Proceedings of the Standing Senate Committee on
National Finance
Issue 5 - Evidence - Meeting of December 8, 2004
OTTAWA, Wednesday, December 8, 2004
The Standing Senate Committee on National Finance met this day at 5 p.m. to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 2005.
Senator Donald H. Oliver (Chairman) in the Chair.
[Translation]
The Chairman: Honourable senators, I call this tenth meeting of the Standing Senate Committee on National Finance to order. As you know, our committee was created in 1919. This committee deals mainly with government expenditures, directly or indirectly, by examining the Estimates or bills.
[English]
On Wednesday, October 20, 2004, this committee was authorized to examine and report on the Main Estimates laid before Parliament for the fiscal year ending March 31, 2005.
This is the sixth meeting in our general mandate to review these Estimates. The committee has heard from a number of witnesses already, including the President of the Treasury Board, Minister Reg Alcock; the Comptroller General for Canada; the Auditor General on two occasions; the President of the Public Service Commission and the Minister of National Revenue, Minister John McCallum.
Minister Alcock briefed the committee on the government's initiatives to promote the stronger financial controls that are essential to ensure rigorous stewardship of public funds and value for money, to ensure that appropriate frameworks, policies and guidance on controls are available across the federal public service and to promote transparency and openness of financial activity, including systems for accounting, asset management and, most of all, procurement.
The Auditor General stated that she will be following closely the expenditure review being conducted through the Privy Council Office under Minister McCallum. She also answered questions about the government's management of its real estate portfolio.
In his appearance before the committee, Minister McCallum told us that the government was seeking $12 billion in savings over the next five years to reallocate from lower priority areas to higher priority areas. He also expected to generate half of these savings through the government's ``central activities,'' including more efficient property management and procurement.
It is in this context that we have invited our witness this evening, Minister Scott Brison. These two activities fall within the mandate of the Department of Public Works and Government Services. As such, the department is key to this expenditure review.
Mr. Brison was first elected to the House of Commons in June 1997, and he became the Minister of Public Works and Receiver General of Canada on July 20, 2004.
Minister, we look forward to our discussions on real estate management and procurement in the context of greater government accountability and transparency. We also welcome the officials who are joining you this evening. Our practice is that you will make a presentation and then we will ask questions.
The Honourable Scott Brison, Minister of Public Works and Government Services: Thank you, Mr. Chairman, and honourable senators. It is great to be here with you this evening. I told my mother tonight that I could not speak with her very long; that I was going to the Senate. She was delighted to hear that. She misunderstood, of course. She thought that I would finally have some job security. In any event, I am very pleased to be here.
I want to commend, Mr. Chairman, this committee's role. When I read The Globe and Mail Report on Business article on October 25, I was delighted. Senator, you were quoted as saying that we can literally save billions. I agree with that goal, and I commend your committee on its important role from an oversight and direction perspective in helping us do exactly that in our department and also across government through the expenditure review process.
I am pleased to be here to discuss with you our department's Estimates for 2004-2005. I would like to introduce some of our officials, including our ADM of Finance, our CFO, Ms. Gauvin, our Deputy Minister, David Marshall, and Parliamentary Secretary to the department, Walt Lastewka. He has played a tremendous role in the review process. We will be discussing that this evening.
I am pleased to be able to talk with you on our three-point strategy for the future of our department and what it means for efficiencies for the Government of Canada. I recognize that the Department of Public Works can play an important leadership role in improving the efficiency of the Government of Canada.
[Translation]
I am confident we can have a significant and positive impact on the government's bottom line. Our goal is better value for taxpayers and better service for Canadians.
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Mr. Chair, our department is at the heart of federal procurement. In fact, we are the largest purchasing agent in Canada. Each year, we buy about $10-billion worth of goods and services, from flu vaccines to helicopters to paper clips. Our department provides office space for 210,000 public servants across Canada. In doing so, we manage one of the most diverse portfolios of office real estate in the country.
We also offer one of the largest information technology networks in the country. I am proud to say as well that Public Works is at the forefront of ``greening'' government. We have made our operations 33 per cent more energy efficient since 1990, and we have helped to make the government the single largest operator of energy efficient vehicles in Canada. We are in the forefront of environmental remediation projects across Canada including the clean up of the Sydney tar ponds.
[Translation]
Public Works is the pillar of government and I'm pleased to be in the portfolio in these times of challenge and change.
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Public works has a long and proud history building in Canada, including our Parliament Buildings. However, as you are aware, our department has had some challenges in recent years. Canadians are aware of these challenges, and they expect better. Senators, I can tell you that our Prime Minister expects better. I intend to deliver on those expectations.
Our vision of change is based on one underlying principle that should guide everything we do as a government. That principle is respect for the taxpayer and their hard-earned tax dollars and, at the same time, delivering federal services for Canadians. In doing so, I am confident we can save hundreds of millions of dollars each year, in fact billions of dollars over time. Change is never easy. It will take a lot of hard work and some basic shifts in philosophy, approach and in the culture of government.
During the summer and fall, I had the opportunity to meet over 3,400 of our Public Works employees and team members across Canada in a series of six town hall meetings in every region of the country. I can tell you that our team is enthusiastic, able, willing and ready to make a real difference in terms of changing the way we do business as a department and, in fact, changing the way we do business as a government.
[Translation]
In those town hall meetings, I have described my strategy for the department, and I'd like to share some details of that with you today.
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First, smarter buying can make a huge contribution to the efficiency of government. If we can realize even a 10 per cent savings on what we acquire, the $10 billion figure I described earlier, through coordination and harnessing the powers of scale we have as a government procurement agency, our department could help reduce the cost of procurement across the 98 departments and agencies in the Government of Canada by more than a billion dollars per year. That is a billion dollars we can invest more effectively in addressing the priorities of Canadians — health care, child care, the needs of communities and other priorities that Canadians value.
I am also looking forward to implementing the final recommendations from Mr. Lastewka's government-wide procurement review strategy. That has been the most comprehensive review of government procurement conducted in Canada since 1963.
Also, Walt Lastewka once worked for General Motors, where he conducted a similar review. That private sector experience has benefited us significantly within the Government of Canada.
The second part of our strategy focuses on the real property side. Public Works now spends about $3 billion per year on real estate and related services. We are looking at ways to provide good, safe and accessible accommodation for government workers at lower cost to Canadians.
Our studies show that the federal government spends 20 per cent more on a per-square foot basis to operate our real estate, our office buildings. We also use more space per employee than the industry average.
At the same time, we have some significant issues around a deferred maintenance deficit of about $1 billion that is growing by about $100 million per year. We are an expensive landlord and so we think it is important for us to address some of the deferred maintenance issues. Already we are taking steps to enforce stricter standards on the use of space, and we are taking a more aggressive approach to leasing with the goal of saving 15 per cent of our costs. The recent renegotiation of our building maintenance contract program will save us $50 million per year over the amount budgeted.
As an aside on that, back in 1998, 80 per cent of our building maintenance was outsourced to the private sector. That achieved a savings of $20 million per year for the taxpayer, and this most recent negotiation added to that savings of about $50 million per year. There are significant savings when we consider alternative approaches.
In the medium term I have asked officials to explore a number of options, for example, on how best to handle our portfolio, whether it makes sense to divest ourselves of some office properties and lease back the space needed, whether to outsource the management of our buildings, or whether to use a real estate investment trust as a vehicle to achieve greater efficiencies. Currently, we are designing a request for proposal that is defined broadly enough to not preclude any option prematurely because we have not made any final decisions.
[Translation]
One overriding principle is that we will increase the federal government's visibility and presence in regions and communities across Canada. The government may gain the flexibility to move more public employees to the regions to be closer to the public they serve.
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The third element of our vision is to improve the business of government by continuing to modernize our information technology systems. We need to make it easier for Canadian citizens and businesses to interact with the Government of Canada on-line 24/7 from the convenience of their homes. The financial sector has done it and the retail sector has done it. We have made great strides as government but we can do more, by providing on-line services that are convenient, accessible, fast, efficient, secure and confidential.
Mr. Chair, the three-point strategy is aimed at ensuring more efficient and cost-effective service delivery and better results and services for Canadians. Our goal is to get the best possible return for taxpayers' hard-earned dollars because Canadians deserve nothing less. In the months to come, the government will have to make some decisions, in some cases difficult ones, around the expenditure review process to achieve the goal of $12 billion over five years. In some cases, services can be cut if they are not providing the kind of desired result.
