:
Thank you, Madam Chair.
Ladies and gentlemen members of the committee, good afternoon.
[English]
As you know, Madam Chair, I am always happy to appear before this committee to talk about our ongoing efforts at Public Works and Government Services Canada. Today I am particularly pleased to be here with regard to the main estimates for 2007-2008.
The department's main estimates for fiscal year 2007-2008 are $2.5 billion, a decrease of approximately $40 million from last year. Given the interest committee members have shown in my department's plans and activities related to real property, as well as its efforts to achieve savings through smarter purchasing of goods and services, I would like to focus my remarks on these areas.
[Translation]
But first, I would like to address another issue that I know is of great concern to this committee, as it is for myself—the matter of timely pay cheques for the employees of Public Works and Government Services Canada.
We take this matter very seriously. The department is working diligently to resolve all outstanding cases and has launched a series of initiatives to prevent such problems from arising again.
It has improved the service delivery model, launched a recruitment strategy for compensation advisors, revitalized the training program for new human resources recruits, and created 41 new positions in a satellite office in Matane, Quebec. As of today, no employee is delayed in getting the regular pay cheque and overtime is paid on time.
There are several cases where employees have temporarily filled jobs above their grade or received promotions and their paperwork has not been processed. Of the 2,000 outstanding promotions and acting payments recorded last December, more than 50% have already been resolved and the remaining will be resolved over the next six to eight weeks.
If you are aware of any employees not having been paid, please urge them to come forward.
[English]
Turning to our real property activities, during my last appearance I talked about the study by outside real estate experts on how to most effectively and cost-efficiently manage 40 Crown-owned properties situated in urban areas across Canada. The context of this study, and our pressing concern, as you know, is the $4.5 billion repair bill we face for upgrades to buildings across the department's real estate portfolio. As you know, before any sale occurs Public Works will obtain a fairness opinion. No building will be sold unless it makes financial sense over the long term.
As I've said before, many corporations and governments have successfully turned to leasing so that they can concentrate on their core functions. With respect, I don't believe most Canadians would consider real estate management to be a core function of the Government of Canada. I have asked here in the past, if we started from scratch today, would we really dream of owning as much in the way of bricks and mortar to deliver services to Canadians? I believe not.
As noted in Budget 2007, there will be continued effort on the part of departments to reduce procurement costs. As the government's chief procurement arm, my department is committed to work with suppliers and other departments to improve how the government buys goods and services and achieves cost efficiencies. Public Works is planning to achieve its own portion of savings through better procurement.
Considerable progress has already been made. To understand the government's spending patterns, Public Works has created a database of more than 24 million financial transactions from 55 departments. It has worked with eight departments, representing 60% of the government's spending on common goods and services, to develop plans for improvement and savings.
I have spoken to you before about our intensified efforts to help small and medium enterprises do business with the Government of Canada. This work is being led by Public Works' office of small and medium enterprises, which opened six regional offices across the country last year and has developed a range of strategies.
[Translation]
I cannot discuss procurement without talking about our policy on green procurement. In effect for one year now, it is having a noticeable impact. For example, hybrid four cylinder and E85 alternative fuel vehicles, now account for three quarters of the executive fleet as of February 2007, compared to only one quarter of the fleet as of November 2005. Another example, Madam Chair, deals with computers. Bidders will have to meet internationally recognized environmental standards for energy efficiency, environmental stewardship in the manufacturing process and packaging, recycling potential, and reduction in hazardous materials. By signaling to suppliers our commitment to the use of green products, my department can achieve savings and help the environment.
I know members are ready with questions, Madam Chair. Let me simply say that I believe the department is very much working in the right direction on all of these fronts, to the benefit of Canadian taxpayers, and I am confident that progress will continue.
Thank you very much.
Minister, welcome to the committee. We appreciate your time here. Thank you, sir.
I'd like to ask you a couple of questions about the sale of public properties, the buildings that you've identified. You've given us a bit of a justification of the reason the government is doing this and the cost of having such a portfolio. Certainly questions have been raised about the process, and I'm hoping you can help lay some concerns to rest here at the committee.
The Royal Bank and the Bank of Montreal were asked to do an analysis and a report for you on this issue. My understanding is that the report was never tabled and has never been made public. Is there a particular reason for that?
:
Yes, I am, Mr. Poilievre. We received three bids for this contract. The technical part was evaluated by five separate, individual evaluators, who did not talk to each other during the process. The financial part was evaluated by a lead evaluator and checked by a second one.
I was briefed after the process had progressed to a certain extent. I was not told who won the contract, but I asked my chief risk officer, since it was potentially a large one, to assure me after a review that all the proper processes had been followed; he did so.
