Read about it...
Back
Manitoba Legislative Building scandal — suspicious tendering process led to Kelly receiving project
Mar 20, 2009

by Bruce Cherney (part 1)

Dividing the assets of the firm Kelly Brothers & Company eventually pitted Michael and Martin against their brother Thomas. The dispute arose over numerous properties and transactions, including the land on Portage Avenue upon which the Eaton’s store was built in 1904-05, lots on Garry Street, Quill Lake funds, a Kildonan farm and property along Main Street.

The court had originally ruled in favour of the plaintiffs, Michael and Martin, with Justice Macdonald ordering that all the company funds be placed in the hands of a receiver “to take accounts of all the partnership matters including the speculations and ventures specially referred to in the judgement as well as any or all other speculations and ventures entered into by the defendant in a similar matter.”

Thomas appealed the decision, arguing that all the transactions were solely in his name and not the company’s, but the plaintiffs asserted all the business conducted in their brother’s name had occurred while the partnership still existed.

The Kellys began arriving in Winnipeg from New York State in 1878 (The Story of Manitoba, Vol. 3, by Frank Howard Schofield, 1913). In 1880, Thomas and Michael formed the general contracting firm Kelly Brothers, which evolved into Kelly Brothers & Company when brother Martin relocated to Winnipeg from the U.S. in 1884.

Under the terms of the partnership, Michael and Thomas were to receive three-eighths each of any profits earned and Martin two-eighths. In the event of no profits arising, the brothers were allowed to withdraw expenses from the company’s bank.

But, the company thrived and Kelly Brothers & Company became one of Winnipeg’s premiere construction companies. The company started out by obtaining contracts for local improvements such as civic road paving and sewers, but progressed to more prestigious contracts. Among their projects in and near the city were the St. Andrews Locks, part of the aqueduct bringing fresh water to Winnipeg from Shoal Lake, the Free Press building at Portage and Garry, the Dominion Post Office, the Boyd Building and the Manitoba Law Courts.

The October 7, 1910, Manitoba Free Press reported Thomas’s appeal failed by a 2-1 decision by the justices of the Manitoba Court of Appeals.

Thomas formed his own firm called Thomas Kelly & Sons, while nominally-retired Michael became the vice-president of the National Construction Co. Ltd. 

Kelly House, 88 Adelaide Ave., the Victorian home built in 1882 as the residence of Michael Kelly, is now the new headquarters of the Heritage Winnipeg Foundation. The city-designated heritage building had been the centre of controversy when its owners had applied for its delisting as a heritage site to allow the demolition of the long vacant and derelict building. While the city’s historic building committee favoured its continued listing under the historic buildings bylaw, the city’s derelict building bylaw actually could have been used as a strong argument in favour of its demolition. As a result, WinnipegREALTORS® past-president Lorne Weiss told members of the city’s property and development committee that the historic and derelict building bylaws should be reviewed and revised to prevent a conflict arising.

The home was saved when Adelaide Investments Ltd. struck a deal with the CentreVenture Development Corporation. The deal calls for $450,000 in renovations with the building to be subsequently occupied by Heritage Winnipeg. CentreVenture and Adelaide will each put up $100,000 toward the renovation with the remainder coming from the city in the form of a loan to be paid off by the building owners at the end of the 14-year lease agreement. 

Controversy surrounding the Adelaide home is not limited to the modern era, but also arose when it was taken over by Thomas in 1908, the year when the three brothers began to fight over the division of company assets.

According to newspaper accounts from the time, Michael was quite different from his brother Thomas in his  dealings with his employees. While Thomas was continually at odds with his workers, Michael appears to have had a good relationship with the National Construction Company’s 500 employees. 

In fact, the labour newspaper, The Voice, on July 3, 1914, wrote: “There are few construction companies in the west which enjoy a higher reputation for their treatment of the wage earners than the National Construction Company, which has as its president Mr. Christopher H. Simpson, with Mr. Michael Kelly as vice-president, and Mr. James M. Kelly (Michael’s son, one of 10 children) as secretary, all of whom are thoroughly practical men well conversant with labour conditions and always ready to hear views of the workers and meet them in every possible way.”

