Proceedings of the Special Senate Committee on the
Pearson Airport Agreements
Evidence
[English]
Ottawa, Wednesday, July 12, 1995
The Special Senate Committee on the Pearson Airport Agreements met this day at 9:30 a.m. to examine and report upon all matters concerning the policies and negotiations leading up to, and including, the agreements respecting the redevelopment and operation of Terminals 1 and 2 at Lester B. Pearson International Airport and the circumstances relating to the cancellation thereof.
Senator Finlay MacDonald (Chairman) in the Chair.
The Chairman: Come to order please. We are a little late starting this morning. I hope we can start on time in the future.
Peter, welcome, Senator Bosa. The vice-chairman has a long-standing commitment and he will not be with us today, but Senator Peter Bosa will be substituting for him.
Mr. Nelligan will tell us who the witnesses are today.
Mr. John Nelligan, Counsel for the Committee: Senators, this morning we have another panel constituting Mr. Barbeau, who was with us yesterday, and Mr. Warrick, and with them is Mr. Al Clayton, who has been involved in the Treasury Board policies and approval processes concerning the acquisition, disposal and leasing of federal lands. It is hoped that he can assist us in inquiring into the major government project principles and policies concerning land leases.
It was our hope at this stage today, having heard of what the general policy was on privatization, to look into the processes available to the government and those used in projects of this kind and those that have other similarities.
I understand that the witnesses themselves have no opening statements to make but you may want to ask them just what their experience has been in this field and then inquire into the methods which the government normally uses in order to dispose of public properties of this sort.
The Chairman: Does anybody wish to start? Any questions?
Oh yes, I'm sorry, Mr. Warrick and Mr. Barbeau have already been sworn.
Mr. Clayton.
(Mr. Al Clayton, Sworn:)
Mr. Al Clayton, Executive Director, Bureau of Real Property Management, Treasury Board: Mr. Chairman, if I may, this was a somewhat different process than I understood. I do have a short opening, maybe background statement, I could do to help set some framework for government policy, if you don't mind, about five minutes.
The Chairman: Yes, please proceed.
Mr. Clayton: Okay, thank you. As mentioned, my responsibility -- my name is Al Clayton -- my responsibility in Treasury Board Secretariat has to do with policies, amongst other things, with the policies and practices related to real property in government. And I thought I would spend a few minutes talking about sort of three, briefly, three areas that relate I think to areas of your interest related to what we call land leasing since the T1T2 project as proposed was technically a land lease project. I thought I would spend a few minutes talking about the history of such projects, the government policy framework and the Treasury Board approval process which takes place for such projects.
These projects are, what we call land leasing, are cases where the government retains ownership of land and leases out its interests to third parties, private sector or other, or nonprofit institutions. I will use the common-law definition of land whenever I use the word "land". That is not only unimproved land, it also includes all of the attributes of land including buildings and rights and so forth.
In these deals the lessee then is granted rights to use the land often with also provided various exclusive and monopoly rights and obligations to provide services to the public on behalf of government and in exchange the government receives compensation usually in the form of a combination of a fixed payment lease and a percentage participation. These are quite often, these types of arrangements are given many names and these days the most popular one is private public sector partnership arrangements.
A lot of people talked about this as a new approach. Without going back into a history lesson, Canada was in many ways developed using it. This was essentially how the Hudson's Bay Company operated and of course we built our railways using these types of arrangements. The basic land leasing as such has been used by many federal government departments for a long time.
The two that are most prominent are the park service that use land leasing in hotels, commercial businesses, recreational properties and national parks using the private sector to deliver services, and in the transport, air, that have used land leasing for concessions in terminals and airport businesses and parking for a long time and have well developed processes in terms of how they do it. But in the last decade there has been international trend for more creative use, more expansive use of such arrangements. The Canadian federal government is just one of them.
There are many reasons. One of them has been, as it was talked about yesterday I believe, a lack of capital, traditional sources of capital for departments through appropriations and therefore you get private sector to help with capital infrastructure. Another one, particularly in the late '80s, was the hot real estate market in several parts of Canada which permitted these types of arrangements for the government to in effect get revenue for the value of the land that they were holding.
Part of the reason is a redefinition of the role of government versus private sector, in which certainly in Canada and other countries the private sector has been asked in the last decade to deliver services which in many ways traditionally were done by government departments. And finally it has been a useful tool, that's land leasing, for government, particularly the Canadian federal government, to devolve responsibility to local institutions while keeping ownership of the land. On that devolution side the two classic examples are the Banff town site, which the federal government in effect devolved a town from the, to the local authorities, and what was originally a local airport now the Canadian airport authority concept.
On the business of then using the private sector there are endless projects but four that sort of certainly had a lot of public coverage, one of them being the CBC Broadcast Centre in Toronto, second one is the fixed link between, the bridge between P.E.I. and New Brunswick, the Tokyo Embassy run by Foreign Affairs in Tokyo, and Terminal 3 at Pearson, but there were many other such projects. All of these come under a policy framework of the Treasury Board under what is the Federal Real Property Act, which was passed by Parliament in 1992. Before 1992 it was under another piece of legislation called the Public Lands Grants Act. In both cases essentially there is no difference in those legislations in terms of how these arrangements take place.
Under the Federal Real Property Act Treasury Board passes, at least has regulations and internal policies, and sort of the four basic policy principles particularly related to land leasing which Treasury Board has have to do first of all with what we call "market value with fair return", that is federal land is not free, and in any arrangements the Crown should be getting a fair return for that land.
The second one is that it should, when dealing with the private sector they should have a fair and equitable opportunity to bid, including in the categories of fair and equitable opportunity as a reasonable time to make offers. The third category, or third basic principle is that the government should accept in those public tendering the highest offer or best value. Best value can include more than just return. And in doing so there must be pre-established evaluation process before the tendering process evaluation starts. And fourth is that the length of these leases should be the shortest term consistent with the need for financing of the lease.
Basic Treasury Board policy principles, departments themselves then, the initiating departments have quite detailed policies, procedures and so forth on how they are going to carry them out. When the project initiation then takes place under that regime the Treasury Board itself, the Treasury Board ministers have at a minimum two occasions where they must approve the initiative. The first one we call Preliminary Project Approval, and that is when the initiating minister would come to the Treasury Board to in effect get approval, justify the need for the project, the various options in terms of how the project could be delivered. The process to be carried out, whether it is to be a request for proposal or public tender so they come to the Treasury Board for approval of the process, an evaluation process to be carried out on the project. And they quite often, at that time the minister will come with other issues, for example, issues related, if it involves public servants transferring to the public sector, issues related to how that will be done.
After the, then the tendering process is carried out, which is carried out clearly by the department itself, not with Treasury Board, the department must come back to Treasury Board or the minister a second time for what is called Effective Project Approval. That approval gives the go-ahead for the project. It, amongst other things, has to approve the financial arrangements that take place because it quite often will involve changing the budgets of departments. It may involve many other technical approvals related to personnel issues and so forth, and it also at that stage approves generally what we would call the, quote, winner of the competition, that is the private firm that would be awarded the contract.
There is a third approval that could take place at the time of Effective Project Approval or later, and that is of the terms and conditions of the agreement itself. If at the time of Effective Project Approval, that is after you have gone to public tender and the tenders have been assessed, the terms and conditions are solid enough in terms of all the loose ends tied up, or most of them, the Treasury Board at that stage may, at the Effective Project Approval, provide authority to enter into the agreement, the conveyance agreement, under the terms and conditions so approved. If there are still negotiations to carry out to finalize items in the agreement, the Treasury Board will usually require then that the department come back a third time with the actual terms of conditions of a final agreement and at that time the Treasury Board would therefore provide approval to enter into the conveyance contract, the agreement itself.
So at the board at least twice, sometimes three times, in a major project such as Terminal 1 or 2 or the other ones I've talked about the initiating minister must come to the Treasury Board colleagues in order to get approvals before a project can be signed.
The Chairman: Thank you very much Mr. Clayton.
How often in land leasing are cancellation clauses employed?
Mr. Clayton: Cancellation clauses in the sense that the government may, if I understand the question, in the process decide to cancel the process before a contract is awarded?
The Chairman: Or after it's awarded?
Mr. Clayton: I have simply very little information of history about cancelling it after it's awarded. There is always a clause in the process that the government at any time in the process of doing the tendering may in effect cancel, you know, cancel the process, it no longer has the requirement and so forth.
The Chairman: Yes, but it has been suggested that had there been a cancellation clause in the awarding of the contract for T1T2 a lot of... we wouldn't be here today.
Mr. Clayton: I really can't comment on that. I'm simply not aware of such clauses.
The Chairman: You have never heard of a cancellation clause?
Mr. Clayton: It doesn't mean it doesn't exist as such but I just don't have information to answer a question related to a clause after in effect the contract is awarded which is --
Senator Bryden: Mr. Chairman, supplementary to the point, if you don't mind.
You said you had not heard of a cancellation clause after the contract had been completed?
Mr. Clayton: There may be such things but I am not aware of them.
Senator Bryden: But you also said there is always a clause, a cancellation clause, if it's cancelled during the process?
Mr. Clayton: Yes. Now there is.
Senator Bryden: Do you know if there was one in the agreement leading up to the final signing on October 7 of T1T2?
Mr. Clayton: I would not be aware of the details of it. The normal process in any public tendering process is that the government in that process has the right to cancel the project. Now you sometime have to pay compensation of various types in that process.
Senator Bryden: Is it the case that what a cancellation clause normally does is sets out what are the terms of compensation of the other contracting parties if indeed government, or whoever, cancels, stops before the actual contract is signed?
Mr. Clayton: Not that I'm aware of. My colleagues may be able to help.
Senator Bryden: Can I reword that question? What is your understanding of a cancellation clause?
Mr. Clayton: Maybe Mr. Warrick can, may know a little bit more through his experience in reference to that.
Mr. Ed Warrick (retired), Project General Manager, Major Crown Projects, Pearson Airport: I am not aware of a cancellation clause once a contract has been signed.
Senator Bryden: No, I'm not talking about once it has been signed. That is probably the case. I think one of the issues that we have, just to be clear, one of the issues we have to address is that in this process that we're dealing with, the agreement for T1T2, that there was no cancellation clause provided if it had been stopped on August 30, if it had been stopped on September 10, and I think we need to determine that.
Senator Tkachuk: I'm confused here. You said, just so that we know what we're all talking about the same thing, chairman, I don't mean to interfere, but you said the contract can be cancelled before it is let; isn't that the words you used?
Mr. Clayton: I said if there is no contract -- while the process is being carried out there is no contract. There is standard process in government, all of their tendering documents that the government in effect may cancel this project.
The Chairman: Terminate.
Mr. Clayton: Terminate it.
Senator Bryden: But, Mr. Chairman, my point is that if the contract is terminated before, and it's not a contract technically because it hasn't been signed, that my understanding and any contracts that I've been involved with there is normally a designated amount, that is the contracting party will receive their out-of-pocket expenses, sometimes up to a certain limit, and so on. Do you know whether that type of provision was included in the negotiation for the Pearson contract for T1T2?
Mr. Victor Barbeau, Assistant Deputy Minister, Airports: If I may, Mr. Chairman, I don't want to answer for Mr. Clayton but I think he sort of answered himself that he doesn't, Mr. Warrick doesn't, and I don't either, because none of us were involved really in the negotiation. I would suggest again that that question may be best put to people who actually negotiated the contract.
If I may add to that, in my experience dealing with many service and revenue contracts that come on my desk, again depending upon the importance of those contracts, normally there is a clause in there which is a very general clause which essentially states, I can't quote it but it essentially states in quite a heavy handed way that the Queen may cancel a contract more or less at will and that's sort of the norm. Now, again, whether a clause of some kind was included in this contract I don't know. Whether a clause similar to that but, as you suggest, getting into details of compensation would have been negotiated in some cases -- I'm not talking specifically about the T1T2 -- whether in major contracts this kind of thing would be negotiated before the contract is signed is possible. I don't recall any in my mind myself of those happening.
Senator Bryden: I appreciate that. One further comment, Mr. Chairman, and that is -- Mr. Jessiman may be more familiar than I am -- but I believe in the various stages going through the fixed link project there was cancellation clause and provision that the people who were responding to the request for proposals would be paid their costs up to a certain limit as the process was being dealt with, and so at some point I would like to determine from somebody whether that same sort of thing was contemplated in the Pearson one, and I appreciate you can't answer it.
Mr. Clayton: I think, and I may be repeating Mr. Barbeau, but the general contracts go out sort of the norm do not have specific references to types of compensation. Essentially the Queen has the right to cancel without compensation. There are obviously the ability of contractors to go to court and so forth related to getting compensation, so that is the standard sort of clauses that you see. In the very large development ones there may be specific clauses put in them because of the nature of those types of projects.
The Chairman: Thank you. No one is questioning the right of the government to cancel a contract once it's been approved, signed, so on, but they do so at the risk of being taken to court for damages, for compensation. We were talking about a specific, whether you had knowledge of any specific cancellation clauses agreed upon by the parties in a contract for land leasing?
Mr. Clayton: The answer is I am not aware of the details of any such clauses.
The Chairman: Senator LeBreton.
Senator LeBreton: Actually that was just the point of clarification sort of falls on your question, chair. Is it not a fact that it is standard government policy not to include cancellation policies in leasehold agreements? Is that not a statement of fact?
Mr. Clayton: I think it's fair to say that it's not standard policy to put them in contracts whether it's acquisition of goods or leasehold and so forth, it's not standard policy to have those in there, it is the government sort of, the Queen has the right to cancel.
Senator LeBreton: That's right. Thank you.
Mr. Clayton: That is again not after the contract, this is in the process before anything is signed.
The Chairman: And what was the term you used when -- the length of the lease was consistent with the need for financing the --
Mr. Clayton: Yeah, maybe to, we'll talk a little about it because it will I think become something you may want to deal with. The Treasury Board, if you go back is that in North American society essentially we do not have a lot of land leasing, it isn't our tradition, we generally have people own, it's fee simple, unlike the Europeans. Usually when you have fee simple, when you own an asset, the bank provides, loans you money and they have an asset in which the bank in effect can mortgage against. When you have a land lease you don't have the asset, that is you don't have the physical asset because it still belongs to the federal government, so what the bank or what a financial institution is lending against is the contract, against the lease itself.
The Treasury Board Secretariat over quite a while tried to, sort of said can we set out a policy of guidelines any more specific than what I just mentioned, that is to say the terms should be what is the minimum required for financing, can we do anything much more than that, and we did research and with great difficulty because there aren't that many out there in the Canadian history and, more important, they are all different.
I guess the simplest rule, and it is actually one that our friends in the National Capital Commission, who do a lot of this as well, have come up, is the industry now is talking about twice the length of a normal mortgage plus a few years, which would be for these deals 60, 70 year, tends to be what seems to be what the industry, and that is what the lending institutions are saying and I've talked to several of them and that's about what they say for large types of these types of deals that they are comfortable with in terms of a length of term of a lease for them to provide money at the best price. And obviously from the government's viewpoint the shorter the lease term very possibly the higher the borrowing rate to the private developer which would be in some ways less return for the federal government. So usually in these things we have an interest in obviously helping whoever the developers are have enough length of term in order for them to get the cheapest possible money. So we haven't gone specific but that tends to be the way the industry works.
If you look at some examples, for example the recent years, a similar arrangement here in Ottawa at Bell Northern Research on National Capital land was a 99-year term, various reasons. The local airport authorities, which are not the private institutions but they are nonprofit institutions that have to borrow money, are 60 years, 66 years I guess is the normal. The fixed link, however, is 35 years. Big project, other characteristics and it's a shorter term. What is called the Chambers Building Project, just down the street here, is a development project which is a 66-year term, so it varies considerably based upon the circumstances, the risk involved and so forth, but they are up in that sort of time frame.
The Chairman: Senator Bosa.
Senator Bosa: Mr. Chairman, I was just wondering if we have the cancellation clause made available to us so that, because there are still some question marks on that as to what it contains and Mr. Clayton hasn't been able to give us a precise definition on that. Could we not look at the actual cancellation clause in order to --
The Chairman: We haven't got one.
Mr. Nelligan: There isn't one.
Senator Jessiman: There isn't one and there isn't usually one.
Senator Bosa: There isn't usually one? Well, in the briefing book that we have before us if you look at tab H, page 52, it says "government rights, right to accept or reject proposals, the government has the right --
Senator Jessiman: But that's proposals. We're talking about contracts.
Senator Bosa: But let me read on.
The government has the right to reject any or all of the proposals, to accept any proposal and to elect not to proceed with the project, all as it so determines in its sole and absolute discretion.
Senator Jessiman: Before the contract is entered into, or at some stage along the way.
The Chairman: Let's not talk among ourselves, let Mr. Clayton answer.
Senator Bosa: There is no cancellation clause provision in that contract?
Mr. Clayton: I cannot talk about it because I don't have the information on the T1 and T2 project itself. In a normal process, the clause you read is the clause which gives the Queen, the government, the right without compensation to cancel in the process before a contract is let. I am not aware in the contract of general cancellation, after it's issued of a cancellation clause as such. Obviously you cancel it subject to lots of issues related to compensation.
Senator Bosa: And in this contract there is no cancellation included?
Mr. Barbeau: Well, Mr. Chairman, can I suggest again that I don't think either one of the three of us really have the information to give to you. We can do one of two things. We can certainly get it to you in writing or you can ask the witnesses as they appear, the witnesses who actually negotiated the contract, about those specifics of the contract, and we will bow to your preference, whatever you want to do. Again, we can get back to you with a written statement in answer to your question saying these are the specifics or you can wait for the witnesses or we can do both.
Senator Bosa: Mr. Chairman, I think that the last part, providing us with the specifics, is preferable rather than -- we can always ask the witnesses that come on the same question, but I think it would be preferable to have something in writing from these witnesses concerning the cancellation clause.
The Chairman: Yes, but I must say that I'm a little bit surprised that you would not be aware of the fact that there was a formal cancellation clause in the agreement with the proposed developers of T1 and T2, a formal cancellation clause which would indemnify the government from any action for damages. That's the simple question. We're not talking about the right of the government to cancel, we're talking about whether there was a cancellation clause and Senator Bosa says please provide the information, that's all we're asking for.
Mr. Barbeau: Well, we will certainly provide the information. Again, in terms of your surprise, Mr. Chairman, I don't know who it's directed to, if it's directed to me I never read the contract, I did not negotiate it and I'm not, this is not a cop-out if you want to excuse the expression, but I was not involved in the negotiation of the contract and so it's very normal for me not to know what was in it, I don't know.
The Chairman: The reason we put the questions to Mr. Clayton is that he is aware of the nature of these contracts and he speaks of the usual length of the terms of the lease of being 50, 60, 70, 99 years. It's not eyebrow raising. And you maintain that you have really no knowledge or any experience or any history of formal cancellation clauses in contracts of that nature that you have experience with.
Mr. Nelligan: May I just raise a problem here in fairness to the witnesses as to what information you want them to provide. And perhaps we can clarify it. You have identified, senator, the provision in the request for proposals that is very clear about the right to accept or reject proposals. We have that in front of us. I can tell you that from my examination of the actual contract and so on there is nothing more said, we can't find anything more. So I think the difficulty of these witnesses is is they're not quite sure what they can get for you. Now other witnesses may be able to explain to you why such a clause was or was not put into the document, but all these witnesses can do is tell us that this clause in the request for proposal is standard and that they don't know, and that there normally isn't something in the final contract. And so if perhaps you can assist them in what it was you wanted that goes beyond that that's within their expertise rather than the people who actually negotiated.
Senator Bosa: Well, Mr. Chairman, if I'm told, if I understand you correctly, you're making a statement that there is no such clause in the contract, so I presume then that Mr. Clayton and his colleagues will not be able to provide the answer that we're seeking, but there is another question to this then. Should we get some precedents as to whether other government contracts do usually contain a cancellation clause and why did this contract not contain one?
Mr. Nelligan: I think the present witness has been discussing that and I think you can ask him questions about that.
Senator Bosa: Well, I don't know, I think the witness has heard my query without my repeating it.
Mr. Clayton: The standard, talk about the question, the standard revenue or land leasing or contract or procurement contract has no other clause except the type of one you have there. There may be in certain major projects a special clause that was inserted. I would not be aware of them, I would have no difficulty going back over a few of the major ones that I've mentioned to see if there were such clauses in those contracts, the fixed link possibly being one. But the standard, it would be the unusual where you would have that in them.
Senator Hervieux-Payette: Just clarify because I know that you're going through several of these contracts, I mean I think there is a difference between leasing land to Bell Northern Research Centre and the other contract of the nature that we are looking at on a infrastructure that has some public interest and it's not private operation, it's a public service that's being rendered through that facility. So maybe if we have, if you refer to other contracts that went through Treasury Board approval because you talked about the criterion, that you were developing criteria and that one of the thing I think would be interesting for all of us to know is that the, and one of criteria when we are more or less alienating the rights of the Crown in favour of a private enterprise if there are other public I would say need in the future that are before the end of the contract if there are any clauses that would change the, allow the government to compensate and retrieve the use of its own assets. Okay?
Senator Bosa: Mr. Chairman, I think that there is already an example, I don't know whether it's parallel to this, the cancellation of the helicopter contract. Perhaps maybe the witnesses might have access to that to see whether there was a cancellation clause which compelled the government to pay certain compensation because of the cancellation of the contract. So it seems to me that that would be one precedent. I don't know if the analogy fits that situation but we might look into that.
Senator Bryden: At the risk of beating this dead horse even more to death, if the project had not been proceeded with by the Government of Canada up until the contract was signed, actually legally signed on the seventh of October, is it my understanding that what would have applied up until that time would be the provisions that were contained in the request for proposals, that is that Her Majesty, that is the government, had the absolute right to stop at any time until this became a concluded contract?
Senator Hervieux-Payette: Referring to clause 8.71.
Mr. Clayton: Again, I cannot talk about the specifics of Terminal 1 and 2. In general the answer is yes. Having said that, that does not mean that the government then cannot be sued many ways for the reasons it cancelled the contract, for bad faith tendering, for many other reasons, but it is not a provision in the contract itself.
Senator Bryden: No, it's not a provision in the contract itself.
Mr. Clayton: Or in the tendering documents itself.
Senator Bryden: But in the call for proposal, the only thing that is there to direct the risk that the people who are doing business with government when these calls for proposals goes out is that at any time before conclusion normally the government may say we're not going to proceed and they can have recourse to whatever bad faith but they haven't got a contract to sue on for sure.
Mr. Clayton: On a normal contract, you're right.
Senator Bryden: And, Mr. Chairman, the only reason for raising that is so that people don't think we are off on sort of a frolic that is irrelevant. It's very relevant because of the controversy that was surrounding whether the contract should in fact have been signed at the time that it was. If it had not been signed what would have been the damages that government would have been entitled to be sued for as against having rushed through and signed the contract on October 7 and now what are the implications. Thank you.
The Chairman: Senator LeBreton.
Senator LeBreton: Just back to my question again just for a point of clarification. You have already answered it once but I'm going to seek the answer again because I've got a little preamble, a little editorial comment at the end of it. Is it not a fact that it is standard government procedure not to include cancellation clauses in leaseholds, and I underline that, agreements, for it's obvious if such clauses existed no agreements could be possible in the marketplace. Because if Bell Northern Research, and I know the land, I'm well familiar with it, who would enter into a 99-year lease if some government came along and told them that they were breaking the lease and get their buildings off the property. It seems to me that no one would do business with government if there was cancellation clauses written into leasehold agreements. So I'm just asking the question again, is it not standard government practice not to include such clauses in leasehold agreements?
Mr. Clayton: In the agreements themselves it is not practice to have them in leasehold agreements, yes.
Senator LeBreton: Thank you.
The Chairman: Senator Tkachuk.
Senator Tkachuk: I am going to beat this dead horse a little bit because I want to understand it a little more clearer and I think just from what I understand presently, when you let a tender out for a leasehold agreement, and we learned something yesterday and we should be very clear about this, this is not a lease for an airport, this was a lease for two terminals, the buildings, as exists in Terminal 3 which is presently leased so there was some precedent for this. Stop me when I'm getting off track here.
Mr. Clayton: To use our terms this is a land lease because it includes buildings, improvements and lots of other land, so it's a land lease out and not an airport lease.
Senator Tkachuk: Okay, just so we're precise here. At any time the government can, up to the time the tender is let the government can, or the proposal is that the government can cancel the proposal, say we're not going to go any further, may have some compensation clauses, et cetera, that would further explain this or help the people who have made the proposals, but up to the time of proposals, and then there is a whole bunch of legal things that go on after the call for proposals are finished and the contract has been agreed, has been, the winner has been announced. Is that not correct? You would have letters of intent that would flow by, there would be some process of negotiation set up, there's a whole bunch of things that take place after the proposal has been won to the time a contract has been signed. Because really what you're doing is just taking all the fine points and negotiating what you have already agreed to. Is that not correct?
Mr. Clayton: Maybe I'll answer that from the Treasury Board's perspective. When the Treasury Board approves the winner, to use that term, the contractor, as part of that approval it provides approval of that and basic terms and condition. The Treasury Board has not approved the contract. The terms and conditions then, there is a whole process that goes on after that which frankly I have little knowledge of with lawyers and so forth of finalizing the contract and it is very much up to the Department of Justice in our system to ensure that that final contract is consistent with the terms and conditions, that we have not deviated from them, and if they are different they'd have to come back to Treasury Board to get approval.
Senator Tkachuk: So when was T1T2 approved by Treasury Board?
Mr. Clayton: I'm afraid that --
Senator Tkachuk: The wrong person to ask. It's okay.
All right, that's all I have.
The Chairman: Senator Hervieux-Payette.
Senator Hervieux-Payette: From what I gather from your outline before the, your exposé I mean, you said that we were going through usually two phases in project approval and there might be a third one and I guess it was not as clear as, maybe I didn't understand, I am not familiar enough. When do you go through the third and in this case I mean did you go to three phases or to two phases?
Mr. Clayton: I'm afraid I'm not at liberty I believe to talk about the specifics of Treasury Board approvals of Terminal 1 and 2, but in general there is at least two phases. The first phase we call Preliminary Project Approval is the overall project and the process to be carried out. The second phase after the public tendering, or after the tendering process and so forth, is a Treasury Board approval of, to proceed, the project. And there is many, the biggest issue there tends to be money, Treasury Board's role.
At that second stage, if the terms and conditions of the final agreement are at the stage where Treasury Board feels comfortable it could approve it then, but if it is not the Treasury Board will approve the go-ahead but essentially say to the initiating Minister of Transport you have to come back later, a third time with the actual terms and conditions of the contract. So it varies, that's where it could be two or it could be three depending upon the nature of the --
Senator Hervieux-Payette: But does it have also anything to do with the size of the transaction, I mean for a --
Mr. Clayton: Yes.
Senator Hervieux-Payette: -- $10 million transaction and a $500 million transaction I guess you want to have a... because errors might be costly and the --
Mr. Clayton: This process I've described are only for major projects as such, very large ones.
Senator Hervieux-Payette: And to your knowledge I mean was there at that time because there were precedents with the Vancouver, and excuse me if I don't know the exact date of the other airport, that it went through the policy process of the government then, and this is the exception to the policy process, I mean was the revenue, I mean did you determine some guidelines, I mean as to what would normally assets of the government, what kind of return that we should have, should be returned to the Crown?
Mr. Clayton: There is a distinct difference in how the Treasury Board and the government looked at the local or Canadian airport authorities as against Terminal 3 or Terminal 1 or 2. And also the process, remembering that in our language the local airport authorities, or Canadian airport authorities now, is a sole source negotiated deal with a local entity, it isn't a public tendering process. And Victor may be able to talk more about it, but the, with the Canadian Airport Authority sort of it was no net increase cost to the government was sort of the criteria that you were dealing with. That's quite different from a private development proposal where you're talking a return to the government on its assets somewhat separate from the overall cost of the airport.
Senator Hervieux-Payette: Yeah, but I mean if we are, to my knowledge, to my recollection I mean probably this airport was the most profitable one in the country, so I guess there must have been some guidelines established. If I remember, I mean the Winnipeg airport was making no money so no private sector entrepreneur wanted to buy it and I don't know about the Calgary, Edmonton airport, that they were profitable, maybe Mr. Barbeau knows which airport was profitable in this country and why was there only one case of privatization because I mean maybe the other airports were not profitable, Montreal included.
Mr. Barbeau: Do I understand that this is a question?
Senator Hervieux-Payette: Yeah, I'm asking, I mean when we're talking about leasing and giving to, and doing an, going with an exception to the rule of the policy of the government of the time, I'm asking I mean was there an exception because we had the most exceptional good business deal compared to the other ones that were not making, were not profitable probably with the exception of Vancouver?
