Shaky foundations Leaked documents paint picture of a police headquarters project on unsound financial footing long before shovels hit the ground By: Ryan Thorpe Posted: 7:00 PM CDT Friday, Jul. 8, 2022 Last Modified: 4:07 PM CST Monday, Jan. 9, 2023 Updates

Hey there, time traveller!
This article was published 07/07/2022 (902 days ago), so information in it may no longer be current.

The temperature hovered just below freezing on Jan. 15, 2010, when 11 people arrived at city hall for a Saturday meeting in the boardroom of then-chief administrative officer Phil Sheegl to discuss the downtown Winnipeg Police Service headquarters construction project.

The meeting was consequential for the controversial job, which sparked multiple audits, allegations of kickbacks and corruption, calls for a public inquiry and a five-year RCMP investigation that closed without criminal charges.

In the years since police moved into the new downtown HQ on Smith Street in 2014, the high-profile controversy has largely focused on Caspian Construction — the main building firm — and its various sub-contractors, who have never commented publicly.

The City of Winnipeg alleges it was defrauded by the project’s construction contractors and design team through a scheme of inflated and fabricated invoices — allegations that remain before Manitoba’s civil court.

But documents recently obtained by the Free Press show the municipal capital project was on shaky financial ground long before contracts were signed and shovels hit dirt.

By January 2010, when senior city staff and third-party consultants arrived for the weekend meeting at Sheegl’s office, the project had already entered choppy waters.

City councillors had recently learned the price tag for the project had skyrocketed — after being told it would cost $105 million to renovate the old Canada Post building, they were now being told the estimate had spiked to $155 million.

The purpose of the meeting that day was to ensure costs could be contained and the project saved, and the numbers established in Sheegl’s boardroom would go on to play a key role in the controversy that followed.

In attendance were, among others: Sheegl; deputy chief administrative officer Alex Robinson; chief financial officer Mike Ruta; property, planning and development department director Deepak Joshi; capital projects manager Jason Ruby; and Iain Day from corporate finance.

There were two representatives from the Winnipeg Police Service: then-deputy chief Shelley Hart, now the mayor of East St. Paul, and civilian employee Abdul Aziz, who would go on to serve two stints as HQ project manager.

Also in attendance was Bob Downs, the development manager at Shindico (a company with close personal and professional ties to then-mayor Sam Katz), and Myron Paryniuk and Steve Loomis from AECOM, the engineering firm later hired for design work on the job.

The Free Press has obtained the meeting minutes from that day, revealing the extent to which the civil servants in attendance were worried that unless the project could be “revised to be within budget,” it would be “cancelled by elected officials.”

“Project has been given a budget so go and design a police station to fit the budget rather than starting with the program requirements and designing a station so that it costs what it costs,” reads the meeting minutes.

“Project to move forward within budget and if police have an issue with the program requirements, they can make their case to (the Executive Policy Committee).”

At the time, the best estimate the city had for the project was $155.5 million, including $126 million for construction, $7 million for furniture, fixtures and equipment, and $12.5 million for soft costs.

“Project has been given a budget so go and design a police station to fit the budget rather than starting with the program requirements and designing a station so that it costs what it costs.” – Meeting minutes

There was “no contingency for unknowns” in the $126 million earmarked for construction, according to the meeting minutes. Despite this, the bureaucrats were adamant an additional $7.5 million in savings had to be found to bring total costs down to $148 million.

“Expectation is to deliver a functional police station within budget. AECOM to say it is functional,” reads the meeting minutes.

AECOM was not hired by the city until Aug. 19, 2010, roughly seven months after the weekend meeting in Sheegl’s boardroom, according to a subsequent audit by KPMG.

The meeting helped kick-start a chain of events that plagued the project throughout its design and construction phases, drawing the ire of city councillors and the public alike.

More than a year later, on Oct. 14, 2011, things were already off the rails.

