Evidence of meeting #6 for Government Operations and Estimates in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was value.
A recording is available from Parliament.
5:10 p.m.
Conservative
Chris Warkentin Conservative Peace River, AB
Okay. So you're saying you didn't have enough resources to complete a good—
5:10 p.m.
Liberal
The Chair Liberal Diane Marleau
Thank you, Mr. Warkentin. You are way over your time.
We're going to Madame Bourgeois.
5:10 p.m.
Bloc
Diane Bourgeois Bloc Terrebonne—Blainville, QC
Thank you, Madam Chair.
I just want to make one comment and ask Mr. McCracken two questions.
My comment is for everyone. We have to be careful when we try at times to undermine the credibility of people who come to give evidence.
A document we received today says that Public Works and Government Services Canada, PWGSC, and the CB Richard Ellis group are not able to establish the value of the buildings. That is what Mr. McGrath asked. Nor were they able to do so in 2004, because no one at PWGSC had the skills to do it and the documents they had there were full of errors. You can read it in the document.
My question is for Mr. McCracken. A document from BMO and RBC says that PWGSC stated that its capital costs are higher than the private sector's because the elaborate process of internal approvals takes a lot of time. In addition, it says that internal standards often lead to specifications that are too stringent in comparison to those in the private sector, meaning less than optimal performance.
So that means that government standards are so high that, as I understand it, even the private sector would not meet them.
You must have seen this kind of thing. Can you tell me if it is normal in your world? Then, is it normal, supposedly to protect future deals, to have no information about the deals that took place with these seven buildings?
5:10 p.m.
Chairman and Chief Executive Officer, Informetrica
On the first one, again, I don't want to put myself forward as an expert on how to clean a house or a property, but certainly if you're going to compare estimates for the costs of a service, you want to make sure that you're comparing apples to apples. It strikes me that the difficulty, if you have a high standard being imposed by the government on maintenance or on cleaning, and a lower standard in the private sector as they alleged, then you are going to have different costs. One of the reasons the cost may be different is the choice of different standards. If you're trying to make a comparison or draw inferences from that, I think your comment is quite appropriate, that you'd better make sure you know that what you're buying is day-old bread rather than fresh bread, just to use that analogy.
In terms of the second one, I wasn't quite clear on what you were trying to get as a question. But certainly if you are involved in markets, in spite of the economists' assumptions of perfect information always being available and people being able to make informed decisions, the practice of people in markets is obviously to try to hold onto the information they have. The value of that information is repeatedly used in subsequent transactions. So the incentives are not to be open, but rather to hold information quite tightly. That's generally speaking in markets, and that's why we have regulatory frameworks, to try to make sure that doesn't persist.
5:15 p.m.
NDP
Charlie Angus NDP Timmins—James Bay, ON
Thank you, Madam Chair.
In Madame Marleau's hometown, we have a federal building that's leased. My colleague Mr. Kramp says some 40% of buildings are leased. This lease operation was basically that a company offered to provide a building to the federal government, they put the building together, and then it was possible to move federal staff into it. In that case of the lease, the owner of the building is taking a considerable amount of risk, and in exchange, they quite reasonably want a 25-year or 15-year guarantee of rent in order to put that kind of income forward.
Madame Ducharme, in that scenario where we're seeing a number of buildings that the government leases and the owners are taking back responsibility for them, is this deal significantly different from other standard leasing deals that the federal government has?
5:15 p.m.
National Executive Vice-President, Public Service Alliance of Canada
Yes, it is, and for a host of reasons. The concept of transfer of risk, when you're talking about the ownership being transferred in major urban centres, low risk of any type of downward movement in the economies of Calgary, Vancouver, Montreal, Toronto.... This is not a scenario where someone built a building in a relatively small community to provide workspace for workers and needed guarantee of income flow. And it's also a situation where, quite frankly, the taxpayers of Canada will pay $2.6 billion to Larco Investments over the next 25 years. It hamstrings future governments for their priorities, and there's zero risk when you've paid less than half of what you're going to be paid over the period of 25 years with a 10% escalator clause every five years. So I would say that's significantly different.
