Public Accounts Committee on May 8th, 2018

[The Chair, Conservative, Kevin Sorenson]

Good afternoon, everyone. Welcome to the public accounts committee. This is meeting number 97 of the Standing Committee on Public Accounts. It's Tuesday, May 8, 2018. I would remind our committee that we are being televised.

Before we begin, I would like to mention that with us today is Delphine Bert, an analyst and clerk in the French Senate. She is visiting a number of our committees.

Welcome to our committee. We trust that you will have a really good time while you're here in Canada.

Today we are here to consider the special examination report of Atomic Energy of Canada Limited, of the fall 2017 reports of the Auditor General of Canada.

I welcome the following witnesses:

From the Office of the Auditor General, we have Clyde MacLellan, assistant auditor general; and Patrick Polan, director.

From Atomic Energy of Canada Limited, we have Claude Lajeunesse, chair of the board of directors; and Richard Sexton, president and chief executive officer.

I will begin with Mr. MacLellan. We will hear from the Office of the Auditor General, and then we'll go to our other guests. Then we'll get into the rounds of questioning.

[Clyde MacLellan, Assistant Auditor General, Office of the Auditor General]

Mr. Chair, thank you for this opportunity to present the results of our special examination of Atomic Energy of Canada Limited. As you mentioned, joining me at the table is Patrick Polan, the director responsible for the audit.

A special examination of a crown corporation is a type of performance audit. Specifically, a special examination determines whether a crown corporation's systems and practices provide reasonable assurance that its assets are safeguarded and controlled, its resources are managed economically and efficiently, and its operations are carried out effectively.

This special examination covered the period between April 1, 2016 and January 31, 2017.

Atomic Energy of Canada Limited's mandate is to enable nuclear sciences and technology and fulfil Canada's radioactive waste and decommissioning responsibilities. It receives federal funding and delivers its mandate through long-term contracts with a private sector contractor for the management and operation of its sites. In September 2015, the corporation completed a major restructuring which led to a new operating model. The goal was to leverage the experience and capabilities of the private sector in order to enhance efficiency and effectiveness, and to contain and reduce costs and risks for Canadians over time.

This meant that the corporation would be responsible for setting priorities and overseeing the contractual arrangement and overall performance of the contractor. In our special examination, we found a significant deficiency in board renewal. The significant deficiency was related to the delays in the appointment of board members, an area that was outside the control of the corporation. During the period covered by the audit, the corporation was operating with an interim board and without a president and chief executive officer while, at the same time, developing long-term strategic plans.

Although we found the corporation had many good corporate and contract management practices, we also identified weaknesses in several areas. In particular, we found the corporation's reporting framework did not demonstrate how the corporation would measure the overall objectives of restructuring, which, as I stated earlier, were to enhance efficiency and effectiveness, and to contain and reduce costs and risks for Canadians over time. Although the corporation included some performance measures in its corporate plan, it had not developed a framework for communicating the performance of the new operating model.

We found that the board had not yet implemented a formal, systematic process for monitoring and reporting on risks. In addition, the corporation still faced challenges in acquiring a contract team with the necessary skills and competencies to monitor the new operating model. Improvements were also needed in the areas of strategic direction, communications, and compensation.

The corporation agreed with all of our recommendations, and indicated it would act to address our concerns. However, because our audit work was completed in January 2017, I cannot comment on any measures that have been taken since then.

Mr. Chair, this concludes my opening remarks.

We would be pleased to answer any questions the committee may have.

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. MacLellan.

Mr. Lajeunesse, welcome to our committee.

[Claude Lajeunesse, Chair of the Board of Directors, Atomic Energy of Canada Limited]

Thank you, Mr. Chair.

Good afternoon members of the committee.

As the chair already mentioned, my name is Claude Lajeunesse and I am the chairman of the board of Atomic Energy of Canada Limited, or AECL. Here with me this afternoon is Richard Sexton, president and CEO of AECL.

I would first like to thank Mr. MacLellan for presenting the findings of the Office of the Auditor General's special audit.

