Government Operations Committee on March 20th, 2007

[Shirley Jen, Senior Director, Real Property and Material Policy Division, Treasury Board Secretariat]

Ms. Chaput spoke of the Federal Real Property Directory. This inventory holds profiles of real property, summaries of real property, municipal and regional profiles, maps and photographs, but it does not include detailed information on each and every building. We keep information on every property and on building overall, but we do not have details like the age of each building, for example. In certain cases, there are links—

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Links, yes.

[Shirley Jen]

... that take you to other departments' databases.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Therefore, the Secretariat does not have this data, but the departments do.

[Shirley Jen]

For the most part, yes. One of the responsibilities of a good real property custodian is—

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Absolutely, yes.

[Shirley Jen]

... to be aware of the state of his buildings.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

We have heard talk about the maintenance deficit involving certain buildings belonging to Public Works and Government Services. I do not want to target them, but those are the figures we have. We are also aware of the policy and the desire of that department to sell off certain buildings and to leave them to the private sector. From what I understand, the government's philosophy is to deal with governmental affairs and to leave the ownership and management of buildings to the private sector, which they could then lease back. We might therefore want to sell some of our buildings.

Ms. Chaput said that the various departments were responsible for managing the life cycle of the buildings. Let's say that a maintenance request was put in for one of the buildings, for example one belonging to Public Works and Government Services or to another department. A department does inventory on one given year and the following year sees that they will need $3 billion, or 3 million or $300 million. The department will go and discuss this with program officers. How can you decide if this request is timely? You have many requests because the buildings are very old. How can you make a decision? Are you simply going to believe in the good faith of senior officials and tell yourself that they must certainly have carried out an appropriate inventory of their needs?

That is the same thing as having blind faith. I don't want to pass judgment on blind faith. I simply want to know if that is how things work, or do you really have the necessary tools to compare the requests to the real needs.

[Shirley Jen]

Ms. Thibault, the custodians' most important responsibility is to prepare a long-term capital plan, as Ms. Chaput mentioned. In order to develop this plan, we must take into account the entire real property portfolio. We have to set priorities, because clearly, there is not enough money for everyone. This is really the aspect of portfolio management that is under the control and responsibility of the deputy minister of Public Works and Government Services or National Defence.

Treasury Board will have an evaluation tool to judge each long-term capital plan submitted by departments on its merits and according to certain criteria, while taking into account the financial situation at the time. It is not always a question of money. Money is definitely an important aspect, but sometimes the issue involves good portfolio management. I repeat that, because it is an important point. Like some departments, we think that in some cases, we can find ways of reducing the buildings portfolio so that we have more money for the remaining buildings.

As Ms. Chaput say, deputy ministers are responsible for submitting their long-term investment plans and their major concerns about buildings to us, and to tell us what they think about all these criteria.

[Louise Thibault, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Do I have any time left, Madam Chair?

[The Chair, Liberal, Diane Marleau]

No.

Mr. Kramp.

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

Thank you, Madam Chair.

Welcome, ladies. I have just a few questions.

I notice that the recent benchmarking of the occupancy costs indicates that in PWGS they're about 20% higher than in the private sector. That's significant. I have maybe three or four questions on that statement regarding the other custodians.

Do we have similar parallels with custodians of the other property? Are they also in the 20% range?

What measures are being taken to close the gap between the private sector and the government sector?

Do you have a target? Are you trying to get to a 5% or 10% variance? Are you trying to get to equal costing? Do you have a timeline?

[Mary Chaput]

In the series that you asked, sir, the 20% difference is, according to Public Works, associated with the fact that they work through their property program with certain rigidities that aren't felt in the private sector. They must follow Treasury Board policy; they must adhere to requirements like ATIP. They go through a number of steps in the public sector around consultation, etc., that the private sector would be able to shortcut if they felt it was the right thing to do. As well, we require them to do a certain amount of reporting to the centre and other bodies, which also contributes to cost, but I would say the biggest thing that PW would point to--and I don't want to put words in their mouth--is the policy rigidities they work with.

In terms of closing the gap, PW is right now in the process of trying to go through a real property reform exercise that would bring those costs down. They are looking at systems changes, HR training. As well, they are compressing space standards, but on that point I would say that has more to do with reducing the cost of actual accommodation than with the services or the overhead associated with them. Those are the ongoing efforts to close the gap.

We don't have a specific target in terms of closing that gap, although PW does have fiscal targets in the context of real property reform. That money has already been removed from their base, so they are working now without that cash and are adjusting themselves accordingly.

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

Wouldn't it be reasonable to expect that a suggestion could go forward, though, to establish a target? In other words, if there's never a goal, you really don't know what you're striving for. Improvement is one thing, but without a clearly defined goal and/or at least benchmarks for improvement, then you really can't expect people to maybe go over, above, and beyond. Would a goal or a target not be considered apropos?

