2008 Legislative Session: Fourth Session, 38th Parliament

SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS

MINUTES AND HANSARD

MINUTES SELECT STANDING COMMITTEE ON PUBLIC ACCOUNTS

Wednesday, December 10, 2008

8 a.m.

Douglas Fir Committee Room

Parliament Buildings, Victoria, B.C.

Present: Rob Fleming, MLA (Chair); Rick Thorpe, MLA (Deputy Chair); Harry Bains, MLA; Randy Hawes, MLA; Olga Ilich, MLA; Bruce Ralston, MLA; John Rustad, MLA; Claude Richmond, MLA; Bob Simpson, MLA; Ralph Sultan, MLA; Claire Trevena, MLA; John Yap, MLA

Others Present: Cheryl Wenezenki-Yolland, Comptroller General; John Doyle, Auditor General; Josie Schofield, Committee Research Analyst

1. The Committee considered the Auditor General’s report entitled A Review of the Vancouver Convention Centre Expansion Project: Governance and Risk Management (Report No. 3, 2007/08)

2. Resolved, that the Committee accept the report of the Auditor General entitled A Review of the Vancouver Convention Centre Expansion Project: Governance and Risk Management; and the response by the Ministry of Tourism, Culture and the Arts and the British Columbia Pavilion Corporation. (John Yap, MLA)

3. The Committee considered the Auditor General’s report entitled An Audit of Joint Solution Procurement and the Revenue Management Project (Report No. 1, 2008/09)

4. Resolved, that the Committee accept the report of the Auditor General entitled An Audit of Joint Solution Procurement and the Revenue Management Project and the response from Government. (Claude Richmond, MLA)

5. The Committee considered the Auditor General’s report entitled Public Participation: Principles and Best Practices for British Columbia (Report 11, 2008/09)

6. Resolved, that the Committee accept the report of the Auditor General entitled Public Participation: Principles and Best Practices for British Columbia (Report 11, 2008/09) and the response from the Ministry of Finance (John Rustad, MLA)

7. The Committee adjourned at 10:56 a.m. to the call of the Chair.

The following electronic version is for informational purposes only.

The printed version remains the official version.

REPORT OF PROCEEDINGS
(Hansard)

select standing committee on
Public Accounts

Wednesday, December 10, 2008

Issue No. 26

ISSN 1499-4259

[ Page 505 ]

WEDNESDAY, DECEMBER 10, 2008

The committee met at 8:05 a.m.

[R. Fleming in the chair.]

R. Fleming (Chair): Good morning, Members. Welcome to Public Accounts Committee. We have two hearings this morning on reports from the Auditor General and then a third item, time permitting, on a recent report on public participation.

I would ask members for a motion to approve the agenda at this time, unless there are any additions or changes proposed.

Meeting agenda approved.

R. Fleming (Chair): First item this morning is A Review of the Vancouver Convention Centre Expansion Project, a report issued in October 2007. I see our Auditor General, Mr. John Doyle, is here, ready to proceed and has an audit team with him. Good morning, John. I'll let you have the floor and begin the hearing this morning.

Auditor General Report:
A Review of the Vancouver
Convention Centre Expansion Project:
Governance and Risk Management

J. Doyle: Good morning, Chair. Good morning, Deputy Chair and Members.

The Vancouver Convention Centre Expansion Project: Governance and Risk Management was a report issued by my office in October 2007. The Vancouver Convention Centre Expansion Project, or VCCEP, is a Crown agency that was created in February 2003 to oversee the design, construction and commissioning of a significant expansion of the existing convention centre.

In February 2007 my office was asked by the board chair to conduct a review of the governance and risk management of the project, including an assessment of the ongoing cost increases. We agreed to carry out the review as we felt it would provide legislators and the public with a comprehensive and independent perspective regarding the management of the project.

All major capital projects, whether in the public or the private sector, have a number of risks, and a convention centre expansion is no exception. The report makes one recommendation to VCCEP, which is focused on risks that will continue through to the project's completion early next year. In addition, we provided government with three observations intended to assist in managing future major capital projects.

Since we issued the report, VCCEP was amalgamated with B.C. Pavilion Corporation, the current operator of the existing convention centre at Canada Place.

With me today are Russ Jones, assistant Auditor General, who leads one of the two financial audit portfolios within the office and who also has responsibility for the B.C. Pavilion Corporation financial statements audits, and also Bob Faulkner. Bob is an audit manager with one of the teams, and he carried out much of the work in regard to this particular project.

I'll now turn it over to Russ to provide a brief summary of the review.

R. Jones: Good morning, Members. I'm pleased to be here to present a quick overview of our report on governance and risk management at the Vancouver Convention Centre Expansion Project.

In February 2007 we were asked by the past chair of VCCEP to review certain key decisions made by management and the board in relation to this project. Our review looked at three key aspects of the project. The questions that were asked were: were project risks being managed, particularly those related to escalating costs and the identification of the main reasons for the increases? Was there an appropriate project management framework in place, and was it being applied? And did the project's overview governance framework allow for timely, informed decision-making?

As our review evolved, we realized that an important aspect of the report was providing contextual information about the evolution of VCCEP. How did they get to where they were today?

Section 1 of our report provides a chronology of the significant events. In our report, on pages 32 and 33, you'll find a graphic presentation of the time line and associated key events since 2003 — a very important part of the report. I think it provides you with a good overall view of what has gone on since 2003.

In summary, the first section of the report discusses the need for an expanded facility; the proposed port-side project, which was on the other side of where the current facility is being built — that was back in 1999; the work of the Vancouver Convention Centre expansion task force and the attempt at a P3 procurement; and ultimately, the creation of VCCEP in 2003.

[0810]

We also discuss, in the first section, the time line for the 2010 Olympic and Paralympic Games, which we believe did have a direct impact on the procurement option that was selected. The section ends with the latest budget that was approved, of $883.2 million. Having established a history of events for the expansion project, the balance of the report now addresses the three questions I was just talking about.

Part 2 of the report looks at the challenges in coming up with the cost estimation and budget development, and it was a real challenge. Over the last five years, the construction cost escalation in the Vancouver area has far outpaced the general inflation. More importantly,
[ Page 506 ]
during the initial cost estimating for VCCEP in 2003 and early 2004, estimates of cost escalation by those in the industry were significantly lower than what ultimately occurred.

In 2003 experts were estimating construction escalation of about 4 percent per year, and by 2006 the actual escalation was around 11 percent. This construction market in the Lower Mainland was characterized as the "perfect storm" by a number of the consultants that we chatted with.

We began our review of the cost estimation by establishing a starting point for VCCEP's cost estimates. Public perception is that the original budget for the project was $495 million. This amount can be traced back to the Vancouver Convention Centre task force in 2000. The task force led to a funding budget used in the negotiations with a P3 proponent, and that was based on agreed contributions that were going to come from the provincial and federal governments and Tourism Vancouver.

This funding budget was increased to $535 million when the province and federal government both agreed to contribute an extra $20 million. However, in fact, the first budget that actually was prepared by VCCEP was $565 million, and this was approved by Treasury Board in June of 2004. This budget was prepared based on detailed costing of the preliminary design for the expansion facility, and this budget included reserves and allowances to reflect the cost uncertainty that was inherent in this project at the early design stage.

As the project proceeded through 2004 and into 2005, there were unanticipated budget pressures developing. The city of Vancouver, through the development permit process, required a number of design changes to the building, and VCCEP estimated these cost changes added about $33 million to the project. In addition, the costs of the marine works — the pilings and foundations — had increased due to the unanticipated costs for site conditions and the cost escalation I noted earlier that was in place as well. VCCEP estimated these cost pressures at about another $27 million.

In July of 2005 a revised budget of $615 million was approved by government — $10 million less than what VCCEP had requested. In late 2005 and into 2006, VCCEP attempted to negotiate a fixed-price contract with the construction management firm. Through these negotiations, it became clear that the $615 million budget was insufficient, and through the remainder of 2006 and into 2007, VCCEP and government worked at updating the cost estimates and arriving at a final budget.

In May of 2007, finally, a stipulated lump sum contract was signed with PCL, and in July 2007 we ended up with the current $883.2 million budget that was approved by government.

While there were a number of key challenges faced by VCCEP in coming up with the cost estimates, they also faced some challenges in establishing a sound project management framework. In summary, we found that VCCEP was using a detailed methodology suitable for managing a large capital project. However, some of the processes used were not consistent with good practice.

VCCEP was guided from the start by the province of B.C.'s capital asset management framework, which provides general guidance on all aspects of managing capital projects. Detailed guidance was provided through the implementation of the Project Management Institute's framework, which is generally accepted as best practice. The Project Management Institute is well recognized, and it's an international organization.

[0815]

VCCEP prepared its project implementation plans based on the framework established by the institute. Our review found that VCCEP followed good practices in procurement management, contract change management and payment processing.

As we discussed earlier, there was a requirement to have the project completed prior to the 2010 Olympics. As a result, while VCCEP did consider it a traditional design-bid-build approach, they felt it would not allow them to meet those time lines. Therefore, in order to meet this short time frame, VCCEP used what we thought was a slightly unconventional procurement approach.

The approach chosen allowed for concurrent design and building of the new facility. A summary of the approach was, first of all, to issue separate lump sum contracts for the marine works, the structural steel and curtain walls to lock in prices; retain a construction manager to provide preconstruction services and to oversee the marine works; and then to negotiate a lump sum contract with the construction manager after design development was complete.

Under the procurement approach selected, VCCEP carried the risk for project schedule and cost escalation until such time as a fixed-price contract could be negotiated.

After VCCEP received approval for the $615 million project budget in the fall of 2005, a first attempt at negotiating a fixed-price contract began. Unfortunately, there was no formal mechanism in the contract with the manager at the time to convert to a fixed-price contract, and negotiations ended unsuccessfully in early 2006. Negotiations continued until May of 2007, when a contract was finally signed.

As our report highlights, it's prudent strategy in project management to plan for uncertainty. By early 2006 it was clear to VCCEP that the $615 million budget was no longer achievable. VCCEP informed the Minister of Tourism, Sport and the Arts at the time and the Minister of Finance of the budget cost pressures during meetings in February and April of 2006.

VCCEP's understanding of the direction from these meetings was to continue to manage within the existing
[ Page 507 ]
budget while seeking additional areas for potential cost savings that did not involve major scope reductions.

To keep the project on schedule, VCCEP completed the tendering for the larger contracts and applied the project allowances and contingencies to cover the cost increases. By the end of 2006 all the allowances and contingencies had been allocated, and the project was still two years away from completion. We believe this practice undermines the project discipline of drawing reserves based on specific project risks and allocating the reserves over the life of the project.

One final comment on the project management framework. We also noted that the forecasted costs to complete the projects were only updated to the approved funding levels — for example, the $615 million approved budget — and not to the project team's estimate of the likely cost to complete the project.

The final section of our report dealt with governance, and effective governance is always an important element in any organization or endeavour to achieve its objectives. We found that the structure put in place to oversee and manage the convention centre generally met our expectations, although board membership could have been strengthened and the information flowing to the shareholder about important project issues was not always complete.

VCCEP complied with the province's expectations for the governance and accountability for Crown agencies. The board included members with a good range of backgrounds, including senior level of government, engineering, legal and project management. However, we believe that the board could have been strengthened by having a member with expertise in the construction of large commercial buildings of this nature.

Generally, VCCEP management kept the board informed on the project's status. Governments, through the minister responsible for VCCEP, were kept informed by having a deputy minister on the board for most of the project. In addition, VCCEP consulted with B.C. Pavilion Corporation on design and facility operation issues that would impact going forward.

[0820]

One final comment on governance. We found that shareholders were provided with monthly project status reports; however, the information in these reports represented an overly optimistic view of the cost pressures. As noted previously, the forecasted cost to complete the project should have reflected the estimated likely cost to complete the project rather than just reporting on the approved budget at the time. Also, the report did not adequately address the risks associated with the project and management plans for managing them.

So we had one recommendation, as John mentioned, to VCCEP to assist them in managing the project to completion. Monthly progress reports to key stakeholders should include estimated cost to complete the project rather than forecasts that only go to the approved project budget. Reporting should also include details about assumptions underlying these estimates, the status of significant risk factors being actively managed and a range of cost estimates if the assumptions were to vary from plans.

And then we had three observations for future major capital projects for government. These are just intended to help in managing future projects.

