City continued to pay contractor even after learning about problems at Winnipeg police HQ

The City of Winnipeg knew about problems with the Winnipeg police headquarters but continued to pay the contractor before they were all fixed,according to emails and a payment schedules obtained by CBC News.

Officers finished moving into the $214-million building in July 2016years behind schedule, tens of millions over budget and after the city initiated two separate audits and RCMP launched a criminal investigation into fraud allegations.

It wasn't until earlier this month that the city tried to recoup costs for alleged deficiencies by suing contractor Caspian and engineering firm Adjeleian Allen Rubeli Ltd. or AAR, the company that designed the building and was supposed to make sure it functioned like a police HQ.

City of Winnipeg CAO Doug McNeil estimated it will cost "north of $10 million" to fix all the problems with the construction project.

The lawsuit alleges more than 40 problems have been discovered, including a lack of fire protection, improper drainage and a deteriorating structural slab that wasn't addressed during the three-year construction project.

"It's absolutely stunning," said Todd MacKay, prairie director of the Canadian Taxpayers Federation, adding the city should have ensured the work was done properly before signing over taxpayer dollars.

"It really looks like the city skipped over that part. It signed the cheque and really didn't do the due diligence necessary to make sure the work was done," said MacKay.

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McNeil said the city conducted a thorough investigation into the alleged problems and decided to sue the designer and contractor because the city alleges they didn't fulfil the requirements of converting the Canada Post building into a suitable home for police.

"We didn't get the product that we paid for ... we want our money back," said McNeil.

The city took possession of the building onJuly 17, 2015, months before police moved in, but reports filed during the construction project reveal the city knew about problems earlier than that.

The city's lawsuit claims two transformers in the police headquarters are not equipped with a failsafe that would provide backup power to the building if there was an outage.

Three years ago, a report to the city's finance committee addressed a similar issue:the report said extra money was required to replace two transformers to make sure power stayed on in the event of a blackout.

The lawsuit also alleges problems with a fire pump.

"There should have been a fire pump for the fire protection in the building. We had to put that in," said McNeil on the day the city filed its lawsuit.

This alleged deficiency may have been known beforefinal payments were made on February 10, 2016. According to public records, a permit was issued on February 7, 2014 to replace an existing fire pump controller that had failed.

The city couldn't say if the issues identified with the fire pump and transformers were the same as those listed in the lawsuit, but McNeil said it's very possible.

"Some of the deficiencies that were ... we listed in the claim, we've taken care of because it was important to deal with them, like having fire backup. And fire backup, for a police-occupied building, for their specific purposes. So some of those things we've already spent money on, so they might very well be the fire pumps and the transformers," said McNeil.

The report also said the city's consultant engineer and the contractor inspected the building and made a list of minor deficiencies to be fixed.

"There is a holdback to ensure the deficiencies are completed, which is consistent with normal practice," the June 4, 2015 report said.

The city said that holdback was $300,000.

The Winnipeg Construction Association wouldn't talk about any specific projects but said it's common for an owner to withhold payments until problems are fixed.

"I'd say it's typical. Especially in a case where there are significant deficiencies that have been identified. It's typical for there to be a specific retention of funds by the owner until those deficiencies are addressed," said Colin Fast, the manager of policy for the Winnipeg Construction Association.

Fast said it's always best practice to deal with deficiencies as you go and not wait until the end of a project to address them.

"They're going to be doing regular inspections on a project, probably on a monthly basis at least, and identifying deficiencies and trying to ensure that those deficiencies are dealt with as promptly as possible, so that you don't get to the end of a project and have a long list of deficiencies that need to be addressed," said Fast.

Who signed off on what? How did this money go out without knowing whether the work was done or done well?- Todd MacKay,Canadian Taxpayers Federation

According to the city's lawsuit, AAR was supposed to inspect the work done on the building and make sure it conformed to specifications before the city took possession.

But AAR and city employees who were overseeing the project didn't notice items that were missing.

For instance, the lawsuit identified that an additional catwalk on the fifth level wasn't installed.

It was flagged in a 2014 consultant's value-for-money report as being on a list of 16 construction change orders that were not on the original drawings but later cost the city a combined total of $3,620,000.

"Who signed off on what? How did this money go out without knowing whether the work was done or done well?" asked MacKay.

McNeil admitted the city identified some problems prior to taking possession and worked with the contractor to have them fixed. But he said many of the deficiencies listed in the lawsuit couldn't have been discovered until after officers moved in, such as the HVAC unit which passed a building code inspection but was later found to be inappropriate for a police building.

"After going through the four seasons in Winnipeg we started to see the deficiencies in the system, that it wasn't doing what we needed it to do," said McNeil. "A normal building with occupants doesn't require more ventilation because you normally wouldn't have a drug room ... but there is one in the police headquarters and so they determined that the HVAC system wasn't drying them out as fast as they needed it to do."

Problem-plagued project

The project was originally supposed to cost $135 million in 2009, which included the purchase of the downtown Canada Post Mail Processing plant and its redevelopment.

The price tag has since ballooned to nearly $214 million, in part because, when construction began in the summer of 2012, only 30 per cent of the design was complete. The city has paid AAR nearly $6.2 million for work on the project, according to a 2016 city report. It has paid Caspian $156.8 million, plus an additional $5.5 million to fix damages incurred during a rain storm, according to a payment schedule obtained through Freedom of Information legislation. The rest of the money was spent on purchasing the building, moving in, legal fees and consultants.

