Criminal convictions resulted from contract awards for heating plant repairs over a four year period at the Shearwater military base, managed by the Department of National Defence (“DND”).

A civilian employee and a contractor were convicted of fraud committed against the federal government, an offence under section 380(1) of the Criminal Code, after extensive internal reviews and a lengthy criminal trial.

The contractor was also convicted of conferring an advantage on a government employee, contrary to section 121(1)(b) of the Criminal Code.

Case for the Crown

The two defendants were Bry’n Ross, a civilian contract manager at Shearwater, and Harold Dawson, a contractor who supplied parts for Shearwater’s aging heating plant. The Crown alleged that Ross and Dawson conspired to direct contracts for expensive heating plant parts to four companies connected to Dawson, and “colluded to manipulate the contract process by awarding 640 contracts to Mr. Dawson’s companies.”

Wayne Langille, another civilian contract manager working with Ross, entered a guilty plea under section 121 of the Criminal Code, and his relationship with Dawson was the basis for a second conviction of Dawson.

The Crown’s case had several elements: Dawson’s creation of separate companies to create the appearance of competing bids; Ross’ use of contract splitting to avoid PWGSC review; Dawson’s grossly inflated prices charged to DND for heating plant parts; personal associations between Ross, Dawson and Langille; and loans from Dawson to Langille to support Langille’s apparent gambling habit.

Evidence

Training and Policies

Ross worked at DND for 30 years and had received regular training in government procurement policies and procedures.

DND’s conflict of interest policy allowed small gifts and hospitality if “it does not compromise or appear to compromise in any way the integrity of the DND employee”.

Related Companies

After cutbacks resulted in Dawson’s job loss at Shearwater, he started companies that supplied industrial parts to DND. The evidence established that Dawson controlled four companies – Atlantic, Colonial, Harbourside and Robar. Although most employees at Shearwater were not aware of this relationship, Ross understood the Dawson connection, but saw no difficulty, as he considered that the separate companies were true competitors.

Ross sent faxes soliciting bids to the four Dawson companies at a single location, and telephone numbers on the soliciting and responding faxes were “zeroed out”. Dawson acknowledged that this was done to disguise that all were sent to and from the same location.

Use of Contract Splitting

The applicable procurement policy required competing quotes for contracts in excess of $1000, and PWGSC’s review of all contracts over $5000. Ross processed numerous repetitive buys from the Dawson companies on an almost daily basis just below the $5000 threshold; these should have been bundled and reviewed by PWGSC.

Contract managers kept a procurement register which recorded specific details of all contracts awarded. The procurement register maintained by Ross for the Dawson companies, and two competitors’ quotes on part prices, were found at Dawson’s residence without plausible explanation.

Markups

Ross had a practice of seeking quotes from part suppliers, and addressed the solicitations solely to Dawson companies, thus ensuring that non-Dawson companies had no opportunity to submit bids. Dawson submitted “ghost quotes” from some of the Dawson companies so that the winning bid from another of the Dawson companies would appear to be the lowest. An “infinitesimal percentage” of parts contracts were awarded to true competitors of Dawson.

Dawson charged DND two to three hundred percent markups on parts, in contrast to competitors who charged twenty to forty percent markups.

Personal Relationships

When under surveillance, Dawson was observed picking Ross and his wife up at the airport. Ross acknowledged that he had lunch with Dawson two to three times per month, that Ross sometimes paid for both lunches, and agreed that the two men had a personal friendship.

Dawson made significant ATM cash withdrawals when accompanied by Langille, and allowed Langille to use a Dawson company debit card to make withdrawals – all totalling more than $1 million. Dawson also made bill payments on Langille’s behalf.

Court Decision (R. v. Ross 2019 NSSC 275)

The court ruled that both Ross’ and Dawson’s conduct met the requirements for a conviction under section 380(1) of the Criminal Code – they intentionally deprived the federal government of more than $5000 through deceit. Ross argued that he was simply trying to obtain the best deal for the taxpayer in the fastest time, given the age of the heating plant. Even if the court had accepted that evidence, an accused’s motives were irrelevant.

The government suffered a true monetary loss because the price mark-ups happened in an artificial market that excluded true competition.

Section 121 of the Criminal Code was enacted for the important goal of preserving the integrity, and the appearance of integrity, in
government. Dawson’s conduct with Langille met the required elements of this offence – Dawson conferred benefits on a government employee with respect to his dealings with the government. The benefits were Langille’s use of a Dawson company debit card and payment of many of Langille’s bills.

Why does this case matter to procurement professionals?

This case illustrates the enormity of auditing and bringing to account rogue contract managers. The trial consumed six weeks and thirty-seven witnesses testified – this after an extensive internal investigation. Given the scale of the fraud, it is likely that criminal proceedings were unavoidable, although it seems that internal scrutiny did not start until the questionable contracting practices had occurred for at least three years.

Could some of the fraud have been prevented by earlier management intervention? Although quantification of the fraud was difficult, the Crown alleged losses in excess of $2 million, which is almost certainly unrecoverable.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case.  For any particular legal problem, seek advice directly from your lawyer or in-house counsel.  All dates, contact information and website addresses were current at the time of original publication.