Proceedings of the Special Senate Committee on the
Pearson Airport Agreements
Evidence
OTTAWA, Wednesday, August 23, 1995
[English]
The Special Senate Committee on the Pearson Airport Agreements met this day, at 9:00 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. The counsel, Mr. Nelligan will introduce our first witness.
Senator Kirby: Can I ask counsel a question before we start? Just to follow up on a discussion that was held yesterday which centred on the issue of you are going to Mr. Stehelin and showing him the other document, the other so-called Nixon report, the draft document, you have been attempting to get ahold of Mr. Stehelin. I find it hard to believe that the Ottawa senior partner of a major accounting firm can vanish from the face of the earth unless he is deliberately hiding. What have you been able to find out?
Mr. John Nelligan, Q.C., Counsel to the Committee: The sequence is this: After the questions on Thursday, we worked late seeing Justice officials. First thing Friday morning I found the document because I knew there was a document.
Senator Kirby: You had it before?
Mr. Nelligan: That's right. We then contacted Mr. Stehelin and said -
Senator Kirby: This was Friday?
Mr. Nelligan: This was on Friday, and told him we were sending it over for his review, and then I wanted to meet with him to discuss it. He explained to me that he was just on his way out of his office for a meeting but that I should send it over and that he thought he would be back about 3:30. I was leaving about 3:00, so I arranged for my assistant to be available to discuss it with him and she was unable to contact him for the rest of the day. My last communication was about 5:30 Friday.
Senator Kirby: Last communication in the sense of trying to get ahold of him?
Mr. Nelligan: Yes. On Monday I found he was in Toronto on discoveries on another rather important case. I was aware he had this conflict between our testimony and the other case, and I gather he had put it over till this week. And I know he is there because my partner is also involved in the same action. I think that those hearings are supposed to go on all week. That has been the difficulty in locating him, but I have a standing call in for him and as soon as he returns, I will have a discussion.
Senator Kirby: That may be next week sometime?
Mr. Nelligan: It should be next week.
Senator Kirby: Isn't it possible for your partner at least to show him the document? We know we can reach your partner.
Mr. Nelligan: I will try to find my partner tonight and put him to case on the case as well.
Senator Kirby: Thank you.
Mr. Nelligan: Senators, we have with us this morning Mr. John Simke who is a partner in Price Waterhouse. I think he will be of some interest to you because he was engaged in several aspects of this process having been consulted along with his firm with regard to the drafting of the request for proposals, and then subsequently, he acted as an advisor to the evaluation committee and prepared a valuation of commercial opportunity.
I understand that he will be making an opening statement outlining the nature of the work that he performed for the department in that regard.
The Chairman: Mr. Simke, you are aware of the fact that we are swearing our witnesses?
Mr. John Simke, Price Waterhouse: Yes, I am.
(John Simke, sworn:)
The Chairman: Counsel has referred to the fact that you have some opening remarks, Mr. Simke?
Mr. Simke: All that I want to do, Mr. Chair, is delineate the three aspects in which we were involved in this process.
Firstly, we were retained by Transport Canada to facilitate the development of the request for proposal. That obviously occurred well before proposals were received back in 1991. The second aspect of our involvement was once the proposals or shortly before proposals were received, to help Transport Canada develop a methodology to evaluate the proposals, and once they were received, we continued to assist Transport Canada through the evaluation process, consulting with them on the application of the methodologies. That was the second aspect.
The third aspect occurred again before the proposals were received, and this was the preparation of an evaluation of the commercial opportunity provided by winning the rights to operate these terminals. So, I just wanted to make it clear that there were three distinct roles that we played at different stages to assist the members of the committee in understanding what we did. That is it.
The Chairman: There are two questioners on my list.
Senator Stewart: Could we hear again the third role, evaluation of commercial opportunities?
Mr. Simke: Yes. What Transport Canada felt was that it would be useful to them, when the proposals were to come in, to have some additional support from a financial point of view in assessing whether the proposals were in fact adequate from a financial standpoint in terms of the quantum of financial return that would be provided to the Crown. So, they retained us to assist them in trying to assess what might be a reasonable level of financial return that the Crown should receive for giving up the rights to operate these terminals.
The Chairman: All right. On my list I have Senator Jessiman and Senator Hervieux-Payette. Thirty minutes please.
Senator Jessiman: Thank you, Mr. Chairman. Mr. Simke, were you the person at Price Waterhouse responsible for those three aspects of this matter?
Mr. Simke: Yes, I was. I was the lead engagement partner in all three cases, although there were other partners involved bringing certain specialized skills to the table.
In the case of the preparation of the RFP and the assistance that we provided in the evaluation of the proposals, we had a partner who was an expert in real estate development, and in the other aspect, the assistance in valuing the commercial opportunity, we had a partner who was an expert in valuations, business valuations.
Senator Jessiman: Were you familiar with requests for proposals generally?
Mr. Simke: Yes. That is an element of our practice in Price Waterhouse to assist governments in developing and evaluating - developing requests for proposals and evaluating proposals for what we would call public private partnerships such as this one.
Senator Jessiman: I am told that the request for proposal process, while not new in Canada, is not that old either. My question to you first is why did they not, the government, with your help, not go to public tender?
Mr. Simke: The primary reason for that, senator, was that Transport Canada felt that what they wanted to get out of this process was the creativity and innovativeness of potential bidders to, in other words, put forward an outcome that they wanted, a first class terminal that would meet the needs of passengers to and from Toronto for many years, and that they wanted to state it at that level of an outcome and see what the bidders might bring forward in the way of creative solutions.
That is a very different approach to a tender where the government would itself decide specifically and precisely what was required, and then put that requirement out with a lot of detailed specification and invite to tender.
Now, the reason that people generally go to the request for proposal approach such as the one that Transport Canada took as opposed to the tender approach is, as I said, where there are many, many alternative solutions and where for government to decide itself what the right solution is would potentially not bring forth the most innovative and creative ideas.
Senator Jessiman: So that is why - and I am just going to read you a short paragraph of 1.2, page 3. It starts on page 2 but where the government says that on the third page:
The government is providing the developer with a considerable degree of latitude to propose the form, extent and timing of development as well as the management strategies and pricing policies that will determine the operational and financial viability of the project. The full extent of the development and commercial opportunities will be determined by the experience, creativity and initiative of the developer.
Is that why that was -
Mr. Simke: That is exactly right.
Senator Jessiman: And that is why it did not set out in the RFP strict parameters, is that correct?
Mr. Simke: That is correct.
Senator Jessiman: Thank you. Okay. A great deal has been made of not having a two stage - or as you know and I should like you to explain that the government does not have to have any stages. They can just go to someone if they are the only ones available to do a job for them. If they think they can get the best price from a particular party, they will go and negotiate a contract with that one party.
Then there is I guess a three stage - and the Prince Edward Island was a three stage process - where you had, because the government did not know at that time who might bid on such a project, so they put out expressions of interest. So that is the first stage. Then they had requests for proposals, and then there was environment involved, so in that case there was three stages.
Then when we went to Terminal 3, when they were building Terminal 3, the government again at that point did not know who the likely players were and there aren't that many, as you know, that might be able to bid on this kind of a project. So, they went to a two stage process and they had expressions of interest. After expressions of interest, they then got a number of names and then they had requests for proposals and it was limited to about three or four parties.
So, when the time came in this case, when they were sending out the requests for proposals, 17 months earlier, as you know, they made an announcement that they were going to do this, there was a lot of publicity, a lot of talk about it, and they made a decision to go on the one stage.
Now, explain why you think they went to the one stage proposal?
Mr. Simke: Our understanding is that Transport Canada felt that a two stage process in this particular situation would be both potentially redundant, and secondly, would use up time.
From the redundancy point of view, I think Transport Canada felt that they had a good understanding of who the potential bidders were, that in effect that prequalification process that one normally wants to get out of the first stage had largely been accomplished because a number of players had put forward unsolicited proposals, and quite significant unsolicited proposals, with a lot of work that had gone into them, and they felt therefore that the market had pretty well prequalified a set of bidders already. Given that Transport Canada appeared to want to move the process along expeditiously, it was felt that the value from going through two stages was less than the time that would be lost by going through that second stage.
Senator Jessiman: Three of the very major parties actually made unsolicited offers, proposals, and Air Canada made two, one that they were backing Paxport, but it was an actually unsolicited offer by Air Canada, but the RFP's limited airlines as to what amount they could have, what interest they could have. It was limited, as I remember it, you can correct me if I am wrong, to about 49 per cent in the airline or any combination of airlines.
Mr. Simke: That is my recollection as well.
Senator Jessiman: Right. Now, there has also been some complaints that the 90 day period to reply to the RFP - now, you know and if you don't I am going to tell you, I am sure you do though - that when they announced the 90 days, they also announced in the House of Commons, they had a meeting later - when I say later a few weeks later after this was done - and said, both in the House of Commons and at this meeting where I understand about 200 people attended that in the event that there was a serious bidder out there that they didn't know about, and they thought that the 90 day period was not sufficient time, they would give an extension.
So, I can't give the evidence, am I giving your understanding of what was the case at that time?
Mr. Simke: Unfortunately senator, I can't recall what occurred at that meeting that you have just referred to. I do recall a meeting, but I don't recall the specifics of what was said, so I can't respond unfortunately.
Senator Jessiman: Did you know that one of the bidders did in fact ask for an extension?
Mr. Simke: No, I was not aware of that.
Senator Jessiman: The facts are that they asked for it and they got it, okay?
Senator Hervieux-Payette: How many days, Senator Jessiman, did they get?
Senator Jessiman: My understanding is it was 30 or 35 days. We will have other people - I refer to them as Claridge because those initials kind of make it difficult for me to distinguish between the various companies - but the Claridge people asked for a 30 or 35 day extension and got it.
Senator Stewart: That was over and above the -
Senator Jessiman: The 90 days, yes. Now, isn't a 90 day period fairly standard in asking for requests for proposals? I have a number of examples, but I would like you to tell me what your knowledge is in respect to that.
Mr. Simke: Senator, when you are dealing with situations of the size and complexity such as this one, there is no standard. I think from the perspective of Price Waterhouse, we felt that 90 days, while acceptable, was at the short end of the range and that one might have given more. Certainly there have been situations that we are aware of where 90 days was provided. We are aware of situations where 120 or longer was provided, but again -
Senator Jessiman: Could you give me some examples of those that were 120 and those that were longer than 120?
Mr. Simke: I am thinking of some off-shore situations that we have been involved with. We were involved in a redevelopment of the airport at Port of Spain, Trinidad Tobago where a longer period was provided.
Senator Jessiman: Are those proposals from Canada to build something off-shore, is that what you are saying?
Mr. Simke: No, they were proposals for international developers to redevelop that particular airport. It wasn't Canadian particularly.
Senator Jessiman: I see, okay.
Mr. Simke: I happened to be involved because we get involved in these kinds of transactions in different parts of the world. In road developments that we have been privy to, the SR91, State Route 91 in California the period was longer than 90 days. But again, I stress there is no standard and it is a judgment call, and in any situation there is no formula that you could say it has got to be 90 days or 120 days or 60 days. There is a range.
The 90 days in this case we felt was within the acceptable range, particularly given the work that had been done by all these unsolicited proposals previously.
Senator Hervieux-Payette: Just a question on the Trinidad. How big was the airport in Trinidad and how long did it take for the RFP? What was the size of the project? Are we talking about a $700 million project or $30 to $40 million project?
Mr. Simke: It was a $100 million U.S. project approximately, and as I recall, 120 days were permitted.
Senator Jessiman: Highway 407 Ontario, I understand your firm was involved in that one?
Mr. Simke: That is correct.
Senator Jessiman: I am told that was a billion dollars?
Mr. Simke: That is correct.
Senator Jessiman: And that it was 90 days, is that correct?
Mr. Simke: I do believe that is right, yes.
Senator Jessiman: I have been given a number that are 90 or less, but I will read them out and if you are familiar say you are familiar, and if you are not, then you can't give me any evidence on it. Public Works Capital Region redevelopment proposed was 90 days, are you familiar with that?
Mr. Simke: No.
Senator Jessiman: Pearson runways, 90 days?
Mr. Simke: Familiar.
Senator Jessiman: Nova Scotia Highway 104, 60 days. That was $125 million?
Mr. Simke: I am familiar with that one.
Senator Jessiman: You agree it was 60 days?
Mr. Simke: I don't recall. I am familiar with the project.
Senator Jessiman: If you find I am incorrect, will you let the clerk of the committee know so the record could be noted to that affect? Duke Point Ferry Terminal, B.C., $150 million, proposal, 90 days?
Mr. Simke: Not familiar.
Senator Jessiman: Halton Private Water, 90 days, not familiar?
Mr. Simke: Not familiar.
Senator Jessiman: York Private Water?
Mr. Simke: Not familiar.
Senator Jessiman: Windsor Casino, you are familiar with that?
Mr. Simke: I am familiar with all of the projects, not the term that was provided for the response to the RFP.
Senator Jessiman: It is 90 days as well, Windsor Casino. I think this is another casino.
Senator LeBreton: Don't ask me. I am not familiar with casinos.
Senator Jessiman: It looks like RDMG, that is another 90 days.
Mr. Simke: Not familiar.
Senator Jessiman: Thank you. Now, the purpose of the RFP in theory is to bring about a relationship between the public and private sector which is beneficial to all. My question to you is, is an RFP process - are you looking for the best value for the money?
Mr. Simke: In response to your question, the first part of it yes, certainly the intent would be to bring about something beneficial to all parties. And, in terms of the purpose, a specific objective, one can't say that any RFP - that every RFP - that best value for money is necessarily the overriding objective.
In this particular case of Pearson airport, best overall proposal was the overarching criterion, and within that there was some definition of the proposal that would provide a superior development and operation as being sort of one key element making up best overall proposal. The other being best financial return. So, if you sum that all up, it more or less translates into best overall value for money, but again I stress that that is not necessarily the case in every proposal call.
Senator Jessiman: I think you have answered this, but I would just like to see if you will again. The question is, why was this RFP vague in this case? It wasn't specific?
Mr. Simke: In what respect, senator?
Senator Jessiman: It didn't set out the parameters. It didn't say this is what you have to build and this is how large it has to be and these are the specifications. It leaves it up to the developer. It gives that latitude, the part that I read to you, so I would just like you to answer the question why was it as general as that?
Mr. Simke: I would give the same answer when I responded to your first question. The government explicitly did not want to impose its solution but wanted creative ideas to come forth from the bidders.
Senator Jessiman: Now, as you said you were also involved in the valuation process. Tell us the role that Richardson Greenshields played in that as well.
Mr. Simke: Okay.
Senator Jessiman: Maybe first you could tell us your role? Did you oversee it or how did it work?
Mr. Simke: Our role in the evaluation of proposals started with helping the proposal evaluation committee develop the methodology for the evaluation of these proposals, and that was certainly a very challenging element in that there were many, many different technical experts and our role was to channel them into a consistent and objective approach to applying their knowledge. So that all occurred before the proposals were received.
We then continued, after the proposals were received, to act as consultants to the proposal evaluation committee to help them in the application of the methodology, so on a day-to-day basis to be on site working with them, to help them, all of the players involved in these proposals, to interpret the methodology and apply it effectively, so that was our role.
Senator Jessiman: Did you have some role in the weighting that they gave to the various aspects, I think there were five in total?
Mr. Simke: Our role there was to ensure that in fact a weighting was established and that the reason for the weighting was documented. But the judgment call as to what the weighting should be was that of the proposal evaluation committee.
Senator Jessiman: Did you look it over? Did you think from your experience - did you think it was fair?
Mr. Simke: It wasn't our role to judge on the fairness. The only thing that I would say is that if the weightings that had been decided upon were egregiously different than the guidance that had been given to proponents in the RFP, we would have expressed some concern, and we had no such concern.
The Chairman: You were monitoring the process.
Mr. Simke: We were facilitating. We were making sure that the parties could retake consensus, which in a situation like this is never easy to accomplish. The guys developing the evaluation plan or valuating that would have viewed that as being by far most important and would have said that should get 70 per cent and everybody else should get 5 per cent. The folks doing the financial side would have felt similarly. We had to bring it to a point where they all felt comfortable that there was a fair weighting.
Senator Jessiman: Is that why 5 per cent of the evaluating process were given to financial strength of the companies involved?
Mr. Simke: The overall points given to the financial part of the evaluation was 40 per cent I believe, and within that there was a breakdown of various elements within that, and I can't recall how that breakdown occurred further.
Senator Jessiman: Do you remember why Paxport's bid was judged to be superior?
Mr. Simke: I would stress again that our role was not to in anyway get into the substantive evaluation, but to assist in the application of the evaluation methodology. I do recall, and again this is just a recollection of what others decided, I recall that the two reasons that the Paxport bid was selected, and this is just my recollection of what was ultimately agreed by the proposal evaluation committee - were a superior development approach, a more perhaps ambitious and first class development approach and a better financial offer. That is my recollection.
Senator Jessiman: Did you sit in the room when they were doing the work? We understand they met in Toronto over a number of days.
Mr. Simke: Yes.
Senator Jessiman: Were you part of the group?
Mr. Simke: We were present, not necessarily myself personally every day, but our team was present every day throughout the six weeks or so of the evaluation period.
Senator Jessiman: Was there any political interference as far as you know of the evaluation process?
Mr. Simke: I was not aware of any such interference.
Senator Jessiman: Were you ever interfered with or lobbied in relation to the work you were doing in relation to the request for proposal evaluation process?
Mr. Simke: Not at all, no.
Senator Jessiman: In your evaluation of the process, were you ever concerned about the result? Did you find anything odd in naming as the winner a company that would finance the project from revenues received through running the airport?
Mr. Simke: I would like to answer your question in two parts, senator. The first part was that we did not find anything odd in the ultimate choice, merely because we, in observing the process that was being followed by the participants in the evaluation, we felt very satisfied that they were applying their minds diligently and that a wide variety of factors were considered and a great deal of depth.
In response to your latter question, we did not get involved substantively in the evaluation at all, so I doubt - I mean, it is three years ago now. I can't recall exactly what was in my mind, but I doubt that I was even intimately familiar with the terms, the financing arrangements that the winning bid had. Obviously subsequently, having read about this ad nauseam in the press I am aware now, but I probably was not aware then.
Senator Hervieux-Payette: Supplementary. Could you explain your role in relation to RCMP since you seem to be doing something similar to the RCMP? What were you doing compared to their own evaluation of the evaluation process?
Mr. Simke: I will answer that. I don't believe I answered the second part of an earlier question put by the senator about the role of Richardson Greenshields, but I will answer your question first.
We were process consultants. We were there to advise management, and in effect we were part of the group that was responsible for this evaluation with us, you know, acting as consultants.
RCMP however were operating at arm's length. They were in an auditor capacity. So, while we were working with the teams to say this is how you should do the evaluation, this is in terms of the application of the methodology, RCMP's role was to stand back as third party observers and say, do we think this is being properly done?
We, in effect, were an extension of the management, if you will, doing the work while RCMP were purely an arm's length, third party, independent role. So a very clear distinction.
Senator Hervieux-Payette: You were part of the process but you didn't go into the substance, that means in the figures or analysis or financial analysis of the deal, you were not part of that?
Mr. Simke: That is correct.
Senator Jessiman: You are going to answer the question I should have asked you earlier.
Mr. Simke: I apologize for not answering earlier. Richardson Greenshields were a consultant to one of the five evaluation teams, that one being the team looking at the business and financial plan, so there were Transport Canada officials leading that team and they had retained as their consultants to substantively look at the financial and business plan, they had retained Richardson Greenshields.
Senator Jessiman: One question Mr. Chairman before I take my time. In dealing with the RFP process, we have a memo from Chern Heed and it is document number 000639, and I am sorry I don't have copies, but I am sure senators on the other side will have it but if you have not we can get copies made.
It states that your firm, Price Waterhouse, was concerned about the short period of time allowed to respond to the RFP. He claims Price Waterhouse wanted six months for the RFP process.
My question to you sir, can you comment on this? Wouldn't six months be way too long and would not be able to keep the bids secret if you did it for six months?
Mr. Simke: I don't recall our specifically stating a number of six months. I do recall that we discussed with our client, Wayne Power, the general manager responsible for the terminal redevelopment - we had many in depth discussions in the development of the RFP, and amongst those was a discussion on the timing where we, as advisers to Transport Canada, wanted to give them our best advice as to what would be a reasonable period.
And we certainly made Transport Canada aware that the three month period was clearly at the lower end of an acceptable range, that perhaps more could be provided to the bidders, but I do not recall explicitly stating six months.
With respect to the second part of your question senator, I wouldn't say that six months would be prima facie unreasonable period. Certainly it is a lengthy period relative to other projects that we have seen, but I wouldn't say that it would be unmanageable in terms of creating problems.
Senator Jessiman: Thank you. I have other questions on other aspects, but I think I have used my half hour.
Senator Tkachuk: Can I ask a supplementary on the six months, on the 90 days, is that possible? Were you an author of the final draft of the RFP or were you one of the many authors?
Mr. Simke: Yes, senator. The role we played was that we did in effect carry the pen if you will and drew in text written by technical experts, but we consolidated it into a full draft.
Senator Tkachuk: So, the 90 days came from - like who decided that?
Mr. Simke: I can't say that I know who decided that that ultimately would be the period. We had, as I mentioned, debates with our direct client Wayne Power, and ultimately having debated this with Wayne back and forth having made sure that we let Wayne know the pros and cons of various time periods, the decision came back through Wayne that it would be 90 days, but I don't know who specifically decided that.
Senator Tkachuk: Who did you report to directly?
Mr. Simke: To Wayne Power.
Senator Tkachuk: That is all I have, thanks.
Senator Stewart: The witness has just referred to now - I will start it again if I may. Senator Jessiman in his questioning gave various examples of where 90 days was the time allowed, but it now emerges that in this particular case, Price Waterhouse had shall I say considerable uncertainty as to the adequacy of that period, and now the witness refers to pros and cons which were communicated. Could you tell us what the pros and cons were?
Mr. Simke: I would also before responding say that I wouldn't say we had considerable uncertainty. We wanted to make sure that we expressed that there were some cons to a shortish period such as 90 days. I will deal with the cons first. Certainly this is a complex development, this redevelopment of Terminals 1 and 2. The nature of the RFP was a very open-ended one. The point has already been made to that affect. And therefore, a lot was being asked of the bidders, including for example that they do their own traffic forecasts and estimates of capacity requirements.
So, we said look, you are looking for quality here. Obviously there is some correlation between quality and time, and if you give people a little more time, you will get a little better quality. So that was, I think, one of the cons of going with a 90 day as perhaps as opposed to let's say 120-day period.
Another con that was discussed was one of perception. We said look, somebody could say to you afterwards that some bidders who had not already been in the game, that is those other than the three that we were aware of that had already submitted unsolicited proposals, would be at some disadvantage, that the three that - we were aware of three that had submitted unsolicited proposals - obviously would be further ahead than somebody coming into the game new. That therefore is something of a con that you are opening yourself to some risk that somebody would say hey, you are closing us out. So those were the two primary factors that were discussed as being risks for Transport Canada.
On the pro side we said look, from a practical point of view, you think Transport Canada that probably anybody who is seriously interested in this has already identified themselves.
Business being what it is and people being aware that people had made unsolicited proposals, those interested would want to also submit an unsolicited proposal, so anyone who had not yet submitted an unsolicited proposal, one could make the argument that they were not that interested.
So a pro was that pretty well everyone who is interested might be said to have identified themselves, and therefore why lengthen the period? We want to get on with this, so that was the primary reason for saying 90 days would be sufficient.
Senator Stewart: In the case of the pros first, you say that the potential proposers had identified themselves. Was the field from which proposers could come restricted to Canada?
Mr. Simke: No senator. I would not think that the field, in terms of the kinds of expertise you would draw into this, would be restricted to Canada, although I recall now I think that ultimately in the RFP there were some restrictions on foreign ownership. But certainly in a Canadian controlled consortium, you would probably want to draw in some non-Canadian expertise.
Senator Stewart: My question is this: If a longer period of time had been allowed, is there a possibility that there would have been what I will call a viable proposal from someone from outside Canada?
Mr. Simke: I doubt that senator in that this Pearson development is a world scale development and that the community of players interested in such developments keep their ear very close to the ground in terms of potential business opportunities. There are publications that are out on a monthly basis about every little twist and turn in an opportunity such as this. I refer you to Public Works financing where anyone in the world interested in this would have been very familiar that Pearson was in quotes "in play".
Senator Stewart: You referred to the fact when you were listing the cons that if a longer period of time had been allowed, the quality of the proposals might have been higher. Would financial feasibility of the proposal be one of the aspects that you would include in quality?
Mr. Simke: I would include all aspects, senator. What I said, what was primary in my mind was more things such as quality of traffic forecasts and so on, but all factors would be in my mind.
Senator Stewart: My question was does it include financial feasibility?
Mr. Simke: Yes, it does.
Senator Stewart: Thank you, chairman.
The Chairman: Senator Hervieux-Payette.
Senator Hervieux-Payette: I think I will continue on your first line, and I have the document that Mr. Jessiman was referring to which is document 00639. I would like my assistant to give you a copy so that I would like to put in perspective and maybe complete our examination of the time frame by talking about the 90 day for the RFP and the expression of interest, which of course would have extended the period of time for the different interested parties to be able to address the question.
So I will read, Mr. Chairman, a document dated October, 1991, 29. It is a memo from Mr. Heed to Mr. Barbeau. It is that meeting we are talking about. And the last paragraph says:
We still are concerned about the perception created by the very short time period for RFP responses (90 days) vis-a-vis the integrity of the process. This concern has been reinforced by the observations of Price Waterhouse, the consulting firm engaged to assist in the preparation for the Requests for Proposals. Price Waterhouse (without prompting) has commented that, notwithstanding that the department may consider requests to extend the response time, publication of the RFP of a 90 day response time for proposals could convey the message that the Department is not committed to a fully open and competent process.
On page 2 there is another paragraph.
The number and complexity of the issues to which proponents must respond with mature and firm proposals require a response period of not less than six months.
That is where the six months come from.
...if any groups other than the three who have already prepared preliminary proposals...
and you certainly were aware that there were three unsolicited proposal in front of the Ministry
...become involved, a request for an extension beyond six months would not be unexpected. We hope that there will be an opportunity to reconsider the matter of the published RFP response time.
I put that in perspective before asking my question with another - I think it is a report - the minutes of the project team of which you were a member, participant dated March 28, 1991 and it was with Mr. Wayne Power and John Gilmour from Price Waterhouse. You were there. There was Mr. Lloyd Lavine and Mr. Jeffrey Climans. In this document, on the second page at 2.3 then it is written:
The role of Price Waterhouse is not to include day-to-day project management of the privatization process. Our responsibilities will include provision of advice in the development of a project critical path, production of the expression of interest and RFP documents, formulation of the qualitative and quantative bid evaluation criteria and other advisory services, including principles of valuation and procedures for marketing the expression of interest and RFP documents.
To your recollection, since in this document we are talking about, an expression of interest - where did it get lost in the process? Because in this case, and if I follow up from the previous meeting, of course I would expect that this would have extended. We can have an expression for another 90 days and we would have got certainly the time to convey the message to the business community to take the time for the consortium together because most of these projects were put together by consortia that were made of several companies, and before they had time to sign all the engagement and make sure that they have closely knit team which is each one bringing their own particular expertise in the project and that is the way I saw it, probably you did see the same thing in another project. You don't have one party making a proposal, but you have a consortium of various fields of expertise.
To my recollection, we don't have that many airport operators in Canada, so they have really to go and get the proper expert to develop the whole project.
So, in this case my question is where was the expression of interest that you were supposed to produce because we have not seen it? It was mentioned that it was eliminated in the process. Where did it get lost?
Mr. Simke: Senator, just to clarify, we did actually physically develop such a document, but it was decided - again I don't know specifically who made the decision, but the decision was made that no, we will not go with an expression of interest approach, we will go to a one stage process.
And again, I would say that we discussed with our client, Wayne Power, the pros and cons of that, and I think I have talked to them today. But having taken all of those factors into account, Transport Canada, and by Transport Canada, it could mean any one of a number of people made the decision that they would not go with an expression of interest, and that was communicated to us through Wayne Power. We were not physically present when that decision was made.
Senator Hervieux-Payette: Since we use an expression from the beginning, first class airport, how would you define a first class airport when you have to write down the request for proposal? I guess it is not an easy task to decide what is a first class airport. Is it the model of Heathrow, the model of Chicago? What is a first-class airport?
Mr. Simke: I think you are right, senator. That is a somewhat subjective judgment, and it was purposely left that way that we wanted to communicate that what was being sought here was a high quality development that would represent Toronto as being a premier destination in world business travel or world travel, and those were the kinds of thoughts that were in the mind of Transport Canada and that we discussed with them.
There is no clear definition of first class, but I would say that the development community globally would have a good understanding of what was being sought and they would look to airports such as perhaps Tampa, Frankfurt. The intent was that Toronto would have a gateway of similar quality.
Senator Hervieux-Payette: Would you say in this case - because when it comes to real estate building and commercial building, usually a first class building you can't attach a per square foot price. Did you in your evaluation criteria attach a per square foot price so that when you were evaluating, if we were to have a first class airport, there was at least some criteria that you could say would meet the first-class criteria?
Mr. Simke: No, no such numeric criterion was identified in the RFP. But again I would say that the philosophy behind this RFP was one of being very open-ended and seeking creativity so that if one had put forward a numeric amount, what that might have led to was to constrain developers. Who knows what developers might have come up with. They might have come up with some interesting commercial facilities that might be revenue generating, but if you had said we have to limit the cost to X dollars per square foot of passenger processing space for example, it might have constrained developers from doing things that might have been a good idea.
So, the philosophy was clearly to say look, you as the development community know what a first-class airport is. Come to us with your ideas and make us an offer and we will weigh the various offers that we get and choose the best overall acceptable proposal.
Senator Hervieux-Payette: The first part of my question, do you agree that we have in the commercial building a standard or a price per square foot that you can say this is going to produce a first class building?
Mr. Simke: I would agree with that.
Senator Hervieux-Payette: So, then if we could have said in the RFP that in order to meet the requirements and the needs of the airlines - and of course when you are anticipating up to 33 million passengers, you understand that they need a certain number of facilities. They could have determined prior - so you can put a cap on the price and then of course make sure that the airlines would be able to afford the terminals that you were going to build.
I am referring - my question is, have you been associated to the project and the creative project of Terminal 3 which started with a bid and a proposal that was accepted at $350 million and ended up after construction to a $530-million project, which is for me a very large private sector cost overrun.
Mr. Simke: We were not associated with that project, senator.
Senator Hervieux-Payette: Was there any formula or any criteria in our project that would have limited these cost overruns in the Terminal 1 and 2 project?
Mr. Simke: I don't believe that one could have put forward a numeric criterion such as the one you are proposing unless at the same time the scope and nature of the development was also somewhat prescribed.
If you had said we want a terminal with so many square feet and so much portion of passenger processing space and so much capacity for commercial space and laid out a number of these parameters, then it might have been possible to say we want to limit cost to X per square foot. But as I mentioned, that was not the philosophy behind this development.
Senator Hervieux-Payette: So when we talk about the very vague - and I go back to my colleagues, Senator Jessiman's word, and a very general description of the first-class airport, and I am associating that with your own word as bringing in creativity and innovation, then the 90-day period, in order to put together a group, in order to have a first-class airport design, in order to have a financial and viable organization, was it part of your own rationale for saying that 90 days was very short period of time in order to realize a project of that magnitude making sure that every component - and there are very technical components in an airport, and today we know that there are even more security components that we can see when we visit an airport. Would you say that the 90-day period was almost an unrealistic challenge for the people who were not involved in the unsolicited proposal?
Mr. Simke: I would say it was do-able but very, very tough.
Senator Hervieux-Payette: I will go to another subject. I have another document I would like to refer to and I would like my assistant to give it to you. It is document 001058 dated August 6th, 1991. I will wait for you to have it. It is another meeting that you have attended.
On page 4 item 5.5, I should like you to explain that paragraph that reads:
The workplan developed at the outset of the project will be effectively set aside in favour of a fast-track approach to developing and approving the RFP.
Could you say why the work plan that you were probably recommending - I mean the minutes are saying that, will be set aside in favour of a fast-track approach. Could you, for our own education, indicate to us what is a fast-track compared to a work plan approach and what does it imply?
