1999 Annual Report,
Provincial Auditor: Section 3.14, provincial highway
maintenance
Ministry of Transportation
Ms Jan Rush, deputy minister
Mr Carl Hennum, assistant deputy minister, operations
Mr Larry Lambert, regional director, northwest region
Mr Osmo Ramakko, regional director, northern region
STANDING COMMITTEE ON
PUBLIC ACCOUNTS
Chair /
Président
Mr John Gerretsen (Kingston and the Islands / Kingston et les
îles L)
Vice-Chair / Vice-Président
Mr John C. Cleary (Stormont-Dundas-Charlottenburgh L)
Mr John C. Cleary (Stormont-Dundas-Charlottenburgh L)
Mr John Gerretsen (Kingston and the Islands / Kingston et les
îles L)
Mr John Hastings (Etobicoke North / -Nord PC)
Ms Shelley Martel (Nickel Belt ND)
Mr Bart Maves (Niagara Falls PC)
Mrs Julia Munro (York North / -Nord PC)
Ms Marilyn Mushinski (Scarborough Centre / -Centre PC)
Mr Richard Patten (Ottawa Centre / -Centre L)
Substitutions / Membres remplaçants
Mr Michael Gravelle (Thunder Bay-Superior North / -Nord
L)
Also taking part / Autres participants et
participantes
Mr Richard Patten (Ottawa Centre / -Centre L)
Mr Erik Peters, Provincial Auditor
Mr Gerard Fitzmaurice, director, economic development audit
portfolio,
Office of the Provincial Auditor
Clerk pro tem / Greffier par intérim
Mr Douglas Arnott
Mr Tom Prins
Staff / Personnel
Mr Ray McLellan, research officer, Research and Information
Services
The committee met at 1038 in room 151, following
a closed session.
1999 ANNUAL REPORT, PROVINCIAL AUDITOR: MINISTRY OF
TRANSPORTATION
Consideration of section 3.14,
provincial highway maintenance.
The Chair (Mr John
Gerretsen): I'd like to call to order the meeting of the
standing committee on public accounts to deal with section 3.14
of the 1999 annual report of the Provincial Auditor, dealing with
provincial highway maintenance.
Good morning, and welcome to
our hearings. We'll start the hearing off with any presentation
you may have for 15 to 20 minutes, and then we'll throw it open
to questions from the membership here. Good morning, Deputy.
Ms Jan Rush:
Thank you, Mr Chairman and members of the committee. In my
remarks this morning I'd like to address three topics: the
history of outsourcing of highway maintenance, the ministry's
winter maintenance program, and then some more specific details
of the Provincial Auditor's 1999 report.
To begin, I would like to
highlight for the committee-
The Chair:
I'm sorry. Could you please identify yourselves?
Ms Rush: My
name is Jan Rush. I'm the Deputy Minister of Transportation. Carl
Hennum is the assistant deputy minister of operations. Malcolm
MacLean is the director of construction and operations in the
ministry.
Ms Rush: To
begin, I'd like to highlight for the committee some elements of
the ministry's approach to outsourcing maintenance to private
contractors. Our maintenance standards are consistent with the
best practices in other jurisdictions in Canada and elsewhere,
and in accordance with our first priority, highway safety, safety
standards have not and will not be reduced. Likewise, the
standards that private contractors must achieve reflect
long-standing ministry standards governing the maintenance of
Ontario's highways.
While the ministry had
traditionally outsourced considerable portions of its highway
maintenance program, in 1995 we began to review our processes and
look at some new and innovative ways to be more efficient and
effective in our outsourcing. The ministry's team proceeded
carefully and did considerable research both in Canada and
elsewhere in the world. Based on this practical experience from
other jurisdictions, we set out to develop an approach that would
work best for Ontario. What we have adopted is a blended
approach, using a combination of area maintenance contracts and
managed outsource contracts, which we believe is the best mix for
our needs. Today, approximately 85% of the province's highway
network is maintained by the private sector. By the end of this
year, we expect that practically the entire network will be
maintained this way.
Let me briefly describe the
two types of contracts we use. Managed outsource involves
ministry staff managing and directing highway maintenance
operations with contractors supplying equipment and staff to
perform specific functions. Ministry staff patrol highways to
determine when maintenance is required and as a follow-up to
ensure that work has been performed to standards. Under area
maintenance contracts, contractors assume all responsibility for
maintenance within a specific geographic area. The ministry
monitors their work to ensure that standards are met.
We have found through our
experience that the blended approach offers several demonstrated
advantages over a one-concept approach, including the ability to
ensure greater competition, match contracts to local market
conditions, allow greater industry participation, permit future
flexibility in modifying contract areas and types, lower the
overall risk and achieve greater efficiencies. The blended
approach assures long-term sustainability of maintenance
outsourcing as well as initial cost savings by ensuring a
competitive supplier market. It also provides for future
flexibility to adapt to changing market conditions.
I would now like to spend a
few moments on a key government activity that affects all
citizens in Ontario, and that is winter maintenance. Many of the
key elements I have described in our approach to outsource
pertain to winter maintenance. Let me highlight the key
provisions we have in place to ensure winter maintenance
standards are met.
(1) We have clear and concise
contracts that spell out the standards to which contracts must
adhere.
(2) We have a comprehensive
verification monitoring program in place.
(3) We have strict
enforcement. Let me briefly elaborate on this key component.
Failure to meet standards can result in severe financial penalties and can
result in the termination of contracts and the suspension of
bidding privileges for future contracts. There is no room for
cutting corners. I'm pleased to say that there have only been a
few instances where the ministry has had to impose penalties on
contractors not performing to standard.
(4) Also, we have been
continuously working with contractors to develop new and improved
ways to meet the standards and to ensure that best practices are
applied throughout the province.
We are all familiar with the
exceptional and adverse winter weather. While our winter
maintenance is consistent with the best practices and standards
anywhere, we've continued to remind the travelling public to
adjust their driving to prevailing road conditions.
I would now like to move to
the third topic, some more specific details in the 1999
Provincial Auditor's report. In his 1999 report, the Provincial
Auditor provides a useful and detailed analysis of how the
Ministry of Transportation's highway maintenance program was
performing and whether there were adequate procedures in place to
measure and report on program effectiveness and to ensure that
outsourcing was being managed with due regard for economy and
efficiency and in compliance with legislation, policy, contract
terms and conditions.
We acknowledge and appreciate
the auditor's thorough review of our outsourcing approach, his
recognition of where the ministry had made progress in
implementing the strategy and his insights in identifying where
we can continue to improve. We are mindful of this valuable input
as we continue to improve our processes and procedures and revise
existing ones.
As always, our prime
objective is to ensure that highways are safe and that the public
interest is maintained, regardless of whether ministry staff or
private sector contractors provide the service.
I would now like to address
some of the specific issues raised by the Provincial Auditor and
discuss how the ministry has responded or plans to respond to the
many thoughtful recommendations in the report.
While the ministry, as I said
earlier, has an established tradition of dealing with outside
maintenance contractors, the development of our current approach
to outsourcing dates back to the mid-1990s. The Provincial
Auditor looked at several key aspects of our highway maintenance
program and provided us with a number of useful recommendations
on how we might adjust to improve our procedures. While the audit
report covered a range of topics, from measuring and reporting on
program effectiveness to compliance with policies, procedures and
contract terms, I would like to focus on three broadly
representative areas to illustrate how the ministry has
specifically responded to the report's findings and
recommendations.
They are:
(1) determining which
outsourcing method provides the greatest actual saving and then
revising our strategy accordingly;
(2) reviewing the current
tendering practices to ensure excessive costs are not
incurred;
(3) evaluating all
contractors upon completion of existing contracts and before new
ones are awarded.
With respect to realizing the
greatest actual saving, the ministry agrees with the auditor's
recommendation and has in fact evaluated its experience
continuously as we have proceeded with highway maintenance
outsourcing. As I highlighted earlier, we have adopted a blended
outsourcing approach as the best alternative, ensuring a
competitive marketplace with broad participation from industry.
Furthermore, as I said at the outset, safety continues to be our
number one priority. We will build on our experience to ensure
that standards continue to be met and enforced.
Regarding our tendering
practices and mitigating against cost increases, the ministry
agrees with the Provincial Auditor that any outsourcing plan must
ensure that there is protection from long-term cost increases.
The ministry's blended approach to outsourcing has been built on
the diverse experience of other jurisdictions, optimizing its
tendering approach to provide maximum flexibility and ensuring
that the most cost-effective outsourcing alternatives are and
continue to be available to suit local geographic and market
conditions.
The use of both area
maintenance contracts and managed outsourcing contracts is
designed specifically to ensure the ministry is able to manage
the level of competition within the industry and retain the cost
advantages of outsourcing.
With respect to evaluating
contractors, the ministry is creating a maintenance contractor's
performance appraisal system for all maintenance contracts this
summer. This new system will be part of the pre-qualification
system for major maintenance work, similar to construction
pre-qualification. Under a maintenance pre-qualification system,
poor performance could result in a reduced rating and a reduced
ability to bid on ministry maintenance contracts.
Ministry policy requires that
maintenance contractors receive performance appraisals. Those who
perform unsatisfactorily may be prohibited from bidding on any
ministry contracts for a period of time. The ministry reiterated
this requirement in November 1999. While our staff across the
province share information on maintenance contractors who have
been prohibited from bidding, we plan to create a provincial
performance database to facilitate the retention and circulation
of information.
Mr Chairman, I would like to
sum up my remarks to the committee this morning as follows: We
believe we have approached the outsourcing of highway maintenance
in a thoughtful and responsible manner. We conducted the
appropriate research, we sought advice, used independent
consultants to verify and validate our approach, adjusted our
direction on our experience and that of other jurisdictions.
Moreover, the ministry exercises a high level of due diligence in
developing its outsourcing contracts and assessing both their
cost-effectiveness and level of projected savings.
However, we also recognize that we must continue to
strive for efficiencies and we must give our full attention to
the best possible service and safety for road users. We continue
to learn from our experiences and will adjust the outsourcing
approach to maximize the benefits while protecting the public
interest. Most importantly, highway safety is our number one
priority. Maintenance standards have not and will not be
reduced.
To conclude, we found the
Provincial Auditor's recommendations thorough and helpful. We are
in the process of following through with the recommendations
contained in the 1999 report and we trust we have addressed his
concerns. We continue to be vigilant in the manner of outsourcing
our programs to ensure that the public interest is maintained and
that the safety of those using our highways is given top
priority. Thank you.
The Chair:
Thank you very much for your presentation. We have approximately
22 minutes per caucus.
Mr Michael Gravelle
(Thunder Bay-Superior North): I moved a notice of motion
yesterday related to a motion I wanted to put before the
committee. Could I read that motion now?
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The Chair:
You can read it, but then we'll start the questioning with Ms
Martel.
Mr Gravelle:
I will read the motion now:
"Whereas the auditor's 1999
report indicates that the Ministry of Transportation's highway
maintenance outsourcing has failed to ensure due regard for
economy and efficiency, compliance with legislation, policies and
contract terms and conditions; and
"Whereas the Ministry of
Transportation has not provided an impact analysis of their pilot
project on privatization in the Chatham area showing savings or
improved safety; and
"Whereas the winter of
1999-2000 in Ontario has seen a sharp increase in the number of
fatalities on our provincial highways which may or may not have
been influenced by the way highway maintenance services are being
delivered; and
"Whereas the Ministry of
Transportation is moving forward with a goal of full
privatization of maintenance service contracts by June 2000;
and
"Whereas mayors and reeves,
city councillors, chambers of commerce, the Ontario Public
Service Employees Union, truck drivers, bus drivers and members
of the public have expressed strong concerns that highways in
Ontario are no longer being maintained to the highest possible
safety standard;
"Therefore, I move that the
standing committee on public accounts direct the Provincial
Auditor to undertake a full review of highway maintenance
contracts in the province of Ontario; that the review include an
examination of all costs and expenditures; an examination of how
quality controls and inspection requirements are being met; an
examination to determine whether maintenance standards are being
met; as well as an examination of whether public safety may have
been compromised, particularly over the past four months, as a
result of the ministry's management of highway maintenance; and
that the Provincial Auditor report back to the standing committee
on public accounts as soon possible with his findings."
I hope I get the full support
of the committee on this.
The Chair:
We had a notice of that motion yesterday. Just for the record,
the "whereas" clauses do not form part of the official motion.
I'm so informed by the clerk that that's not part of the motion,
so we only deal with what's after the "whereas" clauses. We'll
deal with that after we've had the hearings this morning or this
afternoon. Then we'll get back to the motion.
We've got 22 minutes
left-
Ms Marilyn Mushinski
(Scarborough Centre): We're not going to deal with the
"whereases" after?
The Chair:
That's right. We're not. It's only the content of the motion
itself that we'll be dealing with.
Ms
Mushinski: I just needed clarification.
The Chair:
We've got 21 minutes for each caucus, starting with Ms
Martel.
Ms Shelley Martel
(Nickel Belt): Before I begin my questions, I want to
indicate that the New Democratic Party will be supporting the
motion put forward by Mr Gravelle. This is an extremely important
issue, especially in northern Ontario, where we've seen at least
15 deaths this winter, some of them in my own riding. So we'd be
very interested in having the auditor do this very important
work.
I'd like to welcome the
delegation from the Ministry of Transportation. I want to begin
my questioning this way. In the auditor's report, which was
released in November, the auditor says, "The criteria used to
assess the program were discussed with and agreed to by ministry
management and relate to systems, policies and procedures that
the ministry should have in place." I want to begin, Deputy, by
asking you, is that a correct statement? Do you agree with that
statement?
Ms Rush: I'm
sorry, the statement was?
Ms Martel:
That "the criteria used to assess the program"-this is the
highway maintenance program-"were discussed with and agreed to by
ministry management and relate to systems, policies and
procedures that the ministry" should have had in place.
Ms Rush: In
general terms, yes.
Ms Martel:
Deputy, did you or your ministry have any concerns with respect
to the manner in which the auditor's staff handled this
audit?
Ms Rush:
No.
Ms Martel:
Did you have any concerns about any of the techniques that were
used in handling the audit?
Ms Rush:
No.
Ms Martel:
Did you have any questions or concerns with respect to the
interviews that the auditor's staff carried out with MTO
staff?
Ms Rush: I'm
not aware of them.
Ms Martel:
Finally, did you have any concerns at all with respect to files
that were reviewed, policies that were reviewed, data reviewed or
any of the systems that were reviewed by the auditor during the course of
the audit?
Ms Rush:
No.
Ms Martel:
In light of that, Deputy, if I might, in questioning in the House
on the day that this audit was released, which was November 16,
our leader, Howard Hampton, asked your minister, Mr Turnbull,
about the auditor's comments, particularly with respect to the
potential savings from outsourcing. He said what the auditor had
said, which was that despite these one-time savings, "Outsourcing
may ultimately result in a significant increase in the cost of
highway maintenance for these contracts."
Your minister said in reply:
"The Provincial Auditor ignores the cost of capital equipment or
maintenance, and these have to be considered. If you do not
consider them, you're not comparing apples with apples."
I'd like to ask you, Deputy,
is the minister's statement a reflection of what the ministry
thinks about this audit, or were those his own concerns?
Ms Rush: In
discussions with the Provincial Auditor coming to the methodology
that was used in accounting, it was clear that we had taken a
different approach. The ministry believed, in its research and in
its due diligence, searching out both some private sector advice
and using some public sector documentation, that we should be
providing cost-of-capital financing into the cost business case
that we were looking at for each particular contract. The
Provincial Auditor has indicated that he disagrees with that
particular methodology for cost accounting. The ministry, as I
said, believed it was using the correct methodology and believed
it had done due diligence in picking the methodology it used.
Ms Martel:
Does the ministry still hold that view?
Ms Rush: The
ministry still believes it is a very valid and appropriate way of
putting cost together. It is very difficult for us to debate
accounting methodologies. I must say that what we've been able to
do since that time-because we had a number of discussions with
the Provincial Auditor about this. I can tell you that on the
research we did, our understanding of the appropriate
methodology, we chose the methodology that we thought was
appropriate and that we thought was both verified by some private
sector auditor firms and by the overall guidance from the federal
government.
I know the Provincial Auditor
takes a different viewpoint, but there are two things I'd like to
say about that. One is that we know that the Ministry of Finance,
one of our central agencies, now is working on a draft policy,
and we look very much forward to that coming out, which will
guide all ministries in how we do this kind of methodology. So we
look forward to the direction they will provide us in the
future.
Ms Martel:
Deputy, what research did you rely on?
Ms Rush: We
did general research to begin. We then spoke with two audit firms
and asked their opinion. We specifically asked their opinion, was
this a methodology that was appropriate to what we were doing?
PricewaterhouseCoopers said, "We feel it is reasonable to include
a cost-of-capital cost element in an alternative service delivery
business case."
Ernst and Young told us, "We
believe the MTO approach of recognizing an
opportunity-cost-of-capital component in the process of costing
its use of equipment in area maintenance activity is an
appropriate procedure."
And the Canadian Institute of
Chartered Accountants, on outsourcing of government services:
"Calculating the full cost of a service should include cost of
capital associated with the net assets used by that
activity."
I quote those three, but it
was that research and those kinds of opinions as indicated that
verified that we indeed were using a valid cost accounting
approach.
Ms Martel:
Did any of those three provide any disclaimers with respect to
their comments?
Ms Rush:
They were asked for an opinion and their disclaimer was that they
were giving opinion. They did not come in and audit our
findings.
Ms Martel:
OK. I'd like to ask the auditor some questions in this regard. Mr
Peters, you saw a copy of what the minister said in the House.
Let me just ask you some general questions. You wouldn't have
done this audit yourself, but I'm assuming you had capable and
competent staff who could do this on your behalf?
Mr Peters:
Yes, I did.
Ms Martel:
The experience of that staff in terms of doing value-for-money
audits, in terms of following established accounting principles-I
expect that experience would be a number of years among the
members of the audit team?
Mr Peters:
Absolutely.
Ms Martel:
Can you explain to this committee why it was that your audit
staff made the comments they did with respect to how the ministry
was approaching its work?
Mr Peters:
We did a careful audit of the numbers and essentially there was
massive agreement on the cost elements that were in there, as to
the nature of the elements. The amounts is where we differed in a
number of instances from the ministry, and those were carefully
discussed with ministry officials. Essentially, the response of
the ministry afterwards was that they would reassess how they
were putting these together and they accepted our concerns. The
only exception was with regard to the way the financing costs on
capital were calculated.
I don't know whether you want
to get into that as a question, but the deputy has cited the two
accounting firms they contacted and I'm prepared to comment on
that. Do you want me to?