The minister's office was informed in due course on March 14, much later, when it was getting ready to be sent over to Treasury Board.
I personally interviewed the evaluators, and they've assured me there was absolutely no interference from anybody, let alone the minister's office, so the evaluations were never changed.
:
Okay. That seems reasonable, I think, from the perspective of those involved in this--from the banks' perspective, for example--to have these nine buildings at such a large amount and see the potential for future offerings. That's certainly quite attractive, and I would think something that could be quite lucrative, potentially, for the banks that are involved in this.
I raise this, Mr. Minister, because of course it's been raised in the media that one of the people involved in this, from the Bank of Montreal, is someone quite well known to you. He's a Conservative Party fundraiser, organizer, and former candidate. He supported your leadership when you ran for the leadership of the party, and supported the former Minister of Public Works. I think people wonder, then, about the details of the sale.
I guess the concern is that we don't have the study that was used to justify the sale in terms of it being a good deal for Canadians. That's still an open question. Because it is such a long-term lease, I guess it's a fair question: is it in the interest of Canadians? We don't have disclosure of the contract with the banks. We don't know what their gain will be. We don't know who chose these two banks to handle this deal. And while you're talking about a fairness assessment, we don't yet have that.
Which of these documents are we going to be able to get? Will we get the fairness assessment over time so that any and all questions about this will be answered?
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—and he wasn't one of them.
Okay, so we've dealt with that one.
I think the deputy minister dealt with the process.
As to how these banks were chosen, the banks were chosen through an independent process. I think the deputy has the names of the folks who were on the committee.
I really can't say any more than that. I come from that world. If I stand accused of having been a banker and a lawyer, I plead guilty. But I have conducted myself, Ms. Nash, you should know, with integrity. We're not on the same political side, but if you told me that you wouldn't get involved, and your deputy would say you weren't involved, I'd believe you. I'm asking you to believe me.
I have no interest in who wins what. I want the sale to go ahead. I want taxpayers to get a good deal. Those are the only conditions under which we'll do the transaction. Who was hired didn't matter to me. I'd like you to accept that as really a fact, because it is.
With respect to the different documents, and the study that was prepared on the entire portfolio, if you go back to the RFP, which is public--I invite you to go on MERX and read the RFP that led to the hiring of the Bank of Montreal and the Royal Bank of Canada--we asked them to come to us with advice. We told them what our challenges were. We talked about the funding gap. We talked about the difficulties in certain urban areas, for example in Ottawa; we talked about swing space. We talked about a number of things.
They addressed these issues in the report and also addressed, among other issues, the possibility that we could dispose of buildings. I have explained to Mr. Turner why at this point I don't want to make that study public; it does contain information that I think would be detrimental to taxpayers.
:
Thank you, Madam Chair. Good afternoon, minister.
On the 16th of April, I asked questions in the House about the infamous $400 million-contract around which there is an apparent conflict of interest. In your absence, Mr. Moore replied that the contract had not been awarded.
The following day, the 17th of April, I came back to bat, asking another question about the same $400 million-contract. Again, Mr. Moore said that there could not possibly be any scandal as no contract had been signed.
I would like to know what the status of the contract is today.
:
Thank you very much. I will be very brief, Madam Chair.
I would like to thank Mr. Moore for his collegiality. It is a defining characteristic of this committee.
Minister, I would like to thank you and your officials for being here. When I saw the agenda I could not resist the temptation to come along, knowing that you would be following up on your recent testimony. I was not counting on asking you any questions, but I will ask you four.
Firstly, I am delighted to hear that the problems with the compensation system have been resolved. However, I wonder whether you will be able to keep the staff you assigned to resolve the problem. Departmental staff leave in the same way that hot buns fly off the shelves. We lose them because they go to work elsewhere.
My second question is as follows: will the proceeds from the sale of buildings automatically be put into the consolidated revenue fund or will you allocate some or all of the money elsewhere?
Now for my third question. Although I intend to read it, I have not yet read your report on plans and priorities; can you tell me whether it covers your responsibility with regard to heritage assets, a matter that we discussed at a previous meeting?
I will now ask my last question. You know that our regions are near and dear to my heart. With a few rare exceptions, costs are usually lower in the regions than in major urban centres. Is it therefore safe to assume that, regardless of what else happens in the context of your real estate strategy, the regions will keep their buildings—either as departmental property or as rental property—and that there will be no job reduction strategy? I am particularly thinking of the Quebec regions; that is where my interest lies.
