:
I would like to call the meeting to order and extend a very warm welcome to everyone here, especially the witnesses.
This hearing will go from 3:30 to 5:30, as allocated. It's pursuant to Standing Order 108, on chapter 7, “Acquisition of Leased Office Space” of the May 2006 Report of the Auditor General of Canada. It's not specifically on that report, but the issue of the leased space of Place Victoria in the city of Montreal was raised in the report. The committee had a number of inquiries about the transaction, and we felt, based on the information we received, it would be in the best interests of everyone if we had a hearing on this matter. That resulted in today's hearing.
We have with us today, from the Department of Public Works and Government Services, their deputy minister and accounting officer, Mr. David Marshall. With Mr. Marshall is Tim McGrath, the acting assistant deputy minister, real property branch; and Mr. Mario Arès, regional manager, assets and facilities management.
From the Canada Economic Development agency we have Michelle D' Auray, president.
From Infrastructure Canada we have Mrs. Carol Beal, the assistant deputy minister, program operations branch.
And of course from the Office of the Auditor General we have Mr. Bruce Sloan, who has been with us many times before.
Again I want to welcome each and every one of you.
Monsieur Laforest.
:
A point of order, Mr. Chairman. This is not the first time we have this problem of documents being produced in French and English but with more documents in English than French.
I am referring to a document sent to us, through the clerk, by the Department of Public Works and Government Services, dated January 30. There are two documents in English, with tables, but only one in French.
We have called the clerk's office to know if the missing document was available in French. As a matter of fact, we don't receive French documents from PWGSC as quickly as English documents or we don't always receive the same documents than those provided in English.
I find that unacceptable, as I have already underlined to the committee. If necessary, we will submit a motion. If we have to submit a motion to receive the documents that we need to be able to do our work like the other members, we will do so. I expect to receive the same documents as of those provided in English.
:
Yes. Thank you, Mr. Chairman.
Members of the committee, we appreciate being here to discuss with you the subject of the leased office space at Place Victoria in Montreal, as it was reported in the Auditor General's report of May 2006.
As you mentioned, I have with me today Mr.Tim McGrath, our acting assistant deputy minister for real property, and Mr. Mario Arès of our department, who is the regional manager in the Montreal office of Public Works and Government Services.
To begin with, I'd like to mention that we have carried out a very extensive search of all our paper and electronic records in order to serve the committee as best we can. We are confident that all the documents requested that we have in our possession have now been submitted to the committee.
In addition, we took the time to prepare a flow chart that tied together the various documents and other recollections of our staff over a chronology of events relating to this transaction. I believe this is before the committee in both languages, with a key indicating wherever there is a document that relates to that particular point in the chronology. We would of course be prepared to walk through it with you to the extent it would be helpful to you.
Let me summarize what we have determined. In December 2000, Public Works and Government Services and our client, the Economic Development Agency of Canada for the Regions of Quebec, began the process of finding the agency suitable premises, as their existing lease in Place Victoria was coming up for renewal and the premise was due for an extensive fit-up, as well as lacking space for expansion.
That was the requirement. Between December 2000 and May 2001, our two teams worked closely to finalize the requirements and develop a plan.
The recommended option, which was approved internally at Public Works and Government Services, was to go out to tender in the Montreal market for the requirement. Public Works officials proceeded on that basis and set in motion a series of steps that culminated in qualifying six bids, amongst which were included Place Bonaventure as well as Place Victoria.
Following an evaluation, on March 12, 2002 the bid from Place Bonaventure was judged to be the best value to the Crown.
Our Public Works and Government Services director general in Montreal personally called the deputy minister of the agency and received assurances that everything was still as originally planned and nothing had changed. On that basis, Place Bonaventure was informed that they were the winning bidder, thus committing the government to leasing that space. Shortly after this, on April 4, our assistant deputy minister for real property, who at the time was Carol Beal, who is here with us today, was advised that the client had changed its mind. The additional space was no longer needed, and they wished to stay in premises more suitable to their program. She was told a letter from the minister would follow.
On April 15 a letter was indeed received, signed by Minister Drouin, the minister for the development agency.
Our staff at this stage considered the request to be very late in the process, but clients have from time to time changed their minds, and we have tried as best we can to be helpful if at ail possible and to minimize the cost to the taxpayer in doing so.
In this case, at the time there was an anticipation that office space in Montreal would be rising in price; also, that there were other clients who needed new space in the downtown area. We made the decision that if we could get an acceptable rate for the Place Victoria space, the economics of leaving the agency in its current space and filling the Place Bonaventure with other tenants could be a viable option. If we could not negotiate a good lease renewal rate from Place Victoria, then we would have to insist that the agency move as originally planned.
