Montreal Mayor Gérald Tremblay has suspended a controversial $355-million water-meter contract involving a Montreal entrepreneur whose business dealings are being probed by federal authorities for possible tax fraud.

'I can't make a link between what's happening in Revenue Canada [and] this contract about the water meters.'—Gérald Tremblay, mayor of Montreal

Just hours after the Canada Revenue Agency revealed details of an investigation into a complex tax fraud scheme allegedly involving Tony Accurso's construction businesses, Tremblay issued a statement indicating he has suspended Montreal's contract with a consortium that includes one of those enterprises — Simard-Beaudry Construction Inc.

The suspension is temporary, and Tremblay insisted Wednesday night the contract tender was handled according to rules and regulations.

But the tender will still be reviewed by Montreal's auditor, after it was revealed that the mayor's former right-hand man — Frank Zampino, ex-president of the city's executive committee — vacationed on Accurso's yacht during the bidding process.

Zampino has already explained he is a long-time friend with Accurso and covered all costs for him and his wife to join the entrepreneur on a luxury holiday in the Caribbean in 2007.

Suspending the water-meter contract has nothing to do with the CRA's probe, Tremblay said. The city simply wants to give its auditor enough space to review the deal.

"The information we have today is that the contract was properly awarded. We were [instructed] by public servants and an external firm, and as a result of that, we'll see what the auditor general will say.

"But I can't make a link between what's happening in Revenue Canada [and] this contract about the water meters," the mayor said Wednesday night.

One of the audit’s goals is to determine whether the contract’s cost is comparable to similar work in other major cities, Tremblay explained.

The contract for water meters has been criticized for being overly expensive compared with similar public tenders in other major Canadian cities, such as Toronto.

The water-meter affair is a good opportunity to remind city employees and elected officials of what kind of conduct is expected from them, Tremblay said.

"I've asked the director-general to give us a guide for public servants about ethical conduct, and I've asked my elected representatives that they should never be involved in an appearance of conflict of interest," he said.

CRA investigating businesses run by Tony Accurso

Accurso's construction businesses — Simard-Beaudry Inc., Construction Louisbourg Ltd. and Hyprescon Inc. — are being investigated for tax evasion, the Canada Revenue Agency said Wednesday.

National Revenue Minister Jean-Pierre Blackburn said the agency believes the companies shuffled as much as $4.5 million to dummy companies, issuing falsified invoices, in order to avoid paying taxes.

CRA officials allege the scam was made possible with inside help from four revenue employees, including local managers in Montreal.

Two CRA employees were arrested in connection to the probe Tuesday, and may face criminal charges later in April. They have been suspended without pay. The two other employees fingered in the investigation have also been suspended without pay.

With files from The Canadian Press