December 19, 2025 The federal government is standing by a contract worth up to $1.1 million awarded to Deloitte Canada for advice on deploying artificial intelligence, even as the global consulting firm faces scrutiny for using AI-generated citations in government reports that later proved inaccurate. Employment and Social Development Canada says the work is proceeding under strict conditions, and that penalties will apply if Deloitte violates the terms of the agreement.
The contract, disclosed in September, tasks Deloitte with helping design a “streamlined and reusable process” for developing and deploying AI and innovation solutions within the department. It was signed before Deloitte acknowledged it had relied on AI-assisted research citations in a report prepared for the Newfoundland and Labrador government.
Critics argue the federal government should have reconsidered the contract in light of those incidents. Robert Shepherd, a professor at Carleton University who studies public-sector management, said the decision to proceed sends the wrong signal. If a public servant submitted work based on false evidence, he said, discipline would be inevitable. “Public trust is at stake,” Shepherd warned.
Newfoundland and Labrador Premier Tony Wakeham has already demanded accountability over Deloitte’s work for his province, after local reporting uncovered citations that appeared not to exist. One of the cited academic articles, according to an emeritus professor listed as a co-author, was entirely fabricated. The provincial report cost nearly $1.6 million, according to publicly released documents, and a review of AI use in government procurement is now underway there.
Federal officials insist the Employment and Social Development Canada contract is different in scope. In an email, departmental spokesperson Pamela Wotherspoon said it would be premature to judge the outcome before the work concludes in July 2026, and emphasized that all contracts include conditions governing how artificial intelligence can be used. If Deloitte fails to comply, she said, “appropriate action will be taken.”
Public Services and Procurement Canada confirmed it is aware of the citation issues in Deloitte’s past work and now requires suppliers to disclose any use of AI in advance. The goal, the agency says, is to ensure quality, transparency and value for money.
Experts say disclosure alone is not enough. University of Toronto professor Ebrahim Bagheri argues governments need to be more deeply involved in the research process itself, warning that overreliance on generative AI risks producing generic recommendations that add little value beyond what public servants could generate on their own.
Deloitte Canada maintains that AI was used only selectively to support research citations, not to write reports, and says it stands by the substance of its recommendations.
The controversy mirrors a similar incident in Australia, where Deloitte faced fallout after a 237-page report was found to contain fabricated references and footnotes generated by AI. The company was compelled to repay part of the government contract to mitigate the errors in the $290,000 report.
