Public Accounts Committee on June 8th, 2006

[The Chair, Liberal, Shawn Murphy]

Colleagues, witnesses, and visitors, first of all, I'd like to welcome everyone to the meeting of the Standing Committee on Public Accounts.

This meeting has been called pursuant to the Standing Orders to review chapter 7, “Acquisition of Leased Office Space”, of the May 2006 report of the Auditor General of Canada, which of course is automatically referred to this committee.

Appearing before the committee this morning, from the Department of Public Works and Government Services, we have the deputy minister, David Marshall, accompanied by Tim McGrath, the acting assistant deputy minister, real property branch.

Welcome, Mr. Marshall and Mr. McGrath.

From the Office of the Auditor General, we have the Assistant Auditor General, Ronnie Campbell, and he's accompanied by Bruce Sloan, principal.

From the Treasury Board of Canada Secretariat, we have Jim Libbey, the executive director, financial systems acceptance authority directorate, and Blair James, executive director, assets and acquired services directorate.

Gentlemen, I want to welcome each and every one of you. We're going to start right away.

Mr. Campbell, I understand that you have an opening statement.

[Ronnie Campbell, Assistant Auditor General, Office of the Auditor General of Canada]

Thank you.

Mr. Chair, thank you for the opportunity to present results of chapter 7 of our May 2006 status report, “Acquisition of Leased Office Space”. I'm accompanied by Bruce Sloan, principal, who is responsible for this audit.

PWGSC manages 6.6 million square metres of rental space and spends $3 billion annually to manage real property. As the department handles as many as 500 leased transactions every year, it needs complete, accurate, and timely information to support its decisions. The department's commitment to achieve the government's cost reduction goal makes strong management practices even more vital for the real property branch.

This audit has raised a number of important issues that affect the cost of office accommodation, and let me elaborate on those.

PWGSC client departments and the Treasury Board currently share the responsibility for decisions that affect the cost of office accommodation. The shared responsibility makes if difficult for PWGSC to impose and enforce government-wide standards for the quantity and quality of office accommodation.

In our report, we have noted instances where the department has not always enforced these standards, resulting in additional costs for taxpayers. The committee may wish to ask the department about the steps it will take to ensure that its standards are enforced.

A second factor that has an impact on the cost of office accommodation is the fact that the current funding mechanisms do not always allow the selection of the most cost-effective accommodation options. In our current audit, we found that the department had made satisfactory progress in identifying the most cost-effective options to meet the accommodation requirements of its customers. In assessing the various options for office accommodation, PWGSC considers the full cost of each option over the expected life of the requirement. Accommodation requirements often are for 15 to 25 years and include crown construction, lease-purchase, purchase, and lease.

[David Christopherson, NDP, Hamilton Centre, ON]

On a point of order, could I ask you to wait while I move to a system that works? I'm sorry, but I need the translation.

[The Chair, Liberal, Shawn Murphy]

They've got you in the Liberal section, Mr. Christopherson.

It appears to be working.

I'm sorry for the interruption, Mr. Campbell.

[Ronnie Campbell]

The committee may wish to ask PWGSC and the Treasury Board Secretariat to establish a timeframe within which they will create funding mechanisms that will allow the department to select and implement the most cost-effective accommodation options.

In 2002 we reported that PWGSC needed to strengthen the integrity and availability of information to support the management of the acquisition of office space. In our report this year, we reported unsatisfactory progress in this area.

To make the right strategic decisions, managers need information that is timely, accurate, and complete. We found that the basic information property managers need does not exist, is inadequate, or is difficult to get.

The committee may wish to ask the department to describe the steps it is taking to streamline the management of the real property portfolio and that it will take to establish the information systems needed to support its strategy.

Finally, Mr. Chair, we would like to raise the following issue. Often, government managers view office accommodation as a free good or service. However, at present, the cost of office accommodation is being paid by PWGSC and is being reported in departmental public accounts as a service that's provided without cost. The government should ensure that the system provides the right incentives for good management, including selecting the most cost-effective options.

