Head of Winnipeg police HQ inquiry releases final report Former Winnipeg mayor Sam Katz "violated the public trust" and former chief administrative officer Phil Sheegl displayed "a complete lack of a moral compass" by engaging in "blatant" conflicts of interest involving the owner of the construction company that built the city's police headquarters, the provincial public inquiry into the scandal-plagued project concluded.

That owner, Armik Babakhanians of Caspian Construction, engaged in "unethical conduct" through his efforts to secure the police headquarters work — and then proceeded to inflate construction costs by $42 million and increase his company's profits, the inquiry found.

193-page report published Monday inquiry commissioner Garth Smorang castigates Katz, Sheegl, Babakhanians, other Caspian officials and several Caspian subcontractors for their roles in the procurement, management, oversight and funding of the police headquarters project.

In his report, entitled A Sad Tale of Mismanagement, Misconduct and Misrepresentations, Smorang singles out the former mayor and CAO in particular for engaging in financial transactions with Babakhanians while the city was in the process of choosing a construction company to work on the police headquarters project.

"Both Sheegl and Katz testified that their relationships with Armik had no impact on their decisions. However, it bears repeating that the reason that conflicts of interest are so insidious is that the public can never be confident that the decisions taken were free from bias," Smorang wrote.

"The conflicts of interest under which Katz and Sheegl operated were so blatant that there will always be questions. Unfortunately, those questions will never be able to be answered." Cash exchange 'papered over' as land deal The police headquarters project involved the 2009 city purchase of a former Canada Post office and warehouse complex in downtown Winnipeg and its subsequent conversion into the new home of the Winnipeg Police Service, which opened in 2016.

The $209-million project was completed two years late and $74 million over budget, according to inquiry accounting. Earlier media arithmetic had pegged those figures as $5 million higher each.

The project was also plagued by procurement and management issues that spawned two city audits, a five-year RCMP investigation into fraud, forgery and secret commissions and a pair of lawsuits that recouped more than $29 million for the city.

One of those lawsuits resulted in two Manitoba courts concluding Sheegl accepted a $327,200 bribe from Babakhanians to ensure Caspian was awarded the police headquarters work — and that Sheegl later shared half the money with Katz.

Former Winnipeg CAO Phil Sheegl loses appeal, must pay $1.1M for accepting bribe from police HQ contractor While Smorang was not instructed to reconsider the court conclusions, the commissioner rejected testimony from Sheegl, Katz and Babakhanians that they exchanged money in 2011 and 2012 as part of an Arizona land transaction.

"I am satisfied on a balance of probabilities that they entered into a financial transaction whereby Armik paid $327,200 to Sheegl and Katz, which was then split equally between them," Smorang wrote.

"Armik identified the first $200,000 payment as 'consulting services' in his accounting of the money. Sheegl then passed on $100,000 to Katz, which was stated to be a 'loan.' This financial transaction was at some later time papered over and explained by all three as a land transaction."

Smorang noted Katz voted in favour of two motions "that directly benefited Armik and Caspian." The first was a July 2011 city council motion to increase the budget for the police headquarters project by $50 million.

The second was a January 2013 motion to increase the budget by a further $16 million. Smorang said Sheegl "participated in many decisions" that benefited Babakhanians, including the decision to award a $137-million police headquarters construction contract to Caspian the day after Sheegl became CAO in 2011.

Smorang also noted Sheegl made the decision not to invite other companies to bid on the work after a joint venture between Caspian and Akman Construction — who were jointly awarded a $50,000 initial construction management contract — fell apart. Sheegl also made the decision to remove AECOM, the initial construction firm responsible for the project design, in favour of Peter Chang of consulting firm Adjeleian Allen Rubeli, who had ties to Babakhanians, Smorang wrote.

Sheegl also requested Babakhanians arrange for a subcontractor to build an $8,500 deck at the CAO's home in 2013, at no cost to Sheegl, Smorang said.

Bonding change allowed Caspian in Smorang also chronicled how Sheegl was involved in a pivotal city decision that allowed Caspian to bid on the police headquarters work in the first place. In October 2010, Sheegl and Katz met with Babakhanians and his son Shaun Babakhanians at high-end steakhouse 529 Wellington to "discuss possible business arrangements," said an email from Armik to Shaun Babakhanians, according to inquiry testimony and the report.

The same fall, the city was searching for a construction manager for the project and had originally set a December 2010 deadline for companies to bid on the work, the report says.

The request for proposals included a standard provision that bidders would secure a 50 per cent performance bond, which is money construction companies put up to ensure they're able to complete construction work after it gets underway.

Two days before the bid was slated to close, Armik Babakhanians asked the city to reduce the bonding requirement. At the inquiry, the Caspian owner testified he could not meet the requirement and had to borrow $1 million to qualify for the bond.

After a city engineer balked at the change, Sheegl wrote to deputy Winnipeg CAO Alex Robinson to intervene before then-mayor Katz got involved.

"I just know his next call is to Sam and the comment to me from Sam will be 'They are strong enough for Canada Post and the Department of National Defence but we can't figure it out.' PLEASE make this thing work," Sheegl wrote.