Mr. Simke: I can't recall exactly what was being discussed on this point at this meeting, but certainly we were aware that the government wanted to move this project ahead quickly, and we had been retained some months before, I recall, to work on this and there had been various delays as various decisions were being made. I think at this stage, what, you know, our client wanted was that a number of decisions having now been made that we get the RFP prepared quickly.
What we are saying here is that we would develop a work plan to work with the department in getting that RFP developed quickly. So, what would be implied by that would be more frequent meetings, more intensive involvement of both ourselves and the various players within Transport Canada, and the approach that we would be suggesting to our client at this point was specifically who was needed at what point, at what stage for what meetings with what information to get this RFP developed.
I do recall specifically that we had found that there were some deficiencies in the kinds of financial information that Transport Canada had that a bidder would expect to see relating to the terminals because of the particular nature of government accounting, which is not the same as private sector accounting. I am being illustrative here, but that as part of this process of getting the RFP ready, that a special team of people would have to be assigned to getting the correct financial information pulled together, and in fact that kind of activity did occur.
So what this is saying is we have got to really focus everyone's efforts and get everyone concentrated on getting this RFP ready.
Senator Hervieux-Payette: When you talk about the financial information that would be made available from Transport Canada, are you talking about the revenue from various operations and the documentation that was put in the big room at the Toronto airport that was made available to the future bidders?
Mr. Simke: That is correct, senator.
Senator Hervieux-Payette: Did you review all the documents that were supposed to be available to the various parties that would have access to these documents?
Mr. Simke: We didn't review all the documents because it was a room full of documents, but together with Transport Canada, we agreed the kind of documentation that should be necessary. Again, we were providing advice from the prospective of the private development community and saying this is what a developer would expect to see, do you have it? If not, let's get it.
In the case of financial information for example, the government accounts differently than the private sector. We say the private sector would expect to see this kind of information. You better get it.
Senator Hervieux-Payette: Would you say then that the - sorry. I was interrupted for a second and I just lost track.
I will move to another document. Document 001114 dated April 19, 1991. It is a memo, and I will just try to close down the question of the expression of interest because still this question has not been resolved where it got lost, and maybe with this document we could clarify this.
I will just read a few paragraphs that are referring to your participation. In one small paragraph it says:
Price Waterhouse is on board to assist in RFP process and Coopers Lybrand is represented to ensure fairness of process.
There was work for every consultant. It was a good contract.
Then on page 2:
The concept of an EOI stage would be pursued with the Minister's office. IKP will proceed with preparation of the EOI documentation.
And the memo is signed by Wayne Power. Which means that at April 19, still the expression of interest was still a possibility. You were still working on it, and I guess this was referred to the minister's office to make sure that one would make the decision if you would go ahead with the expression of interest?
Mr. Simke: That is what that seems to be saying, yes.
Senator Hervieux-Payette: When they got back with the answer, do you remember that there would be no expression of interest? And you had developed a document for the expression of interest?
Mr. Simke: Yes, we had developed a document, and subsequent to the development of that document, it was communicated to us through Wayne Power that no, an expression of interest would not be required for this process.
Senator Hervieux-Payette: Mr. Nelligan, since there was an expression of interest document that was developed, and it might be part of the overall, global tonne of documentation we have, I don't know if maybe we could take the time to look at it. It is the first time this morning that I am aware the document existed, that it was prepared and it was developed, and of course it would be interesting to see, in relation with the RFP, what would be the role of both documents and what was expected from this.
From what I can gather from the reality was that only those who had done their own work with unsolicited proposal really had the time to come with the creativity and the innovation because they had several months to think about it, but newcomers would really have a hard time to put together a proposal.
Senator Jessiman: What for?
Senator Hervieux-Payette: I am sorry. We are talking about a $5-million exercise for a real estate developer. To develop an RFP costs about $5 million. When somebody is investing $5 million, certainly you put all the chances on your side, and when you know that the competition has been doing it for a year, a year and a half or two years, I don't know any sound, intelligent business organization that would put $5 million in not having a chance to win, so that is the way I see it. They had no chance and that is the reality.
Senator Jessiman: Who is they?
Senator Hervieux-Payette: I see no other proposal.
Senator Jessiman: Who is the they? Who are those people that didn't have a chance?
Senator Hervieux-Payette: All those in the real estate business across Canada that could have made a bid. They had no -
Senator Stewart: Create a consortia.
Senator Hervieux-Payette: I am sorry. This is my own knowledge.
Senator Jessiman: This requires special knowledge. There are very few players.
Senator Stewart: Bring those people in, Senator Jessiman. Open the door.
Senator Jessiman: Seventeen months.
Senator Hervieux-Payette: I will go on to another document which is 00676, 11th of May, 1992, and I am just following the chronology of the development of the whole project.
This document is a document that was signed, I suppose, between your organization and the government. So this was the amendment to agreement and so on, so I suppose there was another document before that that was the agreement.
In this document, I am looking at the fine print afterwards, the document that was prepared called appendix A, where it is defining your mandate. You told me previously that you were not involved in Terminal 3 so you were not asked previously to evaluate the Terminal 3 proposal?
Mr. Simke: That is correct.
Senator Hervieux-Payette: Were you asked previously by the Government of Canada to evaluate other proposals with regards to terminals or airport development throughout Canada?
Mr. Simke: We had been involved in a number of projects associated with proposals made to transfer airports from government operation to that of local airport authorities.
I personally had been involved for some years in work associated with the management, operation and ownership of airports in Canada, so yes.
Senator Hervieux-Payette: Which airport?
Mr. Simke: Specifically, Edmonton airport where a consortium of local community people had made a proposal to Transport Canada to transfer that airport to a local authority. We were retained as the advisor to Transport Canada for the evaluation of that proposal and the subsequent discussions with that group, and we ultimately worked in the development of the financial projections that Transport Canada put together to assess the approach or the basis on which that airport would be transferred.
Similarly, on the other side of the table, not for Transport Canada but for the bidder, we did work both for the Airport de Montreal, the group putting that proposal together, and for the Calgary airports. We worked for the consortia in both cases that initiated the transfer of those airports to local authorities. And again, our firm assisted both of those organizations prior to this process.
Senator Hervieux-Payette: Okay. That means that you - I refer to a question I asked several times to the Department of Transport personnel when they appear before us, so you assisted them in preparing the evaluation booklets?
Mr. Simke: For the Pearson exercise?
Senator Hervieux-Payette: Yes.
Mr. Simke: Yes.
Senator Hervieux-Payette: And did you use material - would you say that the criteria you used for Pearson airport were the same as Edmonton?
Mr. Simke: No.
Senator Hervieux-Payette: Why?
Mr. Simke: Because the Edmonton situation was different in that it was transfer of an existing operating airport from one operator to another. This was a major new development of additional capacity, refurbishment of existing capacity. So the projects, while both about airports, were somewhat different in their scope.
Senator Hervieux-Payette: Even the business plan, I mean the financial viability and all the criteria, the transfer of personnel, they were all the same item that would have to be covered.
Mr. Simke: Senator, that is true. There were many similar issues. To use an example that you have just given, the transfer of people, the whole basis on which employees would be transferred from Transport Canada to that of a local airport authority was very specific. There was an approach developed to do that, not by us but by Transport Canada. The approach for transferring employees of Transport Canada to a new owner and operator of the Pearson terminals would have been somewhat different. These were different transactions.
So yes, obviously there is only so many ways one can run an airport, and many of the issues and variables would have been similar, but clearly we are talking about quite different deals here.
Senator Hervieux-Payette: Okay. While you were answering, the question I wanted to ask previously just came back to my mind. You remember that you said that you were assisting Department of Transport Canada in saying what were the prerequisites to administer the RFP. And you had established what kind of documents that the bidders needed to have in order to prepare their financial proposal.
Would you say that the existing leases, which in this case are one of the biggest amounts of revenue for the airport, would be considered as an essential document that would be part of the documents available to the various parties who want to put together the financial package?
Mr. Simke: Yes, I would say that the existing leases would be expected by a bidder.
Senator Hervieux-Payette: Did you review the list of these documents carefully with the people of Transport Canada?
Mr. Simke: I can't recall. It wasn't our role to ensure that. We were not playing an audit role here to ensure that every document that should have been there was there. We advised Transport Canada of the kinds of documents that should be there for a bidder. And we, in a dialogue with Transport Canada, agreed on those and then Transport Canada made those available. We did not, you know, run a checklist to see what was there and what was not there.
Senator Hervieux-Payette: Fine. Since you were assisting in preparing the RFP and then the evaluation criteria, and there is a big question mark about the Air Canada lease that was supposed to be part of the documentation available to the bidders and that lease was not releasing its authority or that there were some documents missing. To your recollection, did you hear, were you made aware by some of the Transport Canada people that some documents were missing?
Mr. Simke: No, I do not recall that at all.
Senator Hervieux-Payette: Not in the RFP and not in the evaluation process?
Mr. Simke: No.
Senator Hervieux-Payette: And your people were present with the five evaluation teams overlooking how the process was being conducted internally rather than externally like RCMP, the other consulting firm, and you were not aware then that the full information was not released in terms of Transport Canada or Government of Canada, prior obligations or at least commitments with Air Canada?
Mr. Simke: I honestly do not recall there being any omissions. You know, there is no recollection on my part that there were any material omissions at that time.
Senator Hervieux-Payette: You personally, were you assigned to one team in particular or were you overlooking the members maybe of your team that were assigned in the various evaluation groups?
Mr. Simke: We had two people who were pretty well full time with the evaluation groups. I was not there full time. I came in periodically to meet with the proposal evaluation committee, with my own staff. I met with my own staff as well separately pretty well every couple of days, but we did not assign our people to work specifically with certain teams. We were on call to assist all of the teams.
Senator Hervieux-Payette: So when the team was dealing with, for instance, the team dealing more specifically with the financial analysis of the whole transaction by both bidders - let's call them for the time being Paxport and Claridge - your people were present and this team was assisted also by Richardson Greenshields. And would you say then that you were not made aware of some of the deficiencies of the financial information that was provided by one of the bidders, in this case Paxport, that was later said by the Ministry of Industry saying to us that there was a serious failure in the financial proposal?
Mr. Simke: We, as I have said -
Senator Jessiman: That is not quite true. That is not what was said. She is giving evidence.
Senator Kirby: Let him answer the question.
Senator Hervieux-Payette: Can I have my answer?
Mr. Simke: My answer is that we were concentrating very much on helping the evaluation teams apply the evaluation methodology to make sure that these proposals that came in, which were somewhat voluminous and each in their own format, that the teams doing the evaluation were able to effectively apply the methodology and document their findings effectively. We were not concentrating at all on the substantive nature of the quality of the proposals, whether they were good or bad proposals.
So while there may have been discussion going on in the room while we were there at times, we were working with these teams, going around from team to team to say, are you okay? Do you have any problems? Where are you at? Are you on track? Are you able to meet the deadlines that we should be at more or less at this point? What issues do you foresee in being able to meet the deadline? That was our focus.
The fact that a bidder might or might not have the quality of presentation in their proposal would not have been something we would have concentrated on at all. We may or may not have been aware of it.
Senator Hervieux-Payette: I remember when you were answering Senator Jessiman a few minutes ago that you mentioned that in developing your criteria, one of the major criteria that was retained and that was given a lot of weight on the Paxport proposal was that the better financial offer was giving, of course, a lot of weight to the proposal.
How did you determine the number of points assigned to each criteria? Where did you take your rating schedule? Did you take it from a manual in accounting that I am not aware of because I am lawyer or do you take it from previous analysis that you made of other proposals? Where did the rating come from?
Mr. Simke: The ratings came from the evaluators themselves. I will just explain the process to you briefly.
The proposal evaluation committee was constituted well in advance of the proposals being received. Our role was to work with that proposal evaluation committee and to say, let's look at the RFP and let us interpret the RFP, not Price Waterhouse, but the proposal evaluation committee, and agree on how we are going to weight the main criteria one against the other.
For the purpose of the evaluation methodology, these were called plans; the business and financial plan, the development plan, the management and operations plan. Let's agree on the relative weighting of those. And we facilitated a discussion amongst the proposal evaluation committee to decide how that weighting would occur.
Each team responsible for one of those plans then went away, and we worked with each of those teams - this is again before the proposals were received - to say how should the points for each of those plans be allocated to subplans? So, for example, within the development plan there would have been a subplan around capacity forecasts, traffic forecasts and capacity estimates. That would have been a specific subplan or issue that would have been evaluated. There were I think in the development plan about a dozen - 11 or 12 subplans. The points for the development plan would have had to have been allocated amongst the subplans, and again we facilitated a discussion amongst the members of the evaluation team for that plan.
They were the technical experts, and we made sure that they reached a consensus on the appropriate weighting of all the issues within the development plan and allocated points to the subplan. So no, there is no standard manual.
It is a judgment call. Our role was to ensure that in fact points were allocated, not capriciously, but based on a very thorough discussion amongst the members of the team, and that there was evidence to us that there was a rationale and that in fact that rationale was documented, which it was.
Senator Hervieux-Payette: Then if I go back to my plan score table and I have 25 per cent for development plan, 40 per cent for the business plan and 20 per cent for management and operation plans, these scores, you just made sure that they existed. However, the fact that it would be 35 rather than 40 or 25 rather than 20, you were not involved with that?
Mr. Simke: We observed the process whereby those decisions were made. I would say that we - as I said earlier, there was a key page in the RFP that laid out for the bidders what in fact was important to the government. If I correctly remember, it might have been page 47 or page 48 of the RFP.
We satisfied ourselves that the allocation of points between the business plan, the development plan, the management and operation plan, that the allocation of those weightings somewhat reflected the intent of the RFP.
Now, there is nothing that could assure one that 40 per cent was the exact right number for the business plan. If it had been said that that was 35 per cent, I think we would have been equally comfortable. But if it had been 20 per cent, I think we would have said, we don't believe, looking at the RFP, that this reflects the intent of the RFP. So ultimately, that point weighting did reflect the intent of the RFP.
Senator Hervieux-Payette: I think you have an excellent memory because on page 48, the first paragraph that mentions the criteria in the RFP, and I will read it because I think it is just to refresh our minds. It is short.
Of primary importance are the physical attributes and operational efficiency of the overall development proposal including related commercial developments and how private sector financing, design, construction and operation will result in the timely expansion of air terminal complex capacity to ensure that the Airport continues to operate as a first class facility with minimum Transport Canada involvement in operations.
There are other criteria, other consideration of lesser but significant importance, including innovative and creative solutions. So first we have the primary importance on the physical attributes and operational efficiency, and in my evaluation score, management and operations represent 20 per cent while the business plan is 40 per cent.
Mr. Simke: Senator, physical attributes and management and operating efficiency are both development and management and operations which combined to amount to 45 per cent.
Senator Hervieux-Payette: In our table they are separated, and one represents 40 per cent and the other one represents 20 per cent.
Mr. Simke: The paragraph in the RFP which you allude to which says this is of primary importance to the government, there were two plans within the structure of the evaluation that made up that paragraph, the development plan and the management and operations plan. Development refers to physical attributes. Management and operations refers to the operational efficiency, so you have to look at those two combined, and those two combined were 45 per cent.
Senator Hervieux-Payette: I agree.
Mr. Simke: So that was of primary importance. It was the most important criteria.
Senator Hervieux-Payette: Five per cent less or more can make a great difference to one bidder. When the RFP was issued, those who were making the proposal were not aware of where the weight was put on one or the other, if they had more points to the development plan or the management and operation plan.
I am saying that simply because Terminal 3 was managed and operated by Claridge, and they had a previous experience, so you understand that in this case if you are making a bid and you are the only one actually operating an airport in Canada, this is supposed to give you at least certainly a good start in your proposal.
Mr. Simke: Is that -
Senator Hervieux-Payette: It is a very important criteria, especially if you are already in the operation of this airport. I feel that the management and operation, the 20 per cent for me was undervalued because I would have attributed more points for the simple reason that first there was an experience. It was not the first. Secondly, the success of the whole enterprise lies there. If you don't operate carefully and you don't manage this place well, of course the troubles will probably fall on the back of the government.
Mr. Simke: As it happens senator, I can specifically recall the rationale for why the 45 per cent allocated to those two combined, which was the biggest weighting, was divided up 25 per cent to development and 20 per cent to management and operations. The rationale which was decided purely by those two committees which was made up of Transport Canada officials and some private sector people, the rationale was that you can change management and operations after the event. You can't change the development very easily.
If the development was not well done, that is a lot more difficult to change thereafter than management and operations not being that well done. So it was felt that for that reason development should receive a higher weighting than management and operations. That is documented in the evaluation methodology, so that was their rationale, for what it is worth.
Senator Hervieux-Payette: Thank you. I guess I will come back later. I have gone through my 30 minute period. So we will leave it to someone else. Come back later.
The Chairman: Mr. Simke, in that single stage process in a 90 day time frame later extended, was there to your knowledge anyone, any firm, any organization that came forward to you saying that they wished to participate and didn't have an opportunity because of the time limitations?
Mr. Simke: No.
Senator Stewart: May I ask a question following on yours?
Senator Grafstein: Mr. Chairman, just to avoid our clash of attitudes similar to last night, do you intend to allow us an opportunity to ask this witness questions following up on both the previous questioners, or do you intend to conclude by your summary now?
The Chairman: No, no.
Senator Grafstein: We will have an opportunity.
Senator Hervieux-Payette: The chairman is asking questions with us sometimes.
Senator Grafstein: I just hope that we will be given an equal opportunity.
The Chairman: I was going to ask another one. I think Senator Lebreton had a question.
Senator LeBreton: I have two questions. I think it should be pointed out that we ask questions, but you know, by no means is it all equal because some days I do not ask questions at all and other days I ask them.
The Chairman: Just a second. I want to get Senator LeBreton and Senator Stewart and Senator Grafstein.
Senator Stewart: My question is very short and perhaps could be cleaned up immediately.
The Chairman: You have had a round, senator.
Senator Grafstein: I would like a round, chairman.
The Chairman: Senator Lebreton you only have two questions and then Senator Stewart and then Senator Grafstein on a little bit more lengthier. All right.
Senator Jessiman: And then I can get in at the end?
The Chairman: Yes.
Senator LeBreton: Thank you, Mr. Chairman, and thank you for appearing before us. I just want to get from you - and you testified to this, portions of it, this morning already, but just for clarification, on October 17th, 1990, the government announced that private sector participation in the modernizations of Terminal 1 and 2, they announced that they would want private sector participation. Seventeen months later, on March 11, 1992, the requests for proposals were issued. The time for the request for proposals was 90 days.
Within hours of this announcement, the minister indicated to a meeting of interested parties, as you have already mentioned, and to the Transport Committee in the House of Commons that he would entertain requests for extensions. This, of course, was done and the total time for the RFP was actually 127 days. What activities were you personally and Price Waterhouse generally engaged in during this 17 month period of time from October 17, 1990 when the announcement was made until March 11, 1992 at the time the request for proposals -
Mr. Simke: Our involvement started when we responded to a competitive request for proposal put up to firms like ours to become the - overview consultant I think was the term, overview process consultant, something like that - to assist Transport Canada through the process.
Those requests for proposal went out either right at the end of 1990 or in the first month of 1991, around that time. We responded as did some of our competitors, and we were selected in February of 1991 as the successful bidder.
Senator Jessiman: Were there indications of interest set out on that one?
Mr. Simke: That was a one stage process.
Senator Jessiman: Thank you. Because they knew who the people were, right?
Mr. Simke: I imagine they felt that they knew who could do this.
Senator Jessiman: Right.
Mr. Simke: The substantive work on our part started soon after we were selected in, I would say, March of 1991, where we continued for some months through March, April and probably May in numerous meetings with the Transport Canada team that had been assembled to implement this government intent to invite the private sector. I have already mentioned the name of the prime person we worked with, namely Wayne Power.
The purpose of those meetings was to work with Wayne and his people, and others were brought in as necessary, to agree on the approach that should be taken from a technical standpoint in the development of the RFP and a discussion of the development of the EOI, the expression of interest document. And there were many policy issues that were discussed at around that time such as should airlines be permitted to be bidders? Should the party that already operated Terminal 3 be permitted to be a bidder? Should it be permitted that foreign developers be permitted to bid?
We didn't really provide much advice on the policy side, but we were privy to some of the discussions around those between Wayne and ourselves. Our primary role was methodological in terms of what would the bidders expect to see in the RFP? That was our prime role.
That set of discussions leading to the development of the expression of interest document occurred through, March, April and May approximately - perhaps April. Then it was decided this would be a faster track process. There was - I can't recall exactly why now, but there was something of a hiatus through the summer and in August of 1991 the process got rolling again in earnest, and we worked very intensively through the late summer and fall of 1991 to help Transport Canada develop the RFP.
This occurred through our writing drafts of some of the higher level document, the prime document which was about a 50-page document, but also drawing in experts from Transport Canada to provide technical input and, as I mentioned earlier, we coordinated the effort.
There were also a number of other documents that were supportive of the prime document. They were a thick binder. We made sure that those were pulled together. Again, based on our assessment of what bidders would expect to see, we discussed what would be needed to be in the data room and again advised Transport Canada there were some specific problem areas in terms of availability of data, and I have already mentioned financial information and we actually assisted in the development of that.
That took us through to around late 1991. I don't have a precise chronology with me. Then as I recall, there was something of a hiatus through the winter of 1991 until the RFP was issued in the early spring of 1992. Essentially, our work had been finished at that point by the time that the RFP was developed. Our work was finished, our initial contract was over and there was no commitment on our part or that of Transport Canada that we continued to work.
However, when the RFP was in fact put out to the street, Transport Canada, who had been satisfied with our work on the RFP development, said that they would like to discuss with us whether we could be of assistance in developing the methodology, and we were retained through a contract extension at that point to assist with that process.
That took us through the period of the summer of 1992. I think that more or less takes it up to the point that you are. Does that answer the question?
Senator LeBreton: Yes, and it has been very helpful. In terms of drawing together the request for proposal, you were pretty well finished your work by the end of 1991, and then it was March when they were actually announced, and then of course it went on until July and then that is when the actual evaluation kicked in?
Mr. Simke: That is correct.
Senator LeBreton: So, if the documents were there, they probably could have called a request for proposal anywhere after the end of 1991, but in fact the date was March 11th, 1992?
Mr. Simke: That's right.
Senator LeBreton: You were ready. I have one specific question. It is usually asked of all witnesses in terms of the Nixon report. Were you interviewed by Mr. Nixon or any of his associates or assistants?
Mr. Simke: No, we were not.
The Chairman: Senator Stewart?
Senator Stewart: Thank you, chairman. You say that the request for proposals was developed over a period of time, and that another period of time elapsed before the request for proposals was put out to the street. I think those were your words.
Would anyone who had knowledge as to the content of the request for proposals in those periods, when it was developed, when it was ready to go but before it had gone out to the street, have an advantage in developing and putting forward a proposal?
Mr. Simke: Yes. I would say if anyone had knowledge of the specific content of a request for proposal before it was issued to others, yes, they would have an advantage.
Senator Stewart: The weighting to be assigned to the various plans would be significant?
Mr. Simke: Yes, but let me make sure that I communicate that the weighting of the various plans was not decided until after the request for proposal was issued a couple of months after.
Senator Stewart: All right. Do you know what security arrangements were made to assure that the development of the requests for proposals did not leak out with the result that the integrity of the process would be violated?
Mr. Simke: It was not our role to be involved in the maintenance of confidentiality around the request for proposal. We had a very important role in maintenance of confidentiality around the evaluation process once the proposals were received.
Certainly, we do a lot of work with government, and we were well aware and on notice that from our point of view as Price Waterhouse that we were to maintain absolutely strict confidentiality of all materials regarding the request for proposals, and our people involved were cleared to the "Secret" level and we maintained confidentiality.
We also were aware that the public servants with whom we were directly interacting were observing the kinds of procedures that we would have expected around confidentiality in that the places where the meetings occurred were not openly accessible. Where we went into those locations to have meetings, we were accosted, we had to sign in. When we had meetings, no documents were left lying around and so on. That is the extent of what I can comment on with respect to confidentiality.
Senator Stewart: Thank you very much on that.
Senator Jessiman: Could I ask a supplementary on that one? Just on that question?
Senator Stewart: Yes.
Senator Jessiman: You said that your firm knows it, but do you know, did you hear from anyone as to whether or not there was any leaks as to information?
Mr. Simke: No, I did not.
Senator Stewart: That question reminds me of the chairman's question. If there had been a leak, would you expect to hear about it?
Mr. Simke: Perhaps in the sense that, you know, the community, the development community being a reasonably close knit community would have been aware. I do know that some people were aware that Price Waterhouse was involved in the development of the RFP, so it may have been that -
Senator Grafstein: How would they find that out?
Mr. Simke: Because we were selected as the bidder.
Senator Stewart: You have established that there was a very high level of secrecy, and yet you tell us that if there had been a leak, you probably would have heard about it?
Mr. Simke: I said senator - my words were perhaps I would have expected that if a developer who knew that we were involved in the process, and I am sure many did, but we were not approached by any, but if they did, that they would have called us to say, you know we understand you guys are involved and we have heard X and Y, is X and Y true? None of that happened. But it would not have surprised me if it had happened.
Senator Stewart: Now, you said earlier in answer to the chairman that -
The Chairman: Senator Stewart, how are you relating your questioning to my previous question? Could you explain that?
Senator Stewart: Oh, yes. Perhaps you should hear the question, and perhaps the answer will be obvious.
The Chairman: All right.
Senator Stewart: You were asked if you had heard of any developer - that may not be the word - or consortia - again, that may not be the word - consortium or any consortia who were complaining that, because of the time limitation, they had not had an adequate opportunity to submit a proposal. Given the time constraints which everybody knew by the time the proposals went out, and given the fact that it would take months, perhaps years, to put together a consortium, would you expect that there would be a consortium out there which was ready to bid but which, because of the time constraints, had not had an opportunity to bid?
Mr. Simke: No. What I would have expected, senator, is that anybody who had a reasonable level of interest in this opportunity would have been well aware of many dimensions to this long before the RFP went out, and if they had not put in an unsolicited proposal, as some did, that they would have, you know, really made themselves aware of a lot of the issues around that opportunity.
Senator Stewart: Let me ask you about the valuation of the proposals. You emphasized the plans, the development plan, the business plan, the management plan, and so on. I suppose if you don't have to worry about how much it's all going to cost, you can put forward pretty good development plans and business plans. How important was financial feasibility, or was that irrelevant?
Mr. Simke: No. As part of the business plan, financial feasibility was an important element of that.
Senator Stewart: But surely feasibility is fundamental. You know, you can design a wonderful ship, and if she doesn't float, she's no ship. I'm trying to discover what is meant by "the best overall proposal." Here is the best overall ship, but, unfortunately, it has a leak.
Mr. Simke: That was provided for, senator, I believe in a word that should be added to "best overall proposal", namely "best overall acceptable proposal". It was specifically part of the rules of this game that the proposals not only had to be - the winning proposal not only had to be the best overall proposal, but it had to be the best overall acceptable proposal, and the term "acceptable" was intended to imply that if there was any reason why the best proposal otherwise could not be viable, that it would, therefore - it would be excluded.
Senator Stewart: So when the minister announced in December 7 of 1992 that this was the best acceptable overall proposal, he meant that it was financially - he implied, not only implied but was stating almost emphatically, that it was financially feasible.
Senator LeBreton: Excuse me, senator.
Senator Stewart: May I ask the question?
Senator LeBreton: I just want to know where you're getting that. Where are you getting that the minister said it was financable, when it fact the press release said just the opposite?
Senator Stewart: I'm asking my question. I'm trying to discover what was meant when the Paxport Incorporated proposal was described as the best overall proposal. The witness has said that the word "acceptable" is implied and that -
Mr. Simke: It's not implied, it's explicit.
Senator Jessiman: The best overall acceptable proposal.
Senator Stewart: Thank you for your help, Senator Jessiman. It's most helpful.
That means that it is in fact financially viable.
Senator Jessiman: He didn't say that.
Senator Stewart: Let us have the witness help us.
Senator Jessiman: It complied with the -
The Chairman: All right. Ask the question.
Senator Stewart: I don't know why these questions, chairman, agitate Conservative senators.
Senator LeBreton: Because we stick to the testimony. Stick to the testimony.
Senator Stewart: That's what I'm trying to get, is testimony.
Senator Hervieux-Payette: We have one chairman here, not three.
Mr. Simke: It would be my understanding, senator, that in choosing the best overall proposal, that Transport Canada would be of the view at that point that there would be no reason that that proposal would not be viable.
Senator Stewart: And if it turned out later that that proposal was not viable, then they had made a mistake?
Mr. Simke: Circumstances do change.
Senator Stewart: Well, please explain that. You say in your comment now that circumstances do change, meaning?
Mr. Simke: What I mean there is that an element in financial feasibility, for example, is the viability of the prime bidder within the consortium, and I'm not in any way trying to talk about the specifics of this case. I'm speaking more generically now. If the condition of that bidder were to have changed, then obviously the circumstances would have changed. Similarly, if the availability of financing in the markets were to have diminished over some period of months, circumstances would have changed. So -
Senator Stewart: The implication, then, is that as of the date of the ministerial announcement, Paxport Inc. was financially viable.
Mr. Simke: That's a reasonable conclusion.
Senator Stewart: Thank you, chairman.
The Chairman: Permit me, then, because I asked how it related to my question. Witness, it's all very well to talk about 90-days, and it's all very well to suggest that that was so short that people could not come forward in that period of time to take part in it, but the fact is that 90 days is really a bit of a myth, isn't it? Because this has been going on for years before that. British American Airlines had established an office in Canada. British Airport Authority.
Mr. Simke: Yes.
The Chairman: So we are not talking about 90 days. There was lots of time. There was time. There was time for any qualified bidder to take part. You know, it's just the straw men that keep occurring. Leaks, leaks. Will that be the major headline tomorrow? "Senator suggests leaks"?
Senator Kirby: You guys tried three reports. I wonder, Mr. Chairman, can I just piggyback a supplementary on yours? Then he can do both.
The Chairman: Yes, sure.
Senator Kirby: I think the problem is the chairman is not clear on the distinction between knowing that a bid is going to be asked for and the actual knowing the actual detailed terms of reference of an RFP. I think the witness may want to comment.
Those of us who have been in business know there is a huge difference between knowing that government is going to eventually call for a proposal on something and then - which is what the chairman is suggesting by saying it was I think he used years, and knowing the precise detailed legal terms of reference of an RFP. I think that he is assuming if you know kind of the government is going to call for a proposal, you can in fact get ready for a detailed RFP. My business experience would say that that's just not possible. I would like you to comment.
Mr. Simke: I'll give you my honest assessment of that. That is that certainly if you know that a fairly major opportunity is likely to or almost certainly going to come out to the community, there is a wide range of things you can do, but until you get the specifics, there are some things you can't do.
Senator Kirby: Exactly.
Senator Jessiman: That is the case with unsolicited proposals as well as those that didn't give an unsolicited proposal; isn't that correct?
Mr. Simke: I'm not sure I understand the question.
Senator Jessiman: They are in the same position. They have made an unsolicited proposal on certain assumptions. They don't know what the RFP is coming out, so they're in exactly the same position. They're waiting for the specifics.
Senator Kirby: That's why the 90 days was too short, but any way.
Senator LeBreton: Just a point of clarification. It was 127, and it was -
Senator Stewart: Certain runners had got on track.
Senator LeBreton: No, no. Just -
Senator Kirby: They did after certain runners had got on track. Started at 90 days.
Senator LeBreton: It was 17 months. He already testified that they were ready to go at the end of 1991. It had gone on through the whole process for 17 months -
Senator Grafstein: Who is this?
Senator LeBreton: This witness. When they were working on the RFP. Then the RFP was called on March 11, and the next day, the minister said he was going to extend it.
The Chairman: No comments, just questions to the witness.
Senator Tkachuk: I have a question as it relates to Senator Stewart, because he mentioned "financially viable".
You know, we've gone through this thing like for three months now, and it is making me crazy here. The financial viability of the corporation Paxport or Claridge is very different from the financeability of the project, is it not?
Mr. Simke: That is true.
Senator Tkachuk: When you say a corporation is financially viable, that means it exists and it's not bankrupt, and it's the ability to do business. I don't want to lecture people here, but I have been lectured. And then the financeability of the project is a different aspect; is it not?
