1996 ANNUAL REPORT,
PROVINCIAL AUDITOR
ONTARIO REALTY CORP
CONTENTS
Thursday 1 May 1997
1996 annual report, Provincial Auditor: section 3.17, Ontario Realty Corp, property management division
Management Board of Cabinet
Ms Michele Noble, Deputy Minister
Ms Jean McLeod, chief executive officer, Ontario Realty Corp
Mr Ken Bauman, vice-president, property management, Ontario Realty Corp
STANDING COMMITTEE ON PUBLIC ACCOUNTS
Chair / Président: Mr Bernard Grandmaître (Ottawa East /-Est L)
Vice-Chair / Vice-Président: Mr Richard Patten (Ottawa Centre /-Centre L)
Mr Gary Fox (Prince Edward-Lennox-South Hastings / Prince Edward-Lennox-Hastings-Sud PC)
Mr Bernard Grandmaître (Ottawa East /-Est L)
Mr Bill Grimmett (Muskoka-Georgian Bay / Muskoka-Baie-Georgienne PC)
Mrs Helen Johns (Huron PC)
Mr Jean-Marc Lalonde (Prescott and Russell / Prescott et Russell L)
Ms Shelley Martel (Sudbury East / -Est ND)
Mr Bill Murdoch (Grey-Owen Sound PC)
Mr Richard Patten (Ottawa Centre /-Centre L)
Mr Gilles Pouliot (Lake Nipigon / Lac-Nipigon ND)
Mr Peter L. Preston (Brant-Haldimand PC)
Mrs Sandra Pupatello (Windsor-Sandwich L)
Mr Derwyn Shea (High Park-Swansea PC)
Mr Toni Skarica (Wentworth North / -Nord PC)
Mr Joseph N. Tascona ((Simcoe Centre / -Centre PC)
Substitutions /Membres remplaçants:
Mr Marcel Beaubien (Lambton PC)
Mr Dave Boushy (Sarnia PC)
Mrs Brenda Elliott (Guelph PC)
Mr John Hastings (Etobicoke-Rexdale PC)
Also taking part /Autre participant:
Mr Erik Peters, Provincial Auditor
Clerk / Greffière: Ms Donna Bryce
Staff / Personnel: Ms Elaine Campbell, research officer, Legislative Research Service
The committee met at 1037 in room 228.
1996 ANNUAL REPORT, PROVINCIAL AUDITOR
ONTARIO REALTY CORP
Consideration of section 3.17, property management division.
The Chair (Mr Bernard Grandmaître:) Good morning and welcome to the standing committee on public accounts. This morning I have four witnesses on my list, but I can only see three before me. On my list it shows Michele Noble, the deputy minister; Ken Bauman, vice-president of property management; Jean McLeod, chief executive officer; and David Carmichael, director of the audit and business improvement branch.
Before we start, M. Beaubien has a major announcement to make and he would like 30 seconds to do so.
Mr Marcel Beaubien (Lambton): Thank you, Mr Chair. It's not an announcement, but I do have a colleague who is anxiously waiting to relinquish some of his responsibility. Therefore I would propose the following motion:
That Mr Grimmett replace Mr Shea as a member of the public accounts subcommittee on committee business.
The Chair: Any debate? Is it the pleasure of the committee that this motion carry? Carried.
Any other major announcements? Very good. Maybe the deputy minister, Michele Noble, can start. Good morning.
Ms Michele Noble: The Chair has indicated and introduced the four people we did have listed, and David Carmichael has joined us at the table. I will let committee members know that we also have with us today Ann Gabriel, who is our vice-president of property support with ORC. She is an additional member from the ministry to be here to answer questions this morning.
My comments are going to be very brief. I just want to say, contextually, that ORC is undergoing a lot of change at the present time in terms of establishment of ORC as a crown agency and changes that we're currently undertaking in terms of restructuring the agency and looking at how we will change the way the mandate is carried out. In that vein, as a general comment I would say to the committee that we found the auditor's report very timely in terms of the review at the time that it was taken, and the findings, because we are in that process of change. It allowed us to take into account the auditor's remarks and advice as we go about making the change.
I will perhaps conclude by saying that we certainly welcome the opportunity to update the committee this morning on the work that we have done in response to the recommendation and give some indication of the work that we have yet planned in terms of responding to those recommendations.
In terms of addressing the committee this morning, you've received handouts. They're in two parts. The first is a very quick overview of the organization, which Jean McLeod will be doing, and then a more detailed status report and the recommendations we have for the committee. Ken Bauman will be leading us through that.
Ms Jean McLeod: As Michele said, I'm going to give you a quick overview of the Ontario Realty Corp and then focus on a summary of the recommendations from the Provincial Auditor's report. Then before we go into the details, we'll review with you whether you want to go through them in some detail or if you'd just like the highlights and ask questions.
I'd like to reiterate what Michele said. I'd like to say that on the whole we agree with the findings and recommendations of the audit and we're working to address the issues to ensure the most cost-effective management of government accommodation.
Just to give you a sense, the mandate of the Ontario Realty Corp is to manage and optimize the government's real estate assets. We have four main areas within the organization: strategic and portfolio management; property management, which is the focus of this particular audit; property development; and real estate services. We provide those services to all of the provincial ministries and some of the agencies, boards and commissions.
Our accountability framework and authorizing documents are through the Capital Investment Plan Act, the Management Board and the Ministry of Government Services Act. Our agency scheduling right now is a schedule 4. Government directives: We have a memorandum of understanding with the minister and our own delegation of authorities within the corporation.
In terms of the size of the accommodation portfolio we manage, it's about 46 million square feet right now. You'll notice from the audit report that the leased portfolio is down from $11 million to about $9.5 million, which represents the reductions we've been doing in rationalizing the portfolio and reducing costs. You'll see the majority of the leased space is in office use and another chunk in judicial as well.
