The federal government repeatedly ignored key safeguards meant to ensure that legitimate Indigenous businesses would benefit from a multi-billion-dollar procurement program, a watchdog’s investigation has shown.
In a report made public Thursday, the Office of the Procurement Ombud said Indigenous Services Canada showed a “systemic disregard” for the principles behind the Procurement Strategy for Indigenous Business (PSIB), repeatedly failed to verify companies awarded work were Indigenous-owned, and failed to keep track of how the decades-old program actually benefitted Indigenous businesses.
Instead, the department’s “fragmented” guidance, failure to conduct mandatory audits and failure to respond to other government agencies’ questions led the watchdog to conclude the federal government can’t “credibly” say that it is accomplishing a key target for economic reconciliation with First Nations, Métis and Inuit communities.
“I would say this is the worst we have seen in terms of a systemic review. I don’t know that I could recall another situation where the actual rule set didn’t exist in its entirety,” said Procurement Ombud Alexander Jeglic, calling the government’s handling of the program “difficult to understand.”
After years of criticism from Indigenous business leaders, internal government reviews and parliamentary hearings, the federal Liberals said they will continue to dole out contracts under the PSIB until a long-awaited “transformative” solution is revealed.
“The longer this goes unaddressed, the more risk to Indigenous communities,” said Jeglic in an interview with Global News.
“One thing I absolutely need to put on record is whatever the solution is, it cannot be worse for Indigenous suppliers … They are not the failing point of this strategy. The failing point is the (government’s) administration of the strategy.”
Jeglic’s office reviewed 27 separate procurement files from three separate departments from April 2023 to March 2025. It also examined Indigenous Services Canada’s overall administration of the program — which mandates that at least five per cent of all government procurement projects go to businesses that are at least 51 per cent owned and operated by Indigenous peoples.
It also followed years of internal government reports raising concerns about the administration of the program, uncovered by a months-long joint investigation by Global News and the First Nations University of Canada in 2024.
The investigation detailed multiple ways non-Indigenous companies were gaming the system to gain access to billions in federal work intended for First Nations, Inuit and Métis businesses.
Jeglic called his office’s own investigation “sobering,” and expressed surprise that a program that’s been around for three decades could be so poorly managed — to the point of not having a central set of rules to guide government officials in meeting their obligations under the PSIB.
The report suggests the problems flow from an absence of central, clear rules from Indigenous Services Canada to govern how departments’ procurement officers award work to Indigenous companies, in what Jeglic calls a “cascading failure.”
The watchdog’s findings take on a sense of urgency not only because Indigenous companies will continue to lose out on federal work under the current system, but also because Prime Minister Mark Carney’s government is preparing to pump billions into spending on files like defence and infrastructure.
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The PSIB was established in 1996 under Prime Minister Jean Chretien to help Indigenous businesses compete against multinational companies for a slice of federal contract spending.
It was designed both to increase the number of Indigenous suppliers to government and to serve as a tool of economic reconciliation.
But Jeglic’s office found that government departments weren’t tracking whether the work was actually being done by Indigenous companies.
Some major contracts worth more than $2 million proceeded without the mandatory audit to confirm that the company was at least 51 per cent owned by Indigenous peoples, the minimum representation required for eligibility.
Correctional Services Canada (CSC) — a department that was projected to spend at least $818 million on major contracts in 2024-25 alone — claimed they weren’t aware of the requirement to audit suppliers before awarding PSIB contracts.
Jeglic’s probe broadly confirmed the findings of Global News and the First Nations University of Canada joint investigation, which found that billions in federal contracts had been awarded under the PSIB with little scrutiny of whether companies were, in fact, Indigenous-owned and operated.
The investigation also revealed serious problems with the government’s Indigenous Business Directory – a central database run by Indigenous Services Canada that lists companies eligible for PSIB contracts. After the reports, the government removed hundreds of companies and individual suppliers from the database, including some they deemed ineligible.
PSIB regulations require that a company be 51 per cent owned and operated by First Nations, Inuit or Métis people to qualify, and that at least 33 per cent of the resulting work be completed by Indigenous people.
The 33 per cent rule was designed to guard against shell companies being set up by non-Indigenous people to gain access to billions in work earmarked for Indigenous businesses.
Global’s investigation detailed those schemes — known in Indigenous procurement circles as “rent-a-feathers” — where Indigenous people serve as a figurehead for non-Indigenous companies to gain access to the contracts.
