'Weak oversight' plagued B.C. megaproject, which insiders believe cost taxpayers millions - Action News
Home WebMail Friday, November 22, 2024, 05:48 PM | Calgary | -11.1°C | Regions Advertise Login | Our platform is in maintenance mode. Some URLs may not be available. |
British ColumbiaCBC Investigates

'Weak oversight' plagued B.C. megaproject, which insiders believe cost taxpayers millions

The B.C. government overpaid millions for the Port Mann Bridge project because there was no rigorous verification of invoicing, timing and completion of work, according to six sources at two separate auditing firms and hundreds of documents leaked to CBC News.

TI Corp denies overspending to speed up Port Mann Bridge project, says oversight was 'robust'

B.C. Premier Christy Clark opened the Port Mann Bridge Dec. 1, 2012 saying the project was "on budget" and would save commuters up to an hour a day. (The Canadian Press)

The B.C. government overpaid millions for the Port Mann Bridge project because there was no rigorous verification of invoicing, timing and completion of work, according to the opinion of six sources at two separate auditing firms and hundreds of documents leaked to CBC News.

CBC has also learned that the province ignored some of its own rules around tendering and oversight.

And the man B.C.appointed to be in charge of the project, Gary Webster, also later became a partner with the private firm hired to both manage and audit the project.

It was a massive undertaking, replacing the nearly 50-year-old span that crosses the Fraser River, linking the suburb of Surrey to the rest of Metro Vancouver.

Gary Webster, a professional engineer and KPMG partner was contracted to serve as B.C.s representative on the $2.97 billion Port Mann Bridge Project (CBC Composite)

Six consultants close to the project say the province paid hundreds of millions to speed up construction on part of the multibillion-dollar project to make sure the bridge opened on schedule in December 2012 even though that part of the project was only two months behind schedule.

SEND TIPS toInvestigate@cbc.ca

An extra $150 million was paid to speed up work, using change orders, which allowa contractor to invoice for any unforeseen costs.

Change orders are allowed under the contract but some of the acceleration invoices that were approved were questioned by CBC's sources.

"We could all see that hundreds of millions of taxpayers' money was being given away on a project that was on schedule but had ineffective, weak oversight," said one of the former consultants who worked on the project, but did not want to be named for fear he'd lose his current job.

The Crown corporation in charge of the project, Transportation Investment Corporation (TI Corp),denies oversight of the project was anything but robust, and says all concerns raised were later addressed, saving taxpayers $200million.

The Port Mann Bridge did open in December 2012 on schedule, but since then it has failed to meet its expected tolling targets.

Eventually, total construction costs would climb from $2.29 billion to $2.97 billion.

In August 2017, weeks after the NDP government was sworn in, it cancelled bridge tolls and removed four members of TI Corp'sboard of directors, fulfilling an election promise.

First inklings

Seated at his desk in downtown Vancouver in the summer of 2012, a KPMG consultant who spoke to CBC pored over a co-worker's spreadsheet of construction data.

TI Corp hired KPMG to help manage the project.

He is one of several auditors, engineers and technologists who spoke to CBC News on condition they not be named, for fear they will be "blacklisted"in the construction industry.

Something didn't add up.

A construction update from the contractor said the project was 18 months behind schedule. More money was needed to speed up work on a complex overpass interchange in Coquitlam or the bridge would not open as planned, at the end of the year.

The Cape Horn Interchange in Coquitlam has 16 ramps and connects Lougheed highway with Highway 1. (Canadian Consulting Engineer)

The consultant, who had more than two decades experience overseeing major public works projects, had been hired as part of a team reviewing final invoices near the end of the project.

He concluded the interchange was actually only two months behind schedule.

And even though theprovince was paying for more staff, equipment and money to speed up work, the spreadsheets showedthose resources were being moved to a different section of the bridge, on the Surrey side, which was the final segment of the project.

It made no sense.

The deadline for that work wasn't until the end of 2013.

The consultant and his team got to work.

They spent months putting together a detailed review of all invoices for TI Corp, saying the province had been paying to speed up a project that was already on time

Their review was also emailed to the provincial government.

"It was such a relief to finish that report that we thought would help the province," he said.

He thought TI Corp would pounce on the discrepancies he flagged.

TI Corp head offices in Coquitlam, B.C. where CBC News met with a former senior official on background only after the crown corporation declined repeated requests for an interview. (Manjula Dufresne/CBC )

But the Crown corporation was silent.