5:15 p.m.
NDP
Charlie Angus NDP Timmins—James Bay, ON
Thank you.
Mr. McCracken, I had questions about how you had arrived at numbers when I had seen the original extracts of the Informetrica study--again, the interest in the Harry Hays Building, where we jump from $5 million a year to a cost of $20 million a year. I'm looking at what has been provided by the BMO Capital Markets study, and it lays out that we're looking immediately, in year one, at a gross rent of $20 million, projected parking revenue of some $1.2 million. We have very accurate numbers, right down to the cost of cleaning and per square foot that was provided to you.
Given the fact that we're going to look at an immediate fourfold jump with the Hays Building, it doesn't seem to me there's anything costed in here for other above and beyond costs. Are you aware of any other costs that will be hitting these buildings on top of this very significant increase that's already been laid out in the BMO report?
5:15 p.m.
Chairman and Chief Executive Officer, Informetrica
To my knowledge, the operating costs are in neither set, or if they are they are assumed to be the same. So in some sense, unless you're positive that the operating cost would change depending on who owns it, then there is no change there. They specify what they expect the capital costs to be. They are only going after the major ones. Then Larco is saying these are the ones we will take responsibility for.
In the case of the Hays Building, the $21.7 million identified on the capital cost side, they say they will take responsibility for $16.1 million. So 74% of the capital costs that have been identified will be assumed by Larco. But any unidentified capital costs that do come up will be paid by the lessee, by the government. That's where the unknown is, if you will, or where the risk is. If they choose to operate the building in a way that yields higher operating costs, then the government will be liable for that too.
They have two incentives to do that. One is that their management fee is tied to the operating cost, and secondly, anything that improves the long-term value of this building will be to their account, to their benefit.
5:20 p.m.
NDP
Charlie Angus NDP Timmins—James Bay, ON
Finally, I'm looking at this study, and we're looking at real estate property on Jasper Avenue in Edmonton, René-Lévesque Boulevard and Dorchester Boulevard in Montreal, Sparks Street in Ottawa, Yonge Street in Toronto, Burrard and West Hastings in Vancouver. Of course they kind of blew that one. This is all prime urban real estate we're talking about. The numbers laid out in this offering are, as I said, extremely specific right down to the cost for the cleaning on the square foot.
On top of this, there are the other capital costs that the government will have to have signed onto to secure the sale. You said they're going to agree to.... Was it some $5 million immediately on the Harry Hays Building that they have to agree to, to cover capital costs? Are you aware of the overall capital cost on top of everything else this government has agreed to, to sweeten this sale of prime urban real estate?
5:20 p.m.
Chairman and Chief Executive Officer, Informetrica
Keep in mind that their estimate is that they would have incurred these costs in any case, and their estimate of the total of that is roughly $105 million on these seven properties. The lessor has agreed to cover roughly $71.7 million of them. So the difference in that is that they are still on the hook for roughly $34 million.
5:20 p.m.
National Executive Vice-President, Public Service Alliance of Canada
I would just add something as well. I just grabbed a document from my colleague: supplementary estimates, Treasury Board of Canada, for the year 2007-2008. On page 229 of 246 are listed new major capital costs projects: Calgary, Harry Hays Building, fifth floor building repairs and upgrades, $6,347,000. Then it goes on with additional cost for federal accommodation and holdings for the Skyline Plaza. There are indeed significant additional costs, which I don't think are listed in that, given that this document came out subsequent to the original documentation.
5:20 p.m.
Liberal
The Chair Liberal Diane Marleau
Thank you, Mr. Angus.
Mr. Holland, I'll give you a very short time, and then we'll go to Mr. Kramp.
5:20 p.m.
Liberal
Mark Holland Liberal Ajax—Pickering, ON
Thank you, Madam Chair.