Mr. Simke: The two have some linkage.
Senator Tkachuk: Yes. I know that. But go ahead.
Mr. Simke: Well, obviously the financeability of the project, the people who are going to be putting up the money will look to the prime players to some extent in terms of their ability to stand behind the project, so there is a linkage there.
Senator Tkachuk: Well, but -
The Chairman: That was your supplementary.
Senator Tkachuk: I'll go back to this later.
The Chairman: I'm afraid you might not have an opportunity. I think I'm going to give the last questioning to Senator Grafstein.
Senator Grafstein: Thank you, Mr. Chairman. I appreciate this.
I would like to come back at the process again, if I could, from a comparative analysis. You were not involved in Terminal 3.
Mr. Simke: That's true.
Senator Grafstein: Did you have a chance to examine the process for Terminal 3, which is really the only quasi-precedent that one might have in Canada for a project with the exception that Terminal 3 was a start-up? It was a brand new facility, and it was just moving a particular airline to a new facility. So it was different in that sense, in the same way that Edmonton was somewhat different, but it was a clean cut project in one way.
Now, did you examine the process in Terminal 3 to give you some insight as to what would be the appropriate signal to the development community as to what would be usual here in the circumstances?
Mr. Simke: In what respect?
Senator Grafstein: Timing, expression of interest, all the things we've been discussing. Timing, the RFP, the expression of interest. Did you look at that as a precedent?
Mr. Simke: We certainly looked at that in relation to Terminal 3 and many other projects.
Senator Grafstein: What was the time frame under Terminal 3?
Mr. Simke: I don't recall at this point.
Senator LeBreton: A hundred and twenty-seven days.
Senator Grafstein: A hundred and twenty-seven days?
Senator LeBreton: A hundred and twenty-seven days was the full amount of time.
Senator Grafstein: The full amount of time?
Senator LeBreton: Yeah.
Senator Grafstein: Let's refer to the Library of Parliament. We all have it here. Maybe somebody might give the witness an opportunity. It's on chronology of events. It's the first page. All of us have this, Mr. Chairman, so I assume it's taken as at least something we might refer to here appropriately?
The Chairman: Certainly.
Senator Grafstein: Thank you.
Now, let me examine the time frame there. The first date on the chronology of events was in June, 1985 when the Minister of Transport -
Senator LeBreton: What document are you talking about?
Senator Grafstein: I'm talking about the Library of Parliament document, and it's Tab A right at the top. I'm doing this for comparative purposes.
The Minister of Transport, in 1985, releases "Freedom to Move", a position paper on deregulating transportation industries and expresses its global objectives. It sort of gives a signal to the world as to in what direction it's moving, not unlike we've heard subsequent.
Then the process, taking Senator Kirby's approach, now becomes more definitive. On September 11, 1986, there is a request for expression of interests. I assume you accept that it's less complicated and less complex than the proposal that we're talking about here.
Mr. Simke: Yes, I would agree with that.
Senator Grafstein: In a less complex, equally important, equally substantive proposal, the only real precedent that we have that is not quite parallel - I call it a quasi-precedent - the government makes a request for expressions of interest. And that is not 90 days. It's, in my rough calculation, about a hundred days, from September 11 to December 18. That's some roughly 100 days. That's for the expression of interest process. Then the government then moves on December 18 and allows another 120 days for requests for proposals.
Now, that was the precedent, and somehow, or for some reason, with a much more complex, much more difficult, proposition, where we find that the existing Terminal 3 operator is in opposition, Air Canada is in opposition, there is a complexity of all the things we've talked about yesterday and today and so on, somebody for some reason says, "No, we're going to do this in 90 days." Isn't that odd?
Mr. Simke: We didn't find it odd at the time, senator.
Senator Grafstein: You did.
Senator Jessiman: He said he didn't.
Senator Grafstein: Excuse me. Give me an opportunity, Senator Jessiman.
The Chairman: Please, I have asked you before, no comments.
Senator Grafstein: You implied it was odd in the sense that you made relatively strong representations to your committees that it wouldn't - 90 days wasn't an appropriate time period. So in fact, I conclude from that it's odd. It's different than the previous process on the same airport. That's odd. It's different. It's not the same. Call it what you will. It's not usual. Because usual is the precedent that's been set at the same airport.
Mr. Simke: I can only respond in terms of what our view was at the time.
Senator Grafstein: Of course.
Mr. Simke: Our view at the time was that, as I have expressed before, all things being equal, we'd rather have a longer period, but this time period was sufficient, although tight. Other factors that you haven't mentioned in asking this particular question were that there were the three unsolicited proposals; that because there had been the Terminal 3 experience, in some ways issues that might have been completely fresh at the time of Terminal 3 had been examined, and proponents could have learned from that experience in terms of how a private terminal in fact could be operated, some of the issues around how in fact Terminal 3 would interact with the other terminals. So there were some factors that, because Terminal 3 had in fact occurred and successfully been transferred, removed some uncertainties.
But the primary factor from the point of view of the way that Transport Canada viewed it in our discussions with them was that the unsolicited proposals meant that an awful lot of work had been done, and that made it possible.
Senator Grafstein: But then isn't it fair to conclude, to an outside party that wasn't previously involved in the specific proposals, that a signal goes out that the process is not expression of interest, 100 or 90 days and the normal process, but we're cutting to the chase here? Wouldn't third parties out there say, "It seems like they're on a fast track here"?
Mr. Simke: That would be perceived, yes.
Senator Grafstein: Wouldn't that then allow rational businessmen to conclude that, "Gee, I'm not sure I can get up to speed because of this fast track, this rush to decision, and therefore I'm not going to play"? Isn't that a fair conclusion for a fair and prudent businessman to conclude, having looked at Terminal 3 and now looking at Terminal 1 and 2?
Mr. Simke: Yes, I would say that that would be the way that business people would look at it. You know, again, just sharing with you my perceptions of how it was perceived out there, or would have been perceived. If I were a developer that had not played in this game at all, I would say, "You know, maybe it wouldn't have been a bad idea if 18 months ago I started taking an interest in this thing. At that time, I never thought it would come to anything, but now it has, and these other three guys clearly have, you know, done a lot of work."
Senator Grafstein: Inside track.
Mr. Simke: That isn't the word I used.
Senator Grafstein: Is that fair? Would they conclude -
Mr. Simke: They would say that other players who had done a lot more homework have an advantage. Even if the time period had been six months, they still would have said that, that there is other guys who had done a whole lot more work on this, and from weighing risks and rewards and obviously taking into consideration the state of the real estate market at that time, there were not a lot of people prepared to be somewhat venturesome. I guess people just said, probably, "We will sit this one out."
Senator Grafstein: All right. Let me move to the next topic, and that is this debate between, I guess, committee members about what is viable, what is feasible, what is financially financable and so on. I take a look at the valuation criteria, and I'm referring to page 45, 46 and 47 of Tab H, which is the RFP, and the first issue both in 7.1 and 7.2 is qualification of proponents. Now, it says:
Qualifications of proponents will be evaluated on the basis of overall strength, capacity and demonstrated performance.
Wouldn't that lead somebody outside, not familiar with the internal criteria that has been I think amply covered by my colleague, that heavy weight, predominant weight, perhaps, would be given to overall strength, capacity and demonstrated performance for the following reasons: Complex, one of, little more - not the normal type of project financing one might come across; and therefore, much heavier weight given to who was the acceptable or the best overall proponent?
Mr. Simke: Senator, I don't have the RFP in front of me, but -
Senator Grafstein: Take a look at it. It's Tab H.
Mr. Simke: Tab H, page 45?
Senator Grafstein: Page 45. And I'm just reading it in terms of priority.
Mr. Simke: Right. The section on evaluation criteria was written with a number of criteria set out, qualifications, development plan, et cetera, et cetera.
Senator Grafstein: I accept that. I just want to know the weighting.
Mr. Simke: The weighting was not communicated to developers except in a non - in a qualitative sense, as on page 48, which I already alluded to, where it specifically says to the potential bidders what was of primary importance. So we, with Transport Canada, felt that page 48 clearly said what was of primary importance to the government. In fact, it says:
Other considerations of lesser but significant importance include:
Proponent qualifications ...
Senator Grafstein: So essentially, if somebody comes forward, you know, Price Waterhouse is here to provide some sort of outside independent view about the process. Somebody comes forward and, according to Senator Stewart, promises a billion and a half dollar project. And ultimately, that particular applicant ends up with a project that's a third that or 40 per cent that. There is a big difference from project financing between a half a billion and a billion and a quarter, and so somehow this is where we're confused.
What happened in this process between this RFP that called for an initial proposal of 1 billion plus to the ultimate proposal of less than that?
Senator Jessiman: Where do you get 1 billion from?
Senator Grafstein: The person that got through the line. The Paxport people.
Mr. Simke: You said the initial proposal said that?
Senator Grafstein: Yes.
Mr. Simke: Okay. Well -
Senator Grafstein: Between cup and lip, there was a big Niagara Falls here financially.
Mr. Simke: Unfortunately, in terms of being able to provide you with some insight, we were not involved in this process after the selection of the best overall acceptable proposal. That was the last point at which Price Waterhouse was involved in this process. So I'm unable to provide you with any information about what happened after that.
Senator Grafstein: All right. Let me turn to the final topic, if I could, Mr. Chair.
The Chairman: Senator Grafstein -
Senator Grafstein: It will be brief.
The Chairman: Can you wrap up? We have another witness.
Senator Grafstein: It will be brief. It goes again whether this was a usual process or an unusual process. And again, the process was that there is a call for proposals, three players provide their application, one is dropped immediately, the other two are not dropped, in effect, and at the end of the day we end up with not one, two, or three, but we end up with four, which is a merger in some sort of one and two, maybe not the same components.
Now, is that usual?
Mr. Simke: The fact that ultimately, after the selection of Paxport, that there was a merger, you're asking if that's usual?
Senator Grafstein: Yes.
Mr. Simke: No, I would say in my business experience that isn't usual.
Senator Grafstein: Is usual or not?
Mr. Simke: Not.
Senator Grafstein: It's not?
Mr. Simke: No.
Senator Grafstein: Thank you, Mr. Chairman.
Senator Hervieux-Payette: I have just a small question. I don't know if I can deal with it. It's not very long. It's a definition I would like to clarify.
In your report, you talk about the value of the rights to operate the terminals. I mean, you have two in your page 13 of your report, you say it's between 121, 127, 308 million net of capital investment, and then we have another option which would be 342 million and 558 million net of capital investment.
What would you say is the definition of these rights? Is this a marketable item? Does it have a marketable value to the bidder that was going to the table, negotiating with the government? Is it what you consider the value of the contract or being awarded at least the first step to negotiate with the government, these two higher or lower assumptions? How would you define the word rights?
I mean, they were not acquiring the terminals. They were not acquiring an airport. They were acquiring rights, and of course this has a market value. And if I refer to the report of Deloitte & Touche, at the end of the day, with the Mergeco, in their last page, the third page, they say in 1992 Price Waterhouse was asked to prepare a valuation report, and then they quote the numbers I have just said, and they say there are significant differences in Price Waterhouse assumptions and Mergeco.
And of course, there was a value that was given to you. You are, of course, supervising the evaluation process. Well, how would you qualify these rights? Were they something that had any value to bring to the table of negotiation, if there was a negotiation, with bidder 1 and bidder 2?
Mr. Simke: Senator, in terms of when those rights acquire value, it is in my view a legal question that I'm not qualified to comment on in the sense that, you know, clearly if you win the bid to develop Pearson airport and you have got it, and by whatever definition you have that, we have said yes, that right has value. But at what stage that, you know, legally gives you that right, and therefore you have something of marketable value -
Senator Hervieux-Payette: That's not my question. Just what is the value of the right, providing that, you know, the conditions were met by bidder number 1, by Paxport. If they had met all the financial tests and they had decided at a later date - and this happened in Terminal 3. I mean, Huang & Danczkzay won the award, and eventually Claridge took over. So I mean, there was a value, certainly, that it was worth for Huang & Danczkzay.
Mr. Simke: Right.
Senator Hervieux-Payette: I make a parallel to that, and I say the rights we're talking about. I mean, they were not necessarily acquired rights, because they were not at that time sure, but at least they were bringing something to the table to negotiate with Claridge in order to value what was the winning of the competition. I mean, if you win the competition or you are the first elected and they negotiated under the terms of the Paxport proposal, so at least it was that proposal that remained the core of Mergeco contract. So the rights that you are talking about in your evaluation were the value that you were attributing in your own evaluation of possible value of the rights to the first bidder or the bidder that would be retained.
Mr. Simke: Well, the basis on which we have come up with, you know, this estimate was assuming that you had the rights, not that you might get the rights or could possibly get the rights, but that you had the rights. Now, the extent to which you might still say there is a value, if you don't actually have the rights but you have a good chance of getting the rights, obviously it would be discounted to some extent, and I can't here tell you by how much, but clearly a right you have that is a signed deal is a higher value than a right that you may get.
Senator Hervieux-Payette: Thank you.
The Chairman: Okay. Mr. Simke, thank you very very much. We very much appreciate your coming here.
Senator Jessiman: You're not going to allow any more questions?
The Chairman: No, I'm not.
Our next witness is here now, Mr. Quail. Mr. Nelligan will introduce our second witness.
Mr. Nelligan: Senators, our next witness is Mr. Ranald Quail. At the relevant times, he was the Associate Deputy Minister, Transport Canada, and commissioner, Canadian Coast Guard. He served in that capacity from 1990 to 1993. During the end of that period, he had been designated as the chief negotiator with respect to the proposal by Paxport. In January of 1993, he was designated as the new Deputy Minister of Public Works and assumed that role on February 12 of that year. He is here to assist us with the involvement he had in this file during the period when he was in the Department of Transport.
The Chairman: Mr. Quail, you realize we're asking all witnesses to attest to the truth.
(Ranald Quail: affirmed:)
The Chairman: Is there something you wish to open with, Mr. Quail?
Mr. Ranald A. Quail, Deputy Minister, Public Works and Government Services: Thank you, Mr. Chairman and senators. Maybe I could just add a few remarks, if I could, to the introduction.
As pointed out, my position of Associate Deputy Minister of Transport was from October, 1990 to February 12, 1993, and this certainly covers the period of interest to you. However, as you have learned from the Deputy Minister at the time, the need for a chief negotiator came up after the announcement of the lower bid from Paxport on December 7, and I took up the additional task from the beginning of January, 1993.
An associate deputy minister, as I believe others have explained, supports the DM in the running of large departments. The role of an associate varies depending on the way a department is organized and certainly the wishes of the deputy.
I have been in Transport for some 18 years on the marine side, and I carried with me to the new position of associate deputy my responsibilities for marine transportation, including specifically the role of Commissioner of the Canadian Coast Guard. The deputy in that sense, therefore, did not ask me to deputize for her on the Pearson file, although of course I was aware and occasionally involved in her absence in providing support to her.
That essentially quickly brings me to the close of 1992. At that point, she asked that I become the first of what turned out to be three chief negotiators - myself, then Mr. Broadbent, then Mr. Rowat - and I began my term in the beginning of 1993. Very soon thereafter, on February 12, as part of the shuffle of senior people, I was appointed deputy minister of Public Works, which later became that year the combined Department of Public Works and Government Services.
To set the scene for my assignment as chief negotiator, just prior, the results of the bid evaluation were announced on December 7, 1992. Therefore, when I took up the chief negotiator role at the beginning of 1993, I was responsible to Huguette Labelle, and through her to the minister, to get discussions under way.
I will sketch the events of the six weeks I was in that role, perhaps, for your convenience. Obviously, very early in January, '93, I met with the Transport Canada project management team in Toronto, first of all, for them to take me around and show me the facility and inspect what exactly it was that we were going to be talking about, and then team members provided their views on key parameters to be dealt with in upcoming discussions with Paxport, i.e. the evaluation results, project management structure and schedule, and other issues identified in the bid review process.
On January 15, Counsel Brock, the legal advisor, detailed the legal issues outstanding from the original Paxport proposal. On January 18 - I believe that was a Monday - Mergeco emerges, and I had received a call from the deputy on that weekend asking that I attend a meeting with Paxport and Claridge. At that meeting, the principles of Paxport and Peter Coughlin of Claridge outlined for us that their proposed union was outlined in a letter of agreement dated a few days earlier, January 14, and that further negotiations or undertakings were required before they could finalize it.
Two days later I received a call from Jack Matthews in which he provided me with an update on the ongoing discussions among Paxport, Claridge, and Lockheed.
And on January 28, the project team which I tentatively now got into place and which I was leading met with Jack Matthews of Paxport, Ed King, the Chairman of CIBC, Wood Gundy, and a director of Paxport Inc. These too were supported by a team of players, and the agenda took us through the status of Paxport's proposal and where they stood on the financeability issue.
On February 1, there was a news release on the Pearson operators forming a partnership.
On February 4, at a project meeting in Toronto, we reviewed the Wood Gundy presentation on financeability and other issues, with Deloitte & Touche and Cassels & Brock, our contracted advisors. Our discussions covered the Air Canada Paxport negotiations, a listing of issues and concerns from the Paxport proposal and Mergeco.
On February 9, Jack Matthews called, indicating Wood Gundy were sending some of the data on financeability and asked for an extension on the financeability deadline of February 15. I agreed to consider that and provide a letter.
On February 12, although removing to Public Works, I chaired my last meeting on the project covering a request from Paxport for an extension on the proof of financeability deadline and other issues.
On February 12, I signed a letter to Paxport to extend the deadline for the response to the financeability issue to March 1, 1993.
That, senators, covers the scene when I was the chief negotiator. Thank you.
The Chairman: Thank you, Mr. Quail. Our lead questioner is Senator Kirby, followed by Senator Tkachuk.
Senator Kirby: Thank you, Mr. Chairman, and welcome, Mr. Quail.
Just a bit of background before I get into some of the specifics based on a couple of things you said. Why were you given the Pearson file as the person to manage it? I say that only in the sense that most of us don't think ships and airlines necessarily go together. As I understand it, you were the chief Commissioner of the Coast Guard.
Mr. Quail: I was also at that time the associate deputy minister, and as Madam Labelle pointed out, there was a decision made that we would have a chief negotiator, and that the decision was made that the chief negotiator would be the associate deputy minister of the day. I was asked and agreed.
Senator Kirby: Who made that decision?
Mr. Quail: I got my instructions from the deputy.
Senator Kirby: You didn't talk to her about how that decision came about?
Mr. Quail: No. I mean, we had a discussion, and that I knew that Victor had suggested that we should have a chief negotiator.
Senator Kirby: Just for the record, Victor being Victor Barbeau?
Mr. Quail: I'm sorry, Mr. Barbeau.
Senator Kirby: No, that's fine. I know what you meant, but for the tape, we put the name in. Go ahead.
Mr. Quail: Mr. Barbeau had recommended that there be a chief negotiator, and that discussions had taken place, and it was the deputy's decision that I would - well, I was asked and I agreed to take on the responsibility.
Senator Kirby: When you took over as chief negotiator, were you given a specific mandate letter? Were you given oral instructions from anybody on what to do?
Mr. Quail: Well, (a), there was no letter.
Senator Kirby: Okay. There was nothing written down?
Mr. Quail: There was nothing written down. The deal or the understanding that I had was clearly one that we wanted to see if we could move the file ahead. There were two sides of that file; therefore, when I took it over, in my own mind, the first part of it was to deal with the financeability issue, and the second part of the file was to deal with the issues that were not related to financeability which we could see if we could move those along in a parallel fashion while proof of financeability was being concluded.
I would point out that these were not - and I wanted to make it clear to Paxport as well, these were not negotiations. These were discussions for points of clarification. Examples, personnel issues. Okay? There were other issues, and, in fact, in the books that were provided as part of the background for me for this testimony, there are a large number of issues that we talked about in terms of getting those issues ready, getting our position so we could advance and have those discussions take place with Paxport.
Senator Kirby: When you began the task as chief negotiator, who did you discuss it with at the time? You said you discussed it obviously with Madam Labelle. She was your deputy. Did you discuss it with any other senior bureaucrats?
Mr. Quail: Not really. In terms of whether I would take it or not?
Senator Kirby: No, just in terms of what it was you were going to do. For example, was there any discussion with Mr. Shortliffe about it, for example?
Mr. Quail: No.
Senator Kirby: Well, in the roughly six weeks I guess you said you were the chief negotiator, did you have any discussions with the PCO, Mr. Shortliffe or Mr. Rowat, about what you were doing?
Mr. Quail: I would have, as a matter of course, spoken to PCO, and my liaison there would have been Bill Rowat.
Senator Kirby: Not the clerk?
Mr. Quail: No.
Senator Kirby: When did you first hear that Mergeco was emerging, if that's not a redundancy?
Mr. Quail: Late December.
Senator Kirby: Who told you about it?
Mr. Quail: The deputy, Madam Labelle.
Senator Kirby: Late December being before Christmas or after Christmas?
Mr. Quail: I don't really know. After - I don't know. Late December would be, you know, late December, after the 20th.
Senator Kirby: But you knew about it before you became chief negotiator?
Mr. Quail: I knew about the possibility.
Senator Kirby: Because you had been told by Madam Labelle.
Mr. Quail: That's correct.
Senator Kirby: What is your understanding of how Mergeco came about?
Mr. Quail: I don't know what you mean. How do I know how it came about?
Senator Kirby: Yeah. Do you have any knowledge at all on what happened in order to create Mergeco?
Mr. Quail: No.
Senator Kirby: I don't know if you've been following these events or not, the hearings, but you may be aware that Mr. Hession said that shortly after December 7, he received a call from a senior public servant suggesting that the two companies get together, the two bidders get together. Were you aware of that prior? First, have you heard that Mr. Hession had said that?
Mr. Quail: Yes.
Senator Kirby: Were you aware prior to hearing the testimony here that that had happened?
Mr. Quail: No.
Senator Kirby: You were not the official who made the call?
Mr. Quail: No.
Senator Kirby: Okay. I wonder if I could turn - I assume my assistant is here somewhere. I wonder if I could turn to the document that I have lettered "A". I just have three documents for you, Mr. Quail. For the record, this is document number 000837. I wonder if you could explain to me what it is, because it was in your file. I find it difficult to - just a second. My assistant will give you a copy. Have you got one?
Mr. Quail: Yes.
Senator Kirby: Okay. Can you tell me what that document is?
Mr. Quail: Yes. It's a -
Senator Kirby: Is that your writing?
Mr. Quail: No.
Senator Kirby: Okay.
Mr. Quail: It's a - if we can just wait one second, so I can -
Senator Kirby: That's fine.
Mr. Quail: After the meeting of January 18 in the morning with Paxport and Claridge, where I first became aware of the fact that they had gotten together, I had a discussion with -
Senator Kirby: Can I just be clear for a minute? You said that in late December you became aware that it was a possibility?
Mr. Quail: Yes.
Senator Kirby: But you didn't know. So somewhere between post December 20 and January 18, the possibility became a reality.
Mr. Quail: Well, from my point of view, it became a reality on the morning of January 18.
Senator Kirby: Fine. Thank you. I was just trying to clarify that. Go ahead.
Mr. Quail: So I called - by that time I was in the chair as the chief negotiator, and I had - was working with Mr. Jolliffe and others in Ottawa and also with the project management team in Toronto, and following the meeting I had a telephone call with Mr. Jolliffe, and those I think are notes prepared by Mr. Jolliffe as a result of my debrief from the meeting with Paxport and Claridge.
Senator Kirby: So you met with Paxport and Claridge, but Mr. Jolliffe was not at the meeting; right?
Mr. Quail: He was not.
Senator Kirby: It was just you?
Mr. Quail: No. It was the people at the top of the list were at the meeting.
Senator Kirby: I guess I have trouble with the writing.
Mr. Quail: Mr. Green, Madam LaBelle, Quail, and Victor Barbeau.
Senator Kirby: Okay. And then you phoned and debriefed Mr. Jolliffe?
Mr. Quail: Yes.
Senator Kirby: Okay. You'll notice in the - I'm sorry, I have real trouble with the writing here. But the third bullet point from the bottom appears to - appears to me to say, "Matthews had been at this about a month one week after the announcement," or something like that. Is that what that says to you?
Mr. Quail: That's what it says to me.
Senator Kirby: Do I infer from that that in debriefing Mr. Jolliffe, you either said to him or suggested to him that it looked to you as if the two parties had been trying to get together beginning days after the issuance of the December 7 decision?
Mr. Quail: My reading of that is that I would have debriefed that in the presentation by Mr. Matthews that they - he indicated that they had been at this for about a month. The brackets I would think would be added by Keith, but I'm not sure.
Senator Kirby: Okay, but a month. In any event, a month was roughly a week after.
Mr. Quail: Yes.
Senator Kirby: Because this is only five weeks after it.
Okay. I wonder if, then, I could ask you to look - I want to come back to this one in a minute. I wonder if I could ask you to look at a document that I have labelled "B". For the record, colleagues, it's number 00130. And I'm going to ask you to kind of take me through this, because frankly I don't understand it.
Senator Grafstein: What date is that?
Senator Kirby: The date of this one is January 20, so it's two days after your meeting with Claridge and Paxport, and the day after the memo you just read to us.
Senator Grafstein: These are handwritten notes?
Senator Kirby: I'm now referring to a typed document, 00130. I have labelled it with a letter "B".
I wonder if, as a general question - I don't want to get into quite some specifics. Throughout this document, there is a reference to - the term appears repeatedly, "the Claridge proposal". What is the Claridge proposal? Is that the ATDG proposal, or is it some other proposal?
Mr. Quail: Not, it's the proposal of January 14 that we met, their letter of January 14.
Senator Kirby: So "the Claridge proposal" refers to the document which was the proposed getting together of the two companies?
Mr. Quail: Yes.
Senator Kirby: Okay. Can you explain the last three paragraphs? Why don't you just read, beginning with point 4, down to the bottom of the page, because I don't understand it. Perhaps you can help me understand what it's all about. Do me a favour, and read point 4 into the record, and then I can ask questions on it.
Mr. Quail:
PAXPORT want to know if Transport Canada would agree to work with PAXPORT at the same time as the Claridge proposal was being considered.
R. Quail referred to page 2 of the Claridge proposal reference not proceeding independently, questioning whether PAXPORT's request was consistent with this point.
J. Matthews declared it not inconsistent, that discussions would not be at odds with the Claridge proposal.
R. Quail noted in response that W. Power was to meet with R. Hession at PAXPORT's request and if the Claridge proposal is to be kept in confidence, this meeting would continue as if the Claridge proposal had not been received.
Senator Kirby: I guess I'm really puzzled. You have a meeting with Claridge and Paxport, and they tell you, on the 18th, four days earlier, they have this document which is an agreement between the two of them. You call it the Claridge proposal.
Mr. Quail: Mm hm.
Senator Kirby: And then on the 20th, six days after, they have signed this agreement. You're supposed to continue to act as if it hasn't been received and you don't know anything about it. What is the game?
Mr. Quail: The issue at stake here was that in the letter that they had left with us on January 14 -
Senator Kirby: Just to be precise, who is "they"?
Mr. Quail: Mr. Matthews and Mr. Claridge at the January 18 meeting.
Senator Kirby: Mr. Matthews and?
Mr. Quail: I'm sorry, and Mr. Coughlin, at the January 18 meeting. In that particular one, there was a question of the sensitivity of the negotiations that were ongoing, and they'd asked us to keep this on a very close need-to-know basis in terms of inside of the department, and they were also doing the same. That was a request of theirs. It was also a part of the agreement that was signed on January 14, '93 by the parties.
Senator Kirby: So in fact this is sort of neat. You were going to continue to run a negotiating team without telling the other guys on the negotiating team that, by the way, Paxport and Claridge are going to get together. So you had information that the rest of your team or generally your entire -
Mr. Quail: No, no. The team had the information.
Senator Kirby: So the whole team knew about it?
Mr. Quail: Yes.
Senator Grafstein: Treasury Board?
Mr. Quail: No.
Senator Kirby: Just literally within your own small group?
Mr. Quail: Yes.
Senator Kirby: Why the super secrecy, I mean, if in fact this is what's going to happen? What are we hiding here?
Mr. Quail: I didn't know it was going to happen. They asked us to keep it in confidence, and until such time as they met the covenants in their letters of January 14, we agreed to do that. And we also agreed that we would keep talking to Paxport.
Senator Kirby: Mr. Hession was not at this meeting; right?
Mr. Quail: No.
Senator Kirby: Did Mr. Hession know about what -
Mr. Quail: I don't know.
Senator Kirby: You don't know. And in discussions with Mr. Hession, did you ever get in - because you obviously met with him on a regular -
Mr. Quail: I had no discussions with Mr. Hession.
Senator Kirby: At all?
Mr. Quail: None.
Senator Kirby: Because -
Mr. Quail: I wasn't there long enough.
Senator Kirby: So he was not - okay.
I wonder if I can ask you to look at paragraph 6. Well, point 6, excuse me, on the next page, which contains two paragraphs. I wonder if you might read those into the record and then explain to me what - it says you have a worry. I wonder if you might explain to me what your worry is, but would you read the two paragraphs in first?
Mr. Quail:
R. Quail raised the question for clarification purposes, of the "lenders" referred to on page 2, of the Claridge proposal. He wanted to confirm whether the lenders referenced were the lenders for Terminal 3. This was confirmed.
Discussion continued on the circular argument in the first paragraph of page 2 regarding the sharing of the RFP proposal information, with the worry voiced by R. Quail as to how this would leave Transport Canada, what effect this may have on Transport Canada.
J. Matthews acknowledged that they may have to clarify and rework this section.
Senator Kirby: What was your worry?
Mr. Quail: Wanted to know who and what the letter meant.
Senator Kirby: Sorry, the letter being the letter of the 14th?
Mr. Quail: I'm always referring to the letter of the 14th.
Senator Kirby: So the letter means the 14th. Okay. Just for the tape. Go ahead.
Mr. Quail: And that basically the purpose behind the question was to try to understand what in fact the letter meant. Point number one.
Senator Kirby: Okay.
Mr. Quail: Who are the lenders? Are they Terminal 3? What lenders are you talking about? Always in the back of your mind that maybe this backs into financeability somewhere.
Nevertheless, wanted to make sure that we understood to the degree that we could, recognizing that they had not finished their discussions between Paxport, Claridge and Lockheed, that - as to who the lenders were. That's the first point.
Senator Kirby: Okay.
Mr. Quail: The second -
Senator Kirby: Just before you get to the second point, you wanted to know who the lenders were so that you could understand if it had any impact at all on one of the two big issues you were concerned about, which was the financeability issue?
Mr. Quail: That's right.
Senator Kirby: Okay.
Mr. Quail: The second point is I was concerned or and wanted to know exactly what you asked for before: Which proposal is it that we were going to be dealing with? And that if you look in subsequent documentation, you will note that during the period I was there, any way, we had said that we were going forward with the Paxport proposal.
Senator Kirby: Right. So sorry, I still don't understand what your worry was, or what it was you were trying to get clarified. You had said you were going forward with the Paxport proposal?
Mr. Quail: Yes.
Senator Kirby: Was it your concern that they might be thinking you were going forward with an amalgamation proposal or something else? I don't understand.
Mr. Quail: I was more interested in making sure I understand what their thinking was as opposed to where I was.
Senator Kirby: From a policy standpoint where in effect by the two of them getting together there was in effect only going to be one real bidder on the table, were you concerned about that? I mean, in effect, de facto, if not de jure, it in effect took the ATDG proposal off the table.
Mr. Quail: Well, the ATDG proposal was not off the table at that point.
Senator Kirby: Was not formally off the table?
Mr. Quail: Not formally off the table. I was -
Senator Kirby: That's why I said de facto, not de jure.
Mr. Quail: Okay. I was concerned that what I wanted to do was to move forward and deal with the proposal that was on the table that had been judged to be the best overall, and that was the Paxport proposal. That's what I wanted to deal with, and I wanted it to be clear on the other side as well.
Senator Kirby: Okay. I wonder if you can go on to paragraph 10, which also contains three - point 10, excuse me, which contains three subparagraphs. It's on the top of page 3. Again, I want you to read that into the record, and then I want to ask you a question about it.
Mr. Quail:
J. Matthews raised one issue for direction, being the framework for continuation of negotiations or discussions.
R. Quail position was large deviations from substance of the RFP would make Transport Canada very nervous and that Transport Canada would need to fully understand where PAXPORT was coming from.