In terms of the owned space that the government has, the 36.5 million square feet, you'll see that the office space, by contrast, makes up only 29% and that a great deal of the other properties that are managed are for other government uses, institutions, such as the psychiatric hospitals, the correctional facilities, the courts and a great variety of buildings and properties throughout the province.
The audit that was conducted last year recognized a number of challenges at the same time that were facing the ORC. We had an inventory of aging government buildings, we had staff downsizing and we had budget reductions that we were managing. Just as a point of note, our staff in the property management division has decreased over the last couple of years by about 300, or 20%. At the same time, we're managing financial reductions of about $100 million, or 25%, over that same time period.
At the same time, our workload is challenging. As ministries are restructuring, it has a definite impact on the real estate and it has a definite impact on how we work with them to rationalize their use of that real estate. We've been moving towards a smaller and more businesslike organization, so our business practices are changing and we are restructuring within the organization. Also there was a recognition that there was a need to improve our management information systems, as well as a need to ensure the optimal use of space, as in the general observations of the audit, which we quite agree with.
At the same time as the audit was being undertaken, there were also a number of reviews of the Ontario Realty Corp going on. With the significant funding restraints, we were looking at doing some business changes in reducing the portfolio by starting to charge clients for the use of the accommodation they occupy and also a program, which we call the accommodation program review, that is looking specifically at consolidation, co-locations and movement out of leased spaces in order to use that accommodation much better and to reduce the cost of it.
During the audit period there was also a review of the ORC's role and mandate directed (1) by the minister and (2) through the Ontario Financial Review Commission, as Mr Peters would be well aware, and the government task force on agencies, boards and commissions. These reviews all confirmed a number of best practices that are consistent with the Provincial Auditor's observations and work that was already under way within the Ontario Realty Corp to help ensure a cost-effective real estate management and set ORC on its restructuring course.
Again consistent with the audit report, the users of space must be fully accountable for their own occupancy costs. The initiatives are required to minimize costs and reward users for greater space use efficiency. The information systems in all of that are crucial to measure the actual capital and operating costs by location and to monitor the physical condition of properties, including maintenance needs.
The costs and operating statistics must be monitored against benchmark standards reflecting industry norms, and outsourcing can be a powerful tool provided a system is in place to monitor actual performance against standards and expectations.
In June 1996 the government approved the new mandate and future directions of the corporation. In the future the ORC is seen as remaining publicly owned as an agency but working more closely under the direction of the board of directors for its operations and performance, and looking through a business case process at where the direct delivery of the services that we currently provide can be done more cost-effectively and with better returns in terms of information systems and that through the use of private sector partners. We're on schedule in the restructuring of the business practices and in developing the outsourcing proposals.
What I'd like to do now is finish that off in terms of the overview. I'm going to turn to the other handout we had handed out to go through the specific actions and progress against the audit in the areas of preventive maintenance, management information systems, implementing chargeback -- which is the system for charging the users for the space they occupy -- measuring and reporting on performance, and the acquisition of contract services.
You've got the piece of paper in front of you. I'll turn to the Chair to see if you want to go through it in some detail or if we can just go through and do some highlights.
The Chair: What's the wish of the committee?
Ms McLeod: We could go through and highlight under each.
The Chair: It's up to the committee. Any suggestions?
Mr Derwyn Shea (High Park-Swansea): Do the highlights.
Ms McLeod: Okay. I'm going to turn it over to Ken Bauman and he's going to go through the recommendations and highlights.
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Mr Ken Bauman: Good morning. Going to the first page, speaking of preventive maintenance and the concern expressed in the audit about the long-term impact of reduced funding on the repair and operation of our facilities, in summary, our approach is to have a strategic approach to rationalizing a very large and diverse portfolio. The aim is to identify those buildings that are core to government use, to government programs, and to basically get out of those buildings we no longer need, to dispose of those buildings and to reduce our costs.
That is the basis on which we identify our repair program each year so that we're putting our repair dollars -- and the priority with repair dollars is health and safety projects in buildings and projects that will reduce costs, such as improved lighting, improved systems that will reduce energy costs and so on. The actions on the right-hand side of the sheet speak to some specific things that we have been doing since the audit report that build on those observations.
On the second one, management information systems and the need for an integrated system, what we have been doing is building on our existing systems. Our work to date now allows us to very clearly identify the costs to each specific building, and that becomes very critical for us to assess performance of buildings. That goes back into our assessment of buildings, of what we should be investing in the long term for specific buildings.
This past year, and I'll speak to it briefly in a moment, we've implemented a chargeback system to ministries for the use of space and we've integrated the collection of rents. The system for collecting that money has been integrated into our existing space analysis system and our existing lease information system.
Jean mentioned that as we move into the new organization we are very much in the early stage of designing a comprehensive and integrated information system.
The second point on the second page is the property information management systems, the PIMS. That is our main source of information on all those properties, on that 46 million square feet. We've been doing a lot of work because of our process of charging for accommodation. We've been doing a lot of verification. We have a very high comfort level with the reliability of the data on the first-phase group of buildings that we have instituted chargeback on, and that means all our office type of properties. We have just begun the process to bring the rest of the buildings into chargeback next April, so this year we will be going through a real due diligence on all of our information.
One of the concerns the audit had was that the people who have the information and need the information are responsible for putting it into the system. We have clarified that very much throughout PMD, throughout the organization.
The third page speaks to the accommodation chargeback system and the issue of ministries receiving the funding and being responsible for the space they occupy. The accommodation program review was brought in last year to try to consolidate and move excess space out of our portfolio prior to instituting phase 1 of chargeback, and it's been very successful. We set up an incentive fund that ministries could access. It had to be done on a business case basis with three-year savings. Through that process we have been able to achieve a $25-million reduction in our lease budget and we've been able to remove 1.5 million square feet from the portfolio.