That day, Pat de Jong, a WPS employee who served on the HQ project team, penned an inter-office memo — recently obtained by the Free Press — that makes clear just how quickly the project had spiralled out of control.

The initial project team consisted of two WPS members and three city staffers from the property, planning and development department.

But there was significant turnover, and by the time de Jong wrote the memo, it consisted of five members of the WPS and one part-time consultant.

“The DC (likely refers to the director of construction, but the city won’t comment on anything related to the leaked emails and documents obtained by the Free Press) position is the only position with the depth of content knowledge within the team. The remaining 5 WPS employees lack the history, understanding of the evolving vision, and any expertise in the areas required,” de Jong wrote.

“The only sufficiently (sic) within the current project team is the ability to address the WPS user group needs.”

De Jong warned the team lacked the “technical knowledge and experience” to push the project forward, understand the impact of decisions, understand and execute contracts, meet the needs of the design team and construction contractor and manage relationships with other project staff.

“The DC is engaged in issues that should be taken care of at a different level. Timelines and getting in front of same are not being projected and managed adequately, resulting in all 3 stakeholders (Caspian, the design team, WPS) being behind,” de Jong warned.

“Timelines and getting in front of same are not being projected and managed adequately, resulting in all 3 stakeholders (Caspian, the design team, WPS) being behind.” – Pat de Jong

“Relationships between all 3 parties are strained and projections without substantive intervention are poor at best. Issues are unnecessarily escalated and further fracture relationships. Inability to get in front of issues and manage them creates on-going crisis, requiring daily attention.”

De Jong ended on a prophetic note: “All of the above creates significant cost and time over runs to the city.”

An internal WPS email recently obtained by the Free Press — dated Oct. 31, 2012, several weeks after the de Jong memo — reveals the extent to which the police service felt it had to battle for change orders during construction to ensure its needs and wants were met.

In total, there were 81 change orders issued on the job, which increased the cost of the project by $19.89 million. According to the KPMG audit triggered by the project cost overruns, this was a “significant volume and degree of change during the course of design and construction.”

One of those change orders — the addition of a second passenger elevator in the building — was initiated by former police chief Devon Clunis who, in 2014, claimed the police service had been absolved of responsibility for cost overruns on the project.

In response, Caspian Construction issued a priced-out change order to project director Ossama Abouzeid — who is also being sued by the city. The email was then forwarded to Randy Benoit and Henry Hagenaars, two police officers deeply involved in the project.

“FYI. We have to find money?!” wrote Abouzeid, who replaced Aziz as project lead in June 2011.

Benoit then forwarded that email to three other WPS employees, including then-chief Clunis, prefaced with a warning in all capital letters: “PLEASE DO NOT FORWARD THIS MESSAGE.”

“This is an example of a Contemplated Change Notice. This one is for the second elevator car…. The Chief order (sic) it as one car… would not be a good idea. However the (Guaranteed Maximum Price contract) only accounted for one elevator car,” Benoit wrote.

“So I asked for a price for the second car. (CCN). Now I have till the 9^th of November to give the green light. Again the cost will have to be ‘value engineered’ as there is no new money for it. This is what we are facing weekly.”

After being awarded a contract for design work in August 2010, AECOM was instructed to submit complete engineering drawings to the city by July 15, 2011.

By October the drawings were still not complete, resulting in AECOM assigning more senior staff to the job, according to an email to city staff from Abouzeid.

“I received a call from (AECOM senior executive) John Monroe this evening. He told me he had several discussions with their team today. He said he was aware of the issues and his mandate is to fix it. We discussed the deliverables as follows,” Abouzeid wrote.

“The HQ 100% drawings will be complete by Nov. 2. Sealed. He will have additional staff assigned to the project starting tomorrow. He recognized the mechanical design is behind and he will assign the adequate resources there.”

When AECOM finally submitted the drawings, there was significant debate at city hall as to their quality and completeness.

