Government Operations Committee on Dec. 10th, 2007

[The Chair, Liberal, Diane Marleau]

I'll call the meeting to order, now that our minister is here.

Welcome Mr. Fortier, Mr. Guimont and Mr. McGrath. You know how things work here. We will give you 7 to 10 minutes to make a small presentation, if you like. If not, we will move directly to questions.

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

Thank you Ms. Marleau.

Thank you for asking me to come to the committee to review the real estate transaction that closed this past October.

I'm here with François Guimont, who is our new deputy minister. François joined us in June 2007, as we were in the latter stages of the transaction. François' help was critical in allowing this transaction to cross over the goal line.

There is Tim McGrath, whom you know well. Mr. McGrath is responsible for all the real property within Public Works and Government Services Canada, both our real estate property and our leasehold interests. Tim also played a very important role in this transaction.

Ms. Marleau, my office, or the department, has submitted to the committee all the documents relevant to this transaction,

whether it be the Bank of Montreal or Royal Bank of Canada analyses, or whether it be the information memorandum that was used during the auction process.

I was handed copies of the Deutsche Bank's fairness opinions, which were tabled in support of this transaction, dated October 15. So it goes back a few weeks already.

So I believe the committee has all the documents it requires and basically can ascertain not only the data but why this transaction was undertaken and the benefits to taxpayers.

Having said that, Ms. Marleau, it would be my pleasure to take questions from the committee members.

I am here with Mr. Guimont and Mr. McGrath, in case their help is needed, and I suspect it will be needed at times.

[The Chair, Liberal, Diane Marleau]

Okay.

We will start with Mr. Holland.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Thank you, Madam Chair.

Thank you, Minister, for appearing before the committee today. I appreciate your appearance.

I wonder if I could just start by confirming something Mr. Warkentin had told committee at the last meeting, and that is with respect to phase two.

As you know, the committee has been concerned about the leaseback program in general, and specifically with its continuance in phase two. Can you confirm that the government will not be proceeding with phase two?

[Michael Fortier]

I can confirm with you that we currently are not envisaging any other disposals at this point.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Okay, “at this point”.

Does that mean that phase two is something you would like to pursue later?

[Michael Fortier]

This report—and you've seen the report—is all very interesting and valuable work that has been performed by these folks. I think there are some neat ideas in there. But at this point, Mr. Holland, we're not in a mode to embark on a phase two.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Are you supportive of the leaseback program generally, though? I'm trying to ascertain. You keep saying “at this point”. Is this something you would like to pursue down the road, at a different moment in time, if this is not the right moment in time?

[Michael Fortier]

Mr. Holland, we've done this transaction. I think we need to step back and digest the transaction, and time will tell whether there will be another transaction. I'm not trying to be cute here. At this current time, there are no plans for another transaction.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Okay. That's a little different from saying that phase two is off the table, but I appreciate the clarification.

On heritage, I want to go to consultations that took place between the government and the Musqueam Nation with respect to the properties in Vancouver, and specifically the Thomas D'Arcy McGee Building and the Skyline Campus in Ottawa.

It was stated here in the committee, I believe by Mr. Albrecht, that adequate consultations had taken place. Is that also your feeling, that the consultations that had taken place were adequate?

[Michael Fortier]

Very much, Mr. Holland.

The consultations began as early as March. Once the government decided to authorize the auction—not the sale, but just the auction—immediately the department consulted the first nation. So it goes back several months, even before, I would say, the confidential information memorandum was circulated.

[Mark Holland, Liberal, Ajax—Pickering, ON]

My concern on that, Minister, is that a Federal Court judge issued an injunction on the basis that the consultations were not adequate. What concerns me about that, and maybe you can help me with this, is that if a Federal Court judge came to the decision that the consultations were not adequate, and you feel they are, in further buildings--in fact, even in these seven buildings--there are first nations interests, including the Algonquins. If the previous consultations were adequate, in your mind, and a federal court judge disagrees with you, aren't we going to be into this same quagmire all over again, potentially, if, when the time is right, you want to pursue?