1100
Ms Martel:
First of all, I'd like you just to outline to the committee why
you had concerns about the financing costs. What are the specific
concerns and why? Secondly, I would like some further explanation
with respect to the opinions that were provided by the firms with
respect to the methodology that was used by the ministry.
Mr Peters:
On the financing costs, we took the approach that the financing
costs are normally based on cash flows. We found that the assumption that was
made by the ministry was that if highway maintenance were to be
done by the ministry over the term of the contract under
discussion, which was three and a half years, the ministry had,
firstly, taken in all the proceeds on disposal or leasing the
facilities and the equipment to the contractors who were taking
over to determine whether there would be a benefit from the
outsourcing, but at the same time had made the assumption that
virtually on day one of the contract term the ministry itself
would have to spend $13.8 million on equipment, and made then the
further assumption that because they didn't have to do that if
they outsourced, they would have 5.3% interest on that $13.8
million as a saving over the term of the contract if they did it
in-house. That's what we disputed. We did not see the necessity
for this, because we found and agreed with the ministry on the
inclusion of about $4 million worth of equipment costs,
renewing the existing equipment over the term of the
contract.
Ms Martel:
That's why you said in your report the ministry either
double-counted or overestimated its own cost of equipment
maintenance?
Mr Peters:
That was one factor. There were other factors where we disagreed
on the amounts. For example, equipment maintenance: Their own
records indicated that a six-ton truck, say, was at about a
$6,400 maintenance cost a year, and yet the proposal included
that if they did it in-house it would cost $10,000. When we
questioned it, they said we used the wrong year and they came up
with a new number that was $6,900, but still not the $10,000. So
those were the things that we adjusted for in another
context.
As to the financing costs, we
believe the financing costs should have been applied to the total
cash flow difference between the two contracts, which was about
$300,000, not to $13.8 million.
Ms Martel:
And the two firms that the ministry used to look at their
methodology in your opinion agreed with the ministry's
methodology, or expressed concerns about what the ministry had
done?
Mr Peters:
Well, let me answer it this way. If my office had been asked
instead of these two firms, we probably would have given the same
advice. We would have said, "These are the rules under which you
can allocate capital." But we would have also said what the two
firms said, and that was-I quote PricewaterhouseCoopers, since
the deputy has mentioned the names-"We have not audited the
particular calculation as such, and offer no opinion as to the
numerical accuracy of the calculation used." So our difference
with the ministry is really as to the numbers that were being
used.
Ms Martel:
Just so I'm clear, what the firms provided was a general
statement about how things should be applied, but they would not
have had the opportunity or didn't seem to have the opportunity
to look at the actual numbers.
Mr Peters:
That's right. How they "could" be applied is actually the word,
because it's all guidance. There are no prescriptive rules; they
are just saying, "If you do it, you can do this or you can do
that." So they outlined the general framework within which that
can be done.
Ernst and Young opined that
"without purporting to address the question of how the
opportunity-cost-of-capital rate has been quantified in the
issue, which we have not been asked to consider, we believe the
MTO approach," etc, is an appropriate procedure. In other words,
what they said was you can apply the procedure. Where we are
differing is that we said it could have been applied to the
$300,000 difference between the overall cash flow, as opposed to
the $13.8 million to which it was applied.
Ms Martel:
And one final question with respect to the $13.8-million figure
which is in dispute in your report. Can you describe for the
committee where that might have come from or why you have
concerns with a $13.8-million figure? I'll just read the line:
"Nevertheless the ministry included financing cost of $2.3
million in its estimates, which it based on a cash flow reduction
of $13.8 million from not buying the equipment."
Mr Peters:
I'll ask Mr Fitzmaurice to make any comments on that.
Mr Gerard
Fitzmaurice: Yes, the $13.8 million is the replacement
cost of the vehicles that the ministry owns, so they took each
vehicle and calculated what it would cost to buy it brand new.
Then they calculated the financing costs based on that amount,
$13.8 million.
Ms Martel:
But it would be a bit of a false number, wouldn't it? Because the
ministry would not have to purchase all of this equipment
overnight, in one fell swoop, in one fiscal year even.
Mr
Fitzmaurice: That's true. The actual cost of the
vehicles, or the value of the vehicles, was in the neighbourhood
of $4 million.
Ms Martel:
The value of the vehicles was in the order of $4 million, and the
ministry estimated it would cost $13 million to replace them if
they did it all at once?
Mr
Fitzmaurice: Yes.
Ms Martel:
But there was no reason to assume the ministry would have to do
that all at once.
Mr
Fitzmaurice: They wouldn't, no.
Ms Martel:
So there's some reason to suspect why the figure went into the
ministry's evaluation of its potential cost.
Mr Peters:
That's the concern, because it was triple. It appeared three
times. In other words, it appeared once as the basis for the
financing costs of $13.8 million. It appeared in the evaluation
of the ministry doing it in-house in terms of a $4-million
depreciation charge over the term of the life of that
equipment-in other words, depreciation equals replacement over
the life of $4 million. And it appeared for a third time in terms
of the proceeds of having disposed of all the equipment, or
leased it, if they gave it to the private sector contractor. So
we ended up taking it into account three times and, with the two,
the financing costs providing savings, and then of course the
proceeds on disposal providing savings.
Ms Martel:
Thank you.
Deputy, you've heard some of the comments by the
auditor and I'm wondering if you can explain to the committee
then, first of all with respect to the auditor's concerns about
double-counting or overestimating, what your reply would be to
the fact that both revenue was included and then potential costs
were included as well.
Ms Rush:
As I understand it, the auditor removed the entire amount related
to financing in his calculations, but didn't offer other
calculations in that regard.
Again, we believed that we
were interpreting the methodology used to bring that present
value of the cost of capital financing back into these contracts
that were proceeding for future years. We believed that this was
an appropriate methodology. We believed that the acquisition of
capital by the contractors was a separate matter. As I say, we
have a different opinion as to the appropriateness.
I think it's very important
to put this into context in terms of the savings that we have.
When the Provincial Auditor was doing his work we were at the
very beginning of the process of outsourcing these contracts. I
think as you can see in the audit report, we have a difference
from the first four contracts, using the methodology that we used
and using the methodology that he used.
We have now proceeded to
almost fully outsourcing 85% of the system. The value of what
we're talking about in terms of calculations, as we best
understand the Provincial Auditor's calculations, would have made
a 1.3% difference in terms of the variance.
We have now had much more
experience. We have tendered and awarded many more contracts. We
have achieved the 5% savings that we indicated in our initiatives
we would do, irrespective of which methodology is used. The
methodology that we used shows a higher number. The methodology,
as we understand, that the Provincial Auditor would use shows a
lower number, obviously, because he does have a different
opinion.
But we calculated, as best
we can understand the calculations the Provincial Auditor would
have put in, and believe, irrespective of the costing methodology
used, that we are above the 5%, and the question is, by how
much?
Ms Martel:
Just before I continue with the savings issue, did the two
companies that you hired look at MTO's actual figures, the same
figures that the auditor looked at in his audit?
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Ms Rush:
No, they didn't. We were asking their opinion on our
methodology.
Ms Martel:
They provided a general response with respect to how it might be
applied?
Ms Rush:
Yes.
Ms Martel:
But they did not have a chance to look at MTO's numbers to see
how it was in fact applied.
Ms Rush:
They did not.
Ms Martel:
It would be a little bit difficult to argue that the two CA firms
confirmed exactly the methodology that the ministry used and were
in fact supportive of that methodology.
Ms Rush:
We believed they had at the time we had the discussion with them
and asked the questions, but I concur that they did not actually
go in and look at our calculations. We believed we were
interpreting the methodological advice we were getting as being
consistent with what we have done.
I think this is a very
important point for all government programs, because we're going
to continue, one presumes, doing this and retendering it. We have
been in discussions with the Ministry of Finance, the office of
the controller. I know they have a draft policy they're working
on, and we look forward to the central agency providing us with
direction as to which methodology they would like us to use in
the future. But I believe it's a very important point; I don't
dismiss it in the slightest. I am, though, pleased to report that
it did not make a material difference in terms of achieving the
cost objectives, but it's one that I think we need to really get
some closure on. I personally look forward to the Ministry of
Finance's review and report so that we have some internal
direction in this regard.
Ms Martel:
Can you guarantee to this committee that no further contracts
will be let until such time as what I would consider to be the
correct methodology is adopted by MTO?
Ms Rush:
No, I can't. We will be continuing with the methodology that
we're using. We feel very comfortable in that. As I said, the
Provincial Auditor was looking at what we had experienced at 20%
outsourcing; we're now at 85% outsourcing. We are achieving the
savings objectives we indicated in our business case
irrespective, of the methodology used. It does matter, but it is
not of a consequence that would take us below our achieved
target.
Ms Martel:
Deputy, you're sure right it matters, quite tremendously, because
the government continues to make the case that privatization is
saving the taxpayers money. Based in part-I'm not even going to
say in total-on the methodology you use, the auditor said very
clearly, "Outsourcing may ultimately result in a significant
increase in the cost of highway maintenance for these contracts."
Part of what he was referring to was exactly what we're trying to
get at here this morning. Why would the ministry continue with a
methodology that has been effectively challenged in a very public
way by the auditor and which in fact may lead to higher costs?
Why would you continue to do that?
Ms Rush:
Because we have seen in the experience from the 20% to the 85%
that we are indeed not going to higher costs. We have achieved
the 5% savings. If we use the methodology we use, we go to a
higher percentage of saving; if we use the methodology the
Provincial Auditor believes is appropriate, we go to a greater
saving, but both methodologies lead us to meeting our business
case commitment, which was to save 5%.
Ms Martel:
The auditor also said, "We were informed that the estimated
savings in the pilot district"-which contract ends in the next
two months-"were $900,000, but the ministry could not provide us
with any documentation to support its calculation." Is that still
the case? Have you
provided any information to the auditor to show how you arrived
at savings of $900,000 in the pilot district?
Ms Rush:
This was the pilot area maintenance contract, the first one we
did. We were able to provide documentation but we were not able
to provide the detail that was appropriate. We certainly made
sure about one of the very important and helpful comments the
auditor made throughout this report, that from our very early
times and our beginning part of this, we needed to pay much
better attention to our record-keeping. So while we had the
documentation of the calculations, at that point the ministry was
undergoing significant change in both personnel and physical
location and we were not able to retrieve all of the background
calculations. But we did have the overall documents
available.
The Chair:
We'll have to leave it at that. The time has expired. The
government members.
Mr John Hastings
(Etobicoke North): Welcome to the committee, folks. What
I want to get started at first is to create the appropriate
historical context for what MTO is doing today. My first question
would concentrate on what specific business core functions MTO is
carrying out today as contrasted to what it was doing in the more
traditional manner, say, over the last five to 10 years.
Ms Rush:
You mean in an overall context?
Mr
Hastings: In an overall context. I know you weren't
there all those years.
Ms Rush:
The ministry's core businesses now are provincial highway
maintenance, transportation policy and planning, road user safety
and business support. The two most significant changes in the
ministry's core businesses relate to the government's initiative
of local service realignment, where we are no longer in the
direct provision of grants or subsidies to municipalities on a
wide range of other transportation activities such as transit and
municipal airports. Part of that same exercise realigned
responsibilities for some of the highways and roads in Ontario.
The municipal sector took some 5,000 kilometres of highways that
were no longer considered part of the provincial system.
I guess the second-biggest
change has been how we have been exercising those
responsibilities-certainly making sure that our expenditures are
solely related to those core businesses and finding the most
efficient and effective delivery mechanisms that we could for
them.
Mr
Hastings: While you weren't there, what in your
experience thus far would lead you to think that the new specific
rationale for carrying out these core functions needed to be
changed, instead of just continuing in the traditional
manner?
Ms Rush: I
think it was clear from the experience in all jurisdictions,
virtually, in North America and Europe that there were indeed
more cost-effective and efficient ways of delivering programs. We
were fortunate in the ministry that we had significant experience
with the private sector. We had been doing capital construction
through the private sector for a great deal of time and the
ministry had already been doing contracting with the private
sector in maintenance, significantly. So I think we had both
direct information and by research of other jurisdictions that we
could indeed configure a contracting-out tendering process that
would protect both the public interest and achieve significant
tax savings. So the ministry began, and it was before my time, in
a series of teams to evaluate each one of those
possibilities.
Mr
Hastings: Based on that range of analysis and scrutiny,
this led us to where we are today in terms of alternate service
delivery methodologies.
My next question relates
again-and I guess we're going to go back over a lot of this
ground today. To what extent, based on this research and
analysis, did the ministry in fact arrive at using a managed
outsource or area management maintenance contracting system to
achieve the 5% that you are telling the committee has already
been achieved in terms of the new arrangements?
Ms Rush:
The ministry began with a very extensive business case which it
took to Management Board late in 1995 or early in 1996, and in
that business case analysis went through the best review, without
experience, that they could of the possible opportunities that
could be presented by, at that point, three forms of outsourcing.
It was all based on estimates. It was based on the best
understanding of the marketplace that we had and indicated that
there were many possible ways to approach this.
The ministry also put a
great premise on risk, because we didn't know things. So if we
didn't know things, we'd put a risk factor into what would happen
in terms of the financial consequences of this. It was also clear
that, in all of this activity, safety was the first priority. The
maintenance standards were not going to be changed, they were not
going to be reduced, and we were going to ensure through this
whole exercise that we would have appropriate quality assurance
built in. The ministry then began by saying, "Let's have two
pilots in a couple of areas of the province and learn what's
going on."
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In between that, there were
some labour relations issues that were ultimately settled in the
collective agreement process that caused some pause in that
rollout. From those early experiences, the ministry came up with
a new approach that was ultimately put forward to Management
Board in March 1999, in that rather than test these two options
and pick one, it came to be very apparent to us that we thought
the best option was to blend both of them.
This was based on the
experience of actually the bidding we were getting, the number of
bidders, the kinds of prices that were possible, the interest in
the industry, and a recognition by us that one of the things we
quite certainly wanted to avoid was circumstances in other
jurisdictions where, having outsourced very quickly and in very
large contracts, they found at the next round that they were not
getting competitive prices and competitive bids.
So we very much wanted to
structure an approach which blended managed outsourcing, which
allows many smaller
contracts to participate so that they could keep in the business,
keep healthy, keep competing, and also allowed for the
efficiencies of larger contracts in the area maintenance
contract, which was a more comprehensive form of outsourcing.
It was our feeling after
those experiences with our early contracts of both types that we
should keep them both in and therefore what we would do is look
at the local conditions, both in terms of the geographic areas
and in terms of the marketplace conditions, and pick a selection
of alternatives that would give us this blended approach. I am
very pleased to indicate that we are getting on average six
bidders per contract, which I think speaks very well to the kind
of competition.
In the area maintenance
outsourcing part itself, we've got nine separate companies that
have won these particular bids. So it was really how we could
achieve the cost-efficiencies we were looking for, assure
ourselves that standards were going to be met, and also know that
in the long term we had a sustainable system where we had enough
players in the business and we felt we would have the appropriate
conditions for continuing competition over time so that we'd
continue to have very good bids in the future.
Mr
Hastings: In terms of the expectations of MTO, do you
believe that you have achieved the 5% targeted savings in all of
the contracts that have been let?
Ms Rush:
We have averaged all of the contracts. We have achieved over 5%
in terms of the contracts themselves.
The contracts in and of
themselves vary. Some have achieved more savings and some have
achieved less savings. All of the area maintenance contracts have
achieved positive savings, and most of the managed outsourcings.
There are some very small ones where there were tailed-off parts
that weren't as profitable as others, and that was indicated in
our business case, that when you do something like that you might
find one or two small areas. But yes, we are assured, whichever
methodology is to be used, that we are indeed above the 5%, and
we are still not finished.
Mr
Hastings: To what extent were there examples, going
though this exercise, where MTO did not award contracts based on
the bids submitted?
Ms Rush:
Thank you for that question. That was a very important part of
our commitment to both safety and cost-efficiency. I believe
there were four incidents, four or eight contracts and awards,
that were not awarded when the ministry received prices that were
bids that were not going to achieve the savings that we indicated
we wanted, and we were very clear with the industry that there
would not be an award. This occurred in the Toronto area, and I
believe it occurred in a couple of instances in the north.
Mr
Hastings: By larger bidders or by combined consortia
groups?
Ms Rush:
They were a combination of some consortia and some single
bidders. I just have the number here before me now. There were
eight contracts that were not awarded because the bid prices did
not provide value.
Mr
Hastings: One of the key issues this committee is going
to have to come to grips with, and it has already been expressed
through Mr Gravelle's motion, is that there is this general
contention that when you change your methodology of providing
service in terms of maintenance contracts-that you have to keep
with the same traditional approach, which is certainly evident in
his motion, and if you go to any type of different methodology,
area maintenance contracts or outsource management, you are going
to end up with major problems of increased risk situations; that
is, the potential for accidents, for unfortunate tragedies, for
deaths in some instances, on our highways. One death on any
highway of the provincial highway system or the municipal system
is quite unacceptable.
My question is this: To
what extent, if any, is there evidence from your particular
research at the beginning of this whole exercise and scrutiny
thereof, in going through with outsource management or area
maintenance contracts, that you have failed to maintain
maintenance standards, that you have in any sense risked public
safety in going to an alternative delivery system instead of
retaining the traditional approach? That's going to be a core
issue today. I would like to know if there has been any evidence
of that, and, if there is, what would constitute that
evidence.
My second question would
be, to what extent do you yourself or your staff feel that by
using a different method of delivery of service for maintenance
contracts you jeopardize public safety or any of its associated
dimensions? I'd like to know how you can answer that question
generally and specifically.
Ms Rush:
The men and women of the Ministry of Transportation are
actually-and I will use the word-quite passionate in the field of
safety. We are committed to ensuring public safety; it's one of
our core functions, and it is a matter we take very
seriously.
On an overall measure, we
know that what we have done in total in Ontario is making a
difference in a positive sense in highway safety. We have a
public performance measure that we will be among the top 10
safest jurisdictions in North America, and I'm very pleased to
tell you that we are in the top four. So, in total, everything we
are doing seems to be making some difference. The latest overall
statistics we have show that the death rate from vehicle
accidents in Ontario is as low as it was in 1950. That's from a
combination of all kinds of things.
But let me back up
specifically to alternate service delivery. One of the things
that I think the ministry spent a great deal of time and
attention on was making sure the tendering process did two
things. One was to specifically give clear and very well
presented contracts that indicated to the contractors exactly the
standards they would maintain. I assure you these standards were
not changed from ministry standards. So in the tendering and
contracting process itself there was an indication of what was
going to have to be
achieved, and it was identical from the ministry's point of
view.