If the discussion was substantially on the RFP/PAXPORT proposal, Transport Canada could confirm this was in line with where we are today.
Senator Kirby: Large deviations from the substance of the RFP would make Transport Canada very nervous. Aside from the fact that that's eventually what happened, what was going to make you very nervous?
Mr. Quail: We had a proposal. The proposal had been evaluated, and I wanted to stay within the framework of the proposal that was on the table and had been evaluated.
Senator Kirby: And for the six weeks you were there, you did?
Mr. Quail: Yes.
Senator Kirby: And what happened beyond that is not something you really had anything to do with?
Mr. Quail: No.
Senator Kirby: I wonder if I can ask you a question which in a sense links your old job and your new job together. Currently, at the combination of the old Supply and Services Public Works combination, you're responsible - am I right? - for effectively government contracts? I mean, when the government buys things and signs big contracts?
Mr. Quail: We're responsible for procurement where the authority has not been delegated to departments, senator.
Senator Kirby: Can you -
Mr. Quail: I'm not - well -
Senator Kirby: What do you mean by "where authority has not been delegated to the department"?
Mr. Quail: Treasury Board is the policy setter. There are delegations of authority for procurement.
Senator Kirby: Is that a size limitation, basically?
Mr. Quail: It's essentially on procurement it's a size limitation. With respect to land, that is a different story, and that is under a different piece of legislation, and it's a different delegation.
Senator Kirby: Do you have any involvement with land leases at all?
Mr. Quail: Yes.
Senator Kirby: Sorry, I don't mean you personally. I mean the department. Sorry, so I'm clear.
Mr. Quail: Yes.
Senator Kirby: Is it true that your department, I mean your current department, is involved with all major land leases involving government? I say major ones, not little tiny ones.
Mr. Quail: We're essentially in the accommodation business, so that we would get into large leases, if you wish, dealing with accommodation. Place Portage, Guy-Favreau.
Senator Kirby: Are there land transactions you are not involved in?
Mr. Quail: Not - we could be, but not necessarily. I mean, we're not involved - Transport Canada airports did their own leasing.
Senator Kirby: They had historically done that?
Mr. Quail: Yes.
Senator Kirby: Correspondingly, selling land was also -
Mr. Quail: No, land disposal would be different. Land disposal would normally come through our department, but that would be via the Treasury Board.
Senator Kirby: Okay. In the normal course of events, if you were doing at lease of this - by the way, do you regard this - did you regard what you were trying to do as negotiate a lease or negotiate a contract? I only ask because you used the word "contract" a little while ago, and I just didn't know what you thought you were doing.
Mr. Quail: Never thought about it. I was attempting to negotiate a set of contract documents that would put in place the T1T2 agreement.
Senator Kirby: In your current job, if you were attempting to negotiate a set of contract documents, would those contract documents, would you put into those documents some form of cancellation or termination clause?
Mr. Quail: On leases?
Senator Kirby: Well -
Mr. Quail: There is a difference.
Senator Kirby: I'm trying to use your words.
Mr. Quail: There is a difference between whether I'm going to procure something or whether or not I'm getting into a lease type of arrangement. If I was doing a procurement, I would have termination clauses, and I would have termination clauses for convenience. If we're into the -
Senator Kirby: Just for the record, would you explain what you mean by "termination clause for convenience"?
Mr. Quail: Termination clause for convenience means for the convenience of the government of the day, that we could terminate the contract according to the conditions that were in the contract.
Senator Kirby: Okay. Again, I -
Mr. Quail: Fair enough.
Senator Kirby: "For convenience" is a shorthand legal phrase for a longer statement. Sorry, I interrupted you.
Mr. Quail: And that on lease contracts, we would not have termination for convenience. We'd have termination for default. In other words, not meeting the contract conditions, or, you know, if the building burned down or something of that nature.
Senator Kirby: Okay. And the issue of whether or not this is a lease or a contract, therefore, in a sense is an interesting issue, because what you're telling me is if it was a contract, it would have certain conditions. If it was a lease, it would - it might or might not have those conditions, is what you're saying?
Mr. Quail: It certainly isn't a procurement contract, and I never thought it was a procurement contract.
Senator Kirby: I understand that, but it's also equally not clear from the description you used before whether or not it's a lease. Is that correct?
Mr. Quail: No. In terms of putting together the clauses, I would have seen it as a contract that deals in the land lease business, yes.
Senator Kirby: Thank you, Mr. Chairman. I think Senator Grafstein had a supplementary, but I'm not sure.
Senator Grafstein: Perhaps it might be appropriate, since we've had a turn, for the other side to proceed, and then we can come back.
The Chairman: Senator Tkachuk.
Senator Grafstein: I'm prepared to proceed if you'd like, Mr. Chairman.
Senator Tkachuk: I can't get over the civility. Go ahead, Senator Grafstein.
Senator Kirby: It's because John's not here today. Changes the whole tone.
Senator Stewart: Which John, now?
Senator Kirby: You can take that any way you want.
Senator Stewart: For the record.
Senator Tkachuk: He said he had a supplementary.
Senator Grafstein: I have another round of questions. I just didn't want to be presumptive, Mr. Chairman.
Senator Tkachuk: Are we closing this off at 12?
The Chairman: Well -
Senator Kirby: This witness can come back this afternoon?
The Chairman: That's something to be discussed. Go ahead.
Senator Tkachuk: Okay. After your appointment, you would have put together your team. Did you have a team that you put together for this process, for this consultation process?
Mr. Quail: Yes.
Senator Tkachuk: Who was on it?
Mr. Quail: The main players in Ottawa would have been Keith Jolliffe, and that in Toronto was Chern Heed and Wayne Power. We also then had the financial advisors and the legal advisors.
Senator Tkachuk: Who were the financial advisors?
Mr. Quail: Deloitte & Touche.
Senator Tkachuk: And what was Deloitte & Touche's specific job?
Mr. Quail: From my point of view?
Senator Tkachuk: Yeah.
Mr. Quail: In short form, were to provide us advice on the question of financeability.
Senator Tkachuk: There were a number of issues you said you felt at the beginning that you had to deal with. One was financeability, and the other was - you mentioned other issues. Could you relate to us what the other issues were?
Mr. Quail: Sure. It's really perhaps best set out, if I could, in a set of documents, and that - the documents that I believe would be helpful in that respect, Mr. Chairman, are 00268, and these were business issues, and that we set them out in some detail in that particular document. Airlines agreements are examples, existing lease and concession agreements, Paxport corporate overhead and management systems, allocation of non-airline revenue, revenue from associated commercial departments, central heating plant, central workshops, bid allocation, other conditions, concerns, traffic allocation, taxi, waste systems, duty-free licences, liquor sales, role of the local airport authority, the ERP issues, who is going to carry the responsibility for ERP, rental car companies -
Senator Tkachuk: What is ERP?
Mr. Quail: I'm sorry, environmental issues.
Senator Tkachuk: Okay.
Mr. Quail: And those are examples. They are set out in the document.
Senator Tkachuk: Right. These were outstanding issues as a result of?
Mr. Quail: These were issues as a result of the RFP that we needed to be clarified and understood and would be part of the final agreement.
Senator Tkachuk: You mentioned your team. You don't mention the deputy. Did you report to her?
Mr. Quail: Yes.
Senator Tkachuk: Fairly regular basis?
Mr. Quail: Yes.
Senator Tkachuk: Yes. So you were dealing with her as the associate deputy minister? Or as the head of the bargaining or head of the negotiating team?
Mr. Quail: On this file?
Senator Tkachuk: Yeah.
Mr. Quail: As the head of the negotiating team.
Senator Tkachuk: Were you given instructions from her at any time during this process that you would have considered political or to do something that you would not normally do in the process of your business?
Mr. Quail: No.
Senator Tkachuk: Let's go to the financeability issue, that you mentioned sort of like the other issue. What resulted in the -
Senator Grafstein: Sorry. I just didn't get your question and his response. Just what was your question?
Senator Tkachuk: I asked if he had received any instructions that he would have thought would have been political or instructions that would have made him deviate from what he saw as the proper job to do from the Deputy Minister. He said no.
Senator Grafstein: Okay.
Senator Tkachuk: Did you receive them from your minister?
Mr. Quail: No.
Senator Tkachuk: Did you receive them from the PCO?
Mr. Quail: No.
Senator Tkachuk: So you were basically given a job to do, and you were doing it as you saw fit as a professional civil servant?
Mr. Quail: Yes.
Senator Tkachuk: Let's go to the financeability issues. These issues arose from - I'm going to be careful here. This was subject to - on the announcement of December 7, the announcement was made to accept the proposal based on them solving a number of issues, one of which was the financeability issue?
Mr. Quail: Proof of financeability.
Senator Tkachuk: Proof of financeability. So what were some of the key points that you thought that you saw around this that you wanted resolved to your satisfaction?
Mr. Quail: Essentially, the decision had been that Paxport were the best overall acceptable proposal. We know that. And really, from my point of view, the issue was to determine whether there had been significant changes in the opinion or requirements of potential lenders since the meetings that had been held whenever Paxport put their plan together, submitted their bid, and that there had been some considerable time passed during the time that you go and talk to everybody to get your bid ready and the bid comes in, et cetera, and we get around to now looking at proof of financeability.
Senator Tkachuk: The question of financeability was also tied to some of the conditions that Paxport had actually put into the initial call for proposal.
Mr. Quail: Yes.
Senator Tkachuk: They would be?
Mr. Quail: Again, allocation problem. Sharing between terminals. Those are the ones that come to mind. It's been a while since I've dealt with this.
Senator Tkachuk: I understand.
Mr. Quail: But I mean any of the ones - absolutely any of the ones that were in the documents that we were preparing to have the discussions, as I read some of the examples previously. Absolutely, we would have focused those back onto whether or not they'd have potential to impact on the question of financeability.
Senator Tkachuk: Revenue items?
Mr. Quail: Yes.
Senator Tkachuk: They were as unclear about the revenue items as - I shouldn't say "unclear". That would be a wrong word. They weren't able to have a commitment from, say, Air Canada, any more than their opposing proposal, the Claridge group, would have had been able to get commitment from Air Canada. Is that not correct?
Mr. Quail: That's my understanding.
Senator Tkachuk: During this time period that you were involved till your appointment as deputy minister, was Chern Heed always on your group? Was he with your group?
Mr. Quail: Yes. Any time we met in Toronto, he would be there, or he'd try to be there, depending on his schedule. Certainly Wayne Power was, and he worked - Wayne Power worked for him.
Senator Tkachuk: As far as the question of what happened between Paxport and what happened between the Claridge group, that's something that they would have knowledge on and they were discussing. We'll have opportunity to talk about that when they get here. You were more concerned what the ramifications would be to the contract itself.
Mr. Quail: That's right. I was concerned from the point of view that (a), they hadn't concluded anything at this point, and that I wanted to be clear as we went forward in our discussions on the Paxport proposal and on the proof of financeability that we were dealing with the Paxport proposal.
Senator Tkachuk: So when you set a benchmark for what you were negotiating on, you were negotiating on Paxport, which was the winning proposal with certain conditions that the minister outlined on December 7.
Mr. Quail: Yes.
Senator Tkachuk: To deviate from that would have caused you a problem?
Mr. Quail: Yes.
Senator Tkachuk: So the major focus of your group was to maintain the Paxport proposal to the end of the agreements.
Mr. Quail: To the end of the agreements?
Senator Tkachuk: To the actual signing, if you had been there. I mean, at the time in January, you didn't know you were going to be appointed as deputy minister. I assume you didn't.
Mr. Quail: Correct.
Senator Tkachuk: So that was sort of your goal?
Mr. Quail: Yes.
Senator Tkachuk: You'd have consulted with your other people in your group as to the ramifications of what the two other groups were planning to do, i.e., Mergeco?
Mr. Quail: Yes.
Senator Tkachuk: And there is a document 00268, which was a memo from Chern Heed dated January 20, 1993 which deals with the concerns about Mergeco and the RFP, and Mr. Heed addresses this memo to you, Mr. Quail. Did you ask him to write this memo, or was this something he did as a result of a meeting, or -
Mr. Quail: If you look back on the documents that I believe were circulated under the questions raised by Senator Kirby, the one with a little "A" on the right-hand side, if you go to the second page, you will see that on - that there was discussions, and that Chern Heed had been involved and was aware of the 18th of 1, 93, meeting with Paxport and Claridge. Therefore, it was Chern Heed's letter to me. I didn't ask him for it.
Senator Grafstein: Just reference the document.
Senator Tkachuk: There it is. Do you want me to repeat that, Senator Grafstein, as to what document that was? It was document 00268, January 20, 1993.
Senator Grafstein: I have a copy.
Senator Tkachuk: From Mr. Heed to Mr. Quail. So he just did this as what he thought as the airport manager or as a member of the team would have thought about what was happening with the Mergeco proposal and how it affected your negotiations?
Mr. Quail: That would be somebody that's part of the group that wants to make something - get his views onto the table.
Senator Tkachuk: If you go to paragraph 1 -
Mr. Quail: Yes.
Senator Tkachuk: And I think what I'll do is maybe I'll - I can read parts of it, but I don't want to put anything out of context here.
Unless or until we see some evidence to the contrary, we view the proposed arrangement as simply a corporate restructuring ...
When he uses the word "we", what did he mean?
Mr. Quail: I don't know.
Senator Tkachuk: Who is he talking about, "we", or is that just what bureaucrats normally do, is use "we" rather than "I"? Is it "we"? Was he talking about his team at the airport?
Mr. Quail: I would anticipate that that is what he was talking about. He and Wayne Power and the group had discussed it, and this was their view. That's the way I read it. I never asked him what he meant by "we".
Senator Tkachuk:
... a corporate restructuring to create a new (and stronger) entity committed to pursuing the Government's acceptance and subsequent implementation of the Paxport proposal. We see no reason why the merger would create any new or unique circumstances not contemplated by the Government in its previous approvals or by the Request for Proposals.
Do you agree with that, the point of view that he tried to reiterate to you in that memo?
Mr. Quail: I did not - at that point, I did not disagree with it.
Senator Tkachuk: At any time, did you disagree with it?
Mr. Quail: Not during the period of time that I was the chief negotiator, no.
Senator Tkachuk: Okay. It seems to me - I'm not going to try to read anything into the memo itself, but I'm going to repeat this thing again and again, just so that it's clear to the inquiry and to the committee: That the question of the merger, as far as the negotiating team was concerned, the important thing to your group was that they would be following the Paxport proposal in its negotiations and not the Claridge one.
Mr. Quail: Yes.
Senator Tkachuk: And did you receive assurances of that at the January 14 meeting? Was that part of the covenants you were talking about? Did they say they wished to deviate from it, or they would try and negotiate? I would have thought they would be trying to negotiate.
Mr. Quail: I wouldn't categorize the January 18 meeting as negotiations. The January 18 meeting was information. They came to tell us what was taking place, what had happened, and on the 14th they'd come to an understanding, and they tabled a document that says, "This is our understanding." I did not label it as a negotiating meeting.
Senator Tkachuk: And in reality, that's what Paxport was bringing to the table, was it not? To the merger?
Mr. Quail: Pardon me?
Senator Tkachuk: In reality, that's what Paxport was bringing to the table in the merger, was their proposal.
Mr. Quail: I don't - I'm not sure I understand what you're asking me.
Senator Tkachuk: Well, they obviously are merging for a reason.
Mr. Quail: Yes.
Senator Tkachuk: They're both bringing something to the table?
Mr. Quail: Yes.
Senator Tkachuk: If they don't bring the RFP to the table, what do they bring?
Mr. Quail: If you look at the January 14 letter, they talk in it that they were the - they had different words, but they had won the best overall proposal, and that's what they were bringing to the table. If that's the question, the answer is yes.
Senator Tkachuk: Yes. In paragraph 5 in that same memo - paragraph 4 is eliminated here, but if we go to paragraph 5:
There should be no conflict with the RFP process. That process has proceeded to the stage that the best proposal has been identified and the Government has announced its intention to attempt to negotiate an agreement with the proponent of that proposal. The fact that the selected proponent is selling 50% of its rights as "the proponent with the best overall acceptable proposal" (whatever those rights may be) is not seen as a violation of the process; unless there is some evidence that there was collusion earlier in the proposal process and we have no reason to suspect there was.
Did you ever have reason to suspect there was?
Mr. Quail: No.
Senator Tkachuk: Did any of your team indicate to you that they ever had reason to suspect there was?
Mr. Quail: No.
Senator Tkachuk: Have you heard anything since that would give you any reason to suspect there was?
Mr. Quail: No.
Senator Tkachuk: And then if we go to the last paragraph on that same memo, page 2:
For the present, we see no significant obstacle to the merger but recommend that the Department maintain the position that it is interested in pursuing implementation of the Paxport proposal subject only to changes to resolve the concerns of the Government. While Paxport may request substantive changes pursuant to their discussions with the airlines, lenders and/or new partner, it is difficult to anticipate what those changes will be and how the Department should respond. It will be necessary to wait and see what develops.
Did you agree with the first part of that paragraph? Because the last part is just sort of subjective stuff, so.
Mr. Quail: That's essentially consistent with the way we were going, yes.
Senator Tkachuk: I am done, chairman. Thank you very much.
Senator LeBreton: It's twelve o'clock. Are we breaking?
Senator Grafstein: I'm prepared, Mr. Chairman.
The Chairman: You're prepared to question. The vice chairman and I have agreed, if Mr. Quail is also agreeable, to going to 12:30 and then breaking and extending the lunch hour to begin at two o'clock. Is that agreeable to all?
Senator Kirby: For colleagues, we decided to finish with this witness and then take a break, rather than call the witness back and then begin with another witness.
The Chairman: That helps. It keeps us on track.
Senator Tkachuk: That is assuming that Senator Grafstein will be 20 minutes.
The Chairman: Senator Grafstein is always very cryptic.
Senator Kirby: If he spills over, there is nothing magical about 12:30.
Senator Grafstein: I am amazed at this overnight new-found confidence in my ability to be brief. Thank you so much. Thank you, witness.
You have been following, I assume, the testimony of the last few days, Mr. Quail, and obviously you were put in a very I guess difficult position, having been brought into a matter and then subsequently being assigned. You were here for a short but very pungent period of this particular process.
I guess the first general question I'd like to ask you is, was this usual? Was this process, based on your experience in other contracts and processes of this nature, usual in terms of the time frame allotted by the department? You weren't responsible for the time frame, but just looking at it, either then or in retrospect?
Mr. Quail: Are we talking about the 90 days?
Senator Grafstein: Yeah. And the lack of expression of interest and the apparent urgency to complete this matter.
Mr. Quail: Couple points. One, I don't find it unusual that there was a chief negotiator appointed, and that the senior executive in the program part of the department had the responsibility to carry on with his other duties. I don't find that unusual.
With respect to the 90 days, that decision was taken that we would proceed with the 90 days by the minister, and that there had - that had been preceded by a lot of discussions. Some of it - I listened to Mr. Simke just before - as to 90 days, yes or no, et cetera. The minister made the decision we'd proceed with 90 days, and at the same time I believe he also indicated that they would be prepared to consider an extension.
Senator Grafstein: Okay. But did it appear to you to be rather short? You weren't part of the decision, but are you able to tell us whether or not you felt it was a short period of time or not?
Mr. Quail: I would agree that it's tight.
Senator Grafstein: Okay. Just this level of questions, just a clean-up question from Senator Tkachuk, and that is that conversations that you would have had during the period of time, I'll just ask you a series of questions. Did you receive any directions in writing from the deputy minister?
Mr. Quail: No.
Senator Grafstein: Or the clerk?
Mr. Quail: No.
Senator Grafstein: Privy Council or senior officials on this file?
Mr. Quail: No.
Senator Grafstein: Did you have any written or verbal communication with them?
Mr. Quail: As I mentioned earlier, I had spoken, and I don't know how often, but to Bill Rowat at PCO.
Senator Grafstein: I see. So your contact during this process was with your deputy and with Mr. Rowat?
Mr. Quail: Yes.
Senator Grafstein: And was it with anybody else at PCO?
Mr. Quail: Not to my recollection, no.
Senator Grafstein: If there is any, we understand that you kept, from my observation, rather extensive notes.
Mr. Quail: If I could just clarify that, what I did do was I debriefed Mr. Jolliffe regularly after any telephone calls, and he put the notes to file.
Senator Grafstein: I see. These were not your notes, then?
Mr. Quail: No. They were a debrief of a telephone call from me to him.
Senator Grafstein: All right. Well, so that you'll let us know if, on subsequent review, there has been any notes or memoranda or notes of conversations that you've had with senior officials? When I say senior officials, during this process, I'm saying -
Mr. Quail: In getting ready for the appearance before the committee today, I've done the best I can, and I have no recollection.
Senator Grafstein: Fine. So there are none other than what we see and what we've heard?
Mr. Quail: Yes. When I left the department, I sent all my notes over to Mr. Jolliffe.
Senator Grafstein: Okay. Could you just, just because it's difficult to read or understand, read the document? It's called "Paxport/Claridge Deal", 18/1/93. It's titled at the top, Box 313, then III, and then at the bottom 00837. You previously referred to this. I'm trying to read it, and I'm having difficulty reading it all, but there some questions I have. It may very well be that when you read it, I won't have any questions. So could you just - it's not very long.
Mr. Chairman, it might be interesting if it could be read into the record, just because it's difficult to read. I think it's rather important.
So lay aside who the people are. I think that's all pretty clear. And there is a note on the side that says, "8:00 a.m. today face to face". That I assume means that all the people noted there were at a meeting at 8:00 a.m.
Mr. Quail: Yes.
Senator Grafstein: On January 18?
Mr. Quail: Yes.
Senator Grafstein: Okay. Working pretty early for the government. I commend you on that, Mr. Quail.
Now, just read us the rest of those notes, if you could.
Mr. Quail: I'll do my best to read the notes to you, because there are some of them I can't understand.
Senator Kirby: Okay. Welcome to the club.
Mr. Quail: The first one after you get through with who was at the meeting, is that the issues, and then I don't know what the next word is, and "What is the proposal?" Then you got, "T3LPCO Invest Inc., 50/50 basis, need Lockheed agreement." If you look at the January 14 letter, that makes sense.
Senator Grafstein: Right.
Mr. Quail: "New structure, T3 lend 80 million to Paxport. Exchange for 50 per cent of T1T2 deal. Lockheed" something "all three terminals." "Operate all three terminals. Paxport overall" - I don't know - "management of T1/T2/T3. No Lockheed agreement yet. Q" - which would refer to me - "are they on the right track?" I can't read the next one. "Deals with shareholders." One of the words is "shareholders". I assume that that -
Senator Grafstein: Would that be "lender"? Am I reading something to lenders approvals - shareholders?
Mr. Quail: Yes.
Senator Grafstein: Would that be fair?
Mr. Quail: Yes. And I think that refers back to a subsequent discussion that I had previously that you had to get the shareholders - you had to get the lenders' agreement.
Maybe if I could, I'd say it's, "Subject to lenders' approval and shareholders." I think that's what it says. "Subject to lenders' approvals and shareholders."
Senator Tkachuk: On a point of order, are we going to read this whole thing into the record?
Senator Grafstein: Just this one memorandum. It's very short. It's just I think it's a crucial one, and I don't want to misinterpret what was said or what took place at that meeting.
Senator Tkachuk: You didn't write it either, did you?
Mr. Quail: No, I did not. It's a debrief from the discussion that I had with Keith Jolliffe.
Senator Tkachuk: So it's a third party thing that we're having one of the witnesses read.
Senator Grafstein: No, it's this witness's conversation with a notetaker, and I'm just trying to get his view, based on these notes, of what he might have said at that particular time.
Senator Tkachuk: Is this your conversation, or is this the team's conversation?
Mr. Quail: This is my conversation with Keith.
Senator Tkachuk: I'm just asking the question. This is odd stuff to be reading into the record.
Senator Grafstein: It's not odd stuff. It's his conversation with a notetaker. He said that. We just want him to give to us -
Senator LeBreton: It makes sense if you read it right.
The Chairman: Read on, Mr. Quail.
Mr. Quail: "Couglin, protection of all shareholders, (press release)." I don't have any recollection what press release means, but protection of all shareholders. The next one is the DM - that would be something referencing Madam Labelle, "Finance? Once" - I can't read it. I'm sorry. Can you help? I can't read it. My guess would be that that says that once you've got your act together, then we could look at the question of financing.
Senator Grafstein: Would it be Matthews marriage first, then finance?
Mr. Quail: Yes, that's a good - agreed.
Senator Grafstein: I'm just -
Mr. Quail: Agreed.
Senator Grafstein: Okay.
Senator Tkachuk: Is this trading interpretations here? Go ahead.
Senator Grafstein: You can help him, senator. I want to get it on the record, as best we can.
Mr. Quail: That would make sense too.
Senator Grafstein: Fine. Then it's, "But" something "other problems?" Is that right? "What about other problems?"
Mr. Quail: Yes. I can't make it out. I don't know what that means.
Senator Grafstein: Neither do I. Okay. But what about other problems?
Mr. Quail: But what about other problems.
Senator LeBreton: As an old secretary, I don't think that look likes "other" to me.
Senator Grafstein: Give us your best guess.
Senator LeBreton: I can't even guess, but it doesn't look like "other" to me.
Senator Grafstein: But what about other problems. Okay. Fine. Next, Matthews?
Mr. Quail: Next, "Matthews has been at this about one month. (One week after the announcement.)" I think that's an editorial by the author. "Confidentiality? Need to talk, Paxport with board today, Claridge board Wednesday. Issues concerns" something "legal, contractual, authorities, viewpoint, and other operational viewpoints."
Senator Grafstein: All right. Next page?
Mr. Quail: Next page, "Meet RQ this p.m." That's me. That means we would have a meeting that afternoon, and you can see that from subsequent discussions. "DM within couple of days. What is the final deal? We don't know. The" something "two proposals? Still on Paxport proposal? Is deal wide open? Is process shot to pieces?" Those are questions that we were now asking ourselves. Further of the view - "future of the airport, discussions on runways, interest of the airport, remain international airport."
The last two parts, I don't have any idea. I think that was something else.
Senator Grafstein: All right. Thank you, Mr. Quail. Now, Mr. Chairman, I would like to proceed on that and see if I can tie some of this together in my own mind.
Will you agree or not, Mr. Quail, that this was rather unusual, to have an acceptable bidder within days of the acceptance merge with the losing bidder for the first process, for the first round? Is that unusual?
Mr. Quail: That is in the eye of beholder. If you're asking whether -
Senator Grafstein: I'm talking about you, from your experience as a public servant. You've seen these bidding processes before. Is that usual?
Mr. Quail: I haven't seen many bid processes of this complexity before.
Senator Grafstein: We all accept that.
Mr. Quail: Okay. So having said that, that -
Senator Grafstein: It was unique.
Mr. Quail: Unique is fine. That I was surprised that they were in on January 18 with this proposal, if that's the question, yes.
Senator Grafstein: Now, the memorandum you received from Mr. Heed says that this is not seen as a violation of the process. Then you reference in this memorandum on the 18th - his memorandum is on the 20th, and earlier, you reference in yours, legal considerations. Did you seek any legal advice about what was happening here to maintain the integrity of the process?
Mr. Quail: Yes.
Senator Grafstein: What was the legal advice?
Mr. Quail: I sought it. By the time I left, I don't say that I had received it definitively. I'm sorry. That's also -
Senator Grafstein: You sought it, but you never got it?
Mr. Quail: Yes. I mean, and in fairness to the people that were trying to work on it, it was pretty hard to get the advice on January 18 because the deal wasn't actually concluded and we didn't have a lot of the information, so it was going to take time.
Senator Grafstein: So there wasn't really at that stage - you were proceeding along all three paths, which is the new, the successful bidder, the losing bidder still on the table, and moving along the lines with this merge bid, so-called merge bid, and trying to test that in some fashion to see if it's acceptable or not?
Mr. Quail: I think that's fair.
Senator Grafstein: Fine. But so nobody tested at that juncture whether there was an - if you were meeting the legalities of the process, other than the comment from the airport manager, who I don't think is a lawyer, saying unless there is some evidence of collusion, there is no violation of process. That is the only thing that you've got, plus your own experience here?
Mr. Quail: That was his view at that point.
Senator Grafstein: Yeah. But it wasn't a legal view?
Mr. Quail: No, it was not.
Senator Grafstein: Fine. Now, the other point in your memorandum is that this was a new structure. So one could conclude from that that you were examining this almost as a new deal. Why a new deal? Because the question of financeability, business plans, ownership structure, all that was rather important in the preliminary requirements, so you were testing all of those requirements anew under this new proposal. Fair?
Mr. Quail: I don't know if I would say I was testing them. I was trying to determine exactly what it was that was being proposed pursuant to the January 14 letter.
Senator Grafstein: All right. But again, a little unusual. Is it fair to say this was a little unusual?
Mr. Quail: As I mentioned earlier, it was surprising that it was on the table at this point.
Senator Grafstein: Let me jump, if I can, for example, to what you were presented with on that date of January 18, and Mr. Chairman, last night I thought that the previous witness could give us some insight into that, and that was the document of January 18 which was the first legal document or quasi-legal document dealing with the merger. And just to position this witness, we were told that the Treasury Board had no knowledge of this.
Mr. Nelligan: I think by way of explanation, senator, at the outset of the hearings, we received a number of documents from Mr. Hession. These came from his private papers. They weren't the official records of either the Treasury Board or Mergeco. And he appears to have that document in his files, so we produced it. I don't think any questions were asked as to whether it was the one that was signed or anything else. My understanding is that there were more sophisticated agreements between other nominal companies that came into effect at a later date between the parties.
Senator Grafstein: I'm just referring back to the document I raised yesterday. I do not want the chairman to have a lingering suspicion in his mind that I was bringing a document forward that might have been inappropriate.
Mr. Nelligan: This is a document that's available to everyone on the committee. It's a Hession document.
Senator Jessiman: Do you have copies for us?
Senator Grafstein: You have a copy. It's 002064. I have one copy, but it is in your documents. If you want me to pause for a moment, I think it's a rather crucial document. We have from the witness that he did review this document, because that was his first concrete knowledge of the merger. And I should not say "concrete knowledge". He received information about the merger before that, but this was the first piece of paper he was asked to assess, or he assessed. He wasn't asked to assess it, he chose to assess it. All right.
Now, it's a rather curious document, from my perspective.
Mr. Nelligan: If I may assist the other senators, in the index, it's in the Justice Hession binders, and it is document, as they say, 002064, which is the AV file number, and it is - I have it in the index here. I don't have the actual document in front of me because it related to Mr. Hession. That was way way back.
Senator Jessiman: Would it take that long to make a copy of it so we could all have a copy? Could we ask someone to do that?
Senator Grafstein: I don't know if we have the staff to do that. Is there an extra copy so I can sort of proceed?
Mr. Chairman, I'm in your hands, if you would like me to proceed, or I could wait a few minutes until all members -
Senator Jessiman: You go ahead. They're going to get it for us.
Senator Grafstein: Fine, okay. Curious document. Because it's dated January 14, and just to jump to page 2, and again, let me identify it as being a document dated January 14, attention Mr. Matthews, and it's purported to come from TL3PCO Investment Inc. And apparently it's signed and initialled by a number of parties, and since all that document is available, I don't have to really regurgitate that for the purposes of the record, do I, Counsel?
Mr. Nelligan: I don't think so.
Senator Grafstein: That's a satisfactory identification?
Mr. Nelligan: Yes.
Senator Grafstein: Fine. And it starts off by saying:
The terms of this letter ... between us to create a single ... joint ownership entity ...
And it goes on in the second page to say, as a setup to all of this:
... recognizing that Paxport was awarded the rights to Terminals 1 and 2 ...
So this document, at its inception, appears to be a sale of an interest from a party that purports to have certain rights received from the government, I assume, on December 7. And just to tell you my complexity here, we've been told with great precision by Treasury Board that there were no rights. There were no negotiations between December 7 and this particular date. There were just consultations with a bidder. But on January 14, there is a legal document between the parties that says, "We're contributing our rights."
Now, that's curious. You would agree with that? When you read -
Mr. Quail: I don't know what it means.
Senator Grafstein: Did you find that curious when you read it?
Mr. Quail: I didn't know what it means.
Senator Grafstein: You didn't know what it meant?