Senator Tkachuk: Ms Payette, are you talking about Terminal 3 or Terminal 1 and 2?
Senator Hervieux-Payette: I'm talking about Pearson Airport. The whole airport.
Mr. Barbeau: Let me attempt to answer because there are I think quite a few ramifications to your question but I will try to answer to the best of my ability. First of all, I cannot answer questions on whether there was and what they were government direction on the financial parameters of the deal concerning T1T2, nor indeed with T3, for reasons that I think are obvious. I can, however, answer because it is a matter of pubic record, as to what the thrusts are, what the financial thrusts are in terms of leasing airports initially to local airport authorities and now to Canadian airport authorities, and these become somewhat involved but I can try to simplify them.
From the outset, and this comes back to questions that were asked yesterday, there is no guarantee of any kind offered by the federal government when we lease airports to local airport authorities or Canadian airport authorities. There is no question of subordination of rent nor any other kind of obligation on the part of the federal government in those leases. And this is made very, very clear right starting from the fundamental principles.
The second part of the financial dealings is that in negotiating a contract and negotiating an understanding, a lease with an authority, we have to walk a line, a very fine line essentially, between on the one hand assuring that the government is no worse off than it would be if it kept on managing the airport in terms of net revenues, and indeed better off, because in the, especially in the new financial formulas dealing with the Canadian airport authorities, we will be taking a percentage of the value that the authority adds to the airport. So we walk a fine line between that which is really assuring the best possible return to the taxpayer of Canada on the one hand and on the other hand, the other part of the balance, is ensuring that the authority is financeable and will not go bankrupt because then it would be completely fruitless to get into the deal. So it is indeed a fine line on the financial side.
These are the parameters that are given to us in terms of negotiating leases in the past with local airport authorities and now with Canadian airport authorities as indeed we are doing in our negotiations with the authority in Toronto. And in Ottawa and in Winnipeg and others.
To attempt to answer the other part of your question as to whether airports are profitable and which ones are profitable or not, it's a bit of a difficult question to answer because the profitability of an airport, the definition of it varies depending upon whether we use the criteria that we use in the government, which are cash, we run our budgets on a cash basis from year to year. In other words, investments made in infrastructure, for example, are paid for year to year. We don't use questions of depreciation and questions of... so it's a little bit hard to answer. But if I may, certainly Vancouver is a very profitable airport and it is made public from year to year that they are paying a net rent of, I don't know the exact figures but somewhere around $30 million a year. And Mr. Emerson, who will be testifying later, I'm sure will gladly answer those questions.
Airports such as Montreal airports and, again, you will forgive me here, I am being perhaps a little bit hesitant because we are dealing with third party financial information which in some cases is not permissible to divulge in public, but if I refer to the annual reports, for example, of Aeroport de Montreal, Aeroport de Montreal are declaring net operating surpluses which they are reinvesting in infrastructure, they are reinvesting in capital. Aeroport de Montreal are not paying us a net rent at this time. Neither is Edmonton or Calgary.
Is Pearson a profitable airport? Pearson of course is an extremely profitable airport in terms of net profits flowing to the Government of Canada and, again, off the top of my head and I may stand corrected on that, but the net profit generated by Pearson Airport right now is probably somewhere around $60 million a year. But again you have to define net profit in terms of what this means in terms of the investments or lack thereof and how they would be amortized or not over a period of time. It's a little bit difficult to play with.
Senator Hervieux-Payette: But if you are discussing with your friend at Treasury Board when you are developing project like that, at the end of day, whether you take one formula or the other, probably the people from Treasury Board will ask you how much money will come to the Crown, at least to cover for the assets that are being leased and to see which formula is the most profitable to the Crown because I mean, it's a multi-billion-dollar property that we're talking about and when we are talking about Pearson Airport, and of course the government certainly expects to cover its costs of acquisition of land and improvements and building and everything that was leased to the private entities, now only one but at the time there were two private entities that were involved. So I'm just asking I mean when we make the decision, we have to see which one is, which formula is certainly more profitable. But coming from the private sector, I can foresee that if I had to make a proposal, Vancouver or Pearson Airport would be the most likely more advantageous in terms of development for business purposes and my colleague, when we talk about leases of course we're talking about several leases, because we have the major owner and administrator of these terminals, and of course the small companies like car rentals and gift shops and everybody who are renting from the major lease holder that is being, dealing with us, so I mean they are administrating in fact the building on our behalf and returning us some of the money for our investment and this is the way I say was it done in the public interest, did we get what we needed for the money and is it going to be the most advantageous way so that the community will be best served in terms of future development needs for the business community and so on, I mean, is it going to have the same result as having a local airport authority which is represented by all the community compared to, as we said, private sector entity that has at least to return some money to its shareholders. So when we compare these things I know that profit, the word profit is the same but it doesn't have the same meaning, but at least we can evaluate what the government at the end of the day, and I think, Mr. Chairman, I think it would be, maybe it has been done or Mr. Nelligan can give us an evaluation of both formula if it has been done by all the studies that were made on this transaction, because I am not aware of it.
Senator Tkachuk: What was the question?
Senator Hervieux-Payette: My question is the profit that returns to the government, I mean do we have more profit with Vancouver Airport Authority formula compared to the private sector formula, when it comes at the end of the day what is the most profitable.
Senator Tkachuk: More rent, not more profit.
Senator Hervieux-Payette: Well more rent I mean --
Senator Tkachuk: There is a difference.
Senator Hervieux-Payette: Yes, but at the end of the day I mean if you receive ten per cent more or five per cent more if it's a local airport authority compared, or if we are, there is, we have to compare the obligations on both part of those who have leased also, I mean. Do we have the same, do we give the same obligation on the local airport authority compared to the private sector operators, I mean do they have the same responsibility. As a government, do we get the same type of services from the two entities since we are today going to examine both the local authority management formula compared to the private sector management formula because we are talking about managing the whole airport or terminals. Or there is no comparison, we cannot compare.
Mr. Barbeau: Well, I think, senator, with respect, that that's just about the case. I think that the only way that one could compare in the end with a degree of factual knowledge, and even there it would be difficult, would be to compare hypothetically what would have happened had this contract gone ahead with the reality of what will happen if and when we sign an agreement with a local airport authority. I really can't, and again I'm certainly not evading the question here, I'm simply stating the fact that it is very hard to compare until it's done. I can give you the parameters which I have done and which you have repeated some of them in terms of public policy dealing with an authority concept as opposed to a privatization concept, and there are differences there and so on, but when you come back to the financial parameters in the end, again, it would be extremely hard, it would be extremely hard to give this in fact before it's actually done and there is a track record.
I know what the track record is on Vancouver. We transferred the airport three years ago. I know what the track record is on Montreal, Edmonton and Calgary. I don't know what the track record will be on Toronto until we have essentially negotiated the deal and we have something to show down the end. I can only rely on what the parameters of each one of the deals would have been and I can't even get into the parameters of that deal because I don't know them. So, I'm sorry, I can't be any more precise than that.
Senator Hervieux-Payette: Mr. Chairman, I mean since we are examining I mean one formula compared to the others I don't know if it's possible and if it was done, but as far as I'm concerned if we have signed agreement with four or five airports in this country according to the 36 principle plus six major principles and so on that we had, there was a policy in place by the government of the time and that certainly we can see what was awarded in these contract because of course the scope of these contracts may not be exactly the same. But to say that, you know, we cannot compare at all I mean the private sector operation compared to the public sector operation, meaning local airport authorities being other public sector operator, I don't see how we can really do our duty to examine if it was in the public interest if we cannot examine I mean both sides of the coin. I mean there was one exception and it's Pearson Airport, we tried to understand on what basis, on what ground and how well it has served the public interest of Canada, and why it was done in that fashion when the policy was contrary to that and it was not recommended by the government of the time, so if we can get the parameters and if they were applied and if we have the same rules that had been applied on both sides it may help us to at least assess the whole question and put some lights on both sides of the, of the transactions that were made, whether it's Montreal, Vancouver or Toronto. And as far as I'm concerned I mean you have criteria, why should there be any different. Why should there be operated differently, I mean whether we are dealing with a local airport authority or a, because an airport has to provide a service and I think it should be provided the same way, I should take my plane on time, I should have a gate, I should have security, I should have the same type of service in both entities, and I'm sure if all the criteria and the 225 contracts that were signed for this contract, I mean, how I mean can we assess the situation if we don't know what is the other alternative. I know that we will see Mr. Emerson very shortly but I thought that the criteria were developed by people either in Transport or in Treasury Board and that's why I'm asking that question. If it's not available I think it could be available and maybe if this analysis has never been done I think it's certainly worthwhile to see if we could have it done.
Mr. Nelligan: Well if I may just suggest, senator, we will of course be hearing from those firms who attempted to calculate the value to the government of the T1T2 contract, and I think there are some figures on T3. The final phase of this inquiry is to look into what's happened to Pearson Airport and I would assume that at that time the advisers to the minister will be able to tell us what their plans are and how they compare with the project which was cancelled, but I am not aware at this point and the witnesses don't seem to be aware but I think there may be others later on who may be able to tell us the comparable studies between the return to the government on LAAs and the return on private enterprise. I am not aware of any such comparable studies at this point and of course that's a matter for the department to work out, we don't have access to the information to do that.
Senator Hervieux-Payette: But you understand that in order to make a decision to take a different path if it was more profitable to take the private sector route I think I mean this probably, you know, could be at least the beginning of a justification of going that route, but right now I have no facts that justify that.
Senator Tkachuk: How would you know, say Vancouver, how would you know whether Vancouver one way or the other was more profitable to the government, or I should say gets more return to the government?
Senator Hervieux-Payette: Actually what I think in terms of our mandate is if there was a public policy, there were guiding principle, there were criteria and there was a whole policy established by the Conservative government that was followed in the case of Vancouver, Edmonton, Calgary and Montreal.
Senator Tkachuk: There was one.
Senator Hervieux-Payette: And there was certainly an evaluation process to see if it was providing and meeting all the criteria. I'm asking if we went the private sector route if there was an advantage to go that route and why you went that route compared to the other way, because so far, I have never been convinced that the local authority in the Toronto region could not manage to come to an agreement and that there was no emergency to sign the T1 and T2, and because we've been told that the traffic was going down rather than going up. I am referring to yesterday testimony. So that's why I'm asking, you know, we have to have a rationale for making a different. I mean in the case of T3, I think the rationale was that there was emergency, there was traffic that was growing at a very fast speed and they had to find a formula that was meeting the need and there was a government at the time had problem with new investment and so they go that route, but the T1 and T2 we cannot find that rationale and that's why I'm asking that question.
The Chairman: I think it's fair to say that the witnesses are not in a position to answer whether or not before the proposition, private enterprise proposition, as Mr. Nelligan referred to it, there was no study done as to whether or not that route or the general airport authority route was the best return for the government. Isn't that a fair assumption?
Mr. Barbeau: Yes, sir, I think that's a fair assumption.
The Chairman: And as Mr. Nelligan also has said, we do have, as he outlined yesterday, we do have witnesses who have monitored the financial arrangements, the factors, who are prepared to testify as to what the return was to the government, as to the what the return was to the developers, and so on, and those witnesses are still to be called but I think we're straying a little bit here, I think we're asking the wrong questions to the wrong witnesses.
Senator Hervieux-Payette: I'm sorry, no, I'm sorry. I'm looking and I'm talking to people that were establishing the criteria, that were applying a policy, that were developing guidelines, and I'm looking and asking questions to see if these guidelines, these criteria, if there was any public policy at the time that was in fact applied in the case of Terminal 1 and 2, and what I can find is that it was not applied in Terminal 1 and 2, it was applied in other terminals, this was an exception.
Senator Tkachuk: What was applied? I don't understand, Mr. Chairman, I'm having a hard time understanding the question or the point.
Senator Hervieux-Payette: The point is that --
Senator Tkachuk: What was not applied?
Senator Hervieux-Payette: -- the public policy, I mean there was a public policy that was established by the government and I mean it was, and that public policy was not recommending going through the private sector route and, as I say, at least you have to, when you make a decision and you are a government and you are administrating --
Senator Tkachuk: Ask the witness.
Senator Hervieux-Payette: Well, that's what I asked.
Senator Tkachuk: Well, then make the statement and ask the question.
Senator Hervieux-Payette: The question was what did you -- well, we go back to yesterday's questioning in the --
Senator Tkachuk: Read the document.
Senator Hervieux-Payette: I just want to refer to the right name of the document.
Senator Tkachuk: Eighty-six and eighty-seven.
Senator Hervieux-Payette: Eighty-six and eighty-seven, government policy on airport, I mean from what I can gather the future of Canadian airport management and the task force on airport management never was there any policy framework that was recommending to go through the private sector route. That's what I'm trying to --
Senator Jessiman: It's not an airport. It's the buildings and land in an airport.
The Chairman: Colleagues, I don't think that question was answered yesterday, but we have witnesses that, the question I think that you want to say is why did the government decide that they're going to leave the principle of local airport authorities and go to a private enterprise development of Toronto Airport; isn't that the question?
Senator Hervieux-Payette: Yeah.
The Chairman: Who changed their mind, when did it happen, what were the reasons for it?
Senator Hervieux-Payette: Which policy or public policy we are following.
The Chairman: Exactly. Now Mr. Lewis might help us tomorrow. Mr. Corbeil may help us.
Senator Bryden: Mr. Chairman, could I ask a more mundane question?
What department of government would oversee or be responsible for these land leases, for example, Terminal 3 if that's what it is; is it a land lease on Terminal 3?
Mr. Barbeau: Yes, it's what we refer to as a green field lease because it's a piece of land with nothing on it that we leased in the context of Terminal 3.
Senator Bryden: But is that Department of Public Works? Who looks after it?
Mr. Clayton: There are about 20 government departments that have land and it is the responsibility of the department with the land to make the deal, they are the accountable organizations who administer. So in this case of an airport it's Transport Canada that is responsible. The Treasury Board itself has an approval process of the transactions but the primary responsibility is with the minister of the department that has the land. There is no one department.
Senator Bryden: The land is owned by Her Majesty?
Mr. Clayton: And the administration of it is assigned to different ministers.
Senator Bryden: You mentioned four projects that are similar and somewhat exceptional, one of them being the Pearson one, and you indicated that the fixed link, the lease for the fixed link is 35 years. Do you know what the period is for the CBC building?
Mr. Clayton: Yeah, it's a hundred years and it's complicated. There is no single number, but the lease is a hundred years for the land. The CBC Broadcast Centre project is not just the building, there is a whole lot of development as well, so the overall land lease is a hundred years.
Senator Bryden: And the Tokyo Embassy?
Mr. Clayton: Is 30. That reflects Japanese real estate prices.
Senator Bryden: I have here from the Department of Public Works a list of their leases. The Guy Favreau in Montreal 35 years, C.D. Howe Building 35 years, L'Esplanade, Ottawa, 35 years, Place du Centre, Hull, 30 years, Terrace de la Chaudiere, Hull, 35 years, Cornwall, Scarborough, 35 years. Place Vincent Massey in Hull 25 years, Canada Place, Edmonton, 35 years, and Louis St. Laurent in Hull 25 years and Block 56 in Vancouver 25 years. Is it fair to say that this hundred years the CBC and the 57, is it 57 years at Pearson, and 66, is exceptional?
Mr. Clayton: Senator, they are quite different types of leases. The Public Works leases you've mentioned are lease purchase arrangements where we have, the federal government has a private interest, or in the case of Vancouver the City of Vancouver, build a building and we're leasing it back, so in effect their revenue is the federal government paying revenue to them. And it's quite a different scenario where you have a private enterprise who has to achieve its revenue from a less risky source, a more risky source than the federal government, so that is one of the reasons why the leases would be quite a bit longer where you are in effect having a land lease out to a private firm who then has to achieve its revenue and borrow money against other income sources.
Senator Bryden: I take it you're not giving that as, because you're not required to, as a justification for why the lease in Pearson is 57 years?
Mr. Clayton: As I say I can't, I don't have details on the Pearson. What I was trying to say from my experience in looking at the major land leases out the time frame has tended to be, most of them, we'll say 50 to 100 years, they are in that time frame.
Senator Bryden: With the exception recently of the fixed link which is 35.
Mr. Clayton: Yeah. But the fixed link, you can get into lots of explanations why but if you think of the fixed link the major source of revenue is an annual payment from the federal government. So if I am a banker I realize that most of the revenue -- I'm speaking here for a banker, you may want to ask one -- that most of the revenue to this company is in effect a federal government payment, so the risk related to that project is quite a bit different than a risk of somebody who is depending upon outside revenue for all of its income. And that could be an explanation of why the difference.
Senator Bryden: Yes. Can I just ask, Mr. Chairman, I'm trying to determine what it is that this witness is capable, or not capable but able to respond to in fairness, and I take it that you can outline the policy framework, which is what you've done, that there must be fair market value and a fair return to the government, fair and equitable opportunity for everybody to bid, but are you in a position to say whether in relation to the case before us that that criteria was met?
Mr. Clayton: The answer, I think the straight answer is no, I don't have enough detailed knowledge of it.
Senator Bryden: That's fine. And, Mr. Chairman, I assume we will have somebody who can reply to that coming.
The Chairman: Yes.
Senator Bryden: And you are obviously not in a position to answer whether the length of this lease with 37, plus a 20 or whatever, option, is the shortest consistent with them being able to finance their project?
Mr. Clayton: No, I could not.
Senator Bryden: Do you know whether this project was a one, two or three-stage approval by Treasury Board?
Mr. Clayton: I'm afraid I have difficulty, that does get into I believe confidences of the Queen's Privy Council related to cabinet approvals.
Senator Bryden: Pardon?
Mr. Clayton: The approval process of Treasury Board in effect is a confidence as I understand of --
Senator Bryden: No, I'm not asking what documents were filed or anything of that nature, what I'm asking is did they consider it once, twice or three times?
Mr. Clayton: No, but my understanding is that the nature of how many times and whether it was considered is something I cannot discuss.
Senator Bryden: So it would be the minister who would answer that, it would have to be addressed, not you.
Can I just ask something because I think I'm finding myself constricted by the terms of what we're allowed to ask here. We're on policy and procedure only it says. The first thing was the background, we did that yesterday, and then was T3 contract consistent with that policy. Now that's what we're supposed to be dealing with yesterday and today. We've heard the policy. Can somebody answer the second question, was the T3 contract consistent with the policy and was the calls for bids on T1T2 consistent with the policy?
The Chairman: I think Mr. Warrick can handle that question, can he not?
Senator Jessiman: Counsel for the commission got the answers yesterday I thought. Certainly as far as T1 and T2 is concerned, I'm not sure he mentioned T3, and that I understood the answer to be that it was within the policy.
Senator Bryden: No.
Senator Jessiman: Well that's my understanding.
Senator Bryden: What I understood was we had talked about whether what was done in T1T2 because there was no policy when T3 was called, so that it didn't, be inconsistent or inconsistent with it, there was no policy, it wasn't developed except for 86 which said they didn't want privatization. But the issue is T1T2 and the question was asked was the call for private bids consistent with the policy and the answer was yes. But my question is further than that, there is a whole process that we've just gone through here, and what I want to know is whether, if we want to start with T3, what was the process that was followed and then what was the process, because it was different, in T1 and T2?
Mr. Nelligan: We have a witness here now who can describe T3. Of course the process in T1 and T2 will come through the whole sequence of witnesses who went through the whole process, but as a preliminary, as a comparable, we have Mr. Warrick here who is familiar with T3 and that's why he's here today to answer your questions.
Senator Bryden: Let me try again then, to Mr. Warrick, and I want to check my notes.
When, to your knowledge when was it that the development of a Terminal 3 at Pearson Airport was contemplated, first contemplated?
Mr. Warrick: It was first contemplated back in the mid '70s. And the intensity of the discussions varied with the traffic at the time. So when the traffic was growing then the discussions were we must get on with T3 and as the traffic slowed down then the discussion went away. It peaked in the very early '80s, '80, '81, and we were very close to moving ahead with it, but then in '82 the traffic again slowed down so T3 went away again. And then in '84 when the traffic picked up again sure enough T3 came along again and at that time it was decided to proceed with T3. Now up until that time if in fact the terminal had gone ahead say in the '70s one assumes we would have followed the traditional procedures in which the government would have financed the project and the only role for the private sector would have been to do the design and the construction, but the government would have financed it and operated the facility. By 1984 things had changed and the idea was to invite the greatest participation possible from the private sector. So that was the route that was followed.
Senator Bryden: And in following that route, as I understand it, the -- well, would you tell me what was the process that was followed once the decision was made after what, 15 years of contemplation to proceed, what was the process that was followed?
Mr. Warrick: Well, there were various options looked at of what sort of role could the private sector play, and they varied from the traditional, which would just be designers and constructors, through being people who financed it with the airport still maintaining the operational role, and the final option was that the private sector be allowed to do all of it, finance, build and operate. And there are various studies done on this and the option chosen eventually was the final one, that the private sector should be allowed to assume the maximum role it was prepared to take. And that was done through various studies and consultations with all departments of government, so that decision was made. Then at that time a team was formed to find out how best to do this. And the team studied what had been going on in similar projects around the world. There was no precedent for this at all. There were similar ones in the States where airlines had built terminals but no case where a private developer had been invited to do it. So the process would develop and it went through the normal decision-making process in the department.
Senator Bryden: Could you take me through the normal decision-making process without breaking confidences or whatever?
Mr. Warrick: Yes, I think that is common knowledge. As the airport manager and the project manager I would make recommendations to my superior, who would then make his, confirm or change the recommendations to the deputy minister, to the minister, to the Treasury Board.
Senator Bryden: And at what stage did it become public knowledge that you were going to take this approach to design, build and operate?
Mr. Warrick: I think it was in September of about '86 when the Minister of Transport then, Mr. Crosby, announced that there would be a Terminal 3 and the private sector would be invited to play a role. Yes, September of '86.
Senator Bryden: And is that when what is referred to as an EOI, an expression of interest, were called for?
Mr. Warrick: Yes.
Senator Bryden: And how long a period of time did people have to reply to the expression of interest?
Mr. Warrick: I think the replies were required in early November.
Senator Bryden: November 19 maybe, to be precise?
Mr. Warrick: Yes, okay.
Senator Bryden: So there was a period of three months. And how many people replied?
Mr. Warrick: Finally we had eight submissions.
Senator Bryden: And that was subsequent though to the request for proposals that you had the eight. Wasn't there only five that gave an expression of interest?
Mr. Warrick: No, there were eight. We selected five from the eight.
Senator Bryden: And the request for proposals went out when?
Mr. Warrick: Early December of '86.
Senator Bryden: On the 18th. And did the period of time for reply to the request for proposals -- I have it here -- was four months?
Mr. Warrick: It was from December through to the first of May.
Senator Bryden: I am just trying to get it clear. There's three months for expressions of interest, and approximately four months for the reply to the RFP.
Mr. Warrick: Approximately, yes.
Senator Bryden: Or about seven months. And do you know who the people were who replied to the RFP?
Mr. Warrick: Do I know who they were?
Senator Bryden: Yes.
Mr. Warrick: Yes.
Senator Bryden: Could you tell us who they were?
Mr. Warrick: The consortium that put in formal proposals?
Senator Bryden: Yes.
Mr. Warrick: The Airport Development Corporation, Falcon Star, and the main component of that was the Matthews corporation, now Paxport.
Senator Bryden: Now what?
Mr. Warrick: Paxport. They are now owned under that name.
There was a consortium headed by Bramalea and WardAir, and there was a consortium headed by American Airlines and I think it was Cadillac Fairview. So in each case, you had a major developer leading the consortium.
Senator Bryden: Then what happened?
Mr. Warrick: Then the proposals were evaluated during the month of May.
Senator Bryden: Was that an internal evaluation only, or did you have consultants, accounting firms?
Mr. Warrick: The evaluation committee was made up of senior Transport Canada officials who were supported by various other groups within the government, for instance, opinions on security, customs and immigration, pre-clearance. All those had an interest supported by consultants in terms of financial evaluation and the technical evaluation.
Senator Bryden: The financial evaluation in this instance of the four, was that part of the evaluation, whether or not they could put the financing together to do the deal?
Mr. Warrick: Yes.
Senator Bryden: Is it the case that one of the factors determining who would be successful would be whether they financially could do it or not?
Mr. Warrick: Yes.
Senator Bryden: And then they chose a developer. It was announced, what, the 22nd of June?
Mr. Warrick: We had what we called a "preferred proponent". We only review the proposals. Every proposal had things we liked and didn't like, but in some, there was one that we preferred, and that's what we called it.
So, then, a report was written with a recommendation which followed the same route to my superior, to the deputy minister, to the minister, to the Treasury Board.
Senator Bryden: And the successful bidder was Airport Development?
Mr. Warrick: The Airport Development Corporation.
Senator Bryden: Were there any adverse reactions to that selection that you are aware of?
Mr. Warrick: Yes.
Senator Bryden: Can you tell us by whom?
Mr. Warrick: By the unsuccessful proponents.
Senator Jessiman: Surprise!
Senator Bryden: Can you tell us whether the Matthews Group -- now Paxport -- was one that protested?
Mr. Warrick: I am not sure they protested. They were unhappy and voiced their displeasure, yes.
Senator Tkachuk: Did they say it was patronage, or what?
Senator Bryden: Looking at the notes, the project was announced to be up and running on what date?
Mr. Warrick: Minister Crosbie made an announcement on the 4th of May that there had been four proposals received and they had been evaluated or they were being evaluated. Then I think the next formal announcement was in June. I think it was announced at that time. The Treasury Board gave us authority to announce that again there had been four proposals. There was a preferred proponent, namely the Airport Development Corporation, and we were given authority to negotiate with them.
I might add that Treasury Board, as I said yesterday, had us on a very short lead all the time.
Senator Bryden: Can I ask you this: Were you also involved in the contract T1T2?
Mr. Warrick: No.
Senator Bryden: When you say Treasury Board had you on a very short lead, how often did they yank your choke chain?
Mr. Warrick: It's a matter of public knowledge. We went back maybe four times.
Senator Bryden: Four times to Treasury Board?
Mr. Warrick: I think so because this was, certainly for Transport, a precedent.
Senator Bryden: So rather than the more elaborate three-stage process that was described, you actually went four?
Mr. Warrick: I think we had an extra one in there. Certainly we had to go to the board with the process, which was approved. Then we went back to say the process seems to be working, can we negotiate? Then we went back with what was called the "development agreement", which was the umbrella, and then we went back with the final lease.
Senator Bryden: Do you know at what time you did that?
Mr. Warrick: With the final lease?
Senator Bryden: Yes, when Treasury Board approved the final lease.
Mr. Warrick: It was in April of '88.
Senator Bryden: From April of '88, then, basically nothing happened except the project got dealt with by the developer. Were you the supervisor of the project?
Mr. Warrick: Yes, I was.
Senator Bryden: For the owner?
Mr. Warrick: No, for the Crown.
Senator Bryden: I'm sorry, for the Crown, the owner of the land. It opened on the 21st of February, 1991?
Mr. Warrick: That is correct.
Senator Bryden: Is there anything in trying to follow that process that I have missed?
Mr. Warrick: No.
Senator Hervieux-Payette: I just want a clarification.
Since Claridge became the owner of Terminal 3, or at least became the operator of Terminal 3 and now is also in Terminals 1 and 2, were they one of the bidders in Terminal 3, I mean, initial bidders for Terminal 3?
Mr. Warrick: No.
Senator Hervieux-Payette: They were not part of any of the groups?
Mr. Warrick: No, not in the bidders.
Senator Hervieux-Payette: So they were just the bidders in the second, Terminal 1?
Mr. Warrick: Subsequently they took a minority position with the Airport Development Corporation, but that was after the contract was signed and the project was under way.
Senator Hervieux-Payette: Was there any limitation, to your recollection, for those who signed the contract with the government, to whom it was awarded? Was there a limitation in terms of associating, selling or doing anything with the contract that they had signed with the government? To your recollection, did you negotiate some kind of a guarantee that it would be sold to any other --
Mr. Warrick: It needed the government's approval for any change in ownership.
Senator Hervieux-Payette: So the Claridge Group was agreed by the government when the transaction was made.
Mr. Warrick: Not when the transaction was made. The Claridge Group joined the consortium after the contract was signed. I am not sure what year.
Senator Hervieux-Payette: Yes, but was it with government permission?
Mr. Warrick: I'm sorry?
Senator Hervieux-Payette: Was it with government permission?
Mr. Warrick: Yes.
Senator Hervieux-Payette: And what was the rationale?
Mr. Warrick: What was the rationale for the government giving permission?
