Quebec construction boss admits companies colluded

First they were named, then they were shown on video handing cash to mobsters, then today one of their own spilled the beans, in detail, about how Quebec construction companies colluded to inflate prices and how they paid a tax to the Mafia.

In stunning testimony Thursday at Quebec's inquiry into construction-industry corruption, a former executive of a major City of Montreal contractor said he took part for years with other entrepreneurs in a scheme to rig the bids on public works projects.

The system was overseen by the Mob, he said, to whom participants paid a fee, in cash.

Lino Zambito was vice-president of Infrabec Construction, a company that obtained at least $68.7 million in public-works contracts from Montreal and Laval between 2006 and 2011, when it filed for bankruptcy protection.

But while those municipalities' open bidding systems were supposed to ensure taxpayers got value for their money, Zambito said about a dozen companies in his line of business — mainly civil engineering and sewer work — colluded to divvy up the business.

"There were rules to follow, established rules. When I decided to do work in Montreal, I was told what the rules were," he said under questioning from inquiry lawyer Denis Gallant. "It was my place to decide whether I wanted to work in Montreal and follow those rules there. Though I want it to be understood that it was similar elsewhere."

The system was simple, Zambito said: The companies involved in the scheme would rotate between them who was supposed to get each city contract, and they wouldn't underbid each other.

"The way to do it was when the project was allocated to you, between the companies in an alternating way, the entrepreneur to whom the contract was allocated had the responsibility to call the others and to tell them the amount at which they should submit their bids, to assure that we were the lowest conforming bid."

The more established companies that had been around for 20 or 25 years, like Catcan Enterprises, might get a slightly larger share of the pie than his much younger firm, Zambito said. But he said business was good: Infrabec would pull in an average of $10 million to $12 million a year in contracts from the city of Montreal, about 15 per cent of the total in his line of work.

Gallant asked why the rival companies didn't just compete with each other and snare a larger share of contracts, or why new entrants didn't try to undercut the cartel.

"The law gave you the right to bid, but if you weren't part of the club, you wouldn't get a contract where you'd make any profit," Zambito replied, saying that in a truly competitive market, companies would have to bid near cost to land a contract. "Every entrepreneur who's in business isn't in business to lose money."

The collusion extended to areas of work other than his own, like sidewalks and road paving, and to other municipalities and even tenders put out by the Quebec Transport Ministry, Zambito testified, though he said his knowledge of those was not firsthand.

"Montreal had its group of entrepreneurs, the south shore had its group of entrepreneurs, the Quebec Transport Ministry… had its group that bid. There was a non-aggression pact between entrepreneurs, and each had his sector," he said. "It was a question of territory and it worked."

Zambito and his father, Infrabec president Giuseppe Zambito, were arrested in 2011 and face criminal charges stemming from the awarding of public contracts in the north shore Montreal suburb of Boisbriand. The charges allege a widespread collusion scheme.

Zambito also pleaded guilty in April to elections-law violations for trying to dissuade two opposition city councillors in Boisbriand from running against the city's then-mayor in her 2009 re-election bid. He was ordered to pay a $1,000 fine and lost the right to vote in municipal or provincial elections for five years.

Zambito told the Charbonneau commission of inquiry that the collusion system involved not just construction companies but also Montreal's top Mafia family and even city officials.

He recalled how, in 2002 or 2003, his young company landed its first City of Montreal contract, for sewer work along Notre Dame Avenue. It wasn't yet part of the "clique of entrepreneurs" who constituted the "closed market" for bidding on such work, and Infrabec landed the contract by putting in a very low bid basically at cost, Zambito said.

Then, in the first week of work, while he was on site supervising his employees, Infrabec's engineer introduced him to the city engineer supervising the project, Zambito said.

"The first exchanges were, you could say, polite," he recounted. He "made it known to me, while chatting to him, that I'd landed a contract with the City of Montreal, that mine was a new company, and that there was word that the other entrepreneurs weren't happy that I was getting a contract in Montreal. And he made me understand that he was sort of charged with making life difficult for me during the execution of my work.

"He said to me, 'Oh, surely people in the Mafia won't be happy that you're in Montreal.'"

Inquiry lawyer Gallant then asked Zambito about ties between his father, Infrabec president Giuseppe Zambito, and Nicolo Rizzuto, who was the godfather of the Montreal Mob until his assassination in 2010.

Lino Zambito said they knew each other very well because they came from the same village in Sicily, Cattolica Eraclea, and had immigrated to Canada around the same time.

Zambito is one of a half-dozen City of Montreal contractors who were caught on secret RCMP surveillance tapes at the former Consenza Social Club, a notorious Mob hangout in the Montreal borough of St. Léonard where Rizzuto would hold court.

On Wednesday, the Charbonneau commission was shown some of the 35,000 hours footage from the Consenza. Scenes included construction bosses — including Zambito — apparently handing over bags of cash to Rizzuto or his associates, who would stuff it into their socks and pockets.

Zambito said he went to the Consenza "three, four or five times," and that it was important in the city's Italian community to go on major holidays like Christmas or Easter to show respect and wish people well.

Usually, though, when it came time to pay his cut to the Rizzutos, he did it elsewhere. He dealt with a middle man, fellow Montreal construction magnate Nicolo Milioto, who he would arrange to meet at any of a variety of locations to hand over cash. In the footage from the Consenza, a man who the Charbonneau commission was told is Milioto can be seen passing wads of money to Rizzuto and one of his associates.

"It's a business. Entrepreneurs made money, and an amount was due to the Mafia," Zambito testified. "The amount wasn't complicated. It was a fixed amount: It was 2.5 per cent of the value of the contract."

Quebec anti-corruption investigators have alleged for several years that companies colluded to inflate the price of public construction contracts, but Zambito's testimony on Thursday is the first time one of the central figures in the scheme has outright admitted it. The collusion cost taxpayers as much as 30 per cent extra on each project, authorities say.

As revelations of collusion emerged over the years, the province and city have brought in new laws to try to thwart it. Last December, Quebec passed Bill 35, which prohibits entrepreneurs who have been convicted of criminal or tax offences from bidding on public contracts. Then the City of Montreal announced in August that it would reject bids for contracts, even if they're the lowest bid, where the amount offered is 15 per cent or more above the city's estimate for what the work should cost.

Zambito testified for about an hour and 15 minutes Thursday afternoon and is scheduled to return as a witness on Monday morning when the Charbonneau commission resumes. The commission, led by Quebec Superior Court Judge France Charbonneau, is looking into criminal corruption in the Quebec construction industry and its ties to organized crime and political parties.