As it turned out, we were able to negotiate a good rate with Place Victoria—30% lower than they had bid in the competitive tender process. In addition to not expanding, the agency agreed to forgo the fit-up they were due to receive.
Our analysis showed that with these factors and moving costs taken into account, the cost of letting the agency remain in Place Victoria was economically viable, and we'd be happy to walk you through that calculation. And in that sense it did comply with our rules to only allow clients to remain in situ if it was economically viable and advantageous to the crown.
Public Works was optimistic it could move other government tenants into the newly leased Place Bonaventure space. Despite best efforts, the process to backfill with other departments seeking additional space in Montreal's downtown core took longer than we'd hoped, resulting in a cost of unproductive rent of about $2.1 million to the taxpayer. I should point out that Public Works' vacancy rate at any time in its portfolio averages just 1.2% of available space, compared with an industry average of about 5%. So Public Works does, overall, have a very good record in maintaining full occupancy of the space it pays for.
This, Mr. Chairman, is as close to what happened as we can reconstruct at this time. As you may be aware, our practices have evolved since the above transaction took place. We have strengthened our oversight and risk management of such accommodation arrangements. Today we're more stringent in enforcing our real estate standards. We also ensure that clients and our minister are informed as early as possible of any incremental costs arising from a change of plans, and that these costs are properly assigned to those incurring them.
On a somewhat separate matter, we also intend to fully implement your committee's recommendations to disclose to Parliament each year the details of the additional costs incurred by any of our clients from the lack of adherence to policies and standards.
Mr. Chairman, I'd be pleased to answer questions the committee may have.
:
The process is as follows. When the lease expires, Public Works and Government Services Canada ask their client – Canada Economic Development in this case - what will be their future needs. Then, an assessment is made based on the needs analysis, which was done.
However, within this analysis, CED also told Public Works that the location of their office on Montreal Island was still under discussion. No decision had been made at the time but the plans and estimates were assessed on the basis that the Montreal Island office would be located within headquarters, if I may use that word. Furthermore, the agency planned to expand because of specific programs that were to be transferred or offered to it.
During the process, a decision was made about the Montreal Island office. So, one factor changed in mid-course but we knew that the expansion needs of the agency would remain. A proportion of the needs and of the staff was not the same as at the very beginning of the process but we had already advised Public Works of that possibility.
The needs assessment also took account of the fit-up work for the space at Place Victoria which was not really up to our standards, and that would have entailed additional costs. As my colleague told you, when we do a cost-benefit analysis, we take account of the fit-up work that has to be done. At the time, all costs considered, it was more advantageous to move. Without those costs, it was more advantageous to stay put.
:
That would be a yes? Okay.
I only have eight minutes, so I really want to move through this as fast as I can.
Now, it's my understanding that at some stage of this whole process there were some pretty clearcut directions that came down the tube from the political masters, which said that for this property they were going to renegotiate a deal with the existing landlord and that's the way things were going to be. You wrote an e-mail on May 3, 2004—and I thank you for the e-mail, because I think you showed yourself to be a very professional, dedicated public servant by writing that e-mail—and you expressed some real concerns in that e-mail.
Do you take the position that ultimately this lease arrangement, the whole process, was basically scrapped, and it was given to the existing landlord because the political ministers of the day decided that it had to stay with the existing landlord?
:
In the procurement process, if you have public tenders for something, and people in good faith submit tenders and so on, and then behind the scenes negotiations start with the fourth-place tender to renegotiate.... There's even correspondence about changing the blaming windows in the building so you could change it to a prestige or class A thing, and that would get around the problems with the other tenders and so on.
This is a bunch of nonsense, sir, quite honestly. This is not what the Canadian public expects in the procurement process, and the people in good faith who bid on these tenders have to be scratching their heads about the integrity of the system. I don't care how anybody tries to spin that now.
On June 7 we were told that there was no economic advantage in giving it to the fourth party. We asked for that analysis; we never really got the analysis. And today, four or five months after the scene, we get this big thick book and it looks like somebody has finally done an analysis on this matter.
I am less than enthusiastic about what's going on with this particular file. I think it stinks to high heaven, and there is something seriously wrong here. I think any reasonable person who looked at this file would be scratching his or her head big time. This thing isn't over by a long shot.
Were the six conditions that were put down to renegotiate with these people, including the disability access requirements and so on, ever complied with? I don't think so. Yes, or no? Do you know?
Apropos nothing directly related to any dates, this jumped out at me, so maybe you can clarify it for me, Mr. Arès.
In the memo--and it looks like it's from you to Normand Couture--the second paragraph reads: “More than a month ago, we informed the Minister's office of our accommodation strategy for CED, our client. On June 8, after a meeting with J.M. Bard, we were told to put the CED file on hold.”