Senator Hervieux-Payette: No, to award the permission to another group to join in the group or to sell part of it to another group. I mean, you had just awarded, not very long ago, a contract to a group. The group built the facility and then Claridge comes in at a later date to operate, and they were not in the picture at the beginning. So I just say, why --
Mr. Warrick: Claridge didn't operate. Claridge came in as a junior partner. The operation of the facility was done by the airport corporation.
Senator Hervieux-Payette: Okay.
Mr. Warrick: Not Claridge.
Senator Hervieux-Payette: That was the percentage of Claridge in Terminal 3?
Mr. Warrick: I cannot recall.
Senator Hervieux-Payette: You cannot recall.
Mr. Barbeau: I think, Mr. Chairman, if I may, there were two stages in that, as I think Mr. Warrick pointed out.
Claridge first came in as a minority stakeholder in the ownership of Terminal 3 and then eventually came in as the majority stakeholder, but this was done in two stages. To repeat what Mr. Warrick said, this kind of agreement would have to be agreed to by the federal government. That's part and parcel of the terms and conditions of the initial agreement.
Senator Hervieux-Payette: But you understand that there was a whole process, a bidding process that took place. Eventually, at the end of the day, those who controlled -- who had the contract on Terminal 3, I mean, who are the majority, I mean, were not in the bidding process at all. That's my question, of course. Was the government allowing this to happen? Was it in the contract, the initial contract with the winning bidder? Because you say that the government is going to do business with someone who is going to be reliable, pay its rent and everything. So when you become the majority shareholder -- but what I say is that this transaction was done by the private sector between themselves with, I would say, the approval after the fact of the government to change the ownership of the contract of Terminal 3.
Mr. Barbeau: It was done with the approval of the government. I can't comment on the rationale as to why the government would or would not have approved. I think, again, that's a question that's best asked of ministers.
Mr. Clayton: I may add that in terms of standard practice, as you can imagine, on these and many other types of large deals over many years, you are going to have, over 50 years, changed ownership. I don't know the specifics of the Terminal 3 contract, but there's a standard clause in most contracts that the government cannot unreasonably withhold the transfer of ownership and equity between private sector parties. "Unreasonably withhold", I think, has general legal understanding. It wouldn't be what that means in the contract. That's a standard way in which these types of contracts operate.
Senator Hervieux-Payette: Well, over a period of time I can understand, but we're talking about five years after the whole process was initiated, so it's a very short period of time. Of course normally if you do that transaction, it's for good business purposes. That means you make money and you have somebody else joining in that knows that they are going to make more money in the future and maybe become a more profitable business deal. I am just asking why, you know, the majority owner changed over a short period of time? Was there a reason because there would be more investment, more development, more advantage to the overall Terminal 3 operation?
Mr. Barbeau: But I think, Mr. Chairman and madam, that answer can only be given by the developers themselves as to why they make decisions of this nature. I really don't know.
Senator LeBreton: It's a free country. You can sell a property, surely.
Senator Bryden: Mr. Chairman, perhaps I could finish up with Mr. Warrick.
Your reference to the Treasury Board, is it fair to say that Treasury Board paid very close attention to T3 to see that all of these principles that were outlined by Mr. Clayton were followed?
Mr. Clayton: Yes. I mean when Treasury Board -- those principles I mentioned are in the Treasury Board manual, essentially. The manual of 1987 is made up different words, but the same principles would have been there. Part of the Treasury Board Secretariat's role is to advise ministers whether they have been or have not been followed.
I note throughout Terminal 3 and all of the sorts of projects we have talked about with local airport authorities and so forth, there has been a very good and close relationship between Transport Canada's staff and Treasury Board's staff throughout the whole process as these go on.
Senator Bryden: Mr. Chairman, as you might have guessed, the purpose of the line of questioning with Mr. Warrick is to compare that process that was followed with the one for T1T2, but we don't have a witness in this panel who is able to go through the same process. Or do we?
Mr. Nelligan: We are calling those later, senator, because this is part of the historical process. We will call the assessment chairman and the auditing process and call all those people in that way. I do not think we have got anyone from Treasury Board on that specific item, but we will have the department people who worked on the process. They should be available either next week or the week after.
Senator Bryden: Of course, anything that comes out of that, which perhaps Mr. Clayton or one of these other panellists needs to address, they could be brought back.
Mr. Nelligan: My understanding is these witnesses are cooperating, and where there's clarification required later, we will have the appropriate people in the department. They are trying to make any witness available a second time, if needed.
Senator Bryden: That's fine.
The Chairman: Any more questions?
Senator Jessiman: I have a question.
Senator Bosa brought up this section, 8.7.1 of the Requests for Proposals. It's on page 52.
I would think, Mr. Clayton, are you the one I should be talking to about documents like this?
Mr. Clayton: I do not have -- is this --
Senator Jessiman: This is the "Right to Accept or Reject Proposals", 8.7.1 on page 52 on the Request for Proposals.
Mr. Clayton: For T1T2 proposals?
Senator Jessiman: Yes, but I am really referring to that clause. I understand that you are familiar, not only with the T1T2 document, but documents generally that the government --
Mr. Clayton: Yes.
Senator Jessiman: Do you get involved at all in the wording, or have you discussed the wording of various clauses?
Mr. Clayton: No, that would be something that would really be dealt with by the legal community of the federal government.
Senator Jessiman: Would I be correct in saying that the whole document ends at page 54, or are there some things that we don't have?
Mr. Clayton: I am not aware of that.
Senator Jessiman: You supplied this to us. I am just asking if that's the end of the document.
Mr. Barbeau: I'm sorry, sir, I can't answer. I wasn't -- I don't have the document in front of me. I essentially don't even know what document you are preferring to.
Senator Jessiman: I am talking about the Request for Proposals.
Mr. Barbeau: Yes, okay.
I would answer in a general sense that we have not withheld part of the document from you.
Mr. Nelligan: If I might just explain, senator, this is the Request for Proposals, which is the formal document. It's my understanding that anyone wishing to make a proposal was given a lot of supplementary material as to background and detail that were not part of the proposal, but were simply to inform themselves so that they can make an intelligent proposal. We didn't attempt to put that material in because we felt it was too bulky.
Senator Jessiman: This document itself is the official --
Senator Hervieux-Payette: Official, yes.
Mr. Nelligan: This is the formal RFP.
Senator Jessiman: Do you know -- and maybe you don't know -- as this particular clause -- you have told us this clause does not only appear in this contract, it appears in many contracts, the right to accept or reject proposals. Let me get that correct. Is that right, that this is a common clause in contracts that the government issues?
Mr. Clayton: I don't know the specific words, but the theme is a common one in proposals of all types, tender documents, yes.
Senator Jessiman: And it says "Right to Accept or Reject Proposals". Then it says:
The Government has the right:
i) to reject any or all of the Proposals;
ii) to accept any Proposal --
and in this case it accepted a proposal --
iii) to elect not to proceed with the Project;
But it doesn't say "to elect not to proceed with the project after the acceptance of a proposal", nor does it say, "if it elects not to proceed with the project without any responsibility for losses". So it was never intended, surely, that if they went and accepted a proposal and then chose not to proceed, that they be free of any liability.
Mr. Barbeau: If I may answer that question, sir.
Again, in my interpretation, and I can't refer specifically to the language, there is -- and I am being repetitive here, I know -- a standard clause of that kind put into essentially all contracts. The thrust of it is to protect the Crown and to make sure that any step during the process, that indeed the Crown can withdraw.
Senator Jessiman: During the process.
Mr. Barbeau: During the process is the normal course of events, but I would not -- I think this becomes then a legal question as to whether --
Senator Jessiman: That's my question.
Mr. Barbeau: -- the absence of a word there or not --
Senator Jessiman: Do you know whether this clause, not necessarily this one before the courts now -- I don't know if this clause is, certainly, but if this clause is in all of the contracts, has this clause ever been interpreted by any court that says the government, under this clause, has the right to accept a proposal, which it has the right, but it then has the right to elect not to proceed with the project without damages to the Crown?
Mr. Barbeau: Well, to my knowledge --
Senator Jessiman: I am asking whether there's a case.
Mr. Barbeau: To my knowledge, no. I don't know of any. That doesn't mean there aren't any.
Senator Bosa: Mr. Chairman, I have one short question.
In deciding whom to award the contract, what are the guarantees that Treasury Board insists on having? Is it a performance bond? I mean, how does the Treasury Board ascertain that the contractor would carry through with the proposal, that has the ability to carry it from beginning to end?
Mr. Clayton: It is not the Treasury Board as such, but essentially every project has different versions of performance bonds and other types of guarantees that, depending upon their size and sensitivity --
Senator Bosa: But in this particular case, what kind of guarantee was requested or provided?
Mr. Clayton: Again, I am not aware to talk about Terminal 3.
Mr. Warrick: For Terminal 3?
Senator Bosa: For Terminal 3.
Mr. Warrick: We had a 50 per cent performance bond and labour and materials bonds were required for all major contracts.
Senator Bosa: A 50 per cent performance bond and labour and materials?
Mr. Warrick: Yes. Also, in this particular case, I think the developer put sort of a downpayment of $2 million.
Senator Bosa: That's not very much in comparison to the whole picture.
Would one bonding company provide the protection for that bond?
Mr. Warrick: I can't recall. At the time, it was quite new and original, but it certainly worked out, and we got the bond we required.
Senator Bosa: Was the same procedure used in T1T2?
Mr. Warrick: I have no knowledge of T1T2.
Mr. Nelligan: We will hear on that later, sir.
Senator Bosa: Thank you.
Senator Tkachuk: Just to review once more some of the public policy issues, some of them we touched on yesterday. We talked about local airport authorities. Yesterday, you talked about Mr. Mazankowski, and we discussed the beginning of the idea of local airport authorities coming from western Canada.
Mr. Barbeau: Yes. I think in the testimony given by Mr. Mulder and Mr. Douglas, these items came up yesterday.
Senator Tkachuk: Can you tell me what was the first local airport authority that was privatized?
Mr. Barbeau: That was officially privatized?
All four of them -- we're talking here about the large ones?
Senator Tkachuk: Yes, the major ones.
Mr. Barbeau: They came essentially within a month of each other. Let me just give you -- well, sir, it was in the summer of 1992, and they were all within a month of each other. There were two signings. I am afraid I do not have the information here in front of me, but I can certainly get it to you precisely. They were all within a month of each other. I think Vancouver and Calgary were first, and Edmonton and Montreal a month after, if my memory serves me right. This would have been July and August, the beginning of July and August, 1992.
Senator Tkachuk: The public policy of the government at the time, as a result of policy papers of '86 and '87, were to move towards local airport authorities and left the door open for private involvement as well.
Mr. Barbeau: Yes, that's my understanding of the document, sir.
Senator Tkachuk: That's correct. So I just wanted to clarify that because we have other people here interpreting what our policy is and what the policy was of the government at the time. I just wanted to clarify that.
So when stage 3 was decided, there would be a call for -- on Terminal 3, sorry. This was breaking new ground.
Mr. Barbeau: Again, I think the dates are bit different here.
Senator Tkachuk: I understand that.
Mr. Barbeau: In my understanding -- I mean, Mr. Warrick can answer probably better than I can. Was it breaking new ground? I think so.
Mr. Warrick: It was the first time that the public sector had been invited to participate in the development of the terminal.
Senator Tkachuk: And became part of the public policy of the government.
Mr. Warrick: I am not in a position, sir -- I was simply the engineer doing the work.
Senator Tkachuk: I would assume if they are doing it, it would become part of the public policy of the government. In other words, once that was done, my assumption would be that that's part of the public policy.
Mr. Barbeau: Well, your assumption may or may not be right. I don't really know. It was done.
Again, to review the events, the documentation dating back to 1986, as Mr. Douglas testified yesterday, precluded the private sector.
Senator Tkachuk: Yes.
Mr. Barbeau: At the same time, decisions were being made to go along with T3. The policy document of 1987 emphasizes authorities and that kind of scenario, leaving the door open to private sector involvement. That's the facts as I understand them. Those are the facts, I'm sorry.
Senator Tkachuk: That's good.
So in the process of Terminal 3, we have the -- once the proposals are in, there is a group in the government that looks at all the proposals and rates them. Did you have an audit team, as well, hired to oversee this process?
Mr. Warrick: Not per se. We had the private sector helping us in certain areas, and we had Touche Ross, who was helping us with the whole process and making sure that we were following the process that we had developed. There wasn't an independent audit team, no.
Senator Tkachuk: When we talked about the call for proposals, just to go back on that, it was issued in the middle of December to April 30th. Is that about right? May 1st?
Mr. Warrick: Yes.
Senator Tkachuk: This is the first time it's been done?
Mr. Warrick: For this sort of project, yes.
Senator Tkachuk: Did anybody ask for an extension?
Mr. Warrick: I believe so.
Senator Tkachuk: Who?
Mr. Warrick: I can't recall. It was denied.
Senator Tkachuk: It was denied because you thought that the period of 120-plus days was sufficient?
Mr. Warrick: There was only one group that wanted one anyway.
Senator Tkachuk: Were there lobbyists involved?
Mr. Warrick: Not to my knowledge.
Mr. Barbeau: I was not a part of the picture at that time.
Senator Tkachuk: In Terminal 3?
Mr. Barbeau: In Terminal 3, no. Again, I started my responsibilities in the airport group with the task force in '88, and then as assistant deputy minister in '89, so I was not involved in those years, '86, '87, and '88.
Senator Tkachuk: Were the Treasury Board officials generally happy with the process of Terminal 3, or did they look at making some improvements for future projects? What did they learn from this whole process?
Mr. Clayton: I guess the best way to answer this question is that my office, part of our role, is to sort of promote, across government, good practices, and use Terminal 3 as a model, as a good practice of how you do such -- not necessarily how you do airports, but how you do these types of public proposal calls.
Senator Tkachuk: Is the revenue from Terminal 3 to the Crown? Is generally everything working well at Terminal 3? Is the contract working well? Is the department satisfied with the results of Terminal 3?
Mr. Barbeau: You are asking a specific question and then a general question. I can answer the general one, which is are things working out well with Terminal 3. The answer to that would be, generally speaking, yes, they are.
In terms of revenue, I again cannot answer that question, not because I am being evasive on it, but there's a financial formula built into the agreement whereby at certain stages in the development of the terminal and with passenger flow, there is revenue that accrues to the Crown. However, I can't answer in detail where we are on that or how that's evolved.
Senator Tkachuk: But it's a well-managed terminal?
Mr. Barbeau: Yes, certainly. From our perspective, again, generally speaking, this is working well.
Senator Tkachuk: And the customers are happy within the terminal?
Mr. Barbeau: Again, sir, from my perspective as a traveller, I can tell you that I'm happy when I go through Terminal 3. I'm also happy when I go through Terminal 2. I'm happy when I go through all of my airports.
Senator Bosa: You are a happy man.
Mr. Barbeau: I am a happy man, generally speaking.
Senator Tkachuk: There's really no major difference between how well managed Terminal 3 is as compared to, say, the Vancouver airport?
Mr. Barbeau: Well, there are none that I could note.
Senator Tkachuk: Both fairly well managed?
Mr. Barbeau: Yes.
Senator Tkachuk: The local airport authority is doing one, the private sector manager is doing the other?
Mr. Barbeau: Yes, but the major difference is the local airport authority is managing a total airport in the case of Vancouver and the people are managing one terminal in Terminal 3.
Senator Tkachuk: Exactly.
Mr. Barbeau: That's the major difference, but in terms of the quality of service offered, I would think that it's comparable.
Senator Tkachuk: So in the case of the local airport authority, they get to lease the whole airport.
Mr. Barbeau: Yes.
Senator Tkachuk: While in the case of Terminal 3, they are leasing one terminal in an airport?
Mr. Barbeau: What they did, to be more precise, is that they leased a piece of land on which they designed, financed and built a terminal which they now operate.
Senator Tkachuk: This was a good deal for the taxpayer then?
Mr. Barbeau: I don't know, sir. I can't judge that. That becomes very involved.
Senator Tkachuk: But you're happy to go through it.
Mr. Barbeau: I don't know if I am happy as a taxpayer. That would be different. But as a traveller, I am happy.
Senator Tkachuk: That is good, because I want to make this distinction. Then Terminal 1 and 2 was simply an extension of Terminal 3, i.e., it was dealing with two more terminals but with larger obligations?
Mr. Barbeau: Put in that very global context of leasing, there is a major difference here. In the one hand, we are leasing a piece of land on which -- I am being repetitive, I am sorry -- a terminal is being designed, financed, built and operated by a private sector consortium.
In the other scenario, we are leasing a totality of airport terminal buildings with aprons and with infrastructure around it, with the view that the winning bidder will redevelop those terminals.
So there are some fundamental similarities. It is a long-term lease, sort of thing. There are also some fundamental differences in that, again, we are leasing also the buildings in this case as the buildings are on the land that is being leased, and the developers have the responsibility to effectuate a project to redevelop those buildings, those terminals and so on.
Senator Tkachuk: While in the case of Terminal 3, they built the building?
Mr. Barbeau: That's right.
Senator Tkachuk: There must have been a lot of discussion within the department while all this process was going on -- I am sure the government was probably even initiating that discussion, I don't know that, but maybe you might be able to help me on this -- as to the kind of privatization we would see, whether it would be to local airport authorities, whether it would be to private developers. There was discussion within the department in the formulation of this policy paper of 1986-87, was there not?
Mr. Barbeau: Well, sir, again, I can't comment on specific discussions going on leading up to this project. What I can say, and I am repeating somewhat what Mr. Clayton and Mr. Warrick said before, is that with any project of this magnitude, indeed with projects of differing magnitudes, there is, of course, a tremendous amount of discussion -- I think this is perfectly understandable -- a tremendous amount of discussion not only within the department, but indeed with other departments, with central agencies including the board, including the political level and not at different instances, including having to go to different cabinet committees, including the board.
It is a very involved process of consultation, very often also bringing in industry to consult, bringing in experts on the technical, financial personnel sides, and whatever, in terms of finally coming up with a scenario in terms of a decision.
Senator Tkachuk: This was a fairly complex, well-discussed discussion within the department, from what you have told me, and within the government about how they would manage the airports and how --
Ms Baldwin: I am saying that, generally speaking, with this kind of project, you would have extensive discussions.
Senator Tkachuk: Were you part of it?
Senator Tkachuk: Of course.
Senator Tkachuk: Were there people in the department who would be for more private sector involvement, versus less. They are both private, but I am talking about profit versus non-profit organizations.
Mr. Barbeau: The responsibilities we have as public servants are to advice our ministers in the best way possible that we can, using all of the knowledge, experience, skills, and whatever other attributes we may have in having discussed files. In discussing these things -- again in the normal course of events, I am not referring specifically to this project -- you would have differing opinions most likely which would eventually come together as a consensus. You would get, in the end, which is the most important thing, you would get decisions made by the person who is supposed to make decisions, that is the minister, with the help of cabinet colleagues, and direction going down to public servants to implement the decisions.
That is the course that we operate in, in the public service. Our job is to counsel, to make sure that ministers have all of the information to the extent possible, that we know of, have all of the options available to them. And we do that job to the best of our ability. And we did that job, in this case, as with all other cases.
At the risk -- I hope I am not going to be boring here, but for one or two minutes, we were dealing at that time as public servants with many large projects.
We were dealing, as has been pointed out before, with projects that had been in the planning stages for some 20-odd years. We were dealing with the total southern Ontario airports strategy. We had just dealt or were still dealing with the building of a runway in Vancouver. We were starting the discussions and going through the EARP process for the building of a runway or runways in Toronto. We were dealing with the finalization of Terminal 3. We were dealing with this whole file on Terminals 1 and 2.
That is apart from all of the other things that come about from running 150 to 200 airports. We are dealing with a lot of things all at the same time and, of course, discussing them extensively.
Senator Tkachuk: We have four fairly significant local airport authorities operating presently. Have there been any developed since 1993?
Mr. Barbeau: Do you mean, have there been any deals signed?
Senator Tkachuk: Yes, for whatever it is called now, the Canadian airport authority?
Mr. Barbeau: No. What has happened is, there have been now three letters of intent signed with Toronto, Ottawa and Winnipeg, in terms of the national airport system airports. We also now, in the cadre of the national airports policy have letters of intent to negotiate.
Maybe I should explain that. A letter of intent is the essentially the first formal step which recognizes the entity and recognizes it as being the entity with which the federal government will enter into discussions and negotiations. We have over 30 letters of intent signed in total for different sizes of airports throughout the country.
We have also transferred, as I pointed out before, all about two of the north-of-60 airports to the Governments of the North West Territories and the Government of the Yukon. We just finalized transfer of what we refer to as the Arctic A airports, which are the larger airports, nine of them to the Government of the North West Territories.
This followed transfer of all of the B and C, the smaller airports, in 1991 under Minister Lewis to those same governments. We have now only Whitehorse and Watson Lake left under our direct ownership in Transport Canada north of 60.
Senator Tkachuk: Are the four which have been established for some time, in general, their performance has been good?
Mr. Barbeau: As a general statement, I would say this, yes.
Senator Tkachuk: And the performance of Terminal 3, general statement? Pretty good?
Mr. Barbeau: Yes.
Senator Tkachuk: Any significant difference?
Senator Tkachuk: In the performance?
Senator Tkachuk: Yeah.
Mr. Barbeau: There is nothing I could point to, no.
Senator Tkachuk: In return to the government?
Senator Tkachuk: That I can't really comment on because we are comparing apples and oranges and I don't have the precise knowledge on the financial ramifications concerning T3.
Senator Tkachuk: I want get to that comparison. Probably the only way to compare it, you might stop me if I am wrong, is if, in the terms of this whole privatization process, which is really what this is, even though ones are not for profit and some are for profit. But in the new government, maybe they will all be not-for-profit corporations.
If you wanted to compare the terms, what you'd do is, perhaps, take Vancouver airport and call for a proposal from anybody, the local airport authority, private sector, right, and see who would give you the best bang for the buck? Would that be the best way to compare Vancouver, to see the best return for us the taxpayer?
Mr. Barbeau: I think, in a way, again, if you are talking about one specific airport, the only sure way to make a comparison between the two scenarios would be to essentially come to a finalization of the deal in both scenarios and to see what it is going to give.
Senator Tkachuk: I agree with you. You would have to call for a proposal in Vancouver, you would have to compare the results.
Mr. Barbeau: There are different ways of dealing with things. It is very difficult. It might not be impossible. Some people who have a lot more intelligence than me might be able to do that, but it is very difficult to do this kind of comparison until you have the parameters nailed down because both of them have to do with negotiations.
That does not mean that the fundamental principles from the outset may not be different, and may or may not suit public policy better or worse depending on people's judgments. That is another question.
Senator Tkachuk: Yesterday, you said that you were involved in the call for a proposal on Terminals 1 and 2.
Senator Tkachuk: I was involved again at my level of assistant deputy minister of airports because I was involved --
Senator Tkachuk: That is a pretty significant level. Who would be above you?
Mr. Barbeau: The deputy minister and the minister.
Senator Tkachuk: Right, so from your point of view, you were third in command and second in command on the bureaucratic level on the call for proposals.
Senator Tkachuk: Yes.
Senator Tkachuk: Do you feel that the process was a fair process?
Mr. Barbeau: I am sorry, sir, I cannot comment on that. It is not my role to say that a process is fair or not. I receive decisions and directions from my minister and I act on them.
Senator Tkachuk: You developed them. You and others, you told me yesterday, developed the process for the call for proposal?
Mr. Barbeau: I don't know if "developed" the process is the right word. We used previous experience, guidelines from the board.
Senator Tkachuk: On Terminal 3?
Mr. Barbeau: Yes, we used everything we had to put the process in motion.
Senator Tkachuk: You made the call for proposals?
Mr. Barbeau: The call for proposals is not made by public servants; it is made essentially by the government.
Senator Tkachuk: Let me rephrase that question. Who writes the document?
Mr. Barbeau: The document is written, of course, by public servants.
Senator Tkachuk: Correct. Was there any significant change from the writing of the documents to when you put it upstairs? Do you get approval after the writing of the document?
Senator Tkachuk: Again, sir, I can't comment on that except to say that, again, this is an involved process of to-ing and fro-ing, of going up and coming back down, going horizontally to other departments, to central agencies. It is a very involved, complicated service.
Senator Tkachuk: To Justice maybe, Supply and Services, Treasury Board. That happens in these contracts normally?
Mr. Barbeau: Yes.
Senator Tkachuk: That is what I am trying to get at, it was not abnormal.
Senator Tkachuk: Normality or abnormality is a matter of judgment. We followed the process to the best of our experience and abilities at the time.
Senator Tkachuk: Then the call for proposal was made by the government. Were you, up to that time, as the lead administrator, happy with the process? Were you proud of your job, a job well done?
Mr. Barbeau: If you put it in those terms, sir, in terms of whether, as a public servant, we think we do a good job, generally speaking, yes. I certainly think that I generally do a good job and it is confirmed in my appraisals.
Senator Tkachuk: Obviously people have been happy with it in the sense you are still there.
Mr. Barbeau: That is the minimum happiness level, yes, in that one is still in one's job, with politicians as with civil servants.
Senator Tkachuk: And you were, as head of the airport division, responsible for organizing all of these affairs of Terminals 1 and 2 and the call for proposal?
Mr. Barbeau: Responsibility again is shared. This not a cop-out question. I had responsibility at my level, yes, which was considerable responsibility for seeing to it that this process went ahead in the best way possible to the minister, that is in protecting the minister's interests and so on.
Senator Tkachuk: I want you to understand, sir, that I believe that the process was fair because I have not seen any evidence of it being unfair. That is why I am asking these questions, to assure myself that you believe that the process was fair.
Mr. Barbeau: Again, the question of fairness, I have to answer in the other way of saying that we followed all of the rules to the best of my ability. Fairness, I suppose, enters into it but I can't pass a judgment on that. Somebody could come behind me and say, no, it was not fair in his or her judgment. It is a judgment call.
Senator Tkachuk: I am not asking you that, sir. You were the assistant deputy minister. You were in charge of airports. You were the lead bureaucrat on the call for proposal. The call for proposal was put together. You told me that you had all the departments involved and all of this stuff, and that the procedures were followed and the call was made.
Mr. Barbeau: Yes.
Senator Tkachuk: Was there anything untoward? Was there a problem up to this point? Was there any problem that you saw?
Mr. Barbeau: No, all I can tell you, again, is that the process was followed to the best of all of our abilities jointly, and it went ahead in a way that certainly met my professional expectations of how a project should go ahead to the minister.
Senator Tkachuk: Let us ask it in another way. Was the process conducted according to good public administration practices?
Mr. Barbeau: I think that would be fair. I have to come back on something, however, for the sake of precision here. When you were talking the process, up to when are you talking process?
Senator Tkachuk: Up to the time the call for proposal went out. That is where I am getting to right now. I will do it in stages.
Mr. Barbeau: Thank you for that precision. Up to the time the call for proposals went out, I could answer your question in the affirmative. Yes, it was done according to my knowledge of the day and in retrospect, yes, according to practices and standards, yes.
Senator Tkachuk: The call for proposals are out, there are some proposals in, which have already been gone over, or maybe not. You were still in charge?
Mr. Barbeau: Yes. I have to verify my dates. Yes, I was.
Senator Tkachuk: How long were you in charge after the call for proposal went out?
Mr. Barbeau: I remained essentially responsible for the file until -- but there is an explanation that I have to give there. When we get into the evaluation process of the proposals, the sort of normal accepted practice is to let the evaluation team do their work and to not get involved in the evaluation as senior people.
And the reason for that is to simply ensure to the utmost extent possible that the evaluation team is doing a completely objective job both in fact and in perception, the danger being that if, as a senior public servant, I was to get involved in the evaluation in any way, there could be a perception that somehow things are not right.
To answer your question then, given that, I remained in charge, of course, as I pointed out yesterday, but I was on the wrong timing and on the wrong track. What I was pointing out is that, as we were getting ready to receive the proposals and start the evaluation, I had the responsibility of getting an evaluation team going.
I named Mr. Ron Lane who was then my regional director-general in the Atlantic provinces. I asked him and he consented to come in and lead up that team. He formed a team of people, again in consultation, a team of people who would take care of different facets of the evaluation, involving help from the outside in terms of experts and so on.
Senator Tkachuk: And that was your decision to make?
Mr. Barbeau: The decision in terms of who was to be named to head up the evaluation? It was in great part my input. It is the kind of thing that, normally, I certainly would have consulted the deputy minister on and perhaps the minister, although I don't really know in this case, but, essentially, yes. It is difficult to answer these questions because, again, a lot of these are done collegially.
Senator Tkachuk: He was your guy; that is who you wanted, right?
Mr. Barbeau: Yes.
Senator Tkachuk: How many people were put on the evaluation team?