Wherever possible, major capital projects should be sufficiently designed before construction contracts are tendered. This will allow the effective use of contracts that transfer appropriate risks, such as cost and schedule, to the private sector. As noted in our review, the concurrent design and construction left VCCEP exposed to much of the cost escalation.

VCCEP determined that their fixed completion date did not allow sufficient time to complete the building design prior to starting construction. Our second observation recognizes this constraint. In cases where the circumstances require using a procurement approach that does not transfer significant risks, project managers and central agencies of government need to ensure that contingencies and allowances are adequately funded, monitored regularly and adjusted as necessary.

And then our final observation relates to board composition. Government should ensure that one of the appointed board members has independent expertise in construction costing specifically related to the project being undertaken.

That ends our presentation.

R. Fleming (Chair): Thank you Mr. Jones.

Auditor, any additional comments?

J. Doyle: Not at this time, Chair.

R. Fleming (Chair): Then I will ask our deputy minister, Mr. Steenkamp, to come forward and make their presentation — the government's response to the report.

Good morning, Deputy Minister. I'll let you begin and introduce additional witnesses that you brought with you this morning.

P. Steenkamp: Thank you very much, Mr. Chair, and thank you to the committee as well.

I would like to introduce Mr. David Podmore, who is the chair of the board of PavCo, and Mr. Warren Buckley, who is the CEO and president of PavCo as well. I'm going to turn the presentation over to Mr. Podmore immediately, and then Mr. Buckley will have comments to make. Then we would be happy to take questions as well.

D. Podmore: Good morning, Chair, co-Chair and Members. It's a pleasure to be here. I'll just give you a very
[ Page 508 ]
brief overview and response to the Auditor General's report, and Warren will also have some remarks to make.

[0825]

I'll just give you a little bit of chronology, particularly as to my involvement in the Vancouver Convention Centre Expansion Project. The Auditor General, of course, has indicated that the Auditor General was appointed as the auditor of PavCo in May of 2003, and the Auditor General continues to be the auditor of PavCo. In fact, the Auditor General's representatives attend each of the quarterly meetings of PavCo and attend the audit and construction committee portions of that meeting.

In February of 2007 the previous chair of VCCEP, as the Auditor General has indicated, commissioned the review by the Auditor General. So it was initiated by the previous board chair just prior to my engagement or involvement in the project.

In February and March of 2007, I was asked by the provincial government to examine the VCCEP project, or the expansion project, and to undertake a review, provide recommendations and suggestions to complete the project, finalize a project budget through to completion and present a schedule for completion.

Subsequent to presentation of my recommendations, I was then asked if I would undertake the responsibilities to chair the convention centre expansion project as well as to take over the responsibilities as chair of PavCo. That occurred in April of 2007. I agreed to accept those responsibilities.

Very briefly, the Auditor General has presented a very complete report, and I can tell you that the current board of PavCo embraces the recommendations of the Auditor General. I think the Auditor General would probably concur that a number of the points that were raised in that report, and suggestions, have been implemented and were in fact implemented quite a long ways in advance of the issuance of the Auditor General's report. I'll explain that in a minute.

We've taken a number of steps since April of 2007 and through to the early summer of 2007. I'll just briefly touch on those.

First of all, one of the things we did very early on is that we integrated the two boards. This formally occurred with the integration into a single entity a bit later, but commencing in April of 2007 we started a process of having the PavCo board and the VCCEP board meet together. We merged, basically, the two organizations.

One of the reasons for that is that it provided a better integration of the operator with the construction group. In a project like this it's critically important to have the operator engaged through the design process and through the construction process to ensure that the facility meets the operator's requirements. So one of the first things we did was bring those two boards together.

One of the other things that was done in April 2007 is that I asked two individuals that have very significant construction expertise on large projects to assume the responsibilities as the owner's representatives — in other words, the direct liaison with the contractors and subtrades on site with the owner and operator. Those two individuals were a fellow named Roy Patzer, who continues to be the owner's representative for the convention centre expansion, and Henry Wakabayashi, who is actually focused on the improvements to Canada Place that are a part of this expansion program and are a part of the overall budget.

As a bit of an aside, it's probably important to point out that when we're talking about the $883.2 million budget, it's an all-inclusive budget that includes the expansion, the link between the existing Canada Place and the expansion, and a series of upgrades to Canada Place. It also includes all the furniture, fixtures and equipment that are required to operate the facility. So it's a total, all-inclusive budget — everything pertaining to the expansion and the first-phase upgrade of Canada Place and the linkage.

In the spring, as the Auditor General has pointed out, I spent considerable time with the general contractor, PCL Constructors. We reworked the stipulated lump sum price contract that had been under discussion prior to April of 2007. In about six weeks we concluded an acceptable lump sum price contract with PCL, which transferred a very significant portion of the risk on the project to PCL Constructors.

[0830]

We also confirmed a detailed project schedule, and we confirmed a completion date of the expansion of March 15, 2009. We are on schedule for that completion, and we are operating and will complete within the budget that was presented.

In July of 2007 we presented the final project budget and schedule that I've referred to. Just as a bit of an aside, I asked for 120 days, after I completed my review and after I accepted the responsibilities of chair, to complete a comprehensive budget. It was a budget that was built up from zero base, basically. We presented that budget in the first week of July 2007. That was the $883.2 million.

Another priority was to recruit a president and CEO with significant international experience but also with a good understanding of the local requirements and the local hospitality sector. We were very pleased to recruit Warren Buckley, who was at the time the president and CEO of a very successful convention facility in Singapore. He was there, I think, seven years and prior to that was the president of PavCo. We're delighted that he has returned. He's focused, of course, now on completion but most particularly on getting things ready for operations and marketing the facility. He'll speak to that in a minute.
[ Page 509 ]

Then in April 2008 we formally amalgamated the two boards of VCCEP and PavCo into a single entity. In the process of doing this, we did change the composition of the board quite significantly. We reduced the combined board size, and we added expertise in the construction legal area particularly. We also strengthened the board in terms of experience in the hospitality sector, which I think is very important.

Today I can tell you that the project is on time, and we are operating within the $883.2 million budget. The Auditor General has talked about construction reserves and contingencies. This project budget does contain both a construction reserve and a contingency. The construction reserve has been used, other than a million dollars, and it was set at $12½ million.

Almost all of the contingency remains as contingency at this time, which — as the Auditor General has pointed out, and I concur — on a properly managed project is the way it should be. The contingency would be the last thing that is used, and hopefully, portions of contingency aren't used.

The facilities, of course, are well on their way. If you've been into Vancouver Harbour recently, you've seen that it is really coming together very, very rapidly. We have no major issues at the present time. We're, as I say, on track for turnover on March 15. As Warren will explain, we have our first event in the building starting on April 16, I believe, which is the American Bar Association. Warren is in the process of staffing up and training everyone to get ready for that.

I'll just turn it over to Warren. He can tell you what's been done on the sales and marketing front and a little bit about the building itself, which is really quite unique.

W. Buckley: Good morning. Just briefly, I'd like to take you through a little description of the building itself. The convention centre is built to LEED gold standards. We will be one of the greenest facilities in the world, certainly in North America. LEED, of course, stands for Leadership in Energy and Environmental Design, an accredited agency that gives you that designation.

Obviously, if you have the opportunity to come into the building, it is clearly a showcase of British Columbia wood products. It's in excess of two acres of hemlock walls from the northern part of Vancouver Island as well as about 250,000 board feet of fir from the Cariboo, which creates glulams in the ceiling. It really is a fine showcase of British Columbia products.

To date we have 159 events that actually have been confirmed in the facility, moving forward. Our world is in the future. We don't book much in the next short term. We probably won't see the fruits of our labour in this building, because we're now booking into the year 2016-2017.

[0835]

We are in the market very aggressively. As I say, 159 events are in place; 54 of those are designated as events that we actually couldn't have in Vancouver or British Columbia were it not for this facility. That number has actually increased as of yesterday.

Our first normalized year — which is 2011 and then into 2012; I'm talking over one fiscal year — is going to be the busiest convention year, certainly, that Vancouver has ever seen. They represent $2 billion in economic impact, and post-29 in our first normal year it will generate more than 1.5 non-resident delegate-days. That's what we count as non-residents of British Columbia coming to events.

Just a list of some of the events for you — this is 2011 — to give you an example of the broad range. I think there's an association for every conceivable operation or employment in the world, and we've now managed to secure a good healthy group of those in 2011. They really range in terms of numbers.

The top one, which is Risk Insurance Management, is about 10,500 people that will come to the venue in 2011, and of course SIGGRAPH, which is the third one down, is…. I think that's over 20,000 gamers that will come to Vancouver. The rest are a variety of events that reflect our bookings in 2011. You can see it reflects to about 300,000 room nights, which is really what a convention centre is all about, and that is generating room nights.

We plan on having a community open house, opening to public, in early April. There will be an event to open the building, which largely is intended to bring delegates from around the world to showcase not only what British Columbia has to offer but also Vancouver and certainly what the convention centre has. As soon as we have that, we will open it up to the public and let the folks from around the province come in and see this very, very special building.

Our first event is on the 16th of April, where 1,700 American lawyers will descend upon us, and it'll be the first event for the convention centre.

That's it.

R. Fleming (Chair): Thank you.

Members, questions, comments for the Auditor or for the deputy minister or the VCCEP chair.

C. Trevena: Thank you very much for the presentation. I'm not sure whether this is a question for the Auditor or a question for VCCEP. As I was reading a report and again listening to the presentation, I think what stands out for me…. It's not just the fact that there is uncertainty about what the official start figure was for the public and what the perceived end figure is going to be in there for the escalation, almost a doubling, but the fact that the building started before the design had finished.

I wondered if there is any analysis or breakdown of what that actual cost has been. There was a start of a building, of a major construction like this, and the fact that
[ Page 510 ]
the design of the final product, as it were, wasn't finished. A subsequent question, which is for the Auditor General, is looking at the implications of that on other projects.

J. Doyle: Thank you for the question. I would have designed the building before I started to build it, and I think that is intuitively the way the things should go. Part of the rationale for moving ahead quickly was the need to ensure that everything was in place by a certain time. So decisions were made.

I think it's best addressed by the organization itself in regard to how that can be achieved. If you like, there were competing priorities. I'd repeat, and it was a suggestion that we made to government, that in fact design does occur in advance of the major letting of building contracts. I don't think I would ever argue the opposite. However, I defer to the organization in regard to why that strategy was deployed and let them explain that and the cost consequences themselves.

D. Podmore: Of course, as you understand, that predates my involvement. In an ideal circumstance, you would complete design before you commence construction. I would point out, though, that isn't unusual, particularly on some very large projects, to do some work in advance of the completion of design.

[0840]

There is an interesting thing with this project. The foundation and piling were started before design was complete, but it started in an environment where the cost of steel and materials was substantially lower than it would have been had you proceeded to complete design and then tendered the project.

So in my own view, the project actually probably avoided substantial escalation by starting the deck, where the major steel and concrete elements of the building would have increased very significantly, as we did see in the industry in 2005 and beyond very substantial escalation in the cost of those materials.

I can't give you a scientific answer, but my suspicion is that the savings as a result of procuring and installing that material early probably would offset any savings you would have had if you had completed the design.

C. Trevena: I'd just like to follow up on that. The Auditor General, though, is very clear — and I think that you yourself recognize this — that the increasing costs were unforeseen. Therefore, if there had been a fixed-term contract sooner, these increased costs might have been able to be built into the fixed-term contract.

While I understand that you are new to the organization, you do have the responsibility and would have obviously looked at the past history before taking on the responsibility, so I wondered if you would give a bit more of a fulsome explanation.

D. Podmore: I can only talk to my experience; I can't talk specifically to this project. But through 2005, '06 and '07 it would be typical in the industry as being very difficult to obtain fixed-price contracts, because you were in an environment where you were already seeing such substantial escalations in price that even the contractors themselves couldn't properly forecast where prices were going to end up. So as a result, a reluctance to take on that exposure.

It's all hypothetical for me, but you were in an environment where we saw unprecedented inflation. Frankly, the very best in the industry had a very difficult time forecasting what that inflation should be. None of us had ever had experiences like we had in that period of time. I don't think this project was all that different.

C. Trevena: Looking at what we have now, we have another thing that was not predicted by many people — which is going into recession. You say that you have $1 million reserves. I wondered how you are planning for this. You say there is a fixed price now, and that's what it's going to be. Is there preparation here for the impacts of this recession? Secondly, you've got the $1 million reserve. I wondered how much is there in contingencies.

