PACP Committee Report

B. The Tendering Process

The Real Property Branch of PWGSC provides a mandatory service-the provision of office space-to client departments. As outlined earlier, PWGSC went through a lengthy and extensive competitive tendering process to find office space for the Economic Development Agency of Canada for the Regions of Quebec. This took place in consultation and cooperation with the Agency. Place Bonaventure submitted the best proposal for that accommodation and was informed that it had won the process and would be awarded a lease. It was determined to be a fair process by the PWGSC fairness monitor.

PWGSC was then informed that the Agency wished to stay at Place Victoria and received a letter asking PWGSC “to sign a new lease with Place Victoria, if possible.” In response, officials from the head office of PWGSC renegotiated a lower lease rate with Place Victoria at reduced space requirements and without the need for a fit-up, or refurbishment. PWGSC says it conducted an analysis that showed that staying at Place Victoria with the new requirements and the new rate was of economic benefit to the Crown and thus permissible under PWGSC leasing principles.

Ms. Cochrane, the former DM of PWGSC, told the Committee that there were two separate processes: the first competitive tendering process and the lease renewal. However, the goal of both was the same, to find office accommodation for the Agency. By not following a competitive tendering process for the new requirements of the Agency, PWGSC subverted the process and did not allow the other bidders an opportunity to bid on the revised requirements. It is not sufficient to argue that the new rate for Place Victoria fell within the market range for that type of accommodation. If a competitive tendering process is begun, then PWGSC has an obligation to continue with that process and not offer favourable treatment to a particular landlord on the basis of a request from a client department.

The only reason PWGSC re-opened the process and renegotiated the lease at Place Victoria was a letter from the Minister responsible for the Agency. However, this should not have been sufficient. As the process had already been completed and a winning bidder determined, PWGSC should have simply denied this request. At the very least, it should have attempted to determine a valid rationale for changing the accommodation requirements and staying in place, besides the prestigious nature of the location.

Under the Treasury Boards Real Property Management Framework Policy the Real Property Branch of PWGSC has the authority to impose accommodation solutions. Consequently, PWGSC must share responsibility for subverting the competitive tendering process, resulting in a significant loss to the Crown. PWGSC has standards for space and fit-up requirements, but many client departments prefer more costly alternatives, as was with the case with the Agency. Clearly, PWGSC must exercise its authority more rigorously. The update provided to the Committee, and discussed earlier, mentions a number of efforts PWGSC has taken to improve its processes, but it does not address the key issue arising from the Place Victoria experience-that PWGSC allowed a client department to subvert the competitive tendering process. The update does not explain whether or how PWGSC will prevent this from occurring in the future. Consequently, the Committee recommends:

RECOMMENDATION 1

That Public Works and Government Services Canada use its authority to impose accommodation solutions when appropriate with the objective of enforcing the governments accommodation standards and obtaining the best value.

C. Cost to taxpayers

The objective of the text-box in the OAGs report was to provide an example of how PWGSCs failure to impose an accommodation solution could lead to additional costs. The OAG wrote that, “The Agencys request to move, combined with the lack of adherence to established guidelines, has cost taxpayers an additional $4.6 million.” This is based on $2.1 million in unproductive rent at Place Bonaventure for unoccupied space and $2.5 million for the renewed lease at Place Victoria.

As noted earlier, PWGSC contests the amount of the loss. PWGSC agrees with the $2.1 million in unproductive rent. However, it does not agree that the lease renewal resulted in an additional $2.5 million cost.

The OAG based its $2.5 million amount on an options analysis prepared by PWGSC in April 2002 before the lease rate with Place Victoria was renegotiated. According to the analysis, the cost of the Agency staying at Place Victoria in the premises it then occupied would have been approximately $23 million for a 10-year lease. The cost of moving the Agencys headquarters to Place Bonaventure and moving the Agencys Montreal Island office to East Montreal would have been approximately $20.5 million. The difference between these two options is $2.5 million.