:
Mr. Fortier, I wanted to close the loop on the CGI contract issue. It's an interesting moment, I guess, in Canadian politics and maybe a sad moment that you get a banner headline in the
Ottawa Citizen saying “$400 million conflict of interest” over a contract that you didn't personally get involved in, in any way, directly or indirectly.
And Mr. Rodriguez mentioned, as well, that he's convinced that there is no conflict of interest, and never was one.
It's important that this point be driven home with regard to the process associated with this contract and how the minister himself, directly, does oversee projects within Public Works and how the contracting is done for these types of events. Mr. Marshall made mention of that.
Just to reaffirm, on this CGI contract and then on this issue, with regard to your involvement in this, can you just make it crystal clear to this committee and to Canadians that you were not involved in any way with regard to this contract, as Mr. Rodriguez has confirmed?
:
Thank you very much, Madam Chair.
I would like to welcome the minister and our guests.
Minister, this is the first time in 15 months that our paths have crossed. We know that in theory, you exist somewhere. You have a rather important portfolio. It is a good thing that we are able to meet with you today. Here is my first question.
[English]
Last week, Minister, we had the President of the Treasury Board here, and we established quite clearly that the Conservative government was spending at three times the rate of inflation, and as a matter of fact, on $54 billion of the $220 billion, spending at an increase of close to 12%.
When it comes to the proceeds of the sale of these buildings—if it's $1.5 billion or $1.6 billion—what do you plan to do with these funds? Are you planning to return them to the consolidated revenue fund? You can imagine that there's a bit of a concern on behalf of some members, I can say, that we don't need to add another $1.5 billion to the dangerous spending that's going on already.
:
With respect to the “savings plan”, I guess it was called when Mr. Poilievre asked you the question already, I want a clarification. You indicated that some consultants were hired to “confirm” numbers, as opposed to maybe “establish” numbers that were right.
If I'm not mistaken, according to some of our information here, the net savings to date were somewhere around $250 million, and we're pretty well on target, if I'm not mistaken. By 2007, those savings were expected to be $573 million.
Are those realistic? Are those the figures you're talking about? If the first ones were accurate, it seems to me the second ones should be accurate as well. Are you going to be able to reach those targets of $573 million?
:
Thank you, Madam Chair.
Good afternoon gentlemen, and Mr. Minister.
We have already met on a couple of occasions, and we are dealing here with an issue that directly affects people in my riding. It is the issue of the 25 to 75% ratio for jobs in Gatineau, on the other side of the Ottawa River, and jobs in Ottawa. I broached the issue with you last June and we have discussed the matter at least twice during our meetings. I have also discussed it with Mr. Baird and Mr. Toews.
The member of Pontiac, Mr. Cannon, announced last June that a policy would be established on the 25-75% ratio, and that made the front page of Le Droit. I want to know if that policy is already underway and if you can tell us about it.
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I will repeat what I have already told you. We inherited a real estate imbalance. I am not playing on words, but that is the truth. The Liberals left us with an imbalance that is about 77 to 23%, if I remember correctly.
To swing the pendulum towards the kind of balance you are suggesting, of course, would require major movements in terms of square meters. So that requires planning.
As regards our real estate footprint, be it for buildings or leased accommodations, I am committed and will always be committed to seeking out markets that are the least expensive for taxpayers. I am not an expert in the Greater Ottawa Region, but it seems to me that in Gatineau, on the other side of the river, it would be possible, in terms of the government's real estate footprint, if it were to expand into the Greater Ottawa Region, for us to find savings there.
Mr. McGrath is aware of that, of course, because he had also made that observation. So we are going to move in that direction with the policy, keeping in mind potential savings for taxpayers, and we will take steps to move closer to the principle of real estate balance that you mentioned earlier.
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Bear in mind as well that there must also be a balance in terms of jobs. Government employees, in other words public servants, will need to be transferred to achieve that balance on both sides of the river. In fact, we provided you with a report illustrating that.
Having said that, I would now like to raise another issue. In 2000, the federal government purchased about 0.5 of 1% of its goods and services on the Quebec side, compared to 99.5% from the Greater Ottawa Area. In 2004, we had reached 6 or 7% on the Quebec side. From the perspective of equity between the two, are steps being taken to ensure that more goods and services are being purchased on the Gatineau side?
I would like to tell you about a problem we are currently facing. Two examples come to mind, but I will not name anyone. There are cases where small- and medium-sized businesses have opened offices in Ottawa, but also in Gatineau. They bought two offices and opened branch offices. People go to see them in Ottawa, but not in Gatineau, even though they are selling the same product.
Could you tell me if the department has a plan for the procurement of goods and services from small- and medium-sized companies, one that respects the 25-75% balance between the two sides of the river?