Any bidder who comes in to
participate in that bid first of all has to go through a
double-envelope tendering process. There is a qualification
process, that they are financially qualified to participate but
that they are also technically qualified. If they cannot meet the
score of competence on a number of technical scales, which are
all evaluated, we don't even open the price envelope. We start
from the bottom up in terms of assuring public safety. We have
contracts that have very explicit, clear ministry standards in
them, and we have a way of looking at that methodology so that we
come up with an appropriate quality of contractors to begin
with.
Then our job is one of
quality assurance. That quality assurance takes two forms. In an
area maintenance contract form, the patrolling, which was one of
the traditional jobs of the ministry, is performed by the area
maintenance contractors.
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What we have done is we
have ministry staff now doing a quality assurance role that
constitutes a number of things. One is direct driving on the
highway to ensure, on a spot-check basis, on a regular basis,
that they are indeed doing what they said they'd do, and a number
of management information systems, incident reports, allow us to
monitor that they are doing the job according to the
standards.
Our belief is if you have
the right standards, which we believe we have, if those standards
are well and clearly described in a contract, if you have a
system that properly screens and looks at the technical
competence of your contractors and the contractors therefore are
monitored on the spot with audits by individuals who have a
responsibility for quality assurance, and that information is
collected and used, penalties are in place in the contract for
any abuse and penalties are severe, financial and they can
ultimately, as I said in my remarks, lead to a cancellation of
the contract and an inability to bid on future business-those
were all measures we put through in the program design of how we
were going to ensure the very thing you're talking about: that
the private sector was going to be able to perform all forms of
maintenance-and I know winter maintenance is of particular
concern-to the same standard as the Ministry of
Transportation.
I should again point out
we've been using private contractors in some regard since the
1970s. So sometimes what people think was direct ministry service
in the past was also contracted-out service.
Mr
Hastings: In going down this route of alternate service
delivery, whether it's managed outsourcing or area maintenance
contracts, in your research, in talking with the other
jurisdictions-states and provinces, I assume?
Ms Rush:
Yes.
Mr
Hastings: Did you find, in any reports, in any letters
or in any verbal discussions, however those are arranged, that
the alternate service delivery system, whether it be managed
outsourcing or area maintenance contracts, exclusively
contributed in any way, shape or form to what is in Mr Gravelle's
motion and the general contention that's out there in some of the
media that this particular approach makes public highways less
safe, and all the consequent dimensions to that? Is there any
evidence anywhere that would sustain that thesis? That's my
point.
Ms Rush:
Not that I'm aware of. Most of the research-helpful, best
practice hints we got from other jurisdictions-was about how to
make sure you maintain competition and keep costs under control.
Carl Hennum was directly involved in some of that research, and
perhaps he could add something.
Mr Carl
Hennum: In 1995, prior to initiating this outsourcing
process, we had very extensive consultations with a number of
other agencies, not just in Canada but also in other countries in
the world, particularly Europe, with the same climate that we
have here in Canada. Of course, we found what we expected to
find: that these highway agencies cannot afford either to
compromise on safety. So they also have a safety assurance
process in place, the way we have, in order to make sure that
there is no detrimental effect of the outsourcing. They've done
that very effectively, as I think you learned we have.
So there is no evidence; we
have no indications from the other people who have been in this
business that safety has been compromised.
The Chair:
Mr Hastings, your time is up. Before I turn to Mr Gravelle, Mr
Peters wanted to make a comment. Do you still want to make that,
sir?
Mr Peters:
Yes, if I may. The pilot contract is expiring on, I believe,
April 30, 2000. I presume there's an exercise going on in the
ministry right now to evaluate the performance of the contractor
for the purpose of whether it is to be renewed or not. Maybe it
has already been reviewed. But since we have this controversy on
the financing and financing costs, and certainly to assist the
Ministry of Finance to come up with a good rule, have you carried
out an evaluation as to how much financing cost the pilot has
actually saved the government?
Ms Rush: I
don't believe we've done that specifically, but we are in the
process of looking at all the material now. But I believe their
contract has an extension.
Interjection.
Ms Rush:
The person who is doing it has just told us that, yes, we have.
So yes, we have looked at that. But this particular contract has
a two-year extension as a possibility in the contract.
Mr Peters:
OK. Thank you.
Mr
Gravelle: May I say at the outset that I think we're a
little disappointed that the minister, Mr Turnbull, didn't show
up himself. This obviously is a very important discussion we are
having today, and the auditor's report has shown us a number of
concerns that we should have.
May I also say, with all
due respect, Deputy Rush, that what seems to be coming across
very clearly is that you are committed to going forward with the
continued privatization
regardless of some clear evidence that emerges that the savings
may not be in place. Indeed, I appreciate Mr Hastings
acknowledging potential risks to drivers' safety. That is really
why I put this motion forward. We have, again, clear evidence
that the savings are not there, although you disagree. The
auditor has clearly made a good case that you should not be
including, obviously, the financing charges as part of that. So
you're committed to that, and I have some concerns that you just
walked into that; that's the commitment.
Let me begin my
questioning, though-and that's why I put the motion forward.
Also, as you may know, I did write the minister and the Premier
asking for an independent review to be initiated by the ministry,
which was turned down, which again is why I moved to the position
of putting this motion forward. I think we all have an obligation
to make sure the public is safe driving. That's the number one
issue. Certainly in this province this past winter, in
northwestern and northeastern Ontario, we've seen an
extraordinary number of fatalities, well above what we have seen
before, and there is great concern by municipalities. We just had
a resolution passed by the township of Manitouwadge last night
asking that there be a public inquiry, which they will be
bringing forward to the Thunder Bay District Municipal League
asking the ministry to do so. This is not an issue that is going
to simply go away. We've had chambers of commerce express their
concerns and ask that there be such a review. I know that Mayor
Bob Krause of Schreiber has come forward with concerns about the
changes and the difference of quality. So there are many, many
reasons why I am putting that motion forward.
Let me begin my
questioning, if I may, by asking you about the pilot project.
Normally speaking, when a pilot project is put forward, you have
a set time that it is going to be put in place. You complete that
process. You evaluate it. You do not move forward until the pilot
project has been evaluated, there has been an impact analysis and
there is an assessment of savings.
I can give another example.
The ministry, three years ago, put in an advance warning light on
the Thunder Bay expressway, which I was delighted that the
minister personally agreed to try on a pilot project basis. I
tried many times to have an evaluation done in advance of the end
of that three-year pilot project. No, they insisted on waiting
until the three-year period was up to evaluate it. I didn't
necessarily agree, but I accepted that. That's how pilot projects
work.
Can you explain to the
committee why, then, you would not follow that procedure? It's
obviously one that makes sense. It's what a pilot project is for.
Can you explain why you would not complete the pilot project, do
an analysis, and then on that basis move forward, rather than
what you have done, which is to carry through and move forward on
the privatization without that pilot project being evaluated?
Ms Rush: I
believe we were-I know we were-evaluating the pilot project as we
were making our refinements in the business case that we took
back to Management Board in March. It was on the basis of
evaluating the pilot project of our first AMCs. We were able to
do that immediately as they started to do the work. We kept in
very close touch with them. It was important to us to see what
was happening in that particular area. So while we did not wait
for the end of the period to do the formal evaluation, I think we
were evaluating all along as to what was happening; as well, with
the early efforts on managed outsourcing.
More time, frankly, than I
think we expected had gone by because of a very important labour
relations issue. We also had the local service realignment. We
actually had a period of time of close to a couple of years that
we were not proceeding very quickly with this. So I believe there
was adequate time for us to learn from the early experiences. As
I said, that is the main reason we decided that we would be
better off going with a blended approach than picking one form of
outsourcing as opposed to the others.
1140
Mr
Gravelle: It's interesting to know you certainly can
evaluate a pilot project, then, if it suits your purpose.
Obviously, it's a pretty interesting approach to take, because
one would think the purpose of a pilot project is to complete it
and see, and also, we still have no authentication of the savings
that were put forward in terms of the pilot project. Despite what
you've said, what has become incredibly clear is that the 5%
savings that you said were there certainly aren't there across
the system, and that doesn't address safety concerns, which are
very real, and I'll get to those in a more specific way
later.
Let me ask you about the
blended approach. It was made very clear that managed
outsourcing, if that was the route to go, was more likely to save
money than the area maintenance contracts. It sounds like there's
some level of agreement that you have there, because you've got
this blended approach.
If I may, I'm going to use
the examples in my part of the province, because I'm perhaps more
familiar with them. In Thunder Bay there was a move to full area
maintenance contracts, and it was acknowledged by your ministry
officials that indeed the tenders came back at four and a half
times the cost of what the ministry itself could do it for. That
was acknowledged publicly, actually. That's a pretty
extraordinary increase in costs.
I'm finding it hard to
understand how a blended approach would suddenly make that four
and a half-I mean, that's a lot of money, and you might not want
to tell me what the costs would be. That's an extraordinary thing
to say, that now if we go to the blended approach, we can
actually do it for less than what the ministry would do it for.
Can you explain that?
Ms Rush:
I'd be delighted to. It was exactly the fact that in some cases,
in some markets, where we went forward with a tender on an area
maintenance contract, I don't believe their estimates were that
high, but they were certainly higher than we knew we could do the
job for ourselves, so we didn't award. The blended approach
allowed us to say, "We
didn't properly evaluate the local conditions in that market;
let's look at a difference configuration."
I think we've protected the
taxpayers well. We did not award. The industry got a very strong
signal from us that we were not going to award bids that came in
well above our own estimated cost. That was clearly not going to
happen. But it speaks to a flexibility of having two ways of
doing it. Sometimes, in the early times, this was a very new
venture for both the ministry and the contractors. So one of the
things that was clear, as everybody got some experience in terms
of looking at our tender documents and knowing what they needed
to tender on, and we had meetings afterwards with some of them to
clarify that they knew exactly what there were supposed to be
doing, was that it also gave us the opportunity in some cases to
say, "That particular market condition, that particular local
area, is perhaps better served, and we'll both ensure safety and
have a better outcome financially by going to a managed
outsourcing."
It was exactly those
experiences, sir, that led us to believe we should keep the
flexibility of both options. We also found that the price
variation was not as we had assumed it to be in 1995 before we
started. So really it gave us the flexibility to make sure we
were putting the right configuration forward for the marketplace
and the conditions for that particular time. It also would allow
us to make different changes in the future, but still outsourcing
and still providing safety.
Mr
Gravelle: I happen to believe that our highways and our
provincial roads should continue to be maintained by the public
service. I happen to believe, and it's becoming more and more
clear, that it would probably cost us less with the public
service because there's more and more evidence being gathered
that this indeed, the maintenance outsourcing or the blended
approach, is going to cost more.
We have the example in
British Columbia. I'm curious as to whether you looked at that.
You talked about the jurisdictions, but we know there was an
accounting done of the privatization process there, and
ultimately it was determined that it was costing about $100
million more to do it through this method rather than through the
public service, and you're using essentially the same methods
they use.
Ms Rush: I
have to make a comment here.
Mr
Gravelle: I mean, there should be some lessons in that.
Those are facts that are on the table, and you have not yet been
able to provide the committee nor the auditor with any
information that suggests other jurisdictions that would do the
savings. I submit that's not the major issue, but you're still
basing it on that.
Ms Rush:
If I may, sir, it was exactly the British Columbia experience
that led us to alter the approach. We did not do what British
Columbia did. We learned a tremendous lesson from them and quite
appreciated the fact that they were a case study for us to look
at. What British Columbia did is move very quickly with rather
large outsourcing activities, and they were the ones that found
they hadn't fostered competition when they went to re-bid.
I think the Provincial
Auditor was quite right in pointing that out as an important
case. We had looked at their experience and did not want that
experience in Ontario. What we were after, the reason for the
blended approach and the reason we're delighted with the number
of different bidders, is that they're allowing small companies
and large companies to bid for these, as we are fostering
competition out there. British Columbia was the most important
jurisdiction we studied.
I appreciate your comments,
but I believe that what we have done is learn from that
experience and made an Ontario solution that we're very convinced
will prevent us from being in that circumstance.
Mr
Gravelle: It seems to me that what you should have
learned is that it may cost more. Have you accepted the
possibility that it may cost more? Obviously we are in dispute
about the savings. I think it's pretty clear that the savings
aren't there. I think the evidence is overwhelmingly there that
the savings aren't there, at least in terms of the four projects
that were studied in advance. That's why we want to have the
auditor look at the whole process again.
Will you accept that
possibility, that indeed it may cost more?
Ms Rush: I
think it would be extremely unlikely with the evidence we have to
date. As I said, when the Provincial Auditor was looking at these
contracts they were in the very early days. I think the industry
was still learning how to bid. The Provincial Auditor was looking
at a circumstance where we had around 20% outsourced.
Irrespective of the methodology used, we are confident that at
85% we have saved over the 5%. We also believe that by using this
approach-the number of companies across the province which have
bid, the opportunities we have for small companies to bid and
give us good prices and efficiency, the opportunities for
companies to become larger and provide more management
services-we are very confident that we are creating, by the
procurement and tendering processes we're using, the kind of
competition and competitive environment that will lead to
continued cost savings.
Mr
Gravelle: I appreciate what you're saying in terms of
what you truly believe. What I hope is that your convictions
about that, and also our disagreement that is the case, will give
the government members on this committee confidence that they can
support my motion, because obviously you will be confident that
indeed the auditor would find out that what you're saying is the
case. I would hope that would encourage the members opposite to
allow this independent review. Obviously the auditor would be the
ideal person to do that, because you would believe he will
confirm your beliefs, and this is a great way to do it. I would
certainly welcome that support, based on that opportunity. Let's
find a way to settle this, folks, and that may be the only
way.
Let me discuss, if I may,
some other issues related to the safety aspects. There has been a
dispute for some time
about the quality of the maintenance. It's been my contention
quite frankly since the fall of 1995, when the government first
came into power. One of the first things they did was announce a
cut in the budget for maintenance services back then and a
decision that they were going to change the way maintenance was
being done. I'm sure you're going to tell me that their standards
haven't changed, or at least haven't declined, but they certainly
have changed.
We know about the larger
patrol areas which, again, the auditor identified very clearly as
being potentially of some concern. I certainly have a lot of
examples of the large patrol areas being of concern. There are a
couple of issues here. I know that the Geraldton district-again
going back into my part of the province-is a pretty large
district to cover in terms of the patrols, going from Gorge
Creek, just above Nipigon, right to the Thunder Bay-Cochrane
boundary and up to Nakina. I understand that there have been
occasions when one person is doing that; when there are days off
and whatever situations occur, that indeed one person is doing
that. I know that your regional director in northwestern Ontario
would be aware of the extraordinary changes in weather that can
take place over a short period of time. I think of the Beardmore
area and how things can change.
What we have is a
situation, it appears, where you've got one person, potentially,
patrolling an extremely large area, having to go back and call in
before the private contractors are even able to go out there.
That obviously is a concern. The auditor identified that as a
concern. Is it a concern for you? Certainly it should be, it
seems to me. Indeed, that's one of the staffing issues. That
doesn't quite get to the whole question of monitoring the AMCs,
but that is a real issue. It's one of the reasons why we think
there's been an identifiable decline in maintenance by so many
people.
1150
Ms Rush:
Perhaps I could begin my answer by defining a little bit the
roles and responsibilities, who is responsible for what on the
roads. When we moved to area maintenance contracts first, the
patrolling function was taken over by the area maintenance
contract people.
Mr
Gravelle: I understand that. I'm talking about MOs right
now.
Ms Rush:
But if I can say, the comments about the 300- to 500-kilometre
area relate to the area of an area maintenance contract. I
believe some of the staff the Provincial Auditor spoke to at that
time expressed their concern that that was too large as a patrol
area. I think they were just coming to grips with the significant
change to their own jobs, where they were no longer providing the
patrol function; they were providing the quality assurance
function. In talking with our staff today, I think they're far
more comfortable with-
Mr
Gravelle: But there is a situation up in the Geraldton
district where indeed that is taking place, where there can be
one person who is doing the entire patrol, which is about
600-plus kilometres. That being the case, clearly we can think in
terms of how long it would take to do that and how the weather
conditions could change. That strikes me as dangerous. That
strikes me as making it more dangerous and that strikes me as a
decline in service, in maintenance standards.
Ms Rush:
In managed outsource activity like Geraldton, it is our own
people who are still doing the patrolling.
Mr
Gravelle: I appreciate that, but I'm saying that you
haven't got enough of them doing it. That's part of the problem.
They've got to go out and report what the conditions are. If
you've got one person doing a large patrol area who is going to
call the private contractors out, and they are doing a massive,
long patrol and they can't get back for six or more hours, the
weather conditions can change dramatically. That, to me, is a
decline.
Ms Rush:
Perhaps I could ask the regional director to come forward and
explain the communications capabilities in terms of getting that
information.
Mr
Gravelle: I just want that specific area, if I
could.
Mr Larry
Lambert: I'm Larry Lambert. I'm the regional director in
northwestern Ontario.
Mr Gravelle is quite
correct that the vast majority of northwestern Ontario is under
the MO form at this point, and in the MO form the patrolling
function is provided by the ministry, as it was.
The Chair:
Just for the record, could you just explain what "MO" means.
There may be people out there who don't understand.
Mr
Lambert: It's the managed outsource approach to winter
maintenance. With that mechanism, the ministry does continue to
provide the patrolling function in total. We provide patrollers,
and in winter we have additional patrollers on. In the Geraldton
area we do have a substantial patrol length that is undertaken.
We have standards in place to determine the number of kilometres
that a patroller can patrol and we hire additional seasonal staff
to complement that, based on the area.
Mr
Gravelle: In the example that I gave, though, can that
happen? Has it happened? I've been told it does happen: one
person, because of various circumstances of staffing, doing the
whole patrol area on a given day.
Mr
Lambert: I believe you used a figure of 600 kilometres.
That cannot be correct.
Mr
Gravelle: But one person could be asked to do the entire
patrol area.
Mr
Lambert: One patroller is assigned during a given shift
to the entire patrol, whatever the length of that is, and I will
obtain the exact length of that for you.
Mr
Gravelle: OK. That's my concern.
There's another issue that
I want to get to. I've got two minutes; I'm very concerned about
my time. There seems to be also a difference in quality that
literally is visible to the eye in certain stretches of the
highway. As I mentioned earlier, Mayor Bob Krause of Schreiber
has written the minister a letter about that, that you will drive
one part of the section of the highway and it's maintained-it
looks like it's summer. You're driving beautifully. You cross
over the bridge, and suddenly you're into conditions that are
quite dangerous. I appreciate that's because there may be
different contractors doing it.
Interjection.
Mr
Gravelle: It's absolutely the truth and it's fact. So
that's a concern.
The Chair:
Did a government member say it's a different riding? Did I hear
that?
Ms
Mushinski: A Liberal riding.
Mr
Gravelle: I've got a very big riding, members.