TI Corpshelved the review and it was never mentioned again, saidthe consultants.

Disheartened,several of themleft the project, one by one, over the next year.

By the end of the project, another auditing firm would also conclude B.C. overpaid for unnecessary acceleration.

Both TI Corp and KPMG tell CBC they did act on the concerns raised in the claims review and later saved taxpayers $200 millionin "tough negotiations" with the contractor.

READ:InsideCBC'sPort Mann Investigation: How we did it.

New bridge to end gridlock

In 2006, Premier Gordon Campbell announced plans to update the aging Port Mann Bridge, which links Surrey to Coquitlam, two suburbs east of Vancouver.The bridge, built in 1964, had become a source of frustrating bottlenecks and traffic congestion. Twinning the bridge was an option.

Two years later, the government said the new Port Mann Bridge would be a 10-lane bridge the widest toll bridge in the world.

Kiewit Flatiron General Partnership was awarded the contract to build the toll bridge and expand a 37-kilometre stretch of Highway 1, from the McGill Street interchange in Vancouver to 216th Street in Langley in February, 2009.

But three weeks later, the public-private partnership deal collapsed because of financing.

What happened next raised eyebrows in B.C.

Instead of choosing the next lowest bidder, the provincial government awarded the contract directly to Kiewit under a fixed price design-build contract, with B.C.taxpayers assuming all financial risk.

A new 1,200-page contract was ready and signed in just two weeks.

But the $2.39 billion price tag didn't change even though there was no longer a requirement to operate the highway and bridge for 40 years.

The Port Mann Bridge is the widest bridge in the world with ten lanes of traffic. (TI Corp.)

Throughout construction, the bridge was touted by B.C.'s next premier, Christy Clark as on budget, including when it was opened in December 2012.

Fixed price not fixed

The bridge was to be built under a fixed-price contract. If any extra, unforeseen work was needed, both sides would have to agree to a change order.

Change orders are common on big infrastructure projects. On the Port Mann project there were more than 130 such orders for $300 million in extra work.

New figures obtained by the CBC show the contractor was paid a total of $572 million above the fixed price.

While the former B.C. Liberal government claimed the whole project came in within its $3.3 billion capital budget, the project's debt is now projected to hit $4.2 billion this fiscal year.

Oversight contracted out

B.C. builds infrastructure unlike anywhere else in Canada, by contracting out the top oversight job, and not having a public servant represent taxpayers' interests.

In this case, the top job went to a private sector engineer named Gary Webster.

For $390 an hour, the province hired Websterfor a positionknown as the authority's representative, meaning he represented B.C. taxpayers on the project.

TI Corp said he was just an adviser, but the contract said Webster's role was to"make all consequential decisions," approve change orders and sign monthly invoices after confirming the contractor did the work.

Two TI Corp officials would then sign to approve payment.

Five months into the job, Webster was made a partner at KPMG, which was also in charge of the advisory and audit work for TI Corpwhich earned KPMG more than $17 million as of the end of last year.

The arrangement was controversial. According to retired ethics professor Ian Greene, the person in charge of a project like this should not also work for the consulting firm hired to both manage and audit the bridge's construction.

"I think it is very dangerous to contract out the management of projects like that," said Greene, who taught ethics at York University's political science department for 30years.

"How can you serve both the taxpayers and look out for their best interests and also KPMG who employs you?"

"How can you appear to be completely impartial about that?"

KPMG denies allegations

But KPMG said Webster's expertise was invaluable to the project.

"Gary Webster ably fulfilled his role and responsibilities as authority's representative and advisor... and helped to save very substantial amounts for B.C. taxpayers," said Tenille Kennedy, KPMG'snational director of communications, in an emailed statement.

Webster declined to be interviewed.

KPMG's Vancouver office is where consultants worked on the Port Mann Bridge project. The firm employs 189,000 people worldwide, 6000 in Canada. (CBC)

Webster is an experienced engineer and supervisor. He served as an authority's representative on the Sea to Sky highway between Vancouver and Whistler and was also an adviser on the Site C hydroelectric project in northeastern B.C. and Massey Tunnel replacement project.

But on the Port Mann project, he and TI Corp repeatedly signed off on items in invoices that were not verified or payable under the contract, according to the consultants who talked to CBC News during a year-long investigation.