If we can improve the efficiencies of our operations that is, in many ways, a better way to achieve the goal of expenditure review than to actually cut services to Canadians. I believe that much of the work we are doing within our department can help achieve those efficiencies. The decisions we face as part of expenditure review and as part of the budget process may seem tough but they are actually not as tough as the decisions being faced by a Canadian family with several children making $20,000 or $30,000 per year. If we can make our decisions well then we can make their decisions a bit easier.
Mr. Chair, earlier tonight you said that I have been invited. In fact, I called you the day I read that glowing article in The Globe and Mail, because I wanted to invite myself to appear so that I might be part of your committee's achievements. I am as committed to your goal stated in The Globe and Mail and your efforts in the last several weeks to participate in what I believe to be an exciting project in terms of renewal of government and changing the way in which government does business.
On the Estimates side, the appropriations requested for our department represent $2.7 billion, and $2.1 billion of that is of a non-flexible nature, separately controlled, leaving about $600 million that is subject to reallocation flexibilities. There is an increase in the 2004-05 budget mainly because of the restructuring of the Government of Canada in December, 2003. As a result, our department became responsible for government on-line as well as the shared travel service initiative. We transferred responsibilities for many of the programs and services delivered by the now-disbanded Communications Canada.
As such, the principal increase in the budget of our department is commensurate with an increase in our mandate as a department and is related to, for instance, real property demands around space — increases required by other departments because of increases in the numbers of public servants within those departments.
We are counting on the 2004-05 Estimates to provide the resources needed to allow us to continue to serve Canadians as a department but also to play an important role in achieving greater efficiencies across the 98 departments and agencies of government. Public works does play an important transformative role within government and can do more to deliver on those efficiencies.
Public Works, if you will, is like the engine of government, and needs gas in the form of funding to move forward. To push the analogy further, I want our department to be a more fuel-efficient engine to help propel a more agile and effective government.
[Translation]
I am anxious to answer your questions. My department's officials are also prepared to answer more technical questions.
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Thank you, Mr. Chair. I look forward to your questions.
The Chairman: Mr. Brison, before I turn to Senator Kinsella to start the questioning, as you know, Minister McCallum, who is head of the Expenditure Review Committee, appeared before this committee with some officials from the Privy Council Office. A number of questions were raised with him about where the $12 billion will come from. There were a number of questions about the sale of properties. I would like to read to you what the minister said about the sale of government buildings. He said:
I can clear that up easily. Let me say that not one penny of the savings out of property management will come from selling buildings. I am an economist and I know it is bad public policy to sell off the Crown jewels to buy your groceries. You do not want to sell off all these assets and then credit your budget with that money when it is only one-time money.
Could you comment on what your fellow minister had to say about the sale of real property?
Mr. Brison: I agree with Minister McCallum completely. He meant, and I believe it strongly, that if the only gains were through the asset capital value of the sale then it would not make any sense to sell off any property at all. Minister McCallum shares with our department and me the view that we can achieve greater efficiencies through different approaches on management, through greater rigour in the control of space usage, and through more effective negotiating of our leasing arrangements, which we are doing now. Clearly, I would agree with his analysis that we would not sell a long-term asset and credit it in short-term numbers — expenditure review, for example, which was Minister McCallum's reference in that statement.
Senator Kinsella: Could I have some clarification in order to understand this? Under the second business line, ``Exploring Savings in Real Estate,'' did I understand correctly that a consultant or departmental officials are studying the real estate holdings to determine whether they ought to be sold or substituted with new acquisitions, et cetera? Is a study under way now?
Mr. Brison: In fact, there has been a significant amount of analysis within the department. We are at the stage now where we need more granular information, and we need that from experts in the private sector, particularly from the capital market side, which is why we are doing a request for proposal that we are hoping will go out in January and that will give us the kind of information we need to make any final decision.
Senator Kinsella: Is there anything in writing that you could share with the committee as to the terms of reference that you gave to those who are studying in particular the real estate that the Government of Canada owns?
Mr. Brison: Within our department, there has been an ongoing evaluation. The deputy may want to add to that, because much of the evaluation internally was done prior to my arrival. The request for proposal, when it goes forward, will be a very public one, because of course it is part of what we will be doing.
Senator Kinsella: Are there specific criteria that you are using in requesting this analysis? I am interested to know whether or not, in this assessment process and the recommendations that will come to you from your officials, social, historical, heritage and patrimony factors will be critical. We are dealing with public assets and public buildings, not private sector business assets.
Mr. Brison: I can answer that immediately, senator, and the answer is absolutely yes. We would be committed, on historic buildings, either in terms of continuing ownership or through covenants, to ensure that if they went to private sector ownership, they would be maintained accordingly.
Senator Kinsella: Let me try to be specific. Is there any possibility that, for example, the Sir John Thompson building on Barrington Street in Halifax could be sold?
Mr. Brison: There would be no possibility that it could be sold before we do a full evaluation of what we are actually doing. It would be certainly a building that would be part of our real property.
Senator Kinsella: That also would apply to a building I am more familiar with, namely the Federal Building on Queen Street in Fredericton. There is the possibility that it could be sold if your study brought you to that conclusion?
Mr. Brison: Yes, and it is premature to say that until we actually have finished our study. In fact, one thing that could come back from the RFP is that there are better ways to achieve economic value besides divestiture, for instance, just out-sourcing management or a real estate investment trust approach type of action which would securitize the revenue stream but where the people of Canada would continue to own the buildings.
Senator Kinsella: This is why it seems to me that it is so critically important for Canadians to understand what the terms of reference were that you gave to the officials to study and whether or not critical elements of those terms of reference include things like, in Fredericton, for example, the Federal Building. It is part of the community. There is not only a fiscal consideration; there is the whole impact on the economy, but more important on the social life, the geography, the atmosphere of the community. These are the kinds of elements I am concerned about. We went through the exercise when Canada Post divested itself of a lot of post offices, and that really tore at the heart of many communities.
My representation is that you make sure that in any report you receive, those kinds of factors — impact on the community — will be part of the analysis.
Mr. Brison: Senator, I appreciate the intervention. I can tell you, not as a minister but as an MP for a moment, that I am very sensitive to those issues. For many people, the government presence is important, and the Government of Canada's presence in the communities of the country is a priority for us, and anything we do will not reduce our presence in the regions. It is a priority, and I appreciate your input on that point.
The Chairman: Mr. Marshall, do you want to add to that?
Mr. David Marshall, Deputy Minister, Public Works and Government Services Canada: Senator, we certainly have very high on our list that we must preserve historic properties, and we will work very closely with the cities and communities in terms of their needs and revitalization.
Having said that, we have a large number of general purpose buildings that we need to take a look at as to how best to get economic value. Many of them are older, and they require a lot of upkeep and so forth. There is quite a lot to do before we get down to the ones where we really want to question whether we need to sell them or not, so we will have that in mind.
The Chairman: Could you tell us what some of these general purpose buildings are, where they are, what they look like, how old they are, and what types of buildings you are referring to?
Mr. Marshall: We have a large inventory, senator, of about 360 buildings. You might look at some in Ottawa here. In the Tunney's Pasture complex, for example, there is a large number of square metres of general office buildings. They are not up to scratch. A lot of investment is needed. That is an example of the kind of parcel of buildings that one could look at and say, what are the economics of holding these buildings or inviting in outside capital? How would that work? That is what we want to investigate.
Senator Kinsella: There is a major Public Works Department project currently under construction, and I was wondering whether the minister has been briefed on the cost of the building of the Canadian embassy in Berlin, Germany, and whether or not he can share any information about that contract. What is the value? What is the cost of building the embassy in Berlin?
Mr. Brison: I will defer to Mr. Marshall on that. I understand DFAIT plays a leadership role on this project.
Mr. Marshall: Senator, in this case, the Department of Foreign Affairs is responsible for its own properties both in Canada, being the headquarters, as well as overseas. This is an aspect of how the federal government manages its properties. For example, Public Works is really only managing about 23 per cent of the buildings of the government. A large number of other departments are managing their own, which is an issue that the President of the Treasury Board is examining in terms of whether that is an efficient way of managing things, but in this case it is Foreign Affairs.
Senator Kinsella: That is curious, because the big billboard outside the construction site has ``Public Works Canada'' written very clearly on it. Coming back to my point, the information I would like to have shared is, how much is that costing? Can you find that out?
Mr. Marshall: We will find that out.
Mr. Brison: Senator, the departments are actually playing the leadership role on the project, but we often act as a contractor on a number of buildings.