Mr. Barbeau: I can't give you precise numbers. I don't have them in front of me, but it is a team of roughly a dozen people, or so, if my memory serves me right.
Senator Tkachuk: And you would tell -- Mr. Ron Lane and you would put your evaluation team together?
Mr. Barbeau: Again, it was a little bit more complex than that. He didn't have full responsibility for naming people. We did work on this in terms of getting the people we thought --
Senator Tkachuk: Who did?
Mr. Barbeau: Who worked on it?
Senator Tkachuk: Who was responsible?
Mr. Barbeau: I would have had responsibility for doing most of that work of setting it up.
Senator Tkachuk: But you would have been responsible, right?
Mr. Barbeau: Well, yes.
Senator Tkachuk: So you put together the head of the evaluation team. And you and the head of the evaluation team picked all of the evaluators -- Is that a good word? Would you have another word for them? Who would receive the contracts?
Mr. Barbeau: Some would be experts coming from the outside, and so on, yes.
Senator Tkachuk: Basically, you chose them.
Mr. Barbeau: It is again a little bit more complex than that. People are chosen. Sometimes we may have gone to tender. Again, my memory fails me on that. Mr. Lane will be able to answer those questions.
It depends on the contract. We may go to tender. We may sole-source some of them. There certainly would have been lists of people available. I would have consulted other people on who were the best within the department, possibly outside the department. But to answer your question, eventually, yes, I accept responsibility for having put that team together.
Senator Tkachuk: You delegated to Mr. Lane but you were in charge.
Mr. Barbeau: Yes, as the deputy minister --
Senator Tkachuk: Did you receive any phone calls from anyone telling you who to put on the evaluation team?
Mr. Barbeau: Not that I remember, sir.
Senator Tkachuk: Were you happy then with the group assembled? Was it a professional group in your estimation? In the end, did Mr. Lane come to see you and say here is my group of 12 -- or 13 or 15, I am not sure of the number. Were you happy with that?
Mr. Barbeau: Yes.
Senator Tkachuk: So it was their job to receive the contract?
Mr. Barbeau: It was to receive the proposals.
Senator Tkachuk: I am sorry, to receive the proposals. Did you have an audit team overseeing them as well?
Mr. Barbeau: We had a firm Price Waterhouse as part of the team to be sort of the overseers on the one hand. On the other hand, we then hired the firm of Raymond, Chabot, Martin, Paré to, I suppose the best word is, to audit the process. Mr. Robert Labbé was in charge of that team, a team from the outside to essentially look at how the process had evolved, whether it had respected all of the parameters set forward and so on.
Senator Tkachuk: Once that call for proposal was out, you assembled your team, or did you assemble your team beforehand?
Mr. Barbeau: It was assembled beforehand or just at the time, because we started the work very soon after the proposals were in.
Senator Tkachuk: It is my understanding from the newspaper reports that somebody also then asked for an extension of the 90-day period for the call for proposals?
Mr. Barbeau: There was a request for the extension of the 90-day, yes, and the extension was granted, an extension of one month.
Senator Tkachuk: So almost the same amount of time as Terminal 3?
Mr. Barbeau: If you put the dates together, you come up with roughly four months in terms of the request for proposal. This compares with the two-stage process of Terminal 3, that is the expression of interest stage which was three or four months, and then the request for proposals which was, I think we determined, about five months.
Senator Tkachuk: And you learned a lot after Terminal 3, so now you are into Terminals 1 and 2, you've learned a lot, right? I mean, you went through the process once. This was not a unique process now. It was different but not --
Mr. Barbeau: There were certainly some people in the department who had learned. I cannot vouch for that personally because I had not been involved in Terminal 3 directly.
Senator Tkachuk: Now you are in charge. Were you in charge to the end of the 120-day period? You are still in charge.
Mr. Barbeau: Yes.
Senator Tkachuk: At the end of the 120-day period, all of the evaluators come to see you or somebody. Who did they go to see? What happened here?
Senator Tkachuk: Do you mean when the evaluation was complete?
Senator Tkachuk: Yes.
Mr. Barbeau: When the evaluation is complete, the process is that the head of the evaluation term produces a report which is then submitted to the department.
Senator Tkachuk: Were any members of the evaluation team, members of any program evaluation association, such as a professional evaluators group or anything like that?
Mr. Barbeau: I don't remember, sir. My memory fails me on that. I could get back to you on that but I don't remember.
Senator Tkachuk: But all men and women of high integrity?
Mr. Barbeau: Yes.
Senator Tkachuk: Professionals?
Mr. Barbeau: Yes.
Senator Tkachuk: You would think honesty.
Mr. Barbeau: Yes.
Senator Tkachuk: So now we are at the 120 days, the evaluation group has received the stuff. Now what happens?
Mr. Barbeau: The report is received on the part of the evaluation team, and that was received in late August of 1992.
Senator Tkachuk: And they then go to work?
Mr. Barbeau: I may have misunderstood your question. They went to work when they received the proposals. Can I just refer to my notes? I am on the wrong piece of paper.
I am sorry for the delay but I am trying to find the right information so I can answer you with precision.
I apologize. I can't find the precise dates. If I can speak to your question in a general sense, as of the time that the proposals were received, that is considering the extension of a month -- so we are really talking about a four-month period, okay? The evaluation team then goes into work.
Senator Tkachuk: What day is this now, approximately?
Mr. Barbeau: It would have been at the beginning of the summer because the evaluation team worked essentially through July and August.
Senator Tkachuk: Through July and August of 1992?
Mr. Barbeau: Yes.
Senator Tkachuk: And this is while the call for proposals was still open? It had not closed yet?
Mr. Barbeau: No. No, that had closed. Let me reiterate so we are perfectly clear.
Senator Tkachuk: I am just trying to get a time frame from you.
Mr. Barbeau: Yes, and I am sorry I don't have the precise dates, but if we can go back to the call for proposals and work approximately four months forward from that, that would have been when the proposals were formally received. And that takes into account the one-month extension period, okay?
As of that time, the evaluation team which had been set up previously -- so I do not know what the time hiatus would be here, but it was, in my memory, very short. The evaluation team goes to work in Toronto in a closed atmosphere with the documents being extremely well protected. They go to work and they worked essentially through July and August and produce their report on August 28, produced the report up to the department.
Senator Tkachuk: What happened after that?
Mr. Barbeau: What happened essentially is that the audit team that I mentioned to you before, who were the outside consultants, the firm of Raymond, Chabot, Martin, Paré, had not finished their work on auditing the process and they took until some time in October, if my memory serves me right, to complete that work and submit their report to the department and to the minister.
Senator Tkachuk: Did you have other security measures during this time, during this 120-day period; police, private security? Did you have other security measures?
Mr. Barbeau: We didn't have any police. What we did have again is the firm Price Waterhouse essentially as the keeper of the gate, if I may say in those words. Price Waterhouse were responsible for keeping the documentation and so on. And there was, of course, tight security around the team who were working on the evaluations.
Senator Tkachuk: They kept logs, stuff like that, eh?
Mr. Barbeau: Logs, I don't know.
Senator Bryden: It is 12 o'clock. There are two reasons for interrupting, senator. One is that that's the agreement and you may or may not be close to winding up, but when you were finished, I have some questions arising out of your questions that I would like to redirect.
The other reason is that, if possible --
Senator Tkachuk: Redirect?
Senator Bryden: If possible, I would like to, since the times have been established, to attend our caucus, which was scheduled to be at 12:00 o'clock so that we could be able to attend.
Senator Tkachuk: I missed my caucus this morning at 9:30.
The Chairman: All right, ladies and gentlemen, we will allow you to proceed when we come back and finish up your questioning with Mr. Barbeau and then if you want to pick up from there.
You three gentlemen will be with us this afternoon?
Mr. Barbeau: Yes.
The Chairman: We will be joined by Mr. Emerson and Mr. Turner. Are they here in the room? Mr. Emerson, has come a distance.
Do you want to go first this afternoon? Do you have any planes to catch this evening?
Mr. Emerson: Yes, I do.
The Chairman: We will try to accommodate you then after that.
We will adjourn then until what time?
Senator Bosa: In all fairness I do not think we should leave the matter like that, I mean that this is a concession because we have caucus at noon, because it is in the agenda today that this meeting will adjourn at 12 o'clock and this is why caucus was called at 12 o'clock. I appreciate that they did not attend caucus this morning.
Senator Tkachuk: I didn't say it was a concession. I just made a point.
Senator Bosa: Just in case it was misunderstood.
Ottawa, Wednesday, July 12, 1995
The Special Senate Committee on the Pearson Airport Agreements met this day at 1:30 p.m. to examine and report upon all matters concerning the policies and negotiations leading up to, and including, the agreements respecting the redevelopment and operation of Terminals 1 and 2 at Lester B. Pearson International Airport and the circumstances relating to the cancellation thereof.
Senator Finlay MacDonald (Chairman) in the Chair.
The Chairman: Ladies and gentlemen, we have a problem to resolve before we begin, so please be patient for a few more minutes.
The Chairman: Ladies and gentlemen, I have a problem to put to the committee. Here's the situation: Mr. Emerson, who was to be a witness this afternoon, is trying now to arrange a flight back to Vancouver tonight at 6:15; if's he arranges that, that's the best he can do because he must be back in Vancouver tonight.
Now, there is a very strong possibility of a vote in the Senate this afternoon. And the parties in the Senate have failed to agree on paring here, leaving three and three here and just carrying on, ignoring the bell. But anyway, that has not been agreed upon. So if there's a vote, away we go.
Now, depending upon when the vote is -- it will be an hour bell -- so mid-afternoon, et cetera; it really kills the rest of the afternoon. So there's really not an awful of point -- then asking Mr. Emerson to come back at, let's say, five o'clock and then try to catch a flight 6:15. Senator Bosa:
Senator Bosa: Let's hear him now.
The Chairman: Well, you see, when we recessed for lunch Senator Tkachuk was questioning Mr. Barbeau, following which Senator Bryden wanted to pick up on that; and that is considered by both of them to be of the utmost importance and that's the way they want to go this afternoon. So they want to go first.
Senator Bryden: Mr. Chairman, that's not correct. I'm absolutely prepared -- as a matter of fact I think it makes great sense -- to have this gentleman, who is kind enough to come in here from Vancouver, go first.
My questions are not of such utmost importance that they couldn't wait for later on this afternoon or even tomorrow, if that's required. So on our side we're very pleased to say we broke at 12:00, we're back to reconvene. Let's reconvene with the witness who has a time constraint and is kind enough to come here to provide us with his evidence, which I don't know what it will be but obviously will be useful. And then we would just pick up and proceed from there. That would be my view.
The Chairman: Well then, there is a possibility, then, we would have to recall Mr. Barbeau to continue the questioning that --
Senator Tkachuk: I would like to have him continue; I would like to just sort of finish up. And then you're going to have a number of questions, if you wish.
I was broken up at noon-hour and I don't want to break this thing up again. So I would like to sort of finish with Mr. Barbeau; I may have other questions later but I want to finish this process that I've started on, I don't want to leave it half-way. And so I would like to have him come now and let's get started on this thing. We've got all afternoon.
The Chairman: Well, we've lost 15 minutes.
Senator Tkachuk: I know.
The Chairman: Supposing we put a time limit on it, Dave?
Senator Tkachuk: I'm not going to be too long. It will depend on him.
Senator Jessiman: Why don't you give him a time limit now. Is half an hour enough?
Senator Tkachuk: As I say it will depend on him. If his questions [sic] are lengthy -- I'm usually to the point. I don't make a lot of speeches. I try to get -- I ask the questions.
Mr. Barbeau: I'm at your pleasure, gentlemen.
Senator Bryden: If it will facilitate matters, I will be prepared to -- when Mr. Senator Tkachuk is finished, I would be prepared to have Mr. Emerson come on then.
Senator Tkachuk: Good. Thank you. Perfect. I owe you one, John.
Senator Bryden: Because the line of questioning was so intriguing, I would like to see where it's going as well.
The Chairman: All right, then. So that you will be the only one who'll be speaking. Your questioning before --
Senator Bryden: Can I just ask: Will that make it possible for Mr. Barbeau to be available later this afternoon, or indeed tomorrow if that's required?
Senator Jessiman: Some other time.
Senator Bryden: Well, I don't want to get too far away from the --
Mr. Nelligan: Well, I assume Mr. Barbeau is available for the balance of the day. And if we put him off today, then we'll have him back at the first available time; but I can't say you can come back tomorrow morning because we have another out-of-town witness tomorrow morning.
Senator Bryden: Well, I'm really prepared to be as accommodating as possible and I don't want to appear also to be recalcitrant. So whatever is convenient for --
The Chairman: Well, you see, it's all a matter of time. I know what these votes take. It's all very well to say we'll only be gone a short time. But I think it will ruin the afternoon and we might not have a chance to -- Or it's possible that we might come back at five o'clock, I don't know yet. It's just impossible to --
But if that's your wish, David, and you agree, John, that's fine. David, is it possible to attempt to say half an hour?
Senator Tkachuk: I'll do my best.
Mr. Nelligan: I assume you only want Mr. Barbeau; you don't need the other two members of the panel?
Senator Tkachuk: Well, a Treasury Board official I would like.
Mr. Barbeau: Do you want Mr. Warrick present?
Senator Tkachuk: I don't know. Is he here?
Mr. Barbeau: Of course.
Senator Tkachuk: Well, if he feels there's one left, he can come forward, but I don't know if it'll apply to him; the way you guys kind of pass things back and forth --
Mr. Barbeau: If that's your pleasure, Mr. Chairman.
Senator Tkachuk: -- A not responsible part of the team. You know how it works. So I never know.
The Chairman: All right. Senator Grafstein is replacing Senator Bosa who's replacing Senator Kirby this afternoon. There's no witness to be sworn at this stage, right?
Okay, David, continue please.
Senator Tkachuk: I just wanted to go back to -- we're still in the process here of evaluation. And I was wondering: you weren't able to give me a number as to how many evaluators there were but you agreed with me they were all honourable men and women. How many would there be again; you don't have the number or?
Mr. Barbeau: Well, I don't have the precise number. This again, I can either get to you and when you interview a witness who was directly -- I gather you will -- you do have on your roster a Mr. Ron Lane who headed up the evaluation team. So again, it's your choice: I can get a precise number back to you; or when you interview Mr. Ron Lane can ask him the questions and he'll --
Mr. Nelligan: May I tell the Senator that there is a report by Mr. Lane that I can make available to you today where he actually lists the names of all the persons on the team.
Senator Tkachuk: The reason I ask you, sir, is, I just want to reiterate that point is that you were the senior bureaucrat in charge, next to the deputy minister, of this process. Now, I know Mr. Lane obviously worked for you. Now, you mentioned an accounting firm, consulting group?
Mr. Barbeau: Price Waterhouse, I think.
Senator Tkachuk: Price Waterhouse. And what was their role?
Mr. Barbeau: Their role, and again, it can probably be better defined by somebody who was directly involved. But I see it was sort of the keeper of the documents, the people who made sure that everything was in order, that sort of thing.
Senator Tkachuk: So all these documents would role in -- that rolled into this evaluation team, did they go straight to you or did they go to Mr. Lane?
Mr. Barbeau: No, they went to Mr. Lane directly.
Senator Tkachuk: They went to Mr. Lane. So you didn't even see them?
Mr. Barbeau: No. I will repeat again, sir, that as a senior public servant -- In the normal course of events when there is this kind of evaluation going on, we really make all efforts to abstract ourselves from the ongoing work. We let the team do their work and they present their report at the end --
Senator Tkachuk: I understand that, you know.
Mr. Barbeau: -- That's the normal process.
Senator Tkachuk: I just asked whether you saw them?
Mr. Barbeau: No.
Senator Tkachuk: So then, Price Waterhouse, did they govern these documents in some way? You mentioned that they kept the security of the documents that rolled, these calls for proposal?
Mr. Barbeau: I'm sorry, again, I can't answer the question just because of lack of knowledge. I don't know exactly what they were doing.
Senator Tkachuk: What would your instructions have been to Mr. Lane?
Mr. Barbeau: Instructions to Mr. Lane?
Senator Tkachuk: Yes. Would he have received written instructions from you as to how this process should be handled?
Mr. Barbeau: Well, the terms of reference for the evaluation were spelled out and he was following those terms of reference?
Senator Tkachuk: Terms of reference?
Mr. Barbeau: Yes.
Senator Tkachuk: You organized those terms of reference?
Mr. Barbeau: Well, again, whether I did -- I did not do so on a personal basis. But was responsible for that, yes, in consultation with --
Senator Tkachuk: You would have approved it. You would have looked at them and said, "This is good"? Or again you would not have even looked at them?
Mr. Barbeau: Oh, I would have looked them at them for sure, yes.
Senator Tkachuk: You would have said, "These are fine"?
Mr. Barbeau: But your question was: Did I prepare them? Probably not. Did I approve them? Either I approved them or the Deputy Minister approved them. I'm not sure, you know, again, of how that process evolved at the time. We are always working in this context where there's a hierarchy of people.
Senator Tkachuk: Yes. In your role, then, your responsibility would be that you would try to satisfy yourself that the terms of reference would be upheld as to processes going on. Would you ever have phoned the guy and say, "How are things going," or what do you do?
Mr. Barbeau: I would, in terms of the ongoing process, I certainly would have an occasional telephone conversation with the leader of the team.
Senator Tkachuk: Mr. Lane?
Mr. Barbeau: Mr. Lane. To say, "Are we progressing well? Are we meeting the deadline?" That kind of information. I also, in my recollection, met once to meet with the team, as a team, simply to -- in a way -- sympathize with them and give them some moral support. Because these people were working extremely long hours, normally six days a week in the middle -- in the heat of summer, and most of them had foregone vacation and so on. So I did go once to meet with them to say, "Look, you seem to be doing great here. And let me just tell you that you have my support in what you're doing." That was the only direct contact I had with the team.
Senator Tkachuk: And this was all taking place in Ottawa here?
Mr. Barbeau: No, in Toronto.
Senator Tkachuk: In Toronto?
Mr. Barbeau: Yes.
Senator Tkachuk: So the evaluation team is working in Toronto. They were watched over or working with Price Waterhouse, who was in charge of security? What other security did you have? I ask this again, but I wasn't really quite sure. Did you --
Mr. Barbeau: In my recollection, sir, there was no other security. If you're talking about the documentation and so on, not that I know of.
Senator Tkachuk: You also mentioned that there was an audit group here involved, which was involved in Terminal 3? There was an audit group hired as well?
Mr. Barbeau: Yes, but it was not the audit group involved in Terminal 3.
Senator Tkachuk: No, no. There was no audit group in Terminal 3, is that correct?
Mr. Barbeau: That's what Mr. Warrick testified to this morning --
Senator Tkachuk: That's right.
Mr. Barbeau: -- if my memory serves me right. Yes.
Senator Tkachuk: So in this particular process, there was also an audit group overseeing the process?
Mr. Barbeau: Yes.
Senator Tkachuk: And what was their function?
Mr. Barbeau: Their function, if I remember the terms of reference well, were to essentially verify that, again, the terms of reference of the evaluation team had been respected and that the process essentially had been carried out according to all of the rules and so on.
Senator Tkachuk: And who were they?
Mr. Barbeau: They were the firm Raymond, Chabot, Martin, Paré out of Montreal.
Senator Tkachuk: Montreal?
Mr. Barbeau: Yes.
Senator Tkachuk: And what brought this on; whose idea was this?
Mr. Barbeau: Well, I don't know, sir, whose idea it was. Because again, here we're into -- we're into ministerial confidences, possibly. All what I can say is we were -- we were directed to hire this team to do this work.
Senator Tkachuk: So in the scheme of things, your direction would come from the deputy minister, who's the only two possible people outside of yourself; because on the hierarchy I think we've established that there would be the minister, the deputy minister then yourself. Either it would have to come from the minister or the deputy minister saying, "I will want an audit team in this process as well"?
Mr. Barbeau: Well, if we're talking about direction down to me.
Senator Tkachuk: Yes.
Mr. Barbeau: Yes, direction down to me can only come -- if it is direction -- can only come through the deputy minister essentially.
Senator Tkachuk: So if this audit team would have hired, then, he would have given you the direction to hire this -- or she?
Mr. Barbeau: She would have given the direction to --
Senator Tkachuk: And did she?
Mr. Barbeau: Yes.
Senator Tkachuk: She did?
Mr. Barbeau: Yes, evidently since we carried it out, yes.
Senator Tkachuk: And you have no idea what -- well I'll ask her, I suppose.
Mr. Barbeau: Well, yes. I mean, it's not that I have no idea again. We're getting into who told who to do what and that's not in my realm of possibilities.
Senator Tkachuk: Okay. So now we have Price Waterhouse, we have an evaluation group ensconced away, we have yourself, we have an audit team, all overseeing this whole process of evaluating these documents?
Mr. Barbeau: Not in evaluating the documents, no.
Senator Tkachuk: In the management team: you -- there's the audit team; there's the --
Mr. Barbeau: No. The only people who are evaluating the documents are the evaluation team.
Senator Tkachuk: Yes.
Mr. Barbeau: Yes.
Senator Tkachuk: I understand that. But they're being supervised. There's Price Waterhouse involved, there's an audit team that's auditing the process, and then you're the manager in charge?
Mr. Barbeau: Yes. Again, I'm sorry, we're being possibly a little bit semantic here. But the reporting responsibilities, to make them clearer, were that the audit team -- the evaluation team, I'm sorry, -- reported to me. The people who were doing work, that is the Price Waterhouse firm, and the audit team on top of that are not supervising anything, they are doing their own work according to the terms of reference, all right.
Senator Tkachuk: I'm just trying to establish who's responsible.
Mr. Barbeau: Yes.
Senator Tkachuk: And I've got Mr. Lloyd [sic], then I've got you and I've got the deputy minister?
Mr. Barbeau: Mr. Lane.
Senator Tkachuk: Mr. Lane, right. Sorry. And then I've the deputy minister and the minister?
Mr. Barbeau: Yes.
Senator Tkachuk: That's sort of the hierarchy of it all?
Mr. Barbeau: Yes, that is the hierarchy.
Senator Tkachuk: Now, when the group finishes the evaluation, what happens?
Mr. Barbeau: When the group finished the evaluation they submitted a report, an evaluation report back to the department, that is essentially back to me in the hierarchy, which I then passed up the hierarchy.
Senator Tkachuk: What happened to that report that you received?
Mr. Barbeau: Well, the report for a period of time remained -- remained in lock-up. Because, as I pointed out before, the audit group, Raymond, Chabot, Martin, Paré -- R.C.M.P., I always have to remember this -- had not yet finished their work. And they didn't finish their work until some time late in October, that is they not did not come forward with a report to the department until some time in late October.
Senator Tkachuk: September, October sometime?
Mr. Barbeau: I think again they produced their report, or the report was made available, in October if my memory serves me correctly.
Senator Tkachuk: Now what happens?
Mr. Barbeau: It became a question of when an announcement would be made on -- Well, it became a question of whether the recommendations of the evaluation team would be accepted and whether and when an announcement would be made.
Senator Tkachuk: So the evaluation team makes the report; it goes to you; you send it around. What's Treasury Board's role in all this?
Mr. Barbeau: I did not send it around, I'm sorry. This was kept ultra-confidential --
Senator Tkachuk: Okay.
Mr. Barbeau: -- in lock-up. I know there were three copies of the report. I'm not quite sure now if I sent them up the hierarchy completely or not. I certainly did not send them around, as it were. This was highly confidential information.
Senator Tkachuk: What's the Treasury Board's role now, how does that fit in? What happens now?
Mr. Clayton: Again, senators, I mentioned I have difficulty because of confidences talking about the specific case, but I'll talk generally how a project happens.
Senator Tkachuk: That would be very good.
Mr. Clayton: Essentially what has been described as the process between what I call preliminary project approval, the first stage when the Treasury Board would see such a project, and effective project approval. Some stage after the process that's been described -- I don't know about "project" -- then the minister, the initiating minister, the Minister of Transport would submit to his Treasury Board colleagues for approval what we call "effective project approval", which would discuss the results of the R.F.P. process; would describe, not in enormous detail, but would describe the evaluation process that had been carried out -- that is the controls that were within it; would describe the results of that evaluation, and obviously would have the minister's recommendation as to what should be done. And also, I note, talk about many other management issues that are outside the process. For example, could talk about implications on government personnel because there could be issues related to personnel policy, project management authority.
That submission from the Minister would come to the Treasury Board Secretariat, or to the Treasury Board -- to the office, and then an analysis would be done of that particular submission by staff in the Treasury Board Secretariat. Our staff would deal closely, as part of this, with Transport Canada staff throughout that particular process. That ends up with a normal process, a submission that actually goes -- an actual analysis actually goes to the Treasury Board ministers, themselves, of the Secretariat as to action they may wish to take on the request.
Senator Tkachuk: Is that what happened, Mr. Barbeau?
Mr. Barbeau: Well, again, I am not at liberty to give details as to how the inister and the board and anybody else was involved.
Senator Tkachuk: But you have a bureaucratic function to follow here. So now you have the report. You have the evaluation report. Do you have any other comments on this? Mr. Lloyd -- Mr. Lane would have a report? Would you have a report?
Mr. Barbeau: No.
Senator Tkachuk: This document, then, like does it fit in anything? This document, when it goes to Treasury Board, does it fit in anything, does it go into an envelope?
Mr. Barbeau: Well, no. Again, speaking generally, as Mr. Clayton was saying, what there would be is a discussion at the official side, eventual Treasury Board approval of a Treasury Board submission. But again, sir, you're placing me in a position where you're almost --
Senator Tkachuk: No.
Mr. Barbeau: -- almost forcing me to talk about a processes which I'm feeling relatively uncomfortable about --
Senator Tkachuk: No, I'm not. I'm asking you if it goes into an envelope of some kind?
Mr. Barbeau: No. It would be transformed. I mean the --
Senator Tkachuk: "Transformed"?
Mr. Barbeau: I'm sorry. Hang on for a minute and let me finish my sentence.
Senator Tkachuk: Yes.
Mr. Barbeau: What would happen was, would be that a Treasury Board submission would be written up --
Senator Tkachuk: Yes. Very good.
Mr. Barbeau: -- using the essence of what has to be decided.
Senator Tkachuk: So Mr. Lane writes a report; he gets an evaluation document. Does he sign it off? Does he say, "I agree with this document?"
Mr. Barbeau: He signed it off as the leader of the -- and as did all the members of the evaluation team.
Senator Tkachuk: Very good. So they all sign it, right down to the -- all of them signed it saying, "This is what we agree to." --
Mr. Barbeau: Yes.
Senator Tkachuk: "-- We agree to this report." Then it goes to you. Do you sign it?
Mr. Barbeau: No.
Senator Tkachuk: So now let me get this straight. You're in charge. You take this document, you get, it's all signed off; you put it in an envelope, it goes somewhere. Is there a docket that anybody signs that all this stuff goes into?
Mr. Barbeau: No, I didn't say it went in an envelope and it went somewhere.
Senator Tkachuk: Well. What happens to it?
Mr. Barbeau: Well, as I told you, it was originally put in lock-up in a safe --
Senator Tkachuk: Yes.
Mr. Barbeau: -- because it was highly sensitive, confidential --
Senator Tkachuk: I'm trying to get it out of the safe, Mr. Barbeau.
Mr. Barbeau: Pardon me?
Senator Tkachuk: I'm trying to get it out of the safe.
Mr. Barbeau: Well, it was then used, of course in -- Mr. Chairman, I would ask for two minutes; I really want to confer with a couple of colleagues at this point, please? This will not be long.
Mr. Barbeau: I apologize for the slight delay.
Senator Tkachuk: No problem.
Mr. Barbeau: It's, of course, you must understand that I am, of course, under a double oath, my oath as a public servant, my oath here. I'm under constraints in terms of talking about cabinet confidences and so on, and I become a little bit edgy sometimes. So again my apologies. To try to answer your question, sir, and I'm certainly not trying to resist; I'm trying to cut those fine lines.
In the normal course of events, when you have a documentation, whether it's a report for an evaluation from an evaluation committee, or whatever, as public servants we use that documentation to write up a Treasury Board submission which then goes to the Treasury Board. In my knowledge we do not send the documentation itself; we write up a submission. Ministers want to see a formal Treasury Board submission written up in both languages and according to a format which is very, very precise. That is the normal course of events and the way we treat this kind of thing as it --
Senator Tkachuk: I understand.
Mr. Barbeau: -- as it progresses up for decision.
Senator Tkachuk: So you take this document and you do up a Treasury Board submission?
Mr. Barbeau: Yes.
Senator Tkachuk: Now this Treasury Board submission, is it signed off?
Mr. Barbeau: Treasury Board submissions are always signed off.
