April 4, 2020

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Winnipeg Free Press

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Winnipeg sues former CAO, contractors over police HQ 'fraud, embezzlement' 

Contractors and subcontractors allegedly falsified documents and invoices, and submitted them for payment. Kickbacks were allegedly paid to the president of a corporation who, at the same time, was the city's top bureaucrat. Construction of the downtown Winnipeg police headquarters was millions of dollars over budget.

With no criminal charges being laid in the aftermath of years of RCMP investigation and no provincial inquiry being ordered, the City of Winnipeg has launched a lawsuit against the building's contractors, architects — and even its own former chief administrative officer, Phil Sheegl.

HQ TIMELINE

2007: Plan to fix the crumbling facade of Public Safety Building is placed on hold due to rising costs.

2008: City of Winnipeg officials start considering former Canada Post building warehouse and tower on Graham Avenue as new home for Winnipeg Police Service.

2009: Council approves purchase of the building for $31.6 million, as well as a $105-million renovation.

2010: The city assigns a $50,000 construction-management contract to a joint venture between Caspian Projects Inc. and Akman Construction Ltd. Akman later walks away from contract, which is assigned to Caspian.

July 2011: The city reveals design problems, scope inflation and other construction issues have taken the total project cost to $194 million.

November 2011: A full construction contract, initially worth $137.1 million, is awarded to Caspian by then-Winnipeg chief administrative officer Phil Sheegl.

Fall 2013: Executive policy committee is told of further cost overruns that have taken the project cost up to $210 million. Council orders an external audit.

Fall 2013: Sheegl resigns. The Free Press obtains documents showing Caspian was awarded a "guaranteed maximum price" contract based on a design that was 30 per cent complete and subject to change. The Free Press reports a last-minute change was made to the construction-management tender that would benefit smaller firms.

2007: Plan to fix the crumbling facade of Public Safety Building is placed on hold due to rising costs.

2008: City of Winnipeg officials start considering former Canada Post building warehouse and tower on Graham Avenue as new home for Winnipeg Police Service.

2009: Council approves purchase of the building for $31.6 million, as well as a $105-million renovation.

2010: The city assigns a $50,000 construction-management contract to a joint venture between Caspian Projects Inc. and Akman Construction Ltd. Akman later walks away from contract, which is assigned to Caspian.

July 2011: The city reveals design problems, scope inflation and other construction issues have taken the total project cost to $194 million.

November 2011: A full construction contract, initially worth $137.1 million, is awarded to Caspian by then-Winnipeg chief administrative officer Phil Sheegl.

Fall 2013: Executive policy committee is told of further cost overruns that have taken the project cost up to $210 million. Council orders an external audit.

Fall 2013: Sheegl resigns. The Free Press obtains documents showing Caspian was awarded a "guaranteed maximum price" contract based on a design that was 30 per cent complete and subject to change. The Free Press reports a last-minute change was made to the construction-management tender that would benefit smaller firms.

July 1, 2014: The audit by consulting firm EY concludes city conducted no appraisal of the former Canada Post building before buying it.

July 10, 2014: A letter is sent to Manitoba Justice alleging doctored invoices in the police HQ project and a payment to a member of city council.

July 15, 2014: The KPMG audit of the police HQ project confirmed concerns about the "guaranteed maximum price" construction contract and noted Caspian did not bid for the construction contract it was awarded.

Aug. 15, 2014: Manitoba Justice announces it had handed over three city audits and other documents to RCMP.

Dec. 17, 2014: RCMP execute a search warrant at Caspian on McGillivray Boulevard, announce the force is conducting a formal investigation due to allegations of possible fraud and forgery.

August 2017: RCMP tell the Free Press they are investigating possible fraudulent billing related to the project. At this point, they had interviewed more than 130 witnesses and executed at least 15 search warrants.

May 2018: The city serves notice to two firms — Caspian and Adjeleian Allen Rubeli Ltd. — seeking arbitration due to alleged deficiencies in the police HQ building.

Dec. 13 2019: Province of Manitoba announces RCMP investigation is complete; no charges will be laid.

Mayor Brian Bowman said, faced with "serious allegations of fraudulent activities and a complex kickback scheme," the city had no choice.

"I was elected Winnipeg's 43rd mayor to lead the clean-up of a number of files, including dealing with the aftermath of the police headquarters' scandal, that we inherited," Bowman said during a hastily-called news conference Monday, minutes after the lawsuit was filed in Manitoba Court of Queen's Bench.

"I have worked diligently with my council colleagues and our public service to hold people accountable and protect the interests of Winnipeg taxpayers... To be clear, the municipal and provincial governments should be standing shoulder-to-shoulder to protect taxpayers on something as serious as the police headquarters scandal," he said.

"And, if the provincial government is not prepared to take action to protect taxpayers... I can assure Winnipeggers that their municipal government will use any and all available legal means in its authority to seek accountability."