Senator Kinsella: I assume that it went out to tender, but I guess one has to be careful in assuming too many things. Who would be responsible for the tendering process? Was it DFAIT, or Public Works Canada?
Mr. Brison: We will get back to you on that specific case.
Senator Kinsella: It is a very major project. It seems to me it is in the order of maybe $60 million or $70 million. I would find it helpful to have specific information on that particular project. It is a mega-project.
Mr. Brison: We will get that for you, senator.
Senator Downe: Thank you, minister, for your appearance tonight. This procedure of property management is new to Canada, but it has been done in other countries. Your department, I assume, has looked at examples in other countries such as Australia. What lessons, if any, have you learned from them?
Mr. Brison: We have looked at Australia, New Zealand and the United States General Services Administration, which is our sister department in the U.S. We have also looked at some private sector experiences, including CIBC, Royal Bank and Bell Canada. Even CBC, which is a Crown corporation but is still operated autonomously, is doing this as well in terms of new buildings. There are lessons to be learned about things they did well and things they did not do quite so well. The overall success has been significant.
The Auditor General in Australia, for instance, wrote a positive report on the experience in Australia. However, there are some things they could have done better. One example of that is that they delegated to two departments the responsibility for signing lease arrangements. To a too great extent, in my opinion, it was decentralized. As such, some departments negotiated good deals; others negotiated less good deals. There is no advantage to any of this if we do not harness the economies of the Government of Canada as a tenant or as a procurer of office space to achieve the best possible deals. That was just one example. The Australian Auditor General said good things about the approach. In my opinion, it was too decentralized to ensure best possible approaches.
Senator Downe: I want to mention to the other members of the committee that that report on the Australian Auditor General's review is available online. I agree with the minister that it is an interesting report, and very positive.
Senator Comeau: Thank you for coming before us this evening, minister. We appreciate your taking the time to be here and to be helpful in what we are trying to do.
My first question deals with the sale of public assets. I would like to refer to the government's track record on this. In my view, it has not been all that positive over the last number of years.
Let me refer to the sale of wharves to private interests a few years ago. One of those wharves with which you will be quite familiar is the Digby wharf. That wharf was given to a group along with $3 million. This group has put it up for sale for $7.9 million. There have been no repairs done on the wharf during the past number of years. Obviously, the fishing industry is extremely concerned with the deteriorating condition of that wharf.
The Minister of Transport was there last week, and he was not even allowed to set his foot on the wharf. He had to tour the wharf by boat because of the condition of the wharf. It is extremely embarrassing. The comment from the minister was, ``Well, all I can say is if this group goes bankrupt, we will obviously see what we can do then.'' That is not a good response to give to an industry that is dependent on such a valuable public asset.
Let me give you another example. Last night, we had before us a witness from the United Fish and Allied Workers of British Columbia, talking to us about the sell-off or privatization of the West Coast fisheries resources, which is being done in a fashion quite similar to what has happened in New Zealand, to which you refer a couple of times in your comments. One of the concerns by the UFAW concerned some of the managers who were managing these resources on behalf of Canadians. Almost as soon as the assets are privatized, these same managers become the managers of the stocks that have now been privatized.
I should tell you, Mr. Minister, it does not pass the smell test. It smells very fishy. As Chairman of the Fisheries Committee, I do not like things that smell fishy.
Given this kind of track record, why should we accept a new scheme that now says we will start selling off buildings? These things are happening as we speak. It was very embarrassing. The Digby wharf incident was a major embarrassment. Why should we trust that there will not be this kind of nonsense happening? Why should we not believe that public servants will then cross over and become the beneficiaries of the privatized assets?
Mr. Brison: Thank you for that excellent question. There have been a number of success stories as well in terms of private sector engagement and transfer of responsibilities from government to private entities. It is unacceptable whenever there is a failure of the system but, unfortunately, sometimes that stigmatizes an entire approach.
For instance, in some cases public-private partnerships have worked very well as an approach for delivery of services, but not all of the deals have been good deals. However, all of the deals get stigmatized or tarred with the brush of some of the ones that have not potentially been quite so good.
I want to make clear that this is not a private sector versus public sector comparison we are making when we are talking about the real property group. It is a general organization, that being the government of Canada, and a core focused organization — real estate management firms or real estate investment trusts — that do nothing but manage real estate. The same evaluation that CIBC, Royal Bank or Bell Canada underwent lead them to believe that, as an organization, they were not as effective as they might be in being landlords, because their line of business was not that of a landlord. In some way, our line of business as government is to provide the best possible services to Canadians through good programs that operate well and efficiently at the best possible value for taxpayers. Being a landlord to our people is not necessarily a core function of what we do. That is part of how we are considering it.
Again, we have not made any decisions, but we are evaluating a range of options. In the interests of openness and transparency, in September, when I spoke in Toronto, I laid out some of those options such that we could go forward and get the kind of granular information that we need to make a good decision and not have to do it in the background; we could do it in an open and transparent way.
One final point is that there are ways in which we can align the long term interest of the Canadian people with private investors. One of them could be, as an example, if a real estate investment trust were the vehicle — we do not know what the vehicle could be — and if one of the public pension funds in Canada were setting aside a significant amount of capital to invest in real estate capital, those pension funds could be the investment needed for this kind of investment vehicle. Clearly, the long term interest of Canadians would be aligned with private sector interests and, as such, the private sector discipline and expertise could actually help strengthen, in this case, the pension savings of Canadians by strengthening these pension plans.
Senator Comeau: Minister, I think you know I am a no flaming socialist. We have known each other for a number of years.
Mr. Brison: You are no socialist — I don't know about the flaming.
Senator Comeau: For sure. I have faith in the private sector to be able to deliver good quality products. There is no question there. I am on this line at the moment because I am not sure that the government is ready to embark on this venture.
I picked up an article that notes that a Public Works Department employee, working in a $1 billion a month procurement section, has just accepted a job with a top lobbying firm with heavy Liberal connections currently representing clients of Public Works. Again, that does not pass the smell test. I know you will probably say, ``Well, this person was not the one signing the cheques or anything.'' However, it does not pass the smell test. We have to clean up our act as a government before we proceed to the next step, which is the selling off of these buildings, and so on.
Mr. Brison: When I became aware of that situation, we took action, and the two individuals have ceased their private sector work and are returning to the department. When I became aware of it, we dealt with it very quickly.
I want to be clear that this does not reflect on the integrity of these individuals, but whenever there is the possibility of a perception of conflict, we will act swiftly to insulate and protect ourselves, as we have in this case. Again, we dealt with that situation very swiftly, but I appreciate your bringing it forth.
Senator Comeau: This should never have happened. There should be a philosophy within the department whereby this could not have happened. I am pleased that you caught it, and I know you did the right thing, but the employees should be aware, through an education program or what have you, that these things should not happen.
Mr. Brison: You raise an important point. Over the last couple of years, and particularly over the last 14 months under Mr. Marshall's leadership in the department, there has been a significant strengthening of the department. Ministers Goodale and Owen did a tremendous amount to make a positive difference in the way we do things.
I want to be clear that this department does a lot of things very well. Unfortunately, whenever there is a negative story, the whole department is stigmatized, and that is unfortunate. The department introduced an ethics and integrity package a few months ago that was rated by the Conference Board of Canada as a best practice model for both the private and the public sector.
The deputy minister and I have spoken about this situation. Public servants within any department have the opportunity to ask periodically for leaves without pay, and there is a process around that. We are evaluating our process around that to ensure that this does not happen again.
Again, this should not reflect on the reputation or integrity of these individuals. This is a case of a possibility of a perception of conflict. We have to be doubly cautious on that.
Mr. Marshall: This is an important subject. The two individuals concerned were at a fairly low clerical level and were seeking experience in the private sector. I spoke to them myself today. They had no ill intent. They were taken aback that anyone would suggest that they might be in a conflict of interest. In their own minds, they were acting honestly. They were both well aware of the code of conduct of the department, which is very strict. Employees need to make a voluntary declaration if they intend to take employment that might cause conflict. Since they did not feel it would cause conflict, they did not file such a report. We have strengthened that provision to say that you must file your intent whether or not you think there is a conflict, so it has become mandatory rather than voluntary.
We are increasingly giving people courses on how to handle grey areas. We have said that anything more than a cup of coffee should be questioned. Individuals feel that if they had no intent, no one should question it. Those are the deeper strata that we must delve into.