In line with this, we've instituted new space standards. For example, we used to have seven typical office layouts. We've reduced those to four. We've reduced the amount of space that would be made available to a particular kind of operation. For instance, an enclosed office has a maximum size now of 200 square feet.
In addition, we instituted a very rigorous reuse of furniture. There is a freeze on furniture and we have a way of collecting furniture from one location as a ministry downsizes. We keep that and make it available to other uses. We've been able to achieve some major savings in that area.
One of the important points around charging for accommodation is that the ORC used to pay for all accommodation. With the chargeback system, we have given those resources to the ministry. They are now responsible for paying for their space, so they are going to look more critically at the space they use.
In giving that money over to the ministries, we gave 20% less than they needed, which has put a significant pressure on ministries to look even harder at the space they occupy. We've developed some incentives for this one-year period, what we're calling a transition period, to help ministries look for opportunities to downsize their space.
The page on measuring and reporting on performance: In the ORC's corporate plan last year we developed a number of performance measures throughout the organization. Specifically, in property management, we are measuring and reporting to our board of directors on how much owned and leased space we are reducing; we are measuring the cost of operating our buildings on a square-foot basis; we're looking at the amount of space occupied per employee; and there are a number of other critical measures we're working and incorporating into this year's corporate plan.
We are also paying attention very much to the industry. We're involved in a number of benchmarking activities with BOMA, which is a building operators' group that looks at what happens generally in the industry, and we're also involved in comparing our standards and what we're achieving with other governments.
The final page speaks to our projects. In our buildings we undertake approximately 1,200 to 1,300 construction projects, some small, some fairly significant. One that has just started, you may have noticed, is on the west side of the Whitney Block; it's one of our more significant ones. In a typical year we have about 1,200 projects, and that represents about $45 million. The audits spoke to a number of projects, a concern about change orders, increases to the project after it was awarded and the reason for them. We have put in place and discussed with the auditor procedures to make sure they are documented and appropriately approved.
One of the difficulties in our type of buildings, given the age and condition of our buildings, is that we will never be able to get away totally from change orders, just because of the nature of a Macdonald Block or a Whitney Block or other institutions that were built at the turn of the century and so on. You simply don't know sometimes what you're going to get into behind a wall. We try to anticipate that as much as we can and keep our change orders to a minimum.
That is a brief overview of what we've been doing on those specific recommendations.
The Chair: Thank you. I'll give every caucus 10 minutes; we'll start with the opposition side.
Mr Richard Patten (Ottawa Centre): Good morning. I can empathize with all the changes you've had to deal with over the years, believe me. I see here you have a mandate, but does your corporation have a mission statement?
Ms McLeod: Yes, it does. We've been working through our corporate planning process for a number of years now. The mandate and the mission are very comparable in terms of optimizing the use of government real estate and ensuring that the capital value of that real estate is recognized in the decisions that the government and ministries make in order to deliver the programs with the most cost-effective real estate options behind them.
The specific mission is to deliver value services to all our stakeholders and to ensure the optimal use of government land, buildings and leasehold interests, which is supportive of the mandate.
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Mr Patten: It's the nature of the auditor's questions that they're about dollars and cents and square footage and things of that nature, but I'll be clear: My own bias is that the whole area of public works and purchasing and real estate management, in my opinion, can play a major role in contributing to the development of Ontario, and especially those areas that can use a shot in the arm, like northern Ontario and eastern Ontario and places of that nature.
I find the tack of analysis here frankly quite sterile. Not unimportant, important, but drastically limited. That's why I asked you the question about the mission statement. I empathize with those of you who see how you can use real estate development as a way to help contribute to the economy and the social fabric of a northern town or city, whatever it is.
Now the concentration is so much on dollars and cents that I think we've lost our sense of mission. When I say "we," I say the government, perhaps. I don't know what their view is, but I know there used to be somewhat that kind of view in government services. You were able to use property and land as a contribution to the social and economic fabric of people. I wonder if you might comment on that, whether there's any feel for that.
Ms Noble: In responding, the ORC works within the mandate the government approves. There's that context that has to be taken into account.
Having said that, however, one of the principles which is clearly there is to make sure that things are being done in a most cost-effective way. I think there is recognition of the role that ORC and the government play within communities. One of the things that ORC has been doing and continues to do is attempt to work with communities as changes are being made within the ORC portfolio within those communities.
Questions that may speak to decisions of the government per se, in terms of whether the government wishes to do as previous governments have done, choosing to locate services or elements of that nature, that really is not so much ORC's decision-making as the government making the decision as to how it wishes to locate its business. That's perhaps the best way to respond to the issue on the table.
Mr Patten: Sure, I understand that. Is there somewhat of a movement -- I've been told this, but I don't have any hard figures -- of the northern relocation program? Some people are kind of drifting back to Toronto again. I understand the mining office that was moved to Sudbury has now been moved back down to Toronto. Is that correct? Not the whole thing, just part of it.
Ms McLeod: Offhand, I don't know if that particular office moved. Definitely, across the province ministries are downsizing and restructuring their service delivery, but in each of the significant geographic areas of the province there is also a concerted effort in terms of how those services are coordinated and linked throughout those geographic areas, not just one ministry but all the ministries, and there's a lot of work going on around that. There is downsizing, but I don't think there's any conscious effort of recentralizing in any of the ministries that have actually moved out.
Mr Patten: Is the reduction of space distributed proportionately? For example, I'm aware that a number of staff that went to North Bay, all of a sudden now, I'm seeing senior managers coming back to Toronto and there's a lot of space up there. What was the figure, a 30% or 20% reduction in space?
The Chair: It was 20%.
