What does a $327K bribe buy? A look at the Winnipeg police HQ scandal

It looked like Phil Sheegl would get away with receiving hundreds of thousands of dollars — some of which he split with former mayor Sam Katz — from the contractor he selected to build the Winnipeg Police Headquarters. 

A five-year RCMP investigation ended with no charges in late 2019, but Sheegl wasn’t off the hook for long. 

A few weeks later, the City of Winnipeg filed a civil suit alleging payment of secret commissions to Sheegl and breach of fiduciary duties. 

The city wanted its $250,000 severance payment back, the return of the $327,200 bribe from Caspian Construction contractor Armik Babakhanians, plus damages and legal costs.

The city won its case Tuesday and Sheegl has been ordered to pay $677,200 plus court costs that could total in the hundreds of thousands

Court of Queen’s Bench Chief Justice Glenn Joyal rejected Sheegl’s explanation that the $327,200 from Armik was for a 2011 land deal in Tartesso, Ariz. 

Sheegl said in his examination for discovery that Armik paid $327,200 for a 4.2 per cent interest in the Tartesso land.

“I note that at the peak of the market, before the crash of 2007-08, Katz and Sheegl had paid $47,000 for the equivalent interest,” Joyal wrote.

“This transaction with Armik was apparently completed on a handshake basis and no lawyers were engaged. Moreover, Armik apparently did not seek advice from an appraiser or the real estate agent regarding the 4.2 per cent interest.”

“I have found on the facts of this case that the entire Tartesso land deal was a concocted story, one that was made up in 2017 after the RCMP investigation uncovered the $327,200 payment,” Joyal wrote.

Katz was never named as a defendant in this civil suit, but he was accused of breach of trust in a 2017 RCMP search warrant that ended with the Crown laying no charges. The Mounties alleged in an information to obtain a search warrant that he engaged in business and financial activities with Armik “from which he received a significant personal benefit.”

A ‘No Dumping’ sign marks the entrance to Katz and Sheegl’s Arizona land in 2017. At the time it was zoned for more than 200 multi-family units, but was being leased out for cattle grazing. (CBC News)

It’s an “irrebuttable presumption” that Armik intended to influence Sheegl by the $327,200 payment. Sheegl was in fact influenced by that payment and the city suffered damage, Joyal wrote.

Joyal’s decision also lays out the inner workings of the scheme used to award Armik the $137-million contract to build the new police HQ despite opposition from multiple bureaucrats, and how civil servants and contractors who stood in Caspian’s way were ignored or removed from the project.

Joyal characterizes many of the communications as statements made to “preserve or conceal the existence of conspiracy.” 

For instance, in early April 2011, Armik wrote “no email” with regard to a scheduled conversation with Sheegl. Other communications were labelled as “confidential” or “for your eyes only.” 

In an appendix titled “emails in furtherance of the conspiracy” and in other parts of the decision, Joyal lays out the email trail and other evidence left behind by Sheegl and co-conspirators Armik Babakhanians, his son Shaun Babakhanians and Ossama AbouZeid, Babakhanians’s hand-picked project director. 

Ossama AbouZeid was chosen as project director of the Winnipeg Police Service’s new HQ at the request of contractor Armik Babakhanians. His job was to advocate on behalf of the city’s financial interests with the contractor. (The Canadian Press)

Anatomy of the quid pro quo:

  • An extended bid deadline  

On Dec. 15, 2010, Sheegl asked his co-deputy CAO to see whether the legal department would lower the amount of the construction bond — a guarantee that the building would be completed as per the contract — and extend the deadline to apply for the tender. Sheegl blind copied Armik in this email. Joyal characterizes these emails as “statements to advance the goal of the conspiracy i.e., lowering bonding requirements to benefit Caspian and its chances of obtaining the phase 1 contract.”

That same day, Sheegl forwarded an email to Armik announcing the city’s decision to extend the bid deadline, with the comment: “Here you go my friend.”