The city then hired the Ontario-based design firm Adjelejan Allen Rubeli to review and assess AECOM’s drawings in December 2011. Peter Chang, formerly of AAR, is being sued by the city as part of the ongoing civil litigation related to the construction project.

On Jan. 24, 2012, AAR submitted its report to the city.

“The (AECOM) drawings were not complete and AAR was asked to provide a revised fee to complete the drawings,” Chang later wrote to city staff, summarizing the findings.

The city then offered AECOM a chance to respond to AAR’s report, which was summarized by Abouzeid in a Feb. 2, 2012 email to Sheegl, Ruta, Joshi and two members of the WPS.

“(AECOM) claims that the architectural is 97% complete… structural 95%, M&E both at 85%. They also claim they need 5-6 weeks to finish. They made a statement that what they submitted is the industry practice!!,” Abouzeid wrote.

“They forgot that up to our meeting of Feb. 1 they were claiming that they are indeed at 100% and that they submitted a 100% invoice back in November. I am still appalled. They knew back on Nov. 2 that they did not reach 100%, why they never tried to complete their work over the last 3 months?”

Abouzeid said it was now “action time” and he wanted to submit AECOM’s rebuttal to AAR to determine whether it was accurate.

“On Feb. 1 we drew line in the sand. They failed again to be truthful, or at best, to be accurate in their claims. I would not risk another 6 weeks of promises unless you (as the city) chooses to,” Abouzeid wrote.

“I would like to explore if we can get them to agree to stop any work right at this point, hand over source drawings as a ‘white label’ to AAR, and walk away.”

Abouzeid said the city should hold back $2 million of AECOM’s fee, as it would likely cost at least that much to get AAR to finish their work, and further suggested it might be necessary to get the city’s contracts team involved.

“On Feb. 1 we drew line in the sand. They failed again to be truthful, or at best, to be accurate in their claims. I would not risk another 6 weeks of promises unless you (as the city) chooses to.” – Abouzeid’s email

The Free Press has obtained a copy of a “strictly confidential” settlement agreement reached between the City of Winnipeg and AECOM, dated Feb. 24, 2012, signed by Sheegl and Robert Johnson, AECOM’s executive vice-president.

“Further to our recent discussions, I am writing to confirm that the City and AECOM have agreed to the following settlement in connection with the Project and the Agreement (including resolution of all of the City’s allegations concerning AECOM’s services and performance,” it reads.

As part of the settlement, the city agreed to pay out AECOM’s contract nearly in full, which represented a “final settlement of any and all claims against AECOM or any of its employees.”

AECOM then handed over its design drawings, which the city could use as it wished. The Free Press has obtained the entire set of AECOM’s design drawings.

The firm admitted no liability and the settlement included a gag order on the city. AECOM is not being sued by the City of Winnipeg as part of its lawsuit into the construction project.

“Neither the City nor any of its consultants or contractors shall make any public mention of AECOM or disparaging comments concerning AECOM’s services or performance in connection with the Project,” the settlement reads.

“And the City shall evaluate AECOM without any prejudice as a result of the matters set out in this letter on all future projects at the City’s Water and Wastewater Treatment Plants and other City projects which AECOM wishes to submit proposals on.”

The settlement was characterized by Chang as follows in a February 2014 email to senior members of the civic administration: “WPS and the City of Winnipeg were sold a set of incomplete, non-code compliant and non-functional drawings for $5.6M!”

As costs continued to escalate on the project, city council ordered an audit. In preparation for a public meeting in November 2013, Ruta, Joshi and Chang went back and forth with emails discussing how much information about AECOM’s role could be revealed.

“The 100% drawings that the city received in November 2011 were nowhere near 100% complete, as noted in our preliminary report to the city. As well, despite being told that plans were frozen and signed off by WPS, this was far from the truth,” Chang wrote.

“It is hard to defend the city’s position without having to point out how the previous design team left the city and the project out to dry.”