[Mary Chaput]

I would suggest that a goal is always a good thing, along with a benchmark that tells you where you're starting from and a system to measure with. You might, if you were setting a goal, also want to have a sense of what we'll call legitimate ways of reaching the goal, so that you avoid costs being shifted or off-loaded onto other ledgers or accounts to suggest that the savings have been made when in fact they haven't.

Those would all be things you would want to build into the analysis.

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

I don't wish to put you on the spot, obviously, and just pull figures out of the air. You've intimated that it is obviously the mechanics of government and the different levels of accountability demanded by the public for government policy and government servants. Do you feel that's the major bulk of the administrative costs that would bridge the gap between the private sector and the government sector? Would it be 50-50, or 30% of it, or 20% of it?

I'm not asking you to pull this number out of a hat, but just from your experience....

[Mary Chaput]

I'd be out on a limb, but I think it would only take you partway, because I think some of it is structural as well. I think some of it potentially has to do even with the relationship with tenants who use PW services. The sophistication of that tenant, for example, can have an impact on how well PW can manage costs. If you have a tenant who's a good planner and knows he needs a new building next year versus tomorrow, you might be able to give a little more efficient service.

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

As a management tool, obviously a great IT system is definitely an asset. We're led to believe that most of PWGSC's systems are not--I'll be generous--new and up to date. There's a lot of antiquated, outdated equipment there, collectively speaking--both software and hardware.

As an example, if we were to move towards accrual accounting and had to do the entire process right now, it has been well recognized that we don't have the capacity in place right now.

I have two questions. One is on the other custodian departments. Do you feel they are in as negligent a state in their IT capacity as PWGSC, and in need of massive revamping? Second, do you see adopting accrual methods as an opportunity to maybe use this as a bit of a kickstart to get some symmetry in our systems?

[Mary Chaput]

I can't comment on whether the others are working with the same IT disadvantage, because I don't know where they are across departments in that scale of sophistication. Accrual accounting would go some of the way in assisting from a planning point of view, but I don't think it's the magic bullet either.

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

Okay, thank you.

On total dollars, the government spends an awful lot of money managing and maintaining its properties. Do you have any figures on the breakdown between management and maintenance overall for all of these things? Are we into millions, hundreds of millions, or billions? How big are we?

[Mary Chaput]

It depends on whether you include the PW reference levels. If you look at the PW reference levels you're into billions. But PW does much more than just accommodations, so you would want to parse out that portion of the department's reference levels that are devoted to real property. Then you would have to add to that the cost of other departments that are also in the property business, because many departments have special purpose space. I would think we're into the billions, but again I'm out there.

[The Chair, Liberal, Diane Marleau]

Ms. Nash.

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

Thank you , Madam Chair.

Thank you to the three witnesses for coming before our committee today and sharing your expertise; 46,000 buildings is a lot.

I would like to ask your opinion on the announced sale of some buildings. From your experience, do you think it makes good business sense for the government to be selling buildings and then leasing them back for a period of 25 years?

[Mary Chaput]

I don't have a personal opinion or even a professional opinion on that at this stage of the game. But on whether it makes sense, I think it always makes sense for any organization, whether it's the government PW or a private sector organization, to constantly look at the range of options they traditionally analyze in trying to determine best value or best way forward, and to ensure they haven't become wed to a single set of options.

So the degree to which the sale and leaseback initiative introduces another option into the analysis is helpful. Whether it ultimately makes sense or not will depend on a myriad of details, as you would know--the number of bidders, the timing, not just the bidding price but the lease values, the terms and conditions around those leases, etc.

The other thing about the initiative that is worth noting--and you alluded to it at the very beginning--is the perspective you need to keep in mind as you consider this sort of exploratory or innovative analysis PW are doing. They are looking at nine buildings at this stage. They own about 380 buildings. I presume the nine they're talking about will give them a sense of whether this initiative has merit or not. From that point of view it can be a useful learning tool.

I would assure the committee that the initiative is part of a multi-pronged strategy that PW have always used. They have always leased buildings. What is different about this is the sale and leaseback feature. My understanding is that in this initiative they are trying to take advantage of the current market conditions and negotiate a sale and a leaseback arrangement that takes advantage of the government's reputation as a very credible tenant. So they're trying to leverage those two things and at the same time off-load some of the risk exposure they feel the government is unnecessarily carrying right now in terms of real property.

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

Thank you for that answer.

Certainly it's always good to have creative thinking and innovation and options when you're dealing with so many properties at such value. But isn't there the danger with this sale and leaseback that the government and the people of Canada could get locked into 25-year, long-term leases that indebt us to the private sector when these were buildings that we owned outright, and that ultimately we could be on the losing end here?