Government Operations Committee on April 24th, 2007

[The Chair, Liberal, Diane Marleau]

Ms. Nash.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Mr. Minister, there were other questions about this, but I want to ask you again about this contract. TPG Technology Consulting Limited, which unsuccessfully bid for a $400 million contract, has made some allegations of conflict of interest. I'm not saying there is any wrongdoing--you seem like a very honourable person--but my question to you is will you be putting this matter before the Public Service Integrity Office to ensure that the air is cleared and there's complete accountability with respect to this matter?

[Michael Fortier]

No.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Can you tell us why?

[Michael Fortier]

I think it's clear why. I repeatedly indicated that I have had nothing to do with this contract directly or indirectly, nor any other contract. I think the deputy has been as clear in terms of the process. So this contract, when and if it is awarded, will be awarded by Treasury Board under the rules and regulations that govern the awarding of these types of contracts.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

I want to go back to the real estate issue. Aren't you concerned that the government is making decisions based on analysis and a recommendation to sell, and an evaluation--some would say over-evaluation--and a recommendation of a 25-year lease-back all made by the same parties, and that these are the parties that stand to benefit enormously, not only from the sale of these nine buildings, but from potential future sales? They are the Royal Bank and the Bank of Montreal.

[Michael Fortier]

I don't share your concerns. As I stated earlier, the decision to conduct the process was taken by cabinet. It was not taken by banks. It was not taken by accounting firms. It was not taken by law firms. It was taken by the cabinet with due consideration to all sorts of views and opinions around the table.

I think you need to de-twin a study and a decision on the part of the government to look at nine buildings out of 360-something, de-twin that from the decision to sell. There was a study on a number of issues. We read the study, and for reasons I've stated several times already today and prior, we decided that we wanted to explore the possibility of selling these buildings, and we'll see.

You mentioned appraisals. Perhaps I'm misreading you, but there are no appraisals. We, the Government of Canada, in our books, in our financial statements, have actually attributed a value to each of these buildings, as any company would with respect to an asset. That's one thing, but I will not speculate today about the type of offer we'll get. If there are many people who come to the table, I suspect we'll get a different offer from what we would if nobody shows up.

[Peggy Nash, NDP, Parkdale—High Park, ON]

On a couple of things, I understand the actual initial analysis that the cabinet based its decision on was done by the banks. The study was done by the banks and the decision by cabinet to sell then awards the handling of the sale, and ultimately the commission to be received, to the banks as well--the actual sale.

[Michael Fortier]

That was in the RFP when we hired the banks. It was clear last summer when they were hired by the department that if there was a second step, and we didn't know at the time what that second step would be, they would be retained for that second step.

[Peggy Nash, NDP, Parkdale—High Park, ON]

They were retained for that step, and for which they could make--and we don't know, because the details aren't released--significant amounts of money.

The evaluations I'm referring to are reports--again we have no documents--in The Globe and Mail from March 19. It says, “According to the BMO and RBC advisors, the government can get...”, and then it lists a whole series of prices.

To wrap up my question on this, because we've been back and forth a few times, are we going to be able to get the fairness assessment of this whole process? Will this issue come back to this committee before the sale is finalized?

[Michael Fortier]

I can't promise you that this issue will come back. If you ask me to come back, I'll come back and we'll have the same discussion.

[Peggy Nash, NDP, Parkdale—High Park, ON]

With some more details.

[Michael Fortier]

No, we'll make the details known if and when we go ahead. We have some commercial and contractual obligations vis-à-vis third parties. We can't breach confidentiality, but if we do go ahead, my undertaking to you is that we'll try to make as much of these studies and reports public as possible.

Obviously if we go ahead, I and the government will be happy to explain to Canadians the financial logic behind the transaction. I think a lot of people understand this. I don't think this is a partisan issue. A lot of people are asking how we did accumulate and get to own so many buildings and to neglect them as we have over the past years. Before we showed up the Liberals had obviously observed the same thing. I think it's just sound management. Let's wait and see where this takes us and how far the process goes. If there is a sale, we'll try to make as many of these documents public as possible.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thanks. That will include a fairness assessment.

[The Chair, Liberal, Diane Marleau]

Mr. Warkentin, please.

