Government Operations Committee on April 24th, 2007

[The Chair, Liberal, Diane Marleau]

I call this meeting to order and welcome the Minister of Public Works, Mr. Fortier. It's nice to see you again, as well as your deputy minister and Mr. McGrath and Mr. Hawkes. Welcome.

You know how it works; you've been here before. You have ten minutes or so. Feel free.

[Michael Fortier, Minister of Public Works and Government Services]

Thank you, Madam Chair.

Ladies and gentlemen members of the committee, good afternoon.

As you know, Madam Chair, I am always happy to appear before this committee to talk about our ongoing efforts at Public Works and Government Services Canada. Today I am particularly pleased to be here with regard to the main estimates for 2007-2008.

The department's main estimates for fiscal year 2007-2008 are $2.5 billion, a decrease of approximately $40 million from last year. Given the interest committee members have shown in my department's plans and activities related to real property, as well as its efforts to achieve savings through smarter purchasing of goods and services, I would like to focus my remarks on these areas.

But first, I would like to address another issue that I know is of great concern to this committee, as it is for myself—the matter of timely pay cheques for the employees of Public Works and Government Services Canada.

We take this matter very seriously. The department is working diligently to resolve all outstanding cases and has launched a series of initiatives to prevent such problems from arising again.

It has improved the service delivery model, launched a recruitment strategy for compensation advisors, revitalized the training program for new human resources recruits, and created 41 new positions in a satellite office in Matane, Quebec. As of today, no employee is delayed in getting the regular pay cheque and overtime is paid on time.

There are several cases where employees have temporarily filled jobs above their grade or received promotions and their paperwork has not been processed. Of the 2,000 outstanding promotions and acting payments recorded last December, more than 50% have already been resolved and the remaining will be resolved over the next six to eight weeks.

If you are aware of any employees not having been paid, please urge them to come forward.

Turning to our real property activities, during my last appearance I talked about the study by outside real estate experts on how to most effectively and cost-efficiently manage 40 Crown-owned properties situated in urban areas across Canada. The context of this study, and our pressing concern, as you know, is the $4.5 billion repair bill we face for upgrades to buildings across the department's real estate portfolio. As you know, before any sale occurs Public Works will obtain a fairness opinion. No building will be sold unless it makes financial sense over the long term.

As I've said before, many corporations and governments have successfully turned to leasing so that they can concentrate on their core functions. With respect, I don't believe most Canadians would consider real estate management to be a core function of the Government of Canada. I have asked here in the past, if we started from scratch today, would we really dream of owning as much in the way of bricks and mortar to deliver services to Canadians? I believe not.

As noted in Budget 2007, there will be continued effort on the part of departments to reduce procurement costs. As the government's chief procurement arm, my department is committed to work with suppliers and other departments to improve how the government buys goods and services and achieves cost efficiencies. Public Works is planning to achieve its own portion of savings through better procurement.

Considerable progress has already been made. To understand the government's spending patterns, Public Works has created a database of more than 24 million financial transactions from 55 departments. It has worked with eight departments, representing 60% of the government's spending on common goods and services, to develop plans for improvement and savings.

I have spoken to you before about our intensified efforts to help small and medium enterprises do business with the Government of Canada. This work is being led by Public Works' office of small and medium enterprises, which opened six regional offices across the country last year and has developed a range of strategies.

I cannot discuss procurement without talking about our policy on green procurement. In effect for one year now, it is having a noticeable impact. For example, hybrid four cylinder and E85 alternative fuel vehicles, now account for three quarters of the executive fleet as of February 2007, compared to only one quarter of the fleet as of November 2005. Another example, Madam Chair, deals with computers. Bidders will have to meet internationally recognized environmental standards for energy efficiency, environmental stewardship in the manufacturing process and packaging, recycling potential, and reduction in hazardous materials. By signaling to suppliers our commitment to the use of green products, my department can achieve savings and help the environment.

I know members are ready with questions, Madam Chair. Let me simply say that I believe the department is very much working in the right direction on all of these fronts, to the benefit of Canadian taxpayers, and I am confident that progress will continue.

Thank you very much.

