Thank you for the opportunity to appear before the committee today.
[Translation]
Through its Real Property Branch, Public Works and Government Services Canada manages a diverse portfolio of real estate on behalf of the Government of Canada, providing accommodation for about 255,000 federal public servants in more than 1,800 locations across Canada.
In this capacity, PWGSC is the custodian of 345 buildings located in every province and territory. Our primary function as custodian is to ensure healthy, safe occupancy and use of these buildings. In addition to that function, the department pursues its responsibility as a steward of the portfolio of owned buildings and the efficient and effective use of taxpayer resources with equal dedication and energy.
[English]
Prior to 1998, the department fulfilled a large portion of our custodian functions through in-house staff. In 1997, the department started an initiative to bring innovation, efficiency, and savings to our portfolio management. We explored and developed an approach to outsource functions that had been fulfilled internally, seeking to leverage private sector and provincial capacities.
The initial outsourcing, which covered the period from May 1998 to March 2005, was awarded to Brookfield LePage Johnson Controls following a competitive process. Eleven contracts were put in place across the country and two agreements were put in place with the British Columbia Buildings Corporation and Saskatchewan Property Management Corporation. The initiative covered 300 PWGSC-owed buildings.
Through that undertaking, PWGSC was able to reduce an average annual requirement of 70,000 contracts between the department and suppliers for its property and facility management function down to 13. The contracts were put in place to fulfill three functions: first, property management; second, project management; and third, tenant services.
In a conventional contracting scenario, our specifications are very prescriptive. This outsourcing arrangement, however, was and remains performance based. We do not spell out how the work is to be done, but instead specify the outcomes to be achieved. This allows the service provider to strive for maximum leverage, value-added input, and innovation.
When the approach was initiated, the savings objective target was set at 10% of the cost base for in-house delivery. The contracts were structured with this forced economy target, and savings achieved were in the order of $20 million annually.
In 2005, when the initiative was competed for again, the previous 13 contracts were consolidated to eight and covered 319 buildings or 80% of our inventory. The eight contracts were competed for and awarded separately. A company that now calls itself SNC-Lavalin O&M won all eight contracts. SNC-Lavalin ProFac, as it was then called, demonstrated the best overall value for four evaluation criteria of approach, financial, experience, and presentation.
A fairness monitor was used for the procurement, and his report concluded that the contracting process was equitable and transparent.
The contracts were awarded for an initial period of four years, with three additional two-year options. To date, two of these options have been exercised, extending the contract to March 31, 2013.
It is estimated that during the first three years of the SNC-Lavalin O&M contracts, the departments saved an additional $86.7 million above the savings from the original contracts.
This outsourcing arrangement also helped make it possible for the government to act very swiftly on its economic action plan funding earmarked for PWGSC's crown-owned buildings.
As the committee knows, we received $323 million over two years to make needed repairs to our buildings. Through the contract, 62% of this funding has gone to SNC-Lavalin O&M, and the vast majority of that has been contracted with local firms.
In maintaining properties on behalf of PWGSC, SNC-Lavalin O&M provides work for 4,000 small and medium-sized enterprises annually, most of them based in the communities they serve.
The contracts with SNC-Lavalin O&M are subject to a range of controls as part of the department's ongoing due diligence to ensure value for money.
An internal review of the SNC revenue, expenditure, and transaction controls was initiated last December as part of the department's annual audit cycle. The results of this work are expected in November of this year.
As with all our internal audits, recommendations and a corresponding plan of action will be presented to the department's audit and evaluation committee and ultimately posted on the web.
It is important to note that evaluations of this initiative were carried out in 2004, 2005, 2006, and 2007. Internal control measures over the approval of monthly payments are in place, as well as quarterly inspections of a sampling of projects for each contract, and operational performance measurement and reporting. We also conduct biennial client satisfaction surveys; the most recent one, in 2008-09, conducted by Statistics Canada, indicated that, nationally, 89% of tenants were either very or somewhat satisfied with their building.
[Translation]
In March 2010, the media reported on SNC-Lavalin O&M invoices for tenant service work carried out at Place du Portage in Gatineau. In response to these reports, the requested that the department carry out an immediate review of the invoices to assess whether the expenditures were reasonable and supportable, and to determine whether there was any evidence of systemic problems with the contracts.
[English]
A third-party auditor is conducting audit procedures of expenditure transactions identified in the media articles, plus a sample of transactions made by SNC Lavalin O&M on work for PWGSC as a tenant, for PWGSC as a custodian, and for other government departments.
