Genivar confirms corruption inquiry allegations; employee on leave of absence

MONTREAL – Engineering firm Genivar confirmed Monday that it engaged in “inappropriate conduct” several years ago in the financing of political parties in Quebec and the awarding of municipal contracts as outlined in recent allegations to the province’s corruption inquiry.

The Montreal-based company said an unnamed person is on a leave of absence until an internal review is completed.

In a statement, Genivar (TSX:GNV) said it obtained new information that confirms allegations made by a witness at the Charbonneau commission.

The firm established a special committee of the board last September to review any allegations of illegal conduct, including those made at the commission.

It said the review process is ongoing and no “definitive conclusion can yet be drawn.”

“Genivar does not tolerate any improper business practices and is committed to ethical business conduct in all that it does,” executive chairman Christopher Cole said in a news release.

CEO Pierre Shoiry added that the company supports the commission’s work and welcomes any government move to improve the awarding of public contracts that will help to restore the image of consulting engineers in the province.

The company said it has improved and strengthened its processes since the time of the alleged events. It added that the board is taking steps recommended by the special committee to prevent similar conduct or violations in the future.

Genivar said no adjustment or restatement of its past financial statements is required.

As a result of the US$438-million acquisition of London-based WSP Group, municipal work in the Montreal region now accounts for about one per cent of its consolidated revenues while Quebec’s public sector contributes about eight per cent. However, the province accounted for 54 per cent of its revenues in 2009 and municipal infrastructure projects represented 24 per cent.

A company spokeswoman wouldn’t say if the implicated person continues to paid.

“We aren’t going into that kind of detail because I don’t think that ultimately makes a difference. We are a publicly traded company, we have budgets and (the salary) isn’t taxpayers’ money,” said Isabelle Adjahi.

“The person is on leave from the company and will remain so under the review is completed. I don’t know when that will be because it’s a very large file. When we have all the elements in hand, we will take the necessary decisions at that time.”

During the Charbonneau commission, the head of Genius Conseil testified that a number of major engineering firms — including global giant SNC-Lavalin (TSX:SNC) and Genivar — participated in a collusion scheme to raise the price of construction projects in Quebec.

The incendiary testimony of Michel Lalonde suggested that big, even publicly traded, engineering firms were complicit in the cartel-like practices previously ascribed to lower-level construction companies in that province.

Lalonde said the group of companies selected him as a go-between between 2004 and mid-2009 with Montreal city officials. He pointed at firms of varying sizes as participants in the system including: SNC-Lavalin, Dessau, CIMA, Genivar, Tecsult, SM, BPR and Roche.

He said the companies were expected to cough up donations to the city’s ruling political party and would discuss how city contracts would be divided.

Lalonde said such practices drove up the price of construction in Montreal by 25 to 30 per cent, which taxpayers had to cover.

Industry analysts say the allegations involving Genivar are not surprising given the cloud that’s hanging over the entire industry in Quebec.

Despite this, they say it will have very limited impact on the company since investors who are uncomfortable by these events would have sold last year when details first surfaced about SNC-Lavalin.

“Unfortunately the Quebec thing is like a slow-moving train wreck and it’s going to take time to play out,” Maxim Sytchev of AltaCorp Capital said in an interview.

“There’s going to be some sort of recommendation being made, but the industry will have to drive on because if all the companies in that geography are implicated — who’s going to be doing the work?”

Analyst Ben Vendittelli of Laurentian Bank Securities said Genivar’s confirmation of inappropriate conduct is negative but he’s “reassured” by the company’s “proactive actions in dealing with the situation.”

“Although we believe the financial implications of the internal findings are likely immaterial, the negative news flow will likely put some pressure on the stock,” he wrote in a research note.

Vendittelli has a $28 per share target price for Genivar and said a decrease in its share price is a buying opportunity.

On the Toronto Stock Exchange, Genivar’s shares lost 72 cents, or three per cent, at $22.88 in afternoon trading.