Winnipeg Free Press - PRINT EDITION

Construction contracts given to Caspian raise concern

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THE audit into the police-headquarters project has raised red flags about $156 million in construction contracts awarded to Caspian Projects.

In a 52-page examination of the $210-million HQ project, KPMG rapped city officials for not understanding or applying city policies intended to ensure contract awards are open, competitive and transparent.

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Specifically, the auditors raised three issues about the way officials went about evaluating and assigning contracts awarded to Caspian, the Winnipeg firm that served as the police-HQ construction manager and primary builder.

In 2010, the city issued a search for construction companies interested in managing the conversion of the former Canada Post building on Graham Avenue into a new home for the Winnipeg Police Service.

Four applicants wound up on the short list: PCL Construction, Graham Projects, Stuart Olson Dominion Construction and a joint venture between Winnipeg's Akman Construction and Caspian.

In February 2011, the city awarded the $50,000 first phase of the contract to the Caspian-Akman joint venture. Akman quit the project four months later and the city assigned the rights to the project's first phase to Caspian.

In December 2011, the city awarded what the auditors called "a separate construction contract" worth $137.1 million to Caspian. This was increased to $156.4 million in 2013, after additional cost overruns came to light.

KPMG noted the winning applicant for the job was the joint venture, not Caspian.

"We noted that Caspian did not submit a proposal, and that Caspian was awarded the construction project," the auditors wrote. "The issue is the city assigned the contract to Caspian without revisiting the evaluation scoring against other qualified contractors who submitted bids."

KPMG also noted the original Caspian-Akman joint venture issued two separate proposals for construction-management fees, including one received by the city after the deadline closed.

Information from the second proposal, which called for higher construction-management fees, made its way into the bid-evaluation process, noted the auditors, adding this could have affected the decision to award the contract to the joint venture.

"The inclusion of both (joint venture) prices in the worksheet could have had the effect of distorting the evaluation and affecting the fair apportionment of scoring among the bidders," the auditors wrote.

KPMG also took issue with the way the bids were evaluated because three of four bidders -- including the Caspian-Akman joint venture -- excluded or didn't fully price out some of their services, as required by the city search.

"This would make the evaluation between the four bidders difficult, as each bid would have been based on different assumptions," KPMG concluded.

Caspian president Armik Babakhanians could not be reached for comment Wednesday.

Overall, the auditors found city officials displayed a "lack of consistent understanding and application of the city's procurement policies and guidance to promote open, competitive and transparent procurement related to major capital projects."

The auditors did not examine the city's decision to amend the request for proposals six days before the bids closed, to reduce the construction-bond requirements for the successful bidder.

In a report in 2013, city officials said they reduced the construction bond -- the amount of money a construction company has to put up to ensure they can complete the project -- to 25 per cent of the total project from 50 per cent, at the behest of the Surety Association of Canada.

The national organization denied it made any such request and demanded to know why the city made such a claim. The city later said it reduced the bond under its own volition to ensure smaller construction companies could bid.

Republished from the Winnipeg Free Press print edition July 17, 2014 A6

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