Mr. Chair, we would be pleased to answer any questions the committee may have.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Campbell.

I'm going to turn now to Mr. Marshall. I understand you have an opening statement.

[David Marshall, Deputy Minister, Department of Public Works and Government Services]

Thank you, Mr. Chairman.

Mr. Chairman, members of the committee, thank you for inviting us to join you to discuss the 2006 status report of the Auditor General on the acquisition of leased office space.

As the chairman noted, with me today is my colleague, Mr. Tim McGrath, who is the acting assistant deputy minister for our real property operations.

I think it's clear to everybody that meeting the accommodation needs of federal public servants across the country is a very complex operation. It involves some $3 billion a year, thousands of transactions, and many trade-offs that have to be made. Among these is the need for the government as a whole to consider various budgetary demands and pressures and various priorities for federal programs. As well, Public Works and Government Services must deal with the volatility of the real estate market in every region of the country and the various pressures that arise on the cost of accommodation from one source and another.

Despite these challenges, PWGSC has been making steady progress over the years. You will find as you examine our estimates, for example, that despite an increase in demand from our clients, the cost of our accommodation program has not only levelled off but is actually going down.

We have made good progress on most of the recommendations made in the last Auditor General's report on this subject, in 2002, most notably in the area of better forward planning and, as the Auditor General has pointed out, in assessing the full cost of various options for office accommodation before we make a recommendation.

As well, over the past two years we have taken several steps to improve the management of the real property program, which are yielding concrete results; I can name a few. As Mr. Campbell has pointed out in his opening statement, we are indeed now enforcing a tighter space allowance for public servants and a less expensive fit-up package than we previously allowed. I must say we are receiving very good cooperation in this enforcement from both the Treasury Board Secretariat as well as the various deputy ministers of our client departments, and as a result we're saving several millions of dollars annually to the Crown.

We are doing more forward planning on lease negotiations and are negotiating leases more aggressively in the market. We've reduced our average lease cost to below the industry average in most markets across Canada. We are now ahead of our plan in meeting our savings goals in this area.

As well, we are reducing our own overhead. Our staff has come down by something close to 300 people year over year. We are improving the management of our inventory. We already have one of the lowest vacancy rates of any major real estate operation in this country.

Notwithstanding these achievements, more remains to be done. The Auditor General has pointed out that we need better information systems, and we agree.

Probably the most important issues the Auditor General has raised are, first, the shared or split responsibility between client departments and Public Works for the cost of office accommodation that now exists, and second, the various anomalies of being funded on an annual cycle.

In terms of shared responsibilities, decisions must take into account the operational needs of a department and so cannot be entirely assigned just to Public Works or to one or the other party. As well, budgetary trade-offs need to be made, in this case by the ministers of the Treasury Board. So there is no simple solution to this problem; however, I do believe improvements are possible, and we are working with the Treasury Board Secretariat to see how far we can go.

Mr. Chairman, I will be pleased to answer questions the committee may have.

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Marshall.

Mr. Libbey, do you have any opening remarks?

[Jim Libbey, Executive Director, Financial Systems Acceptance Authority, Office of the Comptroller General, Treasury Board of Canada Secretariat]

Mr. Chair, we weren't asked to prepare opening remarks. I'm here mainly to respond to any questions about the issue of accrual-based budgeting and appropriations for the Office of the Comptroller General.

[The Chair, Liberal, Shawn Murphy]

Thank you very much.

I have a couple of points of information I want to bring to the committee's attention. First of all, we have in our midst, colleagues, Dr. Peter Wilkins. Dr. Wilkins is from the Office of the Auditor General for Western Australia. He has a distinguished record in the whole issue of auditing and accountability.

Welcome to the meeting, Dr. Wilkins. Perhaps at the end of the meeting we'll get you to come forward to say a few words, if you wish. Certainly it's a pleasure to see you here today.

[Some hon. members]

Hear, hear!

[The Chair, Liberal, Shawn Murphy]

Members and witnesses, this meeting will end at one o'clock, because we're starting another meeting right then.