Two paragraphs down, it says: “It is also important to remember that CED was burned more than three years ago with the abortive move of its office to Place Ville-Marie. The client is watching us closely on this project. Failure is not an option; our image and reputation are at stake.”
Could you just expand on exactly what that's referring to please, sir? Somebody?
:
Do you mind if I take that, Mr. Chair, in that it's a program issue?
It is not often, to be quite honest, but it does happen. It happens on occasion. It has happened on a few occasions in Ottawa--for example, with HRSDC, Elections Canada, and CRA--but we try to mitigate as much risk as we can in those situations. At the same time, we put the departments on notice now that if they're changing their minds, this is the cost involved with changing their minds.
At the same time, because of a recommendation in one of the new requirements that came out from SCOPA, we will now report in our plans and priorities statement, in our departmental performance report, those groups that don't accept the lowest-cost solution, so that's very transparent now in the process.
:
Thank you, Mr. Chairman.
I understand, Mr. Marshall, that you weren't there at the time, and I think that you, Mr. McGrath, weren't there at the time, so you're both just talking from the record, I presume, and the briefings you had.
Mr. Alfonso Gagliano's name has come up. You may know that he has come up with this committee before. It seems to me we've had some indication here that the minister's office was informed. Was there a policy or anything written that required the minister's office to be informed of any space that was being leased or rented in Montreal, Mr. Marshall?
:
Thank you very much for coming here today.
I am a visitor to this committee, so I don't have the history, but a number of things come to mind with it.
First of all, I'm really troubled by the discrepancy between your figures, Mr. Marshall, and your figures, Mr. Sloan, in terms of what the actual costs were to the crown. Mr. Marshall, you made a case for saying that with all of your calculations, you believed that moneys were not expended. Mr. Sloan, you came in and said it was a $2.5 million cost to the crown. How do we reconcile this? What are the processes of government that square this circle that just doesn't seem to fit?
:
In this case, instead of using a $430 rate, which is the rate they had submitted to us through the bid process, the actual rate was $308 a metre.
The other information that wasn't contained in the file was that the client forgo the fit-up, and as a result, the fit-up costs that were included in the investment analysis didn't come to fruition and so there was a cost avoidance. Other costs associated with the client themselves on move costs weren't included in the investment analysis, and that was a further million dollars in IT costs that would have had to have been replicated should they have moved to a new location.
So these are all types of costs that, when we're doing an investment analysis, we take into consideration, as we projected, but then when we went back and actually did the negotiation and the client agreed to forgo so much of the cost, it made sense on an economic basis for them to stay in situ, but we should have gone back and updated our information on our file to capture the cost avoidance and the full impact of the transaction.
I don't want to use up my time, but I want to point out a couple of things you might want to follow up on. One is under tab 28, on page 22. It's the in-binder copy of the letter Mr. Fitzpatrick handed out. I don't know whether you have a copy of this or not, Chair; we'll make sure you get one, if you don't.
If you look at the very bottom of the page.... I was just glancing at it, and what I noticed was that after “Suzanne” in the intro, the paragraph is missing. I thought it was just a page that got lost in the photocopying, but the “22”—the page number—is at the bottom, and what's missing is in between.
So there's a sentence that is missing that makes it difficult to say it was just a photocopying error, when the page number 22 at the bottom.
I'm at tab 28, on the third page in, the first English page. At the bottom, there is room for those two sentences above the “22”.
I leave that with you. I don't want to get my thing....
The other thing I want to point out, Chair, because I want to try to get to the heart of a couple of things, is that there's a document—and I can find out where it came from, but I pulled it out of the pages—from the ADM of real property services to the regional director general of Quebec region. This is stamped as received on July 11—that would be, by the director general. It says, in the fourth paragraph:
A few hours after the Board met, we were informed that the Minister's office had an interest in this project. It asked the region to put the project on hold.
That's July 11. In the deputy's opening comments, he makes the statement—and I accept it, obviously, as true—that when they called, the ADM for real property found out on April 4 that the client had changed their mind. Yet above that, they say they had talked to the client, who had said they were not putting it on hold.
So we have a July 11, 2001 document that says the minister's office said to put it on hold. We have another accounting that says they checked with the minister just before they signed the contract and were told everything is cool. Then they are advised, after their ADM calls the minister's office, that no, it's to be cancelled. I think that needs to be checked out a little further.
But what I want to come back to, in the very few moments I have left, is this whole document we've been referring to—a couple of comments have been made. I want to read parts of it.