Mr Patten: The target was 20%, which would relate of course to the downsizing of staff; I understand that. But that space that's being dropped, is that proportionate throughout the province?
Ms Noble: The idea of where the space will be reduced is really to follow the decisions of ministries as to how they are going to change their business and how they're going to be functioning. In other words, this is not a case of ORC predetermining where some of those things would take place. Rather, ministries are determining how they're going to be making their changes and then ORC proactively manages that in a way that will result in savings.
The savings in space, as has been mentioned, are a combination of things: making sure that we don't end up in an ineffective use of space through lack of consolidation and those elements, and also making sure that we're also applying appropriate standards in terms of people's occupancy. There are multiple elements, but in terms of what's driving what, the management of accommodation is being driven by the business decisions.
The only qualifier is that we are working fairly intensively with ministries, and this is particularly around some of the leasing programs, to ensure that ministries are being very proactive and have a financial incentive to be proactive. In breaking down the, "We're not sure we want to move right now," we're saying, "There's a business case and we need to consolidate." That's having an impact within communities; in other words, where we're combining people into space we own and giving up leased space in that community. That impact is occurring, and that's being done for cost-effectiveness reasons.
Mr Patten: Could you clarify, please? There was a recommendation by the auditor to "ensure that the chargeback system has adequate incentives" etc. I don't have much time to ask the question. You agreed with that, but then your last comment was, "It should also be noted that ministries will not receive full funding for rental charges, as the funds allocated to them will include a share of the total constraint on space costs." You're asked to charge the adequate amount of money, but then here you're saying they won't be receiving the full funding in their portfolios. What does that mean? How can you manage that?
Ms McLeod: I think the observation and the recommendation from the audit was that ministries should be downsized and they should only be looked at in terms of the amount of space they need versus the amount of space they currently occupy. Our response and the initiative we've taken, as Ken talked about, is that we implemented charging for accommodation this past April 1, but before we did that we had already done a lot of rationalizing. We're only part of the way there. We took as much out as possible, a million and a half square feet, over the past year, but there's still more to do.
What we've done is allocated the funding out to the ministries, but they will actually be charged more than what they've been allocated, and that is a bit of an incentive, or a great incentive, for them to continue their downsizing. We've also put some incentives in place, as Ken mentioned, to help them in that, so that they indeed have the money to pay for the space they occupy, thus actually meeting the objectives the Provincial Auditor had recommended as well.
Mr Patten: In a kind of roundabout way, you're saying, "You've got less space because you're going to have less staff," isn't it?
Ms Noble: If I could just add one further comment to what Jean said, in doing it in this fashion, it is with plans in place. I can speak personally in terms of my own ministry. There is this differential in the amounts that have been assigned. On the other hand, there is a plan in place in which I will be reducing the space occupied by the staff at Management Board. By doing it in this particular fashion, it really provides the incentive for ministries to take action to make sure those plans are realized in a timely fashion, as opposed to not getting on with them quite as quickly. In cases where there's a differential, ORC is working with the ministries as to how they close that gap through actions they'll take.
Mr Patten: "Incentive" is a nice word, isn't it?
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Ms Shelley Martel (Sudbury East): Thank you for appearing here today. Let me start there, actually. Who made the decision that this would be the way it would work, that ministries would be given a certain amount of money less than what they actually had as a need in order to encourage them to reduce their space? Was ORC told to do that? Was the decision made by ORC? Where did that direction come from?
Ms Noble: There's an internal committee of representatives from various ministries working with ORC. The issues came forward. There were recommendations in terms of how the chargeback should be implemented. Those were actually approved by Management Board.
Ms Martel: Are there any exceptions to that rule? Was every single ministry given 20% less than they actually needed?
Ms McLeod: It depended on what progress they had specifically made from the previous year in terms of downsizing their accommodation costs, in working with us, as Michele said, on specific plans. The actual amounts of what progress they had made against the accommodation they had and the reductions they'd made to date would vary by ministry.
Ms Martel: All right. I guess the way I'm referring to "exception" is this: You've got ministries that deliver very different services across the province, right? For example, I would make the argument that for a ministry I know a little bit about, Northern Development and Mines, we may have had more government space but we also had offices in any number of northern communities where there was no other provincial or federal government office. That was an important role of that ministry; it still is an important role. Ag and Food, I would argue, is also in the same boat. It makes no sense to have the Ag and Food office in the Sault, as this government almost did until the local member went and said to them, "That's not going to help my farmers"; so now it's in Echo Bay.
What I'm getting at is how ministries deliver services and where they deliver are very different. I'm hearing you say that each was assigned a set amount. I didn't get any sense that there was any kind of look at where they're located, what service they deliver and whether or not assigning a set proportional amount to everyone made any sense. Do you see what I mean?
Ms McLeod: We very much did an analysis with each of the ministries around where their leasing costs were, where their own costs were. The first phase of charging for accommodation is for the office space, so it's only 17 million of the 40-some-odd million square feet of space under phase 1, but it's the bulk of the direct costs in terms of office space. That's the first piece to go out, and we very much did work with those ministries, as Michele said, through consultation and developing plans with them, and an assessment of how they were able to meet those requirements over a period of time. Some can do it sooner than others. They're working through those plans. We're very much working, bringing ministries together and working together in terms of how they can look at their accommodation in terms of delivery of services and doing some co-location and consolidations, which helps to alleviate some of those problems or differentials between ministries.
Ms Martel: If we wanted to know what the space requirements were and how each ministry was meeting those targets, how would we get that information? The Minister of Northern Development and Mines announced a number of closures of resident geologist offices in a number of communities. I'd like to know if he has met his target now or if we can anticipate some other offices, maybe on the northern development side, now having to close in order for him to meet that target.
