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Star probe: Toronto builder siphoned $1.8M from Gravenhurst project



Parry Sound MP Tony Clement officially breaks ground at Gravenhurst Centennial Centre.

Kevin Donovan Staff Reporter
Published On Thu Apr 21 2011

A Toronto builder siphoned almost $1.8 million of taxpayers’ money from a municipal project in cottage country by taking advantage of weak controls in the Conservative government’s economic stimulus program, a Star investigation has found.

Dalton Engineering and Construction Ltd. used a sophisticated kickback scheme to extract the money from cement, steel and other suppliers working on an expansion of the Gravenhurst Centennial Centre. The project is in Industry Minister Tony Clement’s riding.

Dalton was paid a fixed-price fee to manage construction of a recreation centre with pool and hockey rink but secretly insisted on hefty kickbacks from many of its subcontractors.

Kickbacks from subcontractors — as much as 10 per cent of their individual contracts — helped hike the cost of a project that started at $18.7 million and is now dangerously over budget at $21.8 million and not yet completed.

Here’s the kicker: Local residents have been told property taxes will rise to make up the difference between the final price tab and what the federal, provincial and town governments originally intended to pay.

The Star’s investigation is based on Dalton’s accounting records, town documents, interviews with some subcontractors who worked on the large project, and interviews with two former Dalton officials.

Our investigation was hampered by Dalton’s instructions to all subcontractors not to speak to the Star and Dalton’s decision not to comment and to refer all questions to the town of Gravenhurst.

Dalton officials called the Star’s information “inaccurate” and “outdated or incomplete.”

This week, the town confirmed several aspects of the Star’s investigation but said most of the Star’s questions could not be answered because until very recently Dalton had all project documents. Gravenhurst is hiring a “cost consultant” to investigate the allegations.

Questions to Dalton and the town and their responses can be found at thestar.com.

“I get your allegations, I don’t know anything about it,” said Ravi Rajpal, vice-president of estimating at Dalton, the only current Dalton official to speak to the Star.

A Dalton official also sent a note to the Star saying: “We are confident that the Town’s review of this information will demonstrate that Dalton has and continues to provide good value to the Town of Gravenhurst in respect to the Centennial project.”

Mike Campian, who until November ran the Gravenhurst project for Dalton, has viewed the results of the Star investigation and confirmed its conclusions.

“When I was at Dalton the top officials of the company were always saying, ‘We have to make 10 per cent above the fixed fee.’ They would get us to do everything we could to squeeze the trades,” Campian told the Star.

He said he was fired late last year after he refused to continue with the scheme.

“I was the face of Dalton to the town. I feel terrible about what I did for them,” he said.

The Star has obtained two sets of accounting records prepared by Dalton and examples are posted on our website. One set was given to the town; the other was for Dalton’s internal use.

The internal records, which the town did not see, show evidence of kickbacks — two columns listing the amounts.

The internal records show that as of last November Dalton had extracted almost $1.8 million in addition to its set fee and its allowable expenses, which together total $1.3 million. (Other increases in the project budget are due to a decision to increase the size of the expansion.)

The Gravenhurst project is part of the Conservative government’s $8.8 billion Building Canada fund, hailed by the Harper government as its bid to build “a stronger economy, a cleaner environment and better communities.”

The federal government has little oversight over these projects, relying on municipal officials to oversee the project with occasional monitoring by a provincial official.

Dalton was chosen by Gravenhurst in October 2009 to be the project manager. The job was to renovate an aging hockey arena and to add an aquatic centre, new change rooms and fitness rooms.

Gravenhurst chose Toronto-based CS&P Architects Inc. as project designer.

The Dalton family, which lives in the Toronto area, has a longtime presence in cottage country, owning part of Tobin’s Island on Lake Rosseau. Peter Dalton, who started the company, has left day-to-day operations of the firm to sons Randy and Andrew.

This appears to be the first large government project for Dalton, which made a name for itself renovating private clubs and schools in the Toronto area.

Among the sites where it done work are Upper Canada College, the Granite Club and numerous private golf clubs including the Rosedale, Weston and Islington.

Dalton employees do not perform construction work itself. Rather, the firm acts as construction manager, keeping two or three staff on the site.

Dalton’s first big task on the Gravenhurst project was to issue tenders for the subcontractors who would do the actual building and to recommend which companies the town should choose. Tenders were issued between March and May 2010.

The federal and provincial governments split the stimulus contribution of $12.3 million equally, with Gravenhurst expected to kick in roughly $6.4 million. (The town will now pay more — nearly $10 million.)

Under the contract, Dalton was to be paid a fixed fee of $933,146 and about $293,000 in expenses.

Records obtained by the Star show kickbacks involving at least half of the 88 trades hired to do work. It found there were at least four ways that Dalton extracted additional money from the project.