To add to what the minister has said, we have gone so far in this case to ensure that there is clarity that the minute we became aware of this case, the individuals terminated their employment with this private sector firm. We will reintegrate them into the public service but not into Public Works. We will try to find them jobs elsewhere so that there is absolutely no question that there might be any conflict, going forward, and as a signal to everyone else.
The Chairman: I am happy you made that clear, as it was not clear before. I thought they were going back to their same jobs, and that would, in fact, have been a conflict.
Minister, in response to Senator Comeau you mentioned that you gave a major speech in Toronto. In preparation for this meeting, I read that speech and some other speeches that you have given with respect to the sale of properties.
On September 21, 2004, you announced that your department would be examining the economics and risks of owning versus leasing buildings. It was suggested by you that the federal government could realize substantial savings if it were to sell off most of its non-surplus buildings in favour of renting back the office space.
Tonight, in the presentation before us, you have not set forth that position. Has your position changed? Has your department undertaken an analysis comparing the costs and benefits of owning versus leasing these buildings? If so, could this committee obtain a copy of the cost benefit study? How many buildings would be affected by such a sale? Does government real estate management performance compare well with private industry in terms of things like vacancy rates, operating costs, return on investment and the like?
The overall general question is: Has your thrust changed? Are you looking at the economic risks of owning versus leasing as per your speech in Toronto on September 21, 2004?
Mr. Brison: Yes, we are looking at the economics of improving our real property strategy in terms of providing better accommodations for public servants and, at the same time, better value for taxpayers. Part of that has to do with what we can do with our existing portfolio in the short term. That is what we are speaking of in terms of negotiating our leasing arrangements more aggressively.
The Chairman: The Toronto article talked about the sell-off of buildings.
Mr. Brison: Yes. They took one part of the speech that is part of a mid-to-long-term consideration, but in the short term the department is focusing on how to achieve greater efficiencies in our current approach, which is ownership. That includes what I discussed earlier about the outsourcing of the maintenance of the buildings, which is achieving a further $15 million saving due to the most recent contract. We want to rationalize space because we currently use more space on a per-person basis than does the private sector.
The Chairman: How many buildings would potentially be involved in a sale? How many buildings are included in your cost benefit analysis?
Mr. Brison: As the deputy minister has said, we have about 365 buildings. We will not know which buildings it would make sense to divest, if any, for some time. That may not even be the strategy for some time. Some suggest it is in the range of 300 but, again, that is premature.
Our position is consistent. We are looking at alternatives. In the Toronto speech, and subsequent speeches, I described the process in which we are now involved, and that is designing the requests for proposals broadly enough that they do not preclude any option. We do not want to exclude any option, be it public ownership or private ownership, that could give us the best possible value. We want to have the facts. Senator Kinsella's questions earlier were important in terms of what some would refer to as the soft or less economic issues around heritage properties. That is a real priority for us.
The Chairman: Rather than ask for answers to the questions I asked earlier, perhaps I could have you or your department send them to the committee so we could have answers to them later?
Mr. Brison: Certainly.
Senator Ringuette: I am somewhat surprised that your department is only owner/operator/manager of 20 per cent of our federal buildings. Who owns the rest?
Mr. Brison: I will defer to the deputy on that point because he has a better idea of the 98 departments and agencies. Some of them are specific-use building. For instance, some military buildings fall into that category.
Mr. Marshall: We started out earlier talking about the Department of Foreign Affairs. National Defence owns about 30 per cent of the buildings of the government. You have Environment Canada, Health Canada, Fisheries and Oceans, Agriculture, and so on. Most of these have certain special purpose portions to them but also quite a lot of general purpose, office-type accommodation. In many cases, they invite Public Works in under contract to them but they manage whatever they need and we execute what they want.
Treasury Board is looking at the situation and trying to decide whether it makes sense to spread things out in this way, or whether property management expertise should be concentrated and applied. That is something that they are looking at.
Senator Ringuette: In the logical process of evaluating government properties, the first step is to centralize all these operations and management in order to make an accurate assessment. Probably Defence would not agree, for certain security reasons, to release the 30 per cent of all the government buildings that are under their department. We would then be looking at 70 per cent of our government properties in your exercise. I see a missing link in that process.
Mr. Brison: As the deputy minister has said, this is something that the Treasury Board is looking at. You used the word ``centralized''. I avoid that word for a number of reasons. One is that whenever you say ``centralized,'' everyone thinks that means that it must be done here in Ottawa. As a product of the regions, I actually believe we can be doing more of what we do as a government in the regions. I just wanted to make that clear.
It is something we are discussing with the President of Treasury Board. We are a significant property manager within the government. If we can do what we do, or find a better way to do our part of it, that may create a model that we can expand and do with other departments.
Senator Ringuette: It may be that they have the model that you could be using, too.
Mr. Brison: That is conceivable, absolutely. We are interested in that. As do some provinces, by the way.
Mr. Marshall: I want to add another statistic to your thought process which is, of the office buildings, Public Works manages 80 per cent of the square metres, but of all the buildings, we manage fewer. We have a critical mass of a certain type.
Mr. Brison: Of office buildings.
Senator Ringuette: All right. Of that 80 per cent of buildings that you are managing, how many of them would be currently outsourced for management and maintenance purposes — a ballpark figure?
Mr. Brison: About 75 per cent is outsourced.
Senator Ringuette: About 75 per cent of them?
Mr. Brison: Of the maintenance, not the management, but of the maintenance, which is completely separate from management. That was done in 1998.
Senator Ringuette: In your presentation, you say ``And the recent renegotiations of our building maintenance contract..'' and you said ``contract,'' not ``contracts'' ``— will save us $50 million.'' Does that mean that we have one contractor for 75 per cent of our maintenance?
Mr. Brison: Yes, that is correct.
Senator Ringuette: We have one contractor?
Mr. Brison: That is right.
Senator Ringuette: I suppose that huge contract, because of NAFTA rules, would be open to North American competition?
Mr. Brison: We are obligated, because of Chapter 11, to comply with NAFTA. It is a very interesting point because one of the things that we are considering as part of our procurement review process is that some of our trading partners interpret their obligations under Chapter 11 in terms of government procurement perhaps less methodically or rigorously than we do. We can pontificate about Adam Smith or take a more practical approach. However, we have to be respectful of our trade agreements and the changes to the CITT can be part of it. Mr. Lastewka may want to add something on the procurement side.
Mr. Marshall: I have something to add on the real property side. If I follow what I think your question is, we actually divided the properties into eight tranches and asked for bids on eight separate groupings, in order to allow regional firms to bid, who might have ability in one region but not nationally. This is an important aspect because this is how we want to approach what we do. There was great interest from firms all over continental North America. Large American firms received packets of information at their request. When the whole process was over, we briefed about 30 firms. It ended up that a Canadian firm won all eight packages. They put in eight separate bids and were the successful bidder in all eight. It was not as though one person took everything. They had to win in eight separate packages. In some, they came close to losing to another competitor, but they were successful overall.
Mr. Brison: It was a form of proportional representation as opposed to first-past-the-post.
Senator Ringuette: Mr. Lastewka has something to add.
The Honourable Walt Lastewka, Parliamentary Secretary, Public Works and Government Services: One of the items under the study of procurement was how the CITT makes its rulings compared to the other country. We have a great disparity between how Canada rules on such matters and how the U.S. rules. We have had sessions in Washington to discuss how we could better make our rulings. We tend to go along the lines of whether or not the decision was correct, while the U.S. goes along the lines of was the process reasonable, and then the decision is made.
Many of our suppliers have raised that point in all our discussions from coast to coast. One of the recommendations under the procurement study is that we should do a review of that aspect: In other words, over the past years, what has happened and how we could be more in line with our partners to the south.
Senator Ringuette: I have perhaps one comment. It is not a question.
The Chairman: You have the floor.
Senator Ringuette: Another important item that you have indicated, Mr. Minister, is that your study shows that it is costing the federal government 20 per cent more per square foot to operate our properties. Is that under the old negotiated maintenance contract or under the new contract?
Mr. Brison: That considers the management and overall cost, not the specific maintenance cost. That comparison is with the BOMA average, Building Owners and Management Association average, which is a Canadian organization of property managers, and again, this is not a public sector versus private sector comparison. We are talking a general organization, being our department, and organizations that do nothing but property management, so it is the same — it is not a reflection of that difference.
Mr. Marshall: Madam senator, you may be asking yourself, if we had an outside firm, why are our costs still higher?
The answer to that is that the outside firm was asked to perform a certain piece of the management. Public Works employees do a lot of the rest of it, repairs above a certain value and so on. When you take the outside contract and our costs combined, it gets to a number that is higher than it should be per square metre. That is what we want to look at: how to ameliorate that situation.