"If there is any single event that might be seen as the event that changed the course of history in relation to this project, it would be this email. Without this email, the bonding requirements would not have been changed, and Caspian would not have been able to bid on the project," Smorang wrote.

"Instead, the bond was changed and the rest of the sad story unfolded." City lowered bond amount for Winnipeg police HQ project despite warning of risk, inquiry hears Other pivotal decisions that doomed the project included the failure of Sheegl and other members of the police HQ project steering team to assign a team of people to support initial police HQ project manager Abdul Aziz or initially free him up from his existing duties managing police facilities.

"The project began under the direction of an individual who was dedicated to the success of the project, but who was put into an impossible situation by the lack of proper resources," Smorang wrote.

A second flaw from the start was the decision to attempt to procure, design and build the headquarters in the space of only three years, which witnesses at the inquiry said was as an extremely abbreviated timeline for a construction project of this size and complexity.

Other major blunders included proceeding to negotiate a "guaranteed maximum price" contract with Caspian based on building designs that were only 30 per cent complete, the removal of both Aziz and AECOM from the project and a final decision to provide Caspian with more funds in 2013, Smorang wrote.

$43.3 million in inflated costs Smorang also concluded the increased cost of the project was not solely due to mismanagement. Armik Babakhanians, he said, "set out right from the start of the project to inflate Caspian's costs," to the city's detriment.

Smorang said Armik, his son Shaun and Caspian employee Pam Anderson "engaged in a planned and systematic process of creating false and misleading documents, for the purpose of improperly inflating Caspian's purported costs and increasing Caspian's profits." The three Caspian officials "acted in bad faith and in complete disregard of their obligation to treat the City of Winnipeg with candor and honesty," Smorang said.

Falsifying police HQ project invoices was wrong, former Caspian director tells inquiry They created false invoices and false quotations with inflated amounts, claimed invoices that they did not pay to their subtrades, included costs for other projects as part of the police-headquarters claim, and claimed invoices from subtrades that didn't do the invoiced work, the report said.

"It was puzzling throughout this inquiry to hear from several small business owners who got caught up in Armik's schemes without receiving a tangible benefit," the commissioner said.

Smorang concluded these actions resulted in $42 million in inflated payments to Caspian.

He concluded an additional $1.3-million overpayment was made when police HQ funds were diverted through a shell company to Caspian employee Anderson, Chang of Adjeleian Allen Rubeli and Patrick Dubuc of GRC Architects.

Commissioner makes 25 recommendations Neither Chang nor Dubuc testified at the inquiry. Smorang said he could not compel them to testify because they do not reside in Manitoba.

Among 25 recommendations, Smorang advised the province to change interprovincial subpoena legislation so public inquiries can compel people living outside Manitoba to testify, as courts can do now.

Smorang also recommended the City of Winnipeg expand the powers of its integrity commissioner to scrutinize senior city bureaucrats and not just elected officials. He also advised the province to change provincial legislation to make Winnipeg's integrity commissioner a statutory officer able to investigate tips from the public.

Smorang recommended the city amend its conflict of interest policies to ensure any official who awards a sole-sourced contract disclose any relationship with the recipient of that contract.

He also suggested city council's executive policy committee should provide oversight of major projects, which are defined as any project with a value between $100 million and $499 million.

Smorang also recommended Manitoba Prosecution Service be "more open and forthcoming" in its media releases about why the Crown decides not to pursue charges in high-profile investigations. The RCMP spent five years investigating the police headquarters project and did not lay any charges.

RCMP were prepared to make arrests in Winnipeg police HQ construction project: briefing note "Since being appointed in February 2025, no other question has been asked of me more often by friends, neighbours, former colleagues, lawyers and judges than — why weren't criminal charges laid in this case?" Smorang said.

"This is particularly so since the media has ably reported the evidence heard at the public hearings." Smorang said it was not up to him to question decisions made by the Crown. He had no mandate to revisit the RCMP investigation or other examinations of the police headquarters project.

That included a 2014 real estate audit by consulting firm EY, which noted the city did not consider any potential location for its new police headquarters other than the Canada Post complex, and a separate 2014 construction audit that concluded the project was mismanaged.

Smorang did single out four city employees for their efforts to protect the city "from rash acts of others" that went ignored while the police headquarters saga unfolded.

Winnipeg Police Service facilities manager Aziz, city purchasing manager Barb D'Avignon, city finance manager Jason Ruby and retired police inspector Randy Benoit "deserve special recognition," Smorang wrote.

He also praised members of city council and public servants for pursuing legal action against Sheegl in the court proceedings that determined he accepted a $327,200 bribe from Babakhanians. This allowed the city to recover nearly $1.2 million from the former CAO.

A second city lawsuit against Babakhanians and other defendants was settled for $28 million.

Caspian owner needed $33M high-interest mortgage to pay police HQ settlement "There was great determination showed by city officials, both elected and appointed, who pursued multiple legal avenues to recover the money that was owed. They are rightly deserving of both congratulations and thanks," Smorang said.

Thirty witnesses testified during 27.5 days of police HQ inquiry public hearings held from February to May. The inquiry had a $2.3-million budget.