D. Podmore: The project will be completed within that budget. There was a construction reserve. My recollection is that we set aside what we call a construction reserve of about $12.5 million. There is slightly over a million dollars in that construction reserve remaining, and we have a contingency. My recollection is that it's $27 million. We have taken one element out of that for a million dollars, which is a major freight elevator that was added to the building. So we have more than adequate contingencies at the present time to complete the project.

The other elements of the project are all on track in terms of cost. So 92 percent of the cost of the project is expended at this point. Virtually all of that remaining 7 to 8 percent is subject to fixed-price contracts. So there is very, very little exposure in terms of any kind of escalation in the remainder of the project. As I say, we will complete it well within that budget.

J. Rustad: Thank you for the presentation.

Government projects that are of the scale…. Obviously, this is a very large-scale project. You would hope that there would not just be the benefits of the direct construction activity that happened but also some long-term benefits of that investment that we would be able to reap.

What I'm wondering with regards to this project in particular is: how many jobs were created? What kind of economic activity was created associated with this? As well, what do you see as the long-term job creation ability of the convention centre from both a direct and indirect perspective?

[0845]
[ Page 511 ]

D. Podmore: I'll let Warren respond on the long-term.

During construction, of course, it created 6,000 person-years of employment. At the present time we have roughly 850 people on site, and of course, there are a lot of other people working off site, preparing materials and components for delivery to the project. We've been at the level of between 800 and 1,000 people on site for the last year. So in total, it's about 6,000 person-years of employment. Long-term — Warren can address.

W. Buckley: The number that's been formulated for us in terms of long-term employment generated by the convention centre is 7,000 man-years. I think you have to look upon…. The convention centre is really….

D. Podmore: Person-years.

W. Buckley: Person-years; I'm sorry.

It's the multiplier. I think you have to look at it, as well as a convention centre, as a catalyst for a variety of other things. We use the convention centre as a catalyst to bring people here in a business environment for the very first time that then see what British Columbia has to offer. That has a multiplier effect because of the number of people that come back as tourists as well. There are a variety of long-reaching, very positive economic impacts from the creation of a venue such as this.

D. Podmore: Maybe one other thing, just of interest. One of the things that is quite interesting about this project is the extent to which there has been employment created in other regions of the province. Warren mentioned the glulam beams that are used for the ceiling and soffit treatments for the building, produced in Penticton and Victoria. The interior wood treatment is all assembled in Victoria. The concrete risers that have formed part of what's called a habitat skirt are produced in Nanaimo. The glass is assembled and delivered from Kamloops. So there's employment being created throughout the province in other industries and sectors to support the development of this facility.

J. Rustad: Thank you, and if I may, with a follow-up…. You talk about the tourists returning, the potential of that. What kind of estimate do you have with regards to how many tourists will return, associated with that? And do you have an estimate as to the economic activity that could generate?

W. Buckley: I don't. Actually, we work with Tourism B.C. too, and they formulate those numbers on our behalf. We concentrate on the numbers that are generated particularly for the convention centre, and then in our marketing efforts we rely on their research to determine the return rate on that investment.

B. Simpson: Two lines of questioning. We're really here to look at the project management aspects of this. That's what the Auditor General's report is about. It's not about the tourism aspects or the future return.

On the project management, you'll have to forgive us if we're a little cynical on the promises around "the contingency's enough" — right? — because it was supposed to be $495 million. In November '05 the Premier promised that $565 million was it. "That's it — kaputski. It's done, including all contingencies." In November '05, $615 million was promised by the minister, and again, that was supposed to include all contingencies.

So now we're being told that $883.2 million is it, including all contingencies, and yet I heard you say virtually all of the remaining subject to fixed costs. So do we have a guarantee from you that the $883.2 million is it, including all contingencies — that there won't be any more money?

My question to the Auditor General on this point: is the Auditor General satisfied, after reviews and after these continual incremental promises, that it's done? Is it done? Is this the price?

D. Podmore: I can answer your first question. First of all, I can't speak to the budgets prior to April 2007. The budget that I did present in July of 2007 remains the budget for the project. The project will be completed within that budget, and it will be completed within the timetable that was given. I've given that assurance in July 2007 when that budget was presented, and I'm giving you that assurance today. So you will not see that budget exceeded. It will be completed on March 15.

[0850]

J. Doyle: Thank you for the question, Member. We review the financials for the organization on a quarterly basis, and we also conduct the audits on an annual basis. Everything that we're seeing seems to us to say that everything can be done within the funding envelope. I'm not quite sure whether all the money needs to be spent. I haven't quite got a grasp of if there's going to be any underspending that may occur based on the $883 million. That, I think, is a judgment call by the organization itself. I suspect that when the final report comes through with all the detail, it will be possible to see where the cost pressures were and what the final situation actually is.

We're talking about two things here. We're talking about the construction, and then we're talking about the fitting out of the convention centre, although they're both built into that $883 million. The construction seems to be, from what I've heard, locked into place with costs and so on. So it looks like the only danger will be if the fitting out, all the equipment and furniture and everything else, incurs a cost that's greater than anticipated.

There's a fairly large contingency there. So I think it's reasonable to assume that costs and expenses will not
[ Page 512 ]
exceed the $883 million, but how far below they may be, I'm not sure at this stage.

B. Simpson: My second line of questioning goes to lessons learned by government on this. It's to the Auditor General with respect to what changes government might have made as a result of the lessons they may have learned from this project, particularly the moving into the construction phase prior to design — the competing priorities, as the Auditor General pointed out.

We have signals right now that we're going to get a new deal for British Columbia, that we're going to fast-track infrastructure, that money is going to be going out the door in the new year. Those are the words that the Finance Minister is using, the Premier is using. The priorities for that seem to be, you know, an election looming but also the stimulus package and job retention.

Given that we don't have huge numbers of projects on the books that I'm aware of — in fact, the Finance Minister and the Premier have both admitted that that's problematic — is there a sense of comfort on your part, as the Auditor General, that we won't get into a situation like this again with significant projects — where because of priorities to retain jobs, stabilize jobs or get money out the door, we won't be into actually putting money into the ground before we have project designs or before we have fixed contract arrangements? Do you have that surety that we won't repeat this error?

J. Doyle: Government is a learning organization, and I think they've learned a lot over the last period of time. It seems to me that there were a couple of issues around this particular project that were important to note.

The first is that whilst design always does come before everything else, as described by Mr. Podmore, it's quite clear that sometimes you can move forward with some aspects of a project beforehand. I think industry experience and capabilities and competencies are important to harness. Hence, the P3 approach to actually developing and transferring the risk of construction away from government and into the hands of those more capable of dealing with these major projects.

I think another lesson that government might wish to consider is openness, accountability and transparency in regard to the shifting landscape when it comes to some of these projects. It is an issue when a figure is presented and then that figure stays static for an extended period of time despite the fact, the reality, that costs have shifted and changed. I think timely disclosure of how budgets are shifting and how the management of a particular project is working will probably alleviate a lot of the concerns that may exist.

The third point that I'd like to raise, which doesn't flow from this particular project, would be that it is always dangerous to jump into major capital projects without proper preplanning.

[0855]

As a consequence, the fact is that we need to move forward as a community, we need to protect jobs, and we need to ensure that the economic transactions continue to occur. All that is worthy and good, but equally, there's the protection of how public funds are utilized and whether in fact the products — the capital items, the buildings, the bridges, the railway lines, the roads or whatever it is that is developed — actually are valuable to the community in the longer term.

Now, I think all those things are on the agenda of government to consider and to look at, but I would just like to emphasize that that should be done in an open and transparent manner so that it is possible to have input from outside in regard to how those projects are progressing.

O. Ilich: Thank you, gentlemen, for the presentation. One of the questions that I had I think you may have partly answered, but I'm just trying to get a better sense of this. I think that you suggested in the report that there was a problem with the reporting on a monthly basis — that some of the information wasn't getting through.

Do you now have somebody meeting regularly? I think you said quarterly. Is there somebody that sits now with the board or meets with the staff on a more regular basis than what we had from your office, Mr. Auditor?

J. Doyle: I'll just check with my assistant Auditor General.

My staff attend quarterly meetings with the organization. At that time we have the opportunity to witness the discussions that take place and read all the reports regarding progress. We do have access, if we asked for it, to any document within the organization. In looking at everything that we look at, we're confident that, in fact, the way that the whole project is being managed is appropriate at the moment.

B. Ralston: The Auditor General mentioned timely disclosure. In the report, on page 49…. I just want to quote briefly and then ask a question.

"Shareholder representation on VCCEP's board is different compared with that of other Crown agencies. A deputy minister was a VCCEP board member from the agency's inception in February 2003 until May 2006, and then from September 2006 to April 2007. This is somewhat unusual for a Crown agency, since the board is already responsible and accountable to the minister responsible, as articulated in its service plan and letter of expectations. An outcome of this arrangement, however, is that the minister can have direct and timely access through the reporting relationship of the deputy minister to board discussions and decisions and to all governance and project-related materials."

I just wanted to confirm that the Auditor General is confirming that the minister — given the priest and penitent, if I can put it that way, relationship between deputy minister and minister — did have direct and timely access and that any decision not to make those findings public was the decision of the successive ministers on this project. It's not about the process.
[ Page 513 ]

J. Doyle: I can confirm that the situation was as described in the report. An extension to the discussions between the deputy minister and the minister, however, I can't comment on because I didn't collect any evidence in regard to that. So you'd have to ask the deputy minister and the minister.

B. Ralston: Well, I doubt any answers will be forthcoming from any ministers on that question. I think we tried for years in question period. I just wanted to confirm that as far as you know, the deputy minister who was on the board did attend the meetings and did understand the cost escalation and was in a position to fully report that to the minister responsible.

J. Doyle: That's our understanding.

[0900]

J. Yap: Thank you for your presentations, Auditor and Mr. Steenkamp.

A question for Mr. Buckley. You were the president of the Singapore convention centre, you mentioned. Some may not be aware, but I was born in Singapore. I'm curious. How does our convention centre compare to the internationally known Singapore facility?

W. Buckley: Suntec Singapore is a privately owned and operated convention centre. There are no public funds in this convention centre. It was built about ten years ago at the price of about $650 million. It's part of an urban redevelopment project in downtown Singapore. It was, I'm proud to say, hugely successful. It still is. It has been named the number one convention centre in Asia for several years. But sadly, it lacks in areas of sustainability, of green.

I have to say it doesn't hold a candle to the convention centre in Vancouver. The one that we are about to open is so different, so unique, so appealing, so attractive to the marketplace. And because of its green nature, which is really becoming one of the prime reasons for delegates to determine the location of their convention, there really isn't much comparison at all, other than size, to Singapore.

J. Yap: So apart from that particular facility, with your extensive background in international conventions, internationally how does our convention centre stack up?

W. Buckley: Well, there are quite a few dazzling beauties on the marketplace coming up right now. There are 300 convention centres in the U.S. alone. I know my colleagues in the international industry would say that there really isn't anything that would stack up in any similarity to Vancouver's convention centre in terms of appearance, its location, its vistas, the ambience it has created, its attention to detail, its functionality. This is no Taj Mahal. This is a clearly functioning, attractive convention centre.

R. Fleming (Chair): Some of you won't know, but I was born in Windsor, Ontario. But I'm not going to ask for any comments on other pending bailouts.

I want to go, though, to the discussion on reporting that we have heard other members touch on. The problem was not that reporting wasn't being received, as I think one of the questions was looking into. It was that the reports themselves were useless, perhaps even disingenuous. There was a direct relationship to government. It wasn't a case of an agency keeping things from government. Government was fully in the loop. In fact, government appointed and established the loop to oversee this project.

The recommendation of the Auditor General, I think, goes to the heart of the reporting relationships problem by suggesting that rather than providing forecasts that showed government always meeting the budget targets, which was false, the reporting should have been realistic and should have been factual. It wasn't a question of whether it was timely or not. It was whether it was accurate and fairly depicted.

I want to ask the Auditor General and perhaps the deputy minister what they take away from that pretty critical audit finding here — that the reporting was of that nature and was not useful or not accurate and, therefore, not properly disclosed. What does that say? For example, what does that say to the Treasury Board?

I guess part of my point is this. While these regular monthly reports were being issued saying that the projections were meeting the budget, at the same time another branch of government was hearing requests at Treasury Board for more funds for this project because it was over budget. How could those two things go on simultaneously?

