Public Accounts Committee on June 8th, 2006

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Good morning.

Mr. Marshall, on what date did the tendering process for the lease at 800 Place Victoria finish?

[Tim McGrath]

I'll have to undertake to get back to you on that, but it is correct. In terms of how it's expressed, it did close two weeks prior to taking a decision to renew at 800 Place Victoria.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

I'm trying to clarify a couple of things as far as dates are concerned. But we'll leave that for now. I'd appreciate as soon as possible knowing when the tendering process ended.

Could you tell me, when the minister sent the letter reversing this decision regarding the best deal for Canadians, what reasoning around good government was used in the letter to take this option rather than the less expensive option?

[David Marshall]

I believe the reasoning was that the minister and the department had decided.... If I go back a bit, they had wanted to expand their occupancy or the space they needed. They ended up concluding that they didn't need to expand—so right there is a savings in the space utilization, but in other costs as well—and that they would stay where they were. We also got them to agree there would be no upgrade in their fit-up, which had been scheduled normally over the period they would be occupying such a space. That saved money as well.

I believe, Tim, it was $2 million or so, was it not, that was saved in the fit-up that was not done? So at the present time, for example, they're sitting there with some very old equipment and fit-up.

We've made efforts to make sure we mitigated the cost of their remaining where they were, as much as we could.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

It really wasn't mitigated, though, because we had to lease another property in order to alleviate any legal liabilities on a tender that had complied with the tender process.

[David Marshall]

Yes, you're right. That's what I meant. We tried to reduce the impact of that.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Could you tell me why you didn't enforce your guidelines? You had the capability of doing that; the Auditor General said it. How did it happen that you did not enforce your guidelines in this case?

[David Marshall]

If you want to look at our portfolio, we have a very low vacancy rate—half what any other operator of real estate has—so this is a very anomalous situation. We have, I suppose, the legal right. But in practice, we work with our clients to see what they need. They have operational needs. We have to take that into account.

I will also say that there has been quite an evolution over the last two years in which we're becoming much more forceful in enforcing our own standards.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

I can appreciate where you're coming from. But in just the small sampling of leases—and Mr. Christopherson was talking about one in Hamilton—we have millions of dollars that are adding up here. I don't think that's a small case, or one that would be just a part of the management process. Most Canadians would feel that way.

To make sure we understand completely what this situation was, I would like to ask you to table forthwith all of the communication between the two ministers on this property, what happened during the tendering process and the four weeks after that process.

[David Marshall]

I'll make note of that and table it with the chair.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

“Forthwith”; we need it now.

Another aspect I wanted to speak to you about is on page 217, paragraph 7.24. The Auditor General talks about a circumstance that seems to fly in the face of good management, where you use one financial model to evaluate proposals on a property or a number of properties but then use another financial framework to make the decision on which property you should choose. Is that practice still continuing?

[David Marshall]

Yes, it is. That is the practice. The Treasury Board ministers look at the cash needed, look at other priorities of the government, and come down with a decision. We give them information that would help them make their decision, and they make--

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

But how can that be very careful analysis, if you use one financial model to actually take a look at the real property's value and end-risk, and then use another model to make the decision?

[David Marshall]

Clearly it would be better if full life-cycle costing and accrual accounting were used, and that's the whole issue being discussed right now. Mind you, I think...yes, we need to look at the full life cycle, there's no doubt about it, and I think perhaps members of the Treasury Board are looking at it as well.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

The concerns are consistent here, and there aren't a lot of good answers. I would like to ask you one more question around risk management.

Risk management is a fundamental cornerstore as far as real property management is concerned. A training program was developed; the Auditor General says it was not implemented. Can you tell me where that is right now? Has that training program been implemented, and how many people have you trained?

[Tim McGrath]

Actually, there are two points on that.

One is that the training program has been developed, and I will undertake to get to you the number of people who have been through the training program.

