Thank you very much.
Thank you for the opportunity to appear before the committee today.
Through its Real Property Branch, Public Works and Government Services Canada manages a diverse portfolio of real estate on behalf of the Government of Canada, providing accommodation for about 255,000 federal public servants in more than 1,800 locations across Canada.
In this capacity, PWGSC is the custodian of 345 buildings located in every province and territory. Our primary function as custodian is to ensure healthy, safe occupancy and use of these buildings. In addition to that function, the department pursues its responsibility as a steward of the portfolio of owned buildings and the efficient and effective use of taxpayer resources with equal dedication and energy.
Prior to 1998, the department fulfilled a large portion of our custodian functions through in-house staff. In 1997, the department started an initiative to bring innovation, efficiency, and savings to our portfolio management. We explored and developed an approach to outsource functions that had been fulfilled internally, seeking to leverage private sector and provincial capacities.
The initial outsourcing, which covered the period from May 1998 to March 2005, was awarded to Brookfield LePage Johnson Controls following a competitive process. Eleven contracts were put in place across the country and two agreements were put in place with the British Columbia Buildings Corporation and Saskatchewan Property Management Corporation. The initiative covered 300 PWGSC-owed buildings.
Through that undertaking, PWGSC was able to reduce an average annual requirement of 70,000 contracts between the department and suppliers for its property and facility management function down to 13. The contracts were put in place to fulfill three functions: first, property management; second, project management; and third, tenant services.
In a conventional contracting scenario, our specifications are very prescriptive. This outsourcing arrangement, however, was and remains performance based. We do not spell out how the work is to be done, but instead specify the outcomes to be achieved. This allows the service provider to strive for maximum leverage, value-added input, and innovation.
When the approach was initiated, the savings objective target was set at 10% of the cost base for in-house delivery. The contracts were structured with this forced economy target, and savings achieved were in the order of $20 million annually.
In 2005, when the initiative was competed for again, the previous 13 contracts were consolidated to eight and covered 319 buildings or 80% of our inventory. The eight contracts were competed for and awarded separately. A company that now calls itself SNC-Lavalin O&M won all eight contracts. SNC-Lavalin ProFac, as it was then called, demonstrated the best overall value for four evaluation criteria of approach, financial, experience, and presentation.
A fairness monitor was used for the procurement, and his report concluded that the contracting process was equitable and transparent.
The contracts were awarded for an initial period of four years, with three additional two-year options. To date, two of these options have been exercised, extending the contract to March 31, 2013.
It is estimated that during the first three years of the SNC-Lavalin O&M contracts, the departments saved an additional $86.7 million above the savings from the original contracts.
This outsourcing arrangement also helped make it possible for the government to act very swiftly on its economic action plan funding earmarked for PWGSC's crown-owned buildings.
As the committee knows, we received $323 million over two years to make needed repairs to our buildings. Through the contract, 62% of this funding has gone to SNC-Lavalin O&M, and the vast majority of that has been contracted with local firms.
In maintaining properties on behalf of PWGSC, SNC-Lavalin O&M provides work for 4,000 small and medium-sized enterprises annually, most of them based in the communities they serve.
The contracts with SNC-Lavalin O&M are subject to a range of controls as part of the department's ongoing due diligence to ensure value for money.
An internal review of the SNC revenue, expenditure, and transaction controls was initiated last December as part of the department's annual audit cycle. The results of this work are expected in November of this year.
As with all our internal audits, recommendations and a corresponding plan of action will be presented to the department's audit and evaluation committee and ultimately posted on the web.
It is important to note that evaluations of this initiative were carried out in 2004, 2005, 2006, and 2007. Internal control measures over the approval of monthly payments are in place, as well as quarterly inspections of a sampling of projects for each contract, and operational performance measurement and reporting. We also conduct biennial client satisfaction surveys; the most recent one, in 2008-09, conducted by Statistics Canada, indicated that, nationally, 89% of tenants were either very or somewhat satisfied with their building.
In March 2010, the media reported on SNC-Lavalin O&M invoices for tenant service work carried out at Place du Portage in Gatineau. In response to these reports, the Minister of Public Works and Government Services requested that the department carry out an immediate review of the invoices to assess whether the expenditures were reasonable and supportable, and to determine whether there was any evidence of systemic problems with the contracts.
A third-party auditor is conducting audit procedures of expenditure transactions identified in the media articles, plus a sample of transactions made by SNC Lavalin O&M on work for PWGSC as a tenant, for PWGSC as a custodian, and for other government departments.
PricewaterhouseCoopers started this work on April 27, 2010. This examination is being carried out on a priority basis under the direction of the department's oversight branch and its ADM, Frank Brunetta. It is expected that in July the report will be tabled for review by the department's audit and evaluation committee and its three external members, Mr. Erik Peters, Mr. Norman Inkster, and Mr. Jean-Pierre Soublière. Subsequent to the committee's review, the report will be posted on the web. We will be pleased to provide a copy to this committee.
In addition, measures will be taken to improve records management. There will be further examination of any requirement for overtime work, and greater scrutiny and control will be placed on the requests for work.
Thank you for the opportunity to appear before the committee today. We will be pleased to respond to your questions.