KPMG said Webster would check with engineers who were on the ground managing each section of the bridge to verify work was done. The contract only gave him five days to do that after each invoice was filed but the contract also had mechanisms to protect taxpayers should there be inaccuracies.

Auditor General's findings

But as early as 2009, B.C.'s acting auditor general raised concernsabout Webster's invoice approval process after a routine annual audit.

Russ Jones noted theprocedures "were not adequately documented."

In a statement KPMG said,"The [Office of the Auditor General] did not direct any particular review process that TI Corp should follow."

TI Corpsaid itimproved itsprocedures, and insists intense oversight was in place during the project, but following CBC News inquiries, the crown corporation asked B.C.'s auditor general to review its processes in July.

During the summer of 2009, as construction on the bridge ramped up, the amount of money being spent was beginning to raise questions.

Just five months into the project, Webster and TI Corp had authorized $389 million in payments to the contractor as of August 2009, according to documents obtained by CBC.

But that amount didn't match the progress of construction, say two of the consultants who spoke to CBC and reviewed some of the leaked documents.

The contract says payments can only be made for progress of work, to protect taxpayers if a contractor were to go out of business.

The consultants pointed to more than $100 million in items they say were not related to progress of work.

They include employee moves, vehicles, equipment/insurance premiums, a request-for-proposal fee, and a design success fee, all unusual items to be paid on a design-build contract, say the consultants.

In a statement to CBC, KPMG said all of Webster's approvals were appropriate.

"To assert that there was anything less than full and proper financial oversight and contract administration, or that Gary Webster and KPMG's work contributed to anything less than substantial savings to the Province and the people of British Columbia, would be false and inaccurate," said KPMG's Kennedy.

Documents leaked to CBC

Hundreds of pages of internal TI Corp and KPMG documents, including invoices, change orders, emails, and spreadsheets, were leaked anonymously to CBC.

Hundreds of construction documents including invoices, change orders, spreadsheets and audits concerning the Port Man Bridge and Highway project in B.C. were leaked to CBC News. (Peter Scobie/CBC)

One key document was a construction update in January 2012 that warned thebridge opening date would be delayed by 18 months, because of complications with the Cape Horn Interchange in Coquitlam.

The province wanted to stay on schedule, and open the bridge as planned in December 2012, say the consultants.

So TI Corp paid hundreds of millions more for more staff, supervisors,and equipment to speed up work on the interchange.

But construction data, which tracked the progress of the work, didn't match the invoices.

Consultants plotted that progress on a graph.

Leaked KPMGPowerPoint

This graph was part of a review done in 2012 that explained that construction data showed acceleration was not necessary to complete the project on time. (KPMG 2012 Claims Review )

They discovered that at the time the contractor was predicting an 18-month delay, their analysis showed the interchange was only two months behind.

The contractor, Kiewit Flatiron, declined CBC's request for an interview.

TI Corp told CBC the contractor was dealing with legitimate delays caused by third parties, utilities and weather.

"These delays were out of the control of the contractor, and outside the scope of the Design Build Agreement. TI Corp instructed the contractor to apply resources to complete this section on schedule," said Greg Johnson, TI Corp'sdirector of communications,in a statement to CBC.

KPMGsaid itrejected the contractor's extension request, andnegotiated it down from 18 to sixmonths.

Extra work not needed

The leaked review containedseveral other findings.

Even though the report cited delays on the Cape Horn interchange, it said work wasn't actually accelerated on that interchange at all.

Instead, the extra resources, staff and equipment were "reallocated" to the Surrey side of the bridge.

The building of the bridge created 8,000 person years of employment. Commuters used the old Port Mann Bridge while it was under construction. (TI Corp.)

"There was a discordance between the data and the narratives," concluded the review.

While TI Corp and Webster had approved the acceleration invoices, month after month in 2012, they said they acted on all the concerns raised in the review andlater renegotiated and got $200 millionback.

But the review found another discrepancy.

The final part of the project, the Fraser Heights connecter in Surrey was finishing faster even though that work was not required for another year, according to the contract schedule.

TI Corp rejected any suggestion that the millions paid to speed up the project were spent elsewhere, and says the team working on that part of the project finished early because they weregood at their jobs, said a former TI Corp official, who spoke to CBC on background.

KPMG said it was "not the result of any direction on the part of TI Corpbut rather reflected the contractor's own decision about how to deploy its resources."