• Telling the town something cost more than it did.

Concrete is one example. At a tender meeting in the spring of 2010, Dalton presented a document summarizing three tenders from cement companies. It stated each company bid $160 per cubic metre of concrete for a job that would use about 3,000 cubic metres.

The Dalton document recommended Lafarge be chosen because it is 15 minutes closer to the job site. The Star contacted the two losing bidders; neither would reveal its bid but both said it was lower than $160.

Two sources involved in the Gravenhurst project said Lafarge actually bid $130 and Dalton pocketed the difference.

Lafarge would not open up its books to the Star. After a reporter put the results of the Star’s investigation to company official Brian MooSang, Moosang called back and suggested the original price his company bid may have dropped and Dalton would not be required to “pass it on” to the town. Dalton’s internal accounting records reveal Dalton pocketed $86,343 on concrete.

• Using a fictitious charge.

Dalton recommended Squire Masonry be chosen at a cost of $848,848. Dalton’s internal records show it took $51,091 back from Squire, and the paperwork from Squire shows it had to pay Dalton for “cleanup and materials handling.” In fact, Squire did its own cleanup on the site.

Two people who have worked for Dalton say the cleaning invoice was just a way of making the kickback seem legitimate.

Gravenhurst Mayor Paisley Donaldson sent a statement to the Star this week noting that “Dalton would not be allowed to charge ‘up fees’ to the trades (subcontractors)” on the project.

Squire officials would not respond to four requests from the Star for an interview. John Pinkney, a former Squire executive who worked on the contract (he was laid off several weeks ago due to lack of new work) said he has “no recollection” of a cleaning fee in the contract.

• Saying there was a tax and there wasn’t.

The Gravenhurst project straddled the changeover between the PST/GST and the new HST in the summer of 2010.

Dalton’s job, as the project wore on, was to pay (using the government money) all subcontractors. In at least four cases, Dalton mistakenly included provincial sales tax (PST) in its payments to the subcontractors for the time period when PST no longer existed. In those cases, Dalton then asked the subcontractors for the PST portion back.

Benson Steel, which had a $930,000 contract to supply steel, was one of those companies. Officials there confirm they paid the money back to Dalton. (Benson Steel would not say how much but it would be roughly $50,000.)

Mayor Donaldson’s written response to the Star said the town asked Dalton last August about the PST issue and Dalton responded it had “tendered this project without PST . . . and there would not be any credits for PST.”

That money should have been paid back to the governments that provided the grant money but they can find no record of receiving it. A Benson Steel spokesman said “it is unknown” what happened to the PST money it returned to Dalton.

Schindler Elevator Corp. was another company that confirmed it paid PST back to Dalton. A spokesman confirmed they paid PST back to Dalton, then hung up the phone when the Star asked more questions.

• Flat payment.

Dalton’s internal records show some companies paid flat fees to Dalton during the contract.

Acapulco Pools was paid $577,672 to install pool equipment. The internal Dalton records show Dalton was paid money by Acapulco in two installments — one listed as $21,530, the other as a flat fee of $20,000.

Acapulco president Bernhard Gall did not respond to a telephone request for an interview or to a written note setting out the allegations.

Paradise Steel had a $250,135 contract and Dalton’s records show Dalton collected a flat $20,000 from Paradise. Owner Raju Shah said he had been away in India for four months but would look into it. “Whether (Dalton) collected it or they are back charges, I will find out and call you back.”

Shah did not call back.

The Dalton records have a “Total” section at the bottom, adding up these additional charges. As of November 2010 the charges totalled $1,777,926 and the document calculates that as “9.36 per cent” of the project budget.

The Dalton’s stated fee plus expenses is about 5 per cent on top of that.

The records also show some unusual expenses charged by Dalton to the town of Gravenhurst.

The two Dalton officials on site for about six months each had a cellphone but the town was charged $15,551 for cellphones.

Dalton has an old laptop that the site manager carries. Dalton charged $11,348 for that.

Town officials say they are looking into the allegations raised by the Star.

“Any allegations made against Dalton of improper charges, additional charges, or inappropriate charges are currently being investigated by the Town,” Mayor Donaldson said in the statement.

The town noted that independent of the Star’s questions it had already noted “certain irregularities in respect of (charges for) insurance and bonding.” It said Dalton has corrected its mistake and paid some money back.

The only evidence that a town official may have benefitted from the project is the line called “Fire Watch” in the Dalton expense sheets.

The 25-year-old son of the town counsellor who chaired Gravenhurst’s building decision committee was paid $25,000 over a period of several months to stand in the building while it was under construction and call out if he saw a fire.

Kevin Donovan can be reached at kdonovan@thestar.ca or 416-312-3503