"When things are being changed on the fly or things are being changed after they've already been built. That's going to drive up the cost of a project significantly," said Fast.

Over the course of the project, plans changed numerous times. Caspian completed nearly $1.4 million worth of work that was aborted because of design changes.

McNeil said the city paid Caspian and AAR as was stipulated in the contracts it signed with the two companies.

"The contractor says, this is the work I've completed, somebody verifies it and then a progress payment is made to the contractor the following month. I can't recall the details of this contract, if it's progress payments monthly or if there are other milestones, but typically the milestone is what's been completed the previous month," said McNeil.

AAR declined to comment on this story and Caspian did not respond to a request for an interview. Neither have filed statements of defence. The allegations made in the lawsuit have not been proven in court.

CAO directed payments, emails show

The vast majority of the $156-million contract with Caspian was paid out under former mayor Sam Katz before Brian Bowman took office.

Mike, this is embarrassing, and you and I both know his next call is to mayor and then we all look like chumps! I don't understand what is so difficult about paying for services requested and provided.- Phil Sheeglto CFOMike Rutain aJuly 4, 2013 email

Emails obtained by CBC News that had been exchanged between Caspian employees and city hall in the summer of 2013 provided some insight into the project.

A year after construction began on the police HQ, a Caspian office manager wrote an email expressing concerns about being paid.

"There is in-fighting again with city as to who pays for these jobs," the manager said in the June 25, 2013 email.

"I am totally disappointed how city manages the process...I was assured we will get paid," Babakhanians responded.

"I am on it," emailed Phil Sheegl, the city's CAO at the time.

A week later, the officer manager sends another email.

"It's been one week and still no sign of any payment," the manager said on July 4, 2013.

Sheegl then emailed City of Winnipeg chief financial officer, Mike Ruta.

"Mike, this is embarrassing, and you and I both know his next call is to mayor and then we all look like chumps! I don't understand what is so difficult about paying for services requested and provided," Sheegl wrote in a July 4, 2013 email.

Ruta said city officials wanted to make sure they weren't over budget before signing off on an over-expenditure report.

"We will get these going for payment tomorrow," Ruta wrote on July 4.

According to the payment schedule CBC News obtained through FIPPA, $4,494,230.28 was deposited into Caspian's account that day, and three more payments were made the following day totalling more than $600,000.

Sheegl's lawyer said his client will not be responding to CBC'srequests for an interview.

A city spokesperson said it's not unusual for contractors to inquire about delayed payments.

"At times, for various reasons, city payment to a contractor may be delayed. In those cases, it is common that we would hear from a contractor about a delayed payment, and the city's CFO would investigate why those payments would be delayed. The city will then take steps to remedy the situation if it is warranted," Felisha Wiltshire said in an email to CBC News.

Payments made without due diligence: 2014 audit

In 2014, the city ordered an external review of the headquarters project to determine whether best practices were followed.

• Audit finds 'gaps' in way City of Winnipeg handled police HQ

A KPMG audit report found the project didn't follow the city's existing policies and was poorly managed.

"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 July 14, 2014 KPMG audit said.

Sheegl, who had been given full authority to sign contracts on the HQ project, resigned in October 2013. Mayor Brian Bowman suspendedacting CEODeepak Joshiin 2015 after saying he had lost confidence in him. Joshi, who was also a key figure in the police building, later resigned.

"I have the utmost respect for the staff that are still working here and had something to do with this project. I think that a small number of people were controlling this project that are no longer here and that the city, you know, didn't have the opportunity to act in the role that we normally would on a project of this magnitude," said McNeil.

The owner should have been more involved. In this process, and maybe we would have caught some of these things.- Doug McNeil

The Taxpayers Federation said the city took too long to recognize the magnitude of the alleged problem. MacKay wants to know what the current administration will do differently to prevent another project from turning out like this.

"If you're the person whose job it is, who sought this job to clean up the mess, you should be shining a light in every single dark corner. If there's a Post-it note that somebody initialled that wasted taxpayers' money, that should be coming out," said MacKay.

"This situation cries for disclosure, it cries for disclosure on every level and in every situation. The mayor should be doing his best, he should be on all fours with a flashlight looking for answers and poking into every dark corner of city hall to get them," said MacKay.

Bowman said he took took substantive steps to address the problems, including waiving solicitor-client privilege in the RCMP investigation and asking the province to call an inquiry.

"There were obligations under the contract and the payments that were made in accordance with the contractual obligations that the city had," said Bowman.

McNeil admitted the city could have done more to oversee the project but wouldn't lay the blame squarely at the feet of the former mayor and council.

"As an owner and from my experience the owner should have been more involved. In this process, and maybe we would have caught some of these things. But others were hired, third parties were hired to design, which is not unusual to construct, which is not unusual, and to project manage," said McNeil.

Problems with the Winnipeg police headquarters

6 years ago

Duration 3:00

The City of Winnipeg knew about problems with the Winnipeg police headquarters but continued to pay the contractor before they were all fixed, according to emails and a payment schedules obtained by CBC News.