J. Doyle: When my staff identify issues within an audit, often it's things that may have occurred over a period of time. We're coming in after the event to identify perhaps what went wrong or what went right. I'm of the view that I'm as much interested as that historical reporting…. We do report what we find.

[0905]

I'm as much interested as to the response, and the response in this particular instance has been to put into place a board that insists on good reporting that is timely and can be utilized in the way that you would describe as appropriate mechanisms with transparency, accountability and proper governance. So my initial default is to make sure, going forward, that things are improved and that things happen in line with best practice.

I have been intrigued by this particular project, particularly the way that it's funded and how the organization acts as a manager — or a steward, if you like
[ Page 514 ]
— of its resources. It will be a focus across government in the future that I would look at financial management arrangements and particularly the delivery of significant sums of money to organizations before those funds are actually required for operational purposes.

I believe that treasury does a better job of looking after money than a whole series of smaller organizations whose real job or day job has got nothing whatsoever to do with investments. So to me, it's the response that the organization has made that, moving forward, is the issue that I would like to see. In this particular case, despite the fact that we were very critical in regard to the lack of objective analysis in the past, as we went forward, the organization responded appropriately to the recommendation that my office made.

R. Fleming (Chair): Mr. Steenkamp, you have a comment.

P. Steenkamp: I'd just, I think, reiterate the points made by the Auditor General. We work very, very closely with PavCo, with Mr. Podmore and with Mr. Buckley. We receive the monthly reports. The reports are based on forecasts, so we have, obviously, taken a close look at the recommendations of the Auditor General, and I am completely confident that they are being followed.

I'd also, from my understanding and from my reading of the report and in discussion, understand that VCCEP actually began to implement changes to governance prior to the issuance of the Auditor General's report and that when the report came along, the changes that had been implemented were entirely consistent.

In addition to the monthly reports, though, in the short time that I've been in this position, I've met many times with Mr. Podmore and Mr. Buckley. My chief administrative officer has, I would say, at least weekly exchanges, as well, with the team. So we're very comfortable and very confident that the recommendations laid out in the report have been followed.

R. Fleming (Chair): Just a different question, which is to do with quantifying the elements of the cost overrun, because the magnitude is such that…. You know, your audit tried to ascribe a few cost areas — tens of millions here and tens of millions there — for different aspects of the project that got out of government's control.

Members have talked about the problems with the finding that the staging of the project — beginning the foundation work before design was complete, actually hiring general contractors before the design was complete…. That is not a recipe for being able to meet budget or keep a lid on costs.

I do appreciate that Mr. Podmore was brought on after, sort of, the horses had left the barn here, after the audit finding had already been made that the governance model of this project was insufficient. There wasn't expertise on the board, and I appreciate that he has filled that gap after the fact.

But I want to go back to the sort of midpoint of this project, when government knew that cost overruns were pending and that they would be very significant. They knew that the cost-plus relationship that they were in was very expensive and that 100 percent of the risk was being borne by the taxpayer.

Government subsequently tried to negotiate a fixed-price agreement, and that's very difficult to do when you're 50 percent through a contract. You can imagine anyone doing a home renovation who had already hired the contractor, ripped up the floors and ordered the marble for the room, trying to then negotiate a different payment arrangement — how difficult that would be.

[0910]

One of the things here — and there wasn't a lot of comment in the audit — was that from mid-2005 to May 2007 the government was in discussions with its general contractor, PCL, to try and switch arrangements, going from cost plus to fixed price.

I would ask the Auditor General and maybe the deputy minister to comment on it. What incentive at that point in time, during two years of prolonged negotiations to try and reach an agreement, would PCL have to sign it? They were enjoying zero percent risk — all of it being borne by the taxpayers — a cost-plus agreement in an uncertain environment. And when I say the horse has already left the barn, this is what I'm trying to get at. It took two years, and it took till the significant part of the completion of project was already accomplished.

So in the end, we paid a risk premium very definitely to get a fixed-price contract after most of the hit had been taken. What premium did we pay, then, to finally achieve, two years later, a fixed-price contract?

D. Podmore: There are quite a few questions there, so I'll try and respond. First of all, I think that for clarity it's important to go back and talk about the sequence of this audit. The changes that I described were made before any of the findings of the Auditor General were known to PavCo. The Auditor General's report followed quite substantially past my involvement in April of 2007.

The report, as I recall, Mr. Jones, was delivered in the fall of 2007. I'm a volunteer on this, so I just want to make it clear that the changes that we've talked about — the changes in the board, the changes in the organization of the construction management, the composition of the board, the approach to the negotiation, the fixed-price contract — were all done before any of the results of the Auditor's review were known.

I think it's very important just to note — and it's just an observation — that the Auditor General also participated in all of the meetings, as is my understanding, right through from 2003. So the Auditor General has continuity on this project, which I think has been very
[ Page 515 ]
helpful. We've got a very good working relationship, in my opinion, with the Auditor General at this time.

I'll try and answer your question. What I look at today is a project that is going to cost somewhere in the order of $883 million or less. I look, with my own knowledge of the industry, at what's been put there. I understand the project pretty well, I think. I can tell you with all certainty in my mind that this project could not be delivered today for $883 million. If we started today, we could not build this building for that price. It would be higher.

So it is a way of explaining that while, yes, my own preference would be to complete design and then bid the project, there was some merit in proceeding as they did with the installation of the deck and the piling. I've explained why — because I think substantial savings were realized to the cost of this project by placing that steel and that concrete at an early date. It is not unusual in the industry, and it's not a practice that's foreign to the industry, to take certain elements of a project and advance them, and there are often very good reasons. In this case, a good reason would be that it did save a lot of money.

In terms of the negotiation of a fixed-price contract, you have to be careful in talking about that most of the hit had occurred. When I got involved in this project, my recollection is that the expenditures at that point were in the mid–$200 million, so you have to be clear that it wasn't as though $600 million worth of work had been done at the time you're then trying to negotiate with PCL.

Why would PCL sign a fixed-price contract? They sign a fixed-price contract if they know that if you do not receive an acceptable fixed-price, stipulated-sum arrangement from them, you are prepared to go to other contractors. That's exactly what I did in April. I said that they had six weeks — that we negotiate a contract, or we get another general onsite that can do the work and give us a fixed-price contract.

[0915]

I can't tell you why that didn't happen before April of 2007, but I can tell you that's why it happened in April of 2007, May of 2007. If you're going to work on a stipulated lump sum contract or on a conversion to a stipulated lump sum contract, you have to have yourself in a position where you can, and you are prepared to, move past the contractor that you're working with and bring a new general in. That's why we were able in May to negotiate a stipulated lump sum price contract, and it's why PCL would sign a contract on reasonable terms.

In terms of a premium, I've told you that I don't believe there was a premium. I think we did a very good deal in May of 2007. Under circumstances in the industry and the history of this project, I think we effected a very good deal.

As I've said, just to sum up, I can tell you that if we budgeted this today from base budget up, knowing what we know about steel prices, concrete prices, labour — even recognizing that we've seen some fallback in the last several months, and we're likely to see more going forward — we couldn't replace this facility for $883 million today.

J. Doyle: I've got nothing further to add because, for every project, we've got to allow a management team to demonstrate their capabilities. We can look in hindsight at how things went, but at the time they're the ones that are responsible for carriage of the particular project.

We've already said everything we want to say in our report in regard to how well things were going and how the costs were shifting. Whilst it may well be true that you can't build a convention centre now for the same price, I do think you have to look at what the situation was at each point in time along the track.

Early on, there wasn't any idea that significant changes or shifts in steel prices and concrete would be there. It wasn't until something of a construction crunch occurred that these things became difficult to access. So we can argue all day about what the right budget would have been at each given point of time.

I would just enunciate three principles. Projects must be worthy, and projects must be well managed. That means responsive management, not just setting a course and then leaving it to occur. And there must be transparency and openness regarding how the shifting pressures that are experienced within that particular project come about.

To me, it would seem that this particular project, if it is a success story…. It sounds like the new convention centre is going to be spectacular and unique. It means that a fulsome and complete report at the end of the whole process would be a useful document to be produced by the organization for the information of others that follow in regard to these large projects.

R. Hawes: I think I want to just preface what I'm saying by…. I've heard this, in fact, in the Legislature a few times being referred to as a white elephant, and I'm very, very happy to hear all of the things you're saying about this, which really confirm what we've always known — that this is going to be a real jewel for Vancouver and British Columbia and the fact that a convention centre has been needed for a long time.

I just want to quote something, actually, from Hansard in June 1998. Mike Farnworth said: "The trade and convention centre is on track. You'll see those jobs on the construction sites in a large way in the spring of next year."

It's been recognized for a long, long time that Vancouver has to have a trade and convention centre. We have it now. Hindsight would show that perhaps there are some things that could have been done differently, but I think the Auditor has said that government is a learning organization.
[ Page 516 ]

I think there are some lessons that have been learned, and I think they're good lessons. So I just want a confirmation from the Auditor, then, that the recommendations that you've made in here as to how these projects should run…. In essence, you're satisfied that the recommendations have been implemented and are being followed.

J. Doyle: In my view, the recommendations as regard to the organization have been followed, and management has responded appropriately to all our comments and observations. I think that's good.

[0920]

As regard to the general observations that we've made, I think those have been taken on board by government. I expect to see them woven into all future capital projects and, obviously, would have them in my back pocket when my staff go and look at any other projects in the future to make sure that they are in fact included.

So I'm confident that there will be adherence to those recommendations and suggestions.

H. Bains: I would like to ask questions around a cost-plus versus fixed-price contract model that perhaps Mr. Podmore or the ministry could try to answer.

The Premier was very clear before 2001 that the large government projects should not be sought at a cost-plus basis and that they should be negotiated at a fixed price. My question is whether the Premier left those instructions with whoever was in charge to seek a fixed-price contract on this project. Or were those instructions ignored? Why didn't they go after the fixed-price contract on this project when the Premier was so clear that we should not go to cost-plus?

P. Steenkamp: I'm not in a position to answer that question. As I have indicated, I have come sort of late to this project. That's really a question which I think would have to be put to other people.

H. Bains: Well, we thought we would get some answers, and that's the purpose of this meeting. Did anybody come here to answer some of those questions so that it's clarified, in at least the public's mind, why we are in the mess that we are in? That question has to be answered, and this is the proper place to have some answers to those questions.

P. Steenkamp: If I could, we did come to this committee prepared to respond to questions about the Auditor General's report and the recommendations in that report. I'm not competent to answer your question.

H. Bains: One of the areas that was mentioned in the report is why we failed. You know, one of the reasons why we are in the mess we are is that we did not get the fixed-price contract. That answer still isn't coming, so I'll move on.

Perhaps Mr. Podmore could answer this question. You've got a long history in the construction business. You have managed, very successfully, large projects in the construction industry, and so I think I'm happy to see you heading this project at this stage.

However, if you were given this project, of this nature or this size…. The original budget started at $495 million, and then it went to $565 million, then to $615 million, then $623 million and then at the later stages it went to $883 million. At what stage would you, as head of that project, turf the management that kept on changing those numbers and weren't able to come up with a budget that they could justify and finish the project within.

D. Podmore: I don't know if I can answer that question directly. I don't know the history before April 2007 in terms of the internal management of the project.

I can say what I did. When I agreed, when requested by government, to take on responsibility for the project — not one of my brighter days, as I said earlier, by doing it on a voluntary basis — I asked for 120 days to complete a complete budget from the base up, as though I was reconstituting the project from first initiation. That's where I ended up with the $883.2 million budget. That is a major, major exercise, but that's how I would approach it.

I guess if I saw that a project was creeping, you would do just what I did in April of 2007. What the government asked us to do was to undertake a comprehensive examination of the project and make recommendations to get it on track and to get a fixed-price contract.

[0925]

Member, I can't recall…. It sounded like you said that we don't have a fixed-price contract. I want to emphasize that we do have a fixed-price contract, and that's what was negotiated in May. I don't know if that is helpful at all.

J. Yap: Chair, I wonder if I can present a motion to accept the Auditor General's report and management's response therein.

R. Fleming (Chair): Do members have any final questions for any of the witnesses?

I had just one, just because we have Mr. Podmore all this way today, and you've just suggested that it was one of those days when you accepted the chairmanship.

The other item, the key finding in this report was that it was very unusual in this project that the eventual operator of the facility to be built wasn't identified really until you came along and merged the two boards, and…it was decided.

