The Duchesneau Report Simplified: Construction, Collusion and Corruption

Obviously, my blogging output has dramatically been reduced due to professional reasons. I thought I'd give a blog update on a news item that really encapsulated the recent Duchesneau report that was leaked a few days ago. It comes from La Presse and broke down exactly how corruption has infiltrated the construction industry and resulted in political collusion in a very straightforward manner.

The Quebec construction industry's
movers and shakers posing for a
picture before a political fundraiser

1. Billions of dollars invested in road works

Construction is the largest industrial activity in Quebec. The Department of Transportation is the largest work provider of the government. In 2007, road investments were $ 1.7 billion. This year, they reached $4.2 billion. The MTQ (Ministère des Transports du Québec) has planned to spend 16.2 billion over five years to improve its 30,000 km of roads 5060 and its structures. Firms may be tempted to remove competition and impose excessive prices. This happens all over the world. In Quebec, the industry is marked by a lack of competitors: 10 entrepreneurs realize 39% of road works, and 10 firms share 68% of professional services contracts.


2. The MTQ has lost its expertise

A fact facilitates this corruption: the MTQ has lost its expertise. The public service is decreasing. Engineers are paid much less in the public sector than in private enterprise. Young graduates prefer to work in the consulting engineering firms. The latter also hire experienced engineers from the public. "For a good ten years, the department hast lost its workforce and its expertise to the benefit of consulting engineering firms who are preparing 100% of estimates of highway infrastructure contracts in Montreal and 95% in other regions." Privatization incurs cost increases: 72% more in the area of ​​earthworks, for example. "Engineers of the Ministry have become project managers. They no longer linger over the technical details which were previously their domain."


3. Consulting engineering firms direct the work

The expertise is now in a few large consulting engineering firms that often work in a consortium. It is not uncommon to see three large firms work together to obtain a contract from A to Z: from bid preparation to supervision. "One wonders, in fact, if this is not an opportunity for collusion." MTQ engineers do not have time to check the quality of their work and their estimates.

According to the report, engineering firms are partnering with construction companies to defraud the government. "One out of three engineers have already witnessed professional favours for a company in which he has worked." The engineers give false estimates to the MTQ and transmit privileged information to the company of their choice. A witness gave this example to investigators of the UAC (Anti-Collusion Unit): "An engineer will claim that he expects 1,000 shipments of contaminated soil on a site, when he knows that only 100 loads will be needed. By communicating this information to a relevant entrepreneur, the engineer aids the company by providing it with information that would allow it to reduce its bid for the contract."

Private engineers can prepare deliberately vague plans and estimates. The contractor can then claim endorsements (so-called "extras") pointing out that work was not planned. These additional revenues benefit the engineering consulting firm, as a percentage or commission.


4. Entrepreneurs share contracts

When the MTQ or municipalities are launching tenders, companies provide the documents and prepare their bids. The MTQ must award the contract to the lowest bidder. "For some general contractors, they simulate open competition by having multiple parties submit bids but the group has already identified which company will win it. It defeats the open tender system while complying with the Department's rules. "Entrepreneurs who are willing to forego their turn don't make any bid on the contract or tender a much higher bid. They can also allocate specific territories."


5. Organized crime infiltrates companies

Construction workers, subcontractors, material suppliers want to be paid partly in cash, allowing them to pay fewer taxes. Construction is an industry where demand for cash is high. On the other hand, criminal organizations are facing thousands of dollars from the sale of drugs. They cannot deposit this money in banks without drawing attention to themselves. The construction industry offers them the opportunity to recycle this dirty money into the legal economy.

The infiltration is done in two ways. The first: organized crime takes control of a company through nominees. The second: criminal organizations, primarily the Italian mafia, impose a pizzo (extortion money) on a small number of influential companies. A senior RCMP said in a court case in Italy that this fee is 5% of the value of contracts in Quebec. During Operation Coliseum, the RCMP has filmed CEOs who went to the headquarters of the Rizzuto clan to pay their pizzo. In exchange, the Mafia plays the role of private police in arbitrating disputes that inevitably arise between firms when it comes time to divide the contracts.

Honest entrepreneurs who are not part of the club can be bullied, in which case they fear for their personal safety and are reluctant to report abuses. They can also be victims of retaliation: the mafia can make it difficult to procure materials or recruit workers.


6. False invoices and "extras"

Some firms specialize in false billing. In exchange for checks, they submit false invoices to general contractors for services that were never rendered. For example, the firm produces a $10,000 invoice. It received a check for that amount, but gives $9,500 in cash to the general contractor. The scheme benefits both parties. The firm, often linked to organized crime, cleared $9,500. It deposits a clean check in its bank. The general contractor issues a false expense of $9,500 to the tax authorities and uses the cash to pay its employees under the table. All parties end up paying fewer taxes as well. "The result of all these maneuvers is simple, says the report, criminals thrive while the state is deprived."

Another ploy: the handling of purchase contracts. These documents are part of the submission: the general contractor is required to break down his expenses. For example, for a bid of $10 million, it provides $1 million for site preparation, $1 million for excavation, $1 million for the recovery of contaminated water, etc.. But, often with the complicity of engineers, an "imbalance" is created in these contracts by increasing the spending that benefits these companies the most. The MTQ usually pays 25% of the costs associated with the organization of the site at the beginning of the work. The entrepreneur who wants to cheat has an interest in exaggerating the costs unnecessarily. Then when the time comes to do the excavation work - for which he planned expenditure in its exaggeratedly low note - he "discovers" sudden problems and calls for an amendment (an "extra").


7. Contractors and engineers finance political parties

Ten years ago, after an investigation, the Chief Electoral Officer had denounced the election system turnkey in some municipalities. Firms would organize and finance election campaigns in hopes of rounding up the next municipal contracts. UAC investigators interviewed engineers and political organizers in this regard. An engineer described a common practice in engineering firms and gave the following example: the vice president of a firm has $50,000 to $60,000 in cash to pay employees who, themselves, make personal checks contributions to political parties. Subsequently, the firm knows that the government will listen carefully when the "extras" are being claimed for construction work.

"The construction industry is highly sought by the parties, said a former political adviser. Individual financing sounds great but it's wishful thinking. Do you know people around you who contribute to political parties strictly out of conviction? In fact, they (parties) are well aware that a construction company has contributed more than $100,000 of their campaign funds and for this reason, among others, that people in the construction industry are so readily available to decision makers..." "The more they have contracts, the more they give, the more they give, the more they have influence; and the have more influence they have, the more likely they are to receive contracts. And this influence, then they carry it everywhere. "Corrupt officials of the construction industry thus become "untouchables".

And there you have the cesspool of corruption bubbling beneath the Quebec political landscape. It really sheds a new light the old scandals involving Dimitri Soudas, Christian Paradis and even Tony Clement. Why even Tony Gazebo? Well sure, his riding is obviously not in Quebec but the favours he promised the mayors in his riding would benefit developers. These developers would contribute campaign funds both a the federal and municipal level. These developers have easy access to these mayors. Leading up to the 2008 election, he was Minister of Industry. How in the world is it relevant for him to be speaking to mayors about the G8/G20 "Legacy Fund" during and election period and, presumably, making all sorts of promises from his riding office. It's normally standard procedure for a politician to distance himself from his political duties when an election is called and just do the strict minimum.

Here's how I imagine Tony Clement would respond to these allegations if he'd speak out for himself...