Public Accounts Committee on Nov. 27th, 2013

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Thank you, Mr. Chair.

I'm going to focus on the national shipbuilding procurement strategy. To my knowledge it is the largest procurement in the history of the government, and it's extremely complex. Having read your report, I'm very satisfied the audit shows that thus far it's working. I realize it's in the early stages.

You mentioned in your report that the selection of the shipyards was “successful and efficient”; that the government is working to “acquire federal ships in a timely and affordable manner consistent with the NSPS”, the national shipbuilding procurement strategy; that the selection process was carried out in an “open and transparent manner”; that Public Works and Governments Services Canada should consider using the NSPS approach in future procurement; that the NSPS design was “supported by analyses”; “in a way that should help sustain shipbuilding capacity”, and on and on.

Those comments are really good and I could focus on those. If I were partisan, all I would talk about would be the good things. However, there's a question around the budget that I actually want to understand a little bit better, specifically the budget caps.

With the Arctic offshore patrol ships there was a quote, “Budget caps were set early and could result in a reduced number of ships or capabilities”. This brings up the whole philosophy around budgets. You also comment that initial budgets were based on parametric modelling.

My question is, was the process for setting the initial budgets reasonable, the parametric modelling process? Is it reasonable to assume, considering the magnitude and duration of this project, that in all likelihood it's very possible and very realistic and one would think that the budgets should change?

Let's talk about caps first and then go the other way. Should we be changing our process in terms of caps? Caps were set actually before the national shipbuilding procurement strategy. The NSPS office said they “recommended that budgets not be capped until definition activities are sufficiently advanced to develop substantive cost estimates.”

[Michael Ferguson]

We didn't audit the estimates, for exactly the reasons you were talking about. We didn't ask whether they were established according to a reasonable methodology, because as you said, they really are caps. Again, as you said, the office itself recommended that the budgets not be capped.

The way we perceive those caps is essentially as a management tool to make sure there is necessary thinking going on in terms of the number of ships, capability of ships, and that sort of thing. We weren't treating it as a hard estimate. What we've seen, based on the information that exists today, particularly if you look at the surface combatants, is that the information indicates that the budget cap for surface combatants right now would result in fewer than 15 ships. Really what we were pointing out was that that's the situation, that's what the departments are having to manage right now, and it's important that they make sure that all of the decision-makers involved are aware of those types of trade-offs when it becomes evident that some thinking is going to have to go into the choices, so that everybody is kept up to date on that process.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

With respect to that, I guess that's why your recommendation 3.66 is:

...National Defence and Public Works and Government Services Canada, working with the Treasury Board of Canada Secretariat, should ensure information to Treasury Board ministers includes updated information on changes to costs, capabilities, and schedules and should request additional authorities, as required.

The government's response to that, and I won't read the whole thing, but it did state:

As well upon...fidelity cost estimates for each project...available, with a clear indication of capabilities to be acquired and the refined delivery schedule for ships.

It's saying that, upon completion of the definition phase of each shipbuilding project, it intends on doing that. I believe it is agreeing wholeheartedly with your recommendation. This is logical that in the definition phase is when you would actually refine the costs. Are you in agreement with its agreement to your recommendation?

[Michael Ferguson]

Well, certainly the department did agree with our recommendation.

I think it is important to recognize that we started auditing this process very early, perhaps earlier than we would normally audit a process. There was, though, something for us to audit, which was the selection of the yard, so we were able to do that. Again, that's why we haven't audited some of the cost numbers. We recognized that it's still too early to treat those as real estimates as to what it's going to cost to build the ships.

We thought it was important that parliamentarians understand that there are budget caps and those budget caps seem to be a budget tool to maybe put some discipline into the system, but people need to be aware that choices are likely going to have to be made. We just want to make sure departments keep the Treasury Board ministers up to date whenever they are faced with having to consider those types of choices.

[The Chair, NDP, David Christopherson]

The time has expired.

Now we'll go over to Monsieur Giguère. You have the floor sir.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I want to thank the Office of the Auditor General representatives for being here.

My question will concern rail safety.

In your whole report, we see that a certain number of recommendations on safety trends have been followed, but nothing is said about the quality of that monitoring. I just mean that one of the fundamental elements of the recommendations presented to the Department of Transport was the addition of a fixed sense and breaking unit system—an SBU— which enables trains to automatically slow down in areas with controlled speeds. The system is guided by a GPS. That is the first request all the stakeholders made to reduce the number of accidents.