I'm wondering if, in your experience, having had to reconstruct decisions that were made far before you came along and reconcile them with getting this thing
[ Page 517 ]
completed, you could offer any insights on how that happened and what challenges that posed during the construction of this project — that the contractor and the project manager, VCCEP, didn't have a facility operator identified to talk to and regularly report to.

D. Podmore: That actually isn't correct. The operator was from first inception to be PavCo. The difference was that I examined it and felt that it wasn't appropriate to have two entities, a construction entity and an operating entity. That's why I recommended that we merge the two. Of course, we ultimately fully merged it into a single organization.

The purpose of that is to make sure that the operator is fully engaged in the design and the completion process, so it wouldn't be correct to say that the operator hadn't been identified. The operator was known. It was PavCo. There were consultations going on with PavCo, but what I tried to achieve was a much more effective integration of the operator with the construction program. That, to me, is a normal process.

There is not much point in building these buildings if they don't work for the operator, so you want the operator fully engaged. That's what we accomplished by merging the board, in recruiting Warren and tying the construction design and operations much more closely.

R. Thorpe (Deputy Chair): I'd just like to make a little statement. I understand that today, as we look to the future…. And I see the sun was out a minute ago. I understand that the American Educational Research Association has just announced that it's going to be coming to Vancouver for 2012 for an 11-day convention. Some 14,000 delegates, 30,000 room nights.

I just wanted to read a quote in this announcement: "It is wonderful now to have the ability for Vancouver to host a convention of this size and scope in our expanded centre. In securing major convention business in the post-Olympic decade, Tourism Vancouver and the Vancouver Convention Centre are creating substantial economic benefits for the city in terms of conferences, meetings and tourism visitations." That's a quote from the new mayor of Vancouver, Gregor Robertson. Some members of the House may be familiar with that person.

The other thing I just wanted to say, in closing, was this. Mr. Podmore, I want to thank you for your personal sacrifice today, because I know that today is a very important day in your family with respect to your daughters and the University of Victoria. I know that you have personally turned your personal schedule upside down to be here. I think all members of this committee are thankful for your doing that, and we wish that you and your family, especially your daughters, have a wonderful celebration in recognizing their achievements today.

J. Yap: I have a motion to accept the report of the Office of the Auditor General and management's response therein.

Motion approved.

R. Fleming (Chair): Thank you very much, everybody. We'll just take two minutes and then proceed to the joint solution procurement audit report.

[0930-0935]

We'll ask our Auditor General to begin on the second item, An Audit of Joint Solution Procurement and the Revenue Management Project report.

Auditor General Report:
An Audit of Joint Solution Procurement
and the Revenue Management Project

J. Doyle: The Joint Solution Procurement and the Revenue Management Project was published in April 2008. This is a significant development in how government delivers services within B.C. It's more than just outsourcing; it's real innovation.

Initially, we decided that we would conduct a review of the process. Later we will go through a number of different reports looking at different aspects of outcomes based on the process that we've previously reviewed.

With me today are two members of my staff: Bill Gilhooly, the assistant Auditor General responsible for one of the financial audit areas, and Bill will be handling the technology today; and, on my left, Malcolm Gaston. Malcolm has recently been appointed as an assistant Auditor General and was responsible for the conduct of this particular audit. I'll now pass over to Malcolm to make a brief presentation.

M. Gaston: Alternative service delivery is an approach used by governments, designed to improve service delivery and reduce costs. Here in B.C. one of the main methods that has been selected by government is the joint solution procurement process. In appendix B at the back of the report we list the ten contracts that had been signed at the time that we undertook this audit, with projected costs of $1.6 billion.

Alternative service delivery isn't just one method. There is a whole range of methods, and we have provided a continuum on the slide and in the report which takes us through the different options from direct delivery by government all the way through to complete privatization. The joint solution procurement process that we looked at would fall within the outsourcing category.

Joint solution procurement, or JSP, is intended to solve complex problems where there isn't an easy quick fix, an off-the-shelf solution. It often involves re-engineering business processes. It often involves the development of
[ Page 518 ]
new software and often involves many ministries, and certainly it did in the particular project that we looked at.

It's multi-stage. It's designed to be collaborative between government and the providers. It seeks to use private sector expertise, and it also comes with guidance called JSP in a Box, which includes all of the various processes, the detailed templates used in the process.

The genesis of this and the revenue management project in some ways was with a report from our own office in 1999. On pages 15 and 16 of the report we take you through the history that led up to this particular project. Our report in '99 found that overdue accounts had increased by 94 percent or $221 million over a two-year period.

[0940]

By the time the request for proposals had been issued in June of 2003, that figure had reached $717 million. The contract was signed in 2004 but was then subject to a refresh to pick up some issues that had come up during the first couple of years of its operation. Those are covered on pages 17 and 18 of the report.

So our audit was designed to see if the JSP process follows the principles of procurement best practice and also, in relation to the revenue management project, whether that project met those principles in practice. We concluded that both the JSP process and the revenue management project substantially met the principles of procurement best practice, but we also identified some areas where improvements were required.

Our key findings were that strong guidance and support are provided for the JSP process within the various ministries that have been involved and also that the JSP process is evolving — that lessons learned from each project are fed forward into subsequent projects. It does seem to be a process that is focused on continuous improvement.

However, some of our other findings in relation to improvements were that there is a need to commit sufficient staff resources to all projects, in particular in terms of continuity from the process of contracting and then contract management, and that a comprehensive business case is not produced for every JSP process. This means that costs, risks, benefits, funding options, amongst other areas, are not being identified at early stages.

Controls to avoid conflict of interest need strengthening. Specifically, at the time there were no conflict-of-interest declarations for ministry staff, and some contracts did not have non-solicitation clauses to prevent those winning the contracts from employing ministry staff immediately after the contract letting.

Our recommendations fall into three areas. The first relates to the JSP process itself — that the guidance, JSP in a Box, should be updated regularly; that guidance should also include a requirement for a risk assessment of baseline information in the preparation of business cases. This relates to one of the issues that led to the contract having to be renegotiated or refreshed. Also, a detailed business case should be prepared for all of these projects.

Our second area of recommendations is in the area of staffing. A succession plan for key support roles should be established, and sufficient continuity of staffing should be in place between the outsourcing team and the team that manages the contract once it's in place.

Our last area of recommendations relates to independence. All staff and contractors should sign an independence declaration confirming that they have no conflicts of interest, and a non-solicitation clause should be included in every new ASD contract.

That concludes our presentation.

R. Fleming (Chair): Thank you, Mr. Gaston.

Mr. Doyle, any further comments to add?

J. Doyle: No further comments at this time, Chair.

R. Fleming (Chair): Then I will ask Mr. Bethel, the assistant deputy minister, to come forward and make their presentation in response to the audit.

Good morning, Mr. Bethel. I'll let you introduce your team and begin your presentation.

J. Bethel: Good morning. I'll begin by introducing my colleagues. Second to my right is John Powell, who is the ADM for strategic initiatives and administration in the Ministry of Small Business and Revenue and will be here to answer any questions on the revenue component. My colleague Richard Poutney is the ADM for common business services, which includes responsibility for strategic acquisitions in our ministry. And I'm John Bethel, the ADM for alternative service delivery.

[0945]

I'd like to begin by thanking the Auditor General and his staff for the work they did and to acknowledge that we are very pleased that our process has substantially met procurement best practices. Having said that, we remain committed to continuous improvement in that process and will continue to do so and accept all of the recommendations that have been put forward. I'll just quickly run through those recommendations in this presentation and explain how we've addressed them.

The first one is with regards to Joint Solution in a Box. The Joint Solution in a Box is just a very large process guide that takes all the staff that are involved in a joint solution procurement process through every step, with process guides, budgets, templates — that kind of thing.

It's important to note that during this process we have absolutely updated templates and continued to improve the process — and it's used in every subsequent process — but it is true that we hadn't formally updated the document of the JSP in a Box. A process is now in
[ Page 519 ]
place that says, beginning with immediately finishing the process that's underway right now, that that will happen after a lessons-learned exercise after every single JSP procurement.

Recommendation 2 was with regards to baselining and a risk assessment of the baselining. Again, in this category there's a lot that has been done to make sure that we meet these recommendations. We continue to incorporate risk management practices in all phases of the JSP process, and that includes a baselining component.

There's a new opportunity assessment toolkit that's been developed subsequent to the revenue procurement that very specifically identifies and provides guidance on all of these aspects — public comparator, for example — and a risk assessment of all the baseline information. A due review process is now incorporated into all the joint solution procurements, which allows a team of executives and people with experience on other deals to question the project team involved in whatever deal we're in on a number of questions, which always includes risk assessments.

Recommendation 3 is about the detailed business case. Again, there is a complete set of policies, processes and templates to support business case development as it relates to ASD initiatives, step by step with including formats and suggestions on how they should be presented. We have a formal role in reviewing those business cases prior to approval.

Recommendation 4 is about succession plan for key support roles to be put into place. There are several governmentwide programs underway to address the HR challenges. With this ASD, there's a cross-ministry initiative that's chaired by my deputy minister and several of the ADMs responsible for these deals to make sure that we continue to deal with that successorship issue.

We have one program in place, as well, where we have staff from the ASD secretariat that go on exchanges to various AMOs, which are alliance management offices, to make sure that they have that experience and can share it amongst the other ASD arrangements. Knowledge management, of course, is a huge component of that. The JSP in a Box, which I talked about, is replicated in several other areas, and that's another way that we're looking at making sure that that information moves from one arrangement to the next.

Recommendation 5 is about the staff and contractors signing an independence declaration confirming they have no conflicts of interest. In some of the earlier deals, it should be noted that we've always addressed this issue as reminding all staff involved of their oath of office. We've always included, in terms of the evaluators, a reminder in the booklet of all of their conflict requirements, but we do accept the Auditor General's recommendation that says we should have a specific signed conflict form. That has actually been implemented, starting with one of the processes we're in now, and will be a regular component of all JSPs.

[0950]

Number 6 speaks to the AMO-specific continuity of staffing. It's very important to make sure that we have continuity of folks that were involved in the operations to manage the operation as we go forward. We concur with that, and we spend a lot of time making sure that we can do that. Of course we can't bind employees to continue in that role, so we look for ways to do it in other ways.

But transition planning is a very serious component of our involvement in the JSP process. We work with the teams and our client ministries to look for ways to make sure that we have that knowledge continue, including full training packages for transition and all the things I mentioned in the earlier recommendation.

Recommendations 7 and 8 are about non-solicitation clauses. The recommendation says that they would like us to make sure that in a contract there's a standard clause that says the provider can't make offers of employment or other offers within a two-year period.

This is partially implemented in the sense that we are committed to and we accept the recommendation, but we need to work on the way that we implement that. One of the things we're dealing with, for example, is that we're working with the Public Service Agency to make sure that we're not altering the terms of employment of an employee.

So we're committed to doing it. We're working on it, and it will be a regular part of our go-forward process.

That's just a quick summary of our response to the recommendations, and we'd be happy to answer questions.

R. Fleming (Chair): Okay. Thank you, Mr. Bethel.

Members, questions on the report?

C. Trevena: Mr. Chair, I always seem to go first. This is a question, I think, for the Auditor General.

When we're talking about the joint solution procurement in alternate service delivery, we're talking about the privatization of certain parts of the government's structures, I understand. The Auditor General does mention in the report privatization, outsourcing and so on, giving the history of the government's moves on this moving from the government providing service to the private sector providing service on page 12, from 2001 through 2006.

I know there have been significant concerns about one area of this. I won't go into the political philosophy about whether it's better to be within the government or outside the government, although I do have a question about that. But there have been concerns.

One of the alternative service delivery contracts signed at the moment is with Maximus. There are other
[ Page 520 ]
ones here, including that the contract for payroll has been outsourced, has been privatized. There are residential tenancy offices being privatized.

My first question for the Auditor General is: in the overview of your audit, were you able to look at privacy issues and the security implications of this? Or is this going to be part of another audit?

J. Doyle: Thank you for the question. It's not always about outsourcing. There is a spectrum. We showed that in one of the slides, and it's also shown on page 11 of the report. Sometimes it is outsourcing. Sometimes it can be classified using different terms. But there's an array of things.

I think the issue is: what is in the best interests of citizens? How can government deliver the best services in the most appropriate and cost-effective way? There's a range of options.