Bowman said the city has heard nothing from the province as to why it rejected council's formal request for a public inquiry on the matter, and reached out again early Monday to Minister of Municipal Relations Rochelle Squires.

Squires, in an emailed statement to the Free Press, said she spoke with Bowman and noted the province's prosecutors are an independent office which "makes decisions on evidence and the probability of obtaining a conviction, not based on political expediency."

"After a comprehensive review of the legal issues, and the foundational facts provided through the multi-year RCMP investigation, MPS (Manitoba Prosecution Service) concluded that there was not sufficient evidence to approve any criminal charges as there is not a reasonable likelihood of conviction.

"The decision surrounding the public inquiry remains the same."

The city budgeted $135 million to convert the former Canada Post main office and mail sorting plant into the police headquarters, but by the time it was completed it had ballooned to $214 million with several problems still continuing to pop up. (Ken Gigliotti / Free Press files)

The city budgeted $135 million to convert the former Canada Post main office and mail sorting plant into the police headquarters, but by the time it was completed it had ballooned to $214 million with several problems still continuing to pop up. (Ken Gigliotti / Free Press files)

In the 57-page statement of claim, the City of Winnipeg seeks unspecified general, special, punitive and aggravated damages.

"The city pleads that the liability of the defendants arises out of their fraud, embezzlement, misappropriation and/or defalcation while acting in a fiduciary capacity and/or resulted from obtaining property or services by false pretense and/or fraudulent misrepresentation," the lawsuit states. (Defalcation is misappropriation of funds by a person trusted with them.)

The city budgeted $135 million to convert the former Canada Post office and mail-sorting plant into its new downtown police headquarters. By the time it was completed, the price had ballooned to $214 million, with several interior problems still continuing to pop up.

The lawsuit alleges the scheme to defraud the city, by filing fraudulent or inflated quotes and invoices, was dreamed up even before the request for proposal for the project was issued.

The lawsuit alleges that the scheme to defraud the city, by filing fraudulent or inflated quotes and invoices, was dreamed up even before the request for proposals from contractors to convert the former Canada Post main office and mail sorting plant into the police headquarters. (John Woods / Winnipeg Free Press)

The lawsuit alleges that the scheme to defraud the city, by filing fraudulent or inflated quotes and invoices, was dreamed up even before the request for proposals from contractors to convert the former Canada Post main office and mail sorting plant into the police headquarters. (John Woods / Winnipeg Free Press)

Besides Sheegl (who held the CAO role from 2011-13 and was deputy CAO from 2008-11), the city is suing numerous companies and individuals, including: Caspian Construction and its president, Armik Babakhanians; Pamela Anderson, Caspian office manager; Paul LaMontagne, president of Mountain Construction; Fabca-PMG Projects Ltd.; Dunmore Corporation; Ottawa-based GRC Architects; and Sheegl-controlled company, FSS Financial Support Services.

The city says LaMontagne was a Caspian employee, while heading Mountain, while both Babakhanians and Anderson also served as principals of Mountain.

The city is alleging in July 2011, shortly after Sheegl awarded the contract to Caspian, Caspian paid $200,000 to Mountain, which then paid the same amount to Sheegl or his company, while another $327,000 was paid by Babakhanians to either Sheegl or a company owned by him.

The allegations have not been tried in court.

The City of Winnipeg has now launched a lawsuit against contractors, architects — and even its own former chief administrative officer, Phil Sheegl.  (Mike Deal / Free Press files)</p>

The City of Winnipeg has now launched a lawsuit against contractors, architects — and even its own former chief administrative officer, Phil Sheegl. (Mike Deal / Free Press files)

The city is also seeking a court order for the RCMP to keep all of its notes and records from its years-long investigation, to get copies of notes from the RCMP and prosecutors, and to be allowed to trace monies through the financial accounts of the defendants.

Former mayor Sam Katz (2004-14), Sheegl, and a spokesperson at Caspian could not be reached for comment.

Robert Tapper, who has been the lawyer for both Katz and Sheegl in the past, said Monday he couldn't comment on the matter.

Coun. Brian Mayes (St. Vital), who is one few remaining councillors who were on the job at the time of the Winnipeg Police Service headquarters saga, said Monday's news came as a surprise.

"I’m not sure who signed off on the litigation in advance, but people who are coming to me and asking: 'Did you give the go-ahead on this?' No, that wasn’t my decision," Mayes said.

"I haven’t had the briefing yet, so I can’t comment on what my view is."

Mayes said his briefing is scheduled for later this week, although some, such as Coun. Kevin Klein (Charleswood-Tuxedo-Westwood), were given information Monday.

Klein said council should have called for a forensic audit, and not insisted on a public inquiry.

"Many of those that were on the (headquarters) steering committee are still here, and some hold higher positions," Klein said. "I haven’t seen any information come from those people.

"So I’m challenged why or what the play is here. And I suspect that it’ll be a very long, drawn out process, and it will cost the city a lot of money."

kevin.rollason@freepress.mb.ca

jessica.botelho@freepress.mb.ca

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