Mr. Quail: And as far as I was concerned, in any discussions I had with Mr. Jack Matthews relating to this, it was always in my mind and very carefully in my mind that what we were talking about was the Paxport proposal, which was the best overall bid.
Senator Grafstein: Fine. So this is a side bar agreement of something new, a new structure, as you referred it, not quite checked up legally. You're still proceeding on the Paxport proposal, and this comes on, and so you review it, just to see what it's about. And so you cannot quite understand it. I can't quite understand it, but it's curious, to say the least.
Now, turn to page 3. We get into the guts of it, and that is really who was doing what to who. And it appears from this document that Paxport conveyed its rights, so-called, to the partnership for a value, for 50 per cent of the new venture. And what they were contributing to get 50 per cent of the new venture, I'm now referring to page 3, paragraph 2, was 50 per cent for which they would pay $61 million of cash, and they would get credit for $5.5 million expended, and the two parties would have to pay another $3 million over the next six months. For that, in addition to other contracts, they'd get 50 per cent. That's one side of the equation.
On the other side of the equation, we have group T3LPCO Investment Inc., and for them to be a 50/50 partner, they are contributing $80 million of equity, plus cash flow, positive cash flow, after all debt services of $13 million a year.
So in conclusion, from December 7 to January 14, Paxport now has an interest, subject to it coming up with $61 million, which will then be part of the debt structure, a 50 per cent interest with an imputed value for this alone of somewhere between $18 and $20 million. Is that a fair conclusion from this document, or is that something you would be looking at, Mr. Quail?
Mr. Quail: I can't give you a conclusion on that.
Senator Grafstein: Can't give me a conclusion on that. Okay.
In addition to that, there is another provision in here that's curious, rather curious, and it says that if in fact the total of Terminal 1, 2 and 3 has a net cash flow of some $30 million, $31 million - I'm now referring to paragraph 7. Page 7, paragraph 10. If it achieves a cash flow, a net cash flow in excess of $31 million, which would be 13 already there and an additional 17 or 18 million.
Senator Jessiman: Eighteen million.
Senator Grafstein: Eighteen million.
Senator Jessiman: Thirty-one.
Senator Grafstein: Thank you. Thirty-one, I'm sorry. Paxport would, in addition to that first interest, get another $20 million bonus. Did you examine that, Mr. Quail, and come to some conclusion about that?
Mr. Quail: By the time I left, we had not come to any conclusion on the merger of the two companies. I'm sorry. This is a document - this is their document. We got it on the 18th of January.
Senator Grafstein: Fair enough. One last point, Mr. Chairman, and then I'll conclude on this.
In addition to that, Paxport is to receive a management contract of some substance, not too much clarified here, and then there is some penalty provisions if in fact they failed to agree and meet their respective requirements.
Now, Mr. Quail, I'll conclude on this. This seems to be an extraordinarily different arrangement based back on our original project here of the qualifications of the proponents, the management and operation plan, the business plan. I mean, this seems to be a dramatically different proposal for you to consider than Paxport "A" or the other bidder. Now, I'm just deducting that. I want to see if you agree with that or not.
Senator Tkachuk: Maybe, Mr. Chairman, we could have him ask the question and then walk over there and answer it. Maybe the good senator would do that, because this witness has made it clear that he has turned over this document to lawyers. He had not received advice. We're listening to a reading lesson of a contract with deductions made by a senator. Where is the question and the answer?
Senator Grafstein: It's more than that.
Senator Tkachuk: Who signed it? Whose document is this? Why don't you ask the Claridge people? They will all be here. You can ask them about all this stuff.
Senator Grafstein: But the people that approved this document were public servants, or some variation of it.
Senator Tkachuk: He left.
Senator LeBreton: It wasn't in the public service documents.
Senator Grafstein: We're trying to piece together a report.
Senator Tkachuk: I'm waiting for the question.
The Chairman: I'm intrigued by Senator's Grafstein's questions. He is in effect saying that the result of the evaluation committee on the overall acceptable proposal did not per se convey any rights to anybody.
Senator Grafstein: I'm saying that's a possibility, Mr. Chairman. According to the evidence we have on this memorandum, there is a new structure. It seems to me on reading the new structure, it's a different deal. I want to know what was happening here with this process.
The Chairman: But if Paxport was using their architectural engineer and design as a bargaining chip, I don't know if the witness can help us on this.
Senator LeBreton: Point of clarification, Mr. Chairman. Did you not say it was a public service document? It's a document we now have a copy of between the Claridge people and the Paxport people.
Senator Grafstein: It was a document being given to this witness for his evaluation. That's his testimony. That's what he said. Otherwise, I wouldn't bring it forward.
Senator Jessiman: Does the witness have the amending document dated January, appears to be 27, in respect of this?
Senator Tkachuk: I'm not trying to defend it. I was just going to ask a question of someone.
Senator Jessiman: We should have the amending document if you're going to put the first one in.
The Chairman: I think you can put all of it in.
Senator Grafstein: I don't want to put in half a document, senator. I want to put it all in. I'm just trying to get from this witness his knowledge. When he received this document, he is in the midst of a bidding process. He is the chief negotiator. He receives a material document. I wanted to know what he did with this document and how he characterized it in his own mind.
Senator Jessiman: I think he's told you he asked for legal advice, and then he left.
Senator Grafstein: I think he said more than that.
Senator Jessiman: What else?
Senator Grafstein: Perhaps you could tell us what your conclusion was.
Senator Tkachuk: There we go.
Senator Grafstein: Thanks, senator. I appreciate your help. I need all the help I can get.
Mr. Quail: The conclusion was that this was another issue that had to be dealt with and come to a conclusion. We were trying to work our way through it by getting legal advice, and that we would also wait to understand if they were going to come to a conclusion, because there were outstanding issues that had to be dealt with. You'll notice by some of the other documents that by January 27, there were subsequent undertakings by the party, and on February 1 it was a press release. At that point, if I would have stayed, I would have dealt with it now in more detail to understand the implications relative to what was on the table and dealing with the Paxport proposal.
Senator Grafstein: Just a final question, Mr. Chairman. Why did you have to deal with it at all?
Mr. Quail: Pardon me?
Senator Grafstein: Why did you have to deal with this piece of paper at all? You received a proposal from Paxport. Paxport's application is still on the table. Why did you have to deal with effectively another bid or another structure, another deal, at all?
Mr. Quail: Because in essence, as I saw this, you were starting to leap towards a corporate restructuring in terms of the parties that were at the table. You have Paxport, and you have T3LPCO, Claridge proposal along with Lockheed.
Senator Grafstein: The losers and the winners get together and structure a deal, and you're presented with this deal. Pretty unusual.
The Chairman: Okay. Mr. Nelligan, wrap up.
Mr. Nelligan: Just by way of clarification of the document, the senator had referred to the comment that they had acquired the right to Terminal 1 and Terminal 2. That's on page 2:
... recognizing that Paxport was awarded the rights to Terminals 1 and 2 ...
If you would look at the addendum at the end of the agreement, Mr. Quail, I gather that they amended their letter. There is the letter of January 27, and they asked to insert the word "negotiate" after the words "right to" in the second line at page 1.
Senator Grafstein: Where is that, Mr. Chairman?
Mr. Nelligan: It will now read "has acquired the right to negotiate for Terminals T1 and T2" rather than "has the right to Terminals T1 and T2". So they corrected what appears to be an error in the original draft.
Senator Grafstein: So it's the right to negotiate. So what you're saying, Counsel, is that what Paxport was purporting to convey to the merger was the right to negotiate.
Mr. Nelligan: Yes. Again, that's simply their position.
Senator Grafstein: I'm just trying to understand. It's pretty hard.
The Chairman: Any final questions to Mr. Quail, Mr. Nelligan?
Mr. Nelligan: No, thank you. Mr. Chairman.
The Chairman: Mr. Quail, thank you very much. You've been very helpful to us.
The committee adjourned until 2:00 p.m.
Ottawa, Wednesday, August 23, 1995
The Special Senate Committee on the Pearson Airport Agreements met this day, at 2:00 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: Come to order, please.
Colleagues, ladies and gentlemen, when we begin this afternoon we will be dealing with the first of two groups of witnesses who come under the general heading of lobbyists.
Lobbying is an essential part of the policy development process. It is the conveying of information and it may also be the conveying of information with the purpose of influencing policy.
In recent years, lobbying seems to some to have become a pejorative term connoting intrigue in deals made behind closed doors. In order to bring transparency to this process, the Progressive Conservative government introduced the Lobbying Registration Act in 1989. This act provided for a register where lobbyists would note for whom they were acting with appropriate dates.
Recently, Parliament has passed amendments to this act, amendments requiring greater information regarding disclosure, such as the specific subject matter of the lobbying efforts, the name of the department, communication techniques and the beneficiary of the lobbying effort.
Allan Cairns, a noted Canadian political scientist, has stated, "That with the advent of the Charter of Rights and Freedoms there has been a rise in interest group politics in Canada." This is a form of lobbying as interest groups attempt to influence public policy.
I quote from the annual report of the Lobbyists Registration Act, "On March 31, 1995, there were 1,006 active Tier 1 lobbyists registered, an increase of 7 per cent over the previous year. These Tier 1 professional lobbyists work for 552 different firms. An estimated 75 per cent of their clients were corporations." This is the group we will here from today.
There were 1,744 Tier 2 lobbyists registered at the end of 1994-95 fiscal year, a decrease of 4 per cent since last year. These Tier 2 employee lobbyists - employee lobbyists - represented 821 employees of which 42 per cent were corporations and 58 per cent were organizations. We heard from Mr. Sinclair the other day. He is in that group, the Canadian Transport Association. The Canadian Bankers Association is another.
In the Tier 3 group are what I suppose might be called lobbyists not for profit: Red Cross; and the one which I consider to be the most active and intensive lobby group that I have ever had anything to do with, the Canadian Wildlife Association, who has written something like 25,000 letters, and God only knows how many phone calls, with respect to Bill C-68.
Senator Kirby: To you personally?
The Chairman: Yes.
Senator Grafstein: You can understand why, Mr. Chairman.
The Chairman: With respect to -
Senator Kirby: We won't explore what they mean by "wildlife".
The Chairman: - firearms and other weapons.
However, in the matter before us we are dealing with lobbying by and for private companies competing for a particular contract. In relation to what we are about to hear today and tomorrow we are all extremely interested. Every witness we have had so far has testified either that they have met no lobbyists or, if they did, the lobbyists had no influence on the decisions that were made.
Lobbyists convey thoughts and ideas of their clients with the hope, I am sure, that they will influence public policy.
Gentlemen, we look forward to your evidence and I will ask our counsel to introduce our first witnesses.
Mr. Nelligan: Senators, if I may before make a report to the committee on our request for information. I received a letter from Senator Kirby which in effect asks that we write to all registered lobbyists on file regardless of whether or not they are scheduled to appear as witnesses to ask for all of their invoices on the Pearson file and the correspondence relating to this matter, including any and all correspondence which constitutes advice on the redevelopment of Pearson to their clients.
In response to that the clerk sent out letters on August 15th to the following: Peter Coughlin; Fred Doucet, who will be testifying; William Fox; Don Matthews; Herb Metcalfe; Harry Near; William Neville; Andrew Pascoe; Pat Ross; David Augus; Gordon Baker; Heather Conway; Leo Duguay; David Dyer; John Legate; David MacDonald; Larry Malloy; Scott Proudfoot; Hugh Riopelle; and Robert Vineberg.
We have - some of those persons will be appearing in person before this committee; but, in connection with those who will not actually be appearing, I would like to report that we have received some replies, and they are as follows: Heather Conway wrote on August 16th to Mr. O'Brien, and she says:
Dear Mr. O'Brien:
I was registered as a Tier 1 lobbyist for Paxport Management Inc. At the time, I was a salaried employee of W.H. Neville and Associates and was registered simply as a precaution in the event Mr. Neville was unavailable and I might be called upon to contact government officials in his absence. I do not have any invoices since, as a salaried employee, I did not have responsibility for invoicing clients. I do not possess any correspondence since I was merely a back-up on this client relationship.
And, of course, Mr. Neville will be appearing on the 24th.
Then, we received an E-mail as follows with regard to Mr. MacDonald:
Mr. MacDonald called in response to Gary O'Brien's letter. He repeated what he told me -
This is Mr. Levy reporting.
- that he was not involved in lobbying in connection with T1/T2. He has no invoices or other documents.
He would be happy to repeat this information to me if required.
We also received a letter from JSL Consulting Services Ltd, which is John S. Legate, with a handwritten fax:
As per our telephone conversation...I have just finished a hip replacement operation and am not too mobile at the current time. I have been unable to find my file on Paxport but I do have correspondence with PCO regarding fees and that the Nixon Report had all information from Paxport files.
I assume he means Mr. Nixon has it.
I will get back to you by Monday.
We have not heard from him again.
Mr. Scott Proudfoot wrote on the 17th:
I cannot be helpful to you on the Pearson matter as I had no involvement with the file.
My previous firm, GCI, had a policy of registering all consultants for any new clients. This was done so that a consultant could be brought in on a file if necessary, without having to worry about whether the consultant was registered or not. But, in fact, most of the time we worked relatively autonomously.
I did no work on the Pearson matter, either for Airport Development Corporation or Claridge, who took over the company. I have no correspondence and I have no invoices.
About the only things I remember is that our client lost the competition and that Claridge had their own people and after they took over we were pretty much out of the picture.
He then referred Mr. O'Brien to Mr. Moores and Mr. Ouellet; and I may say we followed those contacts up and it has now been indicated to us that Mr. Ramsey Withers would probably be the most knowledgeable person in the firm of GCI; and arrangements have been made for Mr. Withers to testify on the 14th of September.
We also have a letter from Mr. Neville; and as he will be here tomorrow I will not be referring to it.
Then, we also have a letter from Mr. Baker, who gave us a copy of his direction to his auditors, asking that all of the invoices be sent directly to us. We have not yet received them from the auditors.
I have already read you the letter from Mr. Pascoe and you will recall that he is going to appear before you.
Mr. Duguay of Gestion Duralex Inc. writes on August 21st:
It is correct that I did appear on the client detail Tier 1 list with respect to Claridge Properties Limited. However my role in this capacity was as an Associate of the Capital Hill Group whose principals took the lead in matters affecting Claridge. In this context although I may have on occasion consulted on the file in question I do not recall ever having provided any advice to the client directly nor have I any written correspondence to refer to. In addition any billable hours would have been handled by the firm's accountant.
Since I discontinued practice within the group in October of 1993 I am not in possession of any documents which would assist you and would refer you to the Capital Hill Group for further information.
I also have a letter from Mr. Near, and of course he is before you now so we will hear from him directly.
Mr. Metcalfe of the Capital Hill Group writes:
On behalf of Herb Metcalfe, David Angus and David Dyer, The Capital Hill Group acknowledges your confirmation to Herb Metcalfe of August 15, 1995 and the request to produce correspondence.
We suggest that it would have been more appropriate to obtain the documentation directly from our client the Claridge Group. We have, however, consulted with our client and received their consent to produce the relevant correspondence.
Enclosed is a copy of the relevant correspondence. It should be noted that a substantial portion of our advice is verbal and not recorded in correspondence. Furthermore, our written advice is principally in drafting and redrafting scripts and informational pieces. We have retained in our files the numerous volumes of press clippings which we copied and usually circulated to our client; we will deliver to you, if necessary, the press clippings at your written request.
And we have those documents here and they are available if you want to look at them.
Then, Mr. Pascoe sent us a further letter, including his letter of engagement, and we can deal with that tomorrow when he arrives.
We also have available a chart prepared by Mr. Matthews in connection with his appearance before the house committee, and he then lists some five Paxport lobbyists and lists the gross of their fees, and that of course has been available in the record for some time.
For the convenience of senators, we also did a search of the lobbyists' register and the names of the lobbyists and their firms and the effective dates of the engagement are set out on that sheet. Those documents are available to anyone that wants to look at them.
Then we have a list, finally, of all consultants which have been acknowledged to have represented Paxport, ATDG and T1T2LP, and all of this is available to the committee.
In pursuing those inquiries we now have before us Mr. Harry Near and Mr. Bill Fox. They are both principals in the Earnscliffe Strategy Group which is a government affairs and research and communications consulting company. I understand after they are sworn they will have an opening statement, copies of which have already been distributed to you.
The Chairman: Gentlemen, are you prepared to take an oath?
(Harry Near, sworn:)
(Bill Fox, sworn:)
The Chairman: Mr. Near, would you like to proceed?
Mr. Harry Near, Earnscliffe Strategy Group: Thank you, Senator MacDonald, committee members, ladies and gentlemen.
My name is Harry Near and with me this afternoon is Bill Fox. Bill and I are both principals in the Earnscliffe Strategy Group, a government affairs and research and communications consulting company.
Earnscliffe provides, through our government affairs division, private sector clients with strategic advice and counsel on how they should deal with the federal government.
In addition to our government affairs division, Earnscliffe has a research and communications division which provides advice to both private and public sector clients. Through this division we conduct qualitative and quantitative public opinion research for our clients and, through the same division, we provide clients with communications strategies.
I work in the government affairs division of Earnscliffe and, as such, register with the Lobby Registration Branch when acting on behalf of a government affairs client. Bill does most of his work for Earnscliffe in the research and communications division.
One of these clients for whom we are both registered is Claridge Properties which, as you know, is one of the principal owners of the Pearson Development Corporation.
Claridge became a client of Earnscliffe in May, 1992. However, one of the predecessor companies to Earnscliffe, Near Consultants and Associates, began working for Huang and Danczkay in May 1989.
Huang and Danczkay, you may recall, at that time were the principal owners of Terminal 3 with Claridge as a minority partner. In April of 1992 Claridge bought out Huang and Danczkay but decided to continue to retain Earnscliffe as government affairs advisors in much the same way that we advised Huang and Danczkay.
Now, if I may, I would like to explain to you what Earnscliffe did for Claridge.
Essentially, our job was to seek out information on the T1 and T2 privatization process that would enable our client, Claridge, through its bidding company, the Airport Terminals Development Group, to be awarded the contract to develop T1 and T2.
We ensured that Claridge was fully informed how the request for proposal was proceeding, as well as the processes that were to be followed and who was involved in those processes.
We provided advice on how Claridge should structure its proposal, and we helped it with its representations and presentations to the government.
In addition to these government affairs activities, we also, primarily through Bill, provided Claridge with communications advice and public opinion research as part of our service offering to Claridge.
Overall, I would divide our government affairs activities into the following four phases: In phase 1, Earnscliffe provided Claridge with monitoring and advice regarding the plans of the federal government to privatize T1 and T2. This monitoring occurred primarily in the spring of 1992.
In phase 2, once the government decided that it was going to proceed to privatize T1 and T2 and issue a request for proposal, Earnscliffe tried to assist Claridge in convincing the federal government that any request for proposal should evaluate bidders on their financial ability to build and operate T1 and T2, as well as their operational ability to build and operate at Pearson. As you know, financial ability was not part of the final criteria used to evaluate the proposals.
Through this phase, which covered the period through the spring, summer and fall of 1992, Earnscliffe assisted Claridge in the preparation of its proposal and helped Claridge make representations to bureaucratic and political representatives of the government. Our activities were coordinated so that Claridge led the representations with Earnscliffe supplementing its efforts.
The key representatives of the government in this regard were senior officials in lead departments such as Transportation, PCO and Industry. As well, we contacted political assistants to key ministers and MPs who were or could have been interested in the issue, generally speaking, people from the Toronto area.
In terms of acting on behalf of Claridge, our activities at Earnscliffe generally consisted of telephoning bureaucrats and political aides to make sure we knew what was occurring from a process point of view and making sure that they, the bureaucrats and political aides, knew our, that is, Claridge's position on the different issues.
In phase 3, after the government's decision in December 1992 to choose Paxport instead of Claridge to privatize T1 and T2, our efforts generally focused on monitoring how well Paxport were doing in fulfilling the requirements that it and the federal government had agreed to after the federal government's decision to award Paxport the contract to privatize T1 and T2.
Shortly thereafter, Claridge and Paxport decided to form a joint venture for the purpose of privatizing T1 and T2 and combining it with T3. This resulted in the creation of the Pearson Development Corporation which became the corporate entity that negotiated the final contract with the federal government to privatize T1 and T2. This contract was then agreed to in principle in June 1993, approved by Treasury Board in August 1993, and signed by the parties the first week of October 1993.
I would like to emphasize here, senators, that the dates for the October signing were decided on by officials back in June when the agreement in principle was reached.
In phase 4, which continues today and which began in December 1993 when the current government announced that it was cancelling Pearson Development Corporation's contract to privatize T1 and T2, Earnscliffe has continued to monitor developments for Claridge as they relate to the Pearson issue.
Senators, I believe that summarizes the activities of Earnscliffe Government Affairs on behalf of our client, Claridge Properties, as it relates to the privatization of Pearson's T1 and T2.
I would now like to ask Bill to briefly summarize Earnscliffe's communications activities on behalf of Claridge and then we would be pleased to answer, to the best of our abilities, any questions you might have.
Mr. Bill Fox, Earnscliffe Strategy Group: As a principal of the Earnscliffe Strategy Group my primary responsibilities on the Pearson development dossier involved communications and public opinion research work and to a more limited extent government relations activity on behalf of Claridge Properties Ltd.
The initial communications assignments carried out in concert with our consultants included the development of a full audio-visual presentation in support of the Airport Terminal Development Group's bid; the production of a video presentation supporting the bid; printed materials, such as news releases, background materials, et cetera; speech modules; a media contact program; media messages and talking points; and preparatory sessions with ATDG's designated spokespersons.
Through the intermediate or middle stages, the assignment included the preparation of materials for formal news conferences, such as opening statements and background material; detailed preparation for various media related activities, such as visits to the editorial boards, electronic media opportunities such as interviews on national television programming, et cetera; and media monitoring.
In the period immediately following the 1993 general election - that was actually a particularly intense period and at that stage the assignment was expanded to include quantitative public opinion research, specifically focus group work; the development of some paid media messages; and an earned media strategy for Pearson Development Corporation's designated spokespersons.
In more recent months, Earnscliffe's activities have centred on the public policy debate around Bill C-22, as well as the House and Senate committee hearings.
Senators, that summarizes our research and communications activities on behalf of Claridge Inc.
Mr. Near: Senators, before we begin questioning I would like to make one final comment, if I may. This committee has asked us as private citizens working in a privately owned company, Earnscliffe, which has a commercial relationship with another private sector company, Claridge, to provide you with copies of both our invoices, as well as our written advice to our client. Senators, we have with the agreement of our client, and in the interests of complete openness, met both these requests. However, we believe that your request establishes a most unfortunate precedent.
You have asked us to do something that members of the House of Commons and Senate do not ask of themselves or the government, namely, to make public the details of private relationships.
By way of illustration, the clerk of this committee requested in writing that we provide this committee with copies of our invoices. Yet the federal Department of Justice, for reasons it is best positioned to explain, decided that such information was privileged. Its documents, which you have, include the invoices but with the dollar figures whited out.
No one, senators, requires you or your colleagues in the House unless they are in cabinet to make public the details of their business relationships, but we have been asked to do so.
Likewise, you asked us to provide you with details of our advice to our client while the government has been allowed to white out or not provide similar advisory papers that officials have written for it. I doubt very much that legal counsel for this committee would ever divulge confidential advice provided to a client; or, similarly, that a reporter would reveal a source used in a story, yet we are asked to do the equivalent.
Senators, we, by providing you with our material, are being asked to set a potentially dangerous precedent.
Now, having tabled that concern, we would be pleased to try and answer any questions you might have. Thank you.
The Chairman: Thank you very much, gentlemen, and for the information of senators, the letter of Mr. Bill Neville, to which Mr. Near has referred, will be circulated. You already have it, but it will be available in both languages tomorrow before Mr. Neville's appearance.
First question.
Senator Stewart: I will ask some questions.
The Chairman: Senator Stewart.
Senator Stewart: Am I correct in understanding from what you have just told us that except for that brief period before the Earnscliffe Strategy Group moved in on - were brought in on the Pearson undertaking, both of you, Mr. Near and Mr. Fox, were working collaboratively as part of one business entity?
Mr. Near: That is correct, senator.
Senator Stewart: Now, for whom - were you working for only one person, both natural and corporate?
Mr. Near: We were working for one entity, Claridge Properties, and our reporting relationship was to Peter Coughlin in Claridge.
Senator Stewart: And you received remuneration of whatever form from only one source?
Mr. Near: Correct. Claridge.
Senator Stewart: Yes. How do you decide - I don't know anything about lobbying. Although the chairman has told us in his ex cathedra statement that it is now an essential part of public affairs, I have to confess that I am quite innocent - or "ignorant" is the better word.
How are fees determined? Sometimes we - in these papers I see the expression "retainer", and then at other times I see, well, "fee for consulting services". I had the impression, perhaps I am wrong, that a retainer, in a sense, engaged a person and thus excluded that person from serving, perhaps, a competitor, but did not cover all the services performed by the engagee for the engagor.
How do you - do you work on that basis, that you get a retainer, which simply assures that you are available on behalf of the persons for whom you are working; or do you get a retainer plus - I am not talking about expenses - but plus a fee for particular services? How is that -
Mr. Near: There is no definition that I could give you as to what individual firms do. There are different practices.
Generally speaking, for our purposes, we have two types of relationships with our clients, the so-called retainer relationship, which quite frankly generally speaking is a relationship, from our point of view, which tends to be more than a 12-month period; and it is purely for an internal recording purposes. But a retainer is an ongoing relationship that can go one, two, three and, in some instances, up to ten years.
In addition to that, we have project relationships which, generally speaking, start off with a shorter period of time planned. It isn't unusual for a project relationship to evolve into a retainer relationship because the project by definition doesn't finish in a short enough period of time.
Senator Stewart: In this case, were both those kinds of payments involved? Were you receiving a retainer and then in a sense an ad hoc payment?
Mr. Near: No. We received from Claridge monthly fixed fee compensation for our government affairs activities and for our communications activities and it didn't - the amount of compensation we received did not vary depending upon the amount of work done. Whether there was a lot of activity in a particular month or whether there was little activity in a particular month, the amount of compensation stayed the same.
May I just add, Bill correctly points -
Mr. Fox: There were one or two exceptional circumstances. For instance, when we did the focus groups, there was an additional charge related to that quantitative research activity.
Mr. Near: Likewise, I think, senator, in the invoices that we provided to you there were some additional charges for some contract work out we did to have people help us prepare audio-visual material, et cetera.
Senator Stewart: Am I correct in thinking that the amount of money that you received per month for your government affairs work was $5,000?
Mr. Near: That is correct.
Senator Stewart: So you were paid - for a full year that would be $60,000?
Mr. Near: That is correct.
Senator Stewart: And in the case of the communication advice, it would be $48,000 for the year, $4,000 a month?
Mr. Near: Correct.
Senator Stewart: Did you think you were adequately paid?
Mr. Near: Well, it was a set of fees that, more importantly, the client and we were happy with it and it was absolutely consistent with other fees that we have charged - that we have and do charge to a number of other clients.
Senator Stewart: I see.
Mr. Near: There is nothing unusual about it.
Senator Stewart: Either it being high or low.
Mr. Near: That is right. I will tell you that we do have clients who have lesser fees and we do have clients who have more fees. What we try to do is structure a fee that we believe - and it is guesstimate, if you will - is going to be fair to us and fair to our client.
Senator Stewart: Could you tell us on the government affairs side, were you getting $5,000 a month?
Mr. Near: The firm got $5,000 a month.
Senator Stewart: Yes, that is right. What was your total with regard to the Pearson project, that is, when you first were engaged by Claridge, to the point where the government's - the present government's decision to terminate the contract was announced?
Mr. Near: You would have to do the math. We started in May 1992 working for Claridge and so, effectively, there we have what, seven months, at 5,000 a month, and we worked through 1993 and into 1994 when it was terminated and we are still working for them now. So, you know, ballpark 150,000, I would say.
Senator Stewart: That is good. Thank you.
Have you ever charged a performance fee? You know what I mean by a performance fee?
Mr. Near: Yes, I do. We have charged them. It isn't a practice that we generally have. Historically, we have tried to stay away from it. Quite frankly, sometimes we have found that smaller firms who have a particular project that they are interested in asked us to charge performance fees because they can't afford $5,000 a month. So we have had those kinds of situations. They would be much the exception as opposed to the rule. Our general practice is to charge a flat fee of the order we just described and we don't charge - and we stay away from performance fees and we stay away from hourly rates as well on the other end.
Senator Stewart: Have you - why do you stay away from performance fees? I should have thought that you would work much harder if a performance fee was -
Mr. Near: No. It doesn't affect how hard we work. It is literally a function of - it is just much more straightforward. In some circles, there seems to be a taint associated with performance fees and, as a result, we have tried to avoid them.
Senator Stewart: You mention that in certain circumstances dealing with relatively small entities you have used the performance fee technique. Typically, how much would the performance be? Are we talking about 10,000, 15,000?
Mr. Near: I can't answer the question.
Senator Stewart: How high? Give us a bracket.
Mr. Near: A hundred thousand dollars would be the maximum over a couple of years kind of thing of work, if you will.
Senator Stewart: Thank you very much. Can we shift away from money to your qualifications? I would like answers from both witnesses on this one.
How does one qualify? How does one train to do the work that you do?
Mr. Near: I guess, speaking for myself and then Bill will comment, there is no course. There is no school one goes to to learn how to become a quote lobbyist or government affairs advisor. My experience, quite frankly, is twofold.
Let me give you academic and then we can move from that to business. Probably for the edification only of Senator Kirby, my bachelor of mathematics degree is from Waterloo in combinatorics and optimization. I won't explain it to anybody. Perhaps the good senator might care to later.
Senator Kirby: This is the first time we have got two mathematicians around this table ever.
Senator Grafstein: Could you say that again?
Mr. Near: Bachelor of mathematics, combinatorics and optimization; and then a bachelor of mathematics - or an M.B.A. from the University of Toronto.
I have worked in the oil industry for about 10 years prior to coming up to Ottawa in 1979 to work for the then Minister of Energy, former Governor General Ray Hnatyshyn. I have worked in government. I have worked for other government affairs firms at the time specializing in energy policy.
I would say to you that, generally speaking, most people who are in the government affairs business have a knowledge of one or more policy areas. They have a knowledge of the process of government. They have an understanding of how the business - how business works; the kinds of pressures that are on business; and have an understanding of the communication requirements that their clients, in our case general speaking, business would have.
Senator Stewart: Did you work in any other minister's office?
Mr. Near: I have worked for the - for Senator Carney when she was the Minister of Energy, Mines and Resources in 1984 during the negotiations of the various energy accords.
Senator Stewart: Have you ever been a member of the public service?
Mr. Near: Yes, I was. In 1969, I worked as a civil servant for the government for a year.
Senator Stewart: Did you have to take the oath required under the Official Secrets Act?
Mr. Near: In 1969?
Senator Stewart: Yes. Do you remember?
Mr. Near: To tell you the truth I couldn't tell you. But I have obviously had a variety of security clearances, I guess to whatever the top secret range would be as a result of being a chief of staff in a minister's office.
Does that answer the question for me? Perhaps Bill would like to -
Senator Stewart: I have one other subject under this heading and I will ask you about it. Have you ever had an opportunity to participate in a political electoral campaign?
Mr. Near: Many times. More times than my family would like. I have been involved in the political process as a volunteer going back to the mid-seventies in Ontario working for the Conservative Party and Premier Davis at the time.
I worked in the 1979 election, federal election; the 1980 federal election; the 1984 and 1988 federal elections; and in the 1993 federal election in a variety of jobs. In all instances always as a volunteer.
Senator Stewart: Now, on three occasions as a result of these elections, the Progressive Conservative Party formed a government. Did you ever participate in what is called a "transition team"?
Mr. Near: No, not specifically, no. What I generally did during elections was help run the election and, generally speaking, after it was over my objective was a rest.
Senator Grafstein: Your objective was?
Mr. Near: I was a little tired and other people were doing transition planning, as many - as I look around this room - many senators would understand. Generally, the responsibilities are kind of split off and there are a certain number of people charged with running the election and another set of people are involved with, hopefully, doing transition.
Senator Stewart: So, for greater certainty, you were telling us that you had nothing to do with restructuring of the government in 1984 or at the time when Ms Campbell took over from Mr. Mulroney?