Ms Noble: We're certainly prepared to consider, in terms of the request for information, what you're -- I guess why I'm hesitating in responding is because I had tried to indicate earlier that I don't believe it is the space targets that are driving the ministry decisions about their question of how they're going to be managing their program. So there would be instances of someone determining that there will be an office to service a particular part of the province. You may, as a result of some of the work we're doing, find that individual or that service being relocated to another community, but in order to maintain the same service delivery. That may come as a result of the need for consolidations.
But the actual meeting of a target is not driving the, "We're going to shut down the office and take the people out." What I was trying to say earlier is that it's the question of the program changes, where individual ministries may be deciding they are going to change the number of offices or change their network of services. That decision is being made by the ministries, and the impact on space is derivative from those, as distinct from driving.
In terms of separating it, there may be circumstances, and we've got a number of these, where within a community we're pulling together several different ministry offices into one location. I know that in certain communities that has caused concern. As I said, in those instances it's driven on a cost-effectiveness basis. In other cases, we may have two or three communities in proximity to one another and we may consolidate services from a number of ministries into one community, therefore affecting the other communities, but that is on the basis that the ministries have made the decision about what services are going to be there. We're simply dealing with the accommodation.
Ms McLeod: We very much try to avoid the accommodation driving those kind of program and service delivery decisions.
Ms Martel: Who then in the government is responsible for looking at the overall impact of the effect of the closures? I listened to you say very clearly that you are managing the business plans which would outline what's going to be closed and where. If it's not ORC, can you tell the committee if there is some kind of steering committee that's having a look at what the impact is? I've just seen any number of northern communities -- and that's where I come from so that's what I'm talking about -- that are suffering really excessive hits because one ministry after another is making decisions to close operations there and consolidate somewhere else.
You're seeing a move into the five major northern cities, and then out of the northern cities you've seen a move back to Toronto. Mr Patten is quite right about the move of MNDM; those folks are all making their way back here now, after what was a very successful relocation. If we're trying to sort out who is watching for the impacts in any number of communities, who is doing that, or is that a fair question to ask you?
Ms Noble: In general terms, that would be taking place through the government's process to examine the business plans of individual ministries and to look at it through that process. It's not through the space process.
Ms Martel: Early on, you talked about how you were working now to develop outsourcing proposals. It came in the first package, second-last page. I'm curious to know what kinds of things you're looking at with respect to that issue.
Ms McLeod: We're looking at all of the businesses and all of the direct delivery of services that the Ontario Realty Corp currently does on a comparative basis as to what the most cost-effective way of delivering them is. For example, the direct delivery of the property management services is probably the largest one.
Ms Martel: Can you give me some other examples?
Ms McLeod: Much of the work that we do right now is actually already contracted out. Certainly in our large projects, the major capital construction, probably over 95% of what we do to design and build, architectural/construction types of projects, is already contracted out, so that is a bit of a model around what we're looking at. But the majority is in the property management area, in terms of the delivery of asset management and property/building maintenance, that type of thing.
Ms Martel: I also wanted to ask a question from the second package, page 1, where you've stated clearly that you're identifying buildings now that are "core" to government use. I wonder if you can give me some sense of what "core" means, because the government has any number of office needs and service delivery needs which go from direct office space to courts, jails etc. Who determines what is core and how is that being worked on?
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Ms McLeod: Core in terms of how useful the building is, what its economic life is and the need for it in terms of use, but primarily more a building condition type of thing. For example, the northern Ontario relocation buildings would be core and they would be buildings that we would want to try and keep tenants and ministries in and would try to look at collapsing leases into those types of buildings.
Mr John Hastings (Etobicoke-Rexdale): Thank you very much for coming in today. I'm curious as to why in your business plan you stress the aggressive upgrades of getting rid of excess lands but you do not do the same with buildings. I don't see the phrase attached in that part of the business plan. That's my first point.
The second point is, if you are trying to add value to the use of the existing portfolio of assets, what is your planning for the underground garage over in the government buildings? It's closed on holidays and weekends. To me, that's a huge amount of space that we ought to be getting some value out of some way or other in terms of parking. There's a huge demand in downtown Toronto here, especially during events and conventions, for additional parking. I'm just wondering what your plans are in terms of making greater use of that asset.
My third point deals with the Ministry of Ag and Food at Guelph. I think it's about 200,000 square feet plus, but from when I was there about two months ago, only about 60% or less is utilized. What are your plans for getting that extra space filled up, either private sector, non-profit or some other ministry going there, or the university or the community college in Kitchener? I don't know what the configuration of uses might be.
Ms McLeod: I'll answer the first question in terms of sales. We are definitely targeting the surplus land the government has in land banks and around accelerated asset sales, but as Ken went through, we're absolutely rationalizing the portfolio and we're also actively marketing buildings that are no longer needed, as well as land. The two go hand in hand and they're both active in terms of our marketing program.
Ken can perhaps talk to the parking issue, as well as what we're doing in Guelph.
Mr Bauman: By the way, a nearby example of a building that we've sold recently would be 801 Bay.
With regard to the parking, we very much would like to increase revenues and make that particular parking available on weekends. We've been approached over the years from people at the Gardens and so on. The difficulty at the moment is the security within the complex. We've instituted a number of changes in internal security, in terms of special alarm systems and so on, but once you get into the underground garage you basically have access to the whole complex. We've been working with the OGPS, the protective service, to try and identify how we can do that.
We have surface parking that we have tried to make available. We have been able to increase revenues in our parking garage next to the coroner's building, 25 Grosvenor, because there it doesn't represent a security issue for us.
Mr Hastings: Surely the security issue can be accommodated, though, adjusted in some way that it could be dealt with so that the public doesn't enter --
Mr Bauman: Yes, and right now that is part of the challenge, given the way our complex --
Mr Hastings: Could you say a year from today on the weekends it would be rented, or two years from today? Do you see any prospect of something happening there in the next two years?