Unfortunately, that request—which is more important than all the other requests put together—has not received a response. You said that the Department of Transport employees had serious problems in terms of qualifications. Are they even able to understand the technical nature of this important technological trend in the establishment of transportation safety? That would explain the fact that they have not implemented it.

[Michael Ferguson]

Mr. Chair, I'll ask Monsieur Laplante to respond.

[Maurice Laplante, Assistant Auditor General, Office of the Auditor General of Canada]

Mr. Chair, this is a delicate situation, since the recommendations often require the action of several stakeholders. That in turn requires interactions between departments and industry stakeholders. Certain issues or recommendations may need much more time.

As for this specific matter, we have not looked into it.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Okay.

Let's continue discussing staff qualifications. If I have understood your report correctly, 40% of the staff will retire within one or two years. According to what you are saying, those people often evidently do not have the required training to make decisions.

Moreover, you say that you are often unable to ensure that the ethical standards have been met—be it owing to patronage or interpersonal relationships between inspectors and company representatives. Can you give us the assurance that, when a company asks for an exemption to reduce the number of mechanics per locomotive from two to one, the inspector receiving and processing that request will have the required qualifications and that the ethical standards will be met?

[Maurice Laplante]

Thank you, Mr. Chair.

This question has two parts—one is about training and the other one is about ethics.

Let's begin by discussing training. If memory serves me right, in the report, we said that two thirds of inspectors and one third of managers had received training solely with regard to the Railway Safety Act and to the monitoring of safety management systems. As a result, we recommended that the department provide its inspectors and managers with the training they need to do their job properly.

As for the ethical side, we raised that issue because we had noted that most of the department's inspectors came from rail companies. So they are members of industry. That made us wonder whether, when it came to doing their job, those inspectors had the required objectivity to carry out the work properly and draw the correct conclusions. That is why we recommended that the department look into this matter and ensure that the inspectors were as objective as they needed to be to do their job.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

So the simple answer to my question is “no”. You cannot guarantee that the inspectors who receive a request for an exemption to reduce the number of mechanics per locomotive from two to one are necessarily qualified to deal with that issue. Basically, there is no guarantee that ethical standards have been applied consistently.

[Michael Ferguson]

I think what we found, Mr. Chair, was that there are weaknesses in all aspects really of how Transport Canada has been overseeing the rail safety system. In terms of the inspectors, there were weaknesses in the training and weaknesses in their knowing what they need and whether they have enough inspectors. There were problems in all of that.

I guess, though, what I want to make sure is clear is that we're not trying to guarantee anything. What we're doing is we're looking at how Transport Canada collects its information, to understand whether the rail companies are operating safely. We found that there were weaknesses in pretty much all aspects of that, including in terms of some of the training and competencies of the inspectors.

I just want to be clear—to really get an understanding of your question—that it's really a question for the department, because we can't guarantee that sort of thing.

[The Chair, NDP, David Christopherson]

Thank you very much. Time has expired, Monsieur Giguère.

We'll move on to Mr. Carmichael. You have the floor.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you, Mr. Chair.

I join my colleagues in welcoming you, Mr. Ferguson, and your officials today.

I'm also going to focus on railway safety and the oversight factors there.

In your report you mention that Transport Canada has implemented a regulatory framework for rail transportation that functionally centres on a safety management system, an elevated level of safety management, SMS, as you referred to it in the audit, that's designed to identify, analyze, and respond to railway safety risks, and that it has made progress in working with federal railways to implement safety management systems.

You note that the railway sector in particular has experienced unique difficulties with respect to the implementation of SMS. I wonder if you could speculate on or speak to the reason for these difficulties and what the government and/or the rail industry could do to facilitate the efficient and effective implementation of SMS.

In a similar vein, are these difficulties applicable to both class I and class II railways, or are they unique to short-line operators specifically?

I wonder if you could answer those specifically.

[Michael Ferguson]

I don't have an answer to that specifically. I'll see if, in a second, Monsieur Laplante does.

In terms of what the department can do to make sure the systems are in place, that's what the role of the department is. It is to do audits of the safety management systems so that they are gathering enough information to understand whether they're in place, whether they're complete, whether they're functioning the way they should be.

In terms of your specific question, I don't know.

Maurice, do you...?

[Maurice Laplante]

We have not looked at whether the different sizes of rail companies may have difficulty implementing SMS. This question should be asked of the department. They will have an answer for that.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you.