What I want to pass on to
the committee-and I'd like to show this to the ministry, but more
specifically to the auditor, particularly if my motion is passed.
This is a video that was taken by Mr Cecil O'Flaherty from
Atikokan, passed on to my colleague in Thunder Bay-Atikokan, Lyn
McLeod. This is a video of the road between Atikokan and Thunder
Bay and it's clear evidence of the difference in the conditions
at various parts of the highway. That's about a 200-kilometre
stretch. It's very interesting. That also suggests to us that
there is a decline in standards. It's visible changes in the
quality of the maintenance as you go along. Weather conditions
are quite the same in this particular case. So you go and you
cross over a certain area-that's a concern, and that's one of the
issues that we think causes dangerous driving, one of the things
that could cause accidents. You're driving along with a certain
mindset, and then you cross over the bridge and suddenly you're
into a different kind of driving condition. So I want to pass
this video on to the committee.
I have another video that
actually-perhaps I'll get to this in the afternoon-speaks to the
need for us to four-lane the highway between Thunder Bay and
Nipigon, something I'd love to ask the gentleman who is in charge
of construction here about, as to why we are not moving forward
more quickly on that. To us, many of the issues of safety could
be resolved with a twinning of the highway between Thunder Bay
and Nipigon, in fact, Thunder Bay and Shabaqua. When an accident
takes place there-obviously this is the one way across the
country-we are not able to get beyond that. As I say, when I have
more time, or if you've got a moment now, I'd be curious about
that.
But I want to pass this on
to you. That's a major concern. I'll be discussing it perhaps
more this afternoon and maybe asking the other gentleman about
the Thunder Bay-Nipigon twinning plans and where they're at and
why we can't move forward more quickly.
The Chair:
Any final comments before we recess?
Ms Rush:
No, thank you.
The Chair:
Then we're recessed until 1:30. Thank you.
The committee recessed
from 1156 to 1333.
The Chair:
I'd like to call the committee back to order, please.
Mr
Gravelle: I just wanted to seek some clarification. I
made reference to the video of the driving conditions between
Atikokan and Thunder Bay, which I wish to pass on to the
committee so they can look at it. I wonder if it's possible to
get a copy made of this so that it can also be passed on to the
ministry for them to take a look at as well.
The Chair:
If you give it to the committee, then the clerk will make sure
that a copy is made and forwarded to the ministry as well. I
believe you made comments to both effects before the recess,
actually.
Mr
Gravelle: That's right. Thank you very much.
The Chair:
That will be done.
Ms Martel, you have 20
minutes.
Ms Martel:
Deputy, I would like to return to this issue of methodology
because, unless I'm mistaken, how the ministry uses its
methodology and how the auditor would prefer you use it could
result in very different outcomes financially, if you were
applying your methodology contract by contract.
I clearly heard you say a
couple of times in your responses that regardless of whatever
methodology had been used, either yours or the auditor's, there
would have been savings. I'd like to go back to that, because in
the auditor's report on page 243 the auditor questions the
methodology. We've gone through that already this morning. But he
also says very clearly, "If all of these costs were factored out
of the ministry's estimates, outsourcing would result in
estimated losses on three of the four contracts." So I take from
that that if his methodology was being used, the ministry would
not have received the savings that you say you have; in fact, we
would have seen significant losses on three of the four
contracts. Can you respond to that?
Ms Rush:
Thank you for the question. That same page of the audit report
also states that we would require significantly higher savings in
order to achieve the overall, and that is indeed what took place,
so that we have received higher and higher savings as the
industry became interested and more competitive in their bid
prices. We have indeed, as I indicated this morning, to the best
of our ability recalculated the totals as we have them now at 85%
outsourcing, and we have slightly more than 1% different savings
by using the methodology suggested by the auditor and the
methodology that we say, and both of those are over 5%.
We did indicate that we
were beginning the process at this point. These were the very
early contracts. The experience for both us and the industry
proved to get better and better through the contracting, and we
have indeed, irrespective, as you say, of the methodology used,
achieved greater than the 5%, which was our commitment in terms
of the business case.
Ms Martel:
I just want to be clear: You are using your methodology for the
other contracts that you've been dealing with.
Ms Rush:
Yes, we have.
Ms Martel:
You've said quite consistently to this committee that you've
experienced over 5% savings. I wonder if you'd be prepared to
table with this committee those data that would clearly prove to
the committee and to the auditor that in fact the savings that
you say have been achieved have been achieved.
Ms Rush:
Yes, I can indicate that on the totals from the contracts that we
have today we've achieved, according to the way that we calculate
the accounting methodology on the cost of capital financing,
7.8%. It is slightly more than 1% less if we use, as we
understand it, the auditor's suggestion.
Ms Martel:
What data would it be that you would table with us to demonstrate
those savings and how they were arrived at?
Ms Rush: I
would have to get back to the committee on that in terms of our
ability to do that. We have some information confidentiality
issues in terms of individual contracts, but I believe we could
find a way to do it in summary tables that would be satisfactory.
If we could work with the committee to do that, we'd be happy to
do so.
Ms Martel:
I would like not just the total savings; I wonder if you can
provide to us, contract by contract, the-
Ms Rush:
That I will need some clarification on and would work through the
committee for that. As I say, given the competitive nature of the
industry we have, part of our ability to keep competition in the
marketplace is to make sure that our own estimate price is not
known. That would be a way to ensure that we would not have a
competitive market. But I believe there's a way that we can meet
your needs and have some appropriate data provided.
Ms Martel:
As a follow-up to that, the earlier concern raised by the auditor
with respect to the estimated savings in the pilot district of
$900,000 was that the ministry at the time of the audit could not
provide the auditor's staff with any documentation to support
that. You said in an earlier response to me that you had that
documentation now. Can you table that documentation with the
committee to show how that $900,000 saving was arrived at?
Ms Rush:
We had some documentation. I thought it was clear this morning we
had some documentation. We had the summary tables that we used.
We do not have some of the background information. At that point
the ministry was going through a very large change in both
personnel and geography, and we cannot provide some of the
detailed background. We can recreate some of the calculations,
but again I would ask for clarification in terms of
confidentiality. If we could work that through the committee in
terms of a way to satisfy your interest and maintain the required
commercial contract confidentiality, we will provide you with
what we can.
1340
Ms Martel:
When you say you have some documentation now, was that ever
provided to the auditor at the point of the audit?
Ms Rush: I
believe the auditor saw what we had, and they were summary
tables. I believe what was missing were some of the background
calculations.
The Chair:
Just so I am clear, when you say you can work that through the
committee, if you don't mind for just a minute, how do you
propose to do this? Are you going to provide us with some of the
information, or will you do this through the auditor's office, or
through the researcher's capacity or abilities?
Ms Rush:
At your direction, sir, we would provide appropriate information
to the members.
Mr Bart Maves
(Niagara Falls): Maybe that could be part of our
discussion.
The Chair:
Okay, we'll discuss that later. Thank you very much. Yes, go
ahead.
Ms Martel:
Just so I'm clear, what you're going to provide to us is
something different than what was provided to the auditor at the
point of his audit. Is that correct?
Ms Rush:
The auditor is entitled, through his legislation, to look at all
information. As I understand it, he keeps confidential those
things that are part of the commercial reasons for
confidentiality.
Ms Martel:
Sorry, I've not made myself clear. The concern in the audit was
that the ministry could not provide the auditor with any
documentation to support its calculation of a $900,000 saving.
What I'm trying to get at is, the documentation you are offering
to provide the committee now is in fact proof of the saving that
was not provided to the auditor at the time of the audit. This is
different information that you're going to give us to
substantiate a $900,000 saving?
Ms Rush:
No, the auditor had available access to what we had at the
time.
Ms Martel:
Can I ask the auditor what was missing, then, which would lead
you to say in your report that there was not the documentation to
support the figure of $900,000 of savings?
Mr
Fitzmaurice: They gave us the contract bid price and
their estimate, but they couldn't support their estimate or give
us a breakdown of the estimate. Certain tables are available, but
we can't tie those numbers into this $900,000.
At the time, they said they
could possibly recreate where this number came from, but we felt
that wasn't appropriate. We'd like to see where their calculation
came from, how they calculated it, and follow that back to source
documentation, which wasn't available. They didn't have it. There
was a certain number, and we'd like a breakdown of that number
and where this breakdown of these numbers came from. All they
really had was a total number, and we couldn't work it back from
there.
I'm sure there are tables
available of maintenance costs at the time and things like that.
Those things were available, but they can't be tied into the
ministry's estimate.
Ms Martel:
Can I ask a question of the auditor as well, and then I'll ask
the ministry: What information would you require to make a
reasoned, legitimate estimate of whether or not the ministry is
seeing any savings? What would you need to see in individual
contracts that would convince you or give you comfort that in
fact the savings the ministry is talking about are real
savings?
Mr Peters:
What we would like to see is the-in particular we're talking
about the pilot right now. If you recall, at the pilot time the
contract had already been granted. It had been in effect for some
time. So when the original estimate of $900,000 was made, we just
couldn't find sufficient documentation to support the individual
elements that made up the $900,000.
What we would like to see now, after the
performance of the contract, which is expiring in two months, is
the actual savings achieved over the term of the contract. The
original estimate has now become almost a moot point. Now we have
the actual time, so it would be worthwhile to have a calculation
demonstrating what savings were achieved from the pilot over its
life.
Ms Martel:
OK. Deputy, is that information that you can provide to this
committee?
Ms Rush:
Again, I would have to seek some direction from counsel in terms
of what's commercial information which is covered by
confidentiality through contract, and what is available
information. This is covering a great deal of information, some
of which is confidential by virtue of contract. I hope we can
find a way to satisfy the concerns overall. But as I say, I
can't, without speaking to counsel and getting some direction,
know exactly what information is releasable when you're in a
contract situation.
Ms Martel:
That responds to the specific pilot document. I continue to have
ongoing concerns about what the differences in savings would be
depending on what methodology would be used.
Let me ask you a second
question that's not specifically with respect to the pilot but
the other contracts that have been signed to date. What would we
need as data to determine whether or not the kinds of savings
that the ministry is talking about could potentially be achieved
in the other contracts as well-not just the pilots, but the other
contracts that have been signed-given the ministry has used their
methodology and given you have expressed serious concerns about
that?
Mr Peters:
It would be the same information that we had for the four
contracts that we did review; that's what we would be looking
for. There we were able to look at all the elements, discuss all
the elements with the ministry and come to an agreement on the
elements. On some we obviously disagreed, but at least there were
data on which we could base an informed discussion of the
estimates.
Ms Martel:
The information that you had allowed you to do that? It was
sufficient to allow you to do that?
Mr Peters:
On the four contracts, definitely, we had sufficient information
to enter into that discussion.
Ms Martel:
In terms of your review of the four contracts, are there
obligations that you have with respect to the confidentiality of
those four contracts?
Mr Peters:
The difficulty is-and maybe the deputy can correct me on
that-from my office's perspective, under our act we have access
to all this information. I think the concern is making it public
to the members. We could receive the information, interpret the
information, report on the information to you, but the concern is
giving the information directly to the members.
Ms Martel:
If nothing else, at least we could request that you take a look
at the other contracts, scrutinize them in the same way you did
in the four pilots and come back to the committee-not using
anyone's name or any company names-and give us your results with
respect to what you perceive the actual savings to be on the
remainder of the contracts that have been signed. We could do
that, if nothing else.
Mr Peters:
If that's the wish of the committee, that could be done.
Ms Martel:
That would be great. Thank you.
I want to look next at some
of the contracts that were let without tenders. This happened in
two cases. Perhaps "tenders" is not the best word to use for one
of these. But the auditor noted in two instances-one, in the sale
of MTO assets, and secondly, in the tenders with respect to what
you call preservation management contracts-Management Board rules
were not followed. In the case of the sale of MTO assets, those
should have gone to public auction; they did not. It seems, from
what the auditor pointed out, that would have been a
contradiction of Management Board rules. Secondly, in the case of
the management contracts for preservation work, a number of
awards were made without going to tenders for the possibility of
other contractors to apply. Can you tell us, Deputy, why in both
of those cases an apparent contravention of Management Board
rules occurred?
Ms Rush:
Yes, I'd be pleased to. In the case of the surplus assets, this
was always intended to be the way area maintenance contracts in
particular would be let. In the business case that we took
forward to Management Board in 1995, we laid out a scenario where
we thought it would be more cost-effective and we would ensure
value for the taxpayers' dollars by having these pieces of
equipment as part of the area maintenance bid. So the competition
part and the tendering bid, in our minds, were part of the area
maintenance contract activity itself, because in the winning of
that award they had the right to buy the surplus assets at market
value. So we had protected the public interest, we believe,
twice: once by having the bid actually included in something that
was properly tendered, and secondly, by ensuring that that first
right of refusal was indeed at market value.
We did believe at the time
that the business case approval by Management Board constituted
the approval to proceed that way, because we felt we had made the
argument that that was a very logical way to look after these
particular assets. The logic of this for us was that these assets
were usually the right configuration of equipment for the area
being bid out, that they actually made sense in terms of where
they were located and there was an overall collective efficiency
and that if we had a tendering process through the area
maintenance contract and we had a protection that that value
would never be below market value, that was an appropriate way to
go forward.
1350
The Provincial Auditor
pointed out to us that we had taken implicit direction from the
business case to do that but had not sought explicit, and so we
will correct that in the future. As I say, through this business
case our intent was that it was tendered as one of the features
for the area maintenance contract and the value would be at
market value as a right of refusal.
Ms Martel: Before you move to the
second one, just so I'm clear of the process, as part of the
tender document itself the market value of the assets was listed
as part of the RFP?
Ms Rush:
That's correct. And they had a right of first opportunity of
first refusal, if they chose to.
Ms Martel:
Depending on whether or not they already had the equipment
itself.
Ms Rush:
The business logic to us was here you had work being done in one
methodology that was about to move to another. Probably it was
the right configuration of equipment if they didn't have that,
and it was also in the right place. So it made business sense.
And, as I said, through the business case minute and permission,
we did think that we had sought the appropriate approvals, and
the Provincial Auditor is correct to suggest to us we get more
explicit approvals.
Ms Martel:
Did any of these assets also include MTO buildings?
Ms Rush:
Patrol yards? No.
Ms Martel:
So strictly equipment.
Ms Rush:
It was strictly equipment.
Ms Martel:
Snowplows, graders.
Ms Rush:
Yes.
Ms Martel:
OK. The second case then, with respect to what the ministry would
call a preservation management contract-
Ms Rush: I
think it's quite a similar circumstance. This was again a logical
business element, we believe. If I could explain, from pure
maintenance through to preservation maintenance through to
capital is a bit of a gradation of just a little bit more work.
We have, in our business, a time to go beyond a maintenance
contract to a very small bit of preservation management. They're
small contracts. For example, if there were an area of potholing
that was abnormal and needed to be dealt with quickly, and they
were severe and they were beyond, that would be let out as a
separate contract.
Here we have people on the
spot. This was in the tender document. Again, it was a right of
first refusal, a right of first opportunity to do the work, only,
though, if we felt the price they were offering was appropriate
to the ministry estimate of the price.
It is an attempt to get
overall efficiency into this marketplace, recognizing the
business interest, and we did something similar as in the surplus
assets question. We did put this in the business case. We did
take it forward as a way to proceed to Management Board. We felt
that was the permission we needed, and I think the Provincial
Auditor has pointed out we needed something more explicit.
But I think what we're
after is fairness and efficiency. This was again a feature that
was possible extra work for the area maintenance contracts
winner. They knew that at the time of bidding. It was part of
what they bid on. These are very small-valued contracts that make
economic sense to get going quickly. Again, we had a limit
protection. We would not do this at above what the ministry knew
to be its reasonable estimates. That was our intention. We
thought the business case elements were well described. We did
put it into the tender document. Again, what I believe the
Provincial Auditor has pointed out to us is that we should obtain
more explicit approval when we're going to do something like
that, and we appreciate that.
Ms Martel:
Deputy, it seems to fly in the face of your other stated intent,
which is to ensure the competitiveness of the industry. You have
cases where you would let an entire contract for area
maintenance, which could be hundreds of kilometres, and not only
would they get all the maintenance, then they might get the
bridge work and other things that would go with it. So I'm having
difficulty understanding how you would know whether or not you
could have got a better price from smaller contractors if you had
allowed that process actually to happen.
Ms Rush:
We were working on the assumption, in terms of the timeliness and
the fact that again we had had an incredibly competitive process
for the award originally, that we were talking about small, extra
pieces of work that are of relatively low value and actually are,
therefore, somewhat more expensive to tender. As you know, the
lower the value of the contract, the more cost for both parties
to go through the tendering activity. This is in no way moving
into all of preservation management. These are small contracts.
They're in the order of, where we have perhaps an area
maintenance contract in many millions, extra work in a season of
$100,000. It just goes into a different definition of work. So we
do believe it was a more efficient way of doing it, and again our
belief was that the competitive aspects of this were looked after
while in the tender and we are still making sure that we are
getting the work done at equal to or better than the ministry's
estimate of what the work would cost.
Ms Martel:
Deputy, I want to ask, has the ministry established any limit at
all, an upper limit, on the amount of work you would give to any
one contractor?
Ms Rush:
No, we have not done that.
May I say that we did put
that right into the contracts. Again, this is going back to 1995.
We did not know at that point what the level of competition would
be. We did not know at that point the level of interest or the
sustainability of some of the interest, so we did put in a
protection for ourselves. I believe the thinking at the time was
wondering if the mergers that seemed to be occurring in every
sector of the economy and across the globe would start to occur
here and we would find ourselves in a circumstance where a
company could dominate. I am pleased to say that we haven't seen
that occurring. As I say, we have nine different companies that
have won. We do hold that right should we feel our fundamental
principle of maintaining healthy competition starts to not look
like it's as strong as it should be.
Ms Martel:
So at this point you won't have a limit and it will only come in
effect if you think that competition is somehow being undercut, I
guess is the best word I'm looking for; if it's going to be at
risk.
Ms Rush: If we felt that the
competition of the industry were beginning to be at risk, we
would seriously look at that. We don't have a particular policy,
but we did declare the right that we might want to in future. All
of these things at the beginning were intended as
protections.
As I said at the beginning,
one of the great lessons we have learned by looking at other
jurisdictions is that whatever you do in the methodologies you
choose and in how you go out for your tendering and procurement,
you're always conscious that you don't want just the best price
today, you want an industry that's going to have competitive
possibilities in the longer term.
Ms Martel:
I want to ask you about safety.
The Chair:
We're at about 22 or 23 minutes. Do you want me to lengthen each
rotation a little bit?
Interjections: No.
The Chair:
OK. Then we'll turn it over to the government side.
