The City of Winnipeg is suing its former chief administrative officer and other individuals linked to the construction of its beleaguered police headquarters, accusing them of a "scheme" of fraud, embezzlement and kickbacks.

The lawsuit names more than two dozen defendants in the legal action, including Caspian Projects Inc., the contractor's president Armik Babakhanians, former Winnipeg CAO Phil Sheegl, Triple D Consulting Services and others.

The city alleges in a statement of claim filed on Monday that it was deceived by various contractors, including its own former CAO, over the construction of a troubled police headquarters more than $70 million over budget.

The lawsuit alleges the project's cost was inflated through fraudulent quotes and invoices, altered quotes from subcontractors and secret kickbacks to contractors for their complicity.

It says the city was billed for work not yet performed and projects already completed. The contractors are alleged to have obtained cash under false pretences.

The statement of claim repeatedly decries the defendants' actions as a "scheme." It alleges they misrepresented the project's costs and overcharged the city.

'Secret profit' for own benefit

"The defendants agreed amongst themselves and acted cooperatively to assist each other in defrauding the city and in obtaining a secret profit for their own benefit, to the detriment of the city," the lawsuit says.

The construction of the police headquarters has been clouded for years with allegations of fraud, forgery, payment of a secret commission and breach of trust in relation to the project.

Mayor Brian Bowman prefaced his lawsuit announcement Monday by blasting the provincial government for refusing to call a public inquiry into the issues and other contentious files before he was elected.

Armik Babakhanians is shown in this photo from the 2015 Dream Maker Auction, a fundraising event for The Dream Factory, a Winnipeg-based charity. (Dreammakerauction.ca)

"Unfortunately, there has been no dialogue from the provincial government regarding their decision ... the provincial and municipal governments should be standing shoulder-to-shoulder to protect taxpayers on something as serious as the police headquarters scandal," Bowman told reporters.

Bowman defended the city's statement of claim, which uses language such as scheme, embezzlement, kickbacks and fraud, calling the construction of the headquarters "a scandal."

"If the provincial government is not prepared to take action to protect taxpayers in response to the police headquarters scandal, I can assure Winnipeggers that their municipal government will use any and all legal means under its authority to seek accountability." Bowman said.

The province's decision to reject a public inquiry aligns with a recently concluded five-year police investigation, which ruled there wasn't enough evidence to convict, municipal relations minister Rochelle Squires said.

None of the allegations have been proven in court and no statement of defence has been filed yet.

CBC is trying to contact the people named in the lawsuit, which was filed to the Manitoba Court of Queen's Bench.

The statement of claim alleges that Sheegl and/or his companies received a payment of $200,000, shortly after the former CAO was granted authority to award Caspian Construction the contract to build the police headquarters.

Sheegl's lawyer has previously said the $200,000 payment was part of a $327,000 real-estate deal made with Babakhanians in May or June 2011.

Due to the confidential information and significant autonomy he enjoyed as head of Winnipeg's public service, the city was "particularly vulnerable to the improper use of Sheegl's discretion and power," the lawsuit states.

Former Winnipeg CAO Phil Sheegl, seen to the left beside former mayor Sam Katz in a file photo, is accused of knowingly defrauding the city. (CBC News)

The suit further alleges that Sheegl violated the employee code of conduct and used his position of trust to improperly procure contracts in exchange for financial compensation to himself and his companies — arrangements he kept secret from his bosses at the city.

Before the first contract for the police headquarters was awarded, Sheegl was corresponding with Caspian officials, according to documents obtained by RCMP and contained in the affidavit of Michael Jack, Winnipeg's chief corporate services officer.

"We really want this project," Caspian president Armik Babakhanians writes in a 2010 email.

"I know," Sheegl answers, "and you know I will do everything I can to help us all succeed here together."

When asked by CBC on Monday, Sheegl's lawyer, Robert Tapper, said he was not aware of the litigation.

In 2009, the city purchased Canada Post's old downtown Winnipeg office-and-warehouse complex, planning to convert it into a new police headquarters for roughly $135 million.

The total cost wound up closer to $214 million by the time the Winnipeg Police Service moved into its new digs in the summer of 2016.

Protecting city interests

The project was tens of millions of dollars over budget, three years behind schedule and has been the subject of ongoing legal action between the city and Caspian over alleged construction deficiencies.

The city decided to launch another lawsuit to protect the city's interests after the massive police investigation recently ended without any charges, the news release says.

The statement of claim also blasts the Caspian-Akman Construction joint venture for asking for an additional $2.5 million for the first phase of the contract in 2011 under allegedly fraudulent reasons.

It also accuses Triple D Consulting Services of providing a $400,000 kickback, namely to PHGD Consulting and PJC Consulting.

The city is asking the court to order the RCMP and Manitoba Prosecution Services to turn over all documents they seized during their investigation.

"We feel we have a lot of information in front of us, certainly enough to file a statement of claim," Jack said. "But even within the statement of claim, we repeat the fact that we do not have all the information — we need more information."

The statement of claim does not name former Winnipeg mayor Sam Katz.

"We've named the parties in the statement of claim against whom we have sufficient evidence to name," Jack said, when questioned about Katz's absence. "That's all we have done."

Coun. Kevin Klein said the city is making it seem like it's doing something.

"Why aren't we doing that internally and why have we waited this long?" asked the Charleswood-Tuxedo-Westwood councillor. "I'm shocked that there wasn't a forensic audit, shocked. I think that would have been the first thing I did."

Coun. Brian Mayes (St. Vital) expects a complicated litigation. A lawyer himself, he couldn't recall a lawsuit with seven anonymous names, many of them out-of-province.

The lawsuit says Winnipeg is seeking compensation for the alleged overpayments and legal fees they incur. They've asked the court to freeze the defendants' assets to ensure they can pay any claims proven in court.