Senator Ringuette: I come from a small community and a poor family where we were always told, spend your penny wisely; you have to live somewhere all your life so as soon as you can, make the first investment on your own home, and that is wise. I am saying this because government is not a short-term or medium-term operation. It is a long, long- term operation. To compare that to an industry that perhaps looks at a lifespan of 20 years in a facility, there is a difference. The approach has to be different because the mandate is different for those buildings.
This is a comment. I would be remiss not to say that I do hope that, in the entire process, as you said, Mr. Minister, the regions and the current public service employees who are doing this job, receiving a decent salary and a benefit package that is relatively reasonable, that these people at the end of the day will not be losing their jobs for almost minimum wage jobs in our rural regions, or in any region of the country. That would be unacceptable, on the one hand.
I have those concerns, but I thank you for being here and giving us this information.
Mr. Brison: I agree with you that if you are to use something for a long period of time, you must either own it or at least negotiate leases that reflect that long-term usage. The Australian model was raised earlier. Some departments signed short-term leases instead of long-term leases and did not achieve that benefit.
Many of the buildings that were built, or complexes that were built, such as Place du Portage on the Gatineau side, or Tunney's Pasture, and a lot of other buildings and complexes that were built during a very expansionist period of government, do not necessarily reflect the rapidity of change that is occurring within government today. Some people believe that, operationally, the nature of governing — the use of technology, the ability to actually put public servants closer to the people being served in the regions, as an example — necessitates a change in terms of our approach on real property. I think that a lot of the old assumptions — on which I was raised as well on some of these things, in rural Nova Scotia — we have to at least question.
The Chairman: Minister, I think your answer is a perfect segue into a supplementary that Senator Downe wants to ask, and I would like Senator Downe to put his supplementary.
Senator Downe: Minister, I want to follow up on the question asked by my colleague. She quite correctly identified some of the possible flaws in the property management. I want to talk about some of the possible opportunities, and I hope you will consider them.
As you know, one of the unintended impacts of program review in the mid-1990s was a reduction in the number of federal employees in the regions. If your assessment allows you to change your property management, that would create opportunities, it would seem, in the regions to correct that imbalance; and I would hope that that is something you and your officials would consider.
Mr. Brison: Thank you, senator. As you know, I am a product of a region, so I am very sensitive to these issues, but also very enthusiastic about the opportunities. You are absolutely right that if we reduce the imposed inertia of government-owned space — I think 52 per cent of the office space we own is here in the Ottawa area — it does give a greater level of flexibility to departments, ministers and people within the departments to find areas that could be done just as efficiently, maybe even more efficiently, because of cost structure issues around real estate and around the cost of living in the regions of the country.
With the death of distances, a determinate in the cost of telecommunications, the arguments made for geographic centralization of public servants are less and less compelling. Businesses are, in fact, way ahead of us in this regard in some ways. When I look in Atlantic Canada, the number of operations that exist of businesses that are not just large Canadian companies — Magna, for instance, has a plant now in Cape Breton, and technology enables that plant to be a very effective and efficient one as part of their network — you can actually achieve greater efficiencies in terms of the operation, but you can also address what is a real public good, and that is creating greater economic opportunities in the regions of the country.
We have regional development programs that reflect a priority of the Government of Canada to invest in the regions. If we can, through our own operations, actually contribute to that public good and at the same time provide better value for taxpayers, we would be wrong not to do that.
We have had some discussions as to areas within our department that might fall into that category. We are exploring them. We will not move prematurely, but I can tell you that it is a priority to identify those areas and to set an example for the whole of government.
Senator Downe: I totally agree with the minister. I am sure he is aware of the best example, which was when the Veterans Affairs headquarters was relocated from the National Capital Region 28 years ago. In downtown Charlottetown today, there are 1,200 federal government employees with a payroll this year of $68 million. The department had initial upfront cost, but the staff turnover is much lower, the recruitment cost is less and it is the best form of regional development. That is a good model to study for whatever you are considering.
Mr. Brison: There are other governments ahead of us as well. We are keen.
Senator Carstairs: Thank you, chair. I have been amused at all the references to Australia, because I remember being in Australia. Their Parliament Buildings were supposed to cost $58 million and ended up costing $580 million. We all have our horror stories, but I want to specifically address our Parliament Buildings.
Our deputy minister referred to our historic heritage, and I certainly agree with him. We were to start renovating quite early in this decade. We have the library well under way, to be fair, but we need to build a new building on the corner of Bank and Wellington Streets. We cannot renovate the West Block or the East Block until that building is built so that we have swing space. We cannot renovate the Centre Block until we have done the renovations of the West Block and the East Block.
I will be a senator until the year 2017. I have been telling my colleagues I do not expect that I will ever have to move out of the Centre Block in order for these renovations to take place. I sat on the Parliamentary Buildings Advisory Committee. That is why I have this information.
What is the projection? When will we renovate the Centre Block? If you were to ask Canadians what building in this country represents the Government of Canada, they would say, to a person, the Parliament Buildings.
Mr. Brison: Thank you, senator. My longevity here is less predictable than yours. I intend being here for that long, too.
It is, indeed, a real priority. We have magnificent Parliament Buildings that need a tremendous amount of work and long-term planning. This issue has been studied to death. It is not a question of not having enough information.
You mention the library. I am pleased to say that is, in fact, proceeding within our budgetary projections, which is great. There are ongoing discussions that Mr. Lastewka will speak to in a moment. He is a member of the Board of Internal Economy and also Parliamentary Secretary.
There is a real issue that I want to address directly. If we do not address it directly, it will plague us as we move forward over the next ten years or more to achieve what we want to in terms of maintaining and restoring the parliamentary precinct as it ought to be. There is confusion, and split responsibilities around this project. Public Works and Government Services shares the responsibility for the stewardship of the Parliament Buildings and Parliament, as you are aware, is part of that. It is a real challenge to get anything done without conflict. To try to get anything done is really very difficult. Frankly, the responsibility is not clear.
Public Works and Government Services has, in this case, what Mark Twain refers to as a bad job: lots of responsibility and no authority.
I certainly want to address that confused and counterproductive management structure. It is not the way you might think a Minister of Public Works might approach it, by saying we want the authority. To the contrary, I would like to see Parliament playing a greater role in terms of sole stewardship over its precinct. We need a clearer management structure where Parliament actually would go to Treasury Board, request funding and move forward with a clearer delineation of responsibility.
West Block and the Bank Street building are all priorities. It will take forever, under the current management structure, to get anywhere on them, because we will always be to-ing and fro-ing in fiefdom and turf defence.
That is my view. We would be very supportive of that kind of direction. I will ask Mr. Lastewka as a member of the Board of Internal Economy to speak.
Senator Carstairs: The Board of Internal Economy of the House of Commons, minister?
Mr. Lastewka: The minister delegated the responsibility for me to get involved with this matter. I have been involved with the Board of Internal Economy on the West Block and the Bank Street building. You are absolutely right, senator. We have put it off and put it off. Nobody seems to be the leader of the project.
The Chairman: Why should Public Works and Government Services not be the leader?
Mr. Lastewka: They should not be. The Board of Internal Economy should be. They are now seized, almost on a weekly basis, to try to get a handle on the progress of how we will make the transitions with everyone involved, because the amount of time that is available to stay in the West Block is down to a couple of years.
The Chairman: Why is that?
Mr. Lastewka: There are two things: The bricks are falling apart. The maintenance on the building is not a preventive maintenance. It is maintenance as things happen because they do not want to go into the building to do preventive maintenance because when they do that, they disturb the asbestos, and the asbestos can fly everywhere.
The Chairman: What is the extent of asbestos both in the East Block and the West Block?
Mr. Lastewka: The West Block has had no incidents of the asbestos being disturbed in any of the areas with people. One of the reasons it is that way is that they are not doing preventive maintenance, and they are not disturbing it at all. If it gets disturbed then something could happen.
The Chairman: Is someone doing monitoring tests on a regular basis?
Mr. Lastewka: Absolutely, in accordance with the law.
The Chairman: What are the results of those weekly tests?
Mr. Lastewka: We abide by the law.
The Chairman: What is the law?
Mr. Lastewka: We have no instances of asbestos in the area. Is there dust? Yes. Are there bricks falling apart? Yes. However, there is no asbestos. We have issued information on that to everyone in the West Block.
The Chairman: Is the same true for the East Block?