  • Lowered bonding requirements to help Caspian win contract 

On Dec. 16, 2010, Shaun forwarded Sheegl the city’s decision refusing to change bonding requirements. Sheegl emailed his co-deputy CAO demanding that “whomever made this unilateral decision … give us a briefing note explaining exactly why ‘we’ are taking this position … PLEASE make this thing work.” 

That same day, Armik told Sheegl how the city should proceed in regards to the bonding issue. Sheegl forwarded Armik’s proposal to his co-deputy CAO, saying “I think this makes sense.” The bond was eventually lowered on Jan. 12, 2011.

  • Confidential bid information

On Jan. 21, 2011,  Sheegl emailed Shaun with the names of the contractors who bid on the project. Less than a week later, Sheegl told the younger Babakhanians the results of the bid evaluation, and as Sheegl gave Shaun insider information relating to the contract with a view to “prepar[ing] [him] for the questions that will be asked for clarification” by the bureaucrats.

  • Sheegl’s unwavering support

On Jan. 26, 2011, Armik Babakhanians said Caspian really wanted the WPS HQ project. Sheegl reassured him by saying “I know and you know I will do everything to help us all succeed here together.”

  • Assistance getting city bureaucrats onside 

On Feb. 7, 2011, Armik Babakhanians’s initial joint venture business partner in the WPS HQ project, Richard Akman, said getting city bureaucrats on their side ”will make Phil and Sam’s job a lot easier to select us” for phase 1 of the contract, according to Joyal’s appendix. 

On the same day, in the original email submitted by the city as an exhibit in support of its case, Armik told his son Shaun “[the bureaucrat in charge of bids] favors big players … we have to get through this lady at this stage.” Shaun replied: “YES and we will. Phil assured us.” 

Armik responded: “Phil and Sam [Katz] are pulling for us.”

  • ‘2+2 for sam and phil’

On February 17, 2011, Armik sent an email to himself about the conversation he had with Sheegl. Armik detailed his agreement with Sheegl as follows:”Phil said he will get approval for 126m However I think he wanted 2+2 for sam and phil but the rest for us.”

During his examination for discovery, Sheegl suggested that the 2 + 2 is related to an arrangement for Jets tickets. The City called this a “confabulation” since the purchase of the Atlanta Thrashers hockey team — which became the Winnipeg Jets — was not announced until May 31, 2011 and tickets were not sold until June 1, 2011.

“It is also difficult to square with the fact that when, on May 31, 2011, Armik and Sheegl discussed the announcement, they gave no indication whatsoever of having any previous arrangement in place between them,” wrote Joyal.

  • Getting to call the shots

At the end of May 2011, Armik told Sheegl and AbouZeid — who had yet to be hired as project director — that “Caspian has to be in charge of the design team, and cost control,” and that “we should put [the former designers] on notice that they have limited time.”

Winnipeg’s police headquarters was completed $79-million over budget and three years behind schedule. (CBC)

  • Installation of handpicked consultant AbouZeid as project director

On June 27, 2011, Sheegl sent a blind copy to Armik Babakhanians of an email addressed to the project manager employed by the city requesting that the employee draft a letter identifying AbouZeid as project director. Babakhanians told Sheegl that the project manager employed by the city should report to AbouZeid. 

  • First payment of $200,000 from Babakhanians to Sheegl

On July 22, 2011, two days after Sheegl was delegated the authority to award the contracts for the WPS HQ, Armik used a company he controlled called Mountain to pay Sheegl’s company, FSS, $200,000 in Canadian funds. 

Just over a week later, FSS issued a cheque of $100,000 to Katz’s bank account marked “Loan”. 

Peter Chang (left) is the principal engineer at Adjeleian Allen Rubelli (AAR) in Ottawa. His firm was awarded $4.8 million in sole-sourced contracts to complete the design on the Winnipeg police headquarters. Patrick Dubuc (right) is an associate at GRC Architects in Ottawa. His firm worked alongside Adjeleian Allen Rubelli. (AAR/GRC Architects)

  • Takeover of project by Armik’s ‘handpicked design team’

On Sept. 30, 2011, Armik told Sheegl to put the original design team on notice and let him install a different design team. 

