audit the two companies.
Coradix and Dalian regularly work together and are connected to contracting misconduct allegations that are under investigation by the RCMP. They, along with a third company called GCStrategies, are temporarily suspended from working for the Canada Border Services Agency (CBSA) while reviews are under way.
Then-procurement minister Anita Anand announced in 2021 that Ottawa would, by 2024, fully phase in a mandatory rule that all departments ensure a minimum of 5 per cent of the total value of federal contracts are awarded to Indigenous businesses. The target is an expansion of a long-standing Procurement Strategy for Indigenous Business (PSIB), which is also known as a set-aside program.
It was under this Indigenous set-aside program that Dalian Enterprises, a small IT staffing firm, in joint venture with a larger non-Indigenous company called Coradix, was awarded a $21.2-million contract in 2019 for “informatics professional services.” That contract was later used to fund work on the ArriveCan app for international travellers, as well as another project that led to the allegations of misconduct and the RCMP investigation.
Dalian describes itself as “Aboriginally Owned – Veteran Operated.” President David Yeo recently told the Commons government operations committee that his company has just two employees, who he said are both Indigenous. Dalian frequently wins federal contracts through joint ventures with Coradix, which shares downtown Ottawa office space with Dalian and has more than 40 employees. Coradix makes no claim of being an Indigenous business.
Indigenous Services Canada (ISC), which is responsible for overseeing the set-aside program, says on its website that program participants are subject to mandatory pre-award audits and random after-the-fact audits to ensure compliance.
However, in response to questions from The Globe, the department said it has never performed an after-the-fact audit of the Dalian/Coradix joint ventures to determine whether they followed through on the program’s requirements, which include ensuring that at least 33 per cent of the total value of the work must be performed by the Indigenous contractor or through a combination that includes Indigenous subcontractors.
A review of federal records shows that Dalian and Coradix together are among the top recipients of contracts under the Indigenous set-aside program.
After receiving a series of questions from The Globe late last month, the federal procurement department said on Friday that it had asked ISC on Nov. 29 whether postaward audits on the companies had been conducted.
“Upon confirmation such audits had not been conducted, PSPC then submitted the request for ISC to proceed with post-award audits of active contracts on December 5, 2023,” the procurement department said in an e-mail. “This includes prioritizing those where departments and agencies intend to exercise contract options in the coming months.”
Indigenous Services Canada said its audit reports related to the program are not made public. It did not immediately comment on the request from PSPC.
The program allows Indigenous businesses to qualify via a joint venture with a non-Indigenous business, provided the Indigenous business has at least 51-per-cent ownership and control of the joint venture and the 33-per-cent threshold is met.
Indigenous organizations have raised concerns with these types of arrangements, warning they can promote “phantom joint ventures.”
A 2021 research report by the Canadian Council for Aboriginal Business urged the government to address “predatory practices” with the set-aside targets.
“Phantom joint ventures, where an Indigenous partner is used as a front by a non-Indigenous business to obtain a contract set-aside, corrodes the integrity of an Indigenous procurement policy,” the council report stated.
Council president Tabatha Bull said in a statement that certification, audits and reporting are all critical to maintaining transparency and integrity in the procurement process.
“We believe that the value of contracts going to Indigenous suppliers should be verified before, during and after work is completed – particularly if the federal government is going to include that contract as contributing towards its 5 per cent Indigenous procurement mandate,” she said, without commenting on any specific company or contract.
“We know that joint ventures do present a risk in that there may be some companies that misleadingly appear to be Indigenous, while the benefit is not actually flowing to Indigenous businesses and people. We know this has happened. However, we also see joint ventures that are extremely successful, and there are Indigenous businesses that have been enabled to build capacity and obtain benefits through these partnerships.”
The allegations involving the three IT staffing agencies were first raised internally by a Montreal software company called Botler, which said it was surprised to find that its work for the CBSA was funded through layers of subcontracting. In a detailed November, 2022, report to the CBSA leadership, the Botler co-founders laid out a long list of concerns, including that their work was funded without their knowledge through a contract with Dalian and Coradix under the program to promote Indigenous businesses.
The CBSA referred all of Botler’s allegations to the RCMP in late 2022 and it has said it is investigating. In spite of the allegations and reviews, other federal departments have continued their relationships with the three companies.
For instance, Dalian was awarded a contract in June under the set-aside program worth $253,198 with the federal immigration department “to support the implementation of an Enterprise Fraud Management Solution.”
The Commons government operations committee is investigating the allegations in parallel with a review of how the ArriveCan app ultimately cost more than $54-million. The three IT staffing firms were among the top five recipients of outsourcing contracts related to ArriveCan.
Botler did not work on ArriveCan, but its allegations involve the three companies and some government officials who also worked on ArriveCan.
Botler chief executive Ritika Dutt told the committee in October that the use of the Indigenous set-aside program to pay for her company’s work, without her knowledge, was “another example of monetization and theft using the trauma of marginalized communities.”
The Botler co-founders said they never worked with any Dalian representatives or Indigenous people during the more than a year that they interacted with the agency.
Shannin Metatawabin, CEO of the National Aboriginal Capital Corporations Association, watched Botler’s committee testimony and said it exposes issues with the system.
“That really concerns me immensely. Because I’ve heard about this before,” he said. “We have actors that are in there taking advantage of the Indigenous program.”
Mr. Metatawabin said the current system lacks transparency.
“I don’t think we have any indication of how they’re measuring it or any reporting on how they’re delivering the short-term remedies on trying to achieve the 5-per-cent target,” he said. “We don’t see the measurement. We don’t see the reporting. We just hear the talking points.”
The procurement strategy for Indigenous business was first launched in 1996. During an Oct. 31 hearing, Mr. Yeo, the Dalian president, said he was involved in its creation.
“As much as possible, we prioritize the hiring of Indigenous employees and the deployment of Indigenous consultants to work on projects for the Government of Canada,” he said.
However, he later resisted the suggestion that he is required to meet any thresholds. He also said his company is regularly audited by Indigenous Services Canada.
“The aspect of us creating the Indigenous track on the contracting side of things allows us to hire pretty much whoever we want as far as consultants are concerned, but the Indigenous side of it or the PSIB side of it is auditable. It is audited on every JV [joint venture] that we do,” he said. “If we do a JV with Coradix and we win a contract or a task authorization, it is audited by ISC.”
Coradix president Colin Wood, who appeared alongside Mr. Yeo by video link at the Oct. 31 committee hearing, said joint ventures are common under the set-aside program.
“The PSIB program is designed to help Indigenous entrepreneurs. There are 50 other companies doing similar work,” he said. “The program is designed to help Indigenous people build up, scale and grow their businesses. Its purpose isn’t to bring on Indigenous IT subcontractors. I think there is some confusion there.”
Neither Mr. Yeo nor Mr. Wood commented on the program’s requirement that at least 33 per cent of the work under the program must be performed by Indigenous businesses.
NDP MP Gord Johns, who has been asking about the Indigenous set-aside program during the committee hearings, said it appears to reward non-Indigenous contractors who charge high commissions.
“It’s like the worst pyramid scheme I’ve ever seen,” he said.
With data analysis by Mahima Singh
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