Mr. Lastewka: I cannot give you a hundred per cent answer on that. I will get back to you on it.
Senator Carstairs: I can say the East Block is fine. I can give that information.
I see a fire truck on the Hill four or five times a year. One of these times, there will be a 1916 fire, if we do not get on with this project.
I had a new carpet put in my office when I was Leader of the Government in the Senate. It is a wonder that floor did not go up in flames with the amount of cables that were running under the carpet. They no longer run under the carpet. They run along the walls, because I insisted that they run along the walls. We are in serious trouble with these buildings. I do not want to see another 1916 incident.
Public Works and Government Services clearly has a role to play here. As the parliamentary secretary says, Internal Economy of the Senate and of the House of Commons also have roles. The reality is, you will have to knock heads together because, if they are not knocked, we will have a 1916 incident.
Mr. Lastewka: I can assure you that the Board of Internal Economy is on top of it, and I will tell you how we were alerted that the Board of Internal Economy should be moving much faster. When the minister delegated the responsibility to me to get on to the West Block to find out what was happening, from my work experience I asked two simple questions: Who is the employer, and what rules do we fall under? I can tell you it took me a month to find out who exactly is the employer.
The Chairman: What is the answer?
Mr. Lastewka: The answer is the Board of Internal Economy and the Chair of the Board of Internal Economy is the employer, because they are the governance —
The Chairman: In that case, is the Speaker of the House of Commons —
Mr. Lastewka: In that case, it happens to be the Speaker of the House.
Senator Carstairs: Excuse me, but not for buildings occupied by the Senate.
Mr. Lastewka: No, I am talking about the West Block. The Board of Internal Economy has been seized with it. As the minister said, there were differences of opinions. We are slowly knocking them down. We are not going back to those decision-makings.
The objective within the next few weeks is to give a bar chart on exactly where we move the people out of the West Block. Some people may be moved as early as June.
The Chairman: Of?
Mr. Lastewka: Next year. In fact, if we can move more of them, we will try to do that. That is being finalized and calculated right now.
The objective is to move people out of the West Block, to minimize the risk as soon as possible. We want to first get our act in order, as the Board of Internal Economy of the House, of what we think it should be, such that we have full agreement. I can tell you it is very frustrating because we will come up to an agreement and there is always a reason for something else. I am hopeful that, as we progress, there will be an agreement and there will be no more looking back. That is the decision-making we will have to do. We will go along that route, and we will be tying in with the Senate to make sure we have one precinct plan of action. It is not easy to do because there are so many players and so many people who think they have authority in the matter, and they do not. It is the Board of Internal Economy which has the authority. They are the employers, and in our case in the West Block, it is the Board of Internal Economy and the Department of Public Works that is responsible for their employees.
We have ironed that out and are moving on. I hope in the future to come back and give you an overall plan that we have all agreed on. We must all agree on it and move on.
Mr. Brison: For example, Public Works and Government Services could continue providing services under the direction and leadership of the Board of Internal Economy, or the Senate and House organizations, but as I said, one of the challenges has been a line of responsibility that is not very predictable, in a sense. It needs to be cleared up, in my opinion.
The Chairman: Minister, perhaps I could go back to a question that Senator Ringuette asked you. It seems to me, when you are dealing with issues of procurement and matters of business and real estate, that a lot of business principles should be applied to them, not just bureaucratic principles. In your statement, as Senator Ringuette reminded you, you said that your studies show that the federal government spends 20 per cent more per square foot to operate — we are talking about operations — your properties, and that we also have more space per employee than the industry average. Can you explain why it is more costly for the federal government to operate its properties than it is in the private sector? In terms of the private sector, are their management principles used in the private sector that could be applied to operations of these federal properties without outsourcing their management to the private sector?
Mr. Brison: I will start with the last question, Senator Oliver. The answer is yes, it is certainly possible, and we will be exploring all options in terms of some of the approaches.
Again, this is not a public sector versus private sector comparison as much as it is a general organization, this being the Government of Canada and focused organizations that do nothing but a certain type of activity and, as such, establish an efficacy and efficiency that is greater than that which more general organizations are capable of doing in a general sense.
The Chairman: The committee is concerned with issues of accountability and transparency and so on, and the running of a commercial office building involves business principles and that is what I am getting at. Are there not things that the private sector does well, 20 per cent better than you do? Are there not some principles there that you can apply to start maximizing some of these savings, as they do in the private sector?
Mr. Brison: The maintenance side of it is an example of some of the things that we have already done.
The Chairman: In operations, though. This is an operations question.
Mr. Brison: Just to give you an example of one area: The answer to your question is yes, absolutely, we will look at those areas where we may find things that we can do better in house as examples from the private sector.
The other thing is the size of our organization would be comparatively larger than that which would exist within the private sector for the same managerial responsibility in terms of real estate. That makes a difference as well. Again, we have not made any decisions and will not until we have those kinds of numbers.
The Chairman: There are large companies, such as Wal-Mart, whose gross annual sales in U.S. dollars are about the size of our Canadian budget. They manage to have good cost savings. They can run it. You can be large in government, but there are also large businesses that have many efficiencies built into them.
Mr. Brison: Absolutely.
Mr. Marshall: I might just add a little bit to what the minister has said. The bottom line is an accumulation of several inputs. You start out with the fact that we have a standard agreed to by Treasury Board of 18 square metres per employee. The federal government today is at 21 square metres per employee. The reason for that is that we have not enforced the usage of space, so that if departments bring forward a reason why they need more space, and so on, there has been a tendency to say ``All right, we will accommodate that.'' Therefore a discipline in the use of space, in and of itself, would yield a 15 per cent advantage.
Then you get to the fit-up standards, the carpets and the furniture. Again, people come and say ``I want this and that.'' They go above the standard, and they have been permitted to do so, which we have to control.
Then, in terms of the number of people — and I want to mention this because we do have, at times, conflicting needs and goals — employed by Public Works and Government Services per square metre is double that of the nearest comparative that we found. In some ways we can adopt more efficient processes, but that would mean a reduction of staff. At some point, you cannot reduce your cost without reducing your cost, and that is people and other inputs. We can make ourselves more efficient by doubling what we manage, if we introduce better processes and so forth, and these are the pushes and pulls we are trying to balance, in respect for our staff, giving them an opportunity to see whether there are other things that can be done.
That is why this process is not a one-year thing. We are saying it is a five to eight year journey in which we will look at whether we can adopt processes; we will look at whether the private sector can help.
Finally, we should say that when we talk about the private sector we are talking about multi-use buildings. In a given footprint of land, which is the most valuable part of a property, you could put up so many square metres or you can put up an extra three floors and have lawyers or doctors or other tenants there that would share the cost, whereas with government we are into a special purpose just for government type of operation which then again increases the costs.
We are looking at each of these aspects and seeing how to balance them all out and get the right cost structure. We may end up not getting to the efficiency of the private sector but we want to get as close as we can.
Mr. Brison: There is one other point I thought of while Mr. Marshall was speaking, and that is that 10 or 15 years ago the level of private sector expertise to tap was not as evolved as it is right now. There is a greater private sector efficacy than that which existed in the past in terms of private firms that do nothing but property management, and in fact real estate investment trusts do just that. It is a fairly recent thing if you look at it over time.
Those firms have flexibility in terms of compensation, in terms of incentives for results and efficiencies that are very difficult to emulate within government. There is a bigger issue here. I know this is an issue in which the President of Treasury Board is interested.
The Chairman: I was just about to get to that. One thing that Mr. Marshall is saying is that a lot of the rules set down by Treasury Board are not being enforced. One thing that the President of the Treasury Board has told us here is that he would like to see a lot more accountability. One of the studies he is doing is looking at various accountabilities, particularly horizontal accountabilities for these types of things, and so what is your role as a department in studies like that, trying to find ways to enforce the rules that have already been set down by Treasury Board for such things as office space?
Mr. Brison: There is a real competition.
The Chairman: I hope I can have an answer to my question.
Mr. Brison: Absolutely, but I would like to finish the previous one if I may, senator.
There is a real competition for managerial abilities in terms of real estate and property managers. Within our own operation we face that competitive reality in terms of our people who are attracted to, and in some cases drawn to, private sector real estate management. That is part of the issue, too. There is a bigger issue, namely, of how, within the government structure, do we attract, keep and create incentives that maintain the kind of managerial expertise that we need? That is a broader question, but it is one that does affect our decision-making in this case.
