The National Dream: The Great Railway, 1871-1881 (41 page)

The new regulations relieved the government of all responsibility in choosing contractors. But they also made it possible for bogus contractors to flourish – men who had no intention of grading a mile of line, whose only purpose was to enter a bid so low it must be accepted, and then to sell the contract for a profit. Of the seventy-two contracts awarded for the construction of the Canadian Pacific Railway during the seventies, there were ten major ones from which the successful low bidders withdrew. The increases involved in awarding these contracts to higher tenderers totalled more than one million dollars. Some of the low bids were entered by men who had no intention of doing the job, others by
bona fide
contractors who saw a chance to make a bigger profit by pretending to drop out while actually joining forces with a higher bidder and splitting the difference between the bids. In addition, many large contracting firms who paid substantial sums to buy up a contract expected to recoup their losses by charging later for “extras,” not included in the original specifications. Apart from this cost, the unwieldy system slowed down the awarding of contracts sometimes by several weeks at critical seasons of the year. A few weeks’ delay in the spring, for example, could mean the loss of a full season of work.

In 1880, a royal commission began to inquire into government spending on the
CPR
. It sat for more than a year and took sworn testimony from scores of witnesses – contractors, surveyors, politicians, journalists. Its exhaustive three-volume report gives a comprehensive picture of the way in which the government sections of the railway were surveyed and constructed, under both Liberal and Conservative regimes. Both were found wanting.

One leading contractor, A. P. MacDonald, himself a former Conservative member, painted an unpleasant picture of corruption in the public works offices. “You do everything in your power to find out where your tender is. You offer inducements to clerks to do things that they would not [normally] do … you offer them bribes to get at things that are dangerous.… You take a clerk that gets $1,000 a year salary, and offer him $2,000 to get certain information in his office, and there is a temptation for him to break a lock and get it.…”

Some people, MacDonald added, thought everyone in the department was corrupt.

Once a contractor secured the coveted information, he would do his best to prevent the man below him from getting the contract. One method was to try to thwart him from putting up the substantial cash security that was required once a tender was accepted. Men who supplied such surety were generally paid off by the successful tenderers with a cut of the profits, but their rivals often spread the word that the bid was impossibly low and future profits illusory. Unable to raise security money, the low bidder would have to relinquish the contract. Under this system a man who could command large sums of money tended to get the job, no matter what the original bids had been. As MacDonald pointed out, such men “can obtain more favours, etc., than the ordinary contractor could.”

Political friends could also obtain special favours. For them, in instance after instance, the department found a way to depart from its rigid policy of accepting the lowest bids. One such firm was Sifton, Glass and Company, which managed, in 1874, to acquire a lucrative contract for telegraph construction west from Fort Garry along the proposed right of way. The active partner in this firm was Mackenzie’s friend and fellow Liberal, John Wright Sifton. The front man, who did the talking in Ottawa, was David Glass.

Glass was not a contractor at all, and certainly knew very little about building telegraph lines. He was a trial lawyer in London, and a good one, known especially for his abilities in murder cases. A swarthy Ulsterman, he had been elected as a Conservative, only to turn against Macdonald in the Pacific Scandal debate of 1873 – the first public defection in the Tory ranks. Now he was a Liberal with a special claim to Mackenzie’s gratitude.

That gratitude was not long in appearing. The complicated methods by which Sifton and Glass obtained a contract worth more than one hundred thousand dollars, in spite of the presence of lower tenders, astonished and nettled the Royal Commission. To put the matter simply, the firm entered a tender that was so ambiguous that Mackenzie, Fleming and other members of the department appeared to misunderstand it – though the commissioners did not believe there was really a misunderstanding. They not only passed over a better offer, but they also allowed Sifton and Glass to renegotiate the original tender on their own terms, without challenge and to their considerable financial advantage.

It took the commissioners some seventy-five hundred words to explain the curious series of steps involved in this political legerdemain. The partners tendered on the basis of the entire line but were awarded the contract for only part of it – the easy part; yet they were allowed to charge for the work as if they were building the difficult parts as well. In short, they were paid an inflated price. Theirs was by no means the lowest bid: two lower bidders mysteriously dropped out and a third firm was passed over on the flimsy excuse that they had already been awarded a section of the line which “would require all their energies to complete.” Normally it required an order in council to pass over a low bidder but Sifton and Glass got the contract without any such authority, even though the department’s law clerk pointed out the omission to Mackenzie himself.

The resultant telegraph line, which the contractors were supposed to maintain for five years, was, like Adam Oliver’s, almost totally unsatisfactory. The poles were badly set, so that they often fell into the swamps and muskegs, and – since they were made of short-lived poplar (the cheapest available wood) – quickly rotted and fell away. The contractors, however, pocketed a sizable profit, having received, in the commission’s words “that to which they were not entitled.” Why such favourable terms were granted to John Sifton and David Glass the commission was unable to say, though it did refer to Sandford Fleming’s somewhat vague testimony that Glass “pressed his own views very strongly” in frequent meetings in his office. But a political debt was a political debt and David Glass could not say that his bold support of the party in 1873 had not been recognized in the contract of 1874.

Another political friend was Joseph Whitehead, former mayor of Clinton, Ontario, and a Liberal member of Parliament from 1867 to 1872. He was an enormous Yorkshireman with a great, bald dome of a head, a vast, patriarchal beard and a big, fleshy nose. He had been a railwayman since the very beginning; as a boy, he had helped drive teams of horses which pulled coaches along wooden rails before the days of steam. At the age of eleven, he had been the fireman on Stephenson’s first experimental locomotive, which pulled history’s first public passenger train on the Stockton and Darlington Railway in England.