[The Chair, Liberal, Diane Marleau]

Thank you very much. I would like to especially thank you for having dealt with the pay cheque issue. I sincerely hope that the 50% of outstanding cases will be dealt with as quickly as possible given that this dates back to the month of September. We will continue to monitor the situation in this area very closely.

We will now go to our first questioner, Mr. Turner.

[Garth Turner, Conservative, Halton, ON]

Thank you.

Minister, welcome to the committee. We appreciate your time here. Thank you, sir.

I'd like to ask you a couple of questions about the sale of public properties, the buildings that you've identified. You've given us a bit of a justification of the reason the government is doing this and the cost of having such a portfolio. Certainly questions have been raised about the process, and I'm hoping you can help lay some concerns to rest here at the committee.

The Royal Bank and the Bank of Montreal were asked to do an analysis and a report for you on this issue. My understanding is that the report was never tabled and has never been made public. Is there a particular reason for that?

[Michael Fortier]

The report was obviously tabled with the client. The client was Public Works. The reasons for the report not being tabled are that the report contains information—qualitative and, I would say, quantative—with respect to the portfolio, which in the context of the decision we've made to go ahead with selling those nine buildings could obviously adversely affect, I would say, the type of proposals we might be getting from potential bidders.

[Garth Turner, Conservative, Halton, ON]

We have about $1.5 billion worth of assets that the government is proposing to sell in this particular situation. Can you tell us what the Government of Canada has paid to have this report done? Is that public knowledge, or could it be?

[Michael Fortier]

What we've paid was $150,000.

[Garth Turner, Conservative, Halton, ON]

So these two banks in total were paid...?

[Tim McGrath, Acting Assistant Deputy Minister, Real Property Branch, Department of Public Works and Government Services]

Each was paid—

[Michael Fortier]

Each was paid $150,000. That's right.

[Garth Turner, Conservative, Halton, ON]

Each was paid $150,000 to produce the report.

When these buildings are sold, presumably the sale will be commissionable. The commissions will be paid to whom?

[Michael Fortier]

Yes. The department has signed an engagement letter with the banks, which is typical in these cases, whereby the banks will get paid in the context of a successful transaction.

[Garth Turner, Conservative, Halton, ON]

Can you tell us what the payment is? Is it a percentage of the sale price?

[Michael Fortier]

It is based on the sale price; that's correct.

[Garth Turner, Conservative, Halton, ON]

Is it a sliding scale? Is it a percentage of the sale price?

[Michael Fortier]

Well, the department negotiated. I can let.... I'm not aware whether we can make this public or not.

Mr. McGrath?

[Tim McGrath]

Certainly the structure of the agreement is based on industry standards, and it was quite clear in the RFP that should the government decide to proceed with the marketing of the properties, a new engagement letter would be signed based on industry standards.

In the agreement, we have assured in certain clauses that we receive the lowest price possible and the lowest price they have negotiated ever with previous clients. We also have the right to audit the fee, if a successful transaction takes place.

[Garth Turner, Conservative, Halton, ON]

But is it a commission on the sale price, or is it a fixed price?

[Michael Fortier]

No, it's not a fixed price.

[Tim McGrath]

It's not a fixed price. It is based on industry standards, that is, a scale based on the proceeds.

[Michael Fortier]

In my experience with this type of transaction, we want the banks to be incentivised to deliver better results for taxpayers.

[Garth Turner, Conservative, Halton, ON]

Sure, as in any commercial real estate transaction, I understand that, but is there any particular reason you can't tell us what the percentage is? Is it 5%, 6%, 7%, 8%, 3%?

[Michael Fortier]

I don't think we can disclose that; there's a confidentiality agreement in the engagement letter.

But I'm turning to my officials—

[Tim McGrath]

Honestly, it's something we would have to check with the banks to see if they'd be willing to disclose it, but there are assurances in the agreement between us and the banks that it is the lowest fee they have negotiated with any of their preferred clients, and they cannot charge us more than the fee they charged their best customers.

[Garth Turner, Conservative, Halton, ON]

Right. It's not every day that someone comes along with $1.5 billion in real estate to sell, so I would imagine you'd get a deal, but I am curious why it's not germane to the public to know the percentage of the sale price. It doesn't seem to be a big deal.