Former Crown corporation CEO accuses Liberal cabinet minister of failing to resolve conflict of interest

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The former head of a Crown corporation responsible for awarding defence construction contracts is accusing a senior Liberal cabinet minister of failing to resolve a conflict of interest created after the head of a construction company was appointed as chair of the organization.

In a lawsuit filed earlier this month, James Paul, the former chief executive officer of Defence Construction Canada (DCC), says Public Services and Procurement Minister Carla Qualtrough appointed Moreen Miller as chair in November, 2017, despite concerns raised by him and the five independent directors charged with arranging procurement for military infrastructure projects.

Mr. Paul says in the lawsuit that DCC’s five independent directors resigned in a mass protest last year, citing what they considered insufficient action taken by Ms. Qualtrough to address a conflict of interest surrounding the newly appointed chair, Moreen Miller, who was president of Fowler Construction Co., an Ontario paving and construction company that had performed DCC contract work.

Mr. Paul further alleges that one of Fowler’s owners, Bill Graham, a former Liberal defence minister, and a defence policy adviser to the Trudeau government, would have been aware of the benefits of having an executive from his construction company on the board of DCC.

“Mr. Graham therefore has inside knowledge of the opportunity that Defence Construction Canada’s work presented for Fowler and the benefit to Fowler of Ms. Miller being appointed chairperson,” Mr. Paul’s lawsuit said.

Mr. Paul, who led DCC for 10 years before the Liberal government decided not to renew his appointment in the summer of 2019, says in the lawsuit that he and the independent directors were concerned about safeguarding DCC from accusations of conflict in its procurement process.

Mr. Paul said what compounded their concern was that Ms. Miller said her company intended to continue to pursue DCC work even while she was chair of the Crown corporation. In his lawsuit, he notes that Mr. Graham is a shareholder of Fowler. Mr. Graham’s last cabinet portfolio, in 2006, was National Defence, and he was an adviser on the Trudeau government’s 2017 defence policy review.

Before she took over at Fowler in 2014, Ms. Miller was CEO of the Ontario, Sand and Gravel Association. The Ontario Liberal government appointed her as Commissioner of the Niagara Escarpment Commission, where she served from 2004 to 2016. Premier Kathleen Wynne’s government also named her to the Ministry of Labour’s Ontario College of Trades Appointments Council.

The disagreement about the appointment played out over a 10-month period starting in November, 2017, when the Trudeau government named Ms. Miller as chair of DCC, until September, 2018, when she stepped down as Fowler’s president while remaining chair of the Crown corporation.

In April, 2018, after consulting with DCC’s five independent directors, Mr. Paul suspended Fowler from bidding on contracts.

Mr. Paul alleges that in the weeks and months that came after, senior bureaucrats in Ms. Qualtrough’s department pressed him to reverse the suspension. This included a letter from an associate deputy minister questioning whether DCC had the authority to suspend Fowler. None of the allegations have been proven in court.

The five independent directors, who were appointed by the former Harper government, resigned on June 8, 2018. Their terms had expired, but they were serving until the federal cabinet appointed replacements. The Liberal government – which has a record of long delays in making order-in-council appointments – announced new board members on June 11.

Mr. Paul’s lawsuit says the dispute made him a target of Ms. Miller’s wrath and resulted in Ottawa’s decision to reject his application to serve a third five-year term as CEO. His lawsuit seeks $1.5-million in damages from the government for allegedly “targeting [him] for removal … as a reprisal for pursuing the conflict of interest issue.”

Ms. Miller declined comment on the allegations in the lawsuit when contacted by The Globe and Mail. A veteran of the construction industry, Ms. Miller said she has never been a shareholder of Fowler.

Brian O’Neil, a spokesman for Mr. Graham, confirmed to The Globe last Friday that the former Liberal minister is an owner of Fowler Construction, but said he plays no role in the management.

A spokeswoman for Ms. Qualtrough said the government intends to vigorously defend itself against the Paul lawsuit and denied any wrongdoing.

“The suggestion that appointments were directed by other considerations is completely false," press secretary Marielle Hossack said in an e-mail. "Similarly, there is no truth to allegations of pressure from Public Services and Procurement Canada. As the government’s contracting authority, the department’s involvement in this matter primarily focused on ensuring that DCC’s decision to suspend companies from bidding on contracts would not expose the government to legal risks.”

Ms. Hossack said executives in government positions are not “automatically guaranteed a new term” and added “appointees are selected based on merit, and in this situation, a more suitable candidate was identified.” Mr. Paul was replaced by Derrick Cheung, a former executive with B.C.-based TransLink.