[Chris Warkentin, Conservative, Peace River, AB]

Thank you, Madam Chair.

Thank you, Minister, for coming and thank you, gentlemen, for coming as well.

I have a couple of questions with regard to general leases that the government currently holds. Obviously we do have a number of leases with a number of different landlords. I'm wondering if you could identify a lease that you would see as a model for all leases, if there is such a thing. Could you give us a possible model that the government might want to follow in the future?

[Michael Fortier]

Do you want to take this one?

[Tim McGrath]

Sure.

The lease we modelled this transaction on is a lease we put in place with Morguard Development for the CBC building on Sparks Street. It was noted by credit agencies, by the financial industry, by the real estate industry at large, as one of the best leases the Government of Canada has ever done in terms of the proper balance of risk transfer and also making best use out of the creditworthiness of the Government of Canada resulting in very a low financing rate and rates that are approaching those that are equal to our treasury. That's the type of commercial lease we're using on this type of transaction.

[Chris Warkentin, Conservative, Peace River, AB]

That's helpful, and maybe it will answer the question Madam Chair has asked with regard to buildings falling into disrepair and landlords not coming to do the repairs.

I'm wondering if this type of lease would deal with that--the CBC lease, and possibly the one that would then be put onto these future buildings that may or may not be sold.

[Tim McGrath]

One of the biggest challenges we have when it comes to repairing assets is the superstructure itself, the facade, the roofing systems. As part of the agreement we have in place, it will be the landlord's responsibility for the maintenance and upkeep of that, with no cost pass-through to the Government of Canada.

The other thing we're doing with this transaction is we have identified the capital program work that has to be carried out by any potential owner, so for the next ten years it's their responsibility and obligation, again with no pass-through to the Government of Canada, to take on this significant amount of repair on these assets. We are addressing the concerns of a number of issues that have been raised today at committee.

[Chris Warkentin, Conservative, Peace River, AB]

That's helpful.

The question did come up as well in terms of the capital gains that the government may or may not be able to capitalize down the road.

Could you give me some information with regard to the contract that was signed for the RCMP building? My understanding is that after 25 years the government has the option of buying back that building, including all capital gains, for one dollar. Is that correct, or do I misunderstand that?

[Michael Fortier]

First, on the capital gains, obviously this is pure fiction, as you know. If you don't look after your assets and you allow your assets to deteriorate, obviously this so-called gain disappears, and the government is not in the business of making a profit on the buildings. We have accumulated this over the years with I'm sure with the best of intentions, but we've neglected them. We don't have the proper resources and we can't attract the proper resources to run this and we are facing significant bills to repair the buildings. To suggest these are crown jewels.... Somebody has absolutely no idea of the type of portfolio we have, to suggest these are crown jewels.

The government has demonstrated over and over during the past several decades that it really isn't interested in running real estate, and the simple reason is that there are people out there who specialize in this. Again, the banks, whose lives really are to make profit--if there was money to be made in this, they'd be in it--have spun this off to a single-purpose entity to run real estate. Governments have done it, and I suggest to you that we are not smarter than those people, and we should get out of the real estate business. But first I will do this transaction and see if it goes ahead and try to get the best transaction, the best value, the best proceeds possible for taxpayers, because at the end of the day, this is what this is about. It's not to continue running billions and billions of dollars of structural bills and unpaid and unaddressed liabilities to pretend we have this great portfolio we're so proud of.

You need to address the portfolio like somebody who has good common sense and good business sense. We haven't done this over the past 30 years.

[Chris Warkentin, Conservative, Peace River, AB]

The $4.5 billion in deficit in terms of necessary repairs speaks for itself in terms of the Government of Canada not being good at property management, no matter what the political party. I suspect that's what led the previous minister, the Honourable Scott Brison, to put together an RFP. It's my understanding that over 300 buildings were going to be coming up for sale. Is that correct? If it is correct, I'm wondering, to help us in our deliberations, if you might make that available to our committee, or if it is available. I'm not sure if the RFP would be available.

[Michael Fortier]

The RFP? It's available. It was public.

[Chris Warkentin, Conservative, Peace River, AB]

I'm wondering whether the studies the previous minister might have undertaken to ensure that this was the right thing to do might be available as well, if there is any such study.