PWGSC objects to this calculation because the analysis is based on the old lease rate and not the renegotiated lease rate. Instead, PWGSC provided the Committee with a table comparing the actual lease renewal offer with Place Victoria to the actual lease with Place Bonaventure. The OAG pointed out that these numbers may not be comparable because they are based on different lease terms, fewer square meters, and different levels of fit-up.

Regardless, the Committee does not appreciate being put in the position of arbitrating a factual disagreement between the OAG and a department. This should have been worked out long before the audit report came before the Committee. The Committee notes that no mention of this disagreement appears in the OAGs report. Departments and agencies subject to audit are given an opportunity to review the OAGs draft reports to verify the fundamental information they contain. If a dispute arises, and no compromise can be found, departments and agencies are given an opportunity to convey their disagreement in the reports that are tabled in Parliament. The OAG is responsible for the accuracy of information contained in its reports, but departments also have a responsibility to challenge any incorrect information and to provide appropriate documentation to substantiate their position.

Nonetheless, the Committee notes that the analysis used by the OAG to determine its figure of $2.5 million is based upon an outdated piece of information, the lease rate. Additionally, the analysis provided by PWGSC inappropriately compares amounts that are based on different lease requirements. Consequently, the Committee can only conclude that the amount of $2.5 million is not correct, but it cannot determine the actual loss to the taxpayer or accept PWGSCs assertion that staying at Place Victoria was of benefit to the Crown. It may not be possible at this point to resolve this issue conclusively, but the Committee expects that in the future, departments and agencies will attempt to resolve factual disputes with the OAG prior to the presentation of audit reports to the House of Commons.

D. Documentation

Throughout its investigation, the Committee was repeatedly frustrated by the lack of crucial documentation and tardy efforts by the Department to supply it. Even when the Committee was at last in possession with what it must assume was a complete documentary record of decision-making on this file, enormous gaps remain. In particular, the Committee notes that it was provided with no documentation indicating who, at the Agency, first informed PWGSC that the Agency did not wish to move to a new location. As Mr. Marshall testified, on 4 April 2002, ADM Beal was “advised that the client had changed its mind,” without mentioning by whom, and without providing a document containing this request.

Mr. Drouins letter to the Minister of PWGSC was dated eleven days later. It also provided no information or analysis to substantiate the rationale for his request that the Agency remain where it was. Since steps to initiate negotiations between PWGSC and the owners of Place Victoria were already underway, the Committee has no choice but to conclude that rather than trigger a series of events leading to the renewal of the existing lease, the letter merely confirmed a request made earlier.

PWGSC eventually provided the Committee with a table that the Department says is an analysis which justifies the economic benefit to the Crown of staying in Place Victoria. However, this analysis was not provided to the Office of the Auditor General during the audit.

In such circumstances, the immediate temptation is to fill gaps with speculation; this the Committee will not do. But it serves as an illustration of the vulnerability that a department or agency of government creates when it neglects to document decisions, particularly in instances (and leasing decisions are one such instance) in which significant amounts of money are involved. A failure to document properly when taxpayers money is at stake is deplorable and represents lack of due diligence.

It is noteworthy that the 2002 audit that the 2006 follow-up was based upon also called on the Departments Real Property Branch to better manage its documentation and recommended that it be improved. The Department agreed. It is time that this agreement be fulfilled.

The Committee also reminds departments and agencies that they are required by Treasury Board policies to maintain adequate documentation. For example, section 6.1.2 of the Boards Policy on Information Management states that deputy ministers (who are also accounting officers for their departments) are responsible for

…ensuring that decisions and decision‑making processes are documented to account for and support the continuity of departmental operations, permit the reconstruction of the evolution of policies and programs, and allow for independent evaluation, audit, and review.

Although it states the obvious, and although departments and agencies should not need to be told this, the Committee recommends:

RECOMMENDATION 2

That Public Works and Government Services follow the Treasury Board Policy on Information Management by documenting and archiving all management decisions related to leased accommodation for government departments and agencies.

