Feds defend $1.1-million Deloitte contract for AI advice after firm admitted mistakes

Deloitte signage is pictured in the financial district in Toronto, Friday, Sept. 8, 2023. THE CANADIAN PRESS/Andrew Lahodynskyj

ST. JOHN’S — The federal government is defending its decision to award a contract worth up to $1.1 million for advice on deploying artificial intelligence to a Canadian branch of Deloitte, a global consulting firm that is under fire for AI-related blunders.

However, Employment and Social Development Canada says there will be consequences if the company violates the conditions of the work.

The department awarded the contract to Deloitte Inc. in September, before the firm acknowledged it relied on AI for research citations in a report it prepared for the government of Newfoundland and Labrador. The firm said it needed to revise that report to correct erroneous citations.

In October, Deloitte Australia acknowledged it had provided the Australian government with a report containing citation errors that are thought to have been generated by AI.

The false citations have prompted some critics to call for stronger oversight of public contracts with consulting firms and their use of AI. They have also prompted at least one expert to question why the federal government still wants advice on artificial intelligence from Deloitte.

“If ESDC is standing by this (contract), I really do begin to question their judgment. And that’s a really big worry,” said Robert Shepherd, a Carleton University professor who specializes in research on Canadian public management, in a recent interview.

The Canadian government disclosed its agreement with Deloitte on a federal database that lists public contracts.

While federal officials move ahead with plans to pay Deloitte to define a “streamlined and reusable process for developing and deploying AI/Innovation solutions,” Newfoundland and Labrador Premier Tony Wakeham has demanded accountability.

The premier said last month the mistakes were unacceptable and that he’d be speaking with his staff about whether the province would ask for any money back.

A review of AI use by public-service employees and consultants is ongoing, a spokesperson for the province’s public procurement agency said in an email Tuesday.

Employment and Social Development Canada said the scope of its work with Deloitte is different from the contracts the company completed for other governments.

Department spokesperson Pamela Wotherspoon said in an email it would be premature to make assumptions about the contract’s results before it ends in July 2026.

The department also said any contracts with third parties that will prepare reports include conditions about how AI can be used.

“ESDC works in good faith with all contractors to ensure they deliver value for Canadians in an ethical and accountable fashion,” Wotherspoon wrote. “If it is found that Deloitte is not respecting the terms and conditions of the contract, appropriate action will be taken.”

Public Services and Procurement Canada confirmed it was aware of the false citations used in some of Deloitte’s previous reports. It now requires suppliers to identify any use of artificial intelligence in advance, said spokesperson Nicole Allen in a recent statement.

“This is intended to ensure that the quality of work meets expectations and provides value for money,” Allen said in an email.

But experts say there is an onus on the federal government — and any government — to change its own oversight of public contracts to ensure they are paying consulting firms for authentic research.

These companies are paid a lot of public money, and their work can influence policy that affects people’s lives, said Shepherd, from Carleton’s School of Public Policy and Administration.

“If I, as an employee of the government of Canada, put in work like that based on false evidence, I would be up for reprimand at the very least.”

Public trust in the government is at stake, he added.

Last month, online Newfoundland and Labrador news outlet The Independent highlighted several citations in a human-resources plan prepared by Deloitte for the province’s Health Department which appeared not to exist.

Martha MacLeod, an emeritus nursing professor at the University of Northern British Columbia, confirmed in an email that a cited article which lists her as a co-author, “does not exist.”

The report cost the provincial government nearly $1.6 million, according to documents obtained and published by blogger Matt Barter.

Deloitte Canada said it stands by the recommendations in the report for the Newfoundland and Labrador government. In an email, the company said it was making corrections to the citations, which do not affect the report’s findings.

Artificial intelligence was not used to write the report, but it was “selectively used to support a small number of research citations,” the unsigned email said.

Deloitte Canada did not respond to questions about what that meant.

The company is responsible for the quality of its work, and it is continually changing how it uses AI to ensure accuracy and accountability, the email said.

Deloitte Australia did not respond to questions about its report for the Australian government. The company told The Associated Press in October that it had reviewed the 237-page report and “confirmed some footnotes and references were incorrect.”

It said the matter was resolved with the client, The Associated Press reported.

Employment and Social Development Canada’s contract with Deloitte is one of seven the federal procurement agency signed with the firm this year, collectively worth about $72 million, said a spokesperson for Public Services and Procurement Canada.

The work includes consulting, accounting and auditing services.

Shepherd suggested governments set up new protocols to review and fact-check reports by consultants. He also recommended governments require that the companies prove they have done the research themselves.

Ebrahim Bagheri at the University of Toronto suggested governments be more involved with the research and creation of consulting companies’ reports, perhaps through more frequent meetings throughout the process.

Governments hire these firms to get deeply informed, diverse expertise beyond the knowledge available within the public service, said Bagheri, who is a professor in the school’s Faculty of Information.

“What will happen if the consulting companies are now using generative AI to generate their ideas?” he said in an interview. “The government is going to receive some bland, mediocre recommendation out of a (large language model) that public sector employees could have done themselves with the LLM.”

— With files from The Associated Press

This story by The Canadian Press was first published Dec. 18, 2025.

Sarah Smellie, The Canadian Press