This is what's missing from the binder version, which is in Mr. Fitzpatrick's version:
It is not my intention to write a memorandum to the minister on this matter. Ever since we approved the lease at Place Victoria on April 2, 2002, for 5,790 square metres, the decisions on this file have been taken at the corporate level and are in opposition to our regional recommendations. The following points support my position:
--This is Mr. Arès's document--
I am not familiar with the current state of the discussions/negotiations between the leasing officers and Place Victoria; these officers report to the Minister's Office. I therefore conclude that our minister knows more about the situation than I do.
I see lines being crossed here.
The e-mail from Claude Séguin to Tim McGrath (April 26) contains false information....
I don't know why he's saying that. Then the next paragraph starts:
It seems clear enough that the insistence on staying at Place Victoria in this case serves interests other than the sound management of public funds.
Pierre mentioned that already.
I cannot agree to cover, in an administrative manner, a decision that is difficult to justify financially, because it is costly....
Next:
Place Victoria never complied with our accessibility requirements for disabled persons and never showed any interest in doing so; and this won't change, which goes against our internal compliance policies.
Who will sign to approve the exception this time?
This partly explains why it is preferable that I not write a memorandum....
I have to tell you, sir, as I read this, this is somebody who's very concerned that a day like today might happen. You wanted to make sure you were covered in terms of what you did, because you did nothing wrong, but you were not answering for anybody else, in terms of decisions around you.
That's what this looks like to me, Chair.
This is for Mr. Marshall. I read your answer from June 8--and it's always my understanding that when we're before the committee it's the same as being under oath--to a direct question from Mr. Williams about the disadvantage of staying in the same premises, and I'm just going to take it right from the transcript:
Mr. Williams, clearly the economics and the analysis showed that it would have been cheaper for the agency to move.
Now today we are being told a different story. It would be cheaper for the agency to stay at the same place. In a court of law, inconsistent statements like that raise serious questions about credibility. That's going to be my comment on that.
Then the follow-up question on this:
We proceeded on that basis, and towards the last minute, so to speak, we received a request from the ministry to remain where they were.
That was from the ministry? We've been told there'd been nothing from the ministry here, but we've got testimony on June 8 saying there was.
Then we had a screw-around about who the minister was. A follow-up question really tried to pin down who the minister at the time was. Mr. Marshall's answer: the Minister of Public Works was Mr. Goodale at the time, not Mr. Gagliano, not Mr. Boudria. It was Mr. Goodale. So we've been going around in circles here, and there are a lot of fairly significant inconsistencies here.
I have another question about these premises--because there are a lot of documents on them. I want to know whether these premises are now fully accessible to the handicapped. If you don't know the answer, I want to know the answer, and I want it forthwith. I don't want to be waiting five months for that.
I've asked for this undertaking from Mr. Marshall, and I want to get a full explanation on it.
:
We did. We had discussions about the IARs and the transactions themselves and even the document provided to us by the Auditor General showing that the rate negotiated was $308 a metre. So even at that, I feel the Auditor General knew that the rate was different from the rate they were using in their analysis. This was in reference to the Claude Séguin e-mail to me. So that information was in there.
Also, when we were asked to provide information, we were told by one of the auditors not to go to any great lengths to reproduce anything. If we could get it to them quickly, that was great. So there are some issues that need to be resolved in terms of the information. Mr. Sloan did point out, rightly so, that we should be going back and updating our investment analysis once the final document or final numbers are struck, and we agreed to that. I think that's where part of the shortcoming is in some of the information.
In terms of providing that particular analysis to this committee, I don't believe we were requested by this committee to provide the financial analysis on Place Victoria. Certainly on the Hamilton building we were asked for specific information concerning that transaction in Hamilton. If we have been asked, we'll go back and check to make sure that we do provide the information, but I don't believe we were asked for a financial analysis. We were asked for a considerable amount of correspondence between us and DEC at the officials level, but we had offered to provide any type of information that we could.
:
I am going to raise this just because it's important enough, if you'll allow me, and I'll leave it for you to decide how to handle it.
Mr. Marshall, in answering for Mr. Arès, said that you should take a look at what he knew after he wrote this, in terms of the original numbers weren't what they ended up being in the final lease and that changed his opinion. But I want to bring to your attention the two sentences that are omitted on the photocopy of the binder, which I still would like an answer to, given that it's not a machine error, given that the page number has survived and the paragraph is above that, and I'm not going to let that go. This states, interestingly, “Ever since we approved the lease...on April 2, 2002...”.
So would Mr. Arès not be familiar with all the new implications of the new lease, what wasn't required that was asked for before, the new rate as opposed to what he thought it would be? Would all that not be known to him, since he references it in his first sentence before he goes on to make the comments I referred to earlier, negating Mr. Marshall's answer of look at what he thought later when he knew all the updated details?