We have six witnesses and almost a full turnout of the committee here. It's an important and complex issue. I'd ask members to keep their questions focused and to the point, and I would ask the witnesses for short, crisp answers. This committee has no appetite for long, rambling answers, and we've been seeing a bit of that this week.

Having said that, I will go to Mr.--Madam Ratansi.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

I became a mister suddenly?

[The Chair, Liberal, Shawn Murphy]

I don't know how I made that mistake.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Oh, oh!

Excuse me, but we have to have some fun here.

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

Politics is serious business, Mr. Chair. I don't think we're allowed fun.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

I move that there be no fun.

[Some hon. members]

Oh, oh!

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Well, that side of the House does not have fun. Oh, that shouldn't go on my eight minutes.

Thank you, witnesses, for being here. My question will be directed towards the officials from Public Works. The Auditor General has stated that PWGSC manages 6.6 million square metres of rental space, etc., and spends $3 billion, and it has raised a lot of concerns. As a member of Parliament who sits in the House, I am a little appalled that the minister is not in the House, so he's not accountable.

My question concerns the JDS Uniphase complex, that $600 million complex. Is this a fair amount of money, considering that Minto purchased it for $30 million and it built that complex for $200 million? Is this $600 million a fair deal for PWGSC? Could you make a comment on it? We haven't had the minister in the House to account for it.

[David Marshall]

I will try.

Mr. Chair, obviously we are still in negotiations with the vendor in this case, and ministers of the Treasury Board have not yet approved this transaction, so I am somewhat circumscribed in what I can discuss.

Nonetheless, I can assure you that a very thorough analysis of this opportunity has taken place. The numbers you have been informed of through the press and so forth really do not explain exactly what has been analyzed. For example, the costs that we take into account are not only the value of the property, but also what the taxes are over 25 years, what it will cost us to rehabilitate the property that's been vacated, what the costs are of mid-life fit-ups, and so on and so forth. An awful lot of analysis goes on, which in this case indicates that if we are able to conclude and ministers approve, it is very good value to the Crown.

In addition, I can assure you that we have solicited and received independent evaluations of our own work, and we're satisfied that it has been a very thorough analysis. I wish I could share it with you. If it does become public, in the sense of being approved, we'll be able to describe it in much more detail for you.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Could you give a timeframe when this will be done, or what steps have been taken? You said you've done a thorough analysis. In every program we go through, we're being told thorough analyses have been done, and as members on this committee we have to be given absolute comfort that analysis has been done.

Could tell me what sorts of analyses have been done? What were some of the options that were taken into consideration, and when will we know the square footage and the cost per square foot?

[David Marshall]

To answer the first part of your question, we have been looking at this property for quite some time. We were looking at it in relation to another client that was interested in moving in. We've inspected the property. We've had real estate evaluations done on it. We know all the availabilities in the whole national capital region. We know the relative costs of leasing and buying. All of these have gone into the analysis that has taken place.

As far as being able to let you know what the ultimate cost is, at present we have what we believe is very close to what we would be able to execute the transaction for in terms of price, but until we get approval from ministers of the board, that price is not fixed--until we can get approval to go ahead and then do a final negotiation with the vendor. In that sense, it would jeopardize the government's position if we discussed this kind of range. I would ask your indulgence. We can assure you we worked very hard on this.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Fair enough. Then when the deal is made public, will we be able to analyze it, and if we make recommendations or raise issues about what it really is costing, would you then be able to make any amendments to the deal, or is it a done deal afterwards?

[David Marshall]

The way the process works is that ministers of the government examine the proposal we are recommending to them, and then our minister will recommend to the ministers of the board. A decision will be taken, and when we sign a contract, then it is a done deal. Then we are accountable for that and we will come before you, if you would like, and walk you through that, and we will stand behind the work we've done and explain why we've done what we've done. In that sense, we'd be accountable.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

There are some rumblings that the defence department is not willing to move into this building. What are your thoughts on that?