Item - 2025.GG26.3

The General Government Committee recommend that:  

1. City Council suspend Capital Sewer and any affiliated persons’, as defined in Chapter 195, eligibility to bid on or be awarded any City of Toronto contracts as a supplier of goods and / or services or as a subcontractor to such a supplier, including any options, or renewals of existing contracts, for a period of five years commencing upon the date of approval of the report (November 26, 2025) from the Chief Engineer and Executive Director, Engineering and Construction Services, and the Chief Procurement Officer.

Jennifer Graham Harkness, Chief Engineer and Executive Director, Engineering and Construction Services, and Geneviève Sharkey, the Chief Procurement Officer, gave a presentation on Suspension of Capital Sewer Services Inc., and Affiliated Persons.

This report recommends that City Council suspend the eligibility of Capital Sewer Services Inc., ("Capital Sewer") and its affiliated persons, to bid on, or be awarded, any City of Toronto contracts for a period of five years, for contraventions of the City of Toronto’s Supplier Code of Conduct (Supplier Performance) in Chapter 195 of the Toronto Municipal Code. Capital Sewer’s affiliated persons include Capital Sewer’s parent company, Capital Infrastructure Group (“CIG”), and five other of Capital Infrastructure Group’s subsidiaries: Utility Force Construction Inc., Capital Utility Services Inc., CEC Mechanical Ltd., MarkerVac Inc., and Clean Water Works Inc. The Supplier Code of Conduct states that a supplier shall not over-bill, double-bill, retain a known over-payment, fail to notify the City of an over-payment or duplicate payment within a reasonable time, submit misleading information to the City, submit false or exaggerated claims to the City, or bill for goods and services not supplied.

This report provides an overview of the City’s investigation into Capital Sewer, summarizing the audit and investigative work completed to date, the inquiries still underway, and the rationale for recommending suspension of their eligibility to continue doing business with the City.

In March 2024, the City’s internal controls, as well as complaints received through the Auditor General’s Fraud and Waste Hotline, first identified irregularities in change order documentation submitted by Capital Sewer. A change order is a formal, written modification to a construction contract. It is used when work needs to be added, removed, or adjusted from the original scope of the contract. Early analysis of the irregularities revealed significant discrepancies between quotations Capital Sewer provided to the City and those provided directly by subcontractors, indicating potential document alterations and overbilling. This triggered an audit process beginning in December 2024, followed by the City’s engagement of KPMG LLP (“KPMG”) to conduct a forensic audit.

While Capital Sewer has committed to restitution and claims to have strengthened internal controls, KPMG has not validated the effectiveness of these new measures, and the full extent of past misconduct is still under investigation. KPMG’s forensic audit is ongoing and will also seek to determine whether further overbilling activity occurred and if additional staff were involved. The findings of overbilling and document alterations have also been reported to Toronto Police Services by Capital Sewer and the City.

Based on KPMG’s findings to date, KPMG has confirmed that there has been intentional overbilling of at least $1.1 million related to contract 22ECS-LU-03TT for work on the Dufferin Sanitary Trunk Sewer Systems Improvement (the "Dufferin Project"). As a result, City staff recommend the maximum allowable suspension of five years for Capital Sewer and its affiliated persons. This suspension is not punitive but necessary to protect public funds, uphold the Supplier Code of Conduct, and safeguard the integrity of the City’s procurement processes.

The City has exercised its rights under the contract for the Dufferin Project to recover the overbillings detected by KPMG to date and KPMG’s initial audit costs to date.

There are no financial implications from this recommendation in the report.

The Chief Financial Officer and Treasurer has reviewed this report and agrees with the information presented in the Financial Impact Section.