Mr. Near: In 1984, I provided advice to what was a transition team; and it was by way of thoughts on how one would organize and structure ministers' offices if the Conservative government - if the Conservative Party were to form the government. I wrote some papers and provided that to the party. Vis-à-vis Ms Campbell in 1993, no, the answer is no.
Senator Stewart: Are these papers so sensitive that they couldn't be made available to those who want to reform government structure?
Mr. Near: I doubt whether I have them, to tell you the truth.
Senator Stewart: Perhaps Mr. Fox would take us through the same - it is qualifications. Have you worked in a minister's office? Have you been in the public service? Have you participated in election campaigns? Have you participated in the reconstitution of the government structure at the time - after an election or in selection of personnel to occupy positions of discretion and power?
Mr. Fox: Okay. My education background is Université Paris, Sorbonne; Saint Patrick's' College, Carleton University. I hold a masters degree in journalism from Carleton University. I was the 1995 Goldsmith Fellow at the Jones Shornstein Centre on Press Politics and Public Policy, John F. Kennedy School of Government, Harvard University.
My professional career, I ran away to the newspaper as a copyperson, known at the time as a copyboy.
Senator Stewart: You fell into the media, all right - descended into the media.
Mr. Fox: In 1967, I worked for a number of years in the Southam Company in various and sundry locales. My last two media jobs were as, respectively, the Ottawa and Washington Bureau Chief of the Toronto Star. I have done work in television as well, and radio.
In 1984, I joined the staff of then opposition leader Brian Mulroney as press secretary. I was subsequently appointed press secretary in the office of the Prime Minister in September of 1984. After about a year or so I was also named the director of communications in the Prime Minister's office and I served there until May of 1987.
I was involved in a number of campaigns. I was a sort of designated spokesperson for the party in a number of campaigns and spent two and a half years on Thursday mornings as a member of a political panel on a national television network as the designated spokesperson for a political party, I guess.
Senator Stewart: Did you participate in reconstruction in '84 -
Senator Jessiman: Who else was on that program?
Senator Kirby: Bill was the heavyweight.
Mr. Fox: Literally and not figuratively, to my dismay.
Senator Stewart: I don't understand these in jokes, chairman.
Senator Grafstein: It goes to gravity, senator.
Senator Stewart: Did you participate in any way in the reconstruction of the government in 1984 or in the revision, shall I say, of the government when Ms Campbell became Prime Minister?
Mr. Fox: I was not involved with the transition team in 1984 in any direct or formal way. I was consulted by a number of ministers and/or ministers' chiefs of staff about candidates for positions of press secretary in ministers' offices through that period and have been on an ongoing basis since then.
Senator Stewart: What about 1993?
Mr. Fox: In 1993, I was not involved in the Campbell government, no.
Senator Stewart: In any way?
Mr. Fox: No. I mean apart from - actually, I went and advanced a trip to the United Nations during the campaign.
Senator Stewart: And you did not participate in what I call the revision of the government?
Mr. Fox: No.
Senator Stewart: After Mr. Mulroney's resignation?
Mr. Fox: That is correct.
Senator Stewart: All right. In the statement, chairman, Mr. Near said that one of the functions was to seek out information and to help Claridge make representations to the bureaucratic and political representatives of the government.
So far I have heard no bureaucratic representative of the government, to borrow the language, say that he - I think that is correct - he -
Senator Jessiman: Or she.
Senator Stewart: I didn't hear them.
Senator Jessiman: You didn't read the transcript, then.
Senator Stewart: - received any such representation. Should I conclude from this that almost all your work was in relation to ministers, chief of staff in ministers' offices, or people in central agencies such as the Privy Council Office?
Mr. Near: No, you should not.
Senator Stewart: You did deal with -
Mr. Near: If the she to whom I believe you were referring was Huguette Labelle, I would have spoken to her a number of times through the piece. She would have been one of the people to whom I was referring. I would also have spoken to people, as you say, in the PCO, and when I say "people" I am talking about officials; I don't mean staff in this instance the Prime Minister's office, or staff in the Minister of Transportation's office. I spoke to officials in the department - I don't know what it was called at the time, I forget - in effect, Industry Canada, those kinds of places. So we were talking to officials, as well as elected people, as well as the political staff to the elected people.
Senator Stewart: Could you say that your work resulted in any improvements in the request for proposals?
Mr. Near: Improvements in the - we would argue - hopefully, you will ask that question of our client. But we did a lot of work, as I think our opening statements indicated, in helping our client structure their proposal in a way that we think emphasized items that were of most interest from the government's point of view and, hopefully, helped with clarity of presentation that were made by our client to government officials.
Senator Stewart: How did you know - you are saying in effect you helped your client supply a demand. How did you know what the demand was? We were told by one witness that there was a great deal of confidentiality and secret, at least with regard to certain aspects of the proposal process. How did you know what the government - I use the term in quotes whether we are talking about ministers or public servants - how did you know what they actually wanted?
Mr. Near: We didn't know for sure what they actually wanted, but by understanding how the process in Ottawa works, by understanding who the people who were involved were, and by understanding how - what kinds of things at the time would be of importance to ministers and to officials because, as I say, we have been doing this for some 15-odd years you have a sense of the kinds of things that are going to be more important and, perhaps, the kinds of things that are going to be less important. A short answer would be experience.
Senator Stewart: Did you cooperate with the Capital Hill Group?
Mr. Near: Yes. As I pointed out to you in that opening statement, when we began working for Claridge we actually started because of our relationship with Huang and Danczkay. So what actually transpired was that there were, if my memory is correct, there were four firms who were working for, if you will, Claridge after they bought out Huang and Danczkay. They included us who had worked for Huang and Danczkay. They included, I believe, GCI, who also worked for Huang and Danczkay; and GPC same situation.
In addition to that, Claridge had engaged Capital Hill Group, specifically Mr. Metcalfe, so we worked, if you will, with all four firms and actually one of the functions that to a degree, I guess, we probably assumed, at the request of Mr. Coughlin, was almost a secretariat coordination role for the four firms that I mentioned.
Senator Stewart: Now, I am looking at a memo to Bill Fox, Harry Near, Pat Ross, Ramsey Withers, Gary Ouellet from Dyer and Metcalfe.
Mr. Near: Which one specifically, senator?
Senator Stewart: July 8, 1992.
Mr. Near: Yes, I have it.
Senator Stewart: You were the person who were - well, one Segal was a target of Near; is that right?
Mr. Near: That is right.
Senator Stewart: Who was McLaughlin, who was also a target?
Mr. Near: He was a staffer in the PMO who reported to Segal on policy issues.
Senator Stewart: Why was Segal a target?
Mr. Near: He was a contact because he was the Prime Minister's chief of staff and I called Mr. Segal on literally on one occasion right at the beginning of the process, i.e. when the government indicated that there was going to be a request for proposal, and I called him to ask him what process are you going to follow? How is this going to be handled? He indicated to me that it was going to be handled by the PCO as far as the Prime Minister's office is concerned and that was the - that ended any further conversation I had with Mr. Segal about it.
I don't recall, quite frankly, ever speaking to Mr. McLaughlin about it, but I may have over the entire period. And then after that contact with Segal, I talked, I guess exclusively, as far as that group of people were concerned, with PCO officials.
Senator Stewart: With PCO officials?
Mr. Near: Yes.
Senator Stewart: I see. You talked also with - Mr. Mazankowski was one of your targets?
Mr. Near: I did not speak to Mr. Mazankowski but I spoke a number of times with his chief of staff, Mr. Ebel, and Mr. Coughlin at a point during the process made a presentation to Mr. Ebel which explained in - I think I have included a copy of that presentation in the materials I provided to you, which kind of summarized the Claridge story.
I guess, in a nutshell, many of the people there that we would have contacted, and you probably want to pursue this with Mr. Metcalfe, it was fundamentally a list of different ministers who we believed at some point in time would likely be involved in the decision-making process; their staffs; and then different officials; MPs independent of party who we thought would benefit by having a better knowledge and understanding of the merits of the Claridge proposal.
Senator Stewart: I notice that although you were selected as the contact for certain of the leading targets you were not selected as the target - the contact for Mr. Shortliffe. Rather, Mr. Withers and Mr. Ross were to have Shortliffe as target. You don't know - you didn't know the Clerk of the Privy Council?
Mr. Near: I sure did. I knew Mr. Shortliffe at the time. In fact, I think at this point in time, I stand to be corrected, I think Mr. Tellier was actually the Clerk at the time. I stand to be corrected on that.
But the reality was we were, if you will, trying to divvy up the work load.
Senator Stewart: But Shortliffe was in the PCO at this time?
Mr. Near: I believe so. I can't recall for sure.
Senator Stewart: He is down on -
Mr. Near: I understand that. I expect that was the case, but he had also been in transportation I think before so I am not exactly sure on the timing.
Senator Stewart: All right. So then we have another letter - rather, a memo October 27, 1992, in which we have a status report. I gather that - well, as far as the PMO is concerned, it doesn't show that you did your work. Down below it says undone, in process -
Mr. Near: My copy does.
Senator Stewart: - but in your case it's blank.
Mr. Near: My copy has "done" written on it. Bear in mind what this document was was a memo from Mr. Metcalfe, Mr. Dyer, to Bill and I, basically saying, "Here is what we have got. What else have you got, i.e. let's fill this thing in."
I mean, for instance, Toronto area ministers, there is a question mark associated with Mr. Ramsey. I mean I spoke to Mr. Ramsey, you know, a number of times.
Senator Stewart: Could we go now to - the one I was going to refer to, Chairman, is a memo to Peter Coughlin from Herb Metcalfe, and I guess that is not germane to our discussion. It is dated December 8.
Mr. Near: I don't know if I have that memo.
Senator Stewart: I suspect that it is not one -
Mr. Near: Was it from us?
Senator Stewart: Metcalfe to Coughlin.
Mr. Near: No, I can't comment on it. I don't know it.
Senator Stewart: All right. When did you hear the announcement - the outcome of the government's decision with regard to the proposals in December of 1993? Did you hear that on December 6th, December 7th, December 8th? Do you remember?
Mr. Near: Heard it or heard rumour of it probably the week before December the 7th. There was a lot of, if you will, buzz or rumour around the town as to the fact that the government was close to making and announcing a decision and so there was a fair bit of speculation about it, if you knew - if you were following the file.
As a matter of fact, on December 5th there was a front - or a business page article in the Toronto Star which was the Saturday before the announcement of the seventh, which was headlined "Pearson International Airport Contract" and it was speculating that the contract was going to be announced the next week.
So there was a fair bit of, if you will, information around the town that this announcement was forthcoming. So, you know, did I know? I knew explicitly on the seventh. My memory is that I certainly strongly suspected it was coming imminently.
Senator Stewart: Chairman, I will stop there. I will yield at this point to Senator Kirby.
The Chairman: Yes, now, if I could assist you, Senator Stewart, because you have asked the question to both witnesses, but for the record I was the chairman of the transition committee in 1984.
Senator Stewart: Which one?
The Chairman: In 1984, I was the chairman of the transition committee.
Senator Grafstein: For what government? This is a great opportunity for me to cross-examine you, Mr. Chairman. I wouldn't let this opportunity go by.
The Chairman: The only way I can answer that is because that is one of the main reasons I am in the Senate now. So you will have to sort of use those incredible intellectual skills you have to try to figure it out.
Senator Grafstein: You are on very thin ice, Mr. Chairman.
Senator Stewart: You are saying that if as a result of just changes in the construction - in the structure of ministers' offices, those offices became more susceptible to targeting, you are the person whom we should hold responsible.
The Chairman: Absolutely. As a matter of fact, I participated in seminars at the University of Ottawa on the subject, and I have in my office files which if you would like to come over during the cocktail hour I would be happy to go through with you, senator.
Senator Grafstein: It might be useful.
The Chairman: It is very lonely there. I am trying to show these files.
Senator Stewart: Would you say that the restructuring produced the results to which you aspired?
The Chairman: They sure did.
Senator Grafstein: Mr. Chairman, it might be useful for you to advise us in a seminar about how the old structure was cast aside and the new structure was a modest improvement and what those improvements were, in structure.
The Chairman: There is only one thing I regret. I always liked the good old fashioned Liberal word "principal assistant" and I fought strenuously when someone suggested in 1984 that the person be called a chief of staff. I always hated that thing that went back to Eisenhower and Sherman Adams and so on. That is the only admission I am going to make.
Senator Grafstein: Mr. Chairman, I personally prefer the title executive assistant.
The Chairman: Senator Kirby.
Senator Kirby: Thank you, Mr. Chairman. I thought for a moment you were going to invite all of the Tory House of Commons caucus to your office for a cocktail party because they would fit in the office.
I wonder if I could ask - there is one document I want to refer to, but first there is one question I want to ask Mr. Near, because I was kind of puzzled by what he said on page 5 of his statement. You talk about - this is what you call phase 3, and you say, and I will quote from what you said. You said:
- our efforts generally focused on monitoring how well Paxport was doing in fulfilling the requirements that it and the federal government had agreed to after the federal government's decision to award Paxport the contract...
And then in the very next paragraph you say:
Shortly thereafter, Claridge and Paxport decided to form a joint venture for the purpose of privatizing...
At what point did you know Mergeco was going to occur? In other words, what is the gap between those two paragraphs, in time?
Mr. Near: In time, maybe about a week to 10 days, if my memory serves me correctly. I think the sequence was sometime after December the 7th, pick a 10-day time period, something like that, Mr. Coughlin would have called me and said, "We are having discussions, just to let you know, and I will get back to you with more details". It was during that period that, clearly, I learned later in January, that they were obviously very busy through the Christmas period trying to see if they could put together a financial arrangement with the Paxport folks. So it would have been sometime in around there.
Senator Kirby: Like within days of - 10 days.
Mr. Near: Days, a week, 10 days, something like that.
Senator Kirby: Okay. Secondly, on your contacts in the PCO, I think Senator Stewart asked you whether you had contacts with Mr. Shortliffe and I wasn't clear whether your answer was yes or no.
Mr. Near: Yes, I did.
Senator Kirby: On an ongoing basis?
Mr. Near: No, ongoing, maybe two, three, four times at the most over, you know, kind of a 12-month period, something like that.
Senator Kirby: I wonder if I can show you a document, which is a document, and this is just for the record purposes, 00218.
Mr. Near: I don't have -
Senator Kirby: It will be given to you right now. I have to read the number into the record.
Senator Grafstein: It is 002218.
Senator Kirby: I am sorry, 002218. I am asking you about this Mr. Near - ignore the first page for a minute, I will come back on the first page. You can see on the second page it is a memorandum from you to Mr. Shortliffe.
Mr. Near: Right.
Senator Kirby: You will notice the date on it, and you can tell the date in two ways. You can tell the date from your fax machine at the top of the page, and you can tell it also from the covering note, the file note from Mr. Shortliffe. So this was December 7th which is exactly precisely the same date that the contract was awarded, correct?
Mr. Near: Correct; early morning.
Senator Kirby: I was going to ask you that, 8:12, it is early morning.
Mr. Near: That is a.m. I like to start early.
Senator Kirby: Would you do me a favour? On the next page, which is the typed page of the memo, would you just read that into the record, and then can you tell us about -
Mr. Near: Tell you what it is?
Senator Kirby: Yes.
Mr. Near: Do you want me to read it into the record first?
Senator Kirby: I think it would help if you did that. Thank you.
Mr. Near: Sure.
Both bids are acceptable and the Government congratulates the private sector for participating in the Government's initiative.
Point 2:
By December 31, 1992 Paxport will deposit $100 million cash or letter of credit with the Crown. On signing the Development Agreement, the deposit will be transferred to a Project Fund as part of the equity required to complete the development. If no Development Agreement is signed the deposit will be refunded.
Point 3:
By December 31, 1992, an agreement in principle will be signed with Air Canada regarding a new lease with terms consistent with the proposal.
Point 4:
A Development Agreement with the Crown will be signed by March 31, 1993.
Point 5:
By March 31, 1993 a binding commitment from one or more financial institutions to provide project financing.
Point 6:
The Crown will not assign parking revenue or airline or concession leases to Paxport until the Development Agreement is signed.
Point 7:
In order to enhance the airport privatization programme by stabilizing Terminal 3, three million passengers will be moved from Terminal 1 to Terminal 3.
Point 8:
If the successful proponent is unable to meet the conditions of the Government's offer, the Government intends to commence immediate negotiations with the other bidder.
Senator Kirby: You wrote that, I presume, because it's -
Mr. Near: No, I didn't write it, but I was a participant with Claridge in constructing it.
Senator Kirby: What is it?
Mr. Near: As I indicated to Senator Stewart, the week of December - the first week of December 1992, there was a lot of buzz around about a decision being forthcoming. One of the benefits, we believed, of the Claridge proposal was that we felt we would beat the Paxport people on the financial side of things. The indications were - and we didn't know this but it was supposition on our part - that the bid was not going our way. We had no definitive reason for knowing that but just a sense of that is where it was going, which was proven to be true.
As I said, there were newspaper reports indicating that the announcement by the government was imminent. So what I did in conjunction with the Claridge people is put together, probably over that weekend quite frankly, a list of things that we thought the government should be looking to get from Paxport to confirm their financial capabilities. So we did that, if you will, over the weekend, Saturday, Sunday or whatever, and probably it was Sunday because we saw the Star piece, if you will, on Saturday, and that material was put together and then I either faxed and/or called Mr. Shortliffe and said, "Here are our thoughts on what you folks may want to look at in order to determine financial ability," and from there - I have no idea what he did with it, if anything - and it would be, I infer here that as a result of that he passed it on to the Deputy Minister of Transportation, to someone -
Senator Kirby: That is Huguette Labelle.
Mr. Near: To Ron Bilodeau, who was a senior person in the PCO, and to Bill Rowat, who at the time I think also was a senior person in the PCO.
So, quite frankly, it was an attempt by us never say die to get financial considerations, quite candidly, as stringent as possible because, in our view, we weren't necessarily dead, if Matthews and company couldn't come up with the necessary financing.
And so it was absolutely consistent with, if you will, one of the pitches that we were making through the fall period that financial strength was a tremendous asset and would result in the fastest economic development of terminals T1 and T2.
Senator Kirby: You discussed this, I guess it seems to me from your covering note, you discussed this with Mr. Shortliffe that morning, I gather? I say that only because you say, "As discussed -"
Mr. Near: Senator I think so, I can't - I probably said, "I have these -" I probably verbally over the phone told him our thoughts on it and then said, "I will fax you a letter," and that is what that was.
Senator Kirby: Can you recall what his reaction was? I don't mean his reaction to your written piece, I mean his reaction to your phone call.
Mr. Near: My experience with him is that he takes a lot of information in and didn't comment one way or the other as to what he thought with it. He is a good public servant - or was a good public servant and didn't show his hand.
Senator Kirby: The last point in your - of your eight bullet point suggests that -
Mr. Near: Last point of what, senator?
Senator Kirby: That last bullet point, your last one, states:
If the successful proponent is unable to meet the conditions of the Government's offer, the Government intends to commence immediate negotiations with the other bidder.
That suggests to me that the Claridge strategy, as suggested here, was, and I think you said it yourself, was to put very difficult financial conditions on Paxport in the hope that those negotiations would fall apart, and then you as the second bidder would be left in a position - I mean you Claridge as the second bidder - would be left in a position in which the government would then come and negotiate with you. That was your strategy.
Mr. Near: That was our hope, yes. Clearly, our view on December 7th, and again I say our view - I mean you clearly would want to ask Mr. Coughlin that question - but our view on December 7th was very much they picked Paxport, number one; we had doubts about whether Paxport could meet the financial requirements; we believed we were strong financially; and our understanding of the process is if they couldn't arrive at a deal with Paxport then we would be next in line for the negotiations. So that is where we were on December 7th.
Senator Kirby: It is fair - I am only asking because you use "we" and "our" several times. I assume - am I correct in making the assumption that you wouldn't - that Claridge knew the content of this? They might not have seen the exact text, but they knew -
Mr. Near: No request about that.
Senator Kirby: So it is not unfair for me to say that on December 7th the Claridge strategy was to, in a sense, hope the government would put tough enough financial conditions on Paxport that they would fail and then, logically, it would go to the second place bidder and they would attempt to negotiate a deal with you? Is that a fair assessment of what the Claridge strategy was on the seventh of -
Mr. Near: That is how I would have characterized it.
Senator Kirby: Yet you also said that you heard within 10 days - other people have said three or four days, so maybe -
Mr. Near: I am not -
Senator Kirby: I was going to kid you and say maybe you were slow on the loop.
Mr. Near: In that instance I probably was.
Senator Kirby: But within 10 days, Claridge had in some sense abandoned that strategy and moved onto a strategy of "let's put the two bids together". And we know that - the other piece of information we know is that the start of that process, according to Mr. Hession at least, began with a conversation that he had with a public servant.
Mr. Near: I can't speak to that. I don't know that that is right or wrong.
Senator Kirby: All I can tell you is what we heard.
So the reality is that at least as of the day the contract - that the contract - sorry, the best acceptable proposal was announced, the reality is that your strategy was one of it's going to fall - with any luck it will come to you guys as the second place finisher because of your tremendous financial strength.
Mr. Near: That is where we were on the seventh.
May I just add, because we have obviously been following what was going on here, this approach, if you will, on the part of Claridge strongly suggests that there was no collusion. Anyone who suggests -
Senator Kirby: Say that again.
Mr. Near: We would argue, or I would argue suggests that there was no collusion between the two parties. It has been suggested -
Senator Kirby: Prior to the seventh?
Mr. Near: Prior to the seventh. I think it has been suggested at this committee that there was some form of collusion. I can tell you from our personal experience there was zero. Figuratively, we were trying to kill one another.
Senator Kirby: For what it's worth I don't follow you.
Mr. Near: That was the inference. It may be an inference on my part, but I inferred there to have been suggestions here that there was some form of collusion that had taken place between the two parties. Our experience up and to the seventh of December would suggest there was not a chance that there was collusion.
Senator Kirby: Can I just ask you - okay, and what caused the change in strategy from the seventh at some point in the next 10 days is obviously not an issue we deal with you on, we deal with Claridge on; is that right?
Mr. Near: I would think that is right.
Senator Kirby: Because in fact you were - am I correct in inferring that you said you were informed of the change in strategy not - you weren't part of that - of the discussion of that?
Mr. Near: That is right.
Senator Kirby: Do you see what I mean?
Why did you contact the Clerk of the Privy Council rather than the Deputy Minister of Transport given what the issue was?
Mr. Near: Probably for two reasons: One, I may have tried them both that morning, I don't know. So I got him, if you will. I don't know if Madam Labelle was in that morning or whatever. I may have placed two calls and he got back to me first. I just don't recall. That wouldn't have been unusual for me to have done just that.
Senator Kirby: Just as an aside, did Mr. Shortliffe return your calls pretty quickly?
Mr. Near: Probably not as quickly as he returns yours.
Senator Kirby: Some people in this town are hard to get hold of. Getting hold of the Clerk of the Privy Council is not that easy to do.
Mr. Near: Eddie Goldenberg will return my calls so I don't think Glen Shortliffe would be any different.
Senator Stewart: We now know the power structure.
Senator Kirby: You think you may have tried to get both?
Mr. Near: I may have. It wouldn't surprise me if I did, and I spoke to him and sent him the material.
Senator Kirby: Okay. Thank you, Mr. Chairman. That is all I have.
Senator Grafstein: I have just a few questions which might be a follow-up and then perhaps complete our side and then we can turn it over. I am prepared to wait.
The Chairman: Go ahead, Senator Grafstein.
Senator Grafstein: You told us, Mr. Near, that you were surprised by your initial contact in this process that this matter was going to be handled by the PCO as opposed to the department by - in your conversation with Mr. Segal?
Mr. Near: No, it didn't surprise me. It didn't surprise me.
Senator Grafstein: Do you believe it was unusual that the PCO should handle this from sort of day one in effect, this particular project?
Mr. Near: At this stage of the game, I don't think there was a right or wrong way to handle it.
Senator Grafstein: Was it unusual for the PCO to take the lead on this at such an early stage?
Mr. Near: No, I don't think particularly so, no. Bear in mind, Mr. Segal, who was the chief of staff or political assistant to the Prime Minister, knew Mr. Shortliffe was a former Deputy Minister of Transportation so there was a significant, you know, knowledge base that he would have had.
Senator Grafstein: I see.
Mr. Near: He being Mr. Shortliffe.
Senator Grafstein: Because we - you know, there is the Department of Transport; there is the Treasury Board; there is Public Works. There is a whole raft of organizations. There is the authority within the Department of Transport that was given responsibility for this. All of a sudden at almost an early stage the PCO pops up as being, based on your conversation with Mr. Segal, sort of the key player as opposed to -
Mr. Near: No, I didn't say that. Or if I did I didn't mean to infer that.
What I meant to infer was as far as Mr. Segal in the PMO was concerned that file was going to be handled by the PCO, as far as the PMO was concerned; i.e. the PCO being the bureaucratic department that reports to the Prime Minister, like the Department of Transportation is the department that reports to the minister. So I am making a distinction between PMO as a political organization and PCO as a departmental.
What Mr. Segal was telling me is, "On this file, deal with the department," i.e. PCO; and then PCO in turn would, as you have heard from many witnesses, be one of the players involved in the process with the Department of Transportation, Treasury Board, Industry Canada, et cetera.
Senator Grafstein: All right. Let me turn to the Department of Transport for a moment in terms of contact. In that memorandum referred to by Senator Kirby -
Mr. Near: Which one?
Senator Grafstein: July 8, 1992; we have opposite "Transport Corbeil Ouellet". Who is Mr. Ouellet?
Mr. Near: Garry Ouellet, I believe, who was with GCI, Government Consultants International or Inc. or something.
Senator Grafstein: To your knowledge was Mr. Ouellet or yourself or anybody representing your interests involved in convincing the minister that he should have - he should discard the expression of interest process and go right to the call for performance - I forget - it is the request for -
Mr. Near: Request for proposals?
Senator Grafstein: Yes.
Mr. Near: I have no idea one way or the other. I have no - I have no reason to know it or not know it. I don't know.
Senator Grafstein: So part of your representations from your aspect would not involve trying to convince Mr. Corbeil or people in the Department of Transport to reduce the timeframe for that process, which obviously would benefit those that had been established or had some groundwork on the ground for a run at this particular project?
Mr. Near: I don't know that with respect to Mr. Ouellet as an example; but our - where we were, if my memory serves me correctly, at the time, and this is around May, June, if you will, of 1992, we were looking for more time, not less time. In other words -
Senator Grafstein: Did you think the time was unreasonable?
Mr. Near: We thought the time was fine. But we thought an extra month or so wouldn't be bad, and we made representations to that effect - "we" being Claridge in this instance. If my memory serves me correctly we got another 30 days.
But no one was concerned about not being able to get the job done in 90 days. One hundred and twenty gave us a little bit more cushion. The truth of the matter is I think there was, generally speaking, at least on our side and probably on the other side, a positive view that there was a deadline and that it was a deadline that allowed the work to get done but it made sure that everybody had to hustle and that there was then going to be a quick, you know, again, a relatively speedy decision.
Senator Grafstein: Was there a collateral feeling there that having reduced the time it also would reduce the aspect of competition from parties not yet known or not yet heard from?
Mr. Near: Not really. Again, generally speaking, it was a small community in terms of the number of prospective bidders or players and so anybody who was serious or wanted to be serious about bidding generally knew that this kind of thing was in process. And, again, bear in mind that Claridge bought Huang and Danczkay and Huang and Danczkay had been one - they had bid and won on Terminal 3 and they had obviously done the base work which Claridge then took over on the bids for T1 and T2.
Senator Grafstein: The Matthews Group had been a player on Terminal 3 and it lost?
Mr. Near: They had been one of the losers on Terminal 3. Again, at that point, I had not been involved with Huang and Danczkay on Terminal 3 at all.
Senator Grafstein: This question is not meant to be facetious, but it may perceived to be facetious. It is not. That is, your expertise, which I don't question, it didn't end up with a very good result.
Mr. Near: M'hm.
Senator Grafstein: Therefore, what was your reaction when you lost?
Mr. Near: We weren't happy. As some of you who know me would suggest it would come as no surprise that I or Bill were not happy campers on December 7th. You know, we had been strong advocates in helping our client make the best possible case and we thought that a better way to evaluate the proposals was effectively to have a one stage evaluation, which would have included both operational and financial, and so we would have preferred that. It didn't go that way. They decided to evaluate it first - again to generalize a little bit - operationally and then financially.
It is done and has been done both ways on different cases on different files over the years by different governments. So I would argue there is no right or wrong way to do it. Our preference, because we thought then, think today, had a strong financial advantage over anyone else. So obviously we would prefer it to be done that way.
We didn't get the results we wanted. But, again, our objective was to help our client in the best way we could, and we think we did that. I guess the best testimony to the fact that our client, even though they lost, were happy with the result or pleased with the result that - or the advice we gave them, we still work for them.
Senator Grafstein: You have been involved, I take it, in other projects, in other - I have difficulty remembering - request for proposals, processes, I assume?
Mr. Near: Directly and indirectly, sure.
Senator Grafstein: Did this merger so soon after the putative award - and I say "putative" because it really wasn't an award, it was a proposal to allow one player to go forward while the other sort of sat still - it was a right, we have been told, to negotiate on an exclusive basis. Did this merger - is that a surprising or unusual thing to happen so soon after a preliminary award?
Mr. Near: I make two points in answering that question. It isn't unusual for the government to have proceeded the way they did, i.e. let's check them out operationally, pick the one we think is the best and then go and negotiate with them and if we can get a good deal with them we will award it to them because we like their bid operation.
Senator Grafstein: But that didn't take place here.
Mr. Near: It did not. It did, coincidentally, that very process, and I don't know this explicitly, you might be able to get answers from officials, that is the exact process that was used for the P.E.I. bridge.
Senator Grafstein: By the way, that is the process you were recommending to Mr. Shortliffe on December 7th.
Mr. Near: Absolutely.
Senator Grafstein: So within a few days after that, all of a sudden it changed.
Mr. Near: It changed.
Senator Grafstein: Was that unusual?
Mr. Near: I would argue that that would be unusual if one circumstance didn't exist.
Senator Grafstein: Which was?
Mr. Near: Both these players, Paxport and Claridge, knew the details of the request for proposal intimately; and so it was as a result of the fact that there was no learning curve for these two firms to go through to decide whether they had the makings of a merger. They understood the details like the back of their hand. And so their knowledge was so high that it wasn't one of those instances where two firms are kind of starting out trying to do due diligence. That wasn't necessary here. They knew the project. They knew the details - so point one with respect to that.
Point two, it was - Claridge owned T3. They were, by definition, players. And so clearly that was a factor that they decided to examine.
That is a question, though. I mean I am giving you my views on it. Clearly, that is something you will want to ask Claridge and Paxport.
Senator Grafstein: I am really calling for you based on your accepted experience in negotiating or making representations with these types of transactions.
Mr. Near: It wasn't unusual because of the circumstances I have described to you - the high level of knowledge that existed.
Senator Grafstein: And the shortness of time?
Mr. Near: Senator, you have been involved in deals I suspect that have been done very quickly.
Senator Grafstein: Yes, that is true, not well, but quickly.
Again, wasn't the merger - and again, if you can, separate yourself from your interests here and give us your general view - wasn't the quickness of the proposed merger undermining the integrity of the process as set out initially in the request for proposals in the sense that it left the government with one player on the table and no leverage with respect to another player because the impulse - and these are my words, my words, not a witness's words - the impulse that I gathered from the witnesses from D.O.T. and from Treasury Board was that they wanted to have another player on the table to maximize the leverage that the government would have in negotiating the best possible deal in the interests of the government and the taxpayer.
Mr. Near: M'hm.
Senator Grafstein: And by this immediate merger it took away the impulse or the ability to leverage one player more than the other.
Mr. Near: Yes, that is probably true.
Senator Grafstein: So that - because of the merger that aspect of the process was all of a sudden undermined.
Mr. Near: I wouldn't say it was undermined. I would argue that probably if you would ask D.O.T. officials, and maybe you did ask them this question, I would argue that they probably would have liked to have three serious bidders in the play. And so that if it didn't work with number one they could have gone to two. Or if one and two got together they always had three in the wings. So the more the merrier from their point of view.
The reality is there were only two who decided to step forward and do it; and when they decided to merge I don't think it reduced the integrity of the process at all. I mean I don't know why it would have.
Senator Grafstein: Did you have a feeling on December 7th - final question, Mr. Chairman - that -
Mr. Near: I had a feeling of despair on December 7th.