That leads me to ask you to outline for me the consultations that took place with respect to these two properties.

[Michael Fortier]

I'll start with the front end and I'll let my officials deal with the back end in terms of the exact consultation that took place.

My understanding of the decision is not that we didn't consult. My understanding of this injunction is that a judge decided that on the balance of inconvenience, it weighed in favour of the first nations, because obviously if we sold the buildings, the ability for the first nations to advance their arguments and make their point, given that the assets would be sold, would disappear.

The issue hasn't been resolved. We need to be very prudent here, because this case is before the courts. As you know, we are taking this to appeal, but I wouldn't want you to read into the decision of the judge, if I may say so, that we didn't consult; we consulted, but a judge decided that should we sell, the damages that would be suffered by the first nations would be greater, in his opinion, than if he allowed the sale and allowed us and them to negotiate on other terms.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Can you specifically outline what those consultations were?

We heard through the course of the last meeting that two meetings may have taken place. What, in your mind, constitutes adequate consultation? Maybe you could give the specific case of the Musqueam Nation in terms of the consultations that took place directly with regard to the sale.

[Michael Fortier]

I'll give you what I know took place, but I'll ask François and Tim to give you more specific data points, if you don't mind.

Consulting, to me, means meeting.... First of all, there are guidelines in the federal government, as you know, as to how one can dispose of a federal asset, so you need to tick several boxes. When you're dealing with the first nations, you need to consult and you need to let them know exactly what you're planning to sell, where the asset is situated, and what the terms of the sale are going to be. Then, if they believe they have rights over these assets--over the land or even over the building itself--they obviously need to manifest themselves.

This consultation took place, and I'll ask François or Tim to perhaps fill in the blanks.

[François Guimont, Deputy Minister, Department of Public Works and Government Services]

Thank you, Minister.

I'll just make two points, and I'll defer to my colleague, Mr. McGrath, to fill in the blanks.

The approach Public Works took is essentially based on what the Department of Justice considers to be proper steps vis-à-vis consultation with aboriginal people, whether it is the Musqueam band or the Algonquin band. Essentially we got what I would call the framework from the Department of Justice. There is no set threshold for that. It's just that we had a number of steps in mind. We interacted with them and we went through those steps systematically, so that's the first thing.

The second thing is that this is also why the lease was built to be a 25-year lease that at the end would revert back to us. That's another element that was considered to be critical.

The third point I would make is simply that we had the capacity, in view of the reality that existed vis-à-vis the Musqueam band, to essentially sever those two properties and still move ahead with the transaction, which we did.

Essentially I just want to say here that the framework was followed and proper risk mitigation measures taken vis-à-vis the Musqueam Nation.

Now I'll turn to your question about specifics, and I'll turn to my colleague, Tim McGrath, who can give you examples of the steps we took in that consultation.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Okay, and perhaps you can explain the discrepancy of why a Federal Court judge would feel, as he stated, that it was consultations. He didn't feel there were adequate consultations. Could you describe that discrepancy to me? It just doesn't add up.

[François Guimont]

Madame Chair, on that point about the judgment, the injunction was given with a view to not proceeding with the actual sale of those two buildings; the judge did not pronounce on the level or adequacy of consultation. My point here--and this is an important point--is that this is the subject of judicial review. To be clear on this, it's not as though it was felt that what we had done was not sufficient consultation.

I do agree with you that an injunction was granted--there is no question about that--and we set the building aside, but the whole discussion about whether it was sufficient or not sufficient or whether you should have done this or that has not yet taken place.

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

Just adding to the point the deputy minister makes, the judgment was that they would wait for the judicial review. If the judicial review is carried out and goes in our favour, we will then have the right to proceed with the sale of the two assets.

So as the minister was pointing out, to rectify that situation if the judicial review were to find in favour of the Musqueam, the judge felt that our proceeding now would be too detrimental or too financially punitive to the crown in order to buy the properties back at that point in time.

It wasn't that it was an injunction against the sale. It was an injunction waiting for the judicial review to be carried out. We're appealing that decision, but the judicial review should also be carried out within the next twelve months.

