Government Operations Committee on June 1st, 2006

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

Was this transaction tendered publicly?

[David Marshall]

No, it wasn't tendered, Madam. The reason is that we received an unsolicited proposal by an owner of the property, Minto.

In looking at how we obtain space, there are specific preconditions under which we may consider an unsolicited proposal. Quite often these are advantageous to the Crown, and there is no reason to reject them simply because they're unsolicited.

In this case, it is a very large property. We are well aware of the real estate situation in the national capital region--what's available, what it would cost us to go out and buy a greenfield site and build buildings, and so on. All of this has been taken into account in considering the proposal.

So that could happen yet.

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

Thank you, Mr. Marshall.

[The Chair, Liberal, Diane Marleau]

I'm going to take the prerogative of the chair and ask a question, I guess because I have a little knowledge about how it works somewhat.

My question would be to the Treasury Board. Is there an overall plan for accommodation, and does it take in all of the country? My experience tells me that, for the most part, client departments will ask Public Works to find them space, whatever, and Public Works will go ahead and do this. Is there some function in the background that looks overall at whether or not we should be housing another 4,500 employees in this area? Are there some better ways of using our tax dollars, either in the regions or...? My experience is that a lot of these decisions are sometimes made by middle management. They make them according to what they know. The lease or the space that they use is extremely expensive. It isn't a function that has to be in that area; it could be in any area of the country. My sense is that nobody ever looks at that overall, that it's done case by case, and it's not necessarily the best thing for the country or for taxpayers.

[Blair James]

Madam Chair, what we've tried to do at the Treasury Board is recognize that we're not only talking about office space, but about what we call special purpose space as well. So for example, DND, the RCMP, or Agriculture Canada would have their own facilities in a certain geographical area, in addition to the office accommodation that their public servants may require in order to perform their functions.

We have been encouraging departments in specific geographical areas to, if nothing else, communicate what their requirements are to make sure they understand the overall federal presence in a particular area, so that if they're looking to offload some space, if it's excess to their needs, or if they're looking to acquire space, at least their colleagues in the other federal departments will be aware of that.

We have undertaken at the Treasury Board a number of what we call regional overviews. For example, we've done one on Vancouver, on Kingston, on Halifax, and on Ottawa over the past five or six years, where we have got together the real property managers of each department. We've put them in a room like this and indicated, “Give us your plans for the next five years in terms of your real property—where do you see it divesting and acquiring?—so that at least we have an idea”.

The office accommodation specifically, as you know, being the former minister, is the sole statutory responsibility of our colleagues at Public Works. Of course, they can't operate in a vacuum, because you can't be looking at an office space, whereas next door you have a special purpose space that may be more appropriate to look at as a package deal. So to the extent we are able, we coordinate the activities of real property managers to ensure that at least they're aware of what's going on, so that they're not working at cross-purposes, and more particularly, to take advantage of economic opportunities as they would come up.

Specifically on office accommodation, our colleagues at Public Works do ongoing reports on individual municipalities so that they are aware of housing public servants and what that would entail.

[The Chair, Liberal, Diane Marleau]

It's just that at times over the years, I've seen decisions taken to locate call centres in places like Mississauga, where the vacancy rate is nil. The cost of locating that particular function there is not exactly the best economic decision. So I wonder how these decisions are actually arrived at. Does anybody overview them to say that perhaps it would be better if that function were housed somewhere else? I've noticed that happening on and on in a number of areas, so I felt that there really wasn't much of an overall plan.

[Blair James]

You're probably accurate in your assessment.

We always say that the program requirement for the individual minister takes precedence. So if the individual minister makes a compelling case that the call centre needs to be in Mississauga and convinces her cabinet or the ministers at Treasury Board that this is the case, it's difficult to challenge them, other than with the back-and-forth banter that we would like to....

[The Chair, Liberal, Diane Marleau]

It's not always the best decision; let's put it that way.

I'll go to Mr. Dhaliwal.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Thank you, Madam Chair.

It might be a bit off topic, but I'm one of the new MPs on this block, and I see Chris agreeing on that one as well.

There is a question here about the constituency offices. Because I came from a small business background, I felt that if it was my own practice and I had to rent an office and get it running, I would be able to do it in a week. Being a member of Parliament, I was lucky enough to have an office from the previous MP. But I've noticed that it took the MP next door to me almost two to three months to move into her office.

I have a question for the Department of Public Works and Government Services here. Is there a way that we can centralize this leasing option, so that the office does not belong to an MP? It should belong to Public Works, so we can carry on.

It's just like the Prime Minister. If one moves out, the other takes charge. If he can move to the parliamentary office in a day, why can't another MP move into a similar situation?

It's going to save the taxpayers a lot of money. It's going to save them a lot of hassles as well, because the telephone number changes. They will know where to find them, so it's more consistent.

