A trio of senior program managers working for an Ontario Health Ministry program were allowed to set up their own firm, then profit from dozens of ministry contracts worth millions of dollars, according to documents obtained by CBC News.

Blue Pebble (CBC)Blue Pebble Inc., set up in late 2006 by three consultants working on a ministry project, came under scrutiny in an internal government audit in 2008.

The audit, obtained through freedom-of-information requests, found the three managers to be "in a conflict of interest, as they benefit financially through the hiring of BP employees. BP as the employer receives a percentage of the contract value."

The special project managers are Blue Pebble president Neil Phasey, and directors Rohin Bhargava and Shelley Kapitan.

At the time of the audit, Blue Pebble was the second-largest supplier of consultants to the Continuing Care eHealth, or CCeH, a program set up to bring electronic client records to long-term care, home care and mental health facilities.

In 2007-08, the firm supplied 23 per cent, or 47 of the total 203 contracts for CCeH, and received almost 30 per cent of contractor fees.

Anonymous letter triggers probe

A briefing note on the audit's findings was sent to Ontario's deputy health minister Ron Sapsford in late November 2008. Yet emails dated 2009 show that the three owners of Blue Pebble continued working for the ministry program months later.

Insider sources told CBC News that Blue Pebble also had contracts with the embattled eHealth Ontario and its predecessor, Smart Systems for Health Agency.

Emails show that the three senior project managers were in regular contact with assistant deputy minister John McKinley.

Leading up to the audit, in spring 2008, some consultants typically paid through Blue Pebble suddenly started appearing under the name of another firm, according to the sources.

It was several months later that the internal government audit would be conducted on the firm's practices.

The audit was triggered by an anonymous letter to Ontario's auditor general.

The writer, identified only as representing "concerned individuals" from central Ontario community-care organizations, accuses Blue Pebble of conflict of interest for using ministry resources for a private corporation.

"The managers informed selected project resources that they had the choice of leaving the project or joining Blue Pebble as staff (and, in turn, working for the project through this company)," the letter, dated July 31, 2007, alleges.

The writer also accused the electronic health project of "operating for two years with limited or no value delivered to our organizations and clients."

'Unscrupulous consultants' profiting

Nearly a month later, a person identified only as SM emailed deputy health minister Sapsford a scathing criticism of Blue Pebble.

SM alleged that Blue Pebble was using government money and resources, including Health Ministry computers, on top of earning a "hefty profit by taking a cut from all the consultants they 'employ.'"

In a later email, dated Dec. 10, 2008, SM writes: "I am disgusted that government policies and procedures are being openly broken and a small group of unscrupulous consultants are profiting from this situation."

Blue Pebble declined repeated interview requests from CBC News.

"We have been in touch with our client the Ministry of Health and Long Term Care and have determined that at this point in time, they are in the best position to answer your questions," Blue Pebble president Phasey wrote in an email.

A Health Ministry spokesman said the conflict was only a potential one, and that an independent human resource firm was brought in to help select staff after the audit was done.

The audit also found that many of the program's key workers were single-source consultants, the justification being that it made good "business sense" to retain these workers because of project demands.

"However, subsequent renewals/extensions of contracts to the incumbent consultant have occurred as these consultants have developed e-Health specific knowledge, creating a 'closed shop' to outside consultants," the audit states.

Details of the Blue Pebble contracts were withheld from the CBC because they were paid out by an arm's-length health agency not subject to freedom-of-information requests.

The Continuing Care e-Health program was later renamed Community Care Information Management, or CCIM. Some CCeH projects were later moved under eHealth Ontario.

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With files from Lynn Burgess and Mike Crawley