Jeglic’s team noted Indigenous Services Canada’s website indicated departments could request a post-award audit to verify the 33 per cent requirement, but ISC believes individual departments are responsible for monitoring and oversight of their contracts.
Jeglic found no evidence that ISC communicated that position to departments, and ISC has no guidance documents on the 33 per cent rule.
“Not only is ISC’s direction on who is responsible for monitoring the 33 per cent criterion inadequately defined, but even more alarming is the complete absence of clear guidance to departments on when and how this monitoring should be applied,” the ombudsman report read.
Jeglic’s report also said that the federal government has been inflating the supposed economic benefits for Indigenous businesses for years, calling into question if departments are truly hitting their mandated target of five per cent.
Departments take the total value of contracts awarded to Indigenous businesses each year and divide that by the department’s total procurement spending to arrive at a percentage of work done by First Nations, Inuit and Métis companies. For instance, if a department spent $100 million total and $5 million went to Indigenous companies, the department hit the five per cent target.
But under the PSIB, Indigenous companies can subcontract as much as 67 per cent of contract work to non-Indigenous companies, making the aggregate numbers misleading.
“Because departments are not required to disaggregate the work performed by non-Indigenous entities, these contributions are still counted toward the five per cent target, overstating the actual economic benefit to Indigenous businesses,” the report read.
“This approach creates a misleading impression that Indigenous businesses are receiving a larger share of federal procurement spending than they truly are.”
Jeglic’s report found that Indigenous Services Canada routinely ignored other government departments when they reached out with information or questions about the procurement process.
For example, Indigenous Services Canada did not respond to a notification from Shared Services Canada about an Indigenous set-aside contract for two months, but by then the department had already gone ahead with the contract.
Another department contacted Indigenous Services Canada procurement mailbox with a question about Indigenous procurement. Seven weeks later, ISC responded, “they were not trained or specialized in federal procurement” and advised the department to consult the government’s procurement manual.
Employment and Social Development Canada went ahead with a sole-sourced contract to an Indigenous supplier that was not listed on the government’s Indigenous Business Directory — a requirement to access set-aside contracts.
Global News previously reported on the government’s lax verification of businesses on the directory, with one government employee telling an Algonquin tribal council they could upload anything to qualify, even a “picture of a bunny.”
Nevertheless, ESDC justified awarding the non-competitive contract because they felt the IBD was “exclusionary” and applying for certification would be too “burdensome” for some.
Jeglic’s report includes more examples of “gaps” in the administration of the PSIB, and his office’s report examined just 27 contracts from three departments between April 2023 and March 31, 2025. The probe specifically did not examine ISC’s verification process for businesses applying to be listed on the IBD.
Auditor General Karen Hogan’s own investigation into the federal government’s Indigenous procurement program is expected later this year. The probe was taken on at the request of the Algonquin Anishinabeg Nation Tribal Council in the wake of Global’s investigation.
Algonquin Anishinabeg Grand Chief Savana McGregor told Global News last year she hoped Hogan’s investigation would demonstrate “the scope of how infiltrated the (IBD) is … with pretensions,” referring to people who falsely claim Indigenous ancestry.
In a February letter sent to the House of Commons’ Indigenous and Northern Affairs committee, Mandy Gull-Masty, the minister responsible for the PSIB, said her department has moved to strengthen its verification process to make sure businesses listed on the IBD are Indigenous-owned.
Gull-Masty noted that the government intends to update its policy guidance on the PSIB later this spring and is working with Indigenous leaders to completely overhaul the troubled program, turning over control of the IBD from public servants to Indigenous peoples.
Indigenous Services Canada told Jeglic’s office that it agrees with the report’s recommendations, including setting up an impartial arbiter for complaints about the Indigenous procurement program, publishing an “updated” policy and pushing the Treasury Board to reform how departments calculate their progress toward the five per cent spending mandate.
But the changes won’t come quickly. The “updated” policy is not expected until 2027, and changes to how the government calculates economic benefits to Indigenous companies will take “2-3 years to implement fully,” the department wrote.
“We welcome the Procurement Ombud’s recommendations and we are taking concrete steps to address the recommendations,” the department wrote in a statement to Global News.
“We are co-developing, along with Indigenous partners, policy changes to improve our practices, including exploring the devolution of responsibility for verifying Indigeneity.”