City staff have called in the police after Toronto’s auditor general uncovered suspected examples of outside contractors bid-rigging on city paving jobs to drive the price up.

Auditor General Beverly Romeo-Beehler undertook her audit of paving contracts — awarded between January 2010 to June 2015 — to ensure the city’s tendering process was fair and competitive and after a previous audit raised concerns.

During the time period, the city awarded 55 road resurfacing contracts worth $168 million. The majority of that work is performed by private contractors who get it through the city’s competitive bidding process.

“Given the significant amount spent on construction contracts, they can be a prime target for corruption and collusion,” says a summary document released Tuesday alongside the auditor’s 51-page report.

One such example cited in the report shows “the inflated price from contractor A on the work for crack repair in eight different contracts. The grossly inflated prices from contractor A were as high as three times more than the second-lowest bidder’s prices.” Combined with inaccurate estimates by city staff, contractor A was able to gain an extra $2.5 million from city contracts, the report says.

“The results became more concerning given that contractor A was also a dominant player who won most of the tenders in certain districts.”

The report suggested that top bidders could be colluding with lower bidders to boost the price and then a low-bidder would be hired as a subcontractor.

City staff need to be vigilant monitoring and detecting unusual bid patterns, yet the audit identified numerous “red flags” of potential bid rigging by certain contractors in paving contracts, the report says.

“Our audit identified significant control deficiencies and a lack of routine analysis of bid submissions and bidding patterns,” says the report called Detection of Warning Signs for Potential Bid Rigging Should be Strengthened.

“There were many telltale signs of bid rigging and inflated pricing and even more concerning was the fact that most district contracts were consistently dominated by a small group of contractors over the past five years.”

The report includes a series of recommendations to ensure the city has “adequate measures” to deter and detect potential bid rigging in the future.

Bid rigging, also known as collusive bidding, provides an opportunity for the winner to artificially inflate prices of goods or services by eliminating real opportunity. Under the Competition Act, it is illegal for competitors to conspire. Fines can be as high as $25 million and guilty parties sent to prison for up to 14 years.

The report does not name the companies involved.

While bid rigging is difficult to prove, one of the “red flags” of its existence is the “market domination” over a series of contracts, regardless of competition, the report says.

In a statement, Mayor John Tory said he was “extremely troubled” by the auditor general’s findings, but is “confident the city is making changes to address all the issues identified.”

“I have been assured by city staff that they have already taken steps and will take further steps to make sure there are proper measures in place to stop potential bid-rigging or collusion between bidders,” Tory said.

The audit also highlighted the risk of conflict of interest between contractors and city employees.

While this is not unusual, it is the “city’s responsibility to track all current and former relationships that may cause a potential conflict of interest so that duties can be properly segregated and monitored,” the report says.

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The audit also found examples of inappropriate conduct by city staff “entrusted to independently verify the quality of the contractor work.”

For instance, after testing indicated an inferior paving job, a decision was made to perform an independent test of the asphalt at the contractor’s yard. “A transportation services supervisory staff “blind copied” the contractor about the independent test three days before the random test of asphalt.”

The staff member retired before the audit started and could not be interviewed.

The mayor, currently on a trade mission in India, said in light of the audit’s findings a number of personnel changes have taken place “to ensure mismanagement and misconduct won’t be repeated.”

The report follows a June 2016 report on road resurfacing contracts. It found that 15 of 55 road resurfacing contracts awarded between 2010 and June 2015 were “materially unbalanced” and the city could save nearly $2 million by ensuring accurate quantity estimates in tender documents.

Councillor Stephen Holyday, who sits on the audit committee, said Tuesday he expects the report will “send ripples” throughout the public service and “we hope it will affect changes everywhere, if it’s needed.”

“Maybe we were taken advantage of,” but, perhaps, “the path forward looks optimistic, he said.

“We caught something really important, we’re going to save a lot of money and have stronger procurement after this.”

The auditor’s report is on the agenda at Friday's audit committee meeting.

City spokesperson Wynna Brown wrote in email that city manager Peter Wallace contacted “appropriate legal authorities” who have initiated an investigation.

“We would like to emphasize that (the) city has undertaken a comprehensive action plan in response to the AG’s review and implementation is well underway to ensure fair and competitive procurement processes are in place.”