Senator Grafstein: Did you have a feeling on December 7th that the process had been fair?
Mr. Near: Yes. But I wasn't happy on December 7th, nor was Bill, be very clear, because we lost.
Senator Grafstein: Thank you, Mr. Chairman.
Senator Hervieux-Payette: You were happy at a later date?
Mr. Near: I don't know what you mean.
Senator Hervieux-Payette: When you merged with the other company I suppose that you became happier at a later date.
Mr. Near: I wasn't as despondent as I was on December 7th, if that is what you are asking me.
The Chairman: Mr. Near, I want to ask you a question to which I think I know the answer. For two people, you and Mr. Fox, who were conspicuously associated with the Conservative Party over a good number of years in all phases of activity on that party, making no bones about the fact, campaigners, strategists - Mr. Fox, as a matter of fact, putting the best face every week on television.
Senator Stewart: Don't ruin their reputation.
The Chairman: In all those matters, knowing every member of the Mulroney cabinet. Now it is no longer there. Why has your business increased?
The obvious thing I'm driving at is that it's obviously not through access, it's through the type of work that they do; the way they prepare their people. I'll let them answer.
Senator Kirby: Clearly we're moving into an area where we're going to do sales pitches.
Mr. Near: We'll be sending the brochures right after this.
Just to counteract Senator Grafstein's comment about not winning, you're inferring our business is up, but we are still very much in business with the change of government and we believe it's as a result of doing good, thorough work for our clients. And quite frankly, that is independent of the stripe of the government in question. And speaking personally, the best example that I could give in that regard is that in 1980, when I had worked, as I indicated to you earlier, as a staffer for the Conservative Minister of Energy, Ray Hnatyshyn, the government fell in 1980 - some will remember that - and I went to work in the public affairs business in town, here in Ottawa, as an energy specialist at then PAI and, through the early years of the then Liberal government, managed to, with the help of my colleagues, managed to build up the energy practice at PAI to the largest practice that existed then and probably now. So there was no necessity for someone to be either - for someone to be a government affairs advisor, a consultant, and have to be of the same political stripe of the government in power. You had to be good. You didn't have to be the right political stripe.
Senator Stewart: I have one subordinate question, which perhaps we could clean up. I know we've taken a lot of time.
The Chairman: Yes, you've all had a crack. I'll let Senator Tkachuk go ahead.
Senator Tkachuk: I think Senator Jessiman was first.
Senator Jessiman: Mr. Near and Mr. Fox, you don't work out of your houses, do you?
Mr. Near: No, we don't.
Senator Jessiman: You don't type your own correspondence?
Mr. Near: No.
Senator Jessiman: Do you have any secretaries work for you?
Mr. Near: Yes.
Senator Jessiman: Researchers?
Mr. Near: Yeah.
Senator Jessiman: How many staff do you have?
Mr. Near: Well there are what, Bill, how many in total?
Mr. Fox: Sixteen in total.
Senator Jessiman: Sixteen people?
Mr. Near: Sixteen people in total, yeah. Are there typos in some of the material?
Senator Jessiman: No. When Senator Stewart was saying you were getting these tremendous fees; $5,000 and -
Senator Stewart: I never said any such thing. I object to that. I said no such thing.
Senator Jessiman: Well, you implied that.
Senator Stewart: No, I certainly did not.
Senator Jessiman: I took it that way.
Senator Stewart: Well, then you mistook it.
Senator Jessiman: If I did - anyway, those fees don't go straight into your pocket.
Mr. Near: They go to the firm. We run the business on those fees.
Senator Jessiman: Right.
I only have one other question and it's the big question as far as the government is concerned. Now, the other side won the contract and they needed some financial backing and if Paxport had gone to any number of people with lots of deep pockets, they could have gotten the contract because they needed more financial backers. Is that your understanding?
The Chairman: Senator Jessiman used the words "won the contract".
Senator Jessiman: I'm sorry, you're right. They didn't win the contract. They were the best overall acceptable proposal.
Mr. Near: M'hm.
Senator Jessiman: Right? But because T3 was owned by Claridge, the synergies that were there, it was just a natural, and from only from the point of view of the government. The other side here is suggesting what the government should have done, they should have said, "Well they can't finance it, we'll go to the next bidder." If they'd gone to Claridge, your bid, in relation to what was negotiated - and I can't give the exact figures, but close to $200 million difference in favour of the government.
Mr. Near: Yes.
Senator Jessiman: So from the government's point of view, they're that much further ahead.
Mr. Near: Absolutely.
Senator Jessiman: Right. And there was more equity put in?
Mr. Near: Yes.
Senator Jessiman: And there was less debt.
Mr. Near: Yes. The government officials did a very good job getting a good deal for the Crown.
Senator Jessiman: Right. Just one last question here.
Now, this is to your personal knowledge and I'm going to read part of Mr. Nixon's report.
The Role of Lobbyists...: It is clear that the lobbyists played a prominent part in attempting to affect the decisions that were reached, going far beyond the acceptable concept of "consulting".
As far as you were concerned, from your knowledge, is that a true statement?
Mr. Near: It's completely false.
Senator Jessiman: I'm going to go further.
When senior bureaucrats involved in the negotiations for the Government of Canada feel that their actions and decisions are being heavily affected by lobbyists -
Now, you can't tell me what they feel, but from the actions that you know of as the lobbyists, would they have any reasonable reason for feeling that?
Mr. Near: There is no government or political person that we were in touch with at any time through the process who I would believe in any way felt that way; not a one.
Senator Jessiman: And it says:
- the role of the latter -
- being the lobbyists -
- has, in my view, exceeded permissible norms.
Do you agree with that?
Mr. Near: No.
Senator Jessiman: It's wrong?
Mr. Near: It's wrong.
Senator Jessiman: Absolutely wrong?
Mr. Near: As far as I'm concerned, it's wrong. I'm speaking for us, but it's absolutely wrong as it applies to us.
Can I add one thing with respect to Mr. Nixon, since I have a view? He never once tried to contact us; he or anyone else who worked for him through that process. Never received a call.
Senator Jessiman: It's amazing. Thanks very much.
Mr. Near: You're welcome.
Senator LeBreton: I have a follow-up question.
The Chairman: Follow-up question.
Senator LeBreton: It's sort of in that same vein.
Senator Grafstein: I have a follow-up question too arising out of that line of questioning.
Senator LeBreton: In the same vein, because he specifically focused on the Nixon report and I was just going to ask you to put this in perspective with other business, because you've both been in the government affairs business for quite some time.
This particular transaction, and of course we really ultimately here are supposed to be talking about the Pearson Development Corporation, has been described as intense or unusual.
Can you comment on this? Was this any more or less unusual than other files or any more or less intense than other files that you may have worked on over the years under both governments?
Mr. Near: Well, speaking for myself - Bill may want to comment - it was no more intense or less intense than any other big file. It was less intense than something more routine, but in terms of - this was a big file and, as a result, it was hectic and it was busy, but that would not make it unique by any stretch of the imagination, not at all. I mean we have worked with other clients on other files that were equally as intense and that's not unusual. It's nothing to do with this process, it's just the fact that it's a big issue, that's all.
Mr. Fox: From the communications perspective I would think it was more intense once it became a significant campaign issue in the first week in October, and in that context I would say it was not typical.
Senator LeBreton: But not in terms of the lobbying or the efforts -
Mr. Fox: I'm talking strictly about it as a media story.
Senator LeBreton: I would agree with that.
Senator Jessiman: I'd like Mr. Fox, would you comment on the questions that I asked Mr. Near? Do you agree with what his answers were?
Mr. Fox: Yeah, not as it applies to me. I can't speak for -
Senator Jessiman: No, no, of course you can't. Speaking for yourself.
The Chairman: Gentlemen, we have had a lot of time with these witnesses and you've had a lot of time for questioning. Could I ask you what you and Senator Stewart now have in mind with regard to clean-up questions?
Senator Grafstein: I don't know what Senator Stewart has but I have one question arising directly out of Senator Jessiman's question and response from the witness.
The Chairman: All right, please go ahead.
Senator Grafstein: You've concluded from Senator Jessiman's comments that the deal that was ultimately concluded, which was $200 million more than your clients originally proposed, was a good deal for the government. Had Paxport's original deal been approved without your intervention and with proper financial support, it would have been much better for the government, would it not have been, in terms of quantum?
Mr. Fox: There was one, I think, factor that changed the equation somewhat and that is the knowledge some time after the fact of the extent of the lease with Air Canada. And I think that...
Senator Grafstein: But the government decided to allow Paxport, through the net, to become the best acceptable proposal based on a proposal that was larger and grander and involved more investment by some order of magnitude than the final deal that was done on the merger.
Mr. Near: M'hm.
The Chairman: Just a correction please, senator -
Senator Grafstein: You're saying affirmatively you agree with that?
Senator Jessiman: No, he didn't say -
Senator Grafstein: He nodded. I wanted to know what he said.
Mr. Near: What I'm saying is that Paxport had their proposal which was going to result in certain benefits to the Crown based on certain assumptions. Claridge had the same thing with their set of assumptions. Mergeco was again the same thing with a set of assumptions; assumptions that, by the way, had changed because of this enormous new circumstance that came into play, i.e., the Air Canada lease, which nobody knew about back in the summer of 1992, as I recall. It was a new phenomenon and it fundamentally changed economic assumptions that were effectively the basis of the negotiation. So -
Senator Grafstein: So this was an unusual transaction then.
Mr. Near: It was a big transaction.
Senator Grafstein: A big transaction, new facts, merged deal, different, one of.
Mr. Near: Well, what isn't? There's nothing like this that isn't a one of; this big.
Senator Grafstein: Obviously. Thank you, Mr. Chairman.
The Chairman: I can't allow you the luxury of inaccurate semantics. You just said the government allowed Paxport into the net.
Senator Grafstein: I'm sorry, I should correct that. The government approved Paxport to get through the first process to allow it to negotiate on an exclusive basis after December the 7th. That's what I meant. And by the net I'm talking about everybody else couldn't negotiate. They were consulting and negotiating primarily with Paxport because they were the best acceptable overall proposal.
The Chairman: Yes, and who made that decision? That wasn't the government. The government was not the evaluation committee. It was a bunch of public servants and private people who made the evaluation.
Senator Grafstein: Quite so. I stand corrected.
Senator Tkachuk: I'm going to ask a couple questions but, Senator Grafstein, you made a few points. All of the testimony that I have heard over the last number of months, every government official has said that they all negotiated on the basis of the Paxport proposal, not the Claridge proposal. So what I'd like to get from you, Senator Grafstein, is could you tell me, from the testimony that we have heard to date from all these people, where it says otherwise?
Senator Grafstein: I agree that up until December, they were dealing with the Paxport proposal and then a merger appeared on the scene.
Senator Tkachuk: A merger appeared on the scene, but the government officials always dealt on the basis of the Paxport proposal, and that's what all the testimony to date has said. Now I would like to know, because you've made inferences over the last couple days that are apart from, almost as a basis - I don't mind you making them - say that that's your opinion as has nothing to do with what's happening -
Senator Grafstein: It's my deduction from the facts as I've heard them that the transaction -
Senator Tkachuk: Help me out. Help me out.
Senator Grafstein: You start with Paxport, you start with Claridge and you end up with an animal that's not Paxport and not Claridge but the merged animal, which is different in substance, kind and numbers than Paxport. That's different. It's a different transaction.
The Chairman: If we carry on this way -
Senator Grafstein: It's a conclusion -
Senator Tkachuk: It's a debate -
Senator Grafstein: It's a conclusion from the facts -
Senator Tkachuk: We're having a debate here that has nothing to do with the testimony and -
Senator Grafstein: I think it does.
Senator Tkachuk: I'm just not going to let him get away with this stuff and that's why I bring it up.
Senator Grafstein: Look, senator -
Senator Tkachuk: Don't argue with me. It's my turn to ask questions.
Senator Grafstein: You're able to conclude any facts you want and we'll make conclusions.
Senator Tkachuk: I'm making my own conclusions.
Senator Grafstein: Good, so do I.
Senator Kirby: You're not allowed to make them, only he's allowed to make them.
Senator Grafstein: I see.
The Chairman: If we carry on like this, we're not going to need witnesses anymore.
Senator Tkachuk: Sorry, Mr. Chairman.
Senator Kirby: They're happy with that, Mr. Chairman.
Senator Tkachuk: I just have a few questions to the witnesses.
Your company, Mr. Near, I'm not sure if it was called Earnscliffe, but whatever it was, in the Terminal 3 proposal also represented the Claridge Group of Companies?
Mr. Near: No.
Senator Tkachuk: It didn't?
Mr. Near: No.
Senator Tkachuk: I'm sorry, Huang and Danczky.
Mr. Near: No, and in reality, we - at the time a predecessor company to Earnscliffe, a company called Near Consultants, had done some work for Huang and Danczky, but none of it was related to Terminal 3 at all. It had nothing to do with Terminal 3, what I at the time was doing for Huang and Danczky. It was a separate project altogether, not related to T3 at all. I was not involved in T3 in any way, shape or form. And the same thing applies for Bill.
Senator Tkachuk: Did you feel that being people involved in the political process for the Conservative Party gave you a decided advantage in this call for proposal that was made on the redevelopment of Terminal 1 and 2?
Mr. Near: No, I didn't, don't, think it was an advantage then and I don't think it's a disadvantage now.
Senator Tkachuk: Did you think that because Mr. Matthews was a partner with six or seven other companies in the Paxport company that he had an advantage because he was well known as a Tory?
Mr. Near: No.
Senator Tkachuk: When the deal was done, and we now have Mergeco, you mention that that was sort of a different phase now that you were dealing with. What was sort of your business then? What did Earnscliffe do then now on behalf of the Mergeco?
Mr. Near: Quite frankly, very little. I mean we had periods of intense activity, and Bill has described some of them that were at the front end and at the back end. That was a period, quite frankly, of very little activity, because it was at that point in time when, if you will, the business negotiations were taking place; was Mergeco going to be a reality, was it going to work.
The one thing we did do as those negotiations looked like they were going to result in a Mergeco, and again, no one knew definitively at the time that that was going to be in place, was do some work that resulted in a presentation that described the advantages of the new Mergeco. And I think some of the material that we submitted to senators includes a sample of one of those types of presentations that were then taken jointly by the Mergeco management, and presentations made to a variety of people; officials and editorial boards, et cetera. And that was a thing that Bill was involved in a lot.
Mr. Fox: From the communications perspective, there was not very much activity through the early part of '93, I guess. The lead was taken by Paxport. But the activity was particularly intense through August, and the August announcement in Toronto. I believe the date was August the 27th, around there anyway, and then certainly quite intense through the period immediately following the general election of 1993, and then again in pockets of time around different developments, whether it was the House committee hearings or things of that nature.
Senator Tkachuk: Periodic moments of boredom with some excitement?
Mr. Fox: There's an ebb and flow to it.
Senator Tkachuk: So during the time the negotiations were taking place between Mergeco, Pearson Development Corporation and the Government of Canada, that was - I don't want to put words in your mouth, but just from what you told me - that was a quiet time as far -
Mr. Near: Slow period.
Senator Tkachuk: Why was that?
Mr. Near: Because the negotiations were going on. There was nothing that required any communications activity. By definition there was nothing to communicate, and there was certainly not a whole lot of government affairs activity required because the information or the deal was being done by officials, if you will, behind closed doors. So anybody who needed to know something was there in the room. They were trying to do the negotiations. It would be through that period that we would have discussions about our strategy, if you will, in terms of, you know, how strong or big a deal do we think this is. But that was advice to, if you will, the Claridge people that they then took back into their negotiations. But it was very minimal. You had expert management from each firm who were trying to do the deal. They didn't need, for those purposes, any outside advice.
Senator Tkachuk: After the announcement on the 27th and then the election, you were still working for Pearson Development Corporation and your function now - what was sort of your major role now? I mean the Nixon report's announced; what happens?
Mr. Fox: One of the first things we did was issue a press release welcoming the appointment of Mr. Nixon, and we began a process of research. I think I mentioned we did some quantitative research, some focus groups in the metropolitan Toronto area, of groups of citizens. And the screening process was we looked for people who had voted for the Liberal Party or the liberal candidate in the 1993 general election and people who were interested in the Pearson development project to try and determine sort of what public attitudes were about the development and with a view to crafting a paid media strategy which took the form of some full page ads where we attempted to answer some of the top of line questions that had surfaced as a product of this quantitative research.
Senator Tkachuk: Mr. Fox, during the period of the election, and then just before the Nixon report announced, there were a number of articles in the news media about the deal itself, the election campaign. What did you try and do during that time to combat some of the allegations that were being made?
Mr. Fox: We had tried to make spokespersons available to the major media outlets. We had organized editorial boards. But, you know, the reality for us was that we felt it was only appropriate for us to speak to the business case, that the public policy debate was properly joined by parties other than our client. And so, you know, we weren't there to debate the merits of privatization or not; we weren't there to debate those kinds of public policy issues. Rather, we were there to try and answer any questions that the media may have had about the business deal itself. And we met with quite a number of columnists, reporters, the business press, the political press. I think it is safe to say that over the period of time we were in all of the editorial boards of the major Toronto newspapers - and obviously Toronto was a particular focus for us. We were on national television a number of times - spokespersons were on national television a number of times. We had formal news conferences at different stages through the process. So that's the kind of activity that we were involved in.
Senator Tkachuk: Were there groups outside the political parties in Toronto who would be opposing the deal?
Mr. Fox: Oh yeah.
Senator Tkachuk: Who would they be? Would they have been the people who were trying to form the Toronto Airport Authority? Were they fairly active in this campaign, Mr. Bandeen and others?
Mr. Fox: Well, Mr. Bandeen was quoted extensively in the media at the time and was questioned on that subject by Senator LeBreton before this committee some weeks back. So, yeah.
Senator Tkachuk: When the Nixon report was announced, what did you think was going to happen? What were you as the -
Mr. Fox: The review or the report?
Senator Tkachuk: When it was announced that Mr. Nixon was going to do the report, what was your - or the review, or whatever you call it. What do you call the thing? The Nixon report. When he was commissioned to do the report, what did you, as lobbyists in Ottawa, what did you - what was your impression; what did you think was going to happen?
Mr. Fox: As I said earlier, we actually issued a formal communique congratulating and welcoming the appointment of Mr. Nixon, because we thought that it would afford us an opportunity to put our case in a setting other than a federal election campaign, and we were confident that, given that opportunity, that we would be able to satisfy the concerns of the newly elected government. That was our going-in position.
Senator Tkachuk: Did you, during that period of time, your client and yourself, feel that you would get a fair shake, that there would be an independent review?
Mr. Fox: Absolutely.
Senator Tkachuk: You mentioned that you never got a phone call, or that you weren't contacted by Mr. Nixon at any time during - did that surprise you? .
Mr. Near: Surprised me.
Senator Tkachuk: Mr. Fox?
Mr. Fox: It didn't surprise me in particular.
Mr. Near: He has more experience in this stuff than I do.
Senator Tkachuk: Did it surprise your client? Your client; how long was he asked to appear? Was your client intensively - Mr. Coughlin and -
Mr. Near: You should ask him. Our understanding is that he did not have a very long meeting with Mr. Nixon, but that's a question more appropriately answered explicitly by Mr. Coughlin.
Senator Tkachuk: So when the Nixon report was published, what was your immediate reaction?
Mr. Near: It shouldn't be in the transcript.
Senator Tkachuk: Mr. Fox?
Mr. Fox: Well I think - I guess I would say that our reaction was summarized in the presentation made to the House committee by the principal. There would be nothing in the statement that was made to that committee that I would take issue with.
Senator Tkachuk: That's all I have. Thank you, Mr. Chairman.
The Chairman: All right. Now, I tell you what, we're going to adjourn at five o'clock and we have another witness. So, Senator Stewart...?
Senator Stewart: I'm prepared to hear the other witness.
The Chairman: All right. Thank you Mr. Near, Mr. Fox. You've been very forthcoming and we appreciate it very much.
Mr. Nelligan: I was just going to say you can leave your professional cards at the door and anyone who wants them can pick them up.
Mr. Near: Thank you, Mr. Nelligan.
The Chairman: We will take a five-minute break.
- Short recess
The Chairman: Come to order, please. Mr. Nelligan will introduce our next witness.
Mr. Nelligan: Senators, our next witness is Mr. Herb Metcalfe, who is senior partner of the Capital Hill Group, another firm of government consultants. Mr. Metcalfe has already provided us with a bundle of documents which is available to you, and I understand that after being sworn he'll have a brief oral statement.
(Herb Metcalfe, sworn:)
The Chairman: Please proceed, Mr. Metcalfe.
Mr. Herb Metcalfe, Capital Hill Group: Thank you, Mr. Chairman.
My name is Herb Metcalfe. I'm the senior partner in a company called the Capital Hill Group, which is a government relations firm in Ottawa. We have been in business since 1985. We became involved in the Pearson development file in August of 1991. I look forward to your questions.
The Chairman: Now, we understand one another. Five after four, 55 minutes. Who is interested?
Senator LeBreton: I have some questions.
Senator Jessiman: I would have some questions.
Senator Stewart: I have.
The Chairman: Okay, Senator Stewart had his hand up first. I'll put the others down.
Senator Stewart: Thank you, Chairman.
Mr. Metcalfe, were you here when the previous witnesses were testifying?
Mr. Metcalfe: Yes I was, sir.
Senator Stewart: So you heard the chairman's opening statement?
Mr. Metcalfe: Yes.
Senator Stewart: In which he indicated that, whether we like it or not, lobbying is now an integral part of the governmental process.
Mr. Metcalfe: I think it has been for some time, senator.
Senator Stewart: Yes. Do you think it's unreasonable for this committee to ask lobbyists questions concerning an important but controversial transaction?
Mr. Metcalfe: Depends on what the questions are.
Senator Stewart: So there are some questions which you feel should not be asked?
Mr. Metcalfe: I think there are some questions that are best answered by the client.
Senator Stewart: Of course.
Mr. Metcalfe: And there are other questions best answered by ourselves.
Senator Stewart: Of course, but in any case the questions should be answered, but by the appropriate persons?
Mr. Metcalfe: Yes.
Senator Stewart: All right, thank you.
Chairman, I took a fair amount of time with the previous witnesses with regard to the whole lobbying operation. I don't want to repeat that, but I do want to get any relevant information that Mr. Metcalfe might give to us, so I'm going to approach those questions in a glossary way.
Mr. Metcalfe, we have some memoranda. Your name appears as an originator, and also the name of David Dyer.
Mr. Metcalfe: That's correct, sir.
Senator Stewart: Have either of you worked in ministers' offices?
Mr. Metcalfe: We have, sir.
Senator Stewart: All right. Has either of you -
Mr. Metcalfe: Would you like me to go through -
Senator Stewart: No, I'm just trying to discover what the qualifications are for a good lobbyist. Has either of you been a member of the public service?
Mr. Metcalfe: I was.
Senator Stewart: Did you take the Official Secrets oath?
Mr. Metcalfe: It was back in 1975-76, '74-75.
Senator Stewart: What department was that?
Mr. Metcalfe: I was with the Anti-Inflation Board at the time, sir.
Senator Stewart: Probably you didn't take the oath then.
Has either of you participated in political campaigns?
Mr. Metcalfe: Yes, I have, sir.
Senator Stewart: Has Mr. Dyer?
Mr. Metcalfe: I believe he has, sir.
Senator Stewart: But you wouldn't have direct knowledge on that?
Mr. Metcalfe: I know for a fact that he has been involved in, I think - I believe it was the '88 campaign and I also believe -
Senator Stewart: Would it be intrusive for me to ask you if this was on behalf of the Liberal Party?
Mr. Metcalfe: In Mr. Dyer's -
Senator Stewart: In your case.
Mr. Metcalfe: In my case, yes; in Mr. Dyer's case, no.
Senator Stewart: That was Progressive Conservative?
Mr. Metcalfe: Yes.
Senator Stewart: Has either of you participated in the reconstruction or reconstitution of a government?
Mr. Metcalfe: I can't speak for Mr. Dyer in that part, because my relationship with Mr. Dyer started when he came to work for us, which was about six years ago, and so prior to that I don't know, but with respect to myself, I have not had an official capacity in what you'd call a transition team.
Senator Stewart: All right. Now, I want to spend a little more time on how well you get paid or how poorly you get paid.
In the case of the Pearson airport contract, for whom did you work?
Mr. Metcalfe: We worked for Claridge Properties.
Senator Stewart: And that was the only person, either natural or corporate, for whom you worked?
Mr. Metcalfe: Yes, we billed Claridge Properties.
Senator Stewart: Over what period of time did you work for it?
Mr. Metcalfe: We originally got involved with Claridge on the Pearson airport back in August of '93 - sorry, '91, sorry - and are still continuing to work for them, senator.
Senator Stewart: On what basis are you remunerated? Do you get a flat monthly -
Mr. Metcalfe: We're paid on a monthly retainer fee.
Senator Stewart: Yes. You heard the previous witnesses say from time to time they may get what we might call ad hoc supplements to that because of -
Mr. Metcalfe: Extra services provided?
Senator Stewart: - a particular task.
Mr. Metcalfe: In this case, from the day we started working from Claridge Properties we have been paid a flat monthly retainer fee.
Senator Stewart: Can you tell us what that was?
Mr. Metcalfe: It was $10,000 a month.
Senator Stewart: Ten thousand dollars a month. And you received it -
Mr. Metcalfe: We billed every month and we received it on a monthly basis, and continue to.
Senator Stewart: Thank you very much.
Can I anticipate Senator Jessiman's supplementary question -
Mr. Metcalfe: Sure, if he doesn't mind.
Senator Grafstein: Pretty tough to do that.
Senator Stewart: You maintain an office which entails overhead?
Mr. Metcalfe: We have an office in Quebec City, an office in Montreal, an office in Ottawa, one in Toronto and one in Vancouver, senator.
Senator Stewart: Do you think that what you charge is neither higher nor lower than your competition?
Mr. Metcalfe: I don't know. I haven't got a clue what my competition charges, but I believe with what Mr. Fox and Mr. Near said today, with the services that Earnscliffe provided, I think there was roughly maybe $200 a month difference in what they were charging Claridge than what we were charging Claridge. So I would imagine on this file it was -
Senator Stewart: Can we assume that if you were charging more than the market would suggest was a fair price, that you would lose business?
Mr. Metcalfe: I would suggest that we wouldn't be in business, senator.
Senator Stewart: All right, thank you very much on that.
Now, I want to refer to a couple of memoranda. The one I want to start with is the July 2nd, 1992 memorandum from Mr. Dyer and Mr. Metcalfe of the Capital Hill Group to Mr. Fox of Earnscliffe, Harry Near of Earnscliffe, Pat Ross of GPC, and Ramsey Withers of GCI.
This memorandum indicates that there is to be a coordinated effort and then, in a subsequent memorandum, six days later, July the 8th of 1992, the targets are identified and those who are to approach the targets are identified. I notice that in a sense Finance was your target.
Mr. Metcalfe: That's correct, sir.
Senator Stewart: One G. Anderson. Who would G. Anderson be?
Mr. Metcalfe: George Anderson was the Assistant Deputy Minister of Finance in the department at the time.
Senator Stewart: Why was he particularly susceptible to your approaches?
Mr. Metcalfe: Susceptible? I don't know if he's susceptible, but when I was executive assistant to the Minister of Finance, Marc Lalonde, I had met George Anderson and had dealt with him as a bureaucrat.
Senator Stewart: How would you expect discussions or contacts - whatever word you want to use - with Mr. Anderson in the Department of Finance - how would you expect Mr. Anderson to help your client get this business?
Mr. Metcalfe: It wasn't to help the client get the business as much as it was to educate Mr. Anderson on our client, number one and, number two, on our client's proposal to government.
Senator Stewart: Mr. Anderson, in other words, had a role to play in the decision?
Mr. Metcalfe: He was the senior official in the Department of Finance that was sort of overlooking or overseeing with respect to Finance's input into the process.
Senator Stewart: Now -
Mr. Metcalfe: We wanted him to understand our information from Mr. Coughlin.
Senator Stewart: Mr. Dyer was to see one Lee Anderson at Transport. Why Dyer for Anderson?
Mr. Metcalfe: Anderson?
Senator Stewart: I'm sorry, Dyer for Richardson.
Mr. Metcalfe: Richardson? I believe that Mr. Dyer knew Mr. Richardson.
Senator Stewart: How would that be?
Mr. Metcalfe: I believe Mr. Dyer had met Mr. Richardson at some point in his career. Mr. Richardson was, I believe, the Parliamentary Secretary to the Minister of Transport at the time.
Senator Stewart: I see. And then Mr. Dyer was peculiarly suitable for Mr. Loiselle and one R. Charest at Treasury Board.
Mr. Metcalfe: Yeah, Robert Charest was Minister Loiselle's chief of staff.
Senator Stewart: I see. And then on the Operations Committee, again Mr. Dyer was to see P. Morel and - I don't know whether - it looks like C-H-A-R-C-A-T, but I hardly believe that.
Mr. Metcalfe: Charest is Minister Charest, and P. Morel, I believe, was Minister Charest's chief of staff at the time.
Senator Stewart: All right.
Mr. Metcalfe: Again, senator, all these meetings were to basically inform officials, elected and non-elected, of Claridge Properties and the ATDG consortium.
Senator Stewart: The witnesses who were here before us said that they were seeking to assist their client in developing a proposal which would address the requirements of the government. Did you do that kind of work? You've emphasized, you know, your eristic function, educating public servants and ministers.
Mr. Metcalfe: At the same time we were asking people sort of what they felt the government was really looking for in the RFP, sort of issues that would be of concern, issues that might help our case. There's nothing...
Senator Stewart: Do you think you helped your client in this regard?
Mr. Metcalfe: I think we did. Our client did not have an office in Ottawa. They did not have - they had a very small sort of operational staff. They didn't have a vice-president of public affairs here. Mr. Coughlin and Mr. Spencer, who we reported to, had very little knowledge of the bureaucratic process or the political processes at this time.
Senator Stewart: Did you have any difficulty ascertaining roughly what the government wanted the proposals to - what needs the government wanted the proposals to satisfy?
Mr. Metcalfe: I think what I'll refer to as the Ottawa lobbying team with Claridge was able to garner general information that was out there, probably the same type of information that Paxport was able to garner, and help sort of in the construction of our response to the RFP.
Senator Stewart: Were you surprised when it turned out that your effort had not been successful, when you were not selected - your client was not selected as having submitted the best overall acceptable proposal?
Mr. Metcalfe: I was disappointed.
Senator Stewart: Yes, but were you surprised?
Mr. Metcalfe: Surprised? Well I think I was more disappointed than surprised. I mean there was only two choices they could make. They could either award it to Paxport or they could award it to ATDG.
Senator Stewart: No, but knowing roughly what - well, knowing what the proposal - the invitation for proposals set forth; knowing what you did from your intelligence operation here in Ottawa, you must have felt - and tell me if I'm wrong - that the Claridge proposal was pretty good.
Mr. Metcalfe: I believed it was very good, sir.
Senator Stewart: Yet it missed the target.
Mr. Metcalfe: We missed the target. As the saying goes, success has many fathers and failures are orphans.
Senator Stewart: Yes, but the Claridge Group was not inexperienced with regard to airports.
Mr. Metcalfe: They had been involved with Huang and Danczky on Terminal 3.
Senator Stewart: Yes.
Mr. Metcalfe: But I don't believe - you'd have to check this, but I don't believe they were involved at the RFP process with Huang and Danczky on Terminal 3.
Senator Stewart: The earlier process. Do you have any idea of how badly you failed? How far short did you fall? How far short did you fall? Was it a very close - in other words, was it a very close contest?
Mr. Metcalfe: My understanding, and it's based on knowledge after the fact, and it's based on hearsay, is that I guess out of five areas on the evaluation, that Paxport had won four of the five and we had won one out of the five.
Senator Stewart: But were you edged out, do you think, or did you lose by a country mile in these four?
Mr. Metcalfe: I don't know, senator. All I know is that in the press release that the minister issued he said that the ATDG bid was a quality bid. So I take it from that that they must have found some good points and we weren't sort of way out of the ballpark.
Senator Stewart: I'm sorry, I didn't hear what you said.
Mr. Metcalfe: That we weren't way out of the ballpark.
Senator Jessiman: He said that their client had a quality bid.
