2017-04-24

Report on the towing industry in Montréal, filed on April 24, 2017

Summary

With regard to the towing of wrecked vehicles, the investigation revealed a territory-splitting agreement and a climate of violence and retaliation. The presence and influence of organized crime kept this system in place. In terms of renting tow trucks with operators for snow removal operations, contractors communicate with each other to share their bidding intentions and the prices to be proposed. Several recommendations were made to reduce the risk of collusion and market control but also to rid the market of its links to organized crime.

SUMMARY

After receiving complaints regarding certain calls for tenders issued by Ville de Montréal for the rental of tow trucks with operators to remove vehicles during snow clearing operations, the  Inspector  General decided to investigate all the contracts awarded in this field to assess the existence of collusion. On a systematic basis, the witnesses interviewed during the investigation brought up other problems in the towing industry, in particular the infiltration of organized crime in activities for the towing of accident vehicles obstructing traffic.

Considering these allegations, the scope of the investigation was expanded to all towing contracts awarded by the City. The purpose of the investigation  of  the Office of Inspector  General was  to provide  an overview of the towing industry in the City and to identify any issues, beyond the complaints initially received, including collusive schemes used by contractors,  to  ascertain  organized  crime’s  involvement and how it might affect the industry, and to examine any other aspects that might adversely affect free competition between contractors and the City’s ability to obtain the best service at the best price.

As such, this report presents an overview of the situation, the findings revealed during the investigation, as well as the Inspector General’s resulting recommendations concerning three (3) types of contracts: exclusive contracts for towing accident vehicles obstructing traffic, contracts for towing and impounding of offence-related vehicles, and contracts for the rental of tow trucks with operators during snow clearing operations.

The investigation conducted by the Office of Inspector General showed that a sharing agreement between contractors has been in place for more than ten (10) years for towing of accident vehicles in areas not subject to an exclusive contract with the City. The investigation revealed that the City had not awarded any exclusive contracts on its territory since February 27, 2016 and that, over time, contracts have not been awarded in a uniform manner since certain areas have never even been covered by exclusive contracts.

The Inspector General notes that the lack of exclusive contracts covering the City’s whole territory for the towing of accident vehicles obstructing traffic has contributed to the territory division between contractors becoming an established system over time.

This situation is cause for concern: The City is divided into areas that are, in fact, small kingdoms where some contractors rule and have a stranglehold on the market. Contractors that tow accident vehicles obstructing traffic “respect each other” and do not tow vehicles in areas that they consider belonging to their competitors, even if the latter do not hold valid exclusive contracts with the City.

A climate of violence and retaliation prevails in the industry: To acquire or “protect” areas they consider their own, contractors use threats, intimidation and violence (assault, vandalism, burning of equipment) against their competitors. Virtually all witnesses explained that a company who would decide to challenge the division of territory established between contractors would become the target of threatening phone calls and expose itself to strong retaliation.

The investigation conducted by the Office of Inspector General also helped to uncover the presence and influence of organized crime in the industry. Almost all the areas are now controlled, in whole or in part, by at least one company connected to organized crime.

In some cases, directors of towing companies are themselves members of criminal organizations; in other cases, they have familial ties or friendly relationships with members of such organizations. Consequently, members of criminal organizations, or individuals close to influential members, operate on the City’s territory. The Inspector General even learned that some areas “belong” to criminal organizations, so that a contractor wishing to tow an accident vehicle obstructing traffic in such an area must pay a fee (or “cut”) to the criminal organization. Being supported by a criminal organization is a way for towing companies to protect their territory, as well as to acquire some areas without  facing retaliation from their competitors and with no regard for the fact that other contractors were previously operating in these areas. In other words, these companies are “backed” by organized crime.

The evidence gathered during the investigation clearly shows that organized crime takes control of some areas, and even coordinates distribution and territory division between contractors

The Inspector General notes that this situation has had the effect of chasing many contractors away from the industry, as they are afraid to tow accident vehicles in controlled areas, and sometimes even on the City’s territory. Competition has therefore been sharply curtailed.

Regarding the rental of tow trucks with operators during snow clearing operations, the situation is not much better: The Inspector General’s investigation shows that some contractors in this field resort to collusive bidding. It appears that contractors communicate with each other before and during the bidding period to find out each other’s bidding intentions, the number of tow trucks they plan to offer, and the price at which they are planning bid. Sometimes they even agree not to bid against each other (“pacts of non-aggression”), or to bid at a given price.

These schemes deny the City and boroughs the possibility of obtaining the best price, which represents a significant impediment to the free market and diverts the tendering process from its core mission, which is to generate the most competition. The pool of contractors bidding for the rental of tow trucks for vehicle removal during snow clearing operations has decreased considerably through the years.

The Inspector General handed down two (2) decisions on September 26, 2016 and March 23, 2017, rescinding a total of fifteen (15) contracts awarded to contractors who participated in  collusive  or  fraudulent tactics, in violation of the City’s Contract Management Policy. The Inspector General also recommended that six (6)  companies as well as their  respective presidents, who  were actively  involved    in these tactics, be excluded from all contracts with the City for five (5) years, be it contracts by mutual agreement or following a call for tenders.

During its more comprehensive investigation of the towing industry, the Office of Inspector General obtained extensive information corroborating the situations depicted in these two (2) decisions.

In this report, the Inspector General’s primary concern is to inform the City Council and the Agglomeration Council about the situations observed during his investigation concerning territory division between contractors and organized crime’s presence and influence on the industry. The Inspector General considered appropriate to make several recommendations so  that certain measures  be adopted quickly by the City to reduce the risks of collusion and market control by contractors, but also to rid the market of its ties to organized crime. The Inspector General deplores in particular the absence of exclusive contracts in force regarding towing of accident vehicles. The Inspector General believes that the lack of exclusive contracts and the resulting territory division by contractors put the City and boroughs at risk in that it allows towing companies with ties to organized crime to infiltrate the market with impunity and to control this economic sector.

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Report on the towing industry in Montréal, filed on April 24, 2017