This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its June 2018 report entitled Fraud Investigation of a Vendor Providing Life Safety Inspection Services to the City of Toronto, the Toronto Auditor General found major fraud in the City of Toronto’s fire safety inspection program. The report summarized the severity of the non-performance and fraud allegations, as follows:
This investigation began with a complaint to the Fraud and Waste Hotline in the summer of 2017. The complainant made many serious allegations about a company that was contracted by the City of Toronto to perform inspections of life safety systems, including: inspections of emergency lighting, sprinkler systems, fire extinguisher, and other fire prevention/life safety system inspections required under the Ontario Fire Code.
The vendor, York Fire Protection, had been contracted to perform this work at many City-owned buildings across Toronto for multiple years. This vendor has performed similar work for private buildings in the City and in other municipalities. They had operated under several other company names, including Advance Fire Control, which had also performed work for the City, and Advanced Detection Technologies Corp. It was alleged that the vendor routinely submitted inspection reports and invoices for work that was not done, forged signatures of their own staff, operated as multiple companies, and used false identities as signatories to contracts. The allegations are extremely concerning considering that many organizations, such as condo corporations, schools, hospitals, daycares and the City of Toronto, rely on companies to verify their life safety systems are in compliance with the Fire Code.
The Auditor General found that there were no reports available to confirm that the fire inspections were ever performed as required under the contract. It also noted a “long history” of performance issues with the contractor in question and the fact the City awarded more work to that contractor notwithstanding those concerns:
There was a lack of inspection reports that could be found in City records to prove that many Fire Code inspections were, in fact, done. In addition, York Fire and Advance Fire had a long history of performance issues and of submitting incorrect and incomplete documentation, or of not submitting documentation at all. Facilities Management has a responsibility to, but did not ensure this documentary audit trail was sufficient and retained, which is a requirement under the Fire Code. Despite documentation and concerns about performance issues, the City kept awarding contracts to the vendors and companies associated with Rauf Ahmad. It points to a serious lack of understanding of the importance of life safety inspection reports and of obtaining and retaining reliable proof to show that City buildings are in compliance with the Fire Code.
The Auditor General found that the City was “indifferent” to concerns about the ongoing serious irregularities that occurred in the performance of the fire inspection contracts:
There are concerns that the vendor has been operating with false identities and under a number of different companies. There are also concerns that the vendor forged the signatures of its own inspectors and used fake identities to sign contracts.
Although the Facilities Management Division may not have known the full extent of the vendor’s duplicitousness, management was aware, over an extended period of time through staff complaints, that these vendors had serious billing irregularities and unsatisfactory performance relating to inspections, including submitting inspections reports and service orders without customer and/or vendor signatures, billing for work not completed and submitting duplicate invoices.
In fact, the report found that the City failed to respond to ensure that buildings were safe and in compliance with the Fire Code:
More concerning is that the Facilities Management Division did not take the necessary steps to verify that inspections were being completed in accordance with the Fire Code and that the buildings were safe, especially after Facilities Management’s own Life Safety Supervisor and others pointed out many issues, and even after allegations were made about this vendor during this investigation. Instead, despite mounting evidence against this vendor, and throughout this investigation, management insisted the work was essentially completed and there was a need to trust the vendor. This highlights indifference to the issues being raised, and/or a lack of understanding of the Division’s legal responsibility to ensure that the Fire Code is complied with.
The Auditor General concluded that these issues reflected broader systemic problems in the City’s management of life safety inspection services, noting “a lack of consistency and completeness in the work being provided by other City vendors conducting life safety inspections”, which made it “evident that the City must provide clearer direction and conduct quality control tests of these vendors to verify that all vendors service meets Fire Code requirements.” The report also observed that low bid awards may not be appropriate for these types of services and that the City should conduct better due diligence before giving contractors access to delivering safety inspection services.
Furthermore, the Auditor General found that some City staff failed to co-operate with the investigation, notwithstanding instructions to do so by the Deputy Fire Chief. This concern was raised directly with the City Manager:
We were concerned that several allegations of potential wrongdoing involving the vendors inspecting life safety systems at the City were made by various parties, but Facilities Management failed to notify the Auditor General in a timely manner about those allegations or about additional information being received about the allegations so that they could be investigated. This is concerning because the Deputy Fire Chief specifically requested that the potential wrongdoing be reported to the Auditor General for follow-up and this was not done…[a]lthough we normally receive full co-operation from City staff, this time we had significant challenges obtaining reliable information from the Facilities Management Division. We believe the challenges we experienced to be isolated to certain members of the Facilities Management team but deeply concerning just the same. A management letter is being issued to the City Manager to address these issues to prevent reoccurrence.
Since fire safety concerns were already known to the City based on prior audits, the Auditor General concluded that greater strides were required to promote a culture of compliance. It determined, from the investigation, that the Toronto Fire Chief’s prior assurances that there were adequate safety measures in place had proved inaccurate, given the systemic ignorance of applicable regulations, indifference to ongoing concerns, and lack of clarity in accountability:
In the summer of 2017, the U.K. government commissioned a report entitled, “Building a Safer Future: Independent Review of Building Regulations and Fire Safety – Final Report” that reviewed building regulations and fire safety measures following the Grenfell fire.
The situation here in Ontario is very different, according to Fire Chief Matthew Pegg.
“Here in Ontario we are fortunate to have the comprehensive fire protection and fire safety measures that are contained in the Ontario Building Code…” But the Building Code and Fire Code are not enough to prevent fires. As Chief Pegg said: “…Fire safety is always very much a team effort, it is very much a partnership (with owners)…”
Key themes identified in the investigation
[The investigative team] found in our work that the Fire Code was not being complied with. The “Building a Safer Future” report listed the “key issues underpinning the system failure”. Those issues included:
1. “Ignorance – regulations and guidance are not always read by those who need to, and when they do the guidance is misunderstood and misinterpreted.
2. Indifference – …When concerns are raised, by others involved in building work…they are often ignored…
3. Lack of clarity on roles and responsibilities – there is ambiguity over where responsibility lies…precluding robust ownership of accountability.”
All three themes were evident during our investigation, and it is these cultural issues that resonated with us.
It is paramount that management work in partnership with the Toronto Fire Service by implementing a culture of compliance with the Fire Code.
As this case study illustrates, public institutions need to redouble their due diligence efforts when contracting critical public safety services to private sector services providers. Those due diligence measures should include proactive monitoring of contractor performance, coupled with prompt responses to poor performance. In addition to adverse audit findings and the associated reputational risk, the failure to meet these due diligence standards can result in otherwise avoidable fatalities. In addition to contract termination and potential breach of contract remedies, serious contract breaches should also be met with debarment processes to ban problematic suppliers from eligibility for future contract awards.
