Ontario Construction News staff writer
The City of Toronto is moving to impose the maximum five-year ban on civil construction firm Capital Sewer Services Inc. after a forensic audit revealed the company intentionally overbilled the municipality by at least $1.1 million on a critical infrastructure project.
City staff are recommending that City Council suspend Capital Sewer and its affiliated persons from bidding on or being awarded any City of Toronto contracts for five years, citing contraventions of the city’s Supplier Code of Conduct.
The recommendation is outlined in a report that was considered by the General Government Committee, which called for the maximum penalty to “uphold accountability and protect the integrity of public funds.”
Details of the overbilling
The overcharge was discovered during an investigation into work conducted on the Dufferin Sanitary Trunk Sewer Systems Improvement project. Capital Sewer, which has held approximately $200 million in city contracts over the past five years, was initially flagged by the City’s internal controls and the Auditor General’s Fraud and Waste Hotline, according to the staff report.
The fraud involved inflating costs through change orders submitted to the City. In one specific instance cited by the city, Capital Sewer submitted a quote for $1.3 million for subcontractor work. However, when the city requested a price directly from the same subcontractor, the city was quoted just $470,000—a significant difference that contributed to the confirmed overbilling total.
A forensic audit led by KPMG LLP, commissioned by the city, confirmed the intentional overbilling of at least $1.1 million, noting that the mechanism involved “document alterations” and the submission of “misleading information” to overstate costs.
City response and contractor’s defence
Both the city and Capital Sewer Services have referred the findings of overbilling and document alterations to the Toronto Police Service for investigation.
The city is currently exercising its contractual rights to recover the full overbilled amount, plus the initial audit costs, by withholding payment to Capital Sewer on other aspects of the Dufferin project.
Mayor Olivia Chow has voiced support for the suspension, with her press secretary Braman Thillainathan calling the incident a “serious breach of trust” and the ban “the responsible course of action”.
Capital Sewer Services Inc., while admitting wrongdoing, has sought to distance its senior management from the actions. In a statement to CityNews, the firm claimed it was also a victim, alleging that a single employee “abused his position of trust and intentionally bypassed existing procedures and controls for personal gain.” The company stated that the employee has been fired, that internal controls have been strengthened, and that they plan to repay the full amount owed to the city.
The KPMG forensic audit is ongoing, and its scope includes determining whether further overbilling activity occurred on other contracts and if additional staff were involved.
The maximum five-year suspension is the penalty allowed under Chapter 195 of the Toronto Municipal Code for contraventions of the Supplier Code of Conduct. The penalty, if approved by City Council, is aimed not at punishment, but at mitigating risk to ratepayers and safeguarding the integrity of the public procurement system, a measure City staff believe is necessary given the breach of trust.
You can see a video clip about the contractor admitting to overcharging the City of Toronto here: Contractor admits to overcharging Toronto more than $1 million.