Ms
Mushinski: Thank you, Mr Chairman. The auditor has
indicated that provincial highway maintenance has increasingly
shifted from an internal ministry operation to obtaining private
sector contractors, actually since the early 1980s. He goes on to
say that it actually wasn't until 1996 that the ministry
developed alternative service delivery strategy by entering into
a number of contracts with the private sector.
Can you tell me if there
were any strategies or business methods that were followed since
1980 or the early 1980s when provincial highway maintenance was
shifting from internal operation to private sector operation?
Ms Rush:
You're talking about since the 1980s?
Ms
Mushinski: Yes. Were there any parameters in place, any
best business practices that were introduced, as you proceeded
into outsourcing roads maintenance in the early 1980s or in the
late 1980s or early 1990s? Or was 1996 the first time that any
business measures were actually developed in outsourcing roads
maintenance?
Ms Rush:
Perhaps I can begin and Mr Hennum can continue.
The use of outsourced
services prior to 1995 was primarily for specific functions, so
we would outsource for piling and spreading; we would outsource
for electrical. We would outsource by function, and that was
becoming more advantageous for us over time. That level that was
actually in place in 1970 was increasing through the 1980s.
1400
Ms
Mushinkski: So outsourcing had clearly been identified
by previous governments as being a preferred option in terms of
saving costs?
Ms Rush:
Yes, I could presume so.
Ms
Mushinski: The auditor has identified a need to develop
performance measures for summer and winter maintenance. I wonder
if you could comment on that. For example, I know that previous
governments had never actually developed performance measures for
either winter or summer maintenance, and the auditor did express
a concern that no performance measures had been developed for
summer maintenance. Could you comment on his concerns?
Ms Rush:
The performance measures are of challenge to all jurisdictions
that are trying to get better and better at the performance of
their total services. What we are, I think, very good and
proficient at is the creation of standards. The creation of
standards, if you like, in any sort of hierarchy of how you
measure yourself-the standards indicate from the best
professional advice developed over time and let you know what
level of activity is appropriate for what direct result in how
you measure efficiency.
When you come from the very
top down, as I mentioned this morning, if you want to look at an
overall performance measure, one would look at things like, how
do we know what we're doing is efficient? How do we know that
we're increasing safety for the people of Ontario? I believe
we're getting very, very good at high-level, as I said. In 1995
we were the sixth safest jurisdiction in North America. Three
years later, we're the fourth safest jurisdiction in North
America. So you can have a very good public measure of how you're
doing in total.
The challenge that's being
presented is, how do you take a particular set of activities,
when you know there are many variables involved, and find
performance measures around how you're doing? We're trying to
fill in that middle ground. I think we're more successful at this
point on winter maintenance, as the Provincial Auditor pointed
out. What we're trying to do there, so that people indeed have a
sense of what particular performance we should be able to accept,
is that by class of highway we will be establishing an average
time frame from a winter storm to when we can get to bare
pavement. For a class 1 freeway, we intend to establish a
performance measure that nine times out of 10 we will be able to
be at bare pavement in eight hours. Different standards or
different performance measures will be applied to different
classes of highway.
Ms
Mushinski: Within eight hours of the end of a storm?
Ms Rush:
Yes, within eight hours of the end of a storm.
On summer maintenance, it's
very difficult to come up with a performance measure. In fact,
when the Provincial Auditor made the comment, we ourselves had
been struggling with this, and I can tell you we found no road
authority in the world that has yet come up with an appropriate
performance measure for the kinds of things that happened.
Perhaps I can explain
further. There's a continuum of activity that occurs in
maintaining a highway and keeping it in a good capital state.
There's the beginning parts of maintenance that we're talking
about in these contracts, into the preservation maintenance
activity, into full preservation maintenance activity, into
repaving very small bits, into resurfacing, into rehabilitation.
In order to do that, you need to know whether you're effective
and you have good performance measures around what you're doing on that. But that
sort of takes the continuum from maintenance right through to
capital. On that score, I think we're one of the leaders in the
world in terms of the professional engineers who work for the
ministry trying to figure out those techniques.
Every year we come up with
something called a pavement index. Every bridge and every roadway
is inspected annually. It's measured on a number of features, and
every part will get something called a pavement index. That
pavement index tells us the overall status of that piece of
capital equipment, and that is the technological basis from which
we build up the capital requirements for rehabilitation only.
So we have pieces of this
puzzle. I think we have pieces of this puzzle figured out very
well. What we're doing is working on second-generation systems of
how we take all that information and turn it into better asset
management techniques, so we actually are modelling constantly
the performance of the pavement, and when and how we should be
making the next investment. I guess the Provincial Auditor did
refer to this a bit, but I am talking about a continuum from
maintenance right through to capital. We're working very hard to
develop these measures.
I think we have very good
technical measures. I think we have a very good way of knowing
how and when to trigger investment on the capital side. There is
a logical relationship between the beginning parts of that
spectrum of maintenance, obviously, of sealing cracks and grading
shoulders, that both prolongs the life of an asset and makes it
rideable and safe. Our difficulty is, how do you take that one
piece and find a measure for it outside of all of the activities
that have to take place? So we continue to work. If anybody finds
one in another jurisdiction, we'll be on the phone as soon as we
can. But this is the struggle, how we indeed continue to measure
ourselves. We are technically very proficient at that, we have
very good high-level measures and we're working very hard to fill
in that middle range.
Ms
Mushinski: OK. Thank you. There seems to be some
confusion around the role of rehabilitation versus maintenance in
achieving system condition. It has been alluded to that perhaps
with these new changes some of the patrol areas may be too large
for proper quality monitoring. I wonder if you could comment on
that and advise this committee what your ratio of staff per area
is today vis-à-vis what it was before these monitoring
systems were established and how the changes have occurred and
affected safety, because I think this is the major criterion
we're talking about, in terms of the responsibilities of the
patrollers. In other words, what are their responsibilities today
vis-à-vis what they were, let's say, five years ago, before
this system was established?
Ms Rush:
I'll ask the assistant deputy minister for operations to
reply.
Mr Hennum:
The ratio between the numbers of people we have in the field now
and the numbers we had before varies quite a bit from region to
region. Typically in an area like Chatham where you can get
around fairly easily, we have a lower number than we will have up
in the area which was referred to earlier, in Geraldton and the
Nipigon area, where the distances are longer. So it varies quite
a bit. Typically the area for what we now call a maintenance
coordinator is about 300 kilometres per individual that they have
to look after it. The important thing here is the changed
responsibility that these people have.
Overall, the work that we
used to do is still being done out there. Depending on whether
there's a managed outsourcing area or a maintenance contract
area, the work is done by different people. For example, and it
was referred to earlier, in a maintenance contract area, the
contractor does the patrolling as opposed to us doing it before
the outsources.
In the managed outsourcing
areas, we are still doing the patrolling, so to speak. In the
area maintenance contracts, some responsibility has changed from
patrolling, finding the work, looking after the staff, keeping
the detailed records and so on, to a role where we are in fact
the auditors, monitors and quality assurance people. We manage
the relationship between the contractors and ourselves.
A lot of the previous
responsibilities have been taken on, obviously, by the
contractors in this area. That's why in a lot of cases we can
cover a larger area than we used to have per individual in the
past.
Mr Maves:
In one of your statements, Deputy, when you were doing your
presentation, you said MTO had traditionally outsourced. I'm just
curious about that. For how many years has MTO outsourced road
maintenance and construction?
1410
Ms Rush:
My understanding is that it started in the early 1970s.
Mr Maves:
Did it stop between the years 1985 and 1995?
Ms Rush:
No, it did not.
Mr Maves:
So we continued to outsource maintenance and construction in
those years. Thank you.
Interjection.
Mr Maves:
Sarcasm aside, Mr Cleary, one of the other questions I'd like to
know is-
Ms
Mushinski: I didn't think he was sarcastic at all.
Mr Maves:
I didn't know he was awake to even hear me.
One of the other concerns I
have is about the 33% increase in capital construction for MTO
for roads from 1992 to about 1998-99, yet the PCI index that you
talked about has only gone from about 40% to 44%. I'm concerned
that it appears there's been an increase in funding over that
time of almost 33%, yet the PCI has only gone up from 40% to 44%
on roads in good condition.
Ms Rush:
If I could explain, that's actually not the PCI, that's the
number we used to derive those. The numbers that you're looking
at are what we used to call the percentage of roads in good
condition. We found that term singularly unhelpful to us, so we're
trying to find a better way to describe it.
The statistics you're
quoting tell us what percentage of the road system requires major
capital upgrades to it in a five-year period. The theory behind
this is that an average highway lasts for 15 years. So if you
wanted to have a constant capital program where you kept your
stock in very good shape, you would have, at any point in time,
66% of your capital stock in very good condition. Then you know
you've got a costed five-year cycle.
We had slipped-and the
Provincial Auditor was extremely helpful in one of his earlier
reports years ago in indicating that the capital stock was not in
very good condition. We had below 40% at one point in time, where
we had a huge gap in terms of capital that needed capital
infusion in the next five years. I think it was quite visible,
frankly, in the province of Ontario at that point.
Since 1995 we have had
record levels of investment in capital infrastructure. We have
for the past three years had the largest ever spending on highway
infrastructure in Ontario, so we have been able to move those
numbers forward.
I can take you to a measure
we're trying to introduce that we think is more helpful. It's an
optimal state of repair number, where it takes that 66% as 100%.
With that investment, we've moved from 59% now to 81%. So 81% of
the highways in Ontario are close to being in an optimal state of
repair. We've made tremendous gains. On the old measure it would
have been 54%. We've made tremendous gains that are quite
evident. We've used the pavement index and other things to let us
know where to invest in terms of highways that don't need more
capital infusion in the next five years.
Mr Maves:
Ms Mushinski talked about road safety briefly. You're fourth in
North America, I heard you say, in whatever measure is used.
That's improvement over the past five years?
Ms Rush:
It is an improvement. In 1995 we were sixth.
Mr Maves:
Also during your comments I believe I heard you say that you are
continually reviewing highway maintenance contracts on a regular
basis.
Ms Rush:
Yes, we certainly look at the contracts. Are you talking about
how they're being executed?
Mr Maves:
Yes, that and I guess part (b) of that: you're continuously
reviewing the economics of your outsourcing activities.
Ms Rush:
Yes.
Mr Maves:
I believe you said that whether you utilize your methodology of
calculating savings or the Provincial Auditor's, either way you
are achieving 5% or greater savings?
Ms Rush:
Yes, we are.
Mr Maves:
My understanding is that your inspection and monitoring of
highway maintenance has actually increased because your
inspectors have fewer other activities to oversee so they're
spending more time actually doing monitoring.
Ms Rush: I
think the job functions have changed substantially for both
parties. What we have is individuals now within the contracts
doing what we've called the regular patrolling, and the
patrolling is both a form of inspection and a way to call out
when and where a particular maintenance activity has occurred.
That activity is still going on, on the same basis that it was
before, just by different people in an area maintenance
contract.
What we have as well are
maintenance coordinators whose job is quality assurance. They're
in touch with the contractors all the time. Part of their job as
well is to make sure on some regular basis that they are ensuring
that the work is being done. They combine that quality assurance
and travelling the roads with the data and information they
obtain on a regular basis from the contractor to make sure that
indeed the contract's being followed and therefore the standards
are being met.
Mr Maves:
The auditor had some concern about the input of that data. Have
you addressed that?
Ms Rush:
Yes, we have. The auditor again, coming in so early in this
particular program, was very helpful to us in some cases, in
particular the costing data. I think it's called the district
direct input system, or some such title. Again, we were simply
too informal in the way we were collecting information. We hadn't
got standardized reports; we have created those and are now
getting biweekly, regular updates. We're glad that was pointed
out so early in the process, so we're now tracking through the
data on a much more formal and regular basis.
Mr Maves:
Again, one thing I would like you to take one more shot at before
I'm done is a bit of a clarification about measures-the PCI,
which the auditor has talked about, and this other measure,
optimal state of repair. Could you just clarify one more
time?
Ms Rush:
Yes. Forgive me. As much as I use my hands, I'm not doing a good
enough job of explaining it. I believe in the auditor's report he
is using what is called the percentage of road in good condition.
That is the percentage that indicates whether the highway needs
significant capital investment over the next five-year period.
That is the measure that we'd now like to start talking about as
an optimal state of repair, because perfect is 66% on that former
measure. So if we take that measure to 100%, we would have an
optimal state and we'd know how many are within that optimal
state. That's where we were at 81%.
The pavement index I talked
about is the way we assign a status value to each and every part
of the highway system in Ontario to know what state it's in. It
can go down for a period of time and still not need capital
repair because it hasn't gone to the next category. Those are
updated annually.
We have a very good fit.
This goes to knowing what we're investing, why we're investing it
and making good investments. You can't do that if you don't have
a common way of measuring the state of pavement, but you can have
indices that can move for a while before they go into a category
of needing repair.
Mr Maves: Are these measures
generally accepted measures in most North American
jurisdictions?
Ms Rush:
Yes, they are. The fact is, some of our professional engineers
are well known among their peers as some of the best at putting
this together.
Mr Maves:
Where would we rank on the state of our roads compared to some of
the other provinces, especially on the same indexes? Is that
possible?
Ms Rush: I
can't tell you, other than anecdotally. I believe that our roads
now are certainly, from what I hear, in better condition than the
Prairies and the Atlantic provinces. I don't know if Carl would
know. No, we don't know that.
As I say, one hears at the
federal-provincial meetings if there are complaints about the
state of their roads, but I think they've not made the
investments that we've made over the past few years to bring them
up to standard.
The Chair:
That's the time period right there, 22 minutes. The auditor had a
comment to make, and then I'll turn it over to the
opposition.
Mr Peters:
I'd just like to make a brief comment on this question of
outsourcing. I think it's a broad term. When we compare
outsourcing-I think the deputy and I are in full agreement on
that-there were specific contracts let all along. The government,
in one way or another, and all ministries everywhere have engaged
the private sector to do certain things.
What we were auditing and
what we are now talking about is that in 1995 the government
actually gave a directive to the ministries to reassess the
delivery mechanisms of the service. What we were looking at is
the delivery mechanisms that were established as a result of that
direction. Also, as a result of this direction there were guiding
principles then issued by Management Board. This ministry, for
example, came back in 1996 and said, "If we follow this direction
that you have now given us, that's how we would like to
proceed."
1420
There are three kinds of
contracts. There is the managed outsourcing contract-Deputy, feel
free to jump in, if you will. The MO, or managed outsourcing, to
some extent had been practised before. That was pretty well how
you conducted business where you outsourced. The ministry
retained a significant degree-in fact, all-of the responsibility
for the quality.
With the area maintenance
contract, there was a lot more responsibility assumed by the
contractor for the performance, and the ministry backed out
further.
In the area term contract,
the ministry backed out even further on some of the additional
work beyond the maintenance, if I interpret this correctly.
So what we are talking
about when we are saying "outsourcing" has been practised all
along. But there was a dramatic shift in 1995 in the methodology
in which outsourcing was carried out, and it was that shift to
that new methodology that we were auditing in our report, and
that's what we have laid before you.
The Chair:
Any comments, Deputy? No? Mr Patten.
Mr Richard Patten
(Ottawa Centre): I want to come back to the area
maintenance contract as well, and the diagram on page 243 of the
auditor's report, because I have not yet seen any resolution of
the difference of opinion between the auditor's and the
ministry's view of what legitimately constitutes what are
savings. At the moment I can only go on-because I haven't seen
your books and I'm sure I won't get a chance to see your books in
any case, and even if I did, I probably wouldn't understand
them.
The auditor says the
ministry put things on that list in terms of assessing savings
that were doubled-counted or "overestimated its own cost of
equipment maintenance, service crews and miscellaneous
expenditures." Then I believe there was some comment this morning
about considering recapitalization, using that as a full amount
in your own column when you assessed the savings when you gave
out a contract to someone else.
That's a pretty big spread,
0.3% in terms of the auditor's estimate of savings, and the
ministry's, which is 5.2%. Given this dispute, what would you say
are the differences in that? Let me ask that, first of all. What
are the differences between yourself and the auditor? What do you
think the auditor is saying to you that isn't legitimate? What do
you think is legitimate and you disagree with the auditor on?
Ms Rush: I
think the auditor pointed out in his report that the areas we're
discussing are not direct costs. They all relate to the indirect
costs, and they are the most difficult part of accounting and the
most difficult part of cost methodology. You work back from the
direct costs-those are difficult to get, but they're easy to
verify. You move back into overhead. At that particular point,
the auditor pointed out that we were using overhead data that was
out of date, so that's one point of contention. In subsequent
contracts we got much more current and put in appropriate
overhead data. I should say, though, that that was all the data
we had at the time of this contract. So that's one particular
area.
The largest single one is
the application of the cost-of-financing data, which I think
we've discussed before. That is the largest single one.
Mr Patten:
Refinancing of estimates of capital?
Ms Rush:
I'm sorry?
Mr Patten:
The financing of?
Ms Rush:
Yes, the financing of capital equipment. If you're going to get
out of the business that implies owning and maintaining,
depreciating and replenishing capital equipment-if that is now
someone else's issue-the question is, how do you account for that
as a saving, to what level, under what methodology in your own
calculation by business case, because that is now something
you're not going to do? I do respect very much the complexity of
this discussion.
The next part of that is
that these accounts are all across government. They're not all
within the Ministry of Transportation and they're not all within
the maintenance envelope, because you're trying to track back, as
all business case methodologies try to help you identify the
true and pure costs,
from administration to overhead to the cost of capital. It was
that long and torturous route that we were going down. So that's
the second area.
There was another dispute
on the cost of maintaining our own equipment. I think we've
settled the first and the last quite satisfactorily in our
discussion with the auditor, and we have updated our information
and we used the best available information going forward. We
appreciated his advice.
The cost of financing, I
can only repeat: We did believe we were using the right
methodology. We did seek out advice. We thought we were asking
the right question and we thought we were interpreting the answer
correctly. I am personally very pleased that the Ministry of
Finance is going to be working on a policy for all of us in
government, because this is a very difficult methodological
argument to come forward with on each and every project. I think
we need to have an understanding, and I absolutely agree it's
important. I can say that our desire to proceed is on the basis
that this is about, we think, 1.4% of what we're talking about,
and that we're over our target of saving. The costs that we're
talking about are $1 million, $1.2 million, somewhere around
there. We believe that we are meeting our commitment to save the
5% irrespective of the methodology used.
Mr Patten:
So if I interpret, you feel you've moved closer to a model that's
acceptable when you use your comparison, except you disagree on
one point-is that correct?-and that's the recapitalization
costs.
Mr Peters:
We have a tighter acid test on financing costs than was applied
in this case.