While other firms laid off workers as projects wound down, the policy of Michael’s company was “to keep as many as possible in constant employment throughout the year as by this means it is possible to get better and more satisfied workers,” according to The Voice.

On the other hand, Thomas’ flaunting of fair wage rules would contribute to his downfall in the Manitoba Legislative Building scandal that toppled the Sir Rodmond Roblin Conservative government. Heritage Winnipeg held a fund-raising luncheon on March 20 at the Fort Garry Hotel to mark its new Adelaide Street headquarters with the theme The House that Ruined a Government: The Roblin/Kelly Scandal.

While the Winnipeg Trades Council criticized Kelly’s labour practices, the business community was full of praise for the contractor. In his 1913 book, Schofield, an educator at Winnipeg Collegiate Institute, wrote: “Mr. Kelly is included among the sound, substantial businessmen of Winnipeg, and as a citizen he is the type that any community would be proud to claim.”

In 1911, a competition was opened to architects in the British Empire to build a new Manitoba Legislature. Out of the 66 designs submitted, the design of Liverpool architect Frank Worthington Simon, whose partner was Henry Beddington III, emerged with the successful submission.

“The style is the classic, strongly Greek in character,” wrote professor A.A. Stoughton in a Free Press article describing the new legislative building on the day of its official opening on July 15, 1920. “If we carry our examination further, we see that this Greek character has been sought everywhere. It is apparent in the criss-cross balustrades, in the wave ornaments in the segmented hall ceilings, in the Pompeian lighting fixtures, in the mouldings in the staircase, in the furniture, and thus we have a modern building bound together and unified, but unhampered by a congruous classic treatment throughout.”

In July 1913, the contract to build the new edifice was awarded to Thomas Kelly & Sons under dubious circumstances. The only other bid  for the contract was for $3 million submitted by Peter Lyall & Sons of Montreal. According to a later Royal Commission report, Kelly was given access to Lyall’s supposedly sealed tender and a day later after a meeting with Roblin was allowed to resubmit his bid, revising it from its original amount of $3.2 million to $2.86 million and undercutting Lyall to win the construction contract. 

Dr. Walter Montague, who was appointed the public works minister after Colin Campbell resigned due to ill-health, in 1915 claimed the Lyall tender was “irregular” and the Kelly tender was accepted as the lower bid. 

It was the largest contract for a single building in Canada’s history, which Kelly promised to complete by 1917. But it actually took three more years to complete and that was under another contractor.

Construction of the new legislative building began in the fall of 1913, and soon rumours of irregularities began to emerge, although it wasn’t until 1914 that the extent of the misappropriation of funds began to emerge. The initial suspicions arose when Kelly submitted a ridiculously low estimate for foundation work and altered specifications for the work in apparent collusion with Victor W. Horwood, the provincial architect, were uncovered. Horwood would later claim that he was being made a scapegoat by the Conservative government.

The alteration involved a change in the architectural design from pilings to steel-and-concrete caissons which necessitated the signing of  a new  contract. 

A subsequent Royal Commission would deem the change “prudent,” but not the over-inflated cost of the new work.

In the Manitoba legislature, Labour MLA Fred Dixon questioned the Roblin government about Kelly’s cutting of wages to employees contrary to the terms of the fair wages schedule in his contract. Dixon said during the debate on the Speech from the Throne early in 1915 that a number of men had been “robbed” of from 20 to 50 per cent of their wages.

The Voice accused Montague, who was appointed the new minister of public works after the resignation of Campbell — in February 1913, he suffered a massive stroke from which he never recovered and soon died — of approving Kelly’s wage cuts.

“The fair wage schedule was not tampered with until Dr. Montague became minister of public works,” said The Voice. “Men were not cheated out of their pay by government contractors until Dr. Montague became minister of public works.”

Carpenters were alleged to have only been paid 35-cents an hour in 1914 to build forms when they were entitled to 55-cents under the fair wage schedule in the contract. The carpenter’s union objected and the wages were restored to the correct hourly rate. In fact, Kelly was ordered to repay wages he had failed to provide to his employees under the terms of his contract.

The whiff of scandal was slowly permeating Manitoba politics, but the Roblin government still managed to win the July 10, 1914, provincial election, although with a reduced margin. The Conservatives won 25 seats while the Liberals took 21. It later become known that the Conservatives used a portion of the money intended for the construction of the legislative building to fund their election campaign.