“[Armik] went so far as to provide him with the names of [Peter] Chang of AAR and [Patrick] Dubuc of GRC,” reads the city’s summary of what Sheegl did “as part of his self-described ‘strategy to get this done for [Armik].'” 

Sheegl placed the original design team on notice and the city terminated the the firm in February 2012. 

Sheegl “used his influence to increase the chance that the city entered into a design contract with Armik’s handpicked design team, AAR, by March 2012,” according to the city’s submissions cited in Joyal’s decision. 

Joyal said he agreed with the position of the city that Sheegl was willing throughout the project to advocate for, and whenever possible, to deliver on Armik’s and Caspian’s requests.

  • Award of $137.1-million contract

On Nov. 18, 2011, the $137.1 million GMP contract, which was signed by Sheegl as CAO, was awarded to Caspian.  

“Despite the size of the contract, no competitive bids were ever sought and indeed, the city never sought tenders from any other contractors,” Joyal wrote, citing a city submission. 

  • Second payment of $127,200 US to Sheegl and Katz

On Aug. 16, 2012, Armik Babakhanians paid Katz’s Nevada-incorporated company, Samuel Michaels Properties, $127,200 US, of which $63,600 was then transferred to Sheegl’s company, Winnix. 

Sheegl acknowledged that payment in the course of his examination for discovery.

  • Expedited payments

On April 27, 2013, Armik Babakhanians forwarded Sheegl email exchanges between Caspian’s office manager and the city related to late payments. Sheegl emailed his subordinates demanding to know why Caspian hadn’t been paid.

Sheegl then assured Caspian he was on the case: “Fyi I will follow up on Monday and get you paid immediately.” Sheegl continued to advocate for Caspian to get paid on June 26, 2013, and July 4, 2013, telling Caspian he would “rattle some cages today, stand by please.”

  • Request for help with cost overruns

On Dec. 9, 2012, Armik wrote “Private Memo to [Ossama AbouZeid]/Phil”, updating both of them on cost overruns. “We cannot let this continue it needs to be addressed ASAP please.” 

Armik then wrote that AbouZeid could not “move things around” because “he keeps telling me we are being watched.”

On May 15, 2013, Armik vented to Sheegl and AbouZeid about the police headquarters project and warned them that a budget increase would be required due to increasing construction costs.

Armik estimated that the project cost would be approximately $168 million. AbouZeid responded by saying, “We need to agree on what your number should be first.”

Sheegl terminated

In fall 2013, members of the city council’s executive policy committee indicated that they had lost confidence in Sheegl’s ability to manage the affairs of the city. 

The police headquarters cost overruns added to questions that emerged over Sheegl’s role overseeing the city’s fire-paramedic station replacement program, which was also plagued by cost overruns and procurement issues. 

On Oct. 16, 2013, Sheegl threatened to pursue damages against the city for the termination of his employment. 

The next day, the city announced Sheegl quit and provided Sheegl with $250,000 in severance pay. 

After Sheegl was terminated, the city and Caspian entered into a supplemental agreement that upped the guaranteed maximum price to $156.4 million from $137.1 million. 

The city is still pursuing this case. Armik and Shaun Babakhanians, AbouZeid, AAR and GRC and others are awaiting civil trial as co-defendants. Sheegl opted to be severed from the other defendants. 

The city alleges in its statement of claim that it was deceived by various contractors over the construction of a troubled police headquarters that came in more than $79 million over budget.

The lawsuit alleges the project’s cost was inflated through fraudulent quotes and invoices, altered quotes from subcontractors and secret commissions and kickbacks. None of the allegations against the co-defendants have been proven in court. 

Mayor Brian Bowman said Wednesday he hopes the city can secure additional compensation through an award in their civil trial.

Manitoba’s Liberal party is also calling on the province to hold an Inquiry into the police HQ project.

Lawyers for Sheegl, Katz, Sean and Armik Babakhanians did not respond to a request for comment. 

AbouZeid’s lawyer said he is aware of the court’s decision, but he did not participate, and no order against AbouZeid has been made. 

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