I won't repeat what has been mentioned by Mr. MacLellan. However, I do want to provide you with a brief overview of our organization, our views on the report, and the actions we have undertaken to address its recommendations. Please allow me, however, to state up front that we have already addressed the recommendations made by the OAG. Of course, I will discuss these in more detail in a few minutes.

First, let me say a few words about AECL. Atomic Energy of Canada is a crown corporation. Our mandate is to enable nuclear science and technology, and to manage the Government of Canada's radioactive waste and decommissioning responsibilities.

Most of our sites are in Ontario, Quebec, and Manitoba. Our largest site is the Chalk River Laboratories, located about two hours west of Ottawa. The Chalk River Laboratories is Canada's largest science and technology complex. The site has operated since the 1940s, and is the birthplace of significant advancements in nuclear technology. For example, the laboratories developed Canada's own CANDU reactor technology, which has been deployed in many countries around the world: Argentina, Romania, South Korea, and China.

For decades, the laboratories developed and produced life-saving medical isotopes to the benefit of over a billion people. Molybdenum-99, which was produced at Chalk River, served in the treatment for and diagnosis of multiple types of cancers, as well as the diagnosis of cardiac and other illnesses.

We continue to have an important mandate in nuclear science and technology, most notably in managing a program, the federal nuclear science and technology work plan, which serves the needs of 13 different federal departments and agencies in the areas of health, safety, security, energy, and the environment.

An important part of our work is to take care of our radioactive waste in a manner that protects the environment and brings value to taxpayers. We have a responsibility to tackle these challenges now, so as not to leave it to future generations. Most importantly, finding solutions for radioactive waste disposal enables us to protect the environment and reduces risks in the long-term. This involves the decommissioning of old buildings, remediation of contaminated land, and building long-term management and disposal facilities for our radioactive waste in a manner, once more, that protects the environment, the workers involved, as well as the public.

Furthermore, we have been assigned the responsibility for managing the Government of Canada's responsibilities for historic, low-level radioactive waste, where the government has accepted the responsibility for such remediation. This includes the very important $1.2-billion project to clean up historic waste in the municipalities of Port Hope and Clarington in Ontario.

Beginning in 2009, the government undertook a major restructuring of our organization.

First, the assets of our CANDU reactor division, the division which was responsible for the development and sale of the reactors, were sold to CANDU Énergie Inc. a subsidiary of SNC-Lavalin.

Secondly, a governance model called “government-owned, contractor-operated” or 'GOCO'—was put in place in 2015 for the management of the rest of our operations, i.e. our nuclear laboratories and decommissioning sites.

Under this model, a private company—in this case Canadian Nuclear Laboratories, or CNL—is responsible for operating our sites. AECL continues to own the sites but they are managed and operated by CNL. AECL's role is to identify priorities for CNL and assess their performance according to the terms of our contact with them. We have a team of experts in nuclear science and technology and decommissioning and waste management who oversee CNL activities, approve their annual plans and if necessary, challenge what is proposed. Our goal is to protect the interests of the Government of Canada, the interests of the public, the environment and taxpayers.

Given that this model was put in place only about one year before the special examination was conducted, the AECL board and management team welcomed very much the OAG's special examination. We viewed the examination as an important exercise that could identify areas for organizational improvement and set the stage for the continued implementation of the then relatively new GOCO, government-owned, contractor-operated, model.

In terms of the findings of the special examination and the report issued by the OAG, let me make a few comments on these findings and on how they have been addressed.

First, let me highlight that the OAC concluded that AECL overall has good corporate management practices and good contract management practices in place.

Second, with regard to deficiencies, a significant deficiency was noted in board renewal, which the OAG acknowledged is outside the control of AECL and its board.

Third, the OAG noted areas that met their examination criteria, but in respect of which there were opportunities for improvement.

In terms of our response, we agreed with all of their recommendations and quickly undertook the steps necessary to address them. Specifically, management developed an action plan, which was approved by our board, and which was posted publicly and is available on our website. I understand that you have been provided with a copy of that action plan.