Chang asked for guidance from the city’s legal services department as to how much he could say about AECOM’s role at the upcoming meeting.

“The 100% drawings that the city received in November 2011 were nowhere near 100% complete, as noted in our preliminary report to the city. As well, despite being told that plans were frozen and signed off by WPS, this was far from the truth.” – Peter Chang

In response, Joshi advocated for the city to reveal everything that had happened with AECOM.

“I think this is a public meeting and if asked the questions we should answer and protect the city’s interest. I know there are (sic) a gag order but one must tell the facts which will come out in any audit report and gag orders will not stop that,” Joshi wrote.

Chang said city staff should also prepare to answer questions about the settlement.

“Also what may come up is why the city paid the previous design team roughly 100% of their design fees when AAR had a report stating that the overall design completion was at best 60% complete? Bear in mind that 60% complete does not mean 60% correct,” Chang wrote.

The KPMG audit would go on to include the following observation about the design process.

“We also observed instances of payments being authorized to the design consultants without appropriate review and due diligence being performed on the quality or completeness of their work output,” the audit report reads.

“The supplementary agreement with Caspian provides evidence of significant project cost over-runs and schedule delays incurred by the project which in our view directly relate back to the quality, completeness and timely delivery of the design.”

The design work was supposed to be complete by July 2011, but was not finalized by AAR until April 2013 — long after construction broke ground. A clause in the contract between the city and Caspian stipulated that final costing would not be submitted until the design was complete.

KPMG said the city paid combined fees to AECOM and AAR that were 50 per cent higher than initially budgeted for design work.

But the audit report — at the city’s request — was scrubbed of any mention of AECOM, which was instead referred to anonymously as “Design Co.”

The city also sent KPMG a “confidential management note” not to be included in the final draft, which reveals that at one point they were so concerned by AECOM’s performance they issued a “stop payment” on their account.

As reported by the Free Press last month, the KPMG report was also scrubbed of numerous findings critical of the WPS prior to being released to the public. And as revealed by the Free Press this week, senior city staff also withheld key meeting minutes from the KPMG audit team.

In response to a Free Press request for comment, Felicia Wiltshire, the city’s director of corporate communications, provided the following written statement.

“Due to the size and complexity of the project, as well as the ongoing litigation, we are not in a position to speak to each of these items you have flagged,” Wiltshire said.

“As we have stated previously, there were many concerns raised regarding the WPS HQ project, many of which are still subject to ongoing litigation. The investigations and audits that have been conducted over the years have resulted in changes to policies and procedures to improve openness and transparency in the decision making process.”

AECOM did not respond to a request for comment by deadline.

The KPMG audit report was forwarded by the city to Manitoba Justice which, in turn, sent it to the RCMP, which launched Project Dalton, a multi-year, multimillion-dollar fraud investigation into the project. The investigation closed without criminal charges in 2019.

The City of Winnipeg launched civil litigation against dozens of defendants in January 2020, and the case remains before the courts.

In March, Manitoba Court of Queen’s Bench Chief Justice Glenn Joyal ruled that Sheegl accepted a bribe in relation to the awarding of the construction contract on the project by showing favour to Caspian. Sheegl has appealed the ruling.

Joyal wrote that the decision to remove AECOM from the project was done to “advance the objects of conspiracy, ie: dismissing AECOM to benefit Caspian and its chances to obtain the… contract.”

The city’s litigation against the other defendants is ongoing.

The allegations have not been proven in court.

ryan.thorpe@freepress.mb.ca

Twitter: @rk_thorpe

wfppdf:https://wfpquantum.s3.amazonaws.com/pdf/2022/26688_Owners Meeting Minutes Combined.pdf|Police HQ owner’s meeting minutes:wfppdf

 

wfppdf:https://wfpquantum.s3.amazonaws.com/pdf/2022/22370_Draft_Program_of_Requirements.pdf|Draft program of requirements for police HQ:wfppdf