Government Operations Committee on May 15th, 2007

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Madam Chair.

I would also like to thank you for appearing before us today.

Madame Deputy Minister, you said that your department is in its third year of the business transformation process to improve your administrative operations.

Does PWGSC have the authority and the support that it needs to accomplish these reforms?

[Daphne Meredith]

We're trying to achieve something. It depends on whether you're talking about our real property reforms, procurement transformation, or IT shared services. They're not all the same story. I would say our transformation is easier to achieve in areas where we as a department are more in unique control of the transformation. That would be the case in real property.

In the case of IT shared services, we want to achieve a transformation more through encouraging departments to sign up for our shared services. We have made some significant gains already, but we still have a distance to travel with IT shared services.

In the case of procurement transformation, the challenge is greater because we need to work with departments to get them to change their behaviour, and we also have to change the way we do things. We are setting up commodities of purchases that are commonly made by departments and are now becoming mandatory for them to use. So there's going to be some resistance while that change is taking place. That change in procurement is harder to bring about.

We have the authorities we need. I think the authorities will very soon be made that much clearer, because Treasury Board is putting through new policies that should clarify our role and the roles of departments. That will pave the way for our transformation in that area to a greater extent.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Are some departments dragging their heels? Are some of the reforms being slowed down because of shared responsibility that might cause confusion or a lack of leadership?

[Daphne Meredith]

I think there's a natural tension between departments that may have been in charge of their own purchasing before. You can imagine a natural response when the rules change and they say, “No, we're going to be doing it for you on these commodities.” It's a human response, so some departments have reacted that way--not all, by any means. Some are quite happy to work with us to analyze their purchases and take advantage of the volume buys we get.

So the experience is mixed. We've had some great success in some areas and a greater challenge in others.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you.

[The Chair, Liberal, Diane Marleau]

Would you like to wait for the next round? Okay.

We will now go on to Mr. Poilievre.

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

As a department you manage the real estate needs of 241,000 employees and 6.8 million square metres of space in 1,796 locations across Canada. I want to get a better understanding of how the financing for these properties is undertaken by the Government of Canada.

Do the departments pay you? Are they your clients, in a sense? Are you the landlord to them, the tenant, or how exactly is this relationship structured?

[Daphne Meredith]

I'll let Tim get into the details because our funding arrangements can sometimes baffle me a bit.

I should first of all point out that we're in the business of providing office accommodation. So we are the custodian for many office buildings, but other departments are custodians for special-purpose kinds of facilities.

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

I'm more interested in how the funding arrangements occur.

[Tim McGrath]

We act as a landlord on behalf of the government departments. We're funded directly from Treasury Board for the provision of accommodations, save and except two large clients. HRSDC, through their funding protocol and the CPP and EI Act, have to reimburse for their costs.

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

They reimburse you?

[Tim McGrath]

They reimburse Public Works and Government Services. We have agreements with them that are similar to the protocols we have with other government departments and Treasury Board. The Minister of Public Works and Government Services still very much makes the investment decisions that take place.

It's similar now with the Canada Revenue Agency. They've gone to a reimbursing regime, but in order to manage the portfolio holistically, they have agreed that we will act as their landlord and have a similar type of arrangement.

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

They credit you, then.

[Tim McGrath]

That is correct.

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

You said that's revenue.

[Tim McGrath]

That's revenue for us, that's correct.

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

So that's CCRA and HRSDC.

[Tim McGrath]

Correct.

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

Would it not make more sense for the departments to receive that budget directly and have them engage you as a landlord? Would they not then have a vested interested in keeping their real estate costs under control?

From what you've told me, it seems like more of a command and control structure of managing the real estate market of the federal government.

[Tim McGrath]

Madam Chair would know, from her experience as Minister of Public Works, that we've looked at that for a number of years--a reimbursing regime. What we found is that the internal charging doesn't drive the discipline that you would think it would drive in terms of that behaviour, because accommodation is not the most important part of somebody's program. We allow government departments to focus on their core program, where we come in as a common service to provide it.

For example, Ottawa has one of the lowest vacancy rates. If we had 105 different government departments and agencies out competing for space, the prices would go through the roof. It's similar to GSA in the United States.

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

I'm not suggesting that they would go out and engage directly, but that they would deal directly with Public Works as the sole supplier. I know it would be a very bad decision if departments were competing with each other amongst private landlords.

[Tim McGrath]

It moves you to that type of decision. When somebody has control of the dollars, they want to also be in control of the investment decision. We work very closely with clients in identifying what their operational needs are and very closely to meet their accommodation needs. At the same time, we're able to bring forward things like standards for fit-up for all government departments that allow for departments to move from building to building when government decides to reorganize. There are more pros to having a centralized approach.

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

Thank you. I appreciate that.

On the sale of these nine buildings, how will the transaction be booked in the Public Accounts of Canada? Will it be just a cash infusion that transforms a hard asset into a liquid one? Will it be booked as revenue, given that the government is still not on accrual accounting? How will that transaction be booked?

[Mike Hawkes]

We're still working through the details of how exactly we're going to apply it. There will be a proceeds of sale, so we'll record the proceeds of the sale. There will be the sale of assets, so the balance sheet would have to have the assets removed and the accumulated depreciation from those assets would be removed. There would be a recognition of a loss or gain on the sale of assets. It would be a gain in this particular case, we would assume. Then we would move to leases, and the expenses of the lease payments would then be reported as operating costs of the Government of Canada on an annualized basis for the term of the lease.

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

How do the current depreciation costs on those buildings compare to the operating costs of lease payments?