It was Liberal MLA Thomas H. Johnson (Winnipeg Centre) who began the first close examination of documents submitted by the Roblin government when it introduced supplementary estimates for the Manitoba Legislature construction. His careful scrutiny of the documents led to Johnson’s finding of suspicious transactions that inflated the estimates contained in Kelly’s original contract. 

When the legislature began a new session in 1915, Johnson, who became Manitoba’s next public works minister, was joined by fellow Liberal MLA Albert B. Hudson (Winnipeg South), who became Manitoba’s next attorney-general, in pressing for answers to their suspicions while serving on the all-party public accounts committee.

The Conservatives followed with their own campaign to diffuse the issue. Lakeside MLA John Garland, who was first elected on July 10, 1914, said during a local Conservative association meeting that the Roblin government had told the Liberals “we were going to spend more money on foundations. The government did not want to erect a building that would cost thousands of dollars to rescue ... Do you blame the government for taking the wise precaution of using preventative measures in the face of such conditions.”

Garland said the Liberals were “trying to find the weak spots in the accounts.” but were “a disappointed crowd. We are willing to sit there till next fall, if they insist on it, and let them investigate all they want.”

During the Lakeside meeting, a motion was passed saying the Lakeside Conservative Association desired “to place on record our confidence in the Government of Manitoba under your (Premier Roblin’s) leadership.”

But all the spin could not prevent the gathering storm from finally erupting. The public accounts committee found evidence the Conservatives were in collusion with Kelly to divert money from the legislature construction to party coffers. 

According to the committee, Kelly & Sons paid $59 per ton for steel used in the construction, but he charged the government $115 per ton. Furthermore, the committee alleged the change from pilings to concrete and steel caissons involved an additional cost of $770,000 which was made by a verbal agreement between Kelly and Horwood.

Hudson introduced an amendment to the majority report of the public accounts committee calling for a Royal Commission into the legislative building construction. Speaking on the motion, Winnipeg Centre Labour MLA Dixon accused the government and Kelly with interfering with the committee’s investigation and “enough had been shown with regard to the steel for the caissons that there was room for an inquiry and justification for the wholesale condemnation of the government.”

Dixon further accused Kelly of raking off $60,000 in wages, which “represented the illegitimate profit made on flesh and blood.” He said five-cents an hour from every worker on the caisson project went into Kelly’s pockets.

The Voice said the Roblin government used the excuse of the war — the First World War broke out on August 1, 1914 — to parry any questions on construction of the legislature.

“‘What about the extra $2,000,000 for the Parliament buildings?’ They answered, ‘The Empire is at war.’”

Dixon referred to the legislature construction scandal as the story of Hidden Treasure, or the $2,000,000 Mystery, which he broke into seven chapters under the headings: Montague’s Mistake, Roblin’s Ruse, Reeve’s Wriggling, Rigg’s Revelation, Kelly’s Kaleyard, Paying the Piper and Choosing the Time. 

The committee’s investigation was hampered by the failure of key witnesses to appear. William Salt, the government inspector in charge of the caisson construction, left Winnipeg on March 13 “ostensibly” for a holiday in the U.S., reported the Free Press, “but really to prevent his being summoned as a witness by the public accounts committee.”

The committee report said Salt had been bribed by Conservative cabinet ministers George Coldwell and James Howden when the inspector indicated his willingness to return and testify before the committee. 

As the evidence against the government mounted, Premier Roblin saw his options to escape the scandal diminish. While the Conservatives were able to use their slim majority in the legislature to quash the motion for a Royal Commission, the Liberals approached Lieutenant-Governor Douglas Campbell with a petition calling for the establishment of the commission. 

Roblin turned to Cameron to prorogue the assembly and call an election, but the lieutenant-governor demanded at the April 1, 1915, meeting that the premier call an inquiry into the allegations or resign. Roblin’s hand was forced and he appointed the Mathers Commission, named after Chief Justice Thomas Mathers, which also included Justice Donald Alexander Macdonald and Police Magistrate Hugh John Macdonald.

(Next week: part 2)