In terms of what we did, our first contact was March 7, 2007. We then had to send a follow-up notice on April 17, and then another letter asking for a meeting and explaining to the Musqueam the type of information required to determine rights on the particular property.

There were almost twelve different points of contact between March 7 and August 30, 2007, including two face-to-face meetings with the Musqueam themselves, seeking information to determine the rights on those particular two pieces of property. At that point, we never received any type of information ascertaining that they had rights on those two particular pieces of property. In any event, the injunction was granted and we'll wait for the judicial review.

[The Chair, Liberal, Diane Marleau]

Thank you very much.

Madame Bourgeois.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Thank you Madam Chair.

Hello Mr. Minister, Mr. Deputy Minister and Mr. Assistant Deputy Minister.

In the past few days I have re-read various reports, including a report by the firm CB Richard Ellis that Mr. McGrath had commissioned in April 2004. I also re-read a report by the Auditor General of Canada.

According to the report by CB Richard Ellis of 2003-04, the real property inventory was poorly managed. The report noted, among other things: lack of sufficient capital reinvestment; too many real property advisors, from a human resources perspective; poor internal management capacity in the department; high turnover of projet managers; overlap of technical reviews; ineffective and costly implementation processes; inadequate infrastructure to assess the final cost of projects, and so forth.

In 2005, Public Works and Government Services Canada, PWGSC, did what it could to lower the cost of the buildings and governmental expenses, because the federal government's Expenditure Review Committee had determined that real property activities could be a source for saving a billion dollars. The Auditor General of Canada verified that and even congratulated PWGSC for proposing a plan that could save not just a billion dollars, but $1.5 billion in property management.

Mr. Minister, in light of the report that I read, it is obvious that things needed to be cleaned up. Either the department needs to be cleaned up, which would take a lot of political courage, in my opinion, or, like Pontius Pilate, the department needs to wash its hands of the whole thing and sell off its buildings.

Mr. Minister, is $1.2 billion of the taxpayers' money, the net cost we will pay out in 25 years, not a high price to pay for lack of leadership?

[Michael Fortier]

Where do I begin? First, I do not know where you got $1.2 billion from. On the contrary, my findings and those of the reports submitted by the firms that were retained, namely Deutsche Bank, Royal Bank and the Bank of Montreal, confirm that this transaction undeniably benefits the taxpayer.

The observations of Richard Ellis from the years 2000, 2003, 2004 and 2005, are accurate. The Government of Canada's real property portfolio is enormous. It is one of the largest in North America. Not only is it enormous, but it also includes office buildings, museums, police detachments, prisons, laboratories, in short, a wide range of very different categories. Some buildings are more suitable to the recent operation than others.

There is always an underlying risk associated with property. All these reports, even the more recent ones I alluded to earlier, say directly or indirectly that at the end of the day, the taxpayer is still the one who pays the bill. Investment is not set in stone. When investments do materialize, it is usually later. The men and women who manage our real property inventory, under the leadership of Mr. McGrath, are doing their best in a situation that is not necessarily well suited to real property management. Real property management is outside the government's mandate, Ms. Bourgeois.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

That is what I was saying in my preamble, Mr. Minister. However, I forgot to talk about inadequate funding. The Government of Canada has never invested 1% of its equity in government assets. I am with you on that. I know that your response will be that you had a problem with the buildings. But what I am saying, and what all the reports are saying, is that there were problems within your department in terms of human resources management and overlapping technical reviews, which cost the government money and you know it.

You had the choice to clean house in your department or to sell. The easiest choice was to sell. You sold the seven most beautiful buildings. The only thing left to do is to keep mismanaging the buildings that are left, which are worth less than the buildings that were sold. The surplus spending this will cause will be $1.2 billion. It would cost us $2.5 billion at the end of the lease, or after 25 years. If this is so profitable to the taxpayer, then tell me why Larco Investments went ahead with the purchase.

[Michael Fortier]

Perhaps you are not familiar with real estate, but with all due respect, frankly you are displaying total ignorance of how this file is being managed.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Okay then, tell me what it is all about. I do not have your documents.