In regard to the second point, we are moving to aggressively enforce Treasury Board's standard across the government. We are a service department. We serve the other 98 departments and agencies within government. The traditional culture within our department has been — and this is perfectly reasonable — to look at other departments and agencies. The mandate has been to look at other departments and agencies as clients. Our people, quite rightly, looking at these other departments and agencies as clients, responded to the desires of the other departments and agencies appropriately. We are now looking at other departments and agencies — and this is a very important change in mandate and culture — not as clients specifically, but as colleague departments. Our ultimate client would be the people and the taxpayers of Canada. Those are the ultimate client.
We look at other departments and agencies increasingly as colleague departments and we will be working with them to deliver best services and best value for taxpayers. That is a shift that will take time to implement, but one of the manifestations of that shift in culture will be enforcing space. I have said this in speeches across the country, in town hall meetings. I hope that our people, from time to time, will say no to other departments when they ask for something. I assure them that I have already said no to other cabinet colleagues when they have asked for things. We are leading by example. That is a shift that will take some time, but I am confident that it will make a huge difference in terms of our ability to contain costs and deliver more efficient services.
Senator Day: I am particularly interested in the information that you have been able to gather thus far in relation to government-wide procurement. I understand that you had one interim report and another should be forthcoming. Are there any lessons learned that you can share with us now, and can you keep us fully informed and up to date on that particular subject matter?
Mr. Brison: I will refer to Mr. Lastewka on the first question, because he has been leading the charge in terms of procurement.
On the second point, I would like, from time to time, to return to this committee and to have this kind of discussion. I find it very helpful.
Mr. Lastewka: Mr. Chairman, first, I wish to thank you up front for making some comments on lessons learned, because that is one of the first things that we did as a task force. We have 14 people on our task force made up of people from Public Works, Justice, Department of Defence, the Treasury Board and me. Half the people on the task force have had some private experience.
We first looked and worked with 17 large corporations on how they do procurement, including Wal-Mart, John Deere, Bell, HP, EDS and any other corporations that cooperated with us in terms of exchange of information. We went to the private sector to learn more about lessons learned, best model and best practice. Then we worked with the United States, Australia, New Zealand and the United Kingdom on their work on procurement because they are doing similar work. Some are ahead of us, some are behind us, but we shared.
We also dealt with academics. The University of Florida was a great example of people who are really knowledgeable in the procurement area, and the changes that are happening on best model and best practice around the world. We had many exchanges.
We reviewed 112 audits, going back, to understand what the Auditor General and the various audit people were telling us. From the private sector, we learned very quickly on a number of items including the importance they place on strategic management of procurement, knowing in advance what the corporation will be purchasing over a year or two so they can plan procurement well in advance. They have extensive standardization.
One of the requests we heard when we talked with the suppliers and the national organizations that deal with us, ``Could you people settle for standardize terminology and forms, and reduce the 50 forms to 10?'' That is what the business world has done.
There was a significant amount of discussion that we had on supplier and supplier management. We do not have good supplier management in the government. One of the things the suppliers told us on a continuing basis is that they are too far removed from us. We need to better understand them. There has to be better working relations between the government and suppliers.
Many corporations and associations talked to us about commodities. In our report, we talk about commodities. We use the extended explanation of commodity; we refer to commodities and goods, commodities and services and construction, but we use the wider scope.
In regard to the supplier community, we had discussions from coast to coast. We were in St. John's, Montreal, Toronto, Ottawa, Edmonton, Vancouver and Victoria. The discussions became repetitive after the third or fourth meeting; we heard almost exactly the same thing. They, too, requested that procurement be done in a more strategic way, exactly what the large corporations have done to get better procurement. The suppliers spoke strongly to us about the standardization of procurement tools.
There was a large amount of discussion with the suppliers. I hope that within the next month we will have that final report. The report will be in themes. We will talk about the governance of procurement, government-wide. If the mandate of Public Works changes to being a proactive procurement department, that is much different than being a purchasing and acquisition body. We have to make that paradigm shift. It will not be easy. Everyone else in the world has made that shift except governments. The good part about it is that we met with many of the other governments that have made this shift and they have made substantial savings.
We will talk about commodity management. In our draft report it was confusing. We have been trying to straighten that out. We mean commodity on the larger scale. We talk about supplier management. We should be able to go to the computer if we want to find something out about a supplier that supplies government-wide. Wherever that supply is, we should be able to go to the computer and find out immediately the experience of that supplier supplying to the government. We should not have to do a six-month study.
I mentioned CITT earlier. We must face the music on that. We have heard that from everyone. We must make some changes there.
On human resources, when we switch from being basically a purchasing, transactional department to a procurement department, there will be extensive training required for expertise, and people should be certified at certain levels to be able to be involved in procurement. Much changed management will be required. Some of our discussion on procurement has been with regard to whether we are being realistic on the savings. I can tell you that we are estimating low on savings.
I want to give credit to our CRA department, which has been doing extensive work. In office supplies, their average saving is 35 per cent. In translation services, it is almost 50 per cent. In the IT area, it is a minimum of 25 per cent, and closer to 35 per cent. In some areas where we have already done some work, there are savings of up to 70 per cent.
If we operate in the existing way, which is purchasing transactional, doing one transaction at a time, buying the same thing each month, we get no benefit. However, if we bundle them together, there are substantial savings.
The Chairman: Business has been doing that for decades, to save costs.
Mr. Lastewka: In the 1980s, businesses switched from purchasing acquisition to procurement. Some businesses just changed the name and operate in the old way, but to get to where we want to be, procurement will require implementation, and we see that in a six- to seven-year time frame. It will gradually come into play working with 98 departments. As we build confidence in the revised mandate, more will come on stream.
The good part about it, and we heard this from the business community and the government communities, is that when you use standing offers to negotiate better prices, you can negotiate even better prices in the future, but you have to use the standing offers. Our recommendation will probably be that it be mandatory to use standing offers.
By the way, if we find that something can be done more cheaply with the proper quality in another area of the country, we should be procuring there.
The Chairman: Is that not being done now?
Mr. Lastewka: I do not think it is done enough, because we are transactional. The department is doing the best they can with the mandate they have. Public Works, whose responsibility is procurement, should be developing the policies and Treasury Board should be approving them to ensure that we have caught everything. The procurement department should be continually looking at their policies for improvement and then executing government-wide.
Senator Day: That background information is very helpful to us. We look forward to a continuing dialogue on that. You have obviously done a lot of work, for which we commend you. The next phase, which you say will take about seven years to implement, will be very strategic. It will be tremendously important that you have all government departments on board. That will require a major selling program that, it is to be hoped you are ready to go into.
Mr. Lastewka: It will require buy-in by the 98 departments and will require discipline to use the tools that have been provided, which is exactly what all the suppliers and associations have been telling us.
Senator Day: Is the Department of National Defence one of the 98 departments that you mentioned that Public Works works with in relation to procurement and acquisitions?
Mr. Lastewka: They will work with us.
Senator Day: Have you been able to determine whether the delays in acquiring equipment, materials and supplies that we hear about on a regular basis from the point of view of National Defence is symptomatic of the entire public service, or is there something seriously wrong at National Defence?
Mr. Lastewka: In my experience, if the request for proposal has been done properly, the time frame to purchase will be shorter. As the RFP changes, for various reasons, the time frame becomes longer.
We, as procurement, working with our customer, in this case National Defence, have to work smarter and harder to do the proper procurement and to cut down the time.
Senator Day: Will National Defence not be your partner and the Canadian public your customer, or is that only with respect to the leasing of real estate?
Mr. Lastewka: Our team looks at it with the view that Public Works procurement has to work with the departments to satisfy their procurement needs in order that they can fulfil their mandates. We think that we could cut out up to 50 per cent of the time. We will need to zero in on continuous improvement, which will be part of our recommendations, to cut down the time frame and to be able to work with the various tools we have in Public Works to get the job done.
Senator Day: Is Public Works involved in every acquisition that is done within National Defence? Are you entitled to be involved in each of those activities?
Mr. Brison: There are some specific differences between National Defence and some other departments. We also procure on behalf of CSIS, and there are security issues surrounding both National Defence and CSIS. In many cases, there is also a necessity to procure very specialized items. For instance, many of the efficiencies we are speaking of gaining may well apply less to items that we would procure for National Defence, because those items that we are buying are of such a specialized nature that changing our internal operations to become more efficient will not necessarily get us better prices. I think of helicopters as an example.
There are about 40 commodity groups and there are currently purchasing people in 98 departments and agencies. If we could draw together expertise based on commodity groups rather than dividing it along department lines, I think we could negotiate more effectively.