PricewaterhouseCoopers started this work on April 27, 2010. This examination is being carried out on a priority basis under the direction of the department's oversight branch and its ADM, Frank Brunetta. It is expected that in July the report will be tabled for review by the department's audit and evaluation committee and its three external members, Mr. Erik Peters, Mr. Norman Inkster, and Mr. Jean-Pierre Soublière. Subsequent to the committee's review, the report will be posted on the web. We will be pleased to provide a copy to this committee.
In addition, measures will be taken to improve records management. There will be further examination of any requirement for overtime work, and greater scrutiny and control will be placed on the requests for work.
Thank you for the opportunity to appear before the committee today. We will be pleased to respond to your questions.
:
Thank you, Madam Chair.
Good afternoon, gentlemen. You heard about this in the news; it had quite an impact on those in the region. It even became a topic for question period when Gilles Duceppe mentioned that light bulbs had been installed in federal government buildings to the tune of $5,000. Another member, Marcel Proulx, asked why the government had spent $36,000 in a year on extra cleaning costs for a minister's office. Thomas Mulcair argued that paying $2,000 for leafy plants and $1,000 for a doorbell in those buildings—that is getting very expensive—was ridiculous. The Prime Minister, the , himself, said that the costs did not appear to be at all supportable. Every party, everyone, was in agreement, more or less saying the same thing.
As for myself, on September 2, 2009, I asked Mr. Paradis, Minister of Public Works and Government Services at the time—and I sent a letter to Ms. Ambrose, his replacement, on March 15, 2010—about the awarding of maintenance contracts for federal buildings. The committee heard from Mr. Beaulieu on April 26. You may have seen the documents.
One of the things in all this that remains very unclear, to say the least, very obscure, to say the most, is that the bidding process is not open to the public, but done by invitation, so that small and medium-sized businesses have a chance to become subcontractors for Public Works and Government Services Canada. Some bidding processes are open to the public, and others are done by invitation. That seems to be the problem. At least it is in the eyes of the contractors I have met with. Let us discuss that issue first, the bidding process.
:
Well, there is a process for PWGSC, ourselves, which is quite distinct from the process that is used by our service provider in these contracts. I'd be happy to share a diagram with the committee, which describes that.
For example, for PWGSC, for contracts for construction from zero to $10,000, we use the select process—three firms are selected. From $10,000 to $100,000, five to eight firms are selected and bids are received. And for anything over $100,000, it's publicly advertised on MERX.
If you compare that to SNC-Lavalin O&M, there's perhaps a greater discipline because SNC-Lavalin goes from zero to $5,000 with a direct contract, $5,000 to $25,000 with at least three firms, and then $25,000 to $200,000 with five firms. Anything over that for them is publicly tendered, and they use MERX as well, as does PWGSC.
So there is a rigorous process. I must also add that as part of our annual reviews of the contract with SNC-Lavalin, the statement of work allows us to go in and make sure it is following that procedure to engage suppliers and contractors when it contracts its work.
:
What I'm getting at, I guess, John, is that you're paying them a billion dollars a year—well, my figure is about $550 million a year—just to manage the maintenance of the buildings. You could hire 500 people at $100,000 a year and do that in-house for $500 million a year, and you wouldn't be paying the 15% markup every time they change a light bulb, and you'd be able to control your own costs. I don't see the business case.
I know during the mid-nineties the Liberals were on this crusade. They were trying to do off balance sheet financing. They were trying to offload as much as they could out of the public sector and into the private sector, but this one doesn't make sense to me because it's not an ESCO where you actually do contract out the energy services operations of the buildings. You can almost see that might make some sense. You're just paying them, not to maintain the buildings but to manage the maintenance; they hand you the bills and you still pay for all the heat, all the lights, all the air conditioning. You still pay for all the new carpets and all the new windows, and then they add 15%.
The problem with cost-plus contracting is that there's no incentive for them to find the lowest costs. They have three pre-qualified contractors who shut out all the little contractors in the area. They deal with the ones they have a relationship with. If you're adding 15% to the total cost, you're not looking for the cheapest price; you're ending up with the one you can mark up.
I don't like the looks of this at all. I'm glad we're doing a study of this. It just seems like a staggering amount of money.
Another thing is that you characterized the figures that were in the newspapers as “inflammatory”, as if to say the newspapers were making it sound like a big deal that it was $6,000 to put in six pot lights. I've worked commercial construction—high-rises, hospitals, schools, all those things—and that's a ridiculous amount of money for six pot lights, even if you are putting them in to code and even if you are paying union scale. It's a staggering amount of money. Do you mean to say that you've seen other invoices like this, so that $6,000 for six pot lights didn't shock you?
:
I do, Madam Chair. Thank you very much.