The former TI Corp official who spoke to CBC confirmed that the Crown corporation hired a second auditing firm to review some acceleration invoices in the summer of 2012, to make sure they were not overpaying.
A consultant familiar with the audit told CBC it also concluded that much of the extra work TI Corp had approved to speed up the projectwas already covered by the base contract.

'Aggressive' billing common

The review said the contractor took an "aggressive" approach to billing for additional work.

A professor who studies infrastructure says that istypical.

"It's common that the contractors are quite aggressive in this process. They are there to make a profit and they're very experienced and the other side needs good oversight to manage that process," said Bent Flyvbjerg, a professor atOxfordUniversity'sSadBusiness School.

But that's not what happened on the Port Mann project, according to all six consultants who spoke to CBC.

"Kiewit Flatiron is a contractor and did what any contractor would in the industry, but got no push back. The government, TI Corp, and Gary rarely challenged the contractor," said thefirst consultant.

KPMG rejected that criticism, saying in the end, the company did push back and saved taxpayers millions.

B.C. rules not followed

Another example of "weak oversight" was that TI Corpdid notestablish an audit committee during construction, say the consultants.

AllB.C. Crown corporations are supposed to form a committee of experts to oversee spending.

It didn't establish such a committee until 2013, when the bulk of the money was spent and the bridge built.

Sources close to the project say at least $150 million would not have been spent if the project had proper oversight.

Insiders also say B.C.'s procurement rules were not followed on some change orders.

While extra overpasses were needed, and power, rail and sewer lines had to be moved, any other extra construction worth more than $100,000 should have gone to tender.

But that didn't always happen on the Port Mann project.

For example, the $31 million Fraser Heights Bridge and a parking lot in Langley were both sole sourced to Kiewit Flatiron, without going to tender, and were then subcontracted to other contractors, adding layers of extra cost to taxpayers.

The park-and-ride lot near 202 Street in Langley opened in December 2012 with more than 670 parking spaces, for riders to park near the transit network. (Manjula Dufresne/CBC )

The park-and-ride was the worst example, said one of the consultants.

"The government gave away about $100 million and there were three layers of subcontracting and additional markups. The cost was then close to double of what it could have been built for," he said.

TI Corp's former official claimed they did nothing wrong and were allowed to award the work to Kiewit Flatironusing a change order, to avoid having contractors overlapping on the job site.

He saidmost of the costs of that parking lot were later borne by the Ministry of Transportation and Translink, reducing TI Corp's costs to $26 million.

$300 million in change orders

TI Corpsaid in the end theypaid $300 million for additional work, including $99 million for acceleration and $72 million for extra gravel, some of which was linked to acceleration.

The leaked review said TI Corp was too generous with one of the bigger ticket items needed to build the bridge.

More than three million cubic metres of gravel were used constructing the project. The contract stated exactly how much gravel could be used for free from nearby provincial gravel pits.

TI Corp allowed the contractor to take double what was allowed from the nearest pit.

And rather than rely on provincial gravel from pits farther away, the contractor was also allowed toinvoice for commercially purchased gravel which saved time, but cost millions, according to the review.

But KPMG says that gravel was needed and the contractor did not exceed contract limits.

Investigation needed

Retired ethics professor Ian Greene believes financialoversight of the Port Mann project should be investigated.

"I think the auditorgeneral looking at this would be the obvious first step, then maybe three months from now, the government will be stable enough and there can be a decision whether there should be a public inquiry," said Greene.
You shouldn't be contracting out the oversight said Ian Greene, former professor of ethics at York University. (Keith Whelan/CBC )

The six consultants who spoke to CBC, and didn't want to be named, said they would co-operate with a formal inquiry.

'This can't happen again'

The consultant, who first noticed the discrepancies in the construction schedules back in 2012, said if B.C. must outsource management to build infrastructure, a separate firm should audit and a third firmshould independently certify work completion.

"It's the government that let this happen and my motivation is to fix the governance so this can't happen again," he said

READ:Inside CBC'sPort Mann Investigation: How we did it.


CBC News Investigates

SEND TIPS:If you have information on this or any other story we shouldinvestigate, emailus: Investigate@cbc.ca

Follow @NatalieClancy on TWITTER.

Edited by Jane Armstrong with files from Harvey Cashore and Paisley Woodward