These actions include implementing formal processes for the board's review of the organization's risk register; the organization of public meetings; the development of a comprehensive performance measurement framework; a review of our approach to compensation; and the implementation of a formal training program for our contract management staff. All of these actions were completed within five months of the report being issued.

With respect to the one significant deficiency that was outside of our control, I am pleased to report that actions have been taken by the government to address the appointments on the board. In February 2017, after the period of the examination, the Governor in Council appointed Richard Sexton as president and CEO on an interim basis, meaning in this case, for a term of one year or until a new president and CEO was appointed. This year, in February, the Governor in Council appointed a president and CEO for a two-year term and selected Richard Sexton.

Furthermore, in June 2017, the Governor in Council appointed the chair of the board, along with four members of the board—two men and two women—consisting of three new members and one interim appointee becoming a permanent appointee.

I am very pleased that two of the four new members of the board of directors are women.

I will reiterate in closing that AECL recognizes the areas for improvement noted by the OAG and that management has already taken action to address them. We welcome this expertise. We welcome the exercise as a means to continue to progress in the implementation of this new governance model. Opportunities for improvement are acknowledged and appreciated.

We would be very pleased to answer questions that you might have.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Lajeunesse.

We'll now move into the first round of questioning. It is a seven-minute round, starting with Monsieur Massé.

Mr. Massé, you have seven minutes.

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

Thank you Mr. Chair.

Gentlemen, I thank you for being here to take part in the work of the committee. Your participation is important and we greatly appreciate it.

In general, the report of the Auditor General is positive for your organization. Certain observations were made—you in fact referred to them. One of them was important and was not directly under your control. Aside from that, regarding the other recommendations, you took prompt action.

I have a question for the representatives of the Office of the Auditor General.

AECL has been involved in an important transformation over a number of years, and this ended in September 2015. I know that this was not the topic of your audit, but I'm curious to know whether you noted anything regarding the goals that were set, which were to identify shortcomings and reduce risk.

Even if this was not the subject of your report, do you have any comments to make in that regard?

[Clyde MacLellan]

Thank you for your question.

Unfortunately, the purpose of our audit was not to assess the efficiency of the new structure of the organization. All I can say about that is that in the report, we emphasize that the organization should develop an evaluation framework in order to be able to answer that question specifically.

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

First, I'd like to say thank you.

Mr. Lajeunesse and Mr. Sexton, I want to give you the opportunity of answering this question. Once again, this was a major transformation, with specific objectives. Were those objectives reached? Did you find any shortcomings, and were you able to reduce the risks?

[Claude Lajeunesse]

Yes.

The measures that were taken since the GOCO model was put in place were defined very specifically during the discussions that led up to the creation of GOCO. We put in place the systems that allowed us to ensure that the objectives in the agreement were reached.

On that, I will yield the floor to Mr. Sexton, who will give you more details on some of the initiatives that were put in place.

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

Perfect.

Of course, this transformation was important. Your organization went from 3,400 employees to about 40. All of the operations are now managed through a comprehensive important.

I'd like you to tell me about the monitoring mechanisms especially, which allow you to make sure that the enterprise, alliance or group that was chosen conducts these operations well. What mechanisms did you put in place to ensure that all of the objectives you had set, and continue to set, are attained?

[The Chair, Conservative, Kevin Sorenson]

Mr. Sexton.

[Richard Sexton, President and Chief Executive Officer, Atomic Energy of Canada Limited]

I think the question that I heard was what systems do we have in place to ensure the performance of our contractor.

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

That is correct.

[Richard Sexton]

This is a fundamentally different model that has been implemented and we've moved relatively rapidly from government-owned, government-operated to this new model. The systems that we have put in place are really mirroring the systems and processes used in other countries to monitor the performance of the contractor, specifically those used by the Department of Energy in the United States and, in the U.K., the Nuclear Decommissioning Authority. They have a very similar set of issues and also a very similar set of contract approaches.

