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A person uses the ArriveCan app on Feb. 9.Laura Proctor/The Globe and Mail

Political fallout over the ArriveCan app should be a catalyst for Ottawa to deal with long-standing problems with a procurement program aimed at supporting Indigenous businesses, says the Canadian Council for Aboriginal Business.

Dalian Enterprises, one of the main contractors on the app, was selected through the federal set-aside program for Indigenous business, but the company regularly works in joint ventures with a much larger non-Indigenous company, Coradix, and they have never been audited after the fact to determine whether they follow through on the program’s requirements.

The CCAB has been at the forefront of research exposing issues with the decades-old set-aside program for Indigenous business that is meant to create contract opportunities for Indigenous entrepreneurs. The organization published a report three years ago that warned the program opens the door to predatory “phantom joint ventures” in which an Indigenous partner is used as a front by a non-Indigenous business.

That report included several recommendations to improve the set-aside program, including more detailed criteria to ensure joint ventures are actually supporting Indigenous businesses, improved public reporting on which companies are receiving work under the program and clearer lines of accountability in the public service as to who in each department is responsible for achieving the various targets.

The CCAB said the organization continues to urge Ottawa to adopt the report’s recommendations.

“We hope this is a catalyst for needed change, and we want to be part of those good and necessary changes,” said Tabatha Bull, the president and chief executive of the CCAB.

She told The Globe and Mail in a detailed statement that any list of companies approved for the program should be thoroughly reviewed.

“Joint ventures continue to present a risk in that there may be some companies that misleadingly appear to be Indigenous, while the benefits are not actually flowing through to Indigenous businesses and people,” she said.

But she noted there are also cases in which joint ventures succeed in helping the Indigenous partner build capacity and thrive.

The government announced in 2021 that Ottawa would, by 2024, fully phase in a rule that all departments ensure a minimum of 5 per cent of the total value of federal contracts are awarded to Indigenous businesses.

Last week Ottawa said it is suspending all federal contract work with Dalian, a private business that received millions of dollars to work on the ArriveCan app, after ministers learned that its president and founder, David Yeo, is also a public servant with the Department of National Defence. He has since been suspended.

Questions had previously been raised about Dalian, given that it had also been named in allegations of contracting misconduct on another Canada Border Services Agency project. The Globe reported in October that both the CBSA and the RCMP are investigating those allegations, which were first brought forward by Montreal technology company Botler.

While Botler did not work on ArriveCan, it reported concerns about its interactions with GCStrategies, Dalian and Coradix – three companies that also worked on ArriveCan. Botler said that its work for the agency was funded through a complex arrangement of subcontracting that traced back to a $21.2-million federal contract with Dalian for “informatics professional services” that was awarded under the Indigenous set-aside program and also used for ArriveCan.

GCStrategies received $19.1-million to work on ArriveCan and Dalian received $7.9-million. Ottawa spent about $59.5-million in total on contractors to build and maintain the smartphone app.

Dalian and Coradix have received more than $400-million in combined federal contract work over the past decade.

Public Services and Procurement Canada issued a statement on Friday afternoon stating that it was formally suspending all contract work involving Dalian and joint ventures between Dalian and Coradix.

“PSPC has a framework in place to prevent, detect and respond to situations of conflict of interest or potential wrongdoings to safeguard the integrity, fairness, openness and transparency of the federal procurement system,” the department said.

“PSPC has taken swift action to suspend the security status of Dalian Enterprises in response to information that recently came to light. … These actions also disqualify Dalian, or Dalian and Coradix in a joint venture, from eligibility considerations on supply arrangements. The suspensions are in place until further notice.”

Mr. Yeo told MPs in October that he helped create the set-aside program in 2003.

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 at least 33 per cent of the total value of the work is performed by the Indigenous contractor or using Indigenous subcontractors.

The Globe reported in December that Dalian and Coradix have never been audited after the fact to determine whether they complied with the terms of the program.

After inquiries from The Globe, federal procurement officials asked Indigenous Services Canada to audit the two companies. Indigenous Services agreed to perform the audits but said the results will not be made public.

The Globe asked the offices of Indigenous Services Minister Patty Hajdu, Procurement Minster Jean-Yves Duclos and Treasury Board President Anita Anand whether they would overrule the department and order the audit findings to be made public.

None of the three offices provided a response to that question.

Questions about the program resurfaced on Feb. 27 when Ms. Hajdu said that the federal government is conducting a review of the Indigenous procurement program in light of concerns about its use by companies that worked on the ArriveCan app.

Ms. Hajdu said one of the challenges with the program is defining who qualifies to be on a government list of Indigenous businesses, describing the issue as “really complicated.”

Ms. Bull said she agrees the issue is complicated. She said the CCAB has been having conversations with federal officials on how to implement the new 5-per-cent target.

“When you consider there are also a number of communities that are recognized for federal procurement, but which are not recognized by all Indigenous organizations, as well as the controversy surrounding individuals whose Indigeneity is being disputed, it also demonstrates why the term ‘complicated’ does not even begin to capture the difficulties associated with this process. This is why certification needs to be undertaken and maintained by Indigenous people and organizations,” she said.

Ms. Bull said she hopes the current issues do not compromise the program’s important goals.

“Although this is an unfortunate situation, it is imperative that it does not negatively impact legitimate opportunities to advance Indigenous procurement,” she said.

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