Mr. Ferguson, yesterday at the Standing Committee on Transport, Infrastructure and Communities, Transport Canada stated that SMS adds an additional layer of oversight. There are those who speculate that it creates redundancy. There are those who speculate it's a good thing to have that extra layer, particularly in such an important industry.

I wonder if you could clarify if you feel that SMS is a beneficial source of layering within the industry.

[Michael Ferguson]

Mr. Chair, as is our norm, we don't comment on policy. The putting in place of safety management systems is government policy. That's what is required to be there. What we do is audit compliance and implementation of the policy. I'm not going to comment on the policy itself.

[John Carmichael, Conservative, Don Valley West, ON]

Fair ball, thank you.

This audit was completed on results through the end of 2012, as I understand. We've had a lot of very visible tragedies in the rail industry this past year. I'd like to focus, though, on the time within your mandate, or this particular mandate. My personal feeling is that one accident, one derailment, is one accident or derailment too many. I think we'd all agree on that.

Within the audit, you examined whether Transport Canada had adequately overseen the management of rail safety risks by federal railways in that period. The Transportation Safety Board reports that train accidents in Canada had declined by 10% and derailments by some 41% from the five-year average.

I wonder if you could comment on that. It seems that we're making progress, but I wonder from your perspective if you would have a comment on those numbers.

[Michael Ferguson]

Well, in the chapter we included numbers over a 10-year period, I believe it was. Within that table, you can see the years when the number of accidents peaked.

I think we need to be careful about drawing conclusions from those numbers in terms of whether things are improving or not improving, because when you look at an incident like Lac-Mégantic, it's difficult to draw the conclusion just from looking at the raw numbers themselves.

Again, what we were concerned about was when the department was assessing risks, there were some important risks that they weren't considering, and assessing risks is an important aspect to deciding what the department is going to audit. We were concerned that there are a number of places they need to improve what they're doing in their regulatory oversight of the safety management systems.

[The Chair, NDP, David Christopherson]

Thank you, Mr. Carmichael. Time has expired.

We go now to Mr. Simms. You have the floor, sir.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Thank you. I want to thank the officials for coming in today. Auditor General, thanks to you as well. It's nice to finally meet you.

I want to talk about some comments that were made earlier about ship procurement, not that specifically, but we talked about options. In other words, this is a process that is noble, but nonetheless, because of the budget caps, options have to be made, and therefore, these numbers have to be adjusted, and so on and so forth.

These are major decisions with major amounts of money, as we all know. What bothers me and alarms me the most is—and I'll read directly from chapter 1. It says:

Eight years after government made it a priority to have in place effective internal controls over financial reporting, I am concerned that several large departments are still years away from knowing whether these controls are in place and working effectively.

What I'm saying is, I'm very alarmed at the monitoring that is not taking place. Specifically, since I'm the citizen service critic for the Liberal Party, I want to focus on chapter 2, “Access to Online Services”. I'll give you some time to check that out. It says that since 2005 “the government has not significantly expanded” the services it offers online to its citizens.

For the last five or six years, we've constantly been hearing about how the government is going to steer traffic, the clients from in-person visits and telephone calls, over towards the online service. Now I get that, because the numbers you show say that it costs the government close to $30 for a person-to-person visit to an office, but if it's done online, some of the studies show it can be as cheap as 13 cents.

The problem is that it's just not keeping up with what the expectations are. The government says that they want more people online, but it seems to me they're just not ready for it. There's no coordination.

I'll leave you with this example from paragraph 2.42 in chapter 2 about online access. This is what's alarming. It says:

Service Canada does not have an overall service delivery strategy, although it has been working on developing one since 2009.

Millions of dollars have been spent advising people to go online when it's not there.

What is most egregious to you since 2005 that deserves attention?

[Michael Ferguson]

Well, Mr. Chair, the question touched on three different chapters, really. The link that can be drawn among many of the chapters in many of the audits that we did, and I said it in my opening statement, is that even though the departments are aware that there are these types of issues that need to be fixed, in many cases it's taking too long to develop solutions and too long to implement solutions. I think that's a fairly common thread among a lot of the audits that we've presented.

In terms of the online services themselves, people now expect to be able to complete transactions online. They expect to be able to go online—

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Eighty-three per cent of the population prefers online.

[Michael Ferguson]

They expect to be able to go online to interact with the government and complete their transactions with the government. We have a couple of examples in the report of businesses, where interacting with one department takes them five days to get set up, and with another department, it takes 21 days to get set up. That type of performance just doesn't seem to be what you would expect in an online world.