Public Accounts Committee on June 8th, 2006

[David Marshall]

No, what we did was say that given that the department doesn't want to move, we recommend they be left where they are, not have any more expansion, and reduce their fit-up costs, and that we try to find another tenant—that was given the conditions we were facing at the time.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

From the department?

[David Marshall]

Yes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Okay.

Now, Mr. Sweet asked you.... I think he worded it that he wanted you to table communication between the ministers. I'd also like to make sure we get all communication back and forth between yourselves and the minister. I'm sure that was implied, anyway, but just for the record....

Is it usual practice? Does it happen very often that ministers get involved like this?

[David Marshall]

Well, first of all, I should say it is not common but not unusual for a department to change course. We just discussed a change of course with the defence department. There have been many other examples where a department has said, for one reason or another, they don't want to go ahead with what they've been working with us on for some time. So it's not unusual, although it's not common.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I just want to clarify, though, the difference between the department's getting involved and the minister's getting involved to this extent.

[David Marshall]

Well, in the end, the minister speaks for his or her department; they're one and the same from our point of view. When a department asks something, we don't look at it as the bureaucratic level; we look at it.... They would more often than not inform their minister, “We're not going to go ahead, and we would like your support to change course”, and so forth. So it's not, in that sense, political interference; it's simply the political head of the department taking responsibility for a request.

If you're saying we should refuse such requests if they don't make economic sense, you have a point. What we are discussing now is to what extent.... If you had Public Works saying, “I don't really care what you want, we're moving you to a greenfield site outside”, that would not really be an acceptable way to operate, because departments do have legitimate needs to be in certain places and they have to be accountable for those decisions.

We take a lot of care to try to satisfy a department's needs. I think what you will have found over the last couple of years is that we've become much more rigid about requiring real justifications. So it has improved in that regard, but I think there will always be a need to take into account a department's wishes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Right, and in this case the cost was $4.6 million to the taxpayer. You talked about a few things that might mitigate it.

Of course, if you don't fit it up at the time and things start falling apart over time, you're going to have to do something eventually, if they want to stay there, and probably they're....

[David Marshall]

I might add a little postscript. Their lease has come up again now, and we are now going for a full tender for that agency. We shall see what the best price is. Let me assure you, this time I think we're going to execute—

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Why would you decide to become more rigid? You mentioned becoming more rigid. Why?

[David Marshall]

Because you learn over time. You see what happens; you make sure you learn from the past. Perhaps we were too accommodating in saying if that's your need, we'll try to meet it. Now there's much more scrutiny; we have goals, we want to save money, and so on. So things are improving in that regard.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Lake.

Thank you, Mr. Marshall.

We're going to now move to Mr. Loubier. Monsieur Loubier, vous aurez cinq minutes.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you, Mr. Chairman.

The explanations provided to us by Mr. Marshall and Mr. McGrath a little earlier do not convince me at all.

As regards JDS Uniphase, you said a little earlier that we should be careful with the numbers that have been circulating in the media. All of those numbers have, nevertheless, been verified. You talk about building maintenance, and you say that you must take into account other factors and determine what is more advantageous in the long term; signing a long-term lease or buying the building, which involves operating costs, maintenance costs and so on.

In a previous life, I calculated present values for public investments for the Municipality of Montreal. If the numbers published are accurate — and I believe they are — that means we are talking about signing a long-term lease costing $27 million per year for a building that is worth $30 million. With all of the maintenance costs and depreciations that you can imagine, the present value will have to be extraordinary when compared to the real value of the building.

That is what I am wondering about. Your explanation about not going to tender did not convince me in the least. You even provided arguments in favour of always going to tender, especially if 60% of buildings are available in Ottawa and 20% of buildings are available on the Gatineau side. That means that there is a lot of square footage available for any kind of project.

Why does your department appear to be a state within a state? The minister responsible who could answer our questions is not in the House of Commons. Moreover, you are telling us that you unilaterally decided that the best way to solve an accommodation problem for a client is to negotiate with a single firm, Minto Developments.

Did Mr. Doucet convince you to say virtually anything about JDS Uniphase, or are there other hidden reasons? I would like additional clarification on this matter.

