Public Accounts Committee on Jan. 29th, 2007

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

In fact, you sent the committee a letter containing a certain number of replies in this regard. In the third paragraph of page 2 of your letter, you state that the result would have been same even if the benefit of the doubt had been given to the second-place bidder.

I find it unacceptable that concerning a contract of such a size, you say that it would not have made any difference that someone bid $48 million and that someone else bid zero dollars. It seems to me that this should have set off warning bells at the Department of Public Works, that the department should have wondered why there was such a difference between two bids.

In all fairness, you should have wondered why, before attributing the contract, there was a $48-million bid, which is not a small sum. I think that the federal administration may have become too large, and that $48 million is no longer a big enough sum to cause it to react.

I find it completely incomprehensible that we are being told that this was not sufficient cause to change the contract. All the more so given that in the Auditor General's report, the weighting for the assessment of contract specifications was 75 % for technical value and 25 % for financial value, and there was no document to support such a decision. It was Ms. Fraser who pointed this out. This was not provided to her. The question was put to one of your assistants at a previous meeting. We were at first told that those documents would indeed be provided to us, but then it became clear that those documents did not exist.

So it is not documented, and you tell us that neither the $48 million nor the number of specific cases would have changed anything in the final submission. It seems to me that this reply is totally inadequate. 75 % of the weighting went to technical value and, in addition to this, the bidder who obtained the contract already had a contract, and consequently, from the technical point of view, was in a much better position to verify all of the data in that contract.

Finally, I have a lot of trouble accepting your answer as the financial analysis was carried out by a single person. It is not that I'm calling into question the skills of Mr. Goodfellow, who performed that analysis. However, the fact that a contract of that size, close to a billion dollars' worth, was awarded on the basis of a financial analysis carried out by a single person is raising questions among the general population.

I would like some answers to those questions, Mr. Marshall.

[The Chair, Liberal, Shawn Murphy]

Mr. Marshall.

[David Marshall]

First of all, Mr. Chairman, I want to make sure that everyone understands that no one has questioned the accuracy of the financial analysis. Certainly it's better, and we will take the recommendation, to have more than one person look at it, but let's begin by understanding that the financial evaluation was accurate.

As to whether or not it's easy to believe the result would not have changed based on the evaluation, I appreciate that it's difficult to understand for a person just approaching the subject. This is a very complicated contract. I think the person who is questioning has understood that the financial part was only 25% of the total evaluation.

I also want to make sure everyone understands that this was not a secret allocation behind closed doors, with no documentation. It was clearly stated in the request for proposals how the evaluation would be done, so all bidders understood that it was 75-25.

The reason it was 75-25 was in fact discussed by the committee members, who decided on the evaluation. The fact is, it wasn't documented, but I can assure you that the two principal reasons were that the quality of the service was more important than the price, and also, relevant to your questioning, that when we put out the request for information, bidders came to us and said that the incumbent already had the service going, that they'd already taken their start-up costs, so someone new coming in would be at a disadvantage if one only looked at cost. So they asked us whether we would consider reducing the impact of price on the total evaluation. So it was a desire of both those who were not the incumbent and the program managers that the impact of price be reduced.

Now, you say, well, how come such a big difference didn't actually result in a change in the ultimate result? Well, of course, in addition to being only 25% of the total, this was only one of six issues that were considered financially. So I can assure you that when you do the numbers, it is a correct statement that this would not have changed the result on its own.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Marshall.

Thank you very much, Mr. Laforest.

Before I go to Mr. Williams, I just want to clarify an item. There are a couple of letters that have been given to us. They have been circulated in both official languages to each member of the committee.

The first letter is a letter dated December 6, 2006. It's from the Auditor General of Canada to Mr. Graham Badun, the president and chief executive officer of Royal LePage Relocation Services, regarding some information that was before the committee and regarding the issue of whether or not this was discussed with Royal LePage before the audit was tabled in Parliament.

The second letter is a letter dated January 26. It's from the Department of Public Works and Government Services Canada, under the signature of the deputy minister, to our clerk. It's basically a rehash, in perhaps a more elaborate form, of Mr. Marshall's testimony here today about his allegation that despite some of the inaccuracies in the information, he considers the process to be a fair one.

Those letters, colleagues, have been circulated. We consider them part of the evidence, so if anyone wants to question any of the witnesses on any statement in the letters, feel free to do so.

Mr. Williams, you have eight minutes.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Thank you, Mr. Chairman.

Madam Fraser, Mr. Marshall said your position bears scrutiny. I was looking at your opening remarks today, and in paragraph 4 you say:

The basis of payment set out in the contract does not distinguish between third-party services that are part of core funding and the third-party service funded from an employee's personal envelope. The contract is clear—“ceiling prices will apply for all services”.