E. Role of the Minister

While not all decisions were documented during this process, there are a number of things that are clear. There was a competitive tendering process for new office space to accommodate the Agency. The winner of that process was Place Bonaventure and Place Victoria finished fourth. A lease was signed with the owner of Place Bonaventure. Shortly after the lease was signed, the Minister responsible for the Agency, Mr. Drouin, wrote a letter to the Minister of Public Works requesting that a new lease be signed with Place Victoria. Public Works did sign a new lease with Place Victoria, at a better rate than what was offered in the bidding process. The Agency remained at Place Victoria and Public Works had to find new clients to fill the space rented at Place Bonaventure. This resulted in a significant financial loss to the Crown.

From these facts it can be concluded that the public servants followed the appropriate procedures and sought to achieve best value for the Crown. By requesting to stay at Place Victoria, the Minister sought to overrule the public servants and the process that was in place to ensure fairness and best value. Contrary to his assertion, the letter was not simply a request to review the situation, and the public servants dutifully tried their best to meet the request to stay in place. However, one of the public servants involved wrote an e-mail expressing his displeasure with the process, saying that “the insistence on staying at Place Victoria in this case serves interests other than the sound management of public funds.”

The Minister tried to provide a number of explanations for the request to stay in place, but his explanations were not corroborated by other witnesses or evidence available to the Committee. Also, even if these explanations were accepted, they do not justify the additional costs. Mr. Drouin said his mistake was that he wrote the letter instead of the Deputy Minister, who should have been involved in administrative matters, but the Deputy Minister said he was fine with the move. The Minister, then, must bear responsibility for the loss to the Crown.

CONCLUSION

The Committee spent considerable time studying the Place Victoria issue because it was frustrated by an inability to obtain simple and clear answers about how, why, and by whom decisions were made. A thorough review of the documentation provided to the Committee and evidence given by witnesses during hearings demonstrates that the results of a lengthy tendering process – costly in itself and designed to achieve best value for the Crown-were set aside; the tendering process itself was abandoned and replaced by direct negotiations with the owners of Place Victoria.  This series of events contravened government policies, resulted in a significant financial loss to the Crown and hence Canadian taxpayers, achieved no tangible benefit, and crucial last-minute decisions were made without any documented justification or reasonable cause.

As with any other decision regarding expenditure, government departments and agencies and their ministers must take a broader set of considerations into account that go beyond their own immediate requirements. Achieving value for the Crown and the taxpayers of Canada must occupy a privileged position among those considerations. Furthermore, departments and agencies must be able to demonstrate that these considerations have been fully satisfied by maintaining appropriate records that document the decision-making process and the supporting rationale. These documents serve as proof that due diligence has been achieved and that taxpayers interests respected. They also provide an audit trail and are essential to ensuring full accountability.

The Committee is deeply disappointed that regardless of the magnitude of the loss (be it $2.1 million as the Department insists, or $4.6 million as the Office of the Auditor General reports) the Department in 2002 ultimately did not assign sufficient weight to the interests of taxpayers.  The Committee fully expects that this will be the last instance in which such disregard will occur.

APPENDIX I - PRINCIPLES FOR SOLE-SOURCE RENEGOTIATIONS

To ensure prudence and honesty, the following principles are to be used by PWC in considering proposals received from an existing landlord for a lease renewal:

1. PWC must determine that there is a demonstrable financial advantage to the Crown.
2. This financial advantage must be supported by market analysis.
3. The space meets or will meet by a specified date, at no extra cost to the Crown, all the required accommodation standards and tenant requirements.
4. There is a continuing program need for the amount of space under question.
5. The landlord has met all obligations under the existing lease.
6. Any negotiations must be within the context of an agreed-to schedule which allows for PWC to implement alternatives such as relocation with minimum or, preferably, no overhold implications if negotiations fail.

Offers which meet these criteria may not necessarily be accepted and are subject to all necessary governmental approvals.

Source: Public Works and Government Services Canada.