Government Operations Committee on April 24th, 2007

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

When the minister goes to Treasury Board, he will not be taking a list of competitors and putting a check mark next to his favourite one either.

[David Marshall]

No, and as a matter of fact, at the meeting of the Treasury Board it will be the Treasury Board Secretariat that will make the recommendation to the ministers based on their own due diligence.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

And they're all non-partisan public servants as well.

[David Marshall]

That is correct.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Okay. I just want to make this clear so that there are no lingering questions. Based on what you have told us as a public servant, the minister will have no involvement in the selection of the winner when he signs the submission. He will have no involvement in the selection of the winner when he votes. He will merely be moving the project itself forward and not choosing winners or losers. Is that an accurate characterization?

[David Marshall]

That is correct.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Thank you.

That's all. I'll give the rest of my time to Mr. Kramp.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

[The Chair, Liberal, Diane Marleau]

You have three minutes.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Wonderful.

Minister, I'm right beside CFB Trenton, so quite naturally in regard to the military acquisitions that are under way and will be taking place in the future there's a great deal of interest in our local communities--I know certainly in my riding, and probably across the country--as to how you factor your approach as the purchasing agent for the government, PWGSC. Could you elaborate a little bit regarding the different approaches you would take in purchasing military equipment and particularly as it pertains to our air support?

[Michael Fortier]

Thank you for the question.

Because of the nature of the relationship and because the Department of National Defence has over the years obviously bought significant military equipment, Public Works has a number of employees who are embedded at the defence department. So there is a relationship where we come in as early as possible in the procurement stage. The Department of National Defence obviously needs to identify its needs, which I think is normal in the circumstances, and then we ensure that we prepare the bid so that there are as many bidders as possible for the piece of equipment that's being sought.

The concern I have had, Mr. Kramp, is the number of years.... When I became minister I was startled to see that in some cases it had taken 188 months for projects between the time when a need was identified within the Department of National Defence and the time that it took for this particular asset to find itself in the hands of National Defence.

So I think there has to be a better way of doing this, which is what I and Minister O'Connor and Minister Toews and our officials have been working on in terms of streamlining the procurement process, making sure that we always deliver the best deal possible for taxpayers, deliver the best equipment possible for our troops, but do it quicker than 188 months.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you. I have just a brief question then to finish off.

Mr. Nadeau had mentioned our small and medium-sized enterprises and the difficulties that some might have in being involved in the purchasing, particularly with regard to the fact that in government, of course, we are only dealing among the largest of contracts. I know there's been a particular emphasis on behalf of Public Works to make it much more accessible and make it much more effective.

Perhaps Mr. Marshall might even be able to give me some statistics as far as the success rate is concerned and what percentage of purchases are actually made and are completed by the ranks of the small and medium enterprises versus simply our large corporate accounts that deal with the government.

Would you have any of those statistics available?

[David Marshall]

Yes, we do. Our minister has been urging us to increase the involvement of small businesses, and we've been looking at our current pattern. About 85% of all procurements in terms of the number are done with small and medium enterprises. In terms of value, it's about one-third is done, about 35%.

Incidentally, that compares with the U.S. experience where they have a separate agency specifically for small and medium enterprise. The U.S. is reporting somewhere around 30%, so we are not doing too badly, although we have been urged to increase that. In any event, we do pay attention to it.

[The Chair, Liberal, Diane Marleau]

Mr. Turner.

[Garth Turner, Conservative, Halton, ON]

Thank you.

Coming back to the real estate for a minute, I found the meeting today quite interesting, and the minister has provided some great information, so thank you.

Minister, in answer to my question before about transferring the risk, you were very clear about transferring the risk to the private sector with this sale. We are also selling assets that have significant value. As Ms. Nash said before, in reiterating what the value of these real estate assets has been, it has grown quite substantially.

For example, the Howard Green Building in Vancouver was purchased just five years ago for $58 million, and now it's worth some $105 million. A landmark building in Toronto, 4900 Yonge Street, I notice has also gone up substantially in value: a market assessment less than $80 million in 2002, now $180 million.