Could you elaborate on this one, please?

And there's insurance as well. I was looking at insurance cost, and Hedy Fry, another MP, had the same insurance company as I have, but there were two different rates. We had to go through a lot of hassles on that issue.

As someone with a small businessman's background, I would love to see if we could simplify these things.

[The Chair, Liberal, Diane Marleau]

Who wants to try to answer that?

[Some hon. members]

Oh, oh!

[David Marshall]

I think often the newest members to an organization see what has happened over a long period of time, which we've all assumed is the way to do it, then seize an opportunity to improve it.

Certainly the issue of having standardized space and so forth means it will be faster and probably better. It's a hugely complicated affair. I think at present, individual political parties arrange for constituency offices. I'm not sure, is that...?

[The Chair, Liberal, Diane Marleau]

Each member of Parliament is responsible for his or her own space and has a budget. It's taxpayers' dollars, but you're allocated an amount and that's what you do.

There's a lot of unfairness in it. If you come from an area where real estate values are low, it doesn't cost you very much for your office. If you represent an area in downtown Vancouver, it probably costs you a fortune, and I'm surprised you have space for staff. That's the kind of issue that, as MPs, we deal with a lot.

[Sukh Dhaliwal, Liberal, Newton—North Delta, BC]

Madam Chair, it's not only the cost; it is the inconvenience to the constituents. If it takes three months to set up an office in a minority Parliament when the term of an MP is 18 months, this is a concern.

In fact, I have run my business for the past many years. If I had to move from one office to another, it didn't take more than a week or two. Even though the red tape we have to go through in all the processes—getting the lease approved—is a tremendous amount of work, I tell you there should be a way to resolve this.

[The Chair, Liberal, Diane Marleau]

Please.

[David Marshall]

We could look at it. You know, it's one of those things that—

[Some hon. members]

Oh, oh!

[The Chair, Liberal, Diane Marleau]

I think it's something you could take up with the group that looks after the members' allowances and accommodation on Parliament Hill, and that's the Board of Internal Economy.

It's a good suggestion. It's not something I've thought of, because I've had the same office for a very long time. But it's a good suggestion.

We'll go to Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Madam Chair.

Thank you for being here.

I did move offices, and I saved us $5,000 a year, so there you go.

I have a few questions, and because I'm new, some of them are probably fairly elementary.

Could you tell me what the inputs and criteria are in the investment analysis report? What are we looking at when deciding between leasing and buying? What are the criteria?

[David Marshall]

I'm going to ask Tim McGrath to go through that for you.

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

When we do the cost comparison between the two, we essentially look at the cost of money and use the Government of Canada prevailing interest rates, the cost of fit-up that's required, the cost of construction, and the ongoing lease costs in a particular market.

We also look at the length of requirement for that client department. We determine whether it's in a market that offers us more or less risk. Certainly it's tougher to buy and maintain an ongoing presence in smaller communities if your requirement is only a five-year or shorter-term period. All these various factors are taken into account when we do an investment analysis.

[Mike Wallace, Conservative, Burlington, ON]

Let's take the length of time issue. Say these guys told you they were going to be there for five or ten years, do you ever do an analysis afterward on whether they were telling the truth or whether the thing got extended?

[Tim McGrath]

In order to support moving to longer lease terms, we actually did that. In the past, we were generally going with five years and three one-year options. We found that in 98% of the cases we would exercise all three one-year options to bring us to an eight-year term. When you count the transactions and resources, that's five individual transactions.

In addition, we also found that in almost 90% of the cases, most of the clients wanted to remain in that space because they had made an investment and hadn't fully amortized their entire cost. It supported our going to 10- and 15-year leases. We recognize the difference between the short-term and long-term lease requirements and we're finding that the risk of going with the longer term is substantially diminished as a result of people wanting to stay in the space.

[Mike Wallace, Conservative, Burlington, ON]

As a rule of thumb--I know it would vary between different communities--based on present value and other analysis, if they're going to be there for 13 years, is there normally a point where you say, yes, we really should be buying. Is there a number of years where you would come to that?

[Tim McGrath]

There are really two factors, Madam Chair. One is the type of client and the amount of fit-up required. High-security clients usually require a higher level of fit-up. When we're looking at that, we like to get a long-term situation. We always consider buying as the best option.

We're finding, though, that a 15-year lease is really the trade-off point. When you're doing an analysis, and landlords are looking at that, at the 15 year-point it starts to move from being a pure operating rental type to an economic rent. At the 15-year mark, you're also starting to incur some additional costs for rehabilitation of the asset. We try to really look at those numbers between 15 to 20 to 25 years as to whether we should be leasing or owning. But the 15-year mark is really the turning point between an operating rent and an economic rent.