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I will ask Mr. Marshall to complete my answer.
We have done considerable work on the small- and medium-sized businesses. We have opened six offices throughout the country, because we want small- and medium-sized businesses to obtain more federal government contracts. On this issue, I can reassure you: it is going well. More and more small- and medium-sized businesses are showing interest in dealing with us. I see that in a very positive light.
As regards the region, I will give you a simple answer. The vast majority of contracts are awarded following a tender call. I am convinced that nothing in the department's policy involves encouraging companies to move to the Greater Ottawa Area and to consider them only when they are in Ottawa. If you have any examples—and I understand that you do not want to provide any names today—I invite you to come and see us, as you did the other day, and we will take a look at the situation. In fact, it would be unacceptable to force people to move, to change postal codes, in order to be taken into consideration.
:
Thank you for the question.
Because of the nature of the relationship and because the Department of National Defence has over the years obviously bought significant military equipment, Public Works has a number of employees who are embedded at the defence department. So there is a relationship where we come in as early as possible in the procurement stage. The Department of National Defence obviously needs to identify its needs, which I think is normal in the circumstances, and then we ensure that we prepare the bid so that there are as many bidders as possible for the piece of equipment that's being sought.
The concern I have had, Mr. Kramp, is the number of years.... When I became minister I was startled to see that in some cases it had taken 188 months for projects between the time when a need was identified within the Department of National Defence and the time that it took for this particular asset to find itself in the hands of National Defence.
So I think there has to be a better way of doing this, which is what I and and and our officials have been working on in terms of streamlining the procurement process, making sure that we always deliver the best deal possible for taxpayers, deliver the best equipment possible for our troops, but do it quicker than 188 months.
:
Thank you. I have just a brief question then to finish off.
Mr. Nadeau had mentioned our small and medium-sized enterprises and the difficulties that some might have in being involved in the purchasing, particularly with regard to the fact that in government, of course, we are only dealing among the largest of contracts. I know there's been a particular emphasis on behalf of Public Works to make it much more accessible and make it much more effective.
Perhaps Mr. Marshall might even be able to give me some statistics as far as the success rate is concerned and what percentage of purchases are actually made and are completed by the ranks of the small and medium enterprises versus simply our large corporate accounts that deal with the government.
Would you have any of those statistics available?
Coming back to the real estate for a minute, I found the meeting today quite interesting, and the minister has provided some great information, so thank you.
Minister, in answer to my question before about transferring the risk, you were very clear about transferring the risk to the private sector with this sale. We are also selling assets that have significant value. As Ms. Nash said before, in reiterating what the value of these real estate assets has been, it has grown quite substantially.
For example, the Howard Green Building in Vancouver was purchased just five years ago for $58 million, and now it's worth some $105 million. A landmark building in Toronto, 4900 Yonge Street, I notice has also gone up substantially in value: a market assessment less than $80 million in 2002, now $180 million.
So we've seen a big appreciation in the value of these real estate assets. It comes back to the main point that Mr. Simard was making a few minutes ago, and that is the justification, because when we transfer the risks to the private sector, we're also transferring the asset to the private sector. We're entering into a 25-year lease to lease these buildings back, so that is a cost to us as a tenant over 25 years, and at the end of 25 years we have no asset.
We realize the gain in that asset, and 25 years later, what would that have been compared to the capital gain on that asset over that period of time, compared with the maintenance cost of it? It's a cost-benefit package, where one has to weigh very carefully whether the Government of Canada and the taxpayers are further ahead owning these assets at the end of a long period of time or not.
Experience has shown us to date that we've won in terms of capital gains on these buildings. That comes back to the necessity of seeing your justification. I don't know how we, as committee members, can really express an opinion on that until we have the same knowledge that you do, seeing the cost-benefit analysis of owning versus leasing.
How do you ever win when you sell an asset and lease it back, an asset that has shown tremendous capital gain appreciation, and all of a sudden you have no capital gain any more, and yet you incur the cost as a tenant? How do the taxpayers of Canada win by selling the family jewels?
It includes.... It doesn't matter, it's the behaviour here as an owner that I'm addressing. We have been terrible as building owners for decades. We were such bad owners that your own party—well, you weren't with them then, but the guys at the end of the table were--was thinking of actually disposing of the entire portfolio.
What we're proposing makes a lot of sense. We're saying that we're not in the business of owning buildings. Everybody is getting out of it; the banks are, and the governments in Europe and in Australia are getting out of it. What do we know that they don't know? The easy answer is nothing. We have neglected them, we haven't capitalized them properly, and we do not have the expertise to run such a large portfolio.
