Public Accounts Committee on Jan. 29th, 2007

[Dan Danagher]

It's probably a question that's best fielded by the Treasury Board Secretariat.

It was a policy decision taken, as I mentioned before, in 1998. The main reason for it is that the old policy was quite old and didn't anticipate real estate commissions on houses of values of $1 million and more, which was becoming a little bit more common. The old policy essentially would pay the full commission, or 80% of the real estate commission, for, say, a million-dollar home. Those big-ticket expenditures were getting significant. Some employees, particularly in markets where the real estate market was hot, were looking a second time at relocations, because to sell their homes would mean to lose equity, so we were having some feedback--

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Isn't that what the incentive program is meant to cover? You have this 80% incentive program, so 80% of up to $12,000--

[Dan Danagher]

That's right.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

--would be--forgive my poor math--$9,500.

[Dan Danagher]

I'm sorry, I misinterpreted your question. Now I understand. You're quite right, at the end of the day, the incentive is $12,000. You've got that number correct. That includes any expense related to employees retaining their homes, including project management. We don't pay them anything above that amount, other than the costs of a moving van, etc., which would be the normal cost of moving. If they had to pay property management services, that's within the $12,000, and essentially it's their money.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

It's part of the incentive.

[Dan Danagher]

That's right.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Was that understood by Envoy?

[Bruce Atyeo]

The only reason the RFP required bidders to include a ceiling price was to protect transferred employees from being gouged on property management services, which they had to pay themselves out of money the government had given them. We were all told we should assume we would be managing approximately 7,200 property management files per year. We were also told to assume a rental amount of $12,000 per year, or $1,000 a month in rent. Property management fees are typically expressed as a percentage of the rent. We did 8%--

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

That's fairly high.

[Bruce Atyeo]

--of $1,000.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

So you were being very careful there.

[Bruce Atyeo]

We had to assemble property management firms across the country, in many locations where there aren't a lot of property management firms, that would manage these vacant houses for perhaps a year or two years. And yes, we were being conservative, because that's a tall order. Royal LePage said they could do it for--

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I don't mean to interrupt you, but I'm limited on time. Can you show us in the contract at some point--maybe now isn't the time--where you say it indicates that charges on property management were to be bid at their cost rather than the exposure of the crown? That's the difference of interpretation here. One of you said that only the costs to the crown were to be included, and the other said the total costs. I'd like to know where in the contract it says one or the other.

[Bruce Atyeo]

All the third-party services were to have a cap, which is commonly known as the ceiling price. That is what the government would pay for those services they had to pay for through the contractor. If the third-party supplier charged more than that, then either the relocation management company had to eat the difference, or in this case the employee would have to eat the difference. This ceiling rate was imposed to protect the transferred employee.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Finally, we've inherited this problem from a previous government. Our job now is to determine where to go from here. I want to know from Deputy Minister Marshall, have you or your department commissioned any work to ascertain what costs might be incurred by rebidding? Have you done any studies? Have you consulted any outside parties? Do you have any information on that whatsoever? Because we need to know that information. Any advice?

[David Marshall]

Yes, Mr. Poilievre. We have looked at this very carefully. We've sought outside legal advice. Our advice has been that there is no merit in rebidding this contract, so that's a piece of advice we've considered.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Why is there no merit in rebidding?

[David Marshall]

Because the process generally followed was balanced, and the result would not have changed, in any event.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Would there be any costs associated with rebidding?

[David Marshall]

Yes, yes, there would be. I'm going to give you the source of the costs, but I won't give you a number because obviously this is a commercial transaction. I'll tell you the source. There would be considerable cost in the first place because with Royal LePage we would have to terminate their contract for convenience. They've done nothing to cause us to cancel their contract, so there are lost profits for LePage. There are bid-preparation costs potentially, and there are other costs involved as well. So when you look at the total at stake, it is certainly a very considerable sum, and I don't think this is justified in terms of a burden to the taxpayer at this stage, when you look at everything involved.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

What is the source of this information, and what is the number?

[David Marshall]

Well, you know, you can appreciate that if I were to give you a number, it signals what our negotiating might be, should we at some point want to cancel the contract. I don't think that's appropriate in a commercial transaction.

I can tell you that it is a large number, and that has been taken—

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

And your source?

[David Marshall]

We have Department of Justice lawyers who give us a sense of—