Thanks, Madam Chair, for your invitation to appear before this committee. I'm Charlie Rate. I'm the president of SNC-Lavalin Operations and Maintenance. My colleagues are Justin Sharp, who is senior vice-president of our facility management division, and Martin Lefebvre, who is the general manager of our Public Works contract. We're delighted to be here before you today to provide some context and clarity around the services we provide to the crown through Public Works, and we'll do our level best to answer your questions, I hope to your satisfaction.
Our services are provided through adherence to industry-leading best practices, and they support the priorities of safety, service quality, fair access to government funds, and sustenance of thousands of jobs. Our work is professional and transparent, and through the governance model under which we work, it is regularly verified by both internal and independent review.
Since 2005 our company has been providing property and project management services under Public Works' alternative form of delivery contracts. Over time, and in keeping with the initial intent of the contracts and Treasury Board approvals, this has been expanded to include additional facilities, including components of the RCMP and NRCan portfolios.
Our original approach to winning this business was threefold. First of all, we needed to demonstrate a capacity to provide the right level and quality of services for the hundreds of thousands of public servants who work in the buildings and for the countless Canadians who access government through the buildings, all with a mind to prudent stewardship of crown assets through Public Works. Second, we needed to work with a broad and diverse network of subcontracted partners, the vast majority of which are small and medium-sized Canadian companies, to ensure fair and transparent contractor access to government funds administered through our contract and to promote job growth. Finally, we needed to provide aggressive pricing, designed to reduce the total cost of ownership for the government.
The way we operate the buildings, particularly with respect to careful environmental and energy management, combined with the fees that we quoted under very rigorous, competitive processes, have created substantial savings. In light of one of the earlier comments, while our fees are commercially sensitive, we are willing to disclose them in camera to the committee to assure you of value for money.
Since that original competition, we're proud to have continued to support Public Works' evolving needs and priorities, including our role in the recent economic action plan—the accelerated infrastructure program, as it was originally called—whereby we have efficiently and expeditiously managed 1,382 projects in the fiscal year 2009–10 and provided work and jobs to approximately 600 small and medium-sized companies across Canada through this difficult economic period.
We support Public Works' strategy in two ways. The first is augmenting their responsibilities as stewards of crown assets, providing for the efficient operation, safe use, and longevity of these assets. While we provide day-to-day operation of the portfolio, Public Works provides strategic direction and oversight of everything we do.
The second is to provide ad hoc services to all departments and agencies resident in the building portfolios covered by our contracts, allowing occupant departments to access services in a consistent and controlled manner. For this work, Public Works also provides rigorous oversight and has established governance protocols to ensure all approvals and works performed are within government standards.
The work questioned by one recent press article is in the latter category. That is to say it's for small projects carried out in response to tenants' service requests. When a service is required, such as additional cleaning or installation of new equipment, the tenant requiring such services makes a request to an SNC-Lavalin representative responsible for that building. We then review the needs and scope with the tenant. We source external services where those are required and provide a quote to the tenant. Finally, upon the tenant's approval, we deliver the project.
Certain projects and figures mentioned in the article are not reflective of the scope of services, and two distinctions must be made. First, invoice headings such as those quoted are not intended to be full and complete descriptions of the overall scope of service provided. Second, it should be noted that commercial rates and activities are different from those for residential activities.
The laws, conventions, and regulations that apply for various trades for work carried out in commercial buildings have to be respected, especially where safety is concerned or where the delivery of services would be disruptive to government program delivery if carried out during working hours.
The following examples show just how much information is missing in the article.
On the maintenance cost for the cleaning of two offices of $36,000 a year, these costs, in reality, cover the enhanced cleaning of two floors of the building for one year. This includes labour and supplies to service a total of 22 enclosed offices, two common areas, two kitchens, and two complete washrooms, which together add up to 1,500 square metres.
Regarding a new doorbell that cost $1,000, in fact the electrical services required for this project constituted the bulk of the cost. Installation of a current-reduction transformer was required, as was the opening and repair of part of a wall in order to install an electrical panel, electrical conduit, and wiring extending more than 12 metres from the doorbell. This was in quite a busy area. In order to keep the workplace safe and secure during installation, it required completion after hours.
Regarding plants that cost $2,000, this covered sourcing of two mature plants, one metre and two metres high, as well as large self-irrigating pots, delivery charges, planting and servicing, and maintenance over a one-year period.
In terms of the installation of blinds costing $1,414, the sourcing, installation, and anchoring of three large energy-efficient industrial blinds were required. The blinds themselves were 57 inches by 76 inches and cost $392 each. Due to their size and weight, it required several workers for safe installation. Again, this was in a busy office area and could not be done during work hours; therefore, overtime had to be paid to the subcontractor.