Do you stand by that?

[Sheila Fraser]

I do, Mr. Chair.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Mr. Marshall, do you agree with the Auditor General's assessment of the contract, in that the price quoted covered both what the crown was to pay and the amount to be charged to the individual employees?

[David Marshall]

Yes, I do. I agree with that interpretation.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Admiral Pile, the last time you were here, you were saying you were going to reimburse the employees who had been charged by Royal LePage, presumably because they should not have been charged because the contract said the price was zero. Do you still agree that they should not have paid, should not have been charged?

[Rear Admiral Tyrone Pile, Chief, Military Personnel, Department of National Defence]

Yes, for those files that we review and find that an employee should not have been charged, they will be reimbursed. That is correct.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Mr. Badun, how do you read the contract? Do you read the contract in the same way, that there was one global price and that the employees should not have been charged?

[Graham Badun]

We read the contract differently. We think there is an element in terms of that pricing matrix, but there are also several references. For example, on page 45, there's a reference to the policy, which says we have to administer the benefits under the integrated relocation policy document. That then goes on to talk about the real estate incentive, which is a component of the funding formula that describes the way in which property management services are to be paid for, that being as a component for those members who elect not to sell.

This is a complex issue, so I have included some illustrations.

[John Williams, Conservative, Edmonton—St. Albert, AB]

It doesn't seem very complex for these three people. The Auditor General, the Deputy Minister of Public Works, and Admiral Pile, who is in charge of human resources for the Department of National Defence, all say it's a simple thing, so why is it so complex for you?

[Graham Badun]

It's not complex for me in terms of how we understand the policy. The policy and all of the supporting documents and instructions that we were given—to bid on a total cost to the crown—have to take into consideration different elements of the agreement, and not just that one page. Our look at this indicated that there was a real estate incentive that was a component of part of the funding envelope for those people who elected not to sell their property.

[John Williams, Conservative, Edmonton—St. Albert, AB]

What's a real estate incentive?

[Graham Badun]

If I may, I could refer people to the illustrations that I had submitted or I could walk people through some charts that I brought with me.

[John Williams, Conservative, Edmonton—St. Albert, AB]

No, just tell me what a real estate incentive is. Is it to buy property? To sell property? To rent property? What's the incentive for?

[Graham Badun]

The incentive is to not sell the property. For members of the military who elect not to sell their property but rent it out instead, there is what's called a real estate incentive that's funded.

[John Williams, Conservative, Edmonton—St. Albert, AB]

But we're not going down that road, Mr. Badun. We want to know about the fact that you were charging these people a fee to manage their property. Mr. Marshall, Madam Fraser, and Admiral Pile all say the contract didn't allow you to do that because you said you'd provide that at no cost.

Let me go back to these ladies and gentlemen.

Mr. Marshall, do you think Mr. Badun has a case?

[David Marshall]

Mr. Williams, I do, and I'll tell you why.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Let me ask Ms. Fraser whether she thinks he has a case.

[Sheila Fraser]

Mr. Chair, I would hesitate to get into the specifics.

Let me say, with all due respect to Mr. Williams, that this is a contract that has been issued with substantially incorrect business volumes. If it is a contract where bidders don't understand what the services are to be delivered and seem to have materially different opinions on that question, does this not raise the whole question about how fair and equitable this whole process has been?

Perhaps rather than getting into the specifics of whether it should be 0% or 8% or 9%, or whatever percent, I would say that if government is of the opinion that this is what the contract says, they should have the contract respected, and those people who paid for those property management services should be reimbursed.

I think this is one more indication that this whole process was not fair and equitable, because obviously the two bidders believe different things, as does the government department, as does our office, as does the current supplier.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Okay.

Mr. Badun, in the letter from the Auditor General to you dated December 6, she states, referring to you: “You state that our figure of 183 is incorrect”—these are the number of property management files, I guess—“and that there were 33 such cases”. So we had 33 people who own houses who said they'd rather keep their houses and rent them out rather than sell them because they were moving off somewhere else, and you accepted the responsibility to administer their property.

[Graham Badun]

Correct.

[John Williams, Conservative, Edmonton—St. Albert, AB]

Now, Mr. Marshall, the bid said that 60% of 15,000 moves—i.e., 9,000 families—would be requesting this service. When one of the bidders said, “But 60% of the people aren't even homeowners”, you said—and I'll cite the Auditor General, in paragraph 32—don't worry; just stick with the original number.

There is a very major difference between 9,000 moves and 33 moves, and yet in your letter to our clerk you state that you think it's not a big deal, when you say, ”The basis for this opinion has been that there was only an error in one piece of the data....” So it's not a big deal.

Thirty-three property management cases versus 9,000: is that not a big deal?