Mr Bauman: Yes, a prospect, but I'm reluctant to give you a date.
With regard to Guelph, it's interesting that Guelph, like the St Catharines building and the Peterborough buildings, was designed as a single-purpose ministry building, and as changes occurred the ministry's size, as it was originally planned, didn't turn out to completely fill the building. In all of those buildings, including the Guelph building, we have other, non-OMAFRA offices coming in there, the preference being given to government facilities -- the registry office. Particularly, we were talking to Ag and Food about agencies that have a relationship with that ministry so that it makes good sense that way.
We're looking at the main floor of that building, perhaps having other government uses there. There's a common counter; people can come and do a number of transactions with the government. It's becoming more of a government multiministry building, and similarly in Peterborough and St Catharines.
The Chair: Mr Shea.
Mr Shea: I'll defer to Mr Grimmett.
Mr Bill Grimmett (Muskoka-Georgian Bay): I'd like to focus on the last recommendation that's noted on page 5 of your report today. I just want to say that before I came here I had an opportunity to work with a lot of contractors, and the one thing contractors have always told me is that the most pleasant thing they like to hear from a customer is if the customer wants to change the contract, because that goes off like a money machine in their ears.
I'm a little disappointed that you haven't responded specifically to the recommendation that "all change orders exceeding a specified percentage of the original contract...should be formally approved by senior management." Can you respond specifically to that recommendation?
Mr Bauman: That very much is the case; that is instituted. Projects that have over 10% must be approved by senior management with documentation, with reasons for this.
Ms McLeod: We monitor this quite closely. We give a regular quarterly report back to our board of directors and they're very interested in changes to project costs as well. We have a regular monitoring process and we have tightened that up as a result of the audit, which was useful to point out some things to us. We have tightened it up much more. We don't like to do change orders and we try to discourage our clients. If there's a reason for their making changes while the work is under way, we try to discourage that as well, to point out what the additional costs would be.
But then there are those other issues Ken pointed out. In old buildings where you're doing changes you try to anticipate and scope out the project as much as possible, but you can run into things that you weren't aware of that cause a need for a change order to it, as opposed to a client-driven changing of mind around how they want something laid out.
The Chair: Mr Shea, there are still three minutes left.
Mr Shea: I'll defer. We'll rotate.
The Chair: We'll take another five-minute round, starting with the third party.
Ms Martel: You mentioned that last June the government approved a new mandate and that your restructuring is on schedule for implementation in the spring of 1998. Can you describe to the committee what the nature of the restructuring is within the branch and what remains to be done?
Ms McLeod: As I mentioned earlier, the government gave direction to the ORC. Out of the number of reviews that were undertaken, including the financial review commission and the review of the agencies, boards and commissions, we are looking at the Ontario Realty Corp very much having a stronger strategic focus on the real estate, being very much focused on the client strategy side of helping ministries work through their accommodation needs and their real estate needs as they go through their restructuring, and very much looking at ensuring that the real estate was used best.
We're looking at restructuring the corporation to focus on those strategic elements, to very much focus on the information and benchmarking of the portfolio and performance against the portfolio, looking at putting more emphasis in that area and at the same time going through a business case review of the direct delivery of services and who should best provide those services. We're going through that process as well and we expect all of those pieces to come together next year.
We're also looking at legislative changes that may be required to move us from perhaps a schedule 4 agency to one that's under the leadership and direction of the board of directors in terms of operation. We're looking at a change in the scheduling and legislative changes through the Capital Investment Plan Act as well.
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Ms Martel: When you were going through your presentation, you told the committee about you own downsizing in terms of employees and your budget reduction. Can you just give that to me again, please? I didn't catch it.
Ms McLeod: In the last couple of years staff have been reduced by about 300. From about 1,100 or so a number of years ago, we're between 700 and 800 at the moment. In terms of budget, we're working towards a little over $100 million in reductions, which is about a 25% cut.
Ms Martel: Do you have any other targets that you know about right now that you're going to have to meet? When you talk about the restructuring, those changes have already been made and you've met the $100-million target.
Ms McLeod: Reductions very much are focused on reducing the portfolio, reducing the cost of the real estate by reducing the amount of real estate that is needed, because there isn't as much needed now, and looking at disposing of assets that are no longer needed.
Ms Martel: You mentioned earlier as well that there was going to be an enhanced monitoring system.
Ms McLeod: We definitely recognized information technology and information as being absolutely key, as did the auditor's report. We've been focusing on improving our existing systems, as Ken mentioned, in terms of the information, but we also see that as being fundamental to our restructured organization and the information systems that go along with that. We're in the process, as Ken mentioned, of developing that strategy and looking to implement that early next year as well.
Ms Martel: Do you have any idea of what your capital costs will be for that, or is it too soon?
Ms McLeod: We're just in the development stages of that.
Ms Martel: The management division is still in six regions. Has that changed at all?
Mr Bauman: Yes, we still have --
Ms Martel: You still operate through six. Do you see any change in that?
Ms McLeod: If you're managing real estate, it's good to be near where it is geographically, so we anticipate we will still have a regional presence under an outsourced environment, yes, and that ORC would still have a regional presence.
Mr Hastings: I guess my other concern about the aggressive disposal of our land assets deals with the Ataratiri project near the Don. That thing originally cost the taxpayers something like -- correct me if I'm wrong -- $280 million to $300 million in acquisition.
Ms McLeod: The higher end.
Mr Hastings: And we unloaded it for something like $5 million to $15 million.
Ms McLeod: It's currently in a marketing phase.
Mr Hastings: You haven't sold any of it off?
Ms McLeod: We haven't sold it, no.