Senator Tkachuk: By whom?
Mr. Barbeau: By the minister.
Senator Tkachuk: Are they signed off by you, too, in this particular one?
Mr. Barbeau: Usually there's -- what would happen --
Senator Tkachuk: In this particular one did you sign this off?
Mr. Barbeau: I'm answering your question, sir. Normally I would sign off a transmittal note to a minister. Every time I send up a Treasury Board submission, I sign a transmittal note to the minister. But the actual submission is signed by the minister.
Senator Tkachuk: What is the transmittal note: is it memo? Is it a docket? What is a transmittal note?
Mr. Barbeau: It's usually a short memo, sometimes with explanations, or most of the times with explanations.
Senator Tkachuk: Saying, "I recommend this Treasury Board submission"?
Mr. Barbeau: It does not necessarily say that I recommend -- and again, I'm speaking here on the general plane here. It does not necessarily say that I recommend. But normally it will simply say, "I'm sending this up for your signature, sir." We have consulted with sir or madam. We have consulted with officials, so on. This is the state that this is in at this particular time.
Senator Tkachuk: Now, Mr. Barbeau, I'm going to ask this question again because I'm getting a little frustrated here.
You're in charge, this has been established. You receive the report from your head evaluation person, who you recommended and who got engaged, and he had an evaluation group. They submit a document. You look at this document. You then prepare a Treasury Board memo to go to Treasury Board or to go to minister. What happens here? Do you sign it off? If you have a problem with it, what do you do?
Mr. Barbeau: No. Again, in the normal course of the way that we work as public servants in --
Senator Tkachuk: No, I want to know in this particular case?
Mr. Barbeau: Well, I can't tell you, sir, in this particular case.
Senator Tkachuk: Why not?
Mr. Barbeau: I'm sorry. That becomes confidential information that I can't reveal. I can't tell you what I may or may not have done in this particular case, or what the minister or what the Treasury Board or the cabinet did in this particular case. I would ask that you ask those questions to the minister.
Senator Tkachuk: Let me ask this another way. If you had a problem with a document that you were being forced to agree to, you would resign would you not -- especially something so large?
Mr. Barbeau: If I had a problem with a document as it was going up. Normally would there would be discussions within the department. Again, I'm speaking on the general plane. And if the decision was made to send a Treasury Board submission and the way it was written up, it would be sent.
Senator Tkachuk: Okay. Did you agree with Mr. Lane's evaluation?
Mr. Barbeau: Well, this is not, again, a question of whether I agreed with it or not. The evaluation had been done, I repeat again, by an independent team.
Senator Tkachuk: Right.
Mr. Barbeau: My job was to make sure that the process had been well followed.
Senator Tkachuk: And you were satisfied with that?
Mr. Barbeau: I could not agree or disagree with the results.
Senator Tkachuk: You were satisfied with that?
Mr. Barbeau: Yes, I was.
Senator Tkachuk: Well, let me go one more time. The document then goes to Treasury Board. The Treasury Board document is made up to go to Treasury Board, right?
Mr. Barbeau: A Treasury Board submission, in the normal course of events, is written up using the documentation that is at hand.
Senator Tkachuk: That's correct.
Mr. Barbeau: Yes.
Senator Tkachuk: Now, does anybody sign off on this document? I just want to know who the people would normally sign off on this document? Anyone of you two could tell me. Someone must sign off.
Mr. Barbeau: Are you talking about the Treasury Board submission?
Senator Tkachuk: Yes.
Mr. Barbeau: The minister signs the Treasury Board submission.
Senator Tkachuk: Does anybody else sign it?
Mr. Barbeau: No.
Senator Tkachuk: The deputy doesn't sign it?
Mr. Barbeau: No. The deputy signs -- The normal process is, as the note goes up to the minister --
Senator Tkachuk: Yes.
Mr. Barbeau: -- I, as the responsible officer, sign on one part of the note, the deputy minister signs on the other part of the transmittal note to the deputy minister.
Senator Tkachuk: That's what I'm getting --
Mr. Barbeau: And this is normal process, sir --
Senator Tkachuk: Yes.
Mr. Barbeau: -- for anything that goes up to the minister, Treasury Board submissions or anything else.
Senator Tkachuk: Okay. Now, I take it that we wouldn't be able to get this Treasury Board document?
Mr. Clayton: They are considered confidential -- equivalent to a cabinet document within the confidence of the Queen's Privy Council.
Senator Tkachuk: Okay. I was led to believe that there's a sort of a security process that goes through with this document, that when you receive it, it just comes from the minister and it comes to Treasury Board. And normally would other people sign off on the thing as well; the deputy would sign it, there's that little memo that he signs and then he would go out -- in this particular case he would sign it?
Mr. Clayton: The only document in which the Treasury Board Secretariat would receive would be a submission signed by the minister, initiating minister; there are no other signatures on it.
Mr. Barbeau: If I may clear that up. The transmittal note that I'm talking about would not go to Treasury Board. That's the transmittal note for purposes of inside the Department of Transport --
Senator Tkachuk: Okay.
Mr. Barbeau: -- Or any other department, I would expect.
Senator Tkachuk: Right. Now, I just want to sum up a couple of points here. Because I want to be very clear about this because this is a very important part of the process here. You know, you've heard all the allegations and all of this stuff that may have taken place that caused this thing to -- But you were in charge of this thing.
Then Treasury Board, what happens in Treasury Board now?
Mr. Clayton: When submissions are received by Treasury Board Secretariat, through central office and records --
Senator Tkachuk: Yes.
Mr. Clayton: -- they are then distributed to the appropriate organization, bureau, whatever, that would deal with that particular type of submission. As noted, this technically is a land lease type submission. That submission is then, as I noted, analyzed by the Treasury Board Secretariat staff, the issues related to it. We make them produce what is called a praecipe, which is essentially our analysis of it for Treasury Board ministers. It would eventually get on a Treasury Board meeting agenda with usually the submission and the analysis as part of the documents Ministers receive.
Senator Tkachuk: Okay. Then Treasury Board would at some time approve this document, and in this particular --
Mr. Clayton: In order for any project to proceed, Treasury Board -- like these types of projects, the Treasury Board requires to approve various -- approvals are needed and various elements, yes.
Senator Tkachuk: Now, you then would have initiated this process. The Treasury Board would have received the document at some time. The document would then have been approved by Treasury Board and the announcement would be made as to who is the winning proposal?
Mr. Barbeau: In the normal course of events, again, sir, that would be the process after -- For any project, after Treasury Board has approved it, the approval -- the department -- the minister of the department are advised of the approval of the Board, and we proceed, then, to the next steps whatever they are.
Senator Tkachuk: So between the R.F.P. release of March 16 to -- or sorry, March 11, and then the best overall acceptable proposal was announced on December 7, long difficult process?
Mr. Barbeau: Well, the dates that you state are right, yes.
Senator Tkachuk: Now, these people that were working in this lock-up, or working up doing this -- after they received all the submissions, would there be like -- like would there like a swarm of lobbyists like locusts around them telling them what to do? Or would they just be kind of doing this on their own and doing their diligent work and making the recommendations?
Mr. Barbeau: Well, lobbyists, of course, are not allowed to -- lobbyists or anybody else are not allowed to interfere in the process of evaluation of these kinds of proposals, of course.
Senator Tkachuk: Right. And you oversaw this process and you were confident that didn't happen?
Mr. Barbeau: To the best of my knowledge, yes.
Senator Tkachuk: Even the minister wouldn't interfere in this process, is that not correct?
Mr. Barbeau: Well, certainly my advice to any minister as a public servant would be not to interfere in this kind of process.
Senator Tkachuk: That's right. So the process is basically handled in this particular case of Terminal 1 and 2 was handled by you. And the people you engaged and the consultants and the audit group, and these people reviewed the process and then followed regular government procedure or normal government procedure to move this thing into a Treasury Board submission to then be approved by Treasury Board and announcement 7 of December?
Mr. Barbeau: The announcement resulting December 7, to the best of my knowledge, again, sir, yes, you are right. Again, I feel uncomfortable commenting on the specifics of Treasury Board and so on. But in the normal course of events that is the process and indeed the announcement was made on December 7.
Senator Tkachuk: Okay. I'm done right now, but I want to have a couple of questions about -- if we can fast forward to after the election of November 1993. The questions that I've kind of asked you here, just to satisfy myself with the process. I've always believed, of course, the process was fair.
Did Minister Young ever ask you about this stuff or your Deputy?
Mr. Barbeau: I'm not at all at liberty to discuss what the minister asks me, sir, of course.
Senator Bryden: Mr. Chairman, if I could make the comment? Yesterday on both sides we were asked to stick to the area which these witnesses were called to address and that's policy and procedure. And it seems to me that we are now down to discussions about the cancellation of the contract.
Senator Tkachuk: No, no, no. Policy and procedure. I didn't even talk about the cancellation. I asked whether the minister had asked you about the fairness of this procedure, that's what I asked you.
Mr. Barbeau: And, sir, again, I'm not liberty to discuss conversations that I may or may not have had with the minister.
Senator Tkachuk: What about the deputy?
Mr. Barbeau: It would be the same kind of thing. I mean, these are conversations in private and I can't answer that.
Senator Tkachuk: I don't have anything further, not right now. I may want this witness back, though.
Mr. Barbeau: It will be pleasure, sir, to come back.
The Chairman: And John, you waived your --
Senator Bryden: Yes, hopefully in the interests of fair play.
The Chairman: Yes.
Senator Bryden: That we will try to allow me to follow on so that --
The Chairman: I understand. Thank you very much, Mr. Barbeau.
Mr. Barbeau: You're quite welcome, Mr. Chairman.
The Chairman: Mr. Emerson. You've come a long way, Mr. Emerson, I hope your testimony is not going to be interrupted by bells ringing. Did you manage to get a flight?
Mr. Emerson: Yes, I did. Thank you very much, Mr. Chairman.
The Chairman: You realize we're swearing in all witnesses, Mr. Emerson?
Mr. Emerson: Yes.
(David Emerson, Sworn:)
The Chairman: Mr. Emerson, tell us who or are and what you do, and have you prepared an address to give us?
Mr. Emerson: Mr. Chairman, I'm the President and Chief Executive Officer of Vancouver Airport Authority. And I was asked to give about 10 minutes introductory comment on the airport authority in Vancouver: how it works and what kind of success we've had; and I'm prepared to do that if that is the committee's wish?
The Chairman: Yes, please proceed.
Mr. Emerson: The Vancouver Airport Authority was established as an authority in the late 1980s. You will probably know by now that an authority gets established before you actually take over an airport and you then undertake to negotiate the takeover of the airport from Transport Canada. In my particular circumstance, I came on to the payroll of the airport authority on April 1, 1992, that was about three months before Vancouver took over the airport. The Local Airport Authority actually took over control of the airport on June 30, 1992. As you will know, the Local Airport Authority that was put in place in Vancouver was somewhat different, not hugely in different but somewhat different than the current model of a Canadian airport authority. The airport was transferred to the Vancouver Airport Authority on a 60-year lease with an option to extend for a further 20 years after the 60-year period is up.
Just by way of history of the airport. I think it's fair to say that the airport, when the authority took over the facility, had been under invested in for quite some time; it was very congested facility and was in I think serious need of upgrading, and a fair amount of work had to be done on the airport. In terms of Vancouver and other cities in Canada, I think it's also fair to say that there was some serious regulatory restrictions on the ability of the airport to develop and serve the best interests of the community. And I'm referring most particularly to air bilaterals which were very restrictive prior to earlier this year when a new air bilateral was put in place with the United States and a new international air policy was put in place by Minister Young.
So that's a little bit of history. Just in terms of operational and management principles in Vancouver, just to give you a bit perspective on how we think about the airport and running the airport. You will know we are a not-for-profit corporation. That does not mean that we do not attempt to earn profit. It simply means that we fit that classification under the Income Tax Act and are not a taxable entity. Any profits that are earned by the airport are ploughed back into the airport in terms of enhanced facilities or containment or reduction in fees and charges.
We are market driven in Vancouver in the sense that we compete with other airports. We certainly compete with Seattle, Portland, San Francisco, Los Angeles. We also compete with some Canadian airports in the market place seeking to attract air services. We're customer driven and we're competitive in that sense. We also rely on the private market place to raise our financing needs. We have no government guarantee and certainly do not receive any government subsidy.
Philosophically, the airport authority views the running of the airport facility as akin to a public trust. And so we think of our responsibility not just in terms of a narrow profit-making mentality. But we think about our responsibility to the community and the provision of air services and airport services to the community, and in that sense we are very cognizant about environmental matters, whether it's noise or pollutants. We're sensitive about the community's needs for parks and recreational facilities on or around the airport. And we also are very cognizant of the role of the airport in a Canadian and regional context in terms of Vancouver being Canada's front door, if you like, to the Pacific Rim. So in everything we do at the airport, we try to ensure that those considerations are felt loud and clear in how we design, build and operate the airport.
In terms of financing principles at the airport, our philosophy is fairly simple. We attempt to hold to a minimum the prices for what we call the "core logistical services". We attempt to minimize landing fees or any of what you might call "coercive fees and charges" that could be construed as an added levy on the core business and the core airport user.
On the other side of it, we attempt to maximize what I call non-coercive revenue sources. And in Vancouver's case, that's primarily concession and retail revenues. We are aggressively doing that right now. We have in place a policy of street pricing so that we maximize these revenues in a way which is not an inappropriate burden on the customer. And we think of this as non-coercive revenue sources in the sense that people are not forced to shop in the airport; they do so because they want to do so. And in that sense we consider it to be an important financial principle to build the vitality and success of the airport based on a willingness of the customer to pay for certain services rather than on simply adding on you must pay fees and charges.
You will be aware that we have achieved some notoriety because we also have a coercive fee that not too many people like, called the Airport Improvement Fee. The Airport Improvement Fee was put in place because when the Local Airport Authority was established in Vancouver, we did not own the airport; we had no substantial collateral security to go into the market place and borrow over $200 million to build what were, I think, widely agreed to be necessary facilities: a new runway, a new international terminal building, and we are now building a parking structure.
An Airport Improvement Fee was put in place for the purpose of providing banks with collateral security to borrow that money. There are a lot people who would say, "Gee, can't you hide the Airport Improvement Fee in the ticket, nobody would notice?" It's kind of like the GST argument: if you can't see then it isn't there.
We have chosen to have the Airport Improvement Fee as an overt and open charge in the airport. It's extremely efficient administratively; it costs us something like 6 per cent to administer the Airport Improvement Fee. Every single penny of that fee goes into the construction of the new terminal building and the runway. And when those facilities are paid off, that fee will disappear. So it's not something that we expect the community to celebrate, in fact we would not want people to celebrate having to pay a fee. But we believe it's a healthy, disciplined and makes for good accountability if you have a fee which is wide open. Because there's something like 12,000 people a day who come through Vancouver Airport and have every right to ask what their money is being used for, and we have an obligation to tell them. It's actually a fairly peaceful, benign attitude I would say today towards the Airport Improvement Fee.
And I would just conclude on financing principles by saying we intend to go very soon into the market place to achieve a credit rating which will make it much more easier and give us more flexibility in terms of raising private sector finance once we get a credit rating, and we expect to achieve that within 90 days.
One further principle which I think should be of interest to you that we adhere to. It's called the "common user operational principle" in the airport. It's very important. It basically says that as the airport operator, we will control the allocation of the facilities on the airport and we will manage the airport, its terminal and its runways and other facilities in the interest of all of the users, and we will attempt to maximize the benefit to the largest number of passengers.
You will probably also know that that compares with some other facilities where, for example, an air carrier might have control of a terminal building and will therefore run that terminal building or their component of the airport primarily in the interests of that particular air carrier. That has consequences which are not attractive economically. We believe you can get 25 per cent more mileage and efficiency out of your facilities if you run them in terms of a common use principle. Because if Air Canada is not using their counters or their gates, the authority has the ability to use those gates for other carriers and therefore to get much more efficient use of the facility.
We also believe that the common user principle is critical for achieving what we believe to be seamless and efficient operation of an airport. We have the philosophy that the airport experience begins the minute you come onto Sea Island, in Vancouver's case, whether you're in a transit vehicle or in your own automobile. And that the airport experience includes everything form that moment until you leave in an airplane or coming back the other way, when you come in on an airplane and leave Sea Island. We believe that common user principles and the authority's mandate to be a customer driven operator really has to extend throughout the entirety of the airport operation if you're going to have the best possible and most efficient service to the customer.
I might just comment that the airport authority in Vancouver, I believe, is seen as successful in our community. We have, in about three and a half years, got about $500 million worth of major airport facilities that are well under way right now. The new terminal facility will open in June of next year. A parking facility will open in June of next year. A control tower, which is being paid for by Transport Canada, will open in June of next year. A new runway, a parallel runway, will open in October/November of next year. And there is a host of developments going on, primarily financed by third party investors on Sea Island. So facilities have gone through a very dramatic enhancement and improvement in Vancouver since the airport authority has come.
Service levels are getting a lot better. We are very conscientious about individual customers, whether it's the reinstallation of a customer service desk or the reduction of the price of pop in a pop machine, we have a customer driven attitude throughout the facility. I think, services, given the inadequate state of our capacity in relation to the demand at the airport, services have never been better in Vancouver.
I would also acknowledge that connectivity for Vancouver has improved dramatically with the advent of Open Skies because, as you will know, the ability of an airport to serve its users and serve the community is also very greatly affected by the regulatory environment. And prior to April of this year, Vancouver was restricted by law in terms of the cities with which it could have direct air service. Those restrictions are gradually being lifted. And there's been a massive change in the airport business and the air transportation business in Vancouver.
We did a study with a university professor last year which conservatively estimated something like 16,000 jobs on Sea Island. I think if you were to look out on the airport in Vancouver today, you would probably find there's about 2,000 more jobs been created on and around the airport in the last three or four months with all of the activity that's been going on. So it's a massive creator of jobs. It's a massive creator of exports, particularly in the modern economy where knowledge-based industries are highly dependent on air travel. And the jobs that are created on and around the airport pay something like 32 per cent more than average job in British Columbia. So it's a pretty successful operation. Community support, I think, is very sound, whether it's from local governments or interest groups of various kinds. And even the media has been relatively kind to us.
So, Mr. Chairman, without going on at greater, I'll let you ask me questions.
The Chairman: Thank you, Mr. Emerson. It should be noted that, as you know, we did not call you as a witness. But it's pretty obvious that the government wanted you here as a witness because you are a success story and we congratulate you.
Mr. Emerson: Thank you.
The Chairman: Now, you are not a public servant?
Mr. Emerson: Not at this moment, no.
The Chairman: Are you?
Mr. Emerson: I have been.
The Chairman: I see. You're not planning to re-apply?
Mr. Emerson: Not right now, no --
The Chairman: I see.
Mr. Emerson: -- Timing is not right.
The Chairman: I see. So you'll be able to give us advice, give us opinions in any fashion?
Mr. Emerson: Yes.
Senator Bryden: Mr. Chairman, could I just ask: Who did call Mr. Emerson?
Mr. Nelligan: He was presented at the suggestion of the Department of Transport as being a useful witness in this preliminary procedure and process part of the inquiry. And so we agreed this would be an appropriate time to bring him in.
Senator Bryden: But we called him? I mean our committee --
The Chairman: No.
Senator Bryden: Doesn't our committee bring witnesses?
The Chairman: Well, they volunteered him and we agreed that he should appear. We haggled over who was going to pay his travel expenses, and the government agreed to do that, or the Department of Transport agreed to do that.
How many on your board of directors, Mr. Emerson?
Mr. Emerson: There are 13 members on our board; seven of them are appointed by what are referred to as "nominating entities". The nominating entities include three local governments: The City of Vancouver, the City of Richmond and the Greater Vancouver Regional District, plus four professional societies which I can list if you wish. And then we have six directors at large.
The Chairman: Yes. Now, in the evidence we heard yesterday, there's now certain changes in the Toronto proposed general airport agreement? --
Mr. Emerson: Yes.
The Chairman: -- Or authority?
Mr. Emerson: Yes.
The Chairman: And to provide for more accountability and transparency. Will your organization now be subject to these new suggestions or changes, or will you stay as you are?
Mr. Emerson: Well, the Minister has been pretty open and clear that he would like the existing LAAs, as they're called, to voluntarily come into compliance with what are called the "new accountability principles". I would say that with respect to 90 per cent of the accountability principles that have been articulated under the new government, we are now in compliance.
Where the big issue is, as you probably already know, is with respect to government appointments. The original LAAs make no provision for the federal or provincial governments to make appointments to the board nor to make appointments of any sitting politician or public servant. Most, I believe, maybe all of the existing LAAs are reluctant to change their articles of incorporation, if you like, to permit for governmental appointments. We in Vancouver have voluntarily come to kind of a middle ground. We have a couple of appointments on our board where we consulted with the Government of Canada on the appropriateness of certain individuals to sit on the board and those individuals are now on our board. But we have not yet succumbed to direct appointment by the government.
The Chairman: What is your reluctance?
Mr. Emerson: To be candid, I think the reluctance I think is one of not wanting to be put in a position where people, who may not be able to add appropriate value in terms of corporate governance, may be appointed at some time in the future. We had no lack of confidence in Minister Young or who he might appoint, but we're very uncomfortable, and I'm speaking as a manager, not on behalf of my board, but I believe they would echo what I'm saying. There's a little lack of confidence, I think, as to what kinds of appointments might be made at some point in the future, and a lack of interest in, if you like, politicising, or the risk of politicizing the board. Airports are major capital facilities; 30-year time horizons for planning and decision-making are not unusual. I think it would -- for the most part you would not want to see perturbations in the kind of principles and governance that apply in that kind of an operation. That's our view as a Local Airport Authority.
The Chairman: Now, I would think you'd keep pretty close touch with your fellow CEOs in other LAAs? --
Mr. Emerson: Yes.
The Chairman: -- That you would be exchanging information and things like that?
Mr. Emerson: Yes. We have an association called the Canadian Airports Council which is a formal association of local airport authorities where we meet and consider matters of mutual interest and concern. I think most of the LAAs are also members of an international airport association group called Airports Council International. Airports are a fairly tight-knit community of people who exchange technical and other information on a regular basis.
The Chairman: So you would be aware of circumstances in Toronto in 1993 when there was an effort made to form an LAA?
Mr. Emerson: Yes.
The Chairman: I think it was Mr. Bandeen who led the charge. And yesterday we heard that -- well it was they just couldn't come together.
Now, this is opinion time. You're aware of what's going on, you're a member of the club. So what happened in '93? What do you figure -- what was the reason that they could not come together?
Mr. Emerson: I can only offer anecdotal evidence, Mr. Chairman. My understanding was that the municipal interests did not converge and form a consensus, and that caused an inability, if you like, politically, to reach on what a local airport facility would like that.
The Chairman: Do you think that's being overcome now? They have got a CEO in Toronto yet?
Mr. Emerson: Well, again it's an impression. My impression is that the people in Toronto are coming together and they're converging on a way to go, if you like. I don't know to what level of detail their thinking has gotten. And I understand there is less community division today than there was three years ago. That's not to say it's non-existent, but there's less today than there was. It's an impression.
The Chairman: Now, yesterday I think it was Mr. Barbeau who said in those days, your days, it took three years to get an LAA off the ground?
Mr. Emerson: Yeah.
The Chairman: He said now possibly we could do it in a year, up to a year 18 months, I think was the --
Mr. Emerson: Yes.
The Chairman: How long do you figure, if it started today, how long do you figure it would take to get a Toronto LAA going?
Mr. Emerson: Well, they have an LAA. I guess you're asking how long it would take to cut a deal to transfer the facilities over.
The Chairman: Well, they have an LAA but it's been quiescent --
Mr. Emerson: Yes.
The Chairman: -- And that's another argument.
Mr. Emerson: Yes. I can only guess, but I would guess at about 12 months if it were fast-tracked.
The Chairman: Now, the LAAS, as you say, can only spend its profits or its surplus on renewal or modernization of its facilities. Under the Pearson deal and under the original contract, $100 million was pledged to be spent in the first year. If you had that kind of a challenge, could you have handled that as an LAA? Where would you raise the money, I suppose? How did you raise the money in the first instance?
Mr. Emerson: Well, if you're asking me if I could spend $100 million in a year, the answer is yes. If you're asking me if I would get value for money in terms of building an airport? In Vancouver's case, it would be difficult. And the reason it would be difficult is whenever you build something in Vancouver you have to go through an extensive geotechnical preparation period. Sea Island, as you know is basically river mud. And in order to build airports and runways and facilities you have to preload and do a substantial amount of geotechnical work before you can actually start constructing.
And so to spend 100 million bucks right out of the gate would be a challenge; you could probably do it, but you'd do it almost 80 per cent of it would have to be on soils work because you can't really get into the big money end of construction until you've done the geotechnical work.
The Chairman: Apart from the employment, which you obviously have created with clear economic benefit, and the improvements that you have done to the airport of which we also congratulate you, what other spin-offs can you enlarge upon? I think you talked about high-tech and things of that type?
Mr. Emerson: Yes.
The Chairman: What other economic benefits that were originally conceived to be attached to an LAA when the first idea of an airport transfer took place, or suggested?
Mr. Emerson: Well, if I can just back up and I'll be as crisp as I can.
In British Columbia, and I can't speak for the rest of the country, but in British Columbia the economy has been going through a very substantial transformation from a resource-based economy to a service-based, knowledge-based, high-tech oriented economy. And the transportation mode of choice, if you like, in the modern B.C. economy is really air travel. And so the economic benefits of an expanded and improved airport permeate through the entire economy. And really, I would say without the new airport and the new air transportation service configuration that's coming on, you simply would not have seen the kind of economic diversification generally that you're now seeing in Vancouver. So that's a general comment that the airport is critical to the modernization of our economic structure and our participation in North American and global trading arrangements and so on. It's absolutely critical.
In terms of more tangible closer-to-hand benefits. I've mentioned the 16,000 jobs on Sea Island, that's a very direct assessment of the amount of employment. That employment base is growing substantially. We are now, I think, seeing substantial enhancement in Canada's export base through the airport. Because as you all know, if Cathay Pacific comes in and drops some million dollars a year on its services into Vancouver, that typically is money that is earned outside Canada and spent in Canada and therefore is as legitimate an export as lumber.
And so we're building the export base very, very materially in aviation and related business. And the airport itself is now becoming an exporter of services. We are now engaged in international airport services. We have a contract in Bermuda to advise the government of Bermuda on the running of their airport. We're doing work in Argentina, in Russia. We're looking at some training arrangements in Malaysia. We're looking at an airport operational contract in China. And so the whole airport business is itself now being liberated, if you like, to pursue commercial business opportunities outside of Canada, and elsewhere in Canada, which is creating jobs for Canadians and creating, I think, some real substantial economic benefits.
The Chairman: Very good. I just have one last question. How much money did you raise and how did you do it when you started? How did you go about it?
Mr. Emerson: Well, it was problematic. As you know, an airport is leased property and financing of leased property is a challenge; banks don't like lending on leased land unless the length of the lease is very long.
The Chairman: And yours is?
Mr. Emerson: Ours is 60 years. And we needed a lot of money and we needed it fast because we needed facilities very, very fast. Vancouver has the most congested facilities in the country. And we need that facility in place now; we don't need it in two years from now or three years from now once our finance is strengthened.
So we needed at the outset $225 million in terms of a construction line and we financed that almost exclusively through the Airport Improvement Fee and the use of that as cash collateral to secure a credit line for construction purposes. And we are now in the process of increasing that line up to I think it's $275 million. And again, it's all private sector money from a consortium of financial institutions, primarily Canadian financial institutions.
We will, once we get a credit rating, be looking at going into the market place with a bond issue. But as a start-up entity that when we took over had a deficit of $3 million in retained earnings. You couldn't go into the market place and do a bond issue. And so we are paying a little more for the money we have now, and it's a little more restrictive in terms of the nature of the financing than would be ideal for an airport, but that's changing now.
The Chairman: Thank you for answering my questions, Mr. Emerson. I think Senator LeBreton had her hand up first.
Senator LeBreton: Welcome, Mr. Emerson, and congratulations on an obvious success story.
You've been there from the outset, I take it, I think you said that.
Mr. Emerson: Yes.
Senator LeBreton: On the 60-year lease, Mr. Clayton from Treasury Board indicated earlier today that it's normal practice for leases to be at the high end for the obvious reasons you just stated. So when you negotiated with Transport Canada for the Vancouver Airport Authority, was the term of 60 years recommended by the government, or was it something you asked for, or was it just sort of understood that it would be --
Mr. Emerson: I'm going to be a bit anecdotal because most of the deal was negotiated before my arrival. My understanding was, the 60-year lease term was largely dictated by the government. And yes, you do need long-term lease arrangements.