Mr Patten:
So in applying the model that you suggest, you're suggesting
that's gone to the finance committee and the finance committee is
going to take a look at-
Ms Rush:
It's the Ministry of Finance.
Mr Patten:
The Ministry of Finance, okay.
Ms Rush:
The office of the controller has begun a draft policy. They are
taking a very serious look at this.
Mr Patten:
If there is a difference in the spread, it would be
significant.
Have you moved on
extending, by the way, the pilots as of yet, or is that to be
determined?
Ms Rush:
No, we have extended the pilot for the two-year period, as
contemplated in the contract.
Mr Patten:
Okay, because this affects, according to this, 20% of the road
networks, right?
Ms Rush:
Yes, but that ended. What the Provincial Auditor was talking
about on that particular circumstance is-if life weren't
complicated enough-in the middle of our pilot project for the
area maintenance contract, the overall set of decisions
surrounding local service realignment and other highway transfers
were made. We had obviously not known that at the time we signed
the contract. While there was a provision in the contract for
some changes, because highways do transfer over time, there was
not a provision for the extent of the transfer that took place.
So we had a contractual obligation to pay them, as per the
contract we signed, up until the extension point. We're now back,
as I think the auditor wished us to be, on the extended period
for just the work being performed now with the lower number of
highway kilometres.
Mr Patten:
I have one question that's on another topic. I can recall
sometimes, during the hottest days of the summer, driving from
Toronto to Ottawa, where I live, and all of a sudden feeling
something wrong with my car. I thought there was something wrong
with the steering chassis. So I drove into a gas station and they
said, "Well, people are driving in here all the time." What it is
are the marks that are made by the trailer trucks, literally
imprinting on the road, that causes automobiles to feel
like-because their tires would carry through the ruts made by the
trailer trucks.
What are you doing in terms
of research on that? It seems to me that the biggest threat to
feelings of safety, the sense of insecurity, certainly on the
401-more and more people I meet don't want to drive it any more.
In terms of costs to our roads because of these monster trucks,
are you doing research on that? Do you have new figures? Are
there trends coming up? Are there implications for a change in
licence fees for some of these operators that are going through,
as opposed to rail? We've ignored rail.
1430
Mr John C. Cleary
(Stormont-Dundas-Charlottenburgh): Raise the question of
diesel fuel.
Mr Patten:
Whatever it is, yes. No, I'm not talking about diesel fuel. I'm
just asking the question clear out in terms of what your finding
is in the ministry.
Ms Rush: I
should say that the people we assembled here today aren't exactly
the people who would answer your question as well as could be,
but perhaps Carl, who has long experience in the ministry, can
answer for himself and some of his colleagues who are here.
The Chair:
I'm sure all of us have driven in those ruts before; somebody's
got an answer to it.
Mr Hennum:
I'm not sure what time you're referring to-is this recent or in
the past?-but we have had, in the past, quite a lot of problems
with what you are referring to, the roughing of the highway, the
rough-mix asphalt pavements. Yes, we've done considerable
research into the causes of this and what can be done to remedy
the situation. I was hoping that the pavements we have been
putting down on Highway 401 over the last little while would be
much more resistant to that sort of thing. In fact, our
experience is that we have pretty well been able to deal with the
issue by putting more stone into the mix, using a different
composition of the pavements and so on; heavy-duty binders and
various other techniques that we are putting in place.
We have done a lot of
research. We're relying a lot on the North American research
community in that respect and we're now putting down pavements
that are right up there with the best of them, I would suggest to
you. It is a concern to us because it can have problems, as you
pointed out.
Mr Cleary: Deputy, we've heard
a lot about technology and all the great things that the province
is doing. I'd just like to know about the future of 138, which
connects the International Bridge in Cornwall to the 417. The
school bus drivers there are complaining bitterly. They're
supposed to run a safe vehicle and transport the children safely,
and that road is so bad that it just about shakes the wheels off
their buses. I would like your comments.
The Chair:
It's number 138 and it runs directly north of Cornwall. You have
to find it on a map, do you? We know where it is, in eastern
Ontario.
Ms Rush:
Carl knows where everything is.
Mr Cleary:
Very heavily travelled.
Ms Rush:
We can get back to you on that.
Mr Cleary:
You'll get back to me?
Ms Rush:
Yes.
Mr Cleary:
So you don't know whether there's anything in the plans for that
now? I told them you were coming here today and I'm going to be
meeting with them on Friday.
Ms Rush:
Well, I'm afraid we're here to talk about the auditor's report on
maintenance outsourcing, but I'm sure someone can get you the
information you want before your meeting on Friday.
Mr Cleary:
The auditor and I had talked about some of the roads that were
not up to the standards.
The other thing I want to
mention to you is that in our area we've had a bunch of
provincial highways downloaded on to the local municipalities,
and I would just like to read you the comments of a mayor in one
of the municipalities I represent. He says, "If funding totally
out of the local municipal rates for our roads and bridges, we
would have to increase our taxes between $1,800, from the low, to
$300,000 for the industrial and commercial on the high rate." I'd
just like your comments on that and about how municipalities are
being downloaded on.
Ms Rush: I
have no comment on that, sir.
Mr Cleary:
No comment on that. OK.
The other thing I'm going
to ask you about then are the employees who have worked for the
provincial government and private enterprise took over. These
employees want to know about their termination pay. They've been
having a hard time, and this goes back to 1998, 24 of them.
Ms Rush:
Again, if you could provide me with specific information, we'll
try to get you a reply.
Mr Cleary:
I can send you a package on everything. Thank you.
Mr
Gravelle: Dealing again with the cost, clearly there's a
very strong disagreement about the way the costs have been
calculated in terms of what the auditor says and what you say. It
just makes me wonder: There's obviously a real possibility, which
you might not accept, that this is going to cost a lot more than
if it were actually being done by the public service. This brings
in the question of why you didn't wait until the pilot project
was completed to do an evaluation?
You made reference earlier
this morning to the fact that the British Columbia model had
helped you. One of the things you surely would have learned from
the British Columbia model was that it made sense to complete the
pilot project and evaluate it. Why didn't you look at even going
on a 50-50 basis? "We think this will save money," is what you
would say, obviously, and is what you're submitting, but we
recognize there are some risks involved. Rather than try and rush
this through, as you've clearly done, why didn't you go to:
"We're going to do half the province or part of the province.
We'll look at it and do it"? That I think is what probably
befuddles a lot of people.
The safety aspect
ultimately is the number one concern that we all have, but I need
to ask that question: Why wouldn't you look at that? That would
seem to be a responsible, sensible thing to do. You're going to
an extraordinarily dramatic, different delivery method instead of
calculating as you go along and evaluating. It's going to be hard
to go back. If you could respond to that, I'd be curious.
Ms Rush:
Thank you. I have a number of responses to that. I think many
would disagree with the assertion that we went very quickly. In
fact, many have accused us of going very slowly on this
particular project. It's at five years. We started this in 1995
and we'll be finishing it in the year 2000, so this is a
five-year program.
Mr
Gravelle: But we have such strong disagreements, Deputy,
in terms of whether there are indeed savings, let alone the
concerns about highway safety.
Ms Rush: I
would indicate that there may be a difference of opinion on the
methodology of one cost element whose value is around $1.1 or
$1.2 million on an activity worth just under $200 million.
Mr
Gravelle: Your savings are estimates. They're not real
savings; they're estimates.
Ms Rush: I
believe that we have lump sum fixed contracts. We know what our
costs are and we knew what our imputed costs were to do it. So I
think we have prima facie evidence of the savings as we go
forward with each and every contract. We know what our estimate
of our costs were going to be. We have been in the estimating
business for a long time as a ministry. We had to use all kinds
of new techniques, and I recognize that this is right at the
margin. There is some dispute about the methodology we used, but
for the bulk of it we know what it would cost us to do the work.
We have that internal information and we know what the bid prices
were, and they are for a fixed sum.
What can I say in answer to
your question? We looked at the pilot experience. The fact is, we
had some years where we were looking only at that as we were
waiting for other matters to be clarified. We thoroughly looked
at other jurisdictions and what they'd done, which I think is the
same kind of evaluation and due diligence you would expect. We
found it was working. We found it was working very well, and we
found that where it wasn't working, we had clear evidence-by that
I mean where we did an award-that we had a way of going back into
the marketplace. I think we proceeded prudently and we proceeded
at a reasonable pace. I don't think five years is exceptional. That's what we
learned from other jurisdictions. I think they moved quite
quickly. We learned from them; we learned from our early
experience.
Having declared an intent
through a business case that we were going to do this, I think it
was important for both the interest we created in competition,
and for our own employees to have some certainty over their
future, to start to proceed in a planned and logical manner how
we were going to do that. If we did not see bids coming in that
were advantageous, we did not accept them. We started to see,
from the time the auditor was looking at the early contracts to
now, greater and greater competition. We've seen more companies
come to the fore. We had an average of six bids per AMC, six
bidders, which is I think very good. We've had nine companies
that have won. I think we are creating a competitive market.
1440
Mr
Gravelle: Even if you accept your methodology, though,
you're talking about one-time savings in a lot of cases. In terms
of the equipment-say, the financing related to the
equipment-you're talking about one-time savings. You take it out
of the mix. There are so many other issues, we're never going to
have enough time to discuss all of this.
I don't want to be centred
simply around the costs, although your whole argument or basis
for doing this is cost savings.
When you're in the midst of
a pilot project or beginning other ones, it's certainly confusing
to the average citizen. I think it's probably pretty confusing to
all of us, and I suspect that it's confusing to your ministry
staff too. It just seems to me it would have been a far more
reasonable thing to look at it and say, "We think we want to go
this way." It's certainly the right of a government to make those
kinds of decisions, to change how they do things. But to not be
responsible enough to at least go through a process to validate
whether or not it made any sense to leave the option of returning
to it-the question that I have now is, if it is determined that
ultimately it costs more money, much like the British Columbia
model, will you go back? And if so, how will you do it? If that
ends up being the case, will you go back to the way it was done
before, and how will you do that?
Ms Rush:
We were looking very seriously at the pilot cases. I think in the
experience in Chatham, which was the first pilot, we saw
exceptional quality in the level of service they were giving at a
fixed cost. You said we had one-time savings. We also had
one-time costs which won't repeat. I think we're seeing a very
successful activity by using the innovation and creativity of the
private sector. We hope they will look at all the innovative
techniques and start proposing improvements to how we do
maintenance. We're very optimistic about the future. We believe
we have created market conditions out there where we have
adequate competition in the future, and we look forward to very
positive results from the next round of bids.
Mr
Gravelle: Then I think we need to look at the safety
issue, literally at the same moment. When you get beyond the cost
discussion or the cost argument or whatever it is, then you get
into the safety issue. It just seems to me that it's very
important to actually look at the video that I brought in. There
are substantial differences in the quality of maintenance on this
particular stretch.
There are obviously the
concerns about the longer patrol areas, and there is clearly all
across this province, whether it's Ottawa-I know it's an issue
with Councillor Munter in Ottawa and it has been an issue with
many people in terms of the fact that you've got a number of
people who four or five years ago didn't feel that the quality of
maintenance was in decline. There's a recognition about the
problems that are out there with winter conditions. We all know
that. But when you've got the Northwestern Ontario Municipal
Association, when you've got communities that are so terrified,
when you have this increase of fatalities, it certainly opens up
the possibility that the change in the way you're doing this is
having an impact potentially. That is why I put the motion
forward that I hope to get support for. That strikes me as
something where you say you're just as committed to it, but can
you recognize the possibility that some of these changes are
having an impact in terms of safety on the roads?
Ms Rush:
Safety is our first priority. I don't think you'd find a more
committed group of people than the men and women in the Ministry
of Transportation being concerned about safety.
Mr
Gravelle: I don't argue about what you're saying. What
I'm saying is that there obviously have been some changes in the
delivery. There is a very different process at play now that
wasn't there before we went into this process. If the possibility
exists that some of this process and some of the changes and
transitions, the fact that the patrols are longer, the fact that
the ministry is administering in a different way-if the
possibility exists that it's having an impact on the maintenance,
if it means it is taking longer, for example, for a patroller to
get back to call in the contract, if that's happening, and we
believe it's happening-
Ms Rush:
They call by radio from the cars. But perhaps I could ask the
regional directors from the north to come. Going back to your
question on patrol times, I think they have some answers to the
questions you raised before, if we may, Mr Chair.
The Chair:
OK. We'll get that the next time around. Perhaps this gentleman
can answer the question and then we will go around again. Could
you just answer the last question, sir, and could you identify
yourself as well for Hansard.
Mr Osmo
Ramakko: Good afternoon. Thank you very much for the
question. My name is Osmo Ramakko. I'm the regional director for
the Ministry of Transportation's northern region, which
encompasses much of the lands in northeastern Ontario.
All Ontarians, including
MTO staff, are deeply saddened, I can assure you, and quite
concerned by each and every fatality that has occurred on a
provincial highway this year and indeed in all years. As you've
heard our minister say on a number of occasions, road safety is
the ministry's number one priority.
Accordingly, MTO will
continue to place the highest priority on enhancing road safety,
and this applies to each of our areas of responsibility,
including winter highway maintenance. I know that some have
suggested that fatal collisions are unusually high this winter in
northern Ontario, or that these fatal collisions can be linked to
the ministry's outsourcing of highway maintenance. Those are
myths that I would like to dispel today, because they really have
no basis in fact.
Our collision statistics
tell us that, on a provincial basis, the total number of fatal
collisions has fallen significantly over the past 10 years, by
nearly half. In northern Ontario, there has also been a decline
in fatal collisions. For example, in the late 1980s we
experienced as many as 120 fatal collisions in a single year. In
recent years, the total has been in the 70s, which clearly
demonstrates a downward trend, and to help illustrate that I'd
like to show you a graph.
Mr
Lambert: I'm Larry Lambert. I was previously
introduced.
This is a graph of the
fatal collisions across northern Ontario for the past 15 years.
As Mr Ramakko indicated, in the late 1980s we had serious levels
of fatalities, and there's a maximum here of 120 fatalities. In
more recent years, at this point, the numbers are somewhere in
the 70s. The point he made is that over that period of time there
was a downward trend-not a strong downward trend, but a real
downward trend over that period of time. The demarcation that was
made earlier in the day in terms of 1995 being a fundamental
period in terms of a change in that trend is not correct. Of
late, this trend has not moved upwards.
Mr
Ramakko: The majority of fatal collisions in northern
Ontario occur during the summer months, and they have been
declining over the past 15 years. The total number of
winter-month fatal collisions over the last 15 years has been
essentially flat-lined; however, since 1993 there has been a
general downward trend in winter fatal collisions as well. Our
statistics also tell us that there is no relationship between
fatal collisions and the outsourcing of winter highway
maintenance. In fact, we found that thus far this winter, those
areas of northern Ontario that have been outsourced have not
experienced an increase in fatal collisions in comparison to
those areas still serviced by MTO staff. And we have another
graph to help illustrate this.
Mr
Lambert: Again, this is all of northern Ontario. This is
the current winter, which is not yet complete. But for the
current winter at this point, the bars on this side represent the
fatal collisions and the fatalities on 5,000 kilometres of area
that is under outsourcing of one type or another, either under
the MOs or AMCs that were described. Over on the other side we
have the area which is some 1,300 kilometres of conventional MTO
operation to this point this winter. Clearly, the observation is
that the area which is under outsourcing is not experiencing a
worse year this year.
The Chair:
OK. Your time is up. I let it go an extra five minutes because we
wanted to get all this information here, and we'll now turn to Ms
Martel.
Ms Martel:
Actually, I'd like to ask which highways in northern Ontario are
still under MTO highway maintenance.
Mr
Ramakko: In the northern region, the north area-
Ms Martel:
When you take the northeast.
Mr
Ramakko: In northeastern Ontario, the North Bay area is
still being serviced entirely by ministry staff, although
recently an AMC was awarded for all of that area, and that will
become effective on April 1, 2000.
Ms Martel:
Before you go further, what's the number of kilometres that were
being looked after by MTO staff in that case?
Mr
Ramakko: I don't have that information with me, but I
can provide that.
Ms Martel:
That would be helpful. Are there any other areas in the northeast
where MTO staff are still looking after highway maintenance?
Mr
Ramakko: Yes. Currently our Huntsville district is
entirely serviced by MTO staff as well. Parts of Huntsville
district aren't technically in northeastern Ontario, but they are
in northern region.
1450
Ms Martel:
Just so I'm clear, when you say they're being looked after by MTO
staff, MTO staff are doing all the work? They're doing the patrol
work, the sanding, the grading and any contract work that has to
be done with respect to sealing cracks etc?
Mr
Ramakko: Virtually, but not quite. In those areas that I
described, there are some contractors hired to do some of the
work. We do hire contract equipment to do some of the plowing,
some of the salting and some of sanding.
Ms Martel:
Could you give us a balance of the percentage between what's
being done by MTO staff and private contractors?
Mr
Ramakko: No, I don't have that with me today.
Ms Martel:
If you could give us that, I think that would be helpful. Can you
answer questions on the northwest or should Mr Lambert come
forward?
Larry, in the northwest
district, then, however you define it, can you tell us which
highways are still being maintained directly by MTO staff? Again,
I'd like the same information. Is there a percentage even in
those areas where MTO is doing the work and a percentage where
private contractors are doing some of the work as well?
Mr
Lambert: Yes. It's an easier system in the northwest.
The northwest is Elliot Lake to Manitoba. In that area, the one
area where the ministry is still under what we call conventional
MTO operation is the Thunder Bay vicinity. There are
approximately 900 kilometres of road centred northeast and west
of Thunder Bay. I'm sorry, the number is 1,100, not 900. So there
are 1,100 kilometres of that. The entire rest of the northwest is
under the MO, the managed outsource mechanism. That's about 5,000
kilometres.
Ms Martel: Within the 1,100
kilometres still in and around Thunder Bay, that's entirely,
100%, MTO work?
Mr
Lambert: In the 5,000 kilometres of managed
outsource-I'm sorry-
Ms Martel:
No, sorry. In the 1,100 kilometres in and around Thunder Bay,
which you said was still under conventional MTO, is there any
percentage there of work being done by private contractors, or is
all of that work being strictly done by MTO employees?
Mr
Lambert: Well, 100% of patrolling is done by MTO
employees. Approximately 20% to 25% of the pieces of equipment
are MTO; the rest are contractor.
Ms Martel:
When you say "patrolling," I'm going to assume that's going up
and down the highway looking for problems. But the actual
grading, sanding and plowing is being done by whom?
Mr
Lambert: The plow trucks and the spreader trucks are
about 20% to 25% MTO, staffed by MTO employees at this point. The
rest of them are contractor vehicles staffed by contractor
staff.
Ms Martel:
So it would be fair to say in both cases in both regions that
even in the area that you would define as conventional MTO,
fairly significant portions of that, if I listened to you
correctly, are actually being done by the private sector.