Mr Hastings: Is that primarily because of the toxic real estate in most parts of it?
Ms McLeod: There is an environmental issue in terms of cleanup, and therefore it has an impact on the use and the economic viability of someone taking it on, yes.
Mr Hastings: You folks deal only with the line ministries. Do you see an opportunity as a realty consultant in terms of the ABCs or are they completely independent and don't even have to deal with you in the disposal of assets? Take for example, the WCB hospital up in Downsview. Would they be clearly in line to deal with it however they want and wouldn't even have to say, "Could you give us some advice on this"? If so, could you charge back the advice? I guess that would be the first question, and do you see any real opportunities in the mix of unloading some of the existing property in the portfolio through the Who Does What exercise once it's completed?
Ms McLeod: In terms of the agencies, boards and commissions, we provide direct real estate advice for the schedule 1 advisory agencies, and we currently perform an advisory role through the ministries that we service for their agencies, or if the government asks us to give them specific advice on the other agencies we don't currently have under our mandate. It often happens that we're asked to provide advice and support in those areas.
In terms of Who Does What, we anticipate there will be a real estate impact. We're currently working with those ministries as they restructure their programs to anticipate, if there are staff changes or office changes that go along with that, if leases can be assumed by municipalities and vice versa, or if it makes sense, depending on the magnitude within a particular area, to negotiate a whole property at the municipal level.
Mr Hastings: Is there a chargeback for your advice for these agencies?
Ms McLeod: It depends. We've also provided some advice to transfer payment groups of various ministries, for instance, the Ministry of Community and Social Services. They have a number of transfer payment groups spread across the province that are very small, for instance, the March of Dimes, that are located in pockets all over the place. They don't have leasing expertise. We've provided that to them and helped them save quite a bit of money by helping them negotiate or renegotiate their leases, work with them. We have provided that and we've tended to do that on a pro bono basis.
Mrs Brenda Elliott (Guelph): I just wanted to indicate that I'm encouraged by some of the changes I see you're beginning to implement here. When I was reading through the notes from the auditor's report, these change orders, for instance, really did jump out at me; for instance, the second one that's noted here. The original contract was ordered to lower drinking fountains and phones. This is for handicapped access. Then the change order related to installation of doors and washrooms was subsequently added. When I read through the notes, it struck me that the two things that handicapped people seem to need most are access to a building and washroom facilities, and I was struck that suddenly the cost had doubled to add what I would have thought would have been two of the key things that were needed in the first place in the original planning. Anyway, it looks like you're undertaking a number of the changes to address those kinds of things.
Mr Hastings mentioned the OMAFRA building in Guelph. That's in my riding. I would just like to note that while we're very appreciative of having OMAFRA in Guelph, and I think that in the long-term planning of OMAFRA's place in rural affairs in Ontario, it's the perfect setting, and we're very pleased to have it, most citizens in Guelph drive by and are quite struck by the overbuilt size of the building. I wish you every success in finding and consolidating a number of services and attracting rural businesses and associations that can fit into that so it becomes the centre. I think we'll actually benefit, certainly our riding, and the ministry in the long term.
The one thing that I don't think anybody in our riding is very comfortable with -- and perhaps, Chair, this may or may not be appropriate; I seek your advice on this -- the one thing that I don't know anyone been very comfortable with is the size and the extravagance, and I use that word deliberately, of the day care centre that's on the corner, for instance.
For those of you who don't know, it ended up being two very modest frame buildings on the corner of the property that were completely redone. I've never seen the figures. I'd be interested in knowing what the figures are, what the change order history might have been for that particular project. The landscaping is extraordinary, a very nice entrance to the building, and certainly very lovely for Guelph on the corner, but I have to say I live very near there and there's not a day I drive by that corner that I can't help but think this was extravagance at the expense of the taxpayer. I think every citizen in Guelph I know has shared that feeling.
It's quite lovely, but just to close, personally I would be very interested in knowing what the history of that particular part of the OMAFRA project would be. We've been spending most of our time talking about downsizing, consolidation, planning and focusing our resources. I would assume there are no new building projects under way in any of the ministries that the ORC would be looking after.
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The Chair: Can you provide Mrs Elliott with some figures on the day care?
Ms McLeod: Yes, we can. We'll have to get the specifics, but it was part of the larger project, and I believe those buildings are of historical significance, so there was a designation on them as well that we had to work around. But we will definitely get you that.
Mrs Elliott: That would be amazing.
Ms McLeod: I've seen them too. I saw them beforehand. We'll definitely get you that information. The second question?
Mrs Elliott: Any new projects under way? I'm assuming not.
Ms McLeod: We're certainly not doing any new office construction right now, but we are project-managing some courts construction in Hamilton, Windsor, Cornwall and Brampton at the moment. We're also working with corrections on their infrastructure strategy for the corrections projects. Those are the primary new construction type of projects that are under way.
Mr Jean-Marc Lalonde (Prescott and Russell): With the downsizing that occurred in the last year in different ministries, we were left with surplus buildings or space, especially in small communities; the Ministry of Agriculture, for example. I believe that in most of the cases you had a long-term lease with the landlord. What happened with those buildings that were left vacant with this downsizing?
Mr Bauman: What happens when a ministry moves out of a lease through its consolidation and downsizing? The first thing we attempt to do is see if another ministry in the community can use that space. If there is no government use for it, then we will try to sublet the space or negotiate a buyout from the landlord. That's typically what we do.
Ms McLeod: We tend to focus initially on those leases that are expiring, but there are of course instances where the government no longer has that particular program and may be in a long-term lease. That's when we go to looking at other ministries that can move into that long-term lease, sublet or a lease buyout.
Mr Lalonde: As you know, it did create quite a financial impact in some of the small communities. When you say "sublet," sublet at a reduced cost per square foot or at the same price as you were paying?