What we had embedded in the contract and embedded in our performance expectation was for the contractor to very quickly put in a system that's used to monitor the performance of their work. It's called an earned value management system. It's used throughout the world to manage very large, very complex, projects. It allows you, in a very systematic way, to monitor what work is actually being done, what does that work cost, is it behind schedule, is it above budget, below budget. It's a relatively complex system and one of the objectives that we established for the contractor day one was to get that system in place.

I think part of your question was how do we know. One of the things we just completed about two or three months ago was AECL brought in an independent auditor. That auditor organization—essentially, this is what they do—goes around the world and evaluates the performance of this earned value management system. They asked: is it embedded into the organization, and does CNL have the necessary procedures and processes?

I'm happy to report that they found that the system put into place at CNL is adequate. It identified areas for improvement, but we always expected it. I've done this work quite a bit in both the U.K. and at the Department of Energy. These systems probably take anywhere from three to five years to get fully embedded into the complex organization. We're well on our way.

[Rémi Massé, Liberal, Avignon—La Mitis—Matane—Matapédia, QC]

Super.

I don't have much time, time is running by really fast, but if you'll allow me, Mr. Chair, I wouldn't mind having a copy of the audit that has been performed to see the conclusion of this internal audit. That would be something which I think the committee would be interested in.

[The Chair, Conservative, Kevin Sorenson]

Some of these audits can be quite long, so even a summary of what the audit may be, if that's all right.

Thank you, Mr. Massé.

We'll now move to Ms. Gallant, please.

Welcome to our committee.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chair, and through you, to our witnesses.

First of all, I would like to speak to recommendation 28 on communicating with the public and the changes that AECL plans to make in terms of communicating the results.

We hear about decommissioning, but I understand that there's a dual mandate. We're supposed to be enabling nuclear science, as well as the decommissioning of the old buildings to be replaced with new buildings. What efforts is AECL putting forth in order for Canadians and the rest of the world to know that Canada is number one in cobalt production in the world and that we have already have 70 to 80 designs that are being proposed to CNL for the small modular reactors?

CNL has a reputation, as well as a positive regulatory system. Other countries are coming to this site to look to have their prototype built, and in the energy production existing already in Ontario, 62% of our clean energy comes from nuclear. What is AECL doing to communicate this to the public?

[The Chair, Conservative, Kevin Sorenson]

Thank you, Ms. Gallant.

Mr. Sexton, please.

[Richard Sexton]

You're absolutely right. It is an exciting time for the lab. There is a tremendous amount of increased notoriety of the lab across the world that I've seen in the last couple of years as CNL and its transformation has taken place.

In terms of communicating what the lab does, we felt it best, as we set this model up, to allow CNL to take the lead in communicating to the community and the public in terms of the good things that are being done. I think if you were to look at their website to see how they have transformed the way they're communicating and reaching out to the public, you'd see that it's fundamentally changed.

We felt early on that having AECL also communicating the same could confuse it. It's a relatively complex model, and the experience, again, internationally, is that the CNL types of organizations typically take the lead in communicating to the stakeholders and the public.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you.

My next concern is about the recommendation in paragraph 26, the transition of new board members. I see in the background information, Mr. Sexton, that “decommissioning” is mentioned five times, while you do hold two patents for radiation detection equipment. Again, the decommissioning is just one part of one mission of AECL.

When we look at the different board members, we don't see any background on the new board of directors, let alone any real continuity. Can you tell us about each of the board members who have been appointed thus far and provide us with some background?

[Claude Lajeunesse]

Yes, I would be very pleased to do that.

First of all, for the four new board members who were appointed, it was a lengthy process, but I can tell you that the outcome was absolutely outstanding, because we appointed individuals who have the pertinent experience we were seeking. The board devised a matrix of the needs that we had—

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Pardon me, Mr. Chair.

[Claude Lajeunesse]

One of our board members—

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Mr. Chairman, what I want to know is something about each individual board member.

[Claude Lajeunesse]

Okay.