Mr
Lambert: Private sector contractors and private sector
equipment are a large component of that piece we call
conventional MTO, as has been the case beginning in the 1970s
somewhere. By 1995, approximately 60% of the vehicles and the
staff were of that nature, yes. Now it's over 80% in those
areas.
Ms Martel:
Another concern that was raised by the auditor had to do with the
data that you compile looking at maintenance. The auditor has
called this the ministry's district direct input system. It'll be
a listing of all of the details, including hours worked by
employees, the amount of sand, salt and material used-important
indicators about maintenance.
The concern that he raised
was that there were no procedures in place requiring the ministry
staff to verify the accuracy of the data that was now being
inputted by contractors versus MTO staff. Can you tell the
committee what action has been taken to resolve that situation.
Can you describe to us how that information is being verified
once it's inputted by contractors.
Ms Rush:
The ministry absolutely agreed with this recommendation. The
importance of having accurate and reliable information was
critical to us and our success. We were collecting it very
informally at the time that the Provincial Auditor came in, so we
responded quite quickly to his recommendations. We now have a
formalized process. It does include periodic reviews. We monitor
and verify the computer output by contractors on a biweekly
basis. We've also instituted a program of formal audit, and one
has already been completed, but we will be doing formal audits.
So we appreciated this recommendation and moved on it very
quickly.
Ms Martel:
Can I clarify what you mean by a "periodic review"? Is that in an
individual MO, for example, one of your own staff going out and
watching one day what one of the contractors is doing with
respect to volumes? Is that what you mean by a review?
Ms Rush:
This is relating to area maintenance contracts, and Carl can
answer.
Mr Hennum:
In the area maintenance contract is where we expect the
contractor to input the data.
Ms Martel:
The only place it would apply.
Mr Hennum:
We go in and we check his data and we check what he's doing in
the field and we make sure that the information is accurate and
correct. That's done by our maintenance coordinators.
In the MO area, of course
that's where we are still in charge of the business directly, and
that's where we provide our own input to our information systems.
We have our traditional methods for verifying the information
that goes in.
Ms Martel:
You said that you have done one formal audit already. Was that of
an individual contractor? Was it in a particular area?
Ms Rush:
One AMC, I believe.
Ms Martel:
Can you tell us what the results of that were?
Ms Rush:
We found no serious problems.
Ms Martel:
Let me then ask about the pilot project, just to be sure that I
heard correctly. The 1996 pilot project that was due to end in
April, you have now confirmed with the committee that that
contract has been extended for another two-year period?
Ms Rush:
Yes. The tender for that was a three-year with a possibility of a
two-year extension.
Ms Martel:
The two-year extension was done with the mutual consent of the
ministry and the contractor?
Ms Rush:
As per the terms of the contract, yes.
Ms Martel:
I want to be clear about what evaluation was done by the ministry
at the end of what I will call phase 1, before a determination
was made by the ministry to extend the contract for another two
years. What was the nature of your evaluation of the first three
years of that contract? What did you look at?
Ms Rush:
First we looked at the quality of the service they were
providing. In compliment to them and credit to them, I think they
knew they were the pilot and performed an excellent quality of
service, keeping up to the ministry standards. Carl, specifically
can you add some more to the evaluation pieces?
Mr Hennum:
The evaluation or the reason for extending the contract, the
decision was made on the basis of the absence of any problems
that we had with the contractor. He'd performed the work to
standard. We had no significant problems with him, and in fact,
as the deputy minister just said, he had in many cases exceeded
the standards that we were requiring in the contract. We only had
good experience with that contractor in that area. We had no
reason not to proceed with an extension of the contract.
Ms Martel:
What I was more interested in was what the levels of savings
achieved over the three years were and how that was evaluated and
if it was evaluated.
Mr Hennum: I would emphasize
what was said earlier. When we enter into a maintenance contract,
it's on the basis of a lump sum, fixed price for the contract
period, so we know when we go in what we're going to pay for the
contract. What is signed off on the contract is basically the
price we're paying for the work out there.
There are certain things
that we did take out of the lump price because they're
unpredictable. In those cases, of course, we pay on a work order
basis. We determine what is required or the contractor comes to
us and says, "These things are required." In each case, we
approve of that work or disapprove, whatever the case may be, and
it gets paid at a pre-set rate that is part of the original
contract for that work.
Ms Rush:
Those exceptional costs would have occurred had we maintained the
highway, though, as well, so they equal out in terms of any
evaluation.
Mr Hennum:
As an example, there are the crash attenuated barrels and devices
that we have on the highway. It's almost impossible to predict
how many times these things are going to get hit, for example,
and we know that they get hit on a frequent basis. We took those
things out of the contract and we told the contractor: "We will
pay you at a pre-set price. Tell us what you bid on that
particular item and that's the basis on which we will pay you
throughout the contract term."
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Ms Martel:
Just so that I'm clear, the reason I'm getting at the savings is
because this contract is the same contract that the auditor had
questioned with respect to savings. The difference of opinion was
in the order of $900,000. Is this the same contract?
Ms Rush:
Yes, but it was the documentation that was at issue.
Ms Martel:
Right. You're going to undertake to see what you can provide us
with so that we can all feel more comfortable that the savings
were real. What concerns me is that certainly the auditor felt
very strongly that there had been no documentation to
substantiate those savings. The contract has now been extended
for another two years with the same contractor, and I wonder if
we're not in the same boat, that ongoing savings can't be
substantiated either.
Ms Rush:
What was available to the auditor, as was indicated, were the
summary tables and the sheet. What we had been unable to produce
were the worksheets that got us to those calculations. They knew
the source material. We're talking about a documentation problem,
but the calculations were indeed put together on a methodology
that the Provincial Auditor understands. That was a particular
circumstance relating to both some massive personnel changes and
some moving changes that we can no longer produce that document.
But we know that the ministry estimate we had for that work being
carried out and the price that we got in the bid have de facto
given us those savings.
Ms Martel:
You've paid a lump sum and you've agreed to pay a lump sum
payment now to this contractor for the next two years?
Ms Rush:
The contract has been extended for two years as per the terms of
the original contract. That was always contemplated, three years
with a two-year extension.
Ms Martel:
Was there a change in price? We've gone from three years to two,
so I assume there would be.
Ms Rush:
There was the primary change in price because the highways that
were transferred to the municipalities in that period of time
were substantial. That was pulled out, so obviously we would not
continue to pay an unnecessary penalty. The price is
substantially less because of that.
Ms Martel:
I wonder if I can make this request. I'm not sure what
information or what kind of paper or documentation you have
around the awarding-if that's the right word to use-of the second
contract, but I wonder if you would mind submitting that to the
auditor so he can have a look at what the terms and conditions
and details are of the second year of the two-year extension for
the pilot project.
Ms Rush:
We're directed by the committee.
Ms Martel:
Mr Chair, if I might make a recommendation then that whatever
documentation you have with respect to the two-year
extension-data, information-if the auditor could have a look at
that, I think that would be helpful for the committee.
The Chair:
It's my understanding that if we want that done, we need a motion
later on when we discuss it.
Ms Martel:
I've asked for a number of other bits of information, and we've
not needed a motion. Why do I have to have a motion now for this?
Is it because I'm requesting that you take a look at it? Is that
why?
Mr Peters:
That's right. Under section 17, I can accept assignments only on
the motion of the committee.
Ms Martel:
Then I'll first ask if it can be provided to this committee. If
that doesn't happen, then I will look to moving a motion in the
future to do that.
Going back to safety, some
of the concerns that the auditor heard directly from ministry
staff about patrol areas-this is something that Mr Gravelle has
been talking about, but I want to follow up further on it.
Clearly, the auditor in his
report said the following, "The maintenance contractors in the
districts we visited stated that the areas patrolled were too
large and there were insufficient staff to adequately monitor the
work of the contractors." I'm assuming he got that directly from
discussions he had with people who were in the field and who were
doing this.
I want to ask you about
your response, which was, "The ministry believes that staffing
levels are appropriate to protect the ministry and the
public."
It seems to me that the
auditor probably talked to people on the ground who were
delivering the service, talked about serious concerns they had
with respect to patrol areas being too large, the ministry would
want to address that. I didn't feel that the response you gave
attempted to address that concern at all.
Ms Rush: I
go back to the definitional question of what we're talking about:
patrol area, the quality assurance area. At the time that the Provincial
Auditor was discussing this, the whole change was very new to the
ministry. A number of individuals were given new
responsibilities-I think again it goes back to the passion they
have for the work-and were expressing concerns about the size of
the areas for which they were now responsible. At that point,
their jobs were different and their jobs were new. The patrolling
jobs they had done on a lesser area were now being done in the
area maintenance contract itself. So the staffing and the
standards for patrols that some of these people used to do was
now being done inside the contract, and those have not
changed.
I respect their concerns,
but when they were trained and I think realized their job was not
direct patrolling but one of quality assurance and oversight-so
this isn't doing the job that we just hired someone to do; this
is a quality assurance job, that you have appropriate, periodic
ability to assure yourself that the work is taking place. It is
legitimate to have a larger area than an actual direct patrol. So
these people are not doing the patrolling as it was done in the
past. The people are maintenance coordinators, and they are now
doing quality assurance. I believe the Provincial Auditor talked
to them and they expressed concerns. I believe their concerns
were more reflective of the work they used to do in the direct
patrol. We certainly hope, with the training they've got on their
new responsibilities, that they are more comfortable. We're
certainly comfortable that the quality assurance territories are
appropriate in size.
Ms Martel:
Can you define for me-maybe this is the problem I'm having-what
you think is the difference between quality assurance work and
direct patrol?
Ms Rush:
The direct patrols are the individuals who are out there driving
the highways on regular, fixed intervals in winter, looking at
the actual condition of the highway. They're patrolling for
problems; they're patrolling for debris; they're actually
physically out there triggering specific maintenance activities.
Those people are now in place inside the area maintenance
contract. So patrolling is still taking place.
In a managed outsourcing,
the patrolling activity is still being placed by the ministry.
The people-
Ms Martel:
Can I interrupt you there? In fact, those MTO staff wouldn't be
at MTO any more.
Ms Rush:
Not in an area maintenance contract. In a managed outsourcing,
they are. Those are the two forms we have.
What we kept for quality,
for public safety, for our assurance that standards were being
met, we created ministry positions in areas where we have area
maintenance contracts called maintenance coordinators. Their job
is to make sure-they're the oversight function. They're the
quality assurance function; they're to make sure that the
contractors are indeed doing the job that we have hired them to
do. So they're not doing patrolling in the traditional use of
that term for us; they're doing quality assurance. If you're
doing quality assurance, you have a very different role than the
individuals doing patrolling.
I should also point out
that again this went to experiences in other jurisdictions. They
did the same thing. When they went out on an area maintenance
contract, they had the same notion of putting the patrol inside
the contract so that the private sector contractor was doing the
patrolling. They went to much higher areas for their quality
assurance. We went lower. They went to 400 to 420, 500; we're
around 300 and up in some cases. So we actually put in some
cushion. We have smaller quality assurance territories than do
the other jurisdictions in Canada.
Ms Martel:
For your MOs? What's happening there, because if your own
staff-
Ms Rush:
MOs are back to the traditional patrolling function, so they have
the traditional patrolling routes that we have always had.
Ms Martel:
OK. Just so I'm clear-this is a question for the auditor. The
people you spoke with were people dealing only with AMCs, or was
it also people who were doing patrol functions and MOs?
Mr Peters:
It was the pilot AMC.
Ms Martel:
OK. So you have not heard anything from your own staff who are
doing patrolling and MOs that the number of kilometres they have
would be too large for them to handle?
Ms Rush:
We continually look at the workload, so we're adjusting them. I
wouldn't say that we haven't figured, but we look in terms of
staff feedback. As I think someone mentioned earlier, because the
geography of Ontario is so different, the ability to patrol areas
is not constant, but they are set to be reasonable. They're set
so that the staff can indeed do the work, and in winter, seasonal
employees are hired to make sure that we've got backup and extra
staff.
1510
Ms Martel:
Can you tell me in how many cases penalties have been levied?
Ms Rush:
Yes, I can: 16. We have had 16 occurrences in which we have
issued what we call demerit points, and demerit points lead to a
financial penalty.
Ms Martel:
It's a financial penalty?
Ms Rush:
Yes, at the beginning part.
Ms Martel:
The 16 occurrences span over what length of time?
Ms Rush:
If you can give me a minute. It's since the start of the program,
so since 1995.
Ms Martel:
Since the start of the pilot?
Ms Rush:
There are nine occurrences with 16 points. If you give us a
moment, we'll get to the right place. We'll just see if we have
that. Could we get you that information? I thought we had it with
us, but we don't.
Ms Martel:
Sure. That would be helpful. The one other issue the auditor
raised in that area had to do with detailed records of monitoring
and a concern that this was not being done. Can you tell us what
reporting mechanism standards you put in place so that all of
that information is now being gathered and monitored?
Ms Rush:
Yes. Indeed, it was another helpful suggestion by the Provincial
Auditor. We were just entering ourselves into this new system. We were I think
too informal, again, in our record-keeping. We have introduced
revised standard diaries now that all of our employees must use.
We have a work order record system. All of the staff have been
trained, and we have a revised process that ensures not only that
the records are kept and maintained but that they're consistent
now across the province.
Ms Martel:
Are they filed in some kind of provincial-I don't want to use the
word "provincial"-ministry-wide database or is it done region by
region?
Ms Rush: I
think they're collected in the regions, but they're consistent.
So if we found a particular purpose, there's a consistent format
and process now. I believe, as we go in, we will have a database
to evaluate things if we wish to from across the province.
Ms Martel:
Can you explain to me how your database works for contractors?
Another concern that was raised was that, district by district,
you wouldn't know if you had had a good experience with a
particular contractor or not, and there was an indication you
were going to move to some kind of province-wide database to
monitor that as well.
Ms Rush:
Yes. I think that's an overall performance appraisal system. For
years in the ministry we have had some form or other, and I think
we're getting more and more sophisticated, for consulting
engineers and for contractors, in using systems so that we have a
way of knowing overall the performance of certain contractors. If
a contractor, for example, has had a serious difficulty on a
contract with us, they have what they call a rating which will
indicate the level at which we think they have shown a capability
to do work for the ministry. That level sets the extent to which
they can bid the next year, and they can be quite severe
penalties or a severe diminishment or it can be quite minor,
depending on that. We used to just exchange information
internally in staff memos about particular maintenance
contractors. We're now going to adopt a formal central registry
and we will be developing an appraisal system, as we have with
the rest of our major outsource part on the capital side, so that
we will have the best information we can on each one of the
contractors.
Mr
Gravelle: I certainly appreciated the statistics and the
graphs that were brought up by the ministry officials. I would
hope, though, that those statistics, such as they are, are not
going to be the basis on which you would say there's no reason
for concern about whether or not the impact of the changes to the
delivery and the changes to maintenance of our provincial
highways would-that basically we should stop worrying about it
because of the statistics that have been brought up. Statistics
are interesting. Obviously, back in the 1970s and 1980s too we
had the factors of people not wearing seatbelts, and the way
people are wearing seatbelts now, so it would be interesting to
see just the number of accidents and injuries as well.
But my real point is that,
ultimately speaking, every tragedy, every accident, every
fatality that happens on our provincial highways we obviously
need to take seriously, and I know you do as well. If there is
any possibility that in some of these there may have been a
factor involved as a result of some of the maintenance being done
in a different way, we need to explore that, which is why we're
here today. We're discussing some of the auditor's concerns
related to the costs, something we had a great deal of discussion
and disagreement about. I think that's worth exploring. But also
there were some concerns related to the lengthening of the
patrols and safety potentially being compromised.
I must admit I think of an
accident that happened just over Christmas in Latchford, which I
believe is under a full AMC, a full area maintenance contract,
which does mean it's being done-and I know there was concern
expressed at the time by OPP officers on the scene, there was
concern expressed at the time by area municipal politicians and
many other people involved that indeed the sanders weren't out
there in time. There were some other actual things said that I
probably shouldn't talk about publicly about what may or may not
have been happening to build up the ruts on the roads. These are
issues that we don't want to be speculating about, but again I
think they're reason enough for us to be exploring whether there
is as a result of the fact that we've gone to the full
privatization in terms of area maintenance contracts, as a result
of the fact that the quality assurance you described does not
mean day-to-day operation-in fact, I think the ministry official
in that region was quoted as saying they weren't monitoring at
the time because it was an AMC, so they weren't there to see
whether or not it was being done in an appropriate fashion.
I certainly would argue
it's our responsibility as elected officials, and obviously yours
as members of the public service, to make sure there is no
possibility that any of these accidents are taking place because
of changed circumstances in terms of the delivery of your
service. I appreciate that very much, but I think we've got to
continue to look at that, which is why I think we need to have
some kind of independent look at it. We have the ministry today
telling us that you feel one way in a financial sense. The
auditor feels otherwise about some of the ways you're calculating
savings. I think we need to look at that again.
I do want to ask you some
other questions related to this blended approach. I don't quite
get it. Does it mean, and I think it does, that you've got some
sections that are all area maintenance contracts-in other words,
they are absolutely privately contracted and you have people who
are going to look to make sure it's being done-and then you have
some sections that are managed outsourcing, which means you have
ministry patrols? Is that what it means?
Ms Rush:
Yes, it does.
Mr
Gravelle: I'm still confused as to how you can go from a
tender for a contract for an AMC going out in Thunder Bay and
coming back at four and a half times the cost that the ministry
would pay to do it, what the taxpayers would pay the ministry workers to do it,
come back four and a half times the cost of tender, and yet
somehow by going to a blended approach you presumably eliminated
that factor of four and a half times, that in fact it's less. Is
that what you're trying to tell us, that this blended approach in
Thunder Bay or the Thunder Bay district or whatever has
eliminated that four and a half times factor? That's a huge
difference.
Ms Rush:
That is not consistent with the information I have. I don't know
where that came from. The bids were too high-
Mr
Gravelle: It was publicly-
Ms Rush: I
don't know how it occurred, but that's not the information I
believe is correct in that circumstance. The bids were too high,
but they were not too high by that factor.
On the point you're asking,
the blended approach evolved from an earlier notion back in 1995
that we might experiment with both versions, both notions of how
to outsource maintenance, whether you'd go the area maintenance
contract or whether you'd go the managed outsource. Before we had
done either, as you've seen in the charts in the auditor's
report, we estimated risks and savings on each one. We then
started to put them out in 1995.