I want to mention the Government of Canada Marketplace, which is a state of the art e-procurement portal that we are developing with IBM that will help us better coordinate our purchases across the 98 departments and agencies.
Mr. Lastewka mentioned a 50 per cent reduction in the time for procurement. That is attainable using technology. By reducing paperwork and using IT more effectively, we can reduce the time of procurement by 50 per cent and, at the same time, save the 10 per cent minimum that we are seeking to achieve in terms of greater efficiencies.
Mr. Marshall: We have been very fortunate in having our parliamentary secretary with his experience to guide us, and having a minister to support us. We know a lot of what can be done. It is a question of allowing it to be done and having the collective will. You can tell a department, ``Look, we have certified three kinds of computers. Take one of those,'' and they say, ``No, I want a little extra.'' They start with defining what they want, and then come up.
I want to point out something which will help you understand the opportunity. The Government of Canada, on an annual basis, writes about 500,000 contracts a year, and 83 per cent of them are for items less than $25,000. You have a massive amount of churning for small amounts. What we are talking about here, and what Mr. Lastewka was referring to, is let us put in place a contract for desks and groceries and computers and so on, a five or ten year contract for a supply of so many million items, get a good price, put it on to a procurement software, as the minister was saying, and have people order from that, rather than having people write separate contracts all the time. There is a huge amount of efficiency in speeding things up.
Senator Day: That was the standing offer to which he was referring?
Mr. Marshall: That is right. We do standing offers today, and this is an interesting issue of government accounting. We cannot commit to any volume, because you can only commit when you have an appropriation, and Public Works does not have an appropriation.
The Chairman: You cannot get your best price, then
Mr. Marshall: That is right, but we are working through all that.
Senator Ringuette: I certainly agree that you are most fortunate to have Mr. Lastewka and his private experience, accumulated with the politics and the knowledge of the bureaucracy, that he has gained since 1993.
You mentioned the low use of standing offers by different departments, and it is the same situation that we have with hiring. We had an agency, the Public Service Commission, and no one was hiring, and they are still not. I can see the parallel. You are currently a source of supply to your departments, and your services and the job that you do is not being used by the department. That will require training these people to understand the value of what you are doing and not to deviate from the process, because they are deviating from the process through any means that they can. The objective of saving monies with regard to what you want to do or to getting the best person, the best Canadian across the country to be hired, is not being followed. Best of luck to you.
The Chairman: Before you respond, Mr. Minister, I wish to say that we have six minutes and three more questions to ask.
Senator Ringette: I do not need an answer.
Mr. Brison: I appreciate the observation. Again, our ability to coordinate and to track and to have good information is not there now unless we use technology, and we need to do that. To a certain extent, we need mandatory compliance with this or it will not work.
Senator Downe: I appreciate the work that the Public Works Department is doing on procurement. I think you are on the right track in a lot of areas. However, I want to refer back to the question originally asked by Senator Day about the unique situation in DND. Everyone in government buys pencils and computers, but no one else buys military procurement. You would not have the expertise that you might develop government-wide on standard purchases when it comes to DND. DND has an endless appetite for equipment. It seems to me that in recent years whatever we buy — I read in the newspaper last week that there are some trucks that now have cracks in the floor — there seem to be problems. We have an erosion in the public credibility with the department because, in the past, people who were involved in purchasing procurement ended up a few years after they left as either lobbyists or working with some companies that were trying to sell to the government. This is a unique challenge for Public Works. I am just not sure if you have the expertise in-house, and I am wondering if you have considered consulting with other NATO allies or Commonwealth countries. It would seem to me there would be a common requirement for certain equipment. Working together, you may have that, but individually we seem to move from purchases that simply do not work, and people question the value and the money we paid for them.
Mr. Brison: That is an excellent suggestion. You say that the military has an endless appetite. They would argue that they need more budgets. There is a political aspect of this, not just a government operational one, and I think that the Prime Minister has spoken to this. We want to invest more in our military, but the procurement requirements, because of the nature of what they are buying, are different from everything else we are doing. That is why we are covering this point. Perhaps Mr. Lastewka would like to add to that.
Mr. Lastewka: That is why it is so important for us to collaborate with the United States, Australia and the United Kingdom on an ongoing basis, for that reason alone.
The Chairman: I would like to ask one question, and then I will give the final question to Senator Day. Mine is really a question about long-term policy and planning in your department.
The department's 2004-05 Report on Plans and Priorities at the level of real property service branch spending over the period up to 2004, 5, 6 and 7 is stable and very constant. Yet the Ottawa Citizen reported on October 1 that the average age of federal buildings is 43 years, and they will require up to $1 billion of repairs and renovations over the next few years.
My question, which is a question of principle on your policy planning, is whether it is realistic to plan for stable spending, as you have, given the age of the government's properties and the need for more modern infrastructure? It seems like a contradiction to me, and it does not sound like good business.
Mr. Brison: The issue of rust-out or deferred maintenance is a significant one. There is about $1 billion there.
The Chairman: Why budgets for stable spending, then?
Mr. Brison: Part of the issue is how we can best approach that. That is why we need to do this evaluation of our strategy in terms of the best way to not only address the rust-out issue and the deferred maintenance issue, but also achieve greater efficiencies on a go-forward basis, if there is a process of expenditure review, if there are ways that we can create greater efficiencies as opposed to going to cabinet and saying, ``We need this many billions of dollars to address this issue,'' in this case the rust-out issue, and to find alternate ways to address it without having to seek that capital expenditure.
The Chairman: Such as selling the building?
Mr. Brison: Not necessarily. Again, that is just one option. The overall efficiency issue does not require the selling of buildings. Again, there are things like a real estate investment trust or potentially the creation — I did not mention this earlier — of an arm's length Crown corporation that would have greater flexibility around things like compensation and management structure.
The Chairman: Even with 43-year-old buildings?
Mr. Brison: I am not even 43, senator. That is not that old.
Senator Day: You have offered, Mr. Minister and Mr. Secretary, to come back and see us again. That would be wonderful. Mr. Deputy Minister, you too.
The question that will take us into our time allotment is to confirm what we learned from the Expenditure Review Committee, the reallocation of funds. We understand that each department has a target of about 5 per cent of the operating part of their budget and to try and look at low priorities and say, ``We will not do those.'' You have that responsibility to do that as part of your operation. From all the departments, 5 per cent of all of them will give us 50 per cent of the $12 billion over five years that the government is looking for in this reallocation.
The other 50 per cent is to come from central government operations. Those central government operations, from what we talked about here today, are services, procurement and property management, which sounds to me like we will be looking to you for one big chunk of this $12 billion over the next five years. Am I reading that right?
Mr. Brison: It is right; it is important to realize that of the $2.7 billion budget, $2.1 billion is a flowthrough that we do on behalf of the departments. There is approximately $600 million that is more discretionary, but even that is fixed. Our commitment to expenditure review meets the 5 per cent figure that is being looked for, but beyond that, you are right. We will deliver efficiencies across government and other departments that will far exceed that which we achieve in our own, because of our central role in government and of the nature of what we do.
Mr. Marshall: You are quite right, senator. The management of procurement across the government and the management of real property, these are the big ticket items that we have been discussing with the Expenditure Review Committee. If I may just pick up on Senator Oliver's earlier question, the minister and I have laid out in front of the Expenditure Review Committee the fact that, unless we can release capital in some other way, the government will have to allocate a lot more money to get our buildings up to scratch. That is a decision point that we will come to with a bit more analysis and then make our choices. However, that is a hanging out there.
The Chairman: Will you not be talking billions of dollars, rather than just a few hundred million dollars for buildings of this age?
Mr. Marshall: That is correct.
Senator Day: I would like to get back to the follow-up on my question. Is it fair for us to assume that the procurement study and review that we talked about this evening is part of the larger reallocation?
The Chairman: We are hoping that we will get a copy of Mr. Lastewka's report, when it is done in a month, to be tabled before this committee so that we can study and analyze it.
Mr. Brison: The interim report that Mr. Lastewka is currently consulting on is actually on the website.
The Chairman: On behalf of the Standing Senate Committee on National Finance, I would like to thank you and all of your officers and staff for the excellent presentation you have made tonight. We had more questions but we have run out of time. However, we think that much of the evidence you have given tonight has helped us in our understanding of new principles of accountability, of transparency and of new approaches that have to be taken to make sure that Canadian taxpayers' dollars are being wisely spent. Thank you for coming.
The committee adjourned.