You'll also note in the Auditor General's report, though, that we do mitigate a lot of our risk by having very qualified and competent people. The Auditor General makes reference to that in the report. As you go through the files, you'll see that in the various options analyses, we do include a number of risk elements and try to mitigate and predict what the risks are on various types of transactions.

Although it wasn't quite formalized when the Auditor General took a look at these particular files, since that time we have moved to a much more formal process, and part of our investment analysis report includes risk mitigation--a risk mitigation plan and a risk mitigation checklist that has to be completed as part of the transaction analysis.

[David Sweet, Conservative, Ancaster—Dundas—Flamborough—Westdale, ON]

Another real issue mentioned in the report is your capability of developing an aggregate look with all of your systems. In fact, it says some of your management does not even rely on your systems because of the nature of them. What is the status of improvements to your overall systems in the department?

[David Marshall]

I think this is the issue we talked about earlier. We have now a good understanding of what we need and we're going out to acquire these systems. This will help us to upgrade over the next couple of years.

I should also say that since the 2002 report, we have developed regional investment plans based on each major real estate region of the country and the needs of different government departments. That didn't exist before 2002; it does now. We have quite a lot of good elements to help us make good decisions, and we're going to keep improving.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Sweet.

Before we move on to the second round, I'd like to get a comment from Treasury Board on one of the issues raised by Mr. Sweet. It is one of the major problems here, as I see it, and that is the analysis that's done.

It's based on cash-based needs of the government and accrual-based needs of the government, and it does create some anomalies in that the most economical method is not picked because of this. Is there any movement to change the methodology available to the Department of Public Works so that they can have more flexibility in decision-making?

[Jim Libbey]

Thank you, Mr. Chair.

I think it's important to distinguish between accrual-based accounting, accrual-based budgeting and appropriations, and the issue of trying to make the best long-term economic decision around acquiring certain accommodations, which is the job of the real property sector in Public Works and Government Services Canada.

Certainly the extent to which we introduce accrual information in the entire budgeting and expenditure cycle biases decisions towards longer-term thinking, which I think supports what Public Works and Government Services Canada is doing in a general sense.

That said, the economic analysis they do does not really involve a lot of accrual accounting. They may be able to tell you more about how they do their economic analysis, but it's more of a life-cycle costing that they do. Over the life cycle of a building, the difference between accrual accounting and cash-based or near-cash-based accounting is not significant. The question of economics becomes more a question of cashflows.

When the decision has to be made as to what approach is to be taken in a specific time period--a specific year, today, tomorrow--other issues come into play in addition to the economic analysis. That's when things get a little bit difficult. It becomes a question of whether the budget is available in a particular appropriation to do a particular transaction, one way or another. Other things come into play on these decisions as well, as you've heard around the table here this morning.

In sum, the decisions themselves get a little more complicated than just the straight economics.

[The Chair, Liberal, Shawn Murphy]

Okay, we're going to start with round two.

Mr. Wrzesnewskyj, five minutes.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you.

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

[Inaudible--Editor]...Mr. Chairman, and was that an answer we got?

[The Chair, Liberal, Shawn Murphy]

Perhaps we will spend a minute on that. No, it really wasn't satisfactory, from my point of view.

As I read the report this seems to be one of the biggest issues, and it seems to me that the problem is probably just as much with Treasury Board as it is with the Department of Public Works, because there are some restrictions placed upon government in its decision-making because of the...like cash appropriations and others. There's been some suggestion there's going to be change. There's some suggestion of an independent contractor. I don't want to spend a lot of time on it because it's not my job here.

Mr. Libbey, could I get you to file with the committee, perhaps within a week, a full answer to that question, just where is Treasury Board going? There are some issues raised in this chapter, and it's my view, or my position, that there are problems with the Treasury Board as to how these things...and of course it's up to Parliament to make the decisions on how appropriations are to be done. Can you perhaps give us a more fulsome answer in writing?

[Jim Libbey]

Mr. Chair, we'll certainly do that, and I'll work with my colleague, Blair James, who is responsible for real property policy. Perhaps he could take a moment to explain one pilot project that is going on right now in this respect.