When you're leasing to somebody like an airport operator, it's a little different than a single building lease because the airport has to go out. And if you want to bring in developers on the airport, you then have to a sublease. And so if we've got a 60-year lease from the day we take over, 15 years after we've taken over our lease is only 45 years. And so as you get into your lease, your ability to sublease gets worse and worse. And so you need a long-term lease if you're going to run it in a commercially successful way. Otherwise the subtenants cannot get financing.
Senator LeBreton: And then on that you, of course, have all paid the improvement fee -- or the Vancouver toll tax as some people call it. But how much revenue has been generated thus far? And you indicated that you probably paid a few more percentage points for your cost of borrowing in your start-up process. So are using this revenue now? Obviously it's going to be for airport improvement, but is it also helping to develop a line of credit with the bank. Are you paying down a loan with it and how much revenue -- just ballpark?
Mr. Emerson: The Airport Improvement Fee generated last year, and I've deposited a package of information where you can get more precise numbers, I think it was around $35 million in 1994. We would expect that it will be around 40 million in 1995. And then before that there was a partial year.
So I think if you add it all up, it will be probably somewhere in the 80, 90 million from day one till the end of this year. And that money secures the bank loan. We draw money from the banks. We build things. We incur debt and the fee then allows us to pay off the debt.
Senator LeBreton: So at the moment it's sort of on a two-track -- So the speed that people are paying, you've got two purposes at the moment then?
Mr. Emerson: Just one. It's just to pay for construction and related interest charges.
Senator LeBreton: Okay. You will not be surprised to hear me ask a question about appointments. On the appointment side you indicated a concern you had about appointing people to the airport authority that perhaps were not cognizant of the issues and perhaps maybe be politicized. What was the rationale behind the government's wish to appoint three directors at large? Was there a rationale behind it?
Mr. Emerson: Well, I think the rationale was and is, I understand, that there is a national interest in an airport as significant as Vancouver. And the Canadian airport authorities are deemed to be airports of national significance and therefore the Government of Canada should have a voice, if you like, at the board table.
Our own thinking on that, while I don't disagree there is a national interest, I think you have to remember that the Government of Canada is the regulator. The Government of Canada is the landlord. There are requirements under the ground lease to have our master plan submitted and approved. So it's not like there's a bunch of capitalist mercenaries out there running wild. There are some very tight strings on what an airport authority can do. And we ourselves are probably more sensitive than most politicians to local community concerns, simply because we live in that community and our ability to carry on and coexist peacefully in the community depends on keeping people pretty much happy.
Senator LeBreton: Although I must say, I do support -- they are a national airport so I don't necessarily disagree with the government's notice on this. Senator Tkachuk had a supplementary just on what we were discussing on the borrowing.
Senator Tkachuk: When you borrow money, do you pay prime, prime plus one, prime plus two?
Mr. Emerson: Ours would be in the neighbourhood of prime. Right now it's priced off bankers' acceptances. Senator LeBreton, you commented that we pay a couple of per cent more. I think you would measure the premium we pay more in basis points. It's probably maybe 50 basis points or a half a per cent to three-quarters of a per cent more than if we had, let's say, a single A credit rating and could go into the bond market.
It's also significant that our amortization period on our debt is shorter than you would like. We're looking at about a 15-year amortization period. And on that kind of capital facility, you'd normally look at 20 to 25 years, sometimes even 30 years.
Senator Tkachuk: So you pay what a normal good, very good, best corporate customer would pay to a bank, normally?
Mr. Emerson: Yes, I would.
Senator Tkachuk: Like you're getting money at prime?
Mr. Emerson: Yes, we get it at pretty reasonable rates.
The Chairman: Senator Grafstein?
Senator Grafstein: Thank you, Mr. Chairman. Could you just give us some insight as to the comparison in terms of the traffic between Vancouver and Toronto; and how would you compare your size to Toronto?
Mr. Emerson: Well, I'm giving you rough figures because I don't track Toronto assiduously. My guess is Toronto is around 21 million. We're around 11 million. So Toronto is probably twice the size of Vancouver.
Toronto is a very different airport than Vancouver. But that's roughly the size difference.
Senator Grafstein: Are the material differences in Toronto compared to Vancouver such that in your view not allow the not-for-profit model to work in Toronto, assuming that there can be convergence of political interests?
Mr. Emerson: If there are such divergences [sic] in terms of factors and conditions, I'm not aware of them.
Toronto is a different airport and I'm giving you an opinion, okay. If I had a blank page to start again at Pearson, I sure wouldn't want the isolated terminals all over the place. I would want to build an integrated series of terminals. But that's something that, you know, history has dictated and you just have to manage your way through that in the best way possible. But I don't see any real reason why an LAA would not work in Toronto.
Senator Grafstein: You, in response to the Chairman's question, indicated that there's $100 million that was available from commercial interests at Pearson. Am I correct, in examining your financial statements that indicate that from 1993 to 1994, you spent something like $96 million in terms of capital expenditures?
Mr. Emerson: Sounds about right.
Senator Grafstein: So that number from Toronto compared -- you're half the size of Toronto and you had no difficulty spending or coming to grips with a capital plan to spend close to $100 million?
Mr. Emerson: That's correct, yes. That was in a little more than one year, I might add.
Senator Grafstein: No, I understand. I'm just looking at your note here, '93 to '94 and I assume there's a little wrap-around?
Mr. Emerson: Yes.
Senator Grafstein: In relative terms you spent close to that number? --
Mr. Emerson: Yes.
Senator Grafstein: -- And you were half the size. So I can extrapolate from that that the number is relevant to the size, not an isolated number, Mr. Chairman. It's a number that you pulled and I didn't know where it came from.
Mr. Emerson: Well, if I can clarify though. The amount of money you spend, yes, size is a factor but it's not the only factor. We had a facility deficit, if you can call it that, that was probably more profound than what Toronto might have, for example, because our facility, our term terminal facility is much more congested than you would find in Toronto.
Senator Grafstein: Now, in terms of national public policy, does the not-for-profit model, in your view, in your opinion, inhibit national transportation policy any more so or less so than the commercial model?
Mr. Emerson: I'm giving you opinion now, okay.
Senator Grafstein: We're asking for an opinion.
Mr. Emerson: My opinion is the not-for-profit model does not inhibit national policy anymore than, let's say, a fully privatized equity-based ownership model would. And indeed, it does have certain attractive aspects to it from a public policy point of view. As an ex-public servant, I would conjecture that if you have private owners airports you will then have to regulate them in terms of fees and behaviour, commercial behaviour, which might be perceived to be monopolistic behaviour or taking inappropriate advantage of consumers.
So by having a not-for-profit model you have removed the prime source of controversy around monopolistic behaviour because you do not have a shareholder whose pricing decisions flow to dividend payments to a shareholder. We have no incentive to rip the customer off and improve our return on equity in Vancouver because we don't have a for-profit equity-based shareholder. And I find that to be an attractive model.
If you look at the British Airports Authority, which is a fully privatized airport authority, not just one terminal but a series of airports, they trade on the public market; they're subject to pricing regulation. And while that sounded pretty good for a while, the government of the U.K. gave them a guideline of something like C.P.I. minus 6 in terms of certain airport fees and charges. And that was working quite well and the stock was trading well. And then the government came along a few years later and decided they were going to change it. So you then start to create regulatory risk for the private shareholders and uncertainty because of this imperative to be always being in there regulating and hiring lawyers and accountants and having hearings and all the rest of it. So that's my nervousness around the fully privatized model.
Senator Grafstein: Mr. Chairman, if I might, just one more question. I was really taken by your comment that the not-for-profit model did not seem to inhibit you and your management from diversifying and seeking new sources of revenue outside the immediate confines of the airport. And I assume that goes to consultancies or deals, if you will, with respect to other airports.
So that in that respect, is there any difference in terms of incentive for Canadian -- the Canadian interests to be exported, if you will, in this field of activity, if you had the one model as opposed to the other model; I'm talking about the not-for-profit versus the profit model?
Mr. Emerson: I don't think so. My view is that once you're out of government and into a kind of market driven organizational framework and way of behaving and team of people, whether you're working for a shareholder or a not-for-profit entity, you're going to be more or less motivated to do the same kinds of things in my view.
Senator Grafstein: Forgive me, Mr. Chairman, it's a final question.
The Chairman: Go ahead.
Senator Grafstein: I take it that the incentive question -- it's a question I'm going to conclude but you may disagree with this.
Mr. Emerson: Yes.
Senator Grafstein: I take it that one of the ways that your board provides the appropriate incentives to do what you've done, because it obviously is a remarkable success story as Senator LeBreton has indicated, is there a high incentive available to management for results? I mean, has the structure allowed that to have private sector incentives for management in order to -- that's based on results?
Mr. Emerson: Yes. We have a compensation system which, while not fully comparable with a private company because you can't offer share options and that kind of thing, we certainly do have a discretionary component which is significant and it's results motivated.
Senator Grafstein: Thank you, Mr. Chairman.
The Chairman: Just one quick question before Senator Jessiman. Were you the first CEO of the Vancouver LAA?
Mr. Emerson: Yes, I was.
The Chairman: You were?
Mr. Emerson: Well, in point of fact, to be more correct, Mr. Chairman, I came in as the President and Chief Operating Officer for about three or four months and then I became the CEO.
The Chairman: Yes. And where did you come from, Mr. Emerson?
Mr. Emerson: Well, I have a mixed background. I've been a public servant, a deputy minister of finance in B.C., secretary to cabinet and deputy to the premier for a while. I ran a little bank in Alberta and in British Columbia as the chairman and CEO. I was the president of B.C. Trade Development Corporation. So I've got a mixed private and public service background, which I personally find to be a helpful package of skills because running an airport is not strictly like running a private company.
And we have found that in terms of getting our culture to develop appropriately, we've had to take the private sector people we've brought in and the public sector people we've inherited and meld a somewhat unique culture. Because you don't want the public service mentality 100 per cent, nor do you want the hard-nosed profit driven private sector mentality in excess simply because of some of the reasons that I've already talked about: there's a perception of monopolistic powers that could be abused. And you don't want a culture that would abuse them.
The Chairman: Did you ever think of taking on private individuals for clients? I'm sorry, just a facetious remark. Senator Jessiman.
Senator Jessiman: Is the Vancouver International Airport Authority a creature of the British Columbia government? Is that how it's incorporated? Or is it incorporated? Is there a special act?
Mr. Emerson: It's a federally incorporated company under Part 2 of the Canada Corporations Act. And so it's a federal entity, although there was some provincial involvement back in the early days where the region and community were trying to get control of the airports. So there was local community and provincial task forces, but they are not part of the formal structure today.
Senator Jessiman: You said, or at least I thought you said -- either I'm wrong or there's some -- you said there were 13 members of the board of directors?
Mr. Emerson: Yes.
Senator Jessiman: Then what you've given us here, and maybe there's just an extra one for some reason. I counted 14.
Mr. Emerson: Oh, is there 14?
Senator Jessiman: Yes.
Mr. Emerson: My apologies.
Senator Jessiman: Oh no, that's all right. This would be correct, would it?
Mr. Emerson: I believe it's correct.
Senator Jessiman: Can you tell me -- you have a number of directors at large -- but G.V.R.D., is that Vancouver Regional something?
Mr. Emerson: Greater Vancouver Regional District.
Senator Jessiman: Okay. Now, what do we call that? Is that one like as if it were Vancouver itself, is that similar?
Mr. Emerson: Well, in the Vancouver area you've got a lot of municipalities like the City of Vancouver, Richmond, Burnaby, Coquitlam. And when you collect them all into a regional cluster, they form what's called the Greater Vancouver Regional District, which is a cluster of lower mainland municipalities.
Senator Jessiman: But Richmond wouldn't be part of that or would it?
Mr. Emerson: Yes, they are. So is Vancouver.
Senator Jessiman: So they'd have been to two -- because they a representative of the City of Richmond --
Mr. Emerson: Right.
Senator Jessiman: -- Representative for the City of Vancouver?
Mr. Emerson: Right.
Senator Jessiman: Then there's the representative from the Greater Vancouver Regional District?
Mr. Emerson: That's right.
Senator Jessiman: So there are three. Then you have these various associations, the Institute of Chartered Accounts?
Mr. Emerson: Yes.
Senator Jessiman: Association of Professional Engineers, Law Society of British Columbia and Vancouver Board of Trade. Now, is that in the statute?
Mr. Emerson: Yes.
Senator Jessiman: That's in the statute.
Mr. Emerson: Not the statute. It's in our bylaws.
Senator Jessiman: Or your incorporating documents?
Senator LeBreton: Bylaws.
Senator Jessiman: Probably more than the bylaws. I would think it would be the actual --
Mr. Emerson: Articles of Incorporation.
Senator Jessiman: That's it. Then the directors art large, who determines how they're appointed?
Mr. Emerson: Well, the board determines that.
Senator Jessiman: Is it in the articles as well that the majority of the board would determine --
Mr. Emerson: Yes.
Senator Jessiman: I see, okay. You say your powers I guess are very wide?
Mr. Emerson: Yes.
Senator Jessiman: Would you have the power, if you grew that much, to lease a terminal?
Mr. Emerson: To a private --
Senator Jessiman: To private sector?
Mr. Emerson: Sure.
Senator Jessiman: To anyone else if you had that right?
Mr. Emerson: Sure. We would, in fact, consider that in some parts of the airport. We would not likely consider it in terms of the main terminal buildings in the airport. But in the area of general aviation, we might consider a private operator, for example.
But we would not alienate our ability to manage the airport in the interests of the common user, as I said before. So if you could splinter out a portion of it without violating the fundamental principles of operation, we would consider doing that.
Senator Jessiman: Are the bodies that appoint these people, are they members of this corporation?
Mr. Emerson: Yes.
Senator Jessiman: These are the directors. And then you've got members above them?
Mr. Emerson: They're members. And the board members of the nominating entities can meet as members of the society or corporation.
Senator Jessiman: So there are really seven members?
Mr. Emerson: Yes.
Senator Jessiman: And the seven members are made up of the four associations?
Mr. Emerson: Yes.
Senator Jessiman: Plus the three -- call them municipalities or cities or whatever?
Mr. Emerson: Yes.
Senator Jessiman: Right. And then you've got now seven. And you say that seven, when you first started out, because they would have seven members, they'd appoint them and they'd meet and they'd be the directors?
Mr. Emerson: Yes.
Senator Jessiman: Are these those seven the ones that then appoint the other seven?
Mr. Emerson: In the very beginning.
Senator Jessiman: Yes, okay?
Mr. Emerson: But in any given year only a certain number of terms expire and therefore you might have two or three appointments to be determined in any given year.
Senator Jessiman: So do the incorporating documents then provide that there's a certain term for directors?
Mr. Emerson: Yes.
Senator Jessiman: Maybe a rotating where some come for three years, some for two, some for one, and then --
Mr. Emerson: We have flexibility to appoint for one, two, or three years. And we have an age restriction that you cannot be reappointed after your 70th birthday.
Senator Jessiman: That's terrible?
Mr. Emerson: I know.
Senator Jessiman: You're talking about the wrong group about that.
The Chairman: A defeatist attitude. Short questions please.
Senator Jessiman: Are the directors paid?
Mr. Emerson: Yes, they are.
Senator Jessiman: What do they get paid, approximately?
Mr. Emerson: It's an annual retainer plus a meeting per diem fee. I think it works out on average, over the year, depending on whether how many committee meetings and that kind thing.
The Chairman: You get so much per --
Mr. Emerson: Somewhere around 14 thousand, 14, 15, in that range.
Senator Jessiman: Depending, of course -- Is that what the average person would get, the average director?
Mr. Emerson: On average, yes.
Senator Jessiman: But the more meetings they attended and the more committees they were on, the more money they might get?
Mr. Emerson: Yes. But as a matter of board practice and business practice, we have attempted to minimize the number of committees and the number of meetings and to strike a balance between governance requirements and the staff's need to deliver service to customers.
The Chairman: Short questions.
Senator Jessiman: They were short questions. But were they paid, is that a long question -- How much? I have no further questions.
The Chairman: All right. Short questions. We have still have an opportunity -- Mr. Barbeau is still with us and I want Senator Bryden, who's kindly given up his time to possibly to get a chance, mostly so we don't have to call Mr. Barbeau back unless there's other reasons. Senator Hervieux-Payette?
Senator Hervieux-Payette: Mr. Emerson, you're obviously successful, I suppose, you have some airport management experience prior to this Vancouver Airport operation?
Mr. Emerson: No, I have none. I have a background in transportation economics way back. But I came in, if you like, as a professional manager with public and private sector corporate experience. I went and ran a bank and I'd never run a bank or worked in a bank before either. It works okay.
Senator Hervieux-Payette: Well, I just wanted to know, at least when -- I certainly thought that the airport manager can be hired by the new LAA, I mean in other places.
Mr. Emerson: Sure, yes.
Senator Hervieux-Payette: Do you know, I mean from your own counsel of LAA, or have you heard any reason why the Toronto Airport, I mean was it in your peers, did you get the impression that it was done for a special reason why Toronto didn't go the LAA route, or was it the rumour that we hear that nobody could agree to come up to LAA agreement and then of course proceed with negotiations with the federal government?
I mean, what was, from your own experience and background, the reason why Toronto didn't go the same way?
Mr. Emerson: I don't know. The people that I talked to -- there was lots of speculation, but I mean, you know, there was one speculation one day and another the next, and I really can't give you a straight answer.
Senator Hervieux-Payette: Thank you. Well, since we were not in that business too, so we're asking those who are in the business maybe that can help us clarify that. I was wondering, I mean when you say that the user fee was agreed, you received permission and you asked permission from the Transport Canada, or was it part of the first agreement that you were allowed to raise that money for a specific reason, specific improvement, and then you had to have some approval at the federal government level?
Mr. Emerson: The documents, our lease documents with Transport Canada contemplated us deriving revenue from what were referred to as "passenger facility charges"; they have them in the United States as you know; they tend to be hidden on the airline ticket so you may not see them. So it was contemplated in our lease documents.
What was novel and controversial in what we did was the fact that we had it as an up-front fee that you would buy through a machine or from a sales person in the terminal building. That has a whole bunch of advantages associated with it. The disadvantage is that it's in people's face and it gives them an opportunity to be frustrated and irritated.
Part of the reason that happened was because we could not get agreement from the air carriers or travel agents to sell these tickets at the point of ticket sale, which we originally wanted to do. If you asked me today would I put it on the ticket and hide it if I had an opportunity? No, I wouldn't. I like the way it works today. I like it being visible. I like the fact that people will ask: What's this all about? What's it for? And I think it's a good discipline because if you have a framework where these go on to the ticket and become a hidden tax, it doesn't mean the tooth fairy is funding things, it just means that it's coming from your pocket in a hidden way. And you'll see a proliferation of them for less than I think compelling purposes.
Senator Jessiman: Why is it when you're going out and not coming in?
Mr. Emerson: It's an administrative matter. We don't charge connecting passengers --
Senator Jessiman: So you won't be mad when you get into British Columbia, you get mad when you go out. That's the reason. You'll forget about it the next time you come back the next time.
Mr. Emerson: Our complaint rate -- now not everybody bothers to write it down or phone or complain, but our complaint rate is way, way, way less than a half of one per cent of the people that pay it. And now that you can see construction, people are much more understanding of it.
When we first put it in, the biggest problem we had was people could say "What improvement?" -- airport improvement fee. That's not a problem today. But we would have a problem if we tried to extend the life of it or start to use it for some new project that wasn't contemplated or whatever.
Senator Hervieux-Payette: A few other questions, because since the LAA is a new policy and we are trying to see what is to the best advantage for Canada.
My other question would have to do with how many employees were transferred; what was their reaction; what kind of relationship you have with these employees, I mean compared to prior? Because I understand the retail people are not your employees; that people working for any rent-a-car business are not your employees.
Mr. Emerson: Right.
Senator Hervieux-Payette: But those who were transferred to you to manage and how did the labour contract, I mean how was it arranged: was it a new contract; did you just award the contract and renegotiate the contract? How did it work out?
Mr. Emerson: We were required to retain Transport Canada people who wanted to come for two years. I think something like 80 per cent of the people who could come chose to come. We had negotiated a new collective agreement with PSAC broken into two bargaining units. These people are now getting paid better than they would have had they stayed in government. We have relative peace and harmony. We spend a lot of money on training. We offer a fair amount of professional independence and give people, I think, a really strong opportunity to develop.
One part of our operation we have modified and that is the firehall. One of the more tricky areas of running an airport is the labour relations with respect to the crash fire rescue people -- they don't call themselves that but that's what they're commonly thought of. We have now transferred that function to the City of Richmond and we contract the service back. That has had some positive effects for the fire fighters because they're on a new salary grid which is advantageous to them; they're part of a larger training framework and have opportunities to get involved in training and fighting of structural fires as well as airports. And it gives us a further advantage which I think is important; it brings us back under essential services legislation, provincial, in terms of the emergency response people.
Senator Hervieux-Payette: So to complete your answer, I mean, you didn't fire massively? --
Mr. Emerson: No.
Senator Hervieux-Payette: -- the Transport Canada people?
Mr. Emerson: No.
Senator Hervieux-Payette: I mean there was not massively [sic] often after two years, you don't intend to do some -- if it was done, it was just on a very ordinary basis; I mean people were not performing well?
Mr. Emerson: We had almost no -- Well, we had no real lay-off to speak of, and there's been one or two departures. But it's kind of normal business as usual. In fact, a lot of the people who chose not to come with the airport authority now are interested in coming over. It's become a very positive environment for the employees.
Senator Hervieux-Payette: Okay. But proportionately, you know, the people -- because we all know that it's really a job creator unit, an airport. I mean there were already people there working for the government and others working for the private sector and the various entities that are on the airport facilities, whether we're talking about parking, sometimes they are already leased to a different corporation.
So how many in the overall global employee number on the site, I mean, how many did you incorporate and became your employee?
Mr. Emerson: Well, we've got today about 260. And I think around -- it's close to that number actually came over. But now we've transferred about 40 over to Richmond as part of the firehall. And we had to hire some people to recreate the corporate nerve centre that used to be provided Justice Canada and Treasury Board and the head office functions and that kind of thing.
Basically we have not hired very many new people. Our whole philosophy is not to expand our bureaucracy, rather to upgrade the functions of the people that are there and to contract a substantial amount of what gets done.
Senator Hervieux-Payette: So the whole team that is under your jurisdiction and management responsibility, is it only 260 people to manage all the contracts? --
Mr. Emerson: Yes.
Senator Hervieux-Payette: -- And all the maintenance crew, is it government -- not government -- but all LAA employees or are they contracted out?
Mr. Emerson: The air side maintenance you mean: grass-cutting maintenance and runway maintenance?
Senator Hervieux-Payette: Yes?
Mr. Emerson: No, that's our people.
Senator Hervieux-Payette: Your people. And they are included?
Mr. Emerson: There a big leverage factor There about 16,000 on Sea Island and about 260 running the airport authority.
Senator Hervieux-Payette: Okay. Which I think is certainly showing good management skill. My last question, Mr. Chairman.
If I compare the two units, I mean, the Custom people, the people working for the government and so on, they occupy spaces and so on. How do you reconcile? I mean, the rent would pay the government rent compared to what to pay to government for the renting of the whole facility, how do you manage that and what is the end result? I mean, what is the cheque that you send final at the end of the year to the federal government?
Mr. Emerson: Well, I think last year, Victor mentioned this morning, I think it was in excess of 30 million. I think around 33 million, but it will be in the annual report. It grows because the feds get a percentage based on our gross revenue of different categories. They get a larger percentage of certain types of revenues than others. But by and large the taxpayer, in my opinion, is making gobs of money.
We also done a pretty thorough calculation to show there's close to 400 million federal taxes and revenue sources coming out of the airport in 1994. That's a lot of money and it's growing in leaps and bounds. So the feds are getting a lot of money.
And in terms of the provision of space for federal public servants like Customs, that's spelled out in our agreement with Transport what our obligations are around provision of space to RCMP and Customs and others.
Senator Hervieux-Payette: So at the end of the day, I mean, even though you calculate what we should pay to occupy certain space on the site, I mean, we get -- well, 30 million of course for your rental fees for the lease --
Mr. Emerson: Yes.
Senator Hervieux-Payette: -- And of course all the taxes paid by GST and everything that is paid by the airport?
Mr. Emerson: Yes.
Senator Hervieux-Payette: Thank you, Mr. President.
Mr. Emerson: And in theory you've reduced your manpower requirement by taking the function out of government, so there's a cost savings as well as a revenue gain.
Senator Hervieux-Payette: Yes, I understand.
The Chairman: Short question, Gerry.
Senator Grafstein: Thank you, Mr. Chairman. You just your rental, what's your per square foot rental for commercial space, and I assume that it's a base plus a percentage of revenue?
Mr. Emerson: Yes. It varies all over the map. We go through a proposal call process for retail space. We treat air carriers a little differently because we tend to go to the low end of what I call market-for-carriers because they're core users.
Senator Grafstein: I mean the commercial users who are not --
Mr. Emerson: But a commercial retailer, we do a proposal call and they bid a guaranteed annual minimum as well as a percentage of gross. And I might just note that in our retail developments, we have a Tie Rack, for example, operating in the airport today which is now the most profitable Tie Rack in the world.
Senator Grafstein: But give us some quantum: can you give us a range of what the cost per square foot would be, on the average, keeping in mind that it's the minimum percentage of the gross?
Mr. Emerson: I think it's around 70 per square meter, something like that. It would be --
Senator Grafstein: Would you do that in feet for me? I'm still based in the foot and inches.
Mr. Emerson: You'd divide by 9, I guess.
Senator Grafstein: Divide by 9? So what is it?
Mr. Emerson: I wouldn't want to give you a specific number.
Senator Grafstein: Just a range?
Mr. Emerson: I don't know. I would want to work it out for you.
Senator Grafstein: Could you provide that to the Committee?
Mr. Emerson: I will provide it for you.
Senator Grafstein: Fine. You can do it on a confidential basis.
Mr. Emerson: I would rather do it with some precision because it does vary a lot.
Senator Grafstein: No, I understand that. If you can give us ranges? --
Mr. Emerson: Sure.
Senator Grafstein: -- We just want to perhaps look at comparables.
Mr. Emerson: Sure.
The Chairman: Short question, Dave.
Senator Tkachuk: If you were paying income tax to the federal and provincial government, based on net revenue plus the excess -- the piece that you pay you can't deduct that the government requires -- 2 per cent or 3 per cent that would probably be net profits; that's outside the lease, right? What would you be paying in income tax?
Mr. Emerson: Oh, you would want to go pretty carefully into that because you'd have a lot of CCAs and write-offs that we don't now have. So I wouldn't give you a number on that without giving a fairly careful assessment of deductions and so on.
Senator Tkachuk: So your net revenue would be?
Mr. Emerson: Well, our net revenue -- well, whatever it is in your annual report. Last year our bottom line was about 52, 53 million.
Senator Tkachuk: 53 million net revenue?
Mr. Emerson: Yes.
Senator Grafstein: What was your annual amortization on that?
Mr. Emerson: Annual what?
Senator Grafstein: Amortization. The capital amortization. Have you got a rough figure as to that? Because I would assume it would be close to that amount based on a fast look at your financial statements?
Mr. Emerson: Well, we've accumulated capital I think at the end of next year; I think somebody pointed it out up to around 90 million, something like that. That's in the hard facilities. Our net equity today is somewhere around oh, a hundred -- probably 13O million.
Senator Grafstein: I assume we'd have to look amortization tables in order to determine some sort of comparable for tax purposes: we'd have to take a look at your net in flow, the various levels of your --
Senator Tkachuk: Interest costs?
Mr. Emerson: Yes, there's a whole bunch of calculations you'd want to do.
Senator Grafstein: No. Aside from the interest costs. It's an amortization cost against --
Mr. Emerson: There's a whole bunch you'd want to do.
Senator Tkachuk: That's all I need to know anyway; the rest we can figure out ourselves. Thanks.
The Chairman: Would you say the government is making more money through you than it is from the running the airport themselves in Toronto?
Mr. Emerson: I can't comment on Toronto. But I can say that in my opinion that they're making a lot more from us today than they would have made had kept the airport, that I would say unambiguously. Toronto, I don't know. I really don't know.
The Chairman: Well, in '93 I think the figure was that the Toronto airport made 23.6 million, I think the figure was. Anyway --
Mr. Emerson: I don't trust government accounting.
The Chairman: All right. Colleagues? Mr. Nelligan?
Mr. Nelligan: I wonder if you can tell me, sir, how long it took the Vancouver LAA to form itself? You came in in 1992?
Mr. Emerson: Yes.