Privacy is important, and you'd be aware that my office is conducting some work in conjunction with the Privacy Commissioner to ensure that privacy issues, first of all, are made clear to my own staff so there's a transfer of information. Also, we're conducting work together to provide this committee and citizens with satisfaction that we are considering both aspects — first of all, the security and technical aspects of computer systems and also that their private information is in fact held confidential.

So future work will include looking at how well these arrangements are actually working, as opposed to the high quality of the process that's been built to make them effective.

C. Trevena: Thank you. The other question I have is possibly, again, work that has been done or that is explained in the report, which you might be able to expand on. Again in the listing we're talking about the best cost to government for this work. I wondered, because a number of these areas have been outsourced, whether there has been any analysis of how much it would actually cost government to keep this running.

[0955]

Again, I think maybe we're on to political philosophy about how much it's going to cost government to keep it running. I wondered if you've got that breakdown.

J. Doyle: You'd be aware that before government moves forward to any new arrangements, there would be a business case which would identify the situation as things stand at a current point of time and projecting them into the future. It's difficult to imagine why the government would move forward when those business cases weren't positive.

However, being an ex-professor of finance, looking at business cases can be an interesting experience sometimes, particularly when they're only focused in on cash flow. A lot of the benefits could actually relate to non-cash flow type areas. I think it's a difficult call when making decisions around what framework should actually be deployed going into the future to give the best possible advantage.

I suppose what I would be looking for from an auditor's perspective is those three items again: openness, accountability and transparency. And I would be looking to see in those business cases that they have in fact covered all the issues, that all the benefits are achievable and that those benefits do demonstrate that the path actually selected and taken forward maximizes the benefit to citizens and to government.

B. Ralston: Auditor, you just mentioned that of course such a matter would not proceed without a business case, but indeed you set out one contract in your report. There's a comment on page 27. The Provincial Laboratory Information Solution — a ten-year contract of up to $149 million with Sun Microsystems. I'm going to quote you.

"As such, it had already been approved in principle as part of a broader health strategy. However, no separate business case or other detailed analysis of costs, risks and benefits was done for the PLIS." That's the Provincial Laboratory Information Solution.

"This means that the ASD route has been taken for the project without government really knowing whether it is the optimal solution. And even if the ASD route is considered simply to be a policy decision, we think it should be taken only with all the facts available."

Now, I see that Mr. Bethel has, in responding to the recommendations, said that that won't happen again. But it is, I would suggest, of significant public concern when a contract of that magnitude over that period of time is entered into without a business case being established for it.

I'm wondering: from your perspective — beyond pointing that out to the ministry and the minister — can an explanation be offered as to why that was done, based on your review of the material and the decision-making or lack thereof that may have led to that ultimate choice?

J. Doyle: I think the bulk of that question should be responded to by the ministry. My only observation is that we detected that no business case existed, and we now have an assurance that in the future such business cases will be prepared in advance. So I would pass the question over.

J. Bethel: I'd be pleased to answer. In the case that was referenced, which was the provincial lab information system project, the business case really took the form, in that instance, of a funding agreement with the federal government from Canada Health Infoway, which has a full set of approvals that they go through with them.

By the time that the procurement option was looked at…. It is important to note that this isn't an outsourcing
[ Page 521 ]
agreement. It's a complex procurement of a software solution, an application solution and some IT infrastructure. When the procurement decision was made, really, the funding was granted by Canada Health Infoway, according to their protocols, and it was a decision just to move with our procurement process.

B. Ralston: Thank you for the explanation. It doesn't seem that there's any mention of that in this report. Given the usual thorough analysis that one receives from the Auditor General, I'm surprised that that's not included as an explanation in the report. I don't quite understand why that explanation is offered now and wasn't available to the Auditor General then.

[1000]

If I might move on, in recommendations 7 and 8 you talk about having people employed by government who negotiate these contracts entering into certain kinds of declarations to avoid the prospect of conflict in the future. One can well imagine the public perspective if the person who negotiated the contract or those close to the negotiations then ultimately wind up working for the successful contractor. I appreciate that as a theoretical risk.

I'm wondering if the Auditor General can provide any instances where this has actually happened. Or are we dealing with a theoretical risk only?

J. Doyle: I think there are plenty of examples of it happening, but not in this jurisdiction. So the issue is whether or not control should be effective. I suppose the word "theoretical" tends to imply that this is a risk but may never happen.

I think it's a practical reality that it should be beyond doubt that those that are involved in contract negotiations and developing a program on behalf of government shouldn't then change their colours and move over to actually supply those services, for all of the obvious reasons that are there. We're not aware of anyone that has actually done this in this jurisdiction, but there are some horror stories from others.

B. Ralston: In answering the first question from my colleague Claire Trevena, you spoke about the method by which comparisons might be made between keeping the provision of various services in-house and engaging in various varieties of outsourcing arrangements.

On page 27 in the report you talk about one of the areas that's not accounted for, and that is the substantial management time on the government side that's required to manage and implement these projects. You say: "These costs were not fully identified and were therefore not considered as part of the decision to outsource or not. Nor were the ongoing costs to manage the contractual relationship with EDS Canada" — which is another major contract — "or to liaise with all of the different ministries served by the arrangement considered as part of the comparison of different revenue management options."

Now, given the response that you've received from Mr. Bethel — and I presume you've had a chance to consider it — are you satisfied that those unreported costs, which I would take could be very substantive, are now included in the comparators that go into making such a decision?

J. Doyle: It would be my expectation that those costs would be included in future analysis and therefore within each business case. We haven't conducted any reviews of those business cases at this time, but when we go into further work, I do expect them to be there.

B. Ralston: Perhaps then, just for clarity, Mr. Bethel could respond and maybe confirm that on behalf of the ministry. I wasn't clear from the presentation that that was indeed being considered.

J. Bethel: Yeah. So with every one of our arrangements, when we're assessing them at the beginning before approvals, we do look into what we call a total cost of ownership. That total costs of ownership includes the alliance management function and the go-forward.

It would be fair to say in the very first deal, one or two deals that we did, that we might have underestimated that, but it certainly is the practice now that we build that full cost into the deals. It's an important aspect of it. It must be costed in at the beginning, because it is very important to have a full complement of managers looking at these deals on an active basis, on a daily basis. So that is always included in the deals, in the ASD arrangements.

B. Ralston: On page 26 you speak of — I'm speaking to the Auditor General — one of the weaknesses of one of the initial contracts, the EDS contract, where a very poor baseline management…. I'm again quoting: "One of the main reasons for the revenue management control refresh" — and the contract was reopened, renegotiated and extended two years — "was that baseline information for one of the largest revenue components, Group Medical Services Plan, was inaccurate and favoured EDS Canada. Without the refresh, EDS Canada might have received windfall profits."

[1005]

Can you explain to the committee how that problem came about, what the potential revenue consequences to the province were, and what steps have been taken to ensure that this kind of error — if I can call it that; I think that's a fair term — wouldn't occur again in future contracts, putting the interests of the province at risk?

J. Bethel: On the baselining exercises we ensure that we do a risk analysis of the baselines that we have. Usually what happens…. In an area that is tied in any way to pricing, in the proposal or in the contract, we
[ Page 522 ]
identify all of those in an orderly fashion — any assumptions that were made that are tied to pricing.

One example I could give you is of a call centre, where they're saying: "We anticipate that you'll be at 2,000 calls. If it goes up from that, you'll pay more. If it goes down, you'll pay less." Any time it's tied to pricing, we do a very detailed analysis of our information that they based that assumption on, to make sure that the risk isn't too great to go forward.

B. Ralston: The Auditor concludes here on page 26, on this contract: "Obviously, this was a miscalculation on the part of the revenue management project team." Given that comment by the Auditor General, what steps have been taken to ensure that that kind of error — and, therefore, that kind of financial risk to the interests of the province — doesn't occur again?

J. Bethel: Again, we look very carefully at anything that's tied to revenue. In that case, there were over $300 million…. The business case was extremely positive on it. The information was looked at, and I think that we came back to it. Maybe John would be better to answer it.

J. Powell: In this particular case cited in the Auditor General's report, it was specifically to do with MSP premiums — the group account, as mentioned in the report. The group account represents payments made by employers who have their employees on payroll deduction for MSP. The baseline periods for both MSP group and all other collection streams that were part of the contract — there were many collection streams; five, six or seven collection streams as part of the contract — were analyzed prior to the contract being signed, and we established baselines on how well government was doing during that two-year period before the contract was signed.

There was an error not discovered before the contract was signed, but after the contract was signed, the error was discovered. It was a computer selection error with the premium and registration billing system. Data was selected out of that system, and it came out with an error. It wasn't recognized initially, because it wasn't a huge amount, but subsequent to the contract being signed and the monthly analysis that our staff do as part of the collections that are received by EDS, we discovered that error. We reran the reports, and we validated that there was an error. It was a programming error in computer selection of data.

How will we protect it going forward? We have monthly management reports. We analyze monthly revenue coming in. We look at comparisons from year to year, seasonal comparisons, and we can establish fairly quickly if there's something wrong with the data.

In terms of our protection going forward, once we discovered this, we realized we had to fix it. There were only a couple of ways in the contract of fixing it. You can sit down with EAS, open up the contract and agree on a solution of what the fix should be. That's fully provided in the contract. In fact, there's language in the contract regarding whether there's…. The spirit of the contract is no windfall profits. There are margin caps in the contract that limit EAS's profits with respect to the profit they can earn on collections.

So we had great protection in the contract around it, but we had to fix the error. It was determined at the time that sitting down at a contract refresh was the best way to go, because there were other issues with respect to the contract that needed to be resolved.

It was best to sit down and deal with them holistically, all at once, and get the best solution for the province.

R. Fleming (Chair): Member, if you can make this your last, because I'm getting a speakers list now.

B. Ralston: In the estimates process on March 13, 2008, I was asking questions of the minister responsible. There is a contract…. This is to the Auditor General. One of the ones that's referenced — ten for the $1.6 billion — is the Telus contract, which is for network services. It's described as a $245 million contract over four years. The answer that I received from the minister was that that contract expires December 31, 2008. The question was asked: what was the procurement strategy that was going to be used involving renewing this contract?

[1010]

In fact, the minister is now a member of this committee. The minister said: "We're developing the strategy right now. The member should be able to understand that this is a very complex contract. We've got a lot of partners, and they have various needs. The procurement strategy is being worked on right now, but the overriding principle, obviously, is that we have the best value for the taxpayers of British Columbia."

Then the next question is: "So it would be fair to say, at this point, a joint solutions procurement has not been ruled out for this contract?" Then: "It has not been ruled out. It has not been stated that we will use that. It's still being developed."

My question is: is the Auditor General aware if that's going to be a joint solutions contract at this point, given that the contract expires in about a couple of weeks?

J. Doyle: No, I'm not aware of that contract. At this stage it obviously would feature in our review in regard to what work we will do in the future.

B. Ralston: Just before, if I might, Mr. Chair…. Perhaps the ministry would like to respond to that.

J. Bethel: So we're in the very final stages of planning that procurement, which will be on the street, I would imagine, in a very short time. So that hasn't been finalized.
[ Page 523 ]

B. Ralston: If I might. It's on the street. Is it going to be a joint solutions procurement or not?

Point of Order

R. Thorpe (Deputy Chair): Point of order. This is not estimates. We're here and staff are here to discuss this Auditor General report. I just think it's, quite frankly, close to irresponsible to be asking staff to comment on what kind or form of contract is going to go out. I think you're putting staff in a very difficult situation — and obviously a delicate procurement issue.

R. Fleming (Chair): I'll let staff answer that question. It does stem out of the report's findings, and if you have any answer you can share with the committee member's question….

Proceedings Continued

J. Bethel: So I guess my answer to the member's point would be that we're concerned that it isn't a public procurement yet, and we're in the volatile stages just prior to releasing it. This is a public meeting. We're a little bit concerned about that being made public at this point.

I can tell you that it has followed all the processes that we talk about here and as part of the ASD portfolio.

B. Simpson: Just two quick lines of questioning. To the Auditor General, and I beg your indulgence if I missed this point. With respect to the business cases for these, there is a presumption of a benefit to be accrued through efficiencies of outsourcing these things. I'm just not clear how the business case is structured, whether or not it actually looks at the continuum that you have there. If you keep the entire function within government, you get a certain level of efficiency through to fully outsourcing, which these end up doing — outsourcing it.