Now, we can disagree on this, but for you to suggest that there are no motives, or no business reasons, Mr. Turner--
:
Minister, do not put words in my mouth. I did not say that. I was simply saying that it's a cost-benefit question. Okay? You're asking us, hey, trust me, I'm the minister. You're a nice guy, but you know what? I'm not going to.
When I take a look at what we paid for these buildings and what their assessed value was four years ago, we've made almost $500 million in capital gain. The capital gain is great to realize, but logic would dictate that if we're going to make that capital gain over that period of time, surely we can stand to make a capital gain over the next 15 years, and it might well outweigh the costs of maintaining these buildings. And then of course we wouldn't have to be tenants in our own buildings.
All I'm saying to you, sir, is that we need to see the numbers. Whatever convinced you should convince us, and then end of story. Why don't you table it?
:
I don't share your concerns. As I stated earlier, the decision to conduct the process was taken by cabinet. It was not taken by banks. It was not taken by accounting firms. It was not taken by law firms. It was taken by the cabinet with due consideration to all sorts of views and opinions around the table.
I think you need to de-twin a study and a decision on the part of the government to look at nine buildings out of 360-something, de-twin that from the decision to sell. There was a study on a number of issues. We read the study, and for reasons I've stated several times already today and prior, we decided that we wanted to explore the possibility of selling these buildings, and we'll see.
You mentioned appraisals. Perhaps I'm misreading you, but there are no appraisals. We, the Government of Canada, in our books, in our financial statements, have actually attributed a value to each of these buildings, as any company would with respect to an asset. That's one thing, but I will not speculate today about the type of offer we'll get. If there are many people who come to the table, I suspect we'll get a different offer from what we would if nobody shows up.
:
First, on the capital gains, obviously this is pure fiction, as you know. If you don't look after your assets and you allow your assets to deteriorate, obviously this so-called gain disappears, and the government is not in the business of making a profit on the buildings. We have accumulated this over the years with I'm sure with the best of intentions, but we've neglected them. We don't have the proper resources and we can't attract the proper resources to run this and we are facing significant bills to repair the buildings. To suggest these are crown jewels.... Somebody has absolutely no idea of the type of portfolio we have, to suggest these are crown jewels.
The government has demonstrated over and over during the past several decades that it really isn't interested in running real estate, and the simple reason is that there are people out there who specialize in this. Again, the banks, whose lives really are to make profit--if there was money to be made in this, they'd be in it--have spun this off to a single-purpose entity to run real estate. Governments have done it, and I suggest to you that we are not smarter than those people, and we should get out of the real estate business. But first I will do this transaction and see if it goes ahead and try to get the best transaction, the best value, the best proceeds possible for taxpayers, because at the end of the day, this is what this is about. It's not to continue running billions and billions of dollars of structural bills and unpaid and unaddressed liabilities to pretend we have this great portfolio we're so proud of.
You need to address the portfolio like somebody who has good common sense and good business sense. We haven't done this over the past 30 years.
:
There are various studies that we have carried out that are public, and we've even shared them with the unions, in terms of the cost efficiency of the real property program, benchmarking ourselves against—and this is very important to understand—other corporate real estate entities, both in the private sector and more importantly at government levels, that show we basically have twice as many employees as other like organizations who manage the same type of property.
We also have another study, which has been carried out by CB Richard Ellis and Tiree Inc., that shows that the efficiency span within Public Works is approximately 20% higher than that of private sector entities.
Even when we outsourced our own property management to a third-party service provider, in the initial phase in 1996 we saved $20 million. And then further, when we retendered, we saved an additional $18.7 million per year, on an annual basis. So just through the efficiency of our own operations, we were able to pick up $40 million just by outsourcing the property management to the private sector. Also, when you benchmark us against other like organizations, we have twice as many employees on a per metre basis.
:
That's cruel, Madam Chair.
An hon. member: Give him two.
Hon. Raymond Simard: I guess I'm going to try to fit it into one question, Mr. Minister.
I'm still very concerned about the decision that was taken to actually sell these buildings. It was based on what?
You're telling us that two banks were hired to bring back criteria the first time as to whether or not they should sell. If you have banks that can make 2%, 3%, 4%, or 5% of $1.5 billion, did you really think they'd come back and say “No, you shouldn't sell”?
Secondly, the $4.5 billion is only a scary number, unless you compare it with the private sector and the private sector is comparable.
What are we comparing with? Mr. McGrath, you just brought this information lately, and it was very valuable. Are our vacancy rates much higher than those of the private sector? Have we done a full comparison and said yes, Public Works is totally incompetent compared with the private sector, and this is why we're selling? I haven't heard that.