Senator Stewart: Oh, I see, yes.
Mr. Metcalfe: That's what the press release said.
Senator Stewart: All right, thank you very much. That helps greatly.
In other words, if the Paxport proposal hadn't been there, and assuming that the government was still prepared to go ahead with this particular type of arrangement, the Claridge bid probably would have been accepted. You were not disqualified?
Mr. Metcalfe: No, we were not disqualified.
The Chairman: Senator Stewart, I don't want to cut you off, and you can continue this type of - but I mean the lobbyists are here for a particular reason and it's to determine what they do and their influence and so on. But you seem to be coming back to opinions which will be well answered by the developers and the two proponents, the two people who know all about it. You keep asking Mr. Metcalfe about the criteria to win the bids and I don't see that as - particularly with the length of time we have.
Senator Stewart: The point, Chairman, was this; that the witness had indicated that his particular client did not have an office in Ottawa and so on, and consequently, the client would be dependent upon the services that the lobbyists in this case provided to them. I was trying to ascertain how well-informed they were about what we were told earlier by an earlier witness was a highly secretive process.
The Chairman: I see, all right. Go ahead.
Senator Stewart: I guess the well is dry, so I'll terminate there.
The Chairman: All right. We have 35 minutes to divvy up, children. Senator LeBreton, say ten minutes, no more.
Senator LeBreton: As you'll notice, I'm usually very brief with my questions and very much to the point.
Just as a point of clarification, the saying is victory has 1,000 fathers and defeat is an orphan. And as a Progressive Conservative, I can tell you that's...
Mr. Metcalfe: I've been on the other side too, Marjory.
Senator LeBreton: Thanks very much, Mr. Metcalfe, for agreeing to appear before us today. I just wanted to get a sense of the Capital Hill Group. It's obviously a very big company with many offices across the country. Could you just quickly give us an overview of the company and how many employees you have and - you did say you're located in every major centre in the country.
Mr. Metcalfe: Just about. We have basically - the company was founded in 1985 by myself and a gentleman by the name of Larry Molloy. The company at that time had one office in Ottawa and over the ten years has continued to grow. We have, I believe it's 17 employees now, including associates that work with us. We have represented Claridge Properties since 1991. We have a variety of clients that are listed in the lobby monitor. We are all registered lobbyists.
Senator LeBreton: Did you say that you worked for Huang and Danczkay?
Mr. Metcalfe: No, I never worked - we worked with ADC, which was a consortium of, I believe, Claridge Properties, Huang and Danczky and Lockheed at the time.
Senator LeBreton: On Terminal 3?
Mr. Metcalfe: No. We started in August of '91 with respect to developments at Pearson.
Senator LeBreton: Okay. And it was more than hearsay, in October - and of course you can take some comfort in this - in October, 1992, when the evaluation process was completed before the announcement in December, the findings of the evaluation committee were that - and you're quite right - Paxport had the best overall acceptable proposal, but the other point is both proposals are acceptable, but since Paxport was considered to have the best overall acceptable proposal in four out of the five and Claridge one out of the five, of course it was awarded to Paxport.
Shortly thereafter, as we've heard the witnesses before testify, we got into a situation called Mergeco and then it became Pearson Development Corporation. Through that process, what were you specifically involved with, or did you start to work for Mergeco and then Pearson Development Corporation?
Mr. Metcalfe: That's correct, again through Claridge Properties.
Senator LeBreton: So you carried it right through the whole process.
Mr. Metcalfe: That's right, and still represent Claridge Properties today.
Senator LeBreton: Of course you've already mentioned this, but just for the record, you are a member of the Liberal Party of Canada? Well, I don't want to -
Senator Grafstein: I didn't understand his answer on that question. Is he still acting for - are you acting for the merged company or are you acting for the -
Mr. Metcalfe: I'm still working with Claridge Properties, senator, in their position with the Mergeco.
Senator Grafstein: I see. But Mergeco is not your client?
The Chairman: Pearson Development Corporation?
Mr. Metcalfe: Pearson - I think right now it's called T1T2 Limited Partnership. We went through a stage where it was ADC, ATDG, PDC, TLPCO, T1T2 Limited Partnerships.
Senator LeBreton: I'll rephrase my question. I don't want to expose you as, like me, not having my membership paid up. But in terms of your political -
Mr. Metcalfe: I'm a Liberal, senator.
Senator LeBreton: Yes, that I know. I just wanted to know, because I'm going to ask the same - what political election campaigns have you been involved in recently?
Mr. Metcalfe: Recently?
Senator LeBreton: Yeah. Of course, I've been around 30 years, so that could be recently.
Mr. Metcalfe: I was involved in the last federal election. I was involved in the election of 1988. I was involved in 1984. I was involved in 1980. I was involved in 1978, and I was involved in - '79, sorry, that's a bad one. Actually I was also involved in the by-elections in '78. And I believe the first election campaign that I got involved in was '74.
Senator LeBreton: Were you involved in the recent Ontario election?
Mr. Metcalfe: No, I wasn't.
Senator LeBreton: I'm only kidding, just an aside.
When you worked for government, you already mentioned that you worked as an executive assistant to the Minister of Finance, then Marc Lalonde in the Trudeau government. Did you work in other ministers' offices or, in fact, in the Prime Minister's office?
Mr. Metcalfe: I worked for the Honourable John Roberts, who was Minister of the Environment and Science and Technology. I worked for the Honourable Tony Abbott, who was Minister of State for Small Business and National Revenue. And I worked in the Leader of the Opposition's office in the brief interregnum period after we lost on that black day in '79, to 1980, and then worked for about two months in the Prime Minister's office in 1980 and then went on to Mr. Roberts's office, and ceased in the fall of '84.
Senator LeBreton: And you set up your business in 1985?
Mr. Metcalfe: That's correct.
Senator LeBreton: Okay. So from the period after the announcement was made by the government in December 1992 - and we already heard the previous witnesses discussing the tactics and the advice they were giving to Claridge - did you work with them in a coordinated effort on this?
Mr. Metcalfe: There was a period of time - I believe a previous witness indicated there was a period of time in the beginning of '93 to, I think it was around March maybe, where - or maybe it was April - where there was a lot of negotiations going on between the two proponents forming Mergeco. And we talked to the client from time to time, but there was very little activity in that period of time.
Senator LeBreton: Just for the record, since it was asked of the other witnesses, when were you aware that the Mergeco possibility was very much alive?
Mr. Metcalfe: I first became aware of it prior to Christmas '93. So it was after December 7th and it was some time in that period, December 7th to - I think maybe it was before Christmas, around the 20th of December, in around there.
Senator LeBreton: And of course, we'll ask the actual people themselves, when they come, how it came about, but previous testimony had that someone in the government had suggested this in January. Obviously this was going on much before January.
Mr. Metcalfe: I don't think there was - I mean, I can tell you that there was no love lost during the RFP process and up to the end of the decision-making process. So I don't think in that period of time the proponents ever talked to one another. But I think that after the decision was announced by Minister Corbeil, that at some point the proponents got together.
Senator LeBreton: I can attest to that. Reading some of the memoranda in here, it wasn't a cooperative venture, that is for sure.
After Mergeco became a reality, I think it was May 5th. Yesterday the Treasury Board people actually put that date on the record. During that whole negotiation process with Mr. Broadbent and Mr. Rowat heading it up, did you have any involvement at that time?
Mr. Metcalfe: No, again, just basically talking to the client time to time. I think there was a press release - a draft press release that he circulated to us announcing Mergeco - I think that was in January or some time, it's in the material that I've submitted - where we provided comment on it. But from an actual sort of hands on lobbying, no.
Senator LeBreton: And of course, you participated with the other firms that were working for Claridge in the summer with the announcements. Did you participate in the press release and the publicity that surrounded the Order in Council being signed and the minister making the announcement at the end of August, 1993?
Mr. Metcalfe: I had input into the press releases. They were drafted by Bill and they were circulated to the Ottawa team and we all had input, and we either phoned in the input or faxed it back.
Senator LeBreton: When this became obviously a political football or a hot potato during the election campaign, did you particularly have any role in, as Mr. Fox, before you, trying to meet editorial boards and business? Did you participate in that effort as well?
Mr. Metcalfe: No, no.
Senator LeBreton: You didn't?
Mr. Metcalfe: No. Bill was responsible for making the arrangements with the editorial boards and that. We participated in sort of the briefings with the client on what should be said and that, but not the actual meetings.
Senator LeBreton: You testified a few moments ago that of course you were working in the 1993 election campaign. What were you doing in the 1993 election campaign?
Mr. Metcalfe: I raised some money for the Liberal Party of Canada.
Senator LeBreton: So you were a fund raiser. You didn't have an organizational -
Mr. Metcalfe: No, I didn't.
Senator LeBreton: All right. That's all I had, because I know Senator Tkachuk has some.
The Chairman: Well now, it's a some very simple problem that we have here. We have 25 minutes and we have three people who want to ask questions. We have Senator Hervieux-Payette, who's number first, and Senator Jessiman is number two, Senator Grafstein is number three. So Senator Hervieux-Payette, if you want to go for 25 minutes, the last two are out of luck.
Senator LeBreton: I didn't use up the normal amount of time I would have because -
The Chairman: It's not that all. I'm not going to start divvying up -
Senator LeBreton: Then I could have asked the question that he was going to ask.
Senator Kirby: If I could just say, Mr. Chairman, on behalf of our side, to keep all the questioners happy, if we go an extra 10 or 15 minutes, it's not going to kill anybody. I understand you don't want someone to come on for half an hour, but if it winds up going to 5:15 so that we're all satisfied that we've asked the right questions, we ought to do that.
Senator Hervieux-Payette: Mr. Metcalfe, from the memorandum that was used by my colleague before the July 8 memorandum that you sent to our clerk, there is a list of ministers and members of Parliament, Toronto area members of Parliament, and there are notes next to them.
Can I consider that your firm, you and all those who were there, were all covered, all seen? Was this a project or was it done effectively?
Mr. Metcalfe: No, this memo was for a meeting that we were just to discuss of who was going to contact who. As you'll see, some of the people - we identified a list of people that should be seen. We've put names beside - some of the people we didn't have names beside because we didn't feel at that time it was really important to get around to them. I believe that not all the people that are listed in the memo were seen, but I do believe that later on in the documentation that I provided there's a distribution list that we did send out, for better lack of word, propaganda on ATG's proposal, senator.
Senator Hervieux-Payette: Okay, but we cannot consider that you have met with your - who was in fact part of these meetings? I mean you were organizing the meetings all by yourself, or were you accompanied by other people, by technical people, by engineers, people who would know about the project? Did you have a -
Mr. Metcalfe: With respect to the meeting with George Anderson, I can talk to that. Mr. Coughlin from Claridge attended. Mr. Bill Longdon, who is the president of the Marshall Macklin, which is the engineering firm, and I believe either Chris Dundas or Blake Wallace, from Murray and Company, which were the financial advisors to the ATG consortium, attended that meeting.
Senator Hervieux-Payette: But people from your firm, and the memorandum - there was a letter that came from your office that we were given, if I can just put my hands on it. There is a third partner that's mentioned there. We have a David Angus. I suppose it's not our colleague.
Mr. Metcalfe: No, it's not. He gets - on quite a few occasions he gets mistaken for Senator Angus.
Senator Hervieux-Payette: What is his role in your firm?
Mr. Metcalfe: He's a partner in the firm, senator.
Senator Hervieux-Payette: What was his role at the time, since his name is on the letter that you sent to the clerk of this committee, on behalf of Herb Metcalfe, David Angus and David Dyer, the Capital Hill Group acknowledges your confirmation, blah, blah, blah. So I mean was Mr. Angus working also on this file?
Mr. Metcalfe: Yes he was, from time to time. He didn't spend a lot of time on the file, but he did spend some time on the file.
Senator Hervieux-Payette: Since you were paid on a retainer, I mean were you keeping still a record of the time that you were devoting to that file so that extra charges, if you were going -
Mr. Metcalfe: No, there were no extra charges at all, senator. It was always on a fixed monthly amount, plus GST.
Senator Hervieux-Payette: Okay. How would you say, how many times the people that were contacted, like the ones that were contacted by Mr. Dyer, I will ask you about are these people from your firm and yourself? I mean, were you in touch with Mr. Anderson and others? Who are "others"?
Mr. Metcalfe: Mr. Anderson had some officials that were working under him. I don't have their names today, but they were people in his division that would have - they were junior bureaucrats that would have taken the information that we had presented that day and were left sort of, if there were any sort of follow-up questions they were to get back to us. And subsequently Mr. Anderson and those people became part of the sort of the distribution list of material. When we sent it out, they got it.
Senator Hervieux-Payette: You're still in business so you know now today, after ten years, I mean, how the business works. I mean, do you have right now many contracts for which you are registered that you work with a team approach with two or more firms with you?
Mr. Metcalfe: With two or more firms?
Senator Hervieux-Payette: Yes.
Mr. Metcalfe: No. Currently this is the only file that we still have that we work with the Earnscliffe group on. But we have worked on past files with other lobbying firms.
Senator Hervieux-Payette: Would you say it's exceptional to be two or three firms on the same contract?
Mr. Metcalfe: It depends on the size of the project that's involved. I think if it's a smaller project, then usually one firm can handle it. If it's a large project such as Pearson airport was, the largest airport in the country at the time, and it was a very big deal.
Senator Hervieux-Payette: Okay. Since in our documentation we have some excerpts from the book that is talking about this deal, On the Take, by Stevie Cameron, on page 375, your name is mentioned at the end of the line, "and former Chrétien aide Herb Metcalfe, a Liberal at the Capital", and then you say Bill Fox and Harry Near, Gary Ouellet, David MacDonald, Scott Proudfoot. I mean, were all these people, I mean, doing the same thing with you? I mean, is it exact in fact, is it true what's written in the book?
Mr. Metcalfe: I haven't read the book, senator, and I haven't seen -
Senator Hervieux-Payette: No, I'm asking you if what is written here, and you certainly have the knowledge of what was going on since you were hired to know.
Paxport's only competitor, Claridge, had hired Pat MacAdam, Gary Ouellet, David MacDonald, and Scott Proudfoot... Bill Fox and Harry Near...
So I'm just asking you, were they part of the team?
Mr. Metcalfe: The Ottawa lobbying team for ATG consisted of the Earnscliffe Group, and the two people from Earnscliffe Group that were involved on a day-to-day basis were Bill Fox and Harry Near; Pat Ross, from GPC, which was Government Policy Concepts; from GCI, we had Ramsey Withers and Gary Ouellet, who participated in meetings; and from the Capital Hill Group, the main proponents were myself and David Dyer, and David Angus from time to time worked on the file.
Senator Hervieux-Payette: In the same book, at page 381, I'm just quoting:
"The three biggest lobby campaigns during the Mulroney years", says John Chenier, the publisher of Ottawa's Lobby Digest, "were the Pearson Airport deal, the EH-101 helicopter contract, and the bridge to P.E.I."
Were you working on the other contracts?
Mr. Metcalfe: We worked on the EH-101.
Senator Hervieux-Payette: And on the other one?
Mr. Metcalfe: On the P.E.I. bridge, no, but we worked on Pearson.
Senator Hervieux-Payette: When you were working and have accepted the mandate to work for Claridge, I guess you - what are the selection criteria for a lobby firm to represent the interests of a company? I mean, do you have some criteria?
Mr. Metcalfe: Well we were approached by Claridge to see if we would be interested in working with them in the ADC consortium at that time. We went - myself and David Dyer went to Montreal. We met with Norman Spencer and Peter Coughlin and other people from Claridge, and we talked about the project and we talked about the services that we could provide to them. We then put a proposal to them which was accepted and we started work on it.
Senator Hervieux-Payette: Well, you answered partially my question. You said to me how you got the contract, but I mean, yourself, when you make a decision to go ahead with a contract and execute the mandate, I mean, you certainly have selection criteria. Would you accept any kind of mandate from any kind of customer?
Mr. Metcalfe: No.
Senator Hervieux-Payette: Tell me about the criteria for your selection of the contract or the project that you are willing to...
Mr. Metcalfe: First of all, it has to be an interesting project. Second of all, it cannot pose a conflict to any of our other existing clients. Third is that there can be no contingency fee arrangements or performance arrangements.
Senator Hervieux-Payette: So am I right in saying that you would not accept a mandate from a firm that would be in financial difficulty?
Mr. Metcalfe: That's correct. That we would know was in financial difficulty. I mean, you don't - I mean, you know, it's like anything else. You can walk in to somebody and they can give you a very good presentation that they're financially sound, you know, and things change.
Senator Grafstein: Find out after 30 days.
Mr. Metcalfe: That's right.
Senator Jessiman: It's happened to me.
Senator Grafstein: It's happened to me.
Senator Hervieux-Payette: So when you were retained by Claridge, of course my conclusion is that you thought that they were financially sound, which was, of course, probably the criteria number one for having Mergeco at the end.
Mr. Metcalfe: They pay their invoices on time, senator.
Senator Hervieux-Payette: Okay, fine. In your mandate, and in executing your mandate, I mean, were you concerned about the opposition by Air Canada, by the Air Transportation Association, by the LA, I mean, or municipal authority? I mean, how - when you accept a mandate, and of course you have to advise the client how to proceed with a proposal that will cost a lot of millions of dollars, is it part of your mandate to advise your customer of the probability of being able to carry through your mandate and, of course, the project?
Mr. Metcalfe: The short answer would be yes. On this project, though, we began with working with ADC, which is the Airport Development Corporation, and at that time the object of our exercise was to put an unsolicited proposal to government at the time which would see mothballing Terminal 1, taking the traffic from Terminal 1, transferring it over to Terminal 3, and leaving Terminal 2 in the hands of government to run for some time. At that time we believed that Canadian Airlines was in financial difficulty, so that by having more traffic in Terminal 3 would have reduced Canadian Airlines' rent problems, would have put more traffic into Terminal 3, would have been good for the shop owners and, at a time when we thought that the air traffic was down, it would allow government more time to decide what it wanted to do with Pearson.
We - to use a word - we shopped that proposal around town. We made representations around town on that, and then in the spring of '92 the government decided that it was going to go ahead with the RFP. ATG then was formed and we went to respond to the RFP at the time.
Senator Hervieux-Payette: So you were not cautioning your client that the whole thing might fall apart in terms of having the redevelopment of the airport done by the private sector but that it could well be that Air Canada would be authorized, for instance, to do the improvement to Terminal 3 and Terminal 1 would be handled by the - and I'm going back to the beginning of your mandate because you were there before the RFP. So I mean - and knowing how much it costs to develop a project of that magnitude, I mean at any point in time, because, of course, of the bad financial situation of both big airlines in the country, you never gave the advice to your customer that it was, I mean, a risky thing to go ahead with the full proposal, because at one point they have to make the decision that they will go full fledge developing, which means hiring the engineers, paying the engineers and all the other consultants, and that day then you talk about millions of dollars.
Mr. Metcalfe: They had, in the ADC group, they had engineers involved. When we took the proposal forward, the unsolicited proposal forward on mothballing Terminal 1 and transferring the traffic to 3, there were engineers involved in all that. And I believe that that was the preferred position of the client at the time. However, when the RFP came out, the client felt that it was in his interest to proceed and respond to the RPP because they already had a terminal at - they were already in the terminal business at Pearson. So to protect their own interests, they went after it with the engineers and they put a project team together to respond to the RFP.
Senator Hervieux-Payette: There are a lot of questions of how, who and when, I mean, the idea of the Mergeco came on the table and was materially known to all the people. I mean, there is a, I would say, a black hole in our own deliberation with regards to that. I mean, when were you informed that Mergeco would arrive, after you were, I suppose, trying with the previous lobbyists, having lost -
Mr. Metcalfe: It was some time after the announcement, after December 7th, but before Christmas. So it was some time - I received a call, I think it was maybe December 20th or 22nd from Mr. Coughlin, saying that they were talking about the possibility of forming a Mergeco.
Senator Hervieux-Payette: Since you were a technocrat and you worked for a very long time with ministers and so on, to your recollection do you know other contracts and other projects that went with that sequence of having one letter going to the table for negotiation and then merging for the second one, or have you seen what I thought what the standard practice, when the first bidder doesn't meet the requirements, then they move on to the second one and, of course, would have made Claridge the only proponent of the airport -
The Chairman: Sorry, senator, what do you mean the first one didn't meet the qualifications?
Senator Hervieux-Payette: I mean I'm not the one who says that when - when they went to the negotiating table and were declared, at one point, not financially strong enough to carry on the whole -
Senator Jessiman: That's not what it says.
Senator Hervieux-Payette: I am sorry. There was a Mergeco. So if they were financially sound and they were capable of carrying on the whole contract, there would never have been any Mergeco.
Senator Jessiman: Read the letter of December the 7th.
Senator Hervieux-Payette: I'm sorry. I am sorry. The question is, to your recollection, and you've been associated with the government since 1978, do you know of any other contract where the first bidder and the second bidder became part of the same organization after the RFP was emanating from the government?
Mr. Metcalfe: No, I don't, but, again, this was a huge project. I mean, I can only cite one other sort of large project that sort of was some type of relationship to this, is the EH-101 project where government ended up sort of going sole source because there was no other sort of vehicle at that time that met its criteria. And I think in large projects, I mean the negotiations sometimes change a bit and I don't see anything on a large project like that that makes it really sort of really different. But I mean I don't have any sort of - getting to your question - I don't have any evidence or any sort of example of another project as you described it.
Senator Hervieux-Payette: I understand your answer. There is the practical approach that we have in private sector. If I want to have something built and I discover that the two people who have made a bid to me would make a better bid if they were together, there is no problem, in my case, to say it's a good solution. The problem I have here is that we're dealing with public funds, public policy, and open process whereby there may have been a second, a third, or a fourth partners or players that would have liked to play the game of being associated to the first bidder.
So what I'm saying to you is that the rules were not laid out at the beginning like that. The rules were made as we were going and it was not in the RFP that if you don't win the first one, you don't get everything in the first one, then you go with the second one. I mean usually it's the first one and is given the whole chance to negotiate and come up to an agreement, and if they don't make a deal or sign a deal because of all sorts of circumstances, they just close the book and they go to the second one. Because to your recollection, was Claridge capable of handling the whole contract?
Mr. Metcalfe: By themselves as ATG?
Senator Hervieux-Payette: Yes.
Mr. Metcalfe: Yes, they were.
Senator Hervieux-Payette: This is my last question.
Mr. Metcalfe: Just one comment. The deal that Mergeco ended up negotiating, I believe, was the Paxport deal.
Senator Hervieux-Payette: This I understand and I know that for sure, but this is not the process that we were in. The rules that there was nothing in the RFP saying that, you know, we will start up with proposal of Paxport and then have a negotiation with the second one to annex the Paxport deal. I know that. I think we have studied that enough.
The Chairman: Okay, okay. If you want to go through this boring repetition of questions, the same, same questions, it's okay with me.
Senator Grafstein: We'll be very brief.
The Chairman: Senator Tkachuk first.
Senator Jessiman: No, I was first.
The Chairman: Senator Tkachuk, Senator Jessiman then Senator Grafstein.
Senator Tkachuk: I'm going to be real short. I just have a couple questions. You still work for the Claridge Properties?
Mr. Metcalfe: Yes, I do.
Senator Tkachuk: I want to just ask a few questions on sort of the modus operandi of lobby groups in general, and I'm sure you can help me here.
Just so we don't think it unusual, when you do work for clients would it be unusual for you to contact and deal with deputy ministers and officials of the government in departments?
Mr. Metcalfe: Deal with elected and unelected officials? No, not unusual.
Senator Tkachuk: You still deal with them today?
Mr. Metcalfe: Yes I do.
Senator Tkachuk: Cabinet ministers?
Mr. Metcalfe: No, we tend to spend most of our time dealing with bureaucrats and staff to ministers.
Senator Tkachuk: Would you deal with political staff in ministers' offices?
Mr. Metcalfe: Yes, executive assistant, chief of staff in the Tory regime.
Senator Tkachuk: Would you deal with - I don't mean to say this on a regular basis, but from time to time would you have occasion to contact people in the Privy Council Office?
Mr. Metcalfe: I have from time to time. Again, it depends on the file, depends on the issue, depends where it is in the process.
Senator Tkachuk: You wouldn't think it strange to do that?
Mr. Metcalfe: No.
Senator Tkachuk: Would you expect your calls to be returned?
Mr. Metcalfe: Yes.
Senator Tkachuk: During the time period between the Nixon report being - or Nixon being announced to review this process and the time of the report, would you have been active on this file?
Mr. Metcalfe: I was active in the file but I made no representations to members of Parliament.
Senator Tkachuk: Would you have tried to be informed of the file?
Mr. Metcalfe: Informed in...?
Senator Tkachuk: As to what was happening?
Mr. Metcalfe: We knew that Mr. Nixon was undertaking a review process. We talked about this process with the client and determined that it was sort of a semi-judicial sort of process that was under way and that we should not interfere or be seen to be interfering in the process at all, so we stayed away from it.
Senator Tkachuk: And would you have learned that information publicly the same way the public did, or would you have, previous to the Nixon report being announced, perhaps found out from officials or -
Mr. Metcalfe: No.
Senator Tkachuk: - or known that this was going to take place?
Mr. Metcalfe: Knowing that the result of the report was going to take place?
Senator Tkachuk: No, no, not the result, the fact that the Nixon report was going to be asked and that there was going to be one.
Mr. Metcalfe: Found out that there was going to be a Nixon report the same way that everybody else did.
Senator Tkachuk: So you thought that the Nixon review was going to be a semi-judicial review, is that what you said?
Mr. Metcalfe: We looked at it as sort of being sort of a semi-judicial review. We treated it as such. We felt that it would be a fair process and that we didn't want to be seen interfering in that process.
Senator Tkachuk: So you expected a fair process?
Mr. Metcalfe: Fair evaluation.
Senator Tkachuk: What did you think of the results of the Nixon report?
Mr. Metcalfe: I was not pleased.
Senator Tkachuk: That's all I have to ask.
Oh, I have one more question. Were you interviewed by Mr. Nixon?
Mr. Metcalfe: No I wasn't, sir.
Senator Tkachuk: Was anybody from your firm that was working on the file interviewed by Mr. Nixon?
Mr. Metcalfe: No, sir.
Senator Tkachuk: Okay, that's all.
Senator Jessiman: Thanks for bearing with us. I'm going to read you two statements and I want you to assume that your firm is the only lobbyist involved, because there are other lobbyists you know, but just as it applies to yourself personally, to Mr. Dyer and to Mr. -
Mr. Metcalfe: To the activities of the Capital Hill Group?
Senator Jessiman: That's right.
It is clear that the lobbyists played a prominent part in attempting to affect the decisions that were reached, going far beyond the acceptable concept of "consulting".
Is that a true statement as far as you're -
Mr. Metcalfe: It's wrong.
Senator Jessiman: I'm going to read another statement.
When senior bureaucrats involved in the negotiations for the Government of Canada feel that their actions and decisions are being heavily affected by lobbyists, as occurred here, the role of the latter -
being the lobbyists -
- has, in my view, exceeded permissible norms.
Is that a correct statement?
Mr. Metcalfe: That's wrong, sir, as it applies to the activities of the Capital Hill Group.
Senator Hervieux-Payette: You were quoting from which document and which page?
Senator Jessiman: It's a document you may not have heard about. It's one of three or four. It's called Pearson Airport Review, November 29, 1993, Robert Nixon, page 9.
Senator Grafstein: Senator Jessiman, am I correct that you were asking a generic question?
Senator Jessiman: Yes.
Senator Grafstein: And am I correct that the witness responded solely based on his own experience vis-à-vis his firm?
Senator Jessiman: Exactly right. That's all I asked.
Senator Grafstein: I see.
Senator Jessiman: And I will ask, do you know of any others that it would apply to?
Mr. Metcalfe: What?
Senator Jessiman: Do you know firsthand of any other lobbyists that that might apply to, from your knowledge?
Mr. Metcalfe: No, sir, I would not speak on behalf of any other lobbyists.
Senator Stewart: What did you say; you would not...?
Mr. Metcalfe: I would not speak on behalf - I wouldn't venture an opinion on what other lobbyists did. I can only speak to the facts, and the facts that I know are the activities of the Capital Hill Group.
Senator Stewart: I have one question which is prompted, Chairman, by something that the witness said. May I ask that question? It will take 30 seconds.
The Chairman: Go ahead.
Senator Grafstein: He's out of line, Mr. Chairman, but I'll defer because I only have a smaller question to ask immediately following.
Senator Stewart: Mine is so insignificant that it will not disrupt the flow of logic.
Mr. Metcalfe, when you were talking about the criteria which you apply, the principles you apply when you decide whether or not you will take a particular piece of business, you mentioned that you would not take a piece of business or a file that involved a contingency fee, performance fee. That is a principle of your company?
Mr. Metcalfe: That's correct, sir.
Senator Stewart: Why are you so emphatic? Why did you make that point, volunteer that point to the committee?
Mr. Metcalfe: Well I think it was - basically because it was asked how we - I mean it was asked - I thought it was implied in the question that was asked and I wanted to get on the record just the way we charge for our business and -
Senator Stewart: Yeah, but someone comes to you with a piece of business and on all other grounds it's attractive to you, but they say, "We will pay you a performance fee." You say, "No, sorry, go away." Is that right?
Mr. Metcalfe: We say, "Listen, we don't operate on that basis."
Senator Stewart: All right.
Mr. Metcalfe: I mean clients pay their lawyers, they pay their accountants. We believe that the advice we give is equally as valued - has value to it, and we should be paid. The problem with that work, you can go two years without being paid anything -
Senator Stewart: Thank you very much.
The Chairman: Last question.
Senator Grafstein: Just a short question arising out of a question of my colleague, Senator Jessiman, and that is if you look backwards and take into account all the firms that were involved for all the - the two parties with this particular project, and I say that, the Mergeco before and the Mergeco after, would you say that there was an inordinate number of lobbyists involved in this project for all parties?
Mr. Metcalfe: I can't comment on the Paxport side of it, but I know -
Senator Grafstein: I'm just asking, you now know, Mr. Metcalfe, all the lobbyists, just as we do. There's a long list here. You responded to Mr. Jessiman, I think, from your perspective from your firm, you don't agree with the conclusion in the report, but I took the conclusion in Mr. Nixon's report that he was making a statement on a cumulative or aggregate basis, not segregating one or the other of the firms but saying, when I look at this picture that there appears to be, I think the words are, beyond the norm.
Take the words - I haven't got it in front of me, Senator Jessiman. Just give us the words again. And I want - by the way, if you choose not to answer this I'll quite understand, because I'm not asking you to respond about your own representations. You've been quite succinct and clear about that. But I'm talking about on a cumulative basis, from a public perspective, is it fair to say that - and perhaps somebody can help me with the -
Senator LeBreton: Exceeded permissible norms.
Senator Grafstein: Exceeded permissible norms. Or exceeded - let me just take it from my perspective - exceeded norms, aside from what permissible is. Because you've been good to say - or I shouldn't say good. You've been accurate - I shouldn't say accurate. You've said that one of the norms is that you've adopted in this business is that you don't take performance fees.
Mr. Metcalfe: That's a policy of our company.
Senator Grafstein: That's a policy, that's a norm for you.
Mr. Metcalfe: For us.
Senator Jessiman: For his firm. That doesn't necessarily mean it's a norm for the industry.
Senator Grafstein: Now I'm asking whether or not, in your view - and if you choose not to answer it I'll understand - but in your view, looking backwards, not forwards, was there inordinate lobbying or beyond the normal limits with all the firms that were involved here? Because we do have a large number of firms.
Mr. Metcalfe: It was a huge project, senator. It was a very, very big project with a lot at stake. I prefer not to comment on - give my opinion on whether I thought it was a large number or not.
The Chairman: Okay, we adjourn until nine o'clock tomorrow morning.
Senator Tkachuk: Is it possible that tomorrow we could close down by noon? I mean we took three hours here. I understand the witness for tomorrow afternoon that we thought we might have, or there was witnesses, that it's open now on the slate, and I would prefer - it would be helpful to me if - you might want to talk to Mr. Kirby about this, but I'd like to leave...
The Chairman: We'll defer the question until around eleven o'clock tomorrow morning and see how we got along. We had two witnesses today and we went through - well I'm not going to express my view as to what we went through today, but if we go through the same thing tomorrow we'll be here tomorrow night.
The committee adjourned.