So we've seen a big appreciation in the value of these real estate assets. It comes back to the main point that Mr. Simard was making a few minutes ago, and that is the justification, because when we transfer the risks to the private sector, we're also transferring the asset to the private sector. We're entering into a 25-year lease to lease these buildings back, so that is a cost to us as a tenant over 25 years, and at the end of 25 years we have no asset.

We realize the gain in that asset, and 25 years later, what would that have been compared to the capital gain on that asset over that period of time, compared with the maintenance cost of it? It's a cost-benefit package, where one has to weigh very carefully whether the Government of Canada and the taxpayers are further ahead owning these assets at the end of a long period of time or not.

Experience has shown us to date that we've won in terms of capital gains on these buildings. That comes back to the necessity of seeing your justification. I don't know how we, as committee members, can really express an opinion on that until we have the same knowledge that you do, seeing the cost-benefit analysis of owning versus leasing.

How do you ever win when you sell an asset and lease it back, an asset that has shown tremendous capital gain appreciation, and all of a sudden you have no capital gain any more, and yet you incur the cost as a tenant? How do the taxpayers of Canada win by selling the family jewels?

[Michael Fortier]

I would disagree with you that we've won. To be honest, when you're facing a capital expenditure bill of $4.5 billion—

[Garth Turner, Conservative, Halton, ON]

But that's in your whole portfolio, is it not?

[Michael Fortier]

No, no. Hold on.

It includes.... It doesn't matter, it's the behaviour here as an owner that I'm addressing. We have been terrible as building owners for decades. We were such bad owners that your own party—well, you weren't with them then, but the guys at the end of the table were--was thinking of actually disposing of the entire portfolio.

What we're proposing makes a lot of sense. We're saying that we're not in the business of owning buildings. Everybody is getting out of it; the banks are, and the governments in Europe and in Australia are getting out of it. What do we know that they don't know? The easy answer is nothing. We have neglected them, we haven't capitalized them properly, and we do not have the expertise to run such a large portfolio.

Now, we can disagree on this, but for you to suggest that there are no motives, or no business reasons, Mr. Turner--

[Garth Turner, Conservative, Halton, ON]

No, I didn't say that. I didn't say that, Minister, I did not—

[Michael Fortier]

—frankly I think is unfair to the process.

[Garth Turner, Conservative, Halton, ON]

Minister, do not put words in my mouth. I did not say that. I was simply saying that it's a cost-benefit question. Okay? You're asking us, hey, trust me, I'm the minister. You're a nice guy, but you know what? I'm not going to.

When I take a look at what we paid for these buildings and what their assessed value was four years ago, we've made almost $500 million in capital gain. The capital gain is great to realize, but logic would dictate that if we're going to make that capital gain over that period of time, surely we can stand to make a capital gain over the next 15 years, and it might well outweigh the costs of maintaining these buildings. And then of course we wouldn't have to be tenants in our own buildings.

All I'm saying to you, sir, is that we need to see the numbers. Whatever convinced you should convince us, and then end of story. Why don't you table it?

[Michael Fortier]

We explained to you why we weren't going to table this. There are confidentiality agreements between us and the banks, and understandably so. You're from the private sector, and I'm sure you understand that. There is some information in there that would be detrimental to Canadian taxpayers, those same taxpayers who you actually want to protect as a result of this process.

[Garth Turner, Conservative, Halton, ON]

Why don't you borrow Mr. Flaherty's black marker that he used on the income trust documents—I'm sure it has some ink in it—and mark out what you don't want us to see and give us the rest?

[Michael Fortier]

I would suggest, respectfully, why don't you wait and see the offer that's on the table? There will be a fairness opinion from a third party, and rather than being scared of being scared and speculating on the value of the buildings, I would suggest that it's probably wiser to wait and see where we stand on the final offer.

[Garth Turner, Conservative, Halton, ON]

I don't think anybody is being scared, but it is $1.5 billion worth of assets—