Mr. Paul told The Globe that on advice of counsel, and given the legal proceedings, he would not comment publicly.

His lawsuit says in the weeks and months that followed Ms. Miller’s appointment, the directors and Mr. Paul discussed potential solutions to the conflict of interest with the new chair.

The directors and Mr. Paul argued that it was a conflict for Fowler to bid on contracts while its president was DCC chair and that this could open the Crown corporation to legal challenges from other bidders, the lawsuit says. They were further concerned Ms. Miller would not recuse Fowler Construction from bidding. They wanted Ms. Qualtrough to rescind the appointment or instruct Ms. Miller to resign as president of Fowler.

Mr. Paul’s lawsuit alleged Ms. Miller made it clear to him and the board in January, 2018, she did not see the need for her to leave Fowler or her company to cease bidding on DCC work. She "stated that she would not remove herself from her position at Fowler and that Fowler intended to continue bidding on DCC business.”

Ms. Qualtrough, shortly after appointing Ms. Miller, wrote one of the DCC directors to say she had “taken note of your concerns” and suggested seeking advice from the federal ethics commissioner.

In February, 2018, the independent directors at DCC wrote federal Ethics Commissioner Mario Dion asking for advice, according to the letter, which was obtained by The Globe along with other documents.

At the same time, Ms. Miller also wrote to the ethics commissioner for advice in the matter. In her letter, obtained by The Globe, Ms. Miller stated: “Fowler has been a subcontractor to contracts that DCC has procured in the past and intends to continue to bid on contracts in the future.”

She also told Mr. Dion that Fowler “does not let any information about DCC’s contracts and/or related subcontracts be shared with me.”

The five independent directors were not convinced, and instructed Mr. Paul to suspend Fowler from bidding on any DCC contracts, the lawsuit says. “From this point forward, Ms. Miller became highly aggressive toward [me] in her communications,” the statement of claim says. He suspended Fowler from bidding on April 20, 2018.

In May, 2018, an associate deputy minister in Ms. Qualtrough’s department, Michael Vandergrift, wrote to Mr. Paul questioning his decision to bar Fowler from pursuing contracts, saying “this action to suspend bidding privileges of a company is of concern” to the government.

In the meantime, the Ethics Commissioner informed the DCC directors in a letter that a measure called a “conflict of interest screen” was required to “prevent a conflict of interest situation arising between Ms. Miller’s official duties and her private interests at Fowler Construction.” Under such an arrangement, administered by another person in an appointee’s office, files that present a potential conflict of interest are not brought to the subject’s attention.

Mr. Dion in his letter said he could not advise the five independent directors on how to manage “reputational issues” for the DCC and “what options are available to board members who are not comfortable with the measures put in place.”

In their letter to Mr. Dion, the independent directors had expressed concern that, as DCC chair, Ms. Miller would still have access to information her company’s competitors would not know and that the appearance of a conflict of interest was as serious as a real one.

On June 8, 2018, the five independent directors, citing the public services and procurement minister’s “failure to adequately deal with the conflict of interest,” resigned in protest, the lawsuit says.

Director John Boyd said in his resignation letter that the measures taken to date were not adequate. “In regard to public and industry perception, I do not believe [it] is sufficient.”

Fellow board member Lori O’Neill said the conflict of interest “diminishes DCC’s integrity and its ability to effectively deliver its mandate.”

After Ms. Miller resigned as Fowler’s president in September, 2018, the suspension of bidding privileges was lifted.

Mr. Paul’s lawsuit alleges the government’s failure to reappoint him for another term was punishment for raising these concerns.

DCC handles construction contract management and infrastructure for the Department of National Defence, including the new $1.2-billion headquarters of the Communications Security Establishment electronic spy agency in Ottawa.

In response to questions from The Globe, the federal government provided two affidavits filed in the case, including one from Alison Lawford, the corporate secretary at DCC, that said the conflict screen ensured that Ms. Miller did not participate in discussions or decisions with DCC officials that might have benefited Fowler. A second affidavit, from Jayne Huntley, a special adviser to the Privy Council Office, said the selection process that replaced Mr. Paul was “open, transparent and merit-based.” She said Mr. Paul’s interview performance when he reapplied for the job was “notably less substantive than that of other candidates.” Mr. Paul was praised in 2017 by Auditor-General Michael Ferguson and MPs on the House of Commons Public Accounts committee for his management of DCC.