Does the business case look at that, or is there a presumption in the business case that outsourcing will gain you the efficiencies? Therefore, you go and you outsource, and you have an expectation of accruing some value, which is in the table that you've got in appendix B. Maybe you could help me understand the nature of the assumptions and the risks in the business case.

J. Doyle: Every business case should detail its assumptions. It should detail the risks associated with different courses of action, and that should be clear and obvious for a passive observer reading the business case. That is the raison d'être for a business case in the first place.

Sometimes it's looking at how benefits can accrue and valuation of those benefits by actually contracting something out to third parties who may be able to deliver those services better. Sometimes it's a contrast between what's being done from, say, within government in comparison to what's being done elsewhere. Each case will be different.

I don't think that government developing a capacity for very, very narrow and deep capabilities is necessarily something that's in the best interest of citizens when it can access those skills from outside at a reasonable cost, at a lower cost than actually developing them from within. Equally, broad and shallow capabilities — it may well be that rather than government delivering those services itself, it would be much easier and better with low risk to actually transfer it elsewhere.

[1015]

I think the business case has got to stand on its own. It's got to be a complete document, and it's got to explain why and how and where and what is actually going on. Sometimes they are too narrow in focus, and they just look at a cost-benefit analysis, whereas, as I mentioned earlier on, they need to be looking at other issues that aren't necessarily always dollar value but actually talk about quality of service as well.

B. Simpson: Corollary to that, then…. Again, I apologize if it has been covered. With respect to the Auditor General's function on these, a case-by-case basis, with the revenue management project, for example, it's substantive dollars being paid out and potentially a substantive benefit to be accrued as a result.

Will the Auditor General's office be actually looking at more of these? On explicit cases, was the business case reasonable, were the expectations reasonable and were the benefits accrued?

J. Doyle: It would be my expectation that in the future we would select some examples and go into detail about the outcomes.

B. Simpson: Then my final question is about the process of using this approach, and it's a specific query. Within the Ministry of Forests, for example, PricewaterhouseCoopers plays a very definitive role in large sums of money with repetitive contracts for research and development funds, and future forest ecosystems are now getting a vegetative inventory.

When does the government have to kick in a process like this, where a business case actually has to be made and then you go through this joint procurement process? That seems to be just an arrangement that the ministry has with PricewaterhouseCoopers, that they can just go and give them a new contract. Now there are significant dollars invested in PwC doing a lot of what used to be the Ministry of Forests' normative functions, but it doesn't seem to have gone through this process whatsoever.

Who can answer the question of when our ministry is required to actually use this process and have a business case put in front of them before they start signing off cheques to a third party?
[ Page 524 ]

J. Bethel: I have no familiarity at all with the project that you're talking about. The projects that come to us are defined as alternative service delivery projects, which are typically very large IT projects that come to us through various mechanisms. We have a capital review process. Anything over $20 million of an IT spend comes through us, and we look at them. There was an original assessment done of opportunities that we've worked from. That's basically where the ASD projects that we've worked with have come from.

B. Simpson: So it's only capital involved? A lot of these are service delivery projects, and PricewaterhouseCoopers is doing service delivery projects for the Ministry of Forests.

J. Bethel: Sorry. It is not only capital projects that we deal with, but there is an automatic trigger of any large capital spend, which comes through us for us to look at. That's how they come to our ministry and to ASD to look at.

You're right. It can be any other project that's referred to us or other ones that we've identified.

B. Simpson: Just so I'm clear, a ministry can trigger this themselves, if they decide they want to go through this kind of rigour in applying the cost efficiencies of expending large public dollars. It doesn't have to be capital. They can actually trigger this themselves and say: "We want to go through this process." Is that correct?

J. Bethel: They could identify it to us, and we would take a look at it. We have pretty strict criteria of what we'll do joint solution procurement on. It's an expensive process. It's a process that takes a lot of senior executive time. Obviously, we have said no to some projects on joint solution procurement, but we would certainly look at it, absolutely.

R. Fleming (Chair): Mr. Doyle, did you have any comment on the question? No? Okay, fair enough.

Just two more on the speaker's list — myself and then Mr. Richmond — and then we'll look at the recommendations of the report, if there is nobody else who wishes to ask questions.

Mr. Doyle made a comment in one of his answers that there should be other ways to evaluate joint solution procurement ASD contracts, and that is to look at the quality of the service. That seems to be outside of the scope of the audit, and some of the reasons are because it's not evaluated or given prime importance by government in looking at these contracts.

[1020]

I'm very familiar with the student loan system through estimates and through my critic portfolio. I wanted to use that as an example, because in this case…. I appreciate that nobody ever particularly likes to pay debts of any kind. But in the case of the student loan system — and, I think it's fair to say, with the MSP program — there's significant user-group concern about the quality of the service in terms of timeliness but also, and here I speak of the student loan system again, the quality of the information.

There are countless case files that members, I think, on both sides of the House likely have where there are incidences of not just waiting a long time but also getting improper information about what options somebody in a loan repayment position to government may be able to access. The structure of these contracts sometimes suggests that "losing a customer" to another avenue of government to deal with a debt is not in the interests…. There's no incentive in trying to collect, at all costs, the debt and receive the commission on that.

I wonder if the Auditor General could talk about a follow-up, potentially, on this audit that does look at quality issues, does look at customer satisfaction. Also, if you could provide one other comment on the scope limitation of this audit, and that is, we know that the ten contracts here, the $1.6 billion identified in outsourcing…. It's just the tip of the iceberg.

I wonder if there's a specialized focus or report that could be done on outsourcing in health care, because I think, again, it's an area that members of the assembly hear about regularly from their constituents when it comes to cleaning contracts and other multi-billion-dollar contracts that have been outsourced in the health care sector in particular.

J. Doyle: Thank you for the question, Chair. We will be doing some additional work looking at outcomes of these arrangements over the next period of time. One of them will be probably — we haven't made the call yet — on the student loan system. So it will be interesting to see what comes out of that whole process.

As regards the scope limitation that we had, we were looking at this time at the broad processes at the centre. It was always our intention that we would then go further into different aspects of different arrangements to see how they were performing and what the range of outcomes were.

Sometimes it's not a good idea to collect every dollar. Sometimes there are things like equity that need to be built into these arrangements, particularly when a government is dealing with its citizens. We'll be looking at those areas and seeing how those have been folded into these arrangements and also what the outcomes are.

When it comes to outsourcing in health care, you'd appreciate that nothing is outside the scope of the mandate. We're actually going through, at the moment, what our plans are for the next six months in detail and also for the next 18 months in broader detail. I've noticed that there are a lot of things in health that we would be interested in. It's just a question of marshalling our resources appropriately to actually do them over a period of time.
[ Page 525 ]

R. Fleming (Chair): Just one of the areas that your report, I think, shed some light onto was…. We've heard the assistant deputy minister talk about it today as an area of improvement from these recommendations. It's the baseline performance information that is used to come up with the business cases, if you will, for JSP contracts.

You uncovered, in a couple of examples of poor performance baseline information being used, that there is risk of overpayment to providers because of that poor baseline information. Also, in the first instance, it can lead to, in your words, "a wrong decision being made on whether to outsource at all."

I'm wondering if your office will be tracking improvements — in particular, around the baseline information that the government is using — and if you have any comments on, since this report was issued, whether the ministry has followed up with you already.

[1025]

J. Doyle: I have an expectation that whenever government moves into these kinds of contractual arrangements, they will spend time to refine their baseline information so that the discussions are based on what actually is occurring in the past and what may be occurring into the future. Now, I expect that that expectation is also in the minds of those who are conducting this work. I would be looking into the future to see that baseline information is accurate and is appropriate for these negotiations.

Information is an issue right across government. It's very easy to be tied up with too much information, but if you're looking at exactly what you're doing, why you're doing it and how you're doing it, at the moment the bulk of information is around performance reporting based on targets and outcomes that have been established in advance.

The detail that resides underneath that perhaps needs to have some attention paid to it. I'm not looking at that in the first six months of next year, but possibly after that there's scope for some IT audits — looking at the quality of the databases that are available and how those can be deployed to actually improve services going forward. The incremental changes that the ministry identified earlier on are part of that process.

R. Fleming (Chair): If you found the baseline information to be problematic, did your office also find some of the project benefits that were promised and attached to these contracts equally problematic? One would think that they would flow from the other…. In other words, the savings that are often quoted by the ministry in its response are presumably, in the first instance, based on this set of baseline information indicators that you suggested were in some cases poorly constructed.

J. Doyle: That's exactly the piece of work we'll be moving into in the future — to have a look at whether or not the objectives of the whole exercise of moving into this alternate approach have realized the benefits and demonstrated the outcomes that were expected at the beginning of the process.

O. Ilich: Thanks for the presentation and the responses. Since it has been mentioned that I was the minister for some of these things, I do want to say for the information of the committee here that we picked up significant awards across the country. I see Miss James is in the audience. We picked up a huge award for NetWork B.C., which is the project where we were taking broadband out to the rest of the province. That was an international award. I think we went to Washington, D.C., to pick that up.

Also we picked up a number of them in Ontario — Toronto — where we were looked at very favourably across the country for the work that we were doing and for the savings and also for the services that were being provided. We were looked at as a model. I think it is a credit to the people that are here today. Mr. Bethel and Mr. Poutney, who were in my ministry and that I worked with, did a tremendous job.

I guess we're concentrating here on the audit, and the audit does say that we substantially met what we were supposed to be doing. But I think that there are elements of service as well as cost savings, and I think those awards that we got talked about the service and the cost savings and how we were doing business here in British Columbia, for which we were, as I said, being recognized across the country and even internationally.

R. Fleming (Chair): Does anyone want to comment on the member's comment? Then we'll go to Mr. Richmond for the final question.

C. Richmond: Mr. Chairman, I move that we accept the report from the Auditor General and the response from the minister.

Motion approved.

R. Fleming (Chair): Our thanks to all of our witnesses from the ministry and from the JSP project here today.

Members, unfortunately we didn't have time under our schedule allocation for item 3 today, so I would ask….

J. Rustad: I don't think item 3 is going to be a very lengthy item, and I would like to move that we extend the meeting to finish up item 3 and get our agenda cleaned up.

R. Fleming (Chair): Mr. Doyle, how much time do you think you would require to present item 3, on public participation, this morning?

J. Doyle: My presentation is less than three or four minutes. I suspect that the ministry's is roughly the same. I don't know how long discussion would take after that.
[ Page 526 ]

R. Fleming (Chair): Members, would it be agreeable if we agreed to extend our meeting until 10:45?

[1030]

J. Rustad: Till 10:45 or 11 o'clock.

R. Fleming (Chair): So 10:45. If that's insufficient time or there are additional questions, we can schedule them at our next meeting in the new year as well — okay?

Then we will continue and just ask Mr. Doyle to load his presentation, which looks like it's been done, and we'll get underway. I'll ask Mr. Doyle to introduce his presentation.

Auditor General Report:
Public Participation: Principles and
Best Practices for British Columbia

J. Doyle: With me today is Malcolm Gaston — Malcolm will be handling the technology; Malcolm is the assistant Auditor General responsible for this area — and two members of the team: Mike McStravick, who is the director responsible for this particular project, and Hamish Flanagan, who is actually going to say a few words regarding this particular review. I'll hand it straight over to the team.

H. Flanagan: Good morning, Chair, Deputy Chair and Members. I just want to begin by acknowledging that public participation is something that you as members are regular practitioners of. You interact with the public and stakeholder groups daily in a range of settings, both formally and informally.

So what I want to focus on today is a proposed framework for public participation in the B.C. government. This framework is the product of a review of best practice in B.C. and across Canada. The framework is not about more participation but about conducting public participation in B.C. to a consistently high standard.

Given the time constraints, I'm going to skip a couple of slides and talk directly to the framework itself.

Just as you're all practitioners of public participation, so are governments. Public participation is business as usual for all levels of government across Canada. So the purpose of our proposed framework is to ensure that whenever participation occurs, it's conducted consistently well, across all of government.

The framework we propose comprises principles and high-level guidance. In this way it's sufficiently flexible to provide best-practice guidance for public participation in all its many forms. I would refer you to page 22 of the report for a summary of the principles of participation and of the seven steps for putting the principles that comprise the framework into practice.

Having a set of principles for conducting participation establishes a culture of public participation within an organization and it ensures that a common set of values characterize any public participation effort, while maintaining flexibility.

The framework also includes seven steps to consider in designing a public participation process. These steps are designed to help put the principles into practice. Again, for the sake of time, I won't go through the seven steps.