[David Marshall]

Mr. Chairman, what can I say, other than that I will be accountable to you and will bring you the numbers as soon as we can make them available? We are in negotiations in a commercial way with the property owner. It's just not possible for me to satisfy your desire for greater detail. I can and will come before you to explain it. You will call me, I'm sure, and we will do that.

I should clarify, though, that while we occupy about 40% of the leased space in Ottawa, this doesn't mean there are empty buildings; otherwise, these kinds of situations wouldn't arise. There's a very tight market in Ottawa, with very little large space available. That's what gives rise to these cases where you have a large—

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Mr. Marshall, listen carefully, the market is very tight. You, yourself, admitted earlier that the vacancy rate was high on the Ottawa side, and slightly lower on the Gatineau side.

How can you know what space is available, if you do not even go to tender? The specific purpose of a tender call is to determine if space is available or if there are other adequate buildings that meet your requirements.

How can you claim to know what space is available in both the Ottawa and the Gatineau region, when you do not even go to tender? That is beyond me, especially since dozens, if not hundreds, of millions of dollars are at stake with a 25-year lease!

[David Marshall]

To answer the question you've posed, we know the availability in the market because we are operating in this market over a very long period of time. We are very well aware of all the properties that are available and coming available. We have had outside research done on what properties are available. We've also had outside professional opinions on the values we've placed on what we're recommending. We've taken a lot of precautions to make sure we're making the right decision.

I should also point out that there are legitimate situations, and we have come across them four or five times over the last seven years or so, where.... For example, we bought the old city hall at 111 Sussex, a unique property. There are situations where if you know there's only one supplier for a unique property or a unique good and you go out for tender, what happens is the owners know nobody else can bid against them and put a high price on it, and you have to accept it because there was a legal request for offers and you have accepted the result. That puts you in a worse position than if you know the situation and negotiate directly with the person who has the property. There are very important reasons why we would do this.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Mr. Marshall, if you are negotiating on the basis of what we read in the paper, we will be calling you back, and I swear it will not go well, because that makes no sense whatsoever.

[The Chair, Liberal, Shawn Murphy]

Merci beaucoup Monsieur Loubier.

Mr. Lake, you have five minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Talking about risk, I noticed that it's a big part of the last part of the report. In paragraph 7.52, it talks a little about it.

How important is risk analysis to what you do in terms of evaluating properties and decisions?

[David Marshall]

It is extremely important.

What we do is look at construction prices, for example, when we're looking at the own or build option. Then we apply a risk premium in terms of potential delays or escalation in prices of steel, and so on. We have a formula that we are constantly updating in terms of real experiences to try to assess the prices we might have to pay. So we take that into account.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Basically paragraph 7.52 says they “found that the Branch does not include an analysis of risk associated with each option in the report”, in talking about your investment analysis reports; “Therefore, decision makers are not weighing the relative risks when deciding which option to pursue.”

How can you possibly make the best deal if you don't have all of the information? You've already said how important the risk is.

[David Marshall]

We do a very thorough risk analysis. In another part of the report, I think the Auditor General has acknowledged that.

I believe the kinds of risk the Auditor General is referring to—and perhaps I shouldn't speak for the Auditor General—are more general, such as the landlord's risk, the legal risks, and so on, through the life of a lease.

I should also say that we recently appointed a chief risk officer, who is helping us improve our processes. I will stand by the fact that we do a very thorough analysis of what risks might occur before we make a decision.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Right, and it's improving.

[David Marshall]

And it's improving, yes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Okay, that's good to hear.

Throughout the report and all of the different meetings we've had, it seems that information systems are a big common theme, and it is in this case too.

In paragraph 7.11, the Auditor General mentions:

In our 2002 audit, one of our main findings was that the Department needed to strengthen its management information systems in order to provide managers with key operational and financial information.

Then, in paragraph 7.32, it says, and I think this was alluded to a bit earlier, “Department officials advised”—regarding fit-up costs and information regarding fit-up costs—“that this information was not readily available and would require extensive manual intervention”.

We live in the year 2006, and we shouldn't be requiring extensive manual intervention to find any kind of information. It seems to me that a lack of information equals a lack of accountability in this case, because you couldn't even respond to our questions due to that lack of information.

What are you doing right now to correct this? This seems pretty significant, and nothing has been done in four years. What's happening now?