At the end of the day, I think what should matter to us is the veracity of the information that's put before us, and whether or not this is a good deal. That's what we have to get to the bottom of.
The problem I have is that we've spent a lot of time talking about things that frankly I think are extremely immaterial. We've asked you how long your company has been there. We compared your résumé. We've done all of these various things, which I don't think help us at all.
I can tell you that I have a good deal of respect for some of the companies mentioned. In fact I worked for some of them myself. But I also know that large companies are not infallible, and they often do make mistakes.
I found a great deal of irony in antagonizing you as a witness, Mr. McCracken, to provide information on the one hand, when you then say, if I understood you correctly, that the reason you can't provide it is that they don't want it to be made public. So they're antagonizing you about giving information that they won't let you give, which seems rather ironic. Perhaps what I would ask is whether you would be willing to provide all the information if you could be given an assurance by the government that they would let you share the information you have.
5:20 p.m.
Chairman and Chief Executive Officer, Informetrica
I would certainly be willing to do that. I should also indicate that from the first time I tabled this report, a long time ago--it was sunny out--we said we would love to sit down and go over the spreadsheets cell by cell with the people at PWGSC. That was something I was more than willing to do, because my interest was in making sure that we hadn't made a mistake in the process. Now, they're busy people, and they chose not to take us up on that offer. But that offer was put on the table by the union, and I stood behind and said yes, I will do that whenever that comes up. We've been quite willing to make sure that information is made available. If we've made a mistake in the process, we'll be the first to admit it.
5:20 p.m.
Liberal
Mark Holland Liberal Ajax—Pickering, ON
I hope that offer is taken up, because I think that would be valuable.
On the other item, I'm concerned, and I don't know if you share my concern, going back to the point that was made with respect to consultation with the first nations. We had a Federal Court judge rule that consultations did not occur. The challenge to that was that a meeting may have taken place and it says consultation occurred. I agree that consultation can mean a number of things, but you said a minimum of one meeting occurred. That probably isn't the case.
My concern is that if the government's position on consultation with first nations is that a Federal Court judge's decision is irrelevant, and they still feel that they have had adequate consultation, then within the phase two properties--and in fact even within these properties that are impacted with first nations groups--do we not run the same risk that we're going to get other injunctions and other problems going forward?
5:25 p.m.
National Executive Vice-President, Public Service Alliance of Canada
Absolutely.
5:25 p.m.
Liberal
The Chair Liberal Diane Marleau
By the way, I just want to say, I've been informed that the minister apparently has said that these two would not go forward at this time. I think it's on his website.
5:25 p.m.
An hon. member
At this time.
5:25 p.m.
Liberal
5:25 p.m.
Conservative
Chris Warkentin Conservative Peace River, AB
I think you're right in saying that, because it's something that I think all members have heard in the media. Although they have tried to paint a different picture, it has been widely circulated that there will not be a phase two. So thank you for making that clarification. We do appreciate that.
5:25 p.m.
Conservative
Daryl Kramp Conservative Prince Edward—Hastings, ON
Madam Chair, I'd like to present a motion to the committee due to conversations we've heard today.
May I just preface it with a statement? We've had many witnesses at this committee on this very issue; as a matter of fact, I'm not even sure of the number. But, regretfully, not all the members here today were able to participate in all of those discussions, talks, inquiries, and questions and answers. I would certainly urge the committee members to, as best as possible, have a chance to review the blues and try to refresh themselves on some of the commentary that has happened and some of the testimony and statements.
It's normal to have differences of opinion, and I certainly understand and respect that. That's the nature of committees: conflicting opinions, directions, and thoughts. They abound here, and that's the nature of democracy and government. I think it's wonderful that we have the luxury of being able to have a difference of opinion.
But I was concerned today about the statement by Mr. McCracken that potentially we have wrong information. I concur with Mr. Holland's thoughts on this matter that we have to have accurate information.
As such, I would like to propose this motion: That this committee invite representatives from Deutsche Bank, BMO, and RBC to respond to the claims by Mr. McCracken.