Mr. Nelligan: And I gather it had been in existence then for some time?
Mr. Emerson: It had been in existence for about three years before I came aboard, and it was created on a volunteer basis. So in the early years it was a volunteer community-based board that spent its time negotiating with Transport Canada. It's a very complex negotiation in those days.
Mr. Nelligan: I appreciate that because this was an evolving process. I was just wondering, how long did it take before the idea first expressed itself and there was actually a body available to carry on discussions with the government?
Mr. Emerson: I think the creation of a functional body can be done almost overnight. The question is to make sure that it's credible and in some ways represents the community in a reasonable way. But I don't see the creation of a body that can talk as being a significant --
Mr. Nelligan: No, all I am asking you, sir, is how long did it take Vancouver to get such a functional body together?
Mr. Emerson: If you said to me, "The Transport Minister said create an LAA; please do it", I would say it probably didn't take more than 30 days to do it.
Mr. Nelligan: Are you dating back to what time, sir?
Mr. Emerson: I'm going back to, I think it was '87, '88, in that timeframe. Again, I wasn't there but I know there was a body of people who had been doing airport related work before an LAA even came into existence, so that body of people kind of metamorphized, to use the modern vernacular, into an LAA very quickly.
Mr. Nelligan: Well that is what I want to understand. So there was some sort of group in place before the declaration of policy in 1987?
Mr. Emerson: Yeah.
Mr. Nelligan: So that you had something to build on at the time the policy was announced?
Mr. Emerson: That's right.
Mr. Nelligan: And that the actual official incorporated body then came into formal being in what year?
Mr. Emerson: I don't have that here. I believe it was '87, but it might have been '88.
Mr. Nelligan: And then in 1992, four years later, the agreement was then put in place. And when did you take over active operation of the airport?
Mr. Emerson: We took over active operation on June 30, 1992.
Mr. Nelligan: All right. You also made a comment about third party investors on Sea Island. How do you take advantage of third party investors and what is their role in the overall operation of the airport?
Mr. Emerson: We have third party investors that range from what we call fixed base operators. For example, Esso Habitat would come in and have a fueling and hangar facility for corporate jets. So they might be one third party investor who would build a hangar and related facilities. We have flight kitchens. We have got maintenance facilities of various kinds. So we have got a whole host of parties that have an interest in being on Sea Island and we will typically enter into a land lease much like Transport Canada would have done with a party and take a lease payment, of which Transport Canada takes a very large percentage, and the developer develops and operates. Our leases can typically range -- for somebody who has a lot of capital at stake, and therefore needs significant financing, we could be in the position of a 40-year term on a lease; could even be 50.
Mr. Nelligan: Have you some leases that go as far as 50?
Mr. Emerson: We certainly have some that are 40 and I believe there is one currently in negotiation that may go to 50.
Mr. Nelligan: Were there any leases in place at the time that you took over the airport that you then assumed as part of your obligation?
Mr. Emerson: Yes. We took over all of the leases that Transport Canada had in place.
Mr. Nelligan: And these are not just franchise leases for car rentals but also land leases including buildings and operating facilities?
Mr. Emerson: Yes.
Mr. Nelligan: And when you say that when you find a new person or new capital that wants to build a facility on your airport, the government then takes some portion of that rent, how does that work out?
Mr. Emerson: Our rent structure is complex. There are a number of categories of revenue spelled out in our lease with Transport Canada. For example, air-side revenue is a category of revenue, and that would include, for example, landing fees and general terminal charges. The airport improvement fee is considered air-side revenue. Transport Canada only takes 8 per cent of those. If you go to the other end of the spectrum, developmental lands on the airport; on existing leases we only get to keep 8 per cent. Transport Canada gets 92 per cent because the theory was that they generated the business and all we are doing is administering a lease. If we bring a new operator on, the formula changes and we keep 25 per cent; the feds get 75 per cent. Another category, called concession revenue, is important. That would be the retail operations; duty free, car rental and the like, and there we keep 81; the feds keep 19 per cent.
Mr. Nelligan: So that in assessing the revenue obtainable by the government from the overall operation of the Vancouver Airport, it's not just a matter of you paying them an annual rent; there's a very complicated series of fees and retainers going back and forth between the two parties?
Mr. Emerson: Yes.
Mr. Nelligan: And therefore it would vary depending upon the number of tenants you had from time to time and the amount of traffic flowing through the centre?
Mr. Emerson: Yes. The better we do, the better they do.
Mr. Nelligan: Thank you.
Senator Bryden: I just wanted to say I have enjoyed what appears to have been a breath of fresh air, that something somewhere in this business seems to be working and working quite well, and I really don't care who takes the credit for it. And I've enjoyed this presentation. It's been very informative.
Mr. Emerson: Thank you.
The Chairman: I agree, Mr. Emerson. You have been a very impressive witness. We thank you very much and wish you a safe trip home.
Mr. Emerson: Thank you. I wish you well.
The Chairman: Mr. Barbeau, would you join us again.
Could Mr. Turner join the table too, please.
As the informal agreement went, the main purpose, but not certainly the only purpose, but the primary purpose, is to allow Senator Bryden to follow up on Senator Tkachuk's questioning of Mr. Barbeau, and also we have Mr. Steven Turner with us, who is the Director of the Central Government Services Review Directorate, Audit and Evaluation Branch.
Mr. Turner, if you would take an oath now.
(Mr. Steven Turner, Sworn:)
Senator Bryden: Thank you, Mr. Barbeau. I guess it's the penalty you pay for being the first generally knowledgeable person in this area that you get to --
Mr. Barbeau: It's part of the fun of the job of being a public servant, sir.
Senator Bryden: It's why you get paid the big bucks.
Mr. Barbeau: That's right. You say that facetiously and I agree facetiously, of course.
Senator Bryden: Actually, I would have done this earlier when I was talking about the T3, but deferred, but I am going to follow up now, on the basis of Senator Tkachuk's, taking you through the period on T1T2 when in fact you were responsible, to use the word, for that file. You were the project manager and third ranking official for a period of time under the minister, the deputy minister and then your position.
From the chart that you supplied, or that was supplied to us -- I don't know who supplied it -- in trying to get the same timeframes clarified in my mind that Senator Tkachuk was going through, you were the project manager from 1989. Were you there before 1989 as well?
Mr. Barbeau: No, sir. To be repetitive on my CV, I was named by the Public Service Commission to the position of Assistant Deputy Minister, Airports, in the month of May of 1989. I took over the functions, if I remember right, on May 8th of 1989.
Senator Bryden: So you were there in the period of August-September when an unsolicited proposal was received from Paxport on T1T2?
Mr. Barbeau: Yes, sir, I was.
Senator Bryden: Was any action taken on that?
Mr. Barbeau: No, sir. Again, in the normal course of events, unsolicited proposals are very difficult for public servants to handle by their very nature because, of course, what we do in the public service is we go tendering process. We have a tendering process of different types when we want some work done at our facilities. So essentially, from the standpoint of officials at Transport Canada, the unsolicited proposal was deposited and not actioned. There is really nothing we can do with this as public servants.
Senator Bryden: But then on October 17, 1990, an announcement was made that -- I don't know whether this is a misprint or not -- an announcement of public sector participation in the modernization of T1T2 and a competitive RFP process.
Mr. Barbeau: Yes.
Senator Bryden: It is public participation or private participation?
Mr. Barbeau: Private participation. You are perfectly right. That is certainly a mistake.
Senator Bryden: That's what I assumed.
Mr. Barbeau: I hadn't picked it up. I'm sorry.
Senator Bryden: And then from that date, October 17, 1990, until, I believe it is March 11 of -- no, the 16th -- the 11th and 16th are the appropriate dates -- nothing more happened in relation to the modernization of T1T2 in relation to the privatization? That's a period of what; 16 months?
Mr. Barbeau: It is. I'm not sure if I can answer your question in general terms. There were a lot of things going on. There were a lot of things going on in terms of Air Canada involvement in doing some work and finalizing some work at Terminal 2 and so on. If you are referring specifically to what was being done in terms of the government's announcement and the followup to that announcement, there was a whole lot of discussion going on, as I pointed out before, I mean, all over the place, and other things were happening.
Certainly what was happening in the later part of that period is that the traffic at Pearson had begun to slow down. There were signs of the economy really taking a dive and the traffic was slowing down. If I may refer to a note here, we were working and continued to work very intensely on the southern Ontario airports strategy to give a context to the whole of southern Ontario as to how airports were to be treated. We were into the runway question and were preparing to enter into the environmental assessment process, which was a major, major exercise.
So we were, as the Airports Group of Transport Canada, very heavily involved in many major projects. We were also, I will repeat, finalizing at that point, or in the last throws of finalizing the transfer of five major airports to local airport authorities. So we were into many projects, on the one hand. On the other hand, on this particular one, again what was happening is a lot of discussion as to where we were heading with this process.
We were also, I will remind people, changing -- I'm not sure if I have the dates exactly here, but we were changing ministers. We had changed ministers and we did not -- let me see; in that period, yes, we were also in the process, we had just changed deputy ministers. And this has ramifications on major files within a department. It has ramifications in terms of slowing things down because when you change your major players, your deputy minister and your minister, of course there is an adaptation period for these people. You can't expect them to come in and immediately pursue decisions and so on. So I guess what I'm trying to point out is that there was a lot going on. We were very, very busy people at that time.
Senator Bryden: When you say there was a lot of discussion about the modernization, was that just within the department or are you aware of discussion between yourself and people in the private sector who were interested or might have an interest in the modernization of T1T2?
Mr. Barbeau: There certainly were, in that period, we received a second unsolicited proposal. Let me see.
Senator Bryden: Not after the 17th of October; at least it's not shown here, I don't think.
Mr. Barbeau: You are right. We received the first one in September of 1989 and we received the second one in July of 1990. So we had the two unsolicited proposals. Of course, after the decision was announced on the part of the government to proceed on that track, there were occasional meetings between us and the proponents of those two proposals, and I think it's fair to say those meetings were taking place on a relatively wide basis. They were taking place, as they will, I think, in the normal course of events, with politicians, with political staff, with civil servants, with whoever, because, of course, proponents, their job is to push forward their proposals and to make sure that people understand what their proposals are all about.
Senator Bryden: Just so that I understand, the meetings for that period of 16 months would have taken place between Paxport, who was one of the unsolicited proposals, and the other one was Canadian Airports.
Mr. Barbeau: Canadian Airports Limited, yes.
Senator Bryden: Were these meetings between the department and these two developers -- if I can use that term -- were they occurring on a regular basis?
Mr. Barbeau: Well, my recollection is they occurred on a relatively frequent basis, and I don't know how to define that. It was a once-in-a-while kind of thing. I think I should like to add to that that again as public servants at that point we are dealing with unsolicited proposals which we really cannot act on. So we certainly consent to meet with people. I mean my door is open all the time to people who want to meet with me, but essentially we didn't have anything to tell them in terms of the progress. We didn't have anything that we could tell them in terms of possible progress of the file and so on, just that we were working away at it and that we were working away on the government direction to eventually produce an RFP.
Senator Bryden: Then what happened on the 11th of March, or around then, which resulted in the RFP being called on the 16th, can you tell us, after having these informal discussions for 16 months with these two developers?
Mr. Barbeau: No, again, all I can say is if you go back to the government's announcement of October 17, the intention had been stated, and then there were those intervening months with change of minister, change of deputy minister, all kinds of things going on. In March, finally a decision on the part of the government to release the RFP, and the RFP is released, as you see, five days later. So we had been evidently working it up and then the decision came to say, okay, we are now the government, the Minister of Transport is now ready to go.
Senator Bryden: Do you have any knowledge, since the discussions were taking place with these two unsolicited developer proposers, why, prior to a 95-day RFP, that the normal invitation of expression of interest that's happened in Terminal 3 was not done to widen the scope?
Mr. Barbeau: Well again, sir, in answer to your question, I would take exception to the word "normal" because I can't judge that, whether it was normal or not. Certainly we did go with a request for expression of interest in the T3, as has been pointed out by Mr. Warrick. We did not go with one in this one, but no, I can't -- I'm afraid again I must ask privilege on that. I can't reveal to you. The minister of the day would be the person who could reveal to you the reasons why a particular process was chosen as opposed to another.
Senator Bryden: Was there any view by government that, because of the discussion that had been taking place for 16 months with two developers, that they would be given an advantage in a short 95-day request for proposal?
Mr. Barbeau: I'm sorry again, sir. I cannot comment on views that the government may or may not have had at that point.
Senator Bryden: Okay.
You had indicated in a reply to a question from Senator Tkachuk -- I don't have the transcript so I am not sure, but I believe the question from the senator was, because he asked it over and over, "And you were quite comfortable with the process?" I think was the question, or at least a guess, in fairness, at the way the question was put. And in answer to him you said, "Yes, up to the time for the call of proposals --" No, it was in relation to standard practice -- "Up to the time for call of proposals, yes, it was standard practice." And you never expanded on that. It was standard practice. Why did you say it was standard practice up to the call for proposals? Was there something that was unstandard after that?
Mr. Barbeau: I'm sorry, sir, I don't recall the particular quote, but if I can speak for myself, and I suppose I can do that, the answer to your question is no. I may have been trying to ascertain with the honourable senator some divisions in time because I'm trying to be very careful as of the time where I was responsible for the file and the time that I was not. I may have been into that. I'm really not quite sure.
But to answer your question, I think I can answer on a global basis that as the person responsible at my level for this file, it seemed to me, in the progression of the file, that practices normally were being followed. Now, again, you raise and many other people have raised this question of the 90 days; was that standard practice or not. Again, I can't comment on that. There are things I think Mr. Mulder or somebody else pointed out yesterday. In projects of this size, you do get into some uniqueness and although you will be respecting, as you know them, all of the rules and guidelines and so on, there may be unique things that come up, and I would simply repeat again that those unique questions are dealt with by the people who make decisions and these are ministers and they give us guidance and direction and to how we are to implement, and we do it.
Senator Bryden: The 16-month period where there were discussions but nothing formally going on, and then starting on --
Mr. Barbeau: There was nothing formally announced, sir. There was a lot formally going on. I'm sorry.
Senator Bryden: Yes. I can understand that.
Mr. Barbeau: I'm sorry.
Senator Bryden: Discussion with the Paxport people and so on. But then all of a sudden, and I guess for no reason that you can give us, it appears to have become fast tracked; things happened very quickly. This investigation team under Ron Lane -- evaluation team -- is locked up in Toronto in the middle of the summer working around the clock and I think you indicated you had to go in to bolster their morale at some point.
Mr. Barbeau: M'hm.
Senator Bryden: Why such a rush?
Mr. Barbeau: Again, sir, I can't give reasons. The minister of the day will give you reasons as to why there was a rush. I can certainly ascertain that there was a rush. We certainly were being directed to give our best effort to get this done quickly.
Senator Bryden: And to meet short time lines; is that correct?
Mr. Barbeau: Pardon me?
Senator Bryden: And to meet your tight time schedule?
Mr. Barbeau: Again, in the normal course of events ministers are very anxious that we meet our deadlines when they are set. That's normal for us. We're used to that and we're used to working under the gun, as it were, and handling many large projects at the same time and hopefully delivering results. That's part and parcel of, to quote you sir, why we get paid these big bucks.
Senator Bryden: At that time, at least, this issue was a priority, is that a fair statement, with the department?
Mr. Barbeau: I'm hesitating because I'm again in this question of whether --
Senator Bryden: Of whether you should answer it or not?
Mr. Barbeau: I think the facts show that we were working quickly on this project. We were attempting to work quickly on this file.
Senator Bryden: And there was -- and you don't need to repeat the name, because I couldn't write it down quickly enough -- but there was an audit group hired from Montreal, and it was Raymond and somebody and somebody and somebody.
Mr. Barbeau: Raymond, Charbot, Martin, Paré; commonly known as RCMP.
Senator Bryden: You indicated that you were directed to hire these people and your direction came from the deputy minister?
Mr. Barbeau: We were directed to hire a firm and there was, as usual, if my memory serves me right, a list of possibles and one was chosen.
Senator Bryden: Who made the selection?
Mr. Barbeau: Sir, again --
Senator Bryden: Let me ask you this: Did you make the selection?
Mr. Barbeau: No, it would not be me who would make the selection in this case.
We have authorities in the department at different levels of the civil service and then the minister also has authorities which the minister cannot surpass; the Treasury Board has to get involved and so on. So this contract, if my memory serves me right, superseded my authority so I did not have the right to do the contract.
Senator Bryden: Do you know what fees were paid to this audit firm?
Mr. Barbeau: No, sir, I don't know offhand and I'm not sure whether --
Senator Bryden: Just for this project I mean.
Mr. Barbeau: No, I don't know offhand and I would have to check as to whether this information is public information or not. If it is, I mean if it's information that we can give you, I would be more than pleased to dig it up and get it for you.
Senator Bryden: Well, if it is something that is not secret, could you provide it to us?
Mr. Barbeau: Of course.
Senator Bryden: Thank you.
Perhaps this -- I don't know whether it's Mr. Clayton or you that's --
Mr. Barbeau: I hope it's Mr. Clayton.
Senator Bryden: Give you a little break.
There was discussion about Treasury Board's role -- well, you're not going to be able to help me, I don't think. The reference was you talked about the normal process. Is it the case that you cannot tell me whether this was faster than the normal regular process or not?
Mr. Clayton: I'm not sure, senator, what you are referring to in terms of "faster than the normal process".
Senator Bryden: All right. A report went to Treasury Board from the minister dealing with this on which all kinds of things happened. The Treasury Board secretariat gets it, and so on. And usually if the bureaucracy wants to bury it, it can stay there forever. It is pretty obvious that this one did not stay there forever. It got in and it got out very quickly for a contract of this size. That is why I say: Can you tell me whether that was a normal track for a contract of that size through Treasury Board or was it faster or slower? Do you know and can you tell me?
Mr. Clayton: I will answer the last point first. No, I have difficulty telling you about the specifics of this one.
I will note that -- some people in government do not believe this but -- Treasury Board secretariat does consider itself a service organization. We usually try to turn around these things in three to four weeks. And the more complex ones sometimes can be done that way because it isn't like the submission shows up on my desk and I've never seen it. By the time it has come, we have had months of discussion with transport, or somebody else, about what is in it.
Senator Bryden: I think that that's all, in fairness, that I should ask of these witnesses. The deputy is coming and the minister is coming. I appreciate it. Thank you.
Senator Grafstein: I have reviewed briefly the process from the conception to the culmination in terms of steps. There appears to me -- and I am curious about this -- one bench-mark study that's missing, and that is a bench-mark study of the value of the assets at Pearson airport. In other words, what are the book value, the exploitive value, the long term value of those assets owned by the Canadian public? And I do not seem to see this material.
I am not talking about an analysis of measuring the various bids. I see that that's available here. But I'm talking about a bench-mark study of the government's assets, assuming it was in the government's hands.
Now, Mr. Chairman, it may very well be that that is available some where but I do not see it here.
Mr. Nelligan: Senator, if I can say, I believe -- and the witness can probably help me on this -- that Price Waterhouse did something called, I think, a cost evaluation.
Senator Grafstein: No, I have that.
Mr. Nelligan: This was done prior to the bids being received in order to put a possible price or a return that the government might expect.
Senator Grafstein: Is that the one dated July 8, 1992?
Mr. Nelligan: Let me see. Is it by Price Waterhouse?
Senator Grafstein: Yes, and it's directed Mr. Power.
Mr. Nelligan: That was the one that I was referring to.
Senator Grafstein: It's directed to Mr. Power.
Mr. Nelligan: That's the one that I had in mind, sir.
Senator Grafstein: Yes. Well, that's exactly the one that doesn't appear to address my problem. And I will just read it. It says in its terms of reference that:
It is further understood that we have not been engaged to express an opinion on the value of the Commercial Opportunity, but rather, to provide... an estimate of value....
Of the relative bids. So this is an analysis, as best I read it -- and an interesting one at that -- of comparing the bids as they came in on a comparative basis. But there isn't, or is there, a bench-mark study about what the government assets are worth that they are about to turn over to the private sector?
I do not have the same concern, quite frankly, with respect to Vancouver, because in Vancouver it was not being turned over to the public, to the private sector, it was maintained in the not-for-profit mode. But here we were entering into a massive negotiation for a key -- the largest key element in the national air policy of Canada -- and I can't see here that bench-mark study, whether it came from the treasure board, or whether it was required by the Treasury Board. So that ministers, when they had to come to a conclusion as to what is in the public interest, would have a bench-mark study to compare against private sector bids.
Do you follow what I am saying?
Mr. Barbeau: Oh, yes, I follow it completely.
Senator Grafstein: And I don't see it anywhere and I don't see it requested anywhere. Now, am I missing something here?
Mr. Nelligan: May I give you one suggestion?
Senator Grafstein: Sure.
Mr. Nelligan: In the Crosbie report, which is at Tab "N", page seven, when they talk about alternatives, Mr. Crosbie refers to the analysis of the present value of the accepted bid.
Senator Grafstein: No.
Mr. Nelligan: And then it goes on to say, "Transport Canada's analysis of the "Crown Construct" Alternative". In other words, they did do an appraisal of what it would cost the government on its own to do this and they come up with a certain number. Now there is that other document, apparently.
Senator Grafstein: Is that document available?
Mr. Nelligan: Well, these are among the documents we're hopefully getting now.
Senator Grafstein: Because the Crosbie study was the one that was initiated by Mr. Nixon.
Mr. Nelligan: Mr. Nixon, yes.
Senator Grafstein: And I'm interested in whether or not the public servants had as a bench-mark available to them to help in the public policy analysis such a study.
Mr. Nelligan: Well, I think this is then, you can ask that question.
Senator Grafstein: That is my question.
Mr. Barbeau: Yes, and I follow you completely, senator, but I'm afraid I don't remember at this point. I would have to look back in that into the documentation, and I'll be pleased to do that and, again, get some information back to you.
I was listening to you carefully and it just escapes me as to whether that was there or not.
Senator Grafstein: Okay. Now, turning to the Price Waterhouse study, if I might, Mr. Chairman, this appears to have exempted, although it appears that Price Waterhouse, in its wisdom, would have probably suggested such an evaluation. The terms of reference to Price Waterhouse was specifically to exclude such an analysis. In other words, they were asked specifically to analyze the two bids but they were not engaged to express an opinion as to the value the commercial opportunity.
Now, who gave them that direction? Where would that direction have come from to exclude a bench-mark analysis? I use "bench-mark analysis" as they refer to it, as the commercial opportunity. Who would have given them those terms of reference?
Mr. Barbeau: Again, senator, I'm afraid I can't answer you because I don't know the detail of it. I could answer again in global terms that normally terms of reference, depending upon what contract we are talking about, and so on, may be developed by my staff or vetted by me. It depends on which one. I can't answer precisely.
May I suggest, sir -- and again, I'm not trying to evade questions here at all; it is just that I have only such a limited capacity to have absorbed information through the years. I would suggest that when you have witnesses who have dealt specifically with those aspects of it that they will certainly be in a much better place than I am to give you precise answers.
Senator Grafstein: The reason I'm asking you, Mr. Barbeau, is that you're the senior official responsible. I just wondered whether or not the government, your political masters either in the bureaucracy or in the political line, at one time said to you or the message came down, "Give us a comparison, a cost benefit analysis here in the public interest." By that I mean the bench- mark versus the bids that might come on the table which were in effect unrequested in a way. They were bids that came forward, and from the bids that came forward a bidding process was developed.
Mr. Barbeau: Again, I'm sorry. My memory serves me badly. There's nothing of that nature that I can recall. It's not because it didn't happen, or whatever.
Senator Grafstein: Fair enough.
Mr. Chairman, I wondered if it's appropriate at this stage to go to the Price Waterhouse study or is that an appropriate matter for some subsequent another witness? I wanted to be able to get the best and highest information about that.
Mr. Nelligan: What I had hoped, senator, at this point, was that, for instance, witnesses like Mr. Turner, who has joined us this afternoon and who is an expert from supply and services, might be able to assist us as to whether this is the type of report that one would normally expect to get in situation of this kind. We will subsequently be hearing by the administrators of this particular proposal as to what they did with this one and why others weren't asked for, but he might be able to help us as to whether this is a routine document in this kind of process.
Senator Grafstein: Well, then, I can address it to Mr. Turner, perhaps. That might be helpful.
You received the document, you received the evaluation study from Price Waterhouse. Who would have received that study? It is directed towards a Mr. Wayne Power, General Manager Terminal Redevelopment Project.
But who would then analyze the study based against the bids?
Mr. Barbeau: If I may, Mr. Chairman, I think we're on the wrong track with Mr. Turner. The study was addressed to Wayne Power, who is a Transport Canada employee at Toronto airport and who was intimately involved with the file and you will have, I think, Mr. Power coming up as a witness. I don't want to speak for Mr. Turner but I will take the liberty of doing so anyway. He has never seen this report, was involved with it, and so on. I think Mr. Turner is here as a witness to give, again, global information processes having to do with Department of Supply and Services or Services Canada.
Senator Grafstein: Well, can I ask a question and maybe it can be subsequently answered?
Mr. Nelligan: I just thought maybe Mr. Turner can comment as to what the process normally is about this pre-evaluation of bids of this kind. I don't know if there's anything that he can do to help you in that regard.
Mr. Stephen Turner, Director, Central Government Services Review Directorate, Audit and Evaluation Branch, Public Works and Government Services: What I can say, Mr. Chairman, is that in supply and services it does happen from time to time that an independent party will be hired in order to monitor, if you will, or to audit an evaluation process in order to ensure that it follows the process that's been laid out specifically in the request for a proposal. So that at the end of the evaluation, you have an independent party attesting to the fact that everything happened as it should have happened -- as promised. It's not a regular thing that we do, but it does happen from time to time.
Senator Grafstein: I guess I'm at a bit of a quandary here because I really want to talk about how the report was utilized in the process.
Mr. Nelligan: Well, I think that would come from Mr. Lane, who was the chairman of the committee that came up with the recommendation.
Senator Grafstein: All right. Was this report, then, circulated to you, Mr. Barbeau? I mean, did you have access to this report, the Price Waterhouse report?
Mr. Barbeau: I think I'll repeat again what I was saying in terms of answers to questions from the other honourable senator this morning is that in terms of the evaluation process, I was certainly making conscious efforts to say away from it as much as I possibly could. That, again, is normal process. You do not get involved. You dedicate a team to do an evaluation and then you stay out of their way because of the possible perception of interference.
Senator Grafstein: All right. Then let me ask you this question.
The Chairman: Yes, but Mr. Barbeau, with all due respect now, the question asked was: Were you aware of it and did you see it? That was all, just a simple "yes" or "no".
Mr. Barbeau: I'm sorry, yes, and I was not attempting to evade. Was I aware of it? Yes. Did I see it? Very possibly, although I would have seen it among many other reports and I was not concentrating.
Senator Grafstein: But this was not in your function and, therefore, you wouldn't have focused on it.
Mr. Barbeau: It was not, again, in my realm of responsibility to go into details of reports. I think, I may sound boring with this, but we do work on a delegated basis and we do so very much in airports group in terms of people having their level of responsibilities, and so on. So it's really just in that context. But I would have been interested in an overview of things to make sure -- and I'm not speaking about the evaluation of it, I'm speaking in a general sense. My interest is to have an overview to make sure that the broad policy considerations are taken care of. That's my level of interest. And I rely on staff to take care of greater levels of detail.
Senator Grafstein: Back to Mr. Turner, then, if I could, Mr. Chairman.
The Chairman: I wonder if, Mr. Turner, had you something to guide us on your role?
Mr. Turner: I did, Mr. Chairman. I had some remarks that I would have liked to start off with that would explain to you a little bit about who I am and what I can speak to.
Senator Grafstein: That might have been helpful, Mr. Chairman. Maybe it will save all of us some questions.
The Chairman: All right, please, Mr. Turner.
Senator Turner: If you permit. Thank you, Mr. Chairman.
I am the director of internal audit within Public Works and Government Services Canada. For three years, I was the Director of the Professional Services Branch, which is an organization within the former Department of Supply and Services responsible for contracting for services on behalf of other government departments. We're what you call a common service organization.
We specialized in the rapidly growing area of contracting out for one of a kind and complex services requirements.
Since 1991, I have been examining the supply operations services for the adequacy and effectiveness of management controls, for compliance with policy procedure and regulations and for performance results.
In addition to this, I have an ongoing responsibility for the final review of all major procurement contract submissions requiring ministerial or Treasury Board approval. These submissions, while they may be few in number, represent something over 50 per cent of the total value of contracts that are awarded annually by supply operations services.
