Police have been called in to investigate after the city’s auditor general uncovered evidence of bid-rigging in the awarding of some road repair contracts.

Auditor General Beverly Romeo-Beehler studied $594 million in contracts that were awarded between January 2010 and June 2015 and found that in many cases there were “red flags” that she says should raise concerns about the potential for bid-rigging.

In one such case, Romeo-Beehler identified a bid where one contractor’s quoted price was “exactly 10 per cent” above another contractor’s quoted price on 44 different line items.

Romeo-Beehler said that she also identified other instances, where a contractor would submit an exceedingly high price for one line item in a given bid and then a lower price for the exact same item in another bid.

She said that could be an example of cover bidding, wherein contractors submit token bids that are priced deliberately high in order to give the impression of competitive bidding.

“Submitting an exceedingly high price on one line item in one bid and a very low price for an identical line item in another bid could be a red flag,” the report states.

Some contractors may be splitting up territory

Romeo-Beehler also identified several regional patterns in the awarding of bids, which she said could indicate that some contractors have agreed not to compete with one another in specific neighbourhoods.

In District 4, which includes all of Scarborough, the analysis revealed that a single company was awarded every contract in the eastern part of the district between 2010 and 2015 while another company was awarded every contract in the western part of the district.

“Although we cannot be certain, based on the patterns, one would question whether there was an arrangement between Contractor A and Contractor B to split the contract work in District 4 between themselves,” the report states. “This segregation of contracts has existed for a long period of time. City staff in charge of tendering and managing the contracts could provide no plausible explanation for the apparent market domination and split by two contractors in one specific district.”

The report goes on to suggest that some contractor could be refraining from bidding on certain contracts in exchange for “some sort of benefit, including being a subcontractor on the project.”

It says that there is a particularly “high risk” of that sort of behaviour in District 4, where there was a much lower number of unique bidders compared to other parts of the city.

In fact, District 4 only had four unique bidders during the time period studied with two of those bidders winning 93 per cent of the contracts. A third contractor bid on 86 per cent of contracts but never once won.

“We are not asserting that these are cover bids. However, given that it could be a red flag when a contractor bid multiple times but never or rarely won, staff should have looked into these cases and reviewed the bids carefully to determine if there were any anomalies,” the report states.

Mayor ‘extremely troubled’ by findings

In a statement issued early Wednesday morning, Mayor Tory said he is “extremely troubled” by the auditor general’s findings.

Tory added that he has been assured the staff “have already taken steps and will take further steps to make sure there are proper measures in place to stop potential bid-rigging.”

“There have been a number of personnel changes in the offices in question during the period of the investigation and I trust city staff will take whatever additional measures are necessary to ensure that the identified mismanagement and misconduct are addressed and won't be repeated,” he wrote. “To ensure the lessons of this audit are learned, I will be receiving regular updates from City Manager Peter Wallace as he conducts an ongoing review of all areas covered by this audit."

Speaking with CP24 later in the day, Tory said that police were notified as soon as the auditor general started to see indications of bid-rigging on some contracts.

Parties found guilty of bid-rigging can receive fines of up to $25 million and or a prison sentence of up to 14 years.

“The bottom line is that this is getting cleaned up and that big changes are being made to get rid of and replace the people who have done this, most of them have actually left,” Tory told CP24.

The report makes six recommendations, all of which the city has promised to implement.

The recommendations are as follows:

  • Staff develop and maintain a database of tender, contract, and sub-contracting information for all construction contracts in order to proactively monitor and detect potential bid rigging.
  • Training is provided on bid rigging, including preventive controls and red flags, to city purchasing and divisional staff who are involved in tender preparation or contract administration.
  • The Director, Purchasing and Materials Management Division, adopts a practice of keeping the identity of prospective bidders who purchased the bid documents confidential.
  • A policy be introduced to ensure staff members involved in procurement or contract management have up-to-date and clear understanding of the city’s conflict of interest policy and procedure requirements, as it relates to the procurement process, and their application, as well as providing periodic refresher training.
  • The General Manager, Transportation Services Division, reviews and enhances the current processes for quality control testing and progress payments for road resurfacing contracts to ensure adequate segregation of duty and independence.
  • That the audit report be forwarded to other relevant dity divisions and dity agencies and corporations which acquire contracted construction services on a regular basis for information.

The report will be discussed at a meeting of the city’s audit committee on Friday.