The installation of six recessed pot lights at $5,266 included six non-standard halogen recessed lights, installation of a dimmer, a separate circuit breaker, 100 feet of conduit and cabling, including an independent outlet for a new projector that was installed in the ceiling at the same time. Again, to be performed safely, this work had to be done after hours.
Regarding the removal of an exit sign costing $256, this project required two electricians so that one could secure the electrical panel while another completed the sign removal and safe wiring termination--
:
As for the removal of a light switch costing $1,000, this work consisted of removing the switch and the cabling and conduit up to the electrical panel, which was 50 metres away. After removal, the lighting needed to be reconnected to the building lighting system, which was 50 metres in the other direction, with additional conduit and cabling, which again had to be done after hours.
We were responsible for the complete management of these installations. It includes the supervision of work entrusted to over 7,000 pre-qualified subcontractor companies. These subcontractors are, for the most part, small and medium-sized Canadian enterprises.
As contractual commitments under our contracts with Public Works, we apply a third-party certified quality assurance program covering all aspects of our service delivery. We achieved ISO quality management in 1996, and for the Public Works account in 2005. We've renewed that designation ever since.
Our contracts are subject to significant audit scrutiny, both internally and externally. We carry out approximately 400 internal audits annually and we've had about 170 external audits every year by organizations such as Public Works and Audit Services Canada. We note that the minister is requiring additional audits, which are ongoing at present. PricewaterhouseCoopers, as you know, is doing that. We're obviously cooperating with that. It's one more audit firm.
Additionally, as we've been doing on a periodic basis since 2005, we've taken it upon ourselves to further clarify our processes and procedures for all our existing and any potential subcontractors who want to work with us. Recently we've met with a number of construction associations across Canada, including the Ottawa Construction Association here in the national capital region. We'll continue to meet with any of these organizations that want to meet with us. It's in not only our best interest, but theirs also to do that.
In closing, we're pleased to spend time with you and answer any questions you have.
:
It's a good question. Thank you very much.
All companies have had access since we started this contract in 2004. We did a public release throughout the industry inviting any company to pre-qualify. We identified to them what our process would be and how to join the roster of pre-qualified subcontractors. That makes sure we adhere to the government's requirements for security access, insurance coverage, and worker safety and compensation.
Since that time, and beginning at that time, we've met regularly with all the associations, whether provincial or national--for example, the Canadian Construction Association. They've been able to train their membership to a great degree on how to access pre-qualification and bids to our company.
Generally, on an annual basis we also publish regarding pre-qualification for anyone who hadn't been aware of it before. We publicly tender all jobs over $200,000, through newspaper advertisements as well as MERX postings. Again, we're out in the industry, not only in our services for Public Works, but dealing with tens of thousands of subcontractors, and we explain to them how to access work through us.
In terms of your question around value, approximately 80% of the moneys that are given by Public Works to pay for the direct services are funnelled through to small and medium enterprises. The only distinction are large utilities, which can't be considered to be SMEs. They are monopolies, so we have no choice, and that takes a significant amount of the money.
After you exclude utilities, the balance of funding, the 80%, finds its way to small and medium enterprises.
And again, thank you to our guests.
In fact, I'd like to be a little bit more specific. According to the information we heard from PWGSC, in the very first relationship they had with Brookfield LePage Johnson Controls, if I read correctly, they indicated that savings achieved were in the order of $20 million annually. I gather that, according to this, in the first three years of the contract with SNC-Lavalin O&M contracts, the department saved almost $87 million above and beyond the savings from the original contracts.
That strikes me as fairly significant. When we heard the folks from Public Works talk about some of the rationale behind what they could do, what became very clear to me and what they had indicated was to not compete in those areas where private enterprise should have the opportunity to do so. I'd like to commend SNC-Lavalin for that, because that is a testament. Those millions of dollars of taxpayers saving is hugely significant and really does support the decision that was made to farm out what they consider non-core services.
My Cape Breton mum used to say the proof of the pudding is in the eating. In truth, when I look at that $87 million of savings, that is some pretty good eating, or lack of eating perhaps, as the case might be. But again, it is hugely significant.
You indicated the number of audits, Mr. Rate, in terms of what you do internally within your organization. I was struck by that. If I read and heard correctly, you indicated that you carried out some 400 internal audits. Explain to me how that works, please. You have obviously more suppliers than that, but do you pick a certain number? How do you determine what you're going to audit where? Is it a flow-through?
We do that with various departments where we try to determine savings in various departments by picking different ones annually on a triennial basis. What is your logic with respect to audits, who you audit and how that works?