I'll proceed to slide 8, which is just to highlight what the proposed framework is not. It is not intended to increase the number of public participation exercises taking place in government, but as I've already stated, to conduct all public participation that does occur in accordance with best practice.

The framework guides the decision-maker to establish whether or not public participation would be an appropriate component of a decision, and if so, how to go about it. However, again, it is entirely at the government's discretion how it chooses to proceed with incorporating public participation and decision-making.

[1035]

Finally, the report contains one recommendation, and that is that the B.C. government endorse the proposed public participation framework as a basis for engaging the public. Endorsing a framework would address our first two observations for how public participation in British Columbia could move closer to best practice: first, that the government ensure that the B.C. public sector has established principles for public participation; and second, that the government ensure that the B.C. public sector has guidance for conducting public participation to a reasonable standard.

R. Fleming (Chair): Mr. Doyle, anything further to add?

J. Doyle: No further comments at this time, Chair.

R. Fleming (Chair): Is there a respondent from government here? I see the Deputy Minister of Finance coming to the table.

Good morning, Mr. Trumpy.

C. Trumpy: Good morning. I'll actually try to keep my comments even shorter.

With the indulgence of the committee, I actually won't run through my PowerPoint presentation, and I will just offer some comments.

I think that, from our perspective, the report that the Auditor General has done is quite useful. We agree with the principles embedded in the report, but we've got some hesitation about accepting it in total because of the seven-step process.

I think that, given the thousands of consultations that the government engages in every year, we need some time to digest that seven-step process and understand whether it is flexible enough to work for us, given the range of decisions that get made. Frankly, what we'd like to do is spend a bit of time working with the Auditor
[ Page 527 ]
General's staff to work our way through some of the kinds of consultation we engage in to make sure that the seven-step piece of this recommendation does work.

That's sort of, I guess, my very short response.

R. Fleming (Chair): That's almost as short as the one included in the report.

Members, the Deputy Chair will begin, and then we have a couple of hands here.

R. Thorpe (Deputy Chair): My first question is to the Auditor General.

Is the intent of this public participation framework on a consultation process…? In your view, is it designed to be an overlay on all of the various consultations that Deputy Minister Trumpy just alluded to — an overlay, a further process above all the consultation processes that take place now in government?

J. Doyle: No. It's designed to be helpful in the way that government can engage and seek information or participation with members of the public. Can I emphasize that it's entirely up to government how they wish to deploy these principles. The object of the guidelines is to bring common vocabulary into the whole process.

If government were to decide, for example, to say, "We just want to inform," then this makes it clear what inform means and what that silo within their framework….

If, however, it's to share joint responsibility for decision-making, it's the other end of the spectrum. Then it's quite clear what that process actually engages. So I think it's a useful contribution to getting a common vocabulary so that when we say we have consulted with the public, we actually know on what basis that's been done.

R. Thorpe (Deputy Chair): I have two follow-up questions. The first follow-up question is: is this about adding more process and delaying or compromising results orientation at all?

J. Doyle: I can't see how it can be. Government is about making good decisions, and basically, good decisions mean working on the best available information in order to make that decision. If public participation is part of that process, then proper access to the contribution from the public should obviously be a given. Therefore, I don't see how it could delay things.

R. Thorpe (Deputy Chair): On page 22 of your proposed public participation framework you talk about six common principles of public participation. I'm just wondering why timeliness is not a principle of public participation and consultation, and do you think it should be?

[1040]

J. Doyle: Providing adequate time for citizens to actually contribute to a decision-making process is important. I think accountability, inclusiveness, transparency, commitment, integrity, authenticity all sit within a framework of project management. A key element of project management is actually timeliness. I think they all integrate well together, but you will find that the documentation that we've been able to access does not actually say we should make decisions quickly or slowly. It just says they should be made properly.

R. Thorpe (Deputy Chair): Would you agree or disagree that timeliness should be considered a principle?

J. Doyle: In my view, timeliness should be appropriate to the situation. It can be, and this is a principle that is deployed in some jurisdictions, that preplanning of what is required and preplanning the framework can be done, and then decisions can be made within that context quite easily. That would shorten the time it takes for decisions to be made, because you'll have the imprimatur, if you like, of that public consultation process in advance.

B. Ralston: Thank you. That was a very intriguing report and certainly not one that I would have expected you to come forward with. I think that's a compliment, not a criticism.

Is there any intention that this report have any legal consequences? I know that in administrative law, from what I can remember years ago, there are certain statutory consultations that, if they're not followed, have implications. Or even in basic principles of administrative law, if decision-makers don't consult with certain parties, then that can have legal implications for the ability of the decision to survive judicial scrutiny.

I'm wondering if that has been considered. Was that intended at all, or is that something that you might consider as a follow-up?

J. Doyle: Thank you for the question. On page 9 we've made it clear that we're trying to step aside from legal requirements and treaty obligations in regard to public consultation, mainly because they are adjudicated by the courts or by contract arrangements, and therefore this is more the generic participation process. It could, for example, contribute to decisions around budget obligations.

If I could just take a few moments. In Singapore — I mention Singapore because John Yap is from Singapore — the treasurer puts up on a website the opportunity for members of the public to comment around the budget and to try for themselves what moving resources around would actually mean. For example, they're given a direct opportunity to say: "Well, if you want to have less hospitals, that means you can pour more money into something else, but there is a consequence of that."
[ Page 528 ]

In engaging with the public, it helps inform their decision-making, and they do listen to that feedback. We need to steer clear of legal issues in that regard, but I think it's a very important tool as far as considering whether or not you've received adequate feedback from members of the public.

B. Ralston: Has the Premier's office commented on this document?

J. Doyle: Yes.

B. Ralston: And what would that have been?

J. Doyle: We've got a government response in the report. I think Chris would be happy to speak to that.

C. Trumpy: You do have a response in the report. I think the challenge for us has been, frankly, that we haven't had as much time as we would have liked to really digest the report, and that's one of the reasons the response itself is so brief. As I said earlier, we think there's lots of good stuff here, but we're just not entirely convinced it works in its totality.

R. Fleming (Chair): There are four members who wish to ask questions. I would look to the will of the committee. We can try and continue and wrap up as quickly as possible, or we can consider this matter at a future meeting.

Interjections.

R. Fleming (Chair): Okay.

[1045]

C. Richmond: When you were putting this together, were there any national or international guidelines that you had to follow? In other words, is there a standard or a blueprint out there for this? Maybe you could elaborate a little.

J. Doyle: Yes, there is. There is lots of guidance out there. Obviously, other jurisdictions face this same kind of issue in regard to what participation should look like. They go from the Swiss version of involvement, which is almost like a referendum, right the way through to the other end of the extreme. There is a standard, which we have drawn upon quite heavily, that talks about these principles and the continuum of engagement with the public.

I'll just get the reference number, which is included in the report. The International Association for Public Participation. Sorry, it's a bit of a mouthful, and I'd forgotten the name. Page 25.

C. Richmond: Page 25. I'll make a note of that.

C. Trevena: I find this a very interesting idea, but I just wanted to clarify what Mr. Thorpe was asking earlier — about whether this would be sort of an overlay or just a principled practice that would be part of any government consultation. I'm just thinking…. You talk about finance. Well, we have the Finance Committee that travels around the province, and people can participate in that way.

A couple of years ago we had the Conversation on Health, and people thought they were participating in that way, but I don't think anybody has actually seen their views enacted after that. And I know, as was stated at the beginning in your presentation, that we do hear a lot from our constituents. What I hear a lot are people who are trying to participate, because they're given the opportunity to when they see a land use application — or particularly power applications, at the moment….

So people try and participate through the means that they have at the moment through writing letters to ministries and ministers. What I'm wondering is: is this something that would be part of the ethos of governance when we are talking about all of our public participation, or is this something that is an ideal that we would be working to?

J. Doyle: It's more of a working model, a set of principles, that if a government wishes to use them, they can. It's like a common vocabulary so that in the future if an organization was to say, "We have decided that we'll go into public participation and that we're going to engage at this level within the public participation model," it would then have a set of guidelines which says what that does actually look like.

For example, you made an observation in your comments — and I don't know the details about all those issues that you were talking about — where there needs to be feedback. One of the common issues around participation processes is that people are generally happy with the capacity they have to actually present what they want to present, but they are generally unhappy with the feedback they get afterwards about how their presentation impacted or did not impact the decision.

Where situations have occurred where they have got the feedback, they've generally been very supportive of the decision even if it is contrary to their own particular view, and this helps that process go through.

R. Sultan: I would appreciate the Auditor General's reaction to my initial impression of these proposals. I feel, at best, they're mischievous, and courtesy inhibits me from using more harshly condemning language, which I'm tempted to deploy.

[1050]

This is the people's House. We are the representatives of the people in the first instance that the government responds to. I see Mr. Simpson, Ms. Trevena, Mr. Bains, Mr. Ralston. I suspect that every day these people are get-
[ Page 529 ]
ting in the range of 100 to 200 or 300 communications on various issues and advice and complaints and injunctions and exhortations — people grabbing them in the malls, explaining things to us poor, uneducated legislators about what really should be happening in this province.

This is an elaborate legislative apparatus which has been constructed on British parliamentary principles to be responsive to the needs of the voters. We have a loyal opposition; we have private members on this side. The government — executive council — does its best to conduct the affairs of government, but we are not government. I stress that we are not government.

I presume what you're proposing is an alternative means for the government — executive council — to consult the people from time to time on important issues. Now, I will concede that on important issues, there is an important need to do that.

But to set in place an elaborate, formalized process which effectively, I would argue, diminishes the role of the people's House, the institutions of parliament is mischievous, as I said, and one that I would have grave concerns over pursuing vigorously.

That's my proposition. Do you have a reaction, Mr. Auditor General?

J. Doyle: Thank you for the question, Member. "Government believes that the Auditor General's report provides useful guidance on how to engage the public. This guidance will be distributed to all ministries as information to consider when designing public engagement processes."

Government seems to disagree with you, sir.

R. Sultan: Well, that may be, but we are not the government.

B. Simpson: To the previous speaker, Mr. Sultan. I think part of what goes on is that there are elaborate, formalized processes at various levels of government that already exist. Part of what the Auditor General is pointing out is that they may need to be updated and rationalized and made more effective, and I don't disagree with that. Given the time constraints….

I think I would say that I found this a very useful document. I find it a useful thought exercise. I would look to the government and hope that it does get a more, you know, thoughtful response about the implications of it.

I have two areas where I'm curious about the Auditor General's thoughts around how this would look in application. One is the whole question of ministerial discretion. In one of the points that's referenced here — the tree farm licence private land removals — it's not that there wasn't a consultation process, as you point out in your report, with the Ministry of Forests and Range. It's just that two ministers chose, at their own discretion, not to use any consultation.

If you've got a good process, if the government accepts that this is the generally accepted principles and values of process, how do you overcome the issue of ministerial discretion not to apply it at all?

J. Doyle: Ministers have discretion. It's awarded to them in various ways. This is not designed to overcome it at all, nor would I even countenance any process which would overcome it. I think if ministers have discretion, they can deploy it. If ministers wish to seek more information in using this approach, then that would be beneficial to them if they so feel.

At the end of the day, the ministers are accountable for the actions that they take. This isn't trying to address that at all.

B. Simpson: Fair enough. Again, back to Mr. Sultan's point, if government and the Premier's office decided that on major decisions like this a consultation process had to occur, it would be nice if you had reasonable guidelines of what that would look like, and then really it's up to the Premier to make sure his ministers do consult before decisions like the private land removals.

The second question, though, has to do with the application of this at a further level. That would be at things like health authorities. I would be curious about your thoughts about how far you disperse this. We get lots of complaints when…. Mr. Sultan talks about complaints in our office. I can tell you that one of the major points of complaint is, particularly, Interior Health and their abysmal communications record and lack of consultation with anybody.

Do you see this if government moves in that direction of expanding scope, or would that be at the discretion of the various agencies?

J. Doyle: I see no reason why these principles can't be deployed by any organization or agency, whether inside or outside of the government reporting entity.

[1055]

R. Fleming (Chair): Okay. Members, other questions?

J. Rustad: I would move that we receive the report and the government response.

R. Fleming (Chair): Discussion on the motion?

Motion approved.

R. Fleming (Chair): Motion to adjourn? We're adjourned. Merry Christmas to everyone.

The committee adjourned at 10:56 a.m.

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