Mr. Clayton this morning, I understand, spoke to you about lease contracting. I would like to make it very clear to everybody that I'm not talking about that particular form of contracting. I'm here to speak of the norms and the practices in services contracting. My opening remarks will speak to the services contracting practices conducted by my department's, Public Works and Government Services Canada, Supply Operations Service and how it links fairness and transparency with good contracting practice.
The supply operations process is engineered within a framework that is driven by the contract policies of the Government of Canada as established by the Treasury Board. This framework is established pursuant to the Financial Administration Act and it supports the government's approved procurement objectives. These objectives include competition, fairness and openness. When a department has decided what it wants to buy, the procurement process will identify the most appropriate supplier and formalize the relationship in a contract that is the foundation for what should be a solid, viable and fair business arrangement.
As the value and the complexity of projects increase, so do the risks to both parties. As this happens, the contract takes on increasing importance as a factor in managing these risks.
It takes a lot of hard work, and time, and the appropriate choices from a vast array of procurement tools and methods and approaches to formulate an effective but fair contract.
Some of the key steps include, first of all, the requirement definition, which is at all times the responsibility of the other -- or, in our terms, the client department. We do become involved from time to time in a consulting capacity but the requirement definition in the world of complex services procurement is usually called the statement of work to be performed.
There is procurement planning, which is a step that takes into consideration the current market conditions, socioeconomic objectives and results in a procurement strategy that is used to guide the procurement process through to the award of final contract.
The solicitation of bids, which happens through public advertising on the open bidding service and through the government business opportunities bulletin -- again because we are talking about complex services requirements -- we don't call it a solicitation of bids we call it a request for a proposal or an RFP.
Included in an RFP are some very important elements. There is the statement of the work to be performed. There must be at all times the evaluation criteria against which proposals will be evaluated and the evaluation methodology itself. In addition, there would be the selection methodology, which is a different process.
There are proposed terms and conditions for the contract, and these would be customized, depending on the particular requirement and the industry sector that you would be dealing with.
There is always a closing time. Every request for proposal has a specified period of time and it will be very clearly stated to everybody at what date, at what hour, and in which location proposals must be submitted or they are, if they are a second late, non-compliant. They're not even opened; they're returned unopened to the sender.
The Chairman: Mr. Turner, could you go over those quickly?
We've written them down, but, the work to be done.
Mr. Turner: Yes, the scope, the statement of the work to be performed.
The Chairman: Yes.
Senator Turner: The evaluation criteria and the evaluation methodology.
The selection methodology, proposed terms and conditions, the duration of the request for proposal, or RFP, and there are some important notices that also accompany the RFP.
One very important notice that is a standard in our system is a statement regarding inquiries that are to be made or must be made during the proposal phase. If you wish, I can later come back and explain a little bit more about that to you.
Once the proposal period --
The Chairman: And the closing time?
Mr. Turner: And the closing time, yes, sir.
Once the proposals are received, they are then recorded, registered and logged in and they are handed over to the contracting authority, who prepares the material for subsequent evaluation by the evaluation team. The process they follow is to the letter what has been spelt out in the RFP. It is consistent with that so that, let's say the private sector people who have submitted their proposals know exactly by what standards and by what means they will be evaluated.
The team works in isolation of everybody else and until they have completed their deliberations, nobody knows what's going on inside that room. They don't speak to anybody unless they may be seeking some specific clarifications from suppliers. The team is usually composed of the contracting authority, which is our departmental procurement representative; a project authority, which would be the other departments or the client's representative; and then a number of technical experts, all chosen because of their particular areas of expertise and their ability to technically and professionally evaluate the proposals that have been submitted.
Once they have completed their deliberations, then the contract approvals process kicks in and the submission will move through the normal processes all in accordance with the delegated authorities that are standard within our department. They're owe all laid out and they're' all published.
After contract award, we may become involved in contract management, which is working alongside the other department, the client, in order to ensure that the contract is lived up to by all parties.
In addition to these steps, there are a number of tools that are instrumental in managing the risks involved with complex procurement. These include soliciting expressions of interest. You may hear them referred to as an EOI or an LOI, a letter of interest from the supplier community. They may also include market surveys. The purpose of this step is to identify -- it could be to identify if there's anybody out there with the capability to respond to this proposal; is there anybody out there interested in this proposal? There may also be criteria attached to the letter of interest which will serve as a prescreening and result in a short list as a result of this particular step.
Phased contracting is not tool that's often used on very large and complex procurement projects. And the purpose here is to limit into smaller, chewable, doable chunks, the project so that the Crown's risk exposure is limited on each particular phase.
We always seek financial security. It may be during the bid process; it may be at the contract-writing stage. Financial security is something that is usually assessed at the time of procurement planning and it's a function of the assessed risks associated with a project. And you may seek financial security in the form of performance bonds or payment bonds, letters of credit, or security deposits.
There are payment regimes or methods of payment that have to be sculpted, if you will, on a procurement-by-procurement basis. And they're sculpted in order to satisfy or be reflective, I guess, of the need or the requirement to be reflective of industry practices for that particular buy, but also to ensure that, in our case, the Crown, harvests the benefits that they intend to achieve through this particular contract in relation to the payments that are being made to the supplier. And these benefits are usually laid out in a business case, usually on large projects.
And then there are the contract terms and conditions, which are customized by project. They altogether deal with the issue of risk management and often deal with issues like warranty and liability and insurance.
All of this supports of achievement of national procurement objectives, including value for money, and it is all founded on three fundamental operating principals: Competition, which for us means open bidding; equal treatment, which ensures that all suppliers are treated according to the same conditions and evaluated according to the same criteria; and the last one is openness and transparency. Our process is open to the security any of Treasury Board, Parliament, the Office of the Auditor General, the Canadian International Trade Tribunal, the Contract Claims and Resolution Board, the press, the public suppliers -- it is a perfectly open system.
These principles, that overall provide for fairness and transparency of the process make for good relations with industry and they also make for good business sense. Experience has demonstrated to us that suppliers who are confident in the fairness and the transparency of the process tend to be more ready to participate and to accept the results of competition, reducing costs for industry and government alike. In the end, better informed suppliers strengthen competition and this results in better pricing for government.
The supply operations contracting process is held intact by a framework driven by the contract policies of the Government of Canada which includes a wide range of formal controls and is monitored by way of both pre and post contract award file reviews -- this is largely the business that I conduct -- and internal audits, which I am also involved in.
In addition -- and at the end of the day -- suppliers also have recourse to several options for airing their dissatisfaction. These may include bid challenge through the Canadian International Trade Tribunal or dispute settlement through the Contract Claims and Resolution Board and litigation.
That concludes my opening remarks, Mr. Chairman.
The Chairman: Now, Senator Grafstein, you asked for it.
Senator Bryden: Could I just ask a question before that?
Senator Grafstein: Perhaps he can go first.
Senator Bryden: No, I just wanted to make a point.
The Chairman: Yes, sir.
Senator Bryden: I noticed that you were reading from a document that you prepared?
Mr. Turner: Yes, sir.
Senator Bryden: It would be very useful, I think, if we could have a copy of the document -- if you have no objections. I know we're going to get it when we finally get the reports, but it's awfully difficult, unless you want to come back, to be examined on the document if we don't have it. Could we get staff to make copies?
Mr. Turner: I'd be pleased to leave you a copy of it. Some of my remarks were ad lib, if you will.
Senator Bryden: That's okay. We'll fill in the blanks.
Mr. Turner: That's fine.
Senator Bryden: But could we get the staff, now? If we're going to question on the document, it would be useful to have.
Mr. Turner: I have a few copies with me, if it's useful.
Senator Bryden: I have one other technical question, thank you, and that is, Mr. Turner said, "I'm not talking about leasing, I'm talking about complicated service contracts."
Mr. Chairman, we have been hearing that what we are talking about here in T1T2 is a land lease, nothing more, nothing less. If that is true, is there a services contract involvement here that would involve Mr. Turner's department?
If it is not, I mean he clearly said, "I am not talking about leasing of property; I am talking about complicated services contracts."
Maybe, Mr. Turner, if you could indicate what -- would there be some involvement in something like T1T2 by you?
Senator Jessiman: Or is there someone like him that applies to this kind of a contract?
Senator Bryden: Yes.
Mr. Clayton: Maybe I could explain the difference. As I mentioned this morning, this is land leasing and it is under a different legal regime. The land leasing process and principles and so forth are almost identical to what was described.
I think in organizing witnesses that the chairman wished to have somebody that could talk about non-land leasing as well in terms of practices in government. But as far as I understand T1T2 does not involve service contracts as such. It is a land leasing contract.
Senator Grafstein: Mr. Chairman, on that, the purpose of this evidence is to do two things; (a) to demonstrate that there is a pretty comprehensive transparent process vis-à-vis these types of contracts; and a parallel regime, I assume is in place, for the land lease?
Mr. Clayton: Yes.
Senator Grafstein: So the questions we ask might be relevant to compare the two processes; would that be fair?
Mr. Clayton: Yes. I think you will find that except for some technical issues about authorities the two processes are identical.
The Chairman: But, Mr. Turner, you cannot answer any questions about this particular matter under discussion?
Mr. Turner: That is correct, Mr. Chairman. I know nothing about the T2T1 --
The Chairman: I can't see how you can be of any help to us. This is an academic exercise, and it's been very interesting. Who is your counterpart in land leasing? If the criteria are the same -- why did they send you when they could have sent your counterpart, your partner, who is in --
Mr. Turner: Mr. Chairman, what I can say to you is that it was my understanding that my presence here would provide you with some bit of background in terms of government contract procedures, as they are practised in my department as only one example; but because we have, perhaps, one of the most -- the most well-documented processes in town -- that it might be useful to provide you with information on that to you so that you could use that in your deliberations: a point of reference.
Senator Grafstein: I do find this somewhat relevant in the sense that -- forgive me to you and counsel -- but we are trying to establish whether or not a particular policy decision fell below a particular standard in the government; and what I am hearing is that there is a certain standard process here in parallel types of contracts, and I find it sort of useful and maybe I could ask a question or two that might be helpful because I do see providing some bench-marks here when we come back to the other person that might be more directly involved to see whether or not they skipped a step in this particular process as opposed to the process that Mr. Turner points out. So maybe in that sense it could be quite relevant. So if I could ask a question or two, Mr. Chairman?
The Chairman: Yes, and then Mr. Nelligan.
Senator Grafstein: Fine. I am curious about two aspects of what you said. Again, I am trying to relate it to the process as we know it, or as best we understand it now with respect to Pearson projects. That is that the heart of your internal audit is to satisfy the Crown that when you go out to deal with a public bid the bid is fair value to the government and fair value to those who are bidding -- I mean fairness to those who are bidding -- all in the atmosphere of transparency. That is the heart of the audit, really.
Mr. Turner: That is exactly it, yes, sir.
Senator Grafstein: Okay. So if we discovered that these steps were attenuated, or reduced, and the result got distorted as a result, that would be an indication to an auditor, an internal auditor, that something is awry.
Mr. Turner: An auditor looking at a process would want to know that everything was intact and that the elements were tracking, if you will, from the requirement definition through the request for proposal, through the evaluation process, through the decision to whom to award a contract, and through the contract approvals process.
Senator Grafstein: Again, the RP --
Mr. Turner: RFP.
Senator Grafstein: RFP, is it?
Mr. Turner: Yes, sir.
Senator Grafstein: That means?
Mr. Turner: Request for proposal.
Senator Grafstein: A lot of the process of auditing, to be fair, transparently fair, is to ensure that the process here allows both the government sector and the private sector to craft appropriate proposals. Again, if, somehow, the process gets expedited, it leads one to the conclusion that somehow one side or the other side has not been fairly treated here, which is government evaluation or other bidders having an opportunity to bid to develop a real competitive bid; would that be accurate?
Mr. Turner: Yes. The request for proposal is a key in this in trying to establish an equitable playing field, I guess, for the private sector entities who might be interested in the requirement and to set up the conditions for the government and industry together arriving at a fair accommodation.
What you are trying to do is balance the needs of the project and the ability of the private sector to provide an adequate response, one that they are comfortable in.
What we also want to do from the Crown's perspective is to maximize competition and, to the extent that the process itself maximizes because of either the way in which the expression has been communicated to industry, or the conditions around which that proposal is being put out, you are maximizing, or not, the ability of private sector to participate.
Senator Grafstein: I assume from what you say that the more complex the nature of the proposal, the more liberal should be the time constraints for government and the private sector to act or interact with one another, the more complex or the more gigantic the proposal?
Mr. Turner: Timing is certainly very important; but it is not the only factor that needs to be considered. Sometimes, the project requirements are such that you only have so much time to deal with.
What you want to look at is the way in which the scope of work has been sculpted, if you will, if I can use that word again. Sometimes the scope of work is cut down or pared down because the time for the public sector to respond is insufficient if you go out with the whole package.
Usually, an RFP is also accompanied with some forewarning on complex requirements, especially ones that have hardly ever been contracted for before; there will be extensive consultations with industry on the statement of work and on the request for proposal itself. Briefings will be held with private sector; and as much information as the Crown can make available to the private sector, they would turn over to help them understand the requirement because, at the end of the day, it is to everybody's advantage for the private sector entities to fully understand the requirement and to understand what is being demanded of them and to also understand against what criteria and methodology their proposals are going to be evaluated because they could go to a lot of work and a lot of expense to mount a proposal, but because they haven't understood how the evaluation criterion process work, it is all for naught.
They may have to in complex requirements undertake their own engineering studies or environmental studies or market studies. They may have to hire specialist expertise. They may have to get financing in place. The Lord knows what. It is a very complex environment.
Senator Grafstein: One last question, and I thank you for your indulgence, Mr. Chairman, because I am just trying to formulate the processes here as we are listening to this witness.
By the way, I find your testimony very helpful in terms of giving -- at least I think this side -- some bench-marks as to how to analyze this from a government perspective.
You are an internal auditor of some experience. We take it that you are put forward, and we are not questioning -- or I am certainly not questioning -- your expertise or experience. But when you take a look at these bids that come in, these unsolicited bids --
Mr. Turner: Sorry, they are not unsolicited bids.
Senator Grafstein: I am sorry, bids.
Mr. Turner: Proposals in this case, yes.
Senator Grafstein: As an auditor, because I think some of us in the private sector have been involved in this process, you know, when you are trying to develop the best contract, if you will, for either your client or for your own economic interest. The first thing that most people do, and I wondered if this parallels the government, is to cut to the chase and take a look at the financial viability of the proponents.
Mr. Turner: Certainly, financial viability in a complex services requirement is fundamental to having a viable contract in place. It is always an area that is assessed as a high risk area.
Senator Grafstein: I want to take -- maybe give us the benefit of your advice -- from a proposal of this nature, would it not be important from the government side to, in order to save government time, to come to a quick conclusion that the various bidders are substantial and can fulfil the substantial obligations that the long term, drawn out process will result in? When do you make that assessment?
Mr. Turner: I am sorry, but my remarks cannot be made with direct reference to this project because I know nothing about it.
Senator Grafstein: I understand. I am talking about general.
Mr. Turner: Generally, in terms of financial viability, it is in the interests of the Crown to establish that as early on in the process as possible. Sometimes that is done at the point where the expression of interest is made. It may be established as a mandatory criterion during the evaluation process because, normally, we have mandatory criteria which you meet or you don't meet, and if you don't meet it you are immediately taken off of the table; and then there are rated criteria. Usually, that is an issue for mandatory criterion: financial viability.
Because, as I said, at the end of the day, if you don't have financial viability in place, then not only is the Crown at risk but the private sector entity is at risk as well; and, remember, we are trying to have a fair contract on the table at the end of the process.
Senator Grafstein: Thank you, Mr. Chairman. I appreciate your indulgence.
The Chairman: "While Mr. Clayton has addressed lease contracting, I am here to speak of the norms and practices of services contracting."
Do you want to go back to Mr. Clayton and try it again on him, see if you can do any better than we did?
Senator Hervieux-Payette: I have a question that perhaps will answer that. If we have examples of major complex contracts that you had to administer within your own scope of business, maybe we could have at least see where it was applied.
Mr. Turner: How this applies?
Senator Hervieux-Payette: Yes.
Mr. Turner: One example, for instance, would be the privatization of the flying training services for National Defence at Portage la Prairie. This was a $250 million project that was contracted for, finally, I think, in 1991. The contract process itself, if I can just refer to something here. The request for proposal was preceded by a market study that took place over several months; and throughout a period of well over a year there were extensive consultations with industry and briefings with industry. There were consideration of socio-economic benefits, industrial and regional benefits because we were dealing with the closure of the military base at Portage la Prairie. And, ultimately, when the request for proposal was issued, the private sector had three months to respond to the requirement, but by that time, by the time the RFP was sent out, industry knew exactly what the requirement was going to be. They knew what the evaluation criteria were going to be; how the winner would be selected. In fact, they even had time to form consortia to bid on the requirement. All of that was in place and ready to go by the time the request for proposal was sent out.
When the evaluations were completed and the announcement was made of the winning entity, the results were accepted by the community because they understood how we had proceeded and the contract was awarded.
Senator Hervieux-Payette: There was no complaints by the --
Mr. Turner: No.
The Chairman: If we wanted to ask somebody if the matter under our review met all of the criteria which you have just outlined, do you know who we would ask? And if we ask that person, will we get the answer? I mean, open this to Parliament, would we get the answer? Who is it? Who can help us? Go right through the list of all these various things, which you tell me is the same things as applies to a land lease.
Senator Jessiman: He does not say that. He is just giving us for the services, but someone else is saying the same.
Mr. Turner: You are referring to T1T2, Mr. Chairman?
The Chairman: Of course, I am.
Mr. Turner: I am sorry, I can't talk --
Senator Jessiman: But who is the person? You know you have a job. You surely are not working in a vacuum. You must know that there are other people in government that are responsible, as you are responsible for services, who is responsible for land leases?
Mr. Turner: I don't know. I can't answer that question.
Senator Jessiman: Can you find out?
Mr. Turner: Perhaps Mr. Clayton can.
Mr. Clayton: Perhaps I can help. The responsibility for doing any reviews and audits in terms of whether all those criteria were met, essentially after the fact, would be with the proponent organization, which would be in the case of T1T2 the Ministry of Transport.
Senator Grafstein: Would be who?
Mr. Clayton: The Ministry of Transport.
Senator Grafstein: Except is it the Treasury Board or -- Mr. Turner, are you with Treasury Board or who are you with?
Mr. Turner: I am with Public Works and Government Services.
Senator Grafstein: Who would provide that? Is there somebody in Transport that would provide your parallel function, or is this something that is in Public Works? Is it in Transport or is it in Public Works or is it in Treasury Board? I guess, first of all, we have to find out where it is and then we can find out who it is. So where is it?
Mr. Barbeau: Mr. Chairman, if we are talking about the audit, post facto, of a project, that is what I think we are talking about. Yes, within Transport Canada, we have an internal audit review and program evaluation team who normally would carry out that project. And then, of course, the other organization who will do this kind of work would be the Auditor General.
Senator Grafstein: We understand the Auditor General.
Mr. Barbeau: Within Transport Canada, we have an audit review and evaluation team who, on a planned basis, review projects, all kind of facets of the operations of the department.
Senator Jessiman: And in this particular case it was done, was it not?
Mr. Barbeau: The audit, again, the audit on the part of the department would only happen post facto, that is, once the whole process is over; and it may take a period of time.
In fact, to illustrate this, for example, audits of the local airport authorities are just now going on. Normally, you will go through a project. You will have the --
Senator Jessiman: But that is after the fact.
Mr. Barbeau: It is post facto, yes.
Senator Jessiman: We want to know that they followed the proper procedure up to the time of signing the contract.
Senator Tkachuk: Can we have an answer as to who the land lease person is? That is what we are trying to get at, but it shouldn't be that hard.
Mr. Barbeau: I think the answer is there, sir.
Senator Tkachuk: Who?
Mr. Clayton: As there is not a land lease person, the -- as I mentioned this morning, there were 20 departments that have land, that have their responsibilities related to land leasing, and it is the responsible minister in each one of those cases, with their own internal controls.
Senator Tkachuk: So who in Transport Canada is in charge of that?
Mr. Barbeau: Who is in charge of land leasing?
Senator Tkachuk: Who is and who was? Both would be good. Who is would be good, just to get a start here.
The Chairman: Mr. Turner has taken us through a very, very thorough list of the things that his department looks for when they are looking at requests for proposals. All we are trying to do is to find out who in the name of God, and if you could just whisper it to us, or I will go to the washroom with you, if you could just give us a hint as to who we can ask who can come forward and say that they were complied with, or they were not complied with, which is Senator Grafstein's basic question.
Mr. Barbeau: The reason has just been given by Mr. Clayton. There is no such person. What happens is that each department who is responsible for land leasing. So, essentially the question -- the answer to your question would be in the case of the lease of airport lands, I --
Senator Grafstein: Who was?
Mr. Barbeau: I, as Assistant Deputy Minister responsible for airports, would have the responsibility, if you want, of making sure that the steps in the process are respected, much as Mr. Turner has outlined them and much as Mr. Clayton has said exist really in terms of land leases. If that is the answer you are looking for, but you see, the question is there is no equivalent to Mr. Turner anywhere that I know of.
The Chairman: Senator Grafstein's question --
Senator Grafstein: Mr. Turner wants to volunteer something.
Mr. Turner: Yes. If I could volunteer, Mr. Chairman, I think, perhaps I should explain that because the business of supply operations is to manage a procurement process as a common service for other departments, that we have constructed, if you will, this engineered process and we have all of the control functions that surround it and keep it intact and measure it on an ongoing basis to make sure that it is functioning properly.
It is not the business of other departments to put out -- it is not their business. It is not their primary business to put out these contracts; it is ours. And that is why, I think, we are able to express it this way.
Senator Grafstein: Mr. Turner, and this would be my question, Mr. Chairman, if in fact such a process wasn't available within a department, and you are talking I assume, Mr. Barbeau, somewhat differently than somebody supervising the process, we are talking about somebody supervising the process and then an audit of the process in order to determine whether the process was fair, transparent, all the things that Mr. Turner talked about. Again, in public corporations there is the manager and there is the internal audit side. The internal audit side does a historic analysis as to whether or not the managers fell below or the executive fell below a certain standard.
Senator Tkachuk: They did have an audit process during the -- they did have an audit process during the call for proposal and the evaluation. There was an audit. But, I agree with you, on the -- on your public -- why don't you just ask Mr. Barbeau that question you were going to ask him about land?
Senator Grafstein: No, I was going to ask the Treasury Board representative as to whether or not in the absence of this internal audit, separate and distinct from managerial supervision, and I am not being critical. I am trying to be analytical here. Does not the Treasury Board, then, have a supervisory responsibility for this?
Mr. Clayton: I think Mr. Barbeau talked about Transport and mentioned that there is a separate audit and evaluation process separate from him within Transport Canada that carries out that role.
Senator Grafstein: So there is.
Mr. Clayton: Part of the Treasury Board's general management is to ensure that departments have those types of processes in place.
Senator Grafstein: So that all we have to do is find out in Transport who was responsible, who are the number one or two people that were responsible for that internal audit to give us some comparative analysis of what was done here.
Mr. Clayton: If I can enter into an area I am not an expert in, that is internal audit. There are two types of audit. There is an audit process or a review process that takes place in line, as it is going on, and which was talked about; and there is an after-the-fact audit, which I believe -- which, as Mr. Barbeau says, can be a few years later.
Senator Grafstein: But the ex post facto audit would also assist us in determining whether or not -- which is the purpose of an ex post facto internal audit -- is to determine whether or not the actions of the managers at a particular moment in time, or the people involved in the process, fell below a certain standard, a certain objective standard. That is one of the things we are trying to get at, I assume, Mr. Chairman.
The Chairman: Yes.
Senator Grafstein: So there is an internal auditor that will have made that analysis and might be able to come forward and provide some information along those lines for us.
Mr. Barbeau: I am sorry, Mr. Senator, no, that was not done. As I was trying to explain before, in the normal course of events in Transport Canada the audit and evaluation team will do post facto audits. Again, I may be wrong, I don't remember of any projects that we had running where the audit team was involved all along; but, again, it may be my memory that is serving me badly. In this case, there would have been eventually a post facto audit, but there was not.
Senator Grafstein: It was not done?
Mr. Barbeau: No.
Senator Tkachuk: It was cancelled.
Mr. Barbeau: Because the project was cancelled.
Senator Hervieux-Payette: But if we talk about Terminal 3 there is one?
Mr. Barbeau: Yes, there is one.
Senator Jessiman: What length of time after the contract was awarded was that done?
Mr. Barbeau: Can I ask one of my colleagues here because I don't have the information? Mr. Warrick?
Mr. Warrick: The report was published, I think, about a year after Terminal 3 opened.
Mr. Barbeau: About a year after opening the terminal. So, again, this will vary.
The Chairman: Senator Bryden and then Mr. Nelligan and we have a vote at 10 minutes to six.
Senator Bryden: Mr. Chairman, just to all of the people who are there, because I am interested in the general principles on which we can ask ministers and deputy ministers who were involved in this particular issue that we are involved in whether the proper process was followed. What Mr. Turner said was that the procurement process that you are involved in is founded on three fundamental operating principles -- competition, that is open bidding; equal treatment, same conditions and evaluation criteria; openness and transparency; and then the ability to enforce that.
Now, would that apply no matter what it is of a significant size that government is procuring, whether it is a land lease? Are those principles universally used as the principles under which government operates?
Mr. Clayton: Yes.
Mr. Nelligan: If I may take one final approach at this problem, as I take it, Mr. Barbeau, you have two functions in your role as airport manager. One is to advise the minister on the appropriateness of a particular contract and he then makes the decision.
The second function, I might suggest, is that administrator of the department, one of your functions is to ensure that the accepted standards of procedure are followed within the department; is that correct?
Mr. Barbeau: Yes, I think that is a fair statement, yes.
Mr. Nelligan: For instance, in the case given by Mr. Turner that there would be pre- and post-file reviews of RFPs and other contract-inducing processes, that the findings of fact made in such file reviews, and in the internal audits afterwards, would not constitute advice to the minister but simply would be findings of fact which would be on the departmental record?
Mr. Barbeau: I am not sure of that, sir. I don't know how to answer it.
Mr. Nelligan: Can you help me, Mr. Turner? This wouldn't be considered advice to the minister?
Mr. Turner: In my department, the results of internal audits, once they have cleared the approvals process, become a matter of public record.
Mr. Nelligan: Yes, all right. So that with that division between confidences and public record in mind, is it fair to say that if you found there was a defect in the process of obtaining a request for proposals and proceeding to contract with it, that this would be a matter of fact that you would report in the normal course?
Mr. Barbeau: I think again, in the normal course, in dealing with this kind of thing, if I was made aware, as the senior public servant responsible for a file, that there was an abnormality of some kind, certainly it would be my obligation to report it upwards, yes.
Mr. Nelligan: So can we ask you now, sir, if you found such an abnormality in the process in this case?
Mr. Barbeau: I think I have testified earlier, sir, that, as far as I knew, to the best of my knowledge, the process in the time lines that we have talked about, that is, up to the December 2 -- December 7 announcement on the part of the government, to the best of my knowledge, respected rules and guidelines and whatever else, to the best of my knowledge.
Mr. Nelligan: Then taking it from that period through until the approval by the Treasury Board, which we know is a matter of record, have you the same comment to make about the process? In other words, was there anything brought to your attention that the process was deficient over that period as opposed to the actual recommended terms and so on? And if there is such a defect, can you tell us what it was you detected?
Mr. Barbeau: I am sorry. I am not clear, sir, on the beginning part of your question as to the time line.
Mr. Nelligan: The time line. You have taken it up to the announcement.
Mr. Barbeau: I have taken it up to December 2 -- December 7 of 1992.
Mr. Nelligan: All right. Then from December 2, 1992 until let us say October 27, 1993 when the Treasury Board gave approval, dealing only with the process -- excuse me, August, 1993. Dealing only with those elements that have been discussed by Mr. Turner here today and not with any of the merits of the contract at all, are there any defects in that process which came to your attention which you should advise this committee of?
Mr. Barbeau: The reason, sir, I'm insisting so much on the time line of December 7 is -- and perhaps a few weeks after that -- is because after that, I was no longer really the person responsible for the file, and that is what makes it very important for me. And my answer to you is that I can't comment on things that happened after that because I was not responsible for the file.
Mr. Nelligan: All right. So that you are unaware of anything, but the reason for that could well be you weren't on the file, but we may ask that question of the persons who were dealing with the file.
Mr. Barbeau: Exactly.
Mr. Nelligan: All right.
The Chairman: Ladies and gentlemen, tomorrow morning we meet at 9 o'clock, not at 9:30. We will hear from the Honourable Doug Lewis in the morning and Mr. Glen Shortliffe in the afternoon.
Thank you very much, gentlemen.