Whitehead, said the pioneer Manitoba paper
Nor’wester
, in a tribute to him while he was grading the line to Pembina, was “a plain working man, [who] knows what work is.… He is no kid-gloved, silkstockinged, patent type of leather-booted, speculating, job-finessing
contractor.” But as an old railway hand, Whitehead knew enough to be an old political hand, too; in the seventies the two vocations were all but inseparable. He knew how to buy his way into newspapers or the goodwill of newspapermen, how to peddle influence, how to purchase contracts and how to deal with politicians. The commission came to the conclusion that “he had a strong belief in the corruptibility of public men.” The machinations by which he secured the contract for Section Fifteen of the Thunder Bay-Selkirk line give an insight into the relationship between politics and business in the Mackenzie era.

Section Fifteen was a thirty-seven mile stretch of right of way that ran through muskeg country between Cross Lake and Rat Portage, near the border between Ontario and Manitoba. Whitehead tendered on the contract for grading and laying track, but when the bids were opened on September 20, 1876, his was certainly not the lowest. As the law required, the lowest tender was awarded the contract; the bidder declined to take it up because, he claimed, his prices had been based on the early completion of an adjoining piece of the line, which was well behind schedule. Accordingly the next lowest bidder, a firm called Martin and Charlton, was awarded the contract.

Whitehead immediately wrote to Mackenzie that it would be a mistake to give this company the contract since Charlton, an American from New York, was simply a jobber. “…  it is well known that [he] says that he never intended to put a spade into the contract of Section 15; he only wanted to make some money out of it, the same way he did out of the Grenville Canal when he sold out to Cooke & Jones, and got six thousand dollars.” The pressure was already on Mackenzie to give the contract to Whitehead. On his desk was another letter, this one from a long-time Liberal stalwart, M. C. Cameron, urging that “our old mutual friend from Clinton” be awarded the job.

In the matter of Section Fifteen, Whitehead knew exactly who had bid and how much had been bid. Indeed, as he later testified, everybody in Ottawa knew as soon as the tenders came in: “I know things that have not been in that department more than a couple of hours before they are known on the street.” It was understandable: the sealed bids were simply shoved into an old desk drawer.

Whitehead, then, knew whom to pay off. He had no funds of his own but he did have his brother-in-law, Senator Donald McDonald, a one-time surveyor for the Canada Company and a prominent Liberal.
Senator McDonald offered to buy off Charlton, the successful bidder, for twenty thousand dollars. Whitehead was never sure whether or not McDonald actually paid that much but he found himself paying ten per cent interest on the sum. Charlton withdrew, pleading “dissension from within and extraordinary pressure from without.” His partner protested that he was personally prepared to deposit the security as required but the government ignored him. Mackenzie awarded the contract to the next highest bidder, Sutton and Thompson.

This firm, which had no security at all, was one of those that made a practice of bidding low purposely in order to be bought out – a technique that had worked very well for it in the case of Adam Oliver’s telegraph line. To achieve this end, Sutton and Thompson now engaged with Whitehead in a little game of make-believe. As successful bidders they pretended that Whitehead had joined their firm, even going through the motions of a legal paper association. Senator McDonald supplied the required security of eighty thousand dollars and again charged Whitehead ten per cent — a nice transaction for the Senator, who put up real estate instead of hard cash.

At this point a newspaper story appeared charging that either McDonald or Whitehead had, on behalf of Sutton and Thompson, paid Charlton to withdraw his bid. Without turning a hair, the Senator denied it. Mackenzie’s department queried Sutton and Thompson. They denied it too. Mackenzie accepted the denials. Sutton and Thompson were awarded the contract and the Senator gave
them
ten thousand dollars to dissociate themselves from Whitehead and leave him with the contract. The government, however, continued to pretend that the partnership was alive.

In return for his aid, and in addition to his ten per cent, McDonald asked for and was given an equal partnership in the firm. Since he was a Senator he could not officially be involved in railway construction and so the industry was treated to the odd spectacle of the Senator’s son Mitchell, a bankrupt who knew nothing about railways, apparently working in tandem with the veteran Whitehead.

It had been a neat gambit on Whitehead’s part. He had secured a contract worth a million and a half dollars. But this, he figured, would be only the beginning; the area through which Section Fifteen would run had been subjected to the skimpiest of surveys; there would be unavoidable extra charges, not subject to competitive bidding, for which he could bill the government. Before Whitehead was through,
these extras, none of them officially authorized by the department, had come to $930,000. When Whitehead secured the contract he had estimated his eventual net profit at close to $200,000. He might easily have made that much had it not been for the muskegs of Cross Lake, which eventually forced him to abandon the work.

Whitehead obtained another lucrative contract from the Mackenzie government through political pull. In 1874 he had been awarded the grading of the Pembina Branch from Winnipeg to the border. In May, 1877, shortly after obtaining the contract for Section Fifteen, he was given a so-called “supplementary contract” to extend the branch north from Winnipeg to Selkirk where it was expected to join the main line of the
CPR
. This plum, worth $161,000, was handed to Whitehead without any tendering on the pretext that it was part of the original Pembina Branch contract. It was, however, a totally different piece of work, involving much more than grading. It became clear from subsequent evidence that the government paid a higher price for this piece of railway than it was worth and much more than it need have, had the work been let by tender. Whitehead himself admitted that, though he had charged almost twenty-five thousand dollars for off-take ditches, the job could have been done profitably for half the price.