Government Operations Committee on June 7th, 2010

[John McBain]

Well, there are two areas where fees can be applied in this contract. One is for the property management function and one is for project delivery. I will allow my colleagues from SNC-Lavalin to speak to their exact percentages.

[Pat Martin, NDP, Winnipeg Centre, MB]

What I'm getting at, I guess, John, is that you're paying them a billion dollars a year—well, my figure is about $550 million a year—just to manage the maintenance of the buildings. You could hire 500 people at $100,000 a year and do that in-house for $500 million a year, and you wouldn't be paying the 15% markup every time they change a light bulb, and you'd be able to control your own costs. I don't see the business case.

I know during the mid-nineties the Liberals were on this crusade. They were trying to do off balance sheet financing. They were trying to offload as much as they could out of the public sector and into the private sector, but this one doesn't make sense to me because it's not an ESCO where you actually do contract out the energy services operations of the buildings. You can almost see that might make some sense. You're just paying them, not to maintain the buildings but to manage the maintenance; they hand you the bills and you still pay for all the heat, all the lights, all the air conditioning. You still pay for all the new carpets and all the new windows, and then they add 15%.

The problem with cost-plus contracting is that there's no incentive for them to find the lowest costs. They have three pre-qualified contractors who shut out all the little contractors in the area. They deal with the ones they have a relationship with. If you're adding 15% to the total cost, you're not looking for the cheapest price; you're ending up with the one you can mark up.

I don't like the looks of this at all. I'm glad we're doing a study of this. It just seems like a staggering amount of money.

Another thing is that you characterized the figures that were in the newspapers as “inflammatory”, as if to say the newspapers were making it sound like a big deal that it was $6,000 to put in six pot lights. I've worked commercial construction—high-rises, hospitals, schools, all those things—and that's a ridiculous amount of money for six pot lights, even if you are putting them in to code and even if you are paying union scale. It's a staggering amount of money. Do you mean to say that you've seen other invoices like this, so that $6,000 for six pot lights didn't shock you?

[John McBain]

First of all, you've put a number of things on the floor. I assure you that their markup is not 15%, first.

[Pat Martin, NDP, Winnipeg Centre, MB]

I thought you said that was confidential information. How do you know it's not? How do we know it's not?

[John McBain]

I know what it is, but it's not for me to divulge. I assure you it's not 15%.

[Pat Martin, NDP, Winnipeg Centre, MB]

Why should there be any markup if it's just a flow-through? You're already paying them a service fee to do the job. Why should they be tacking on a markup every time they spend money on our behalf? You're paying them $1 billion plus a year just to manage the maintenance—not to do the maintenance but to manage the maintenance.

[John McBain]

That total amount per year includes labour costs, utilities operations, the repairs themselves, and their fee.

[Pat Martin, NDP, Winnipeg Centre, MB]

But about $550 million is our figure for their fees alone to manage 320 buildings. Is that correct?

[John McBain]

I'll let the officials from SNC Lavalin speak to that amount.

In response to your question about the pot lights, as you get into the details of the work orders, in one case, for example, a step-down transformer from 220 volts to 110 volts was required. Fifty feet of line had to be run, a wall was demolished. These details weren't—

[Pat Martin, NDP, Winnipeg Centre, MB]

A wall was demolished?

[John McBain]

I'm saying it's in various different parts of those invoices. We could get into the details.

[Pat Martin, NDP, Winnipeg Centre, MB]

If a wall was demolished to put in the pot lights, then we're talking about a different job. It wouldn't be installing pot lights.

But I think you've lost control over the years. The longer this one lucky company has this multi-billion-dollar contract, it's like a dream come true for them to have an anchor client like the federal government in a cost-plus relationship. I think it's probably unprecedented in the history of the building industry. It's absolutely...

If I could get in on that, I'd quit what I was doing today, believe me.

You come from a building background, Chris. Have you ever heard of an ongoing, year-after-year, cost-plus relationship where you can not only get paid a massive service fee but also where, to every nickel you spend, you can add your 10% or 15% on top of it? It's too good to be true.

[Ed Holder, Conservative, London West, ON]

Do you have any questions?

[The Chair, Liberal, Yasmin Ratansi]

Mr. Holder, you're not the chair.

[Ed Holder, Conservative, London West, ON]

I apologize, Madam Chair.

[The Chair, Liberal, Yasmin Ratansi]

He can make a statement.

Go ahead.

[Pat Martin, NDP, Winnipeg Centre, MB]

Who's the chair around here, Ed?

Am I out of time?

[The Chair, Liberal, Yasmin Ratansi]

No, you're not. You have one and a half minutes.

[Pat Martin, NDP, Winnipeg Centre, MB]

I'd like to see if there is any kind of a business case for this arrangement, whether it goes back to 1998 or what. Where is the business case that justifies this, the biggest corporate giveaway since the 25-year patent protection on pharmaceutical drugs? For some reason we've decided to hand SNC Lavalin this gift that keeps on giving year after year after year.

[John McBain]

Madam Chair, when the contracts were put in place, the department identified 700 full-time employees who were associated with conducting this work. As part of the move of this to the private sector, 470 employees were transferred to the private sector. So the department was able to shed the costs of the direct salaries of those employees, which now must be borne by someone else. That, of course, is—

[Pat Martin, NDP, Winnipeg Centre, MB]

When you say “transferred to the private sector”, do you mean laid off?

[John McBain]

No, they were completely transferred. BLJC, as the first bidder, accepted all those employees and transferred them into their corporation.

[Pat Martin, NDP, Winnipeg Centre, MB]

So they're off your payroll?

[John McBain]

They're off our payroll. They're no longer a cost to the department or the taxpayer. In addition, there was a reduction of—

[Pat Martin, NDP, Winnipeg Centre, MB]

But they're no longer working because that company no longer has the contract. Is that right?