Ms McLeod: What the market will bear. What we can negotiate at a market rate.
The Chair: How successful have you been in renegotiating?
Mr Bauman: We've had very few sublets. We've tended to negotiate buyouts. One of the difficulties with subletting which has a bit of a twist on it as well is if we sublet it to the private sector. We did in one community and we were then criticized by the community for subsidizing one company over another. Because it's the government renting that space, it takes on a very significant profile in the community, so we've had very few where we have actually subletted to the private sector. Generally we find another ministry to go into it or we buy out the lease.
Mr Lalonde: Before you sublet, you would see if there is other empty office space for rent in the area before you reduce the cost?
Mr Bauman: Absolutely.
Mr Lalonde: Whatever happened, for example, to the building that was built in Niagara Falls for the tourism ministry?
Ms McLeod: The building was completed and recently it's over 95% tenanted with companies from the private sector. Now that we have the building filled, we are looking at marketing it.
Mr Lalonde: At the market value?
Ms McLeod: Yes.
The Chair: So it's up for sale?
Ms McLeod: That's right.
The Chair: Members of the government, we still have more time.
Mr Shea: I just want to put on the record that Mr Patten's thesis caught my attention, and it was endorsed in part by comments made by Ms Martel. I think her quote was "after a very successful relocation"; I question that. It struck me that the comments in terms of government involvement focus with crystal clarity on the profound differences of political philosophies between the two former governments and this one, particularly the degree of government intervention in the economy for social or economic purposes.
I am intrigued, for example, by the argument that if we can deconcentrate the government's functions and move them out into other communities, we will have tremendous economic spinoffs on behalf of that economy. I come back to the reason why I am asking you this question now, because I'm wondering if in your information you have yet done an impact study on the decentralization and if that impact study has shown the tremendous negative impact that policy has played upon the city of Toronto.
I know my colleagues would desperately want to see that information since on Bill 103 they spoke vociferously on behalf of the city and its vitality. I represent the city of Toronto, so clearly I have more than a passing interest in its economic and social health. I'm wondering if your studies have yet started to show the impact, or is that beyond your mandate?
Ms Noble: The answer to the question is that at this point I don't believe we have done work that would specifically be looking at the impact on those communities of the relocation programs that had been previously undertaken, so that comparison could be made. I think certainly -- and I can't speak personally because I was not there at the time -- there would have been work done at the time, but we've not done follow-up work.
Mr Shea: Can you present me with information on the studies that were done that show both what the economic advantages would be for the communities receiving the relocated ministries and also the economic impact statements in terms of the negative impact upon the Toronto and GTA economy? Clearly no decision would have been made by a government to dislocate unless they had done a study of what the impact would have been.
Ms Noble: What I will undertake is to determine what studies are available that can be released.
Mr Shea: I'm happy with the first part. I'd like to see whatever there was there. If you cannot release the information, I'd like you to at least table with the committee what documents you have that cannot or will not be released.
Ms Noble: I will have to make that determination within the context of freedom of information etc.
Mr Shea: I would be stunned if freedom of information were involved in the scope of the question I've asked.
Ms Noble: Only in so far as some of that information may be contained in cabinet documents. That's the reason I'm placing the reservation on the record.
Mr Shea: I'm prepared to accept that with the very clear understanding that I'm looking for information that now demonstrates sensitivity on the part of governments committed to deconcentrating government services to the impact upon the municipality that is losing them. I have in the back of my mind some interesting experiences.
For example, I'm sure you're aware that cities reach certain points that are called economic takeoff points. I'm a little sensitive to a period in 1795 when Dublin was about to reach that point and then the English Parliament moved the Parliament over to London and destroyed the economy of Dublin for many years thereafter. Let me take a look at that in terms of a preface for the impact upon the city of Toronto and the GTA in terms of the dislocation and what has happened.
I understand the sensitivities of my colleagues in terms of the north and the west and the east, and I share that concern for a fair development of our net, but I don't want to see a sense that we're picking at the carrion of Toronto to the benefit of the rest of the province either.
The Chair: Thank you, Mr Shea. Any information passed on to any member of the committee, would you please copy the Clerk so that we can all share the same information. Ms Noble: Absolutely.
Mr Patten: Just a comment: As Mr Shea said, it does point out a different vision of how you use resources. What I often find is a xenophobic view, a Torontocentric view that I often find I have to fight. Coming from eastern Ontario, I often have to fight that everything is a Toronto vision of the world and the province rather than, "We're all here because we're members of the provincial Legislature." So the argument of sharing the infrastructure of government -- Toronto has had the benefit of the massive, predominant element of the infrastructure, and some of the other areas have not. It's one of the tools that I believe can help stimulate other activity.
If you want to talk to people, I would suggest you speak to some people in Sault Ste Marie about the Lotto corporation. In this day of electronic communications and management, there's a very successful corporation that is managing out of Sault Ste Marie throughout the province, through all the stores that have their machines and all this kind of thing. It's quite an incredible story.
I'd be interested at some point if some of the ministries would suggest that kind of analysis be done about the impact and role of government and what it can mean in sharing infrastructure in other areas that have an economy based perhaps on tourism, logging and some mining to provide some other kinds of occupations, stimulate and diversify some smaller economies and play a tremendous role in their vitality. That would be a good debate some time. It would be a good one to have in the Legislature too.
Mr Shea: I'm for it. Let's set the date.
Mr Patten: But that's not their responsibility. It's too bad, because it used to be a ministry and now it carries out other polices, unfortunately.
The Chair: Being 12 of the clock, as the Speaker would say, I'd like to thank our witnesses.
Before we adjourn, I'd like to remind the members of the committee that our next meeting will be May 15 for the writing of our report. Is this understood? Very good.
The committee adjourned at 1152.