From our experience,
looking at what we had done in 1995 and looking at other
jurisdictions, it became very clear to us that we had a
one-size-fits-nobody province. We had configurations where we
believed that by learning from what happened in the pilot area,
by continuing our research, that we had parts of this province,
by their geography and by their market conditions, that were
going to do extremely well under the AMC notion. We also had
other parts of the province that, by their nature and their
geography and their local conditions, were probably going to give
us a better price and a better configuration, all maintaining the
same safety standards, as managed outsourcing.
1520
So what we evolved in this
revised blended approach said, don't pick all of one where
they'll work very well in some areas and perhaps less well in
others, or don't pick all of the others where you'll not achieve
as many savings; let's use a little bit of both. We started to
learn by putting the packages together, and we've got some
extraordinary cost savings. We have always maintained the strict
adherence to standards in these contracts.
So what the blended
approach said is that we'll look at the marketplace. Some AMCs
have gone out. They've gone out very smoothly. They've gone out
one time, a tremendous number of bidders; others have come back
few bidders, no price. Well, two things have happened: Either we
put the wrong formula in there and maybe they should have been
managed outsource or the industry simply wasn't competitive
enough in terms of what we were asking for. So you've seen us
adjust in your own area around what we were going to do.
Sometimes we've put it out again to see. But we weren't going to
move until we were assured that we had the right configuration,
that we had qualified contractors, that we had our safety
standards assured, and that we had savings for the taxpayers.
We're very happy with the
blended approach. I think it allows us far more to tailor the
best circumstances for each area of the province. Equally, I
think it has created a situation where you have more and more
private companies in this business, so we have more potential for
long-term competition, and it also provides us the flexibility in
the future. If we see market condition shifts we can move
backwards and forwards from one to the other, maybe changing the
geographic elements, maybe going a little bit here, a little bit
there. So it was really not trying to pick one form that was
going to work for everybody that led us to the blended
approach.
Mr
Gravelle: Could you provide us with those savings? I
think it's been asked before. I believe Ms Martel asked about it.
This is what I guess makes us all question so much about this
process. If that's the case, if that's what you believe and you
can prove, then would you be willing to provide us with those
figures?
For example, it would be
very interesting, all across the province, obviously, but
certainly in my particular area where we know that the tender
went out for the AMC and it came back, we understand, four and a
half times more expensive.
Ms Rush:
No, it wasn't.
Mr
Gravelle: Certainly it was publicly stated by one of
your ministry officials that it was more expensive and therefore
wasn't a go-a lot more expensive anyway. I think that was
indicated.
Now that you've got it down
to what you consider to be the right approach, the blended
approach, why would you be so reluctant to provide us with the
figures that prove that indeed it's saving money?
Ms Rush:
As I said, some of this information is confidential. It is
commercial intelligence information.
Mr
Gravelle: We don't need to know who's doing what.
Ms Rush:
Well, it gets reasonably clear to figure out where they are by
some of the characteristics. As I said, I will endeavour to
provide what I can appropriately, but we are dealing with
contractual information here and it makes it very difficult. It
would be very foolish for us to be publishing the ministry's
estimate price when we're looking for bids.
Mr
Gravelle: But you can appreciate our scepticism,
perhaps, if on the one hand you say we've learned it would have
cost more to do it this way and now, with this other approach,
you say it's going to save money, at least 5%, I presume you
would be telling us.
Ms Rush:
Yes, it is. Again, what we have is a time difference between what
was looked at very thoroughly by the auditor and the experience
we've had today.
Mr
Gravelle: Let me get back to the safety issue again. I
trust you will be looking at the video I provided, which is
really very, very interesting because you see the clear
distinctions. Can you explain that, why there would be such
different variations in very short periods of time? This morning I think some of
the members were a little confused. I wasn't at all talking about
changes from riding to riding. I was talking about changes in the
maintenance quality in very short periods of time. You'd cross
over a bridge, probably into a different area, and the
maintenance was very different. This is what Mayor Krause from
Schreiber had written the minister about, and certainly this is
what was videotaped from Atikokan to Thunder Bay. Can you explain
how that could happen?
Ms Rush:
Yes, we can. It really has to do with patrol routes and
stop-start points, and Carl Hennum can provide some further
explanation.
Mr Hennum:
I assume the particular situation is up on Highway 11 just west
of 17.
Mr
Gravelle: That's right.
Mr Hennum:
We have a patrol yard at Shabaqua, which is right at the corner
there, and that patrol serves Highway 17 as well as Highway 11,
up to the point which you're referring to, where the conditions
change. We also have a patrol yard at Atikokan and that patrol
yard serves west of Atikokan as well as east of Atikokan, up to
the same point on Highway 11. It depends on when this individual
came there and took the picture but in a normal, average winter
week, it depends on the two trucks, when one from the one patrol
got to that particular spot and when the other truck got to the
same spot, because that's where they switch over and turn around
and go back to their yards.
You also mentioned that-and
I had to look at the video-this prevailed for several days. That
may have been. If we don't catch the snow at the proper time and
something happens to the temperature, it could be more difficult
to clear the road that was treated later rather than the one we
got to first. But I'd like to point out one thing here: We are
running a managed outsourcing contract. Atikokan is part of a
managed outsourcing contract. We direct operations there. We send
the trucks out and therefore, obviously, we monitor the quality
and so on.
Shabaqua, that's a
conventional operation out of there. We direct the trucks, we
make the decisions; it's virtually the same operation. We just
happened to have at Shabaqua one or two of our own plows, but the
guys who are out on the road most often are not only directed by
our own staff but are probably contractors who are out there with
their own trucks as well. There is no difference in delivery
methods between those two. That's what I want to report. There
may be different road conditions but they're not related to the
type of contract. There are other factors that play in this kind
of situation.
Mr
Gravelle: It may speak also to the large patrol areas. I
talked about the Geraldton one this morning and the situation
where there can be just one person doing the entire patrol area.
That strikes me as one where-and I appreciate that yes, they can
perhaps phone it in by radio phone, but the fact is that they're
still travelling and also missing when the weather is changing.
That potential exists.
I guess the responsibility
of the ministry, under the Public Transportation and Highway
Improvement Act, is to maintain the roads. That's correct, right?
That's a basic legislated responsibility. If you ultimately go to
full area maintenance contracting, which strikes me that's where
you seem to be wanting to go-
Ms Rush:
No, we want to go with a blended approach.
Mr
Gravelle: Wherever it is AMC. Your pilot project was an
area maintenance contract. So wherever you've got that, I have
some question as to whether or not you're absolutely meeting the
obligations of the act. That's the question about the ministry
person checking quality assurance. If they're not patrolling the
roads, and they're not making the decisions as to when you should
go out, and they're doing this, when you talk about quality
assurance-Ms Martel was trying to get to that question too-are we
talking about on a daily basis? Are people absolutely confirming
that the work is being done? That leads me to another question
about the contractors being able to input what exact work they're
doing.
Ms Rush:
The Public Transportation and Highway Improvement Act says we
can't contract ourselves out of the liability and responsibility
for maintenance of provincial highways. So the liability rests
with the province, irrespective of the method we choose to
deliver that. That's what that legislated responsibility's
talking about.
Mr
Gravelle: So as long as you're paying for it-
Ms Rush:
We're responsible for ensuring it's done. I go back to standards.
The standards are our foundation for this whole quality assurance
sense. It is the standards that the ministry has built up over
the years. We are very good at it. People come to talk to us, to
ask us about how you do this, setting standards. We have
excellent capability to translate standards into contract
language to make sure that the contractors fully and absolutely
understand the standards. We have management information systems
that allow and require them in the contract to provide us with
the information we need on records. We have ways of verifying
that. We have ways of monitoring that. We have requirements that
they do the work in accordance with the contract they sign and we
have quality assurance techniques to make sure we can oversee to
our responsibility that they are indeed doing what they
contracted to do.
Mr
Gravelle: Explain again how the quality assurance is
done.
1530
Ms Rush:
Quality assurance is done in a number of ways. Some of it will be
verified information that we get from them and go back and
verify.
Mr
Gravelle: You don't have a technical system in place
yet.
Ms Rush:
I'm sorry?
Mr
Gravelle: I understand that you don't have a system yet
completely in place, a direct input system in terms of-
Ms Rush:
Yes. What we don't have is a performance evaluation system.
That's still being built. But that won't be needed until the next
round. That'll be for the next round of major biddings.
Mr Gravelle: To help us all,
how can you absolutely verify that it's being done, then?
Ms Rush:
As I said, we have audit capability, we have periodic review, we
have maintenance coordinators who are on the spot reviewing that
information, we have quality assurance on the road. We have
people whose job is to oversee that the contract is indeed being
executed and we are getting what we paid for. So we check it from
bottom up with materials and documentation, we check it in terms
of observation, we check it in terms of inquiry and we check it
in terms of formal audit.
Mr
Gravelle: Can you appreciate the concerns that some
people have, though, that if a private contractor is doing the
work, obviously one of their goals, understandably so, is to make
sure that they make a profit, and that when the ministry was
maintaining a far greater control and was far more involved in
the process, that perhaps people felt there was more
accountability by the government. Can you appreciate there is a
concern, because I think that is a concern that a lot of people
have. There just isn't the same level of accountability or
responsibility by the ministry, especially when you go to a full
area maintenance contract, which I know they're going to be going
to in Thunder Bay in, I think, June of 2000, this year. Do you
understand the concerns about that?
Ms Rush: I
understand the concerns of people trying to understand a new
system and what's in place. I hope we can assure them, through
everything, in all of the quality assurance efforts we've got.
You talked about the private sector wanting to make a profit.
They do that through the bid process. They bid a price out, and
we put in a demerit system with financial penalties. It is not in
their financial interest not to meet a standard.
Mr
Gravelle: How much of your own equipment do you have
left?
Ms Rush:
Not very much, and I can't tell you how much, but we have some in
the north. I think we have some around Toronto.
Mr
Gravelle: How do you protect yourself against the next
round, the next time things come through, in terms of the
contracts coming through a lot more expensively? Certainly the
contractors who were able to get the equipment from you-I think
there's a really good argument and a good point that was made by
the auditor, that indeed it would allow them to bid lower,
because they would not have to purchase the equipment as a
separate issue, so they could bid somewhat lower. I think that's
an interesting concern. Certainly one of the concerns I have is
that if indeed some of the concerns we are expressing are
verified, are proven out, in other words, it costs more
ultimately and the public ends up paying more for this service,
we've gone too far. It's hard to come back, to pull back, if
there's no equipment left and you are no longer using your
garages. There are all kinds of things that can happen. How do
you protect us against contracts not coming back at a much higher
price and which you would have no choice but to accept?
Ms Rush: I
say it again, I would think our biggest protection out of that is
fostering a competitive market, and we think we've done that by
the number of players that we have in the marketplace.
Secondly, the blended
approach helps with that. We have more managed outsource
activities, as well as AMCs, and we have in the past always used
versions of private contractors where they had the equipment. The
equipment is out there in place, and we've always
supplemented-back to the 1970s-with other equipment.
Mr
Gravelle: It's been known before in a competitive market
for people to get together and decide that they might be wanting
to put forward certain bids. I just think it's a concern. This
leads me back to some degree to why you or the ministry or the
government didn't at least protect themselves by checking this
out and going perhaps-portions of the province they would do this
way and other portions they would maintain completely with the
old method, so they could at least return to the system if it
wasn't working and it was costing more money.
Ms Rush: I
believe that's a very strong argument for not having gone on area
maintenance contracts all at once across the province, and we
didn't do that. That's why we have the blended approach. We have
lots of managed outsourcing there, which means that we're dealing
with smaller contractors in general. We're dealing with longer
contract terms, but we're still maintaining a competence within
the ministry.
Mr
Gravelle: But you have a lot less staff to do the work
they previously did. I think you acknowledged that earlier today,
that, as you said, the function of jobs changed.
Ms Rush:
Oh, yes.
Mr
Gravelle: So even the ministry patrols-again I come back
to the large patrol areas, which of course the auditor had some
concerns about. You haven't expressed any concern about that
yourself, and I wonder whether you're willing to, because clearly
if one person is doing too large a patrol area, obviously the
possibility exists, they won't be able to respond or give
directions quickly enough. That's virtually a given.
Ms Rush:
Again, the patrol areas have not changed. They change over time,
the configurations, but I keep going back to the definition. The
area maintenance contractors have within them patrol areas.
Mr
Gravelle: But didn't the patrol areas lengthen late in
November 1995? I recall it very well. In fact, I did a private
member's bill, which lost by one vote, related to maintaining
minimum standards for the roads. One of the reasons I brought it
forward was because they were lengthening the patrols of the
ministry staff.
Ms Rush:
We're talking about moving to AMCs and to managed outsourcing. We
still have a proper configuration of patrols within those. I
think we're constantly confusing the size of the area maintenance
contracts with the patrol activity that is going on underneath
it.
Mr
Gravelle: We're just talking standards here. The patrols
were lengthened in 1995, were they not?
Ms Rush: In some cases they
were as part of readjusting, but there wasn't a generalized
lengthening of patrols.
Mr
Gravelle: But the fact is that the patrols were
lengthened. One can certainly argue that this leads to a
potential decline in maintenance. That's one of the things I
suppose I've been frustrated with, when the ministry has insisted
there have been absolutely no changes. There have been changes.
This happened I think in the fall of 1995, and there were quite a
few changes. You may recall when Mr Palladini was minister and
there was quite an uproar in the House that winter related to the
attempt to slash some funding from the maintenance budget and at
the same time to affect the patrols.
Ms Rush: I
should point out, though, that there were technological changes
in the kind of equipment. Patrols were being adjusted throughout
the province, but there was not a change to length in
patrols.
Mr
Gravelle: I've heard that response before. I still think
that in terms of the patrols, they essentially have got to be
done by people who are on the road looking at the conditions. We
all hear about the situations of black ice occurring and things
like that.
Hopefully we're all trying
to achieve the same goals here, which is why I would certainly
submit that we need to get more information related to the actual
cost savings in a very precise way, as has been asked for today.
I think we need to see it especially to try and resolve the
disagreements that have been happening between the auditor and
the ministry, and also the whole issue of the safety itself.
I think the way we can do
that is to ask the auditor, through this committee, to look at
this process once again on our behalf. I hope that's what
happens.
The Chair:
Any final comments on that?
I just have one factual
question. You're saying that there are nine of these companies.
Are they located all across Ontario?
Ms Rush:
Yes, there are nine separate companies which have won area
maintenance contracts.
The Chair:
Thank you very much.
Ms Martel:
I don't want to ask questions; I just want to make one more
request for information. A number of times during your remarks
you talked about the research you had conducted before the
decision was made to go to outsourcing. I wonder if you can table
with the committee, then, the results of the work you did in
terms of research. You didn't name specific jurisdictions, but
whatever those jurisdictions were where they seemed to be working
well and upon which you made your decision, if you could table
that information with the committee I think it would be
helpful.
Ms Rush:
We didn't create a separate report but we will see what we can
provide.
The Chair:
Thank you very much for attending today. We appreciate the
information you provided to us.
Before we move to the in
camera session, we have a motion. It's my understanding that if
it's moved in open session, it has to be dealt with at this time.
Any discussion on the motion?
Ms
Mushinski: Is the mover going to speak to it?
The Chair:
Are you going to speak to it, Mr Gravelle?
1540
Mr
Gravelle: I hope that my motion will be given serious
consideration by all members of the committee. As I think I
mentioned this morning while we were in our earlier
discussions-and Mr Hastings made reference to the motion-I
believe this motion really gives us an opportunity to resolve a
lot of the questions that are out there about the issue of
highway maintenance.
The auditor was very clear
in his report about a number of concerns that he had and
certainly briefed us about those in a helpful fashion. The
ministry clearly doesn't agree the way the auditor agrees. I
think it's important that we resolve it certainly from a cost
point of view. There's no question that if it's ultimately
something that will not save taxpayers money, that should be a
concern to the government as much as anybody else.
The whole issue of safety
is one that I think is terribly important. As I stated this
morning, the public is incredibly concerned about it. I've spoken
to professional drivers of all stripes who have told me about
their concerns related to what they view as a decline in road
maintenance.
We know that traffic is
increasing. There are so many issues of communities, and we've
had the 15 fatalities in northwestern Ontario since November.
Regardless of what statistics are out there, there were 15 people
who very tragically lost their lives. I won't sit here and tell
you that I believe it was all as a result of road maintenance.
What I am concerned about is that it may have been a factor. But
if it was a factor in even one of them, I think it's something we
need to explore.
Has this change to the
process made a difference to the full privatization that they're
moving to? We need to have an opportunity to find that out. We
have municipalities. We have chambers of commerce. The Aguasabon
Chamber of Commerce in Terrace Bay, Rossmore and Schreiber was
very clear about their belief that this is needed. The township
of Manitouwadge last night passed a resolution asking that a
public inquiry be brought forward. I think they'd be very
satisfied if this motion were passed and there was going to be
some true study of this by the auditor. Who could be more
independent than the auditor in terms of looking at these
issues?
This is something that
people feel very strongly about. Every time there has been a
storm we've had fatalities. I hope that the government members
would view this as an opportunity to find some way to clearly
resolve this discussion and this debate, because we're talking
about people's lives. That's the most important factor in this.
There's no question that the cost issue is one that's very much
in dispute, obviously. I certainly am in full agreement with what
the auditor has clearly put out and I think we need to have
another opportunity to look at that as we move down the road.
It's unfortunate that the ministry is so
determined to simply move forward without evaluating the pilot
project, and perhaps all the more reason why we need to do this.
So I would hope that this motion would receive support and I'd
ask all members to support it.
The Chair:
Comments?
Ms Martel:
I'd support this motion on two grounds: one, in terms of safety,
and the other in terms of establishing whether or not there are
truly cost savings being realized as a result of this exercise.
Let me deal with the safety issue first.
There have been, in a very
short period of time in northern Ontario, a number of deaths,
many of them-almost all of them-involving truckers as well, to
the point where about three weeks ago a spokesman for the MTO
itself, George Kerhanovich, spokesman for the Ministry of
Transportation provincial employees relations committee, said: "I
have never heard of as many deaths as we do now on" northern
"highways. And I have worked with the MTO for 30 years. I've
never seen anything like this."
If I can raise a second
example which came to our office, which we have written to the
minister about and await a reply, this was an incident that took
place on Highway 69, heading to Toronto between Alban and the
French River. The OPP made three requests for salt and sand in
the area between Britt and Alban and began that at 6:30 in the
morning of December 30. It wasn't until 11:15 that there was
anything on the road at all. The woman who wrote to me avoided a
serious collision with a tractor-trailer and ended up with some
substantial damage to the car, but the three of them were not
killed. As I say, we're waiting for a reply now from the MTO.
That clearly is another
case for the OPP-calls three times from 6:30 on and gets no
response from anyone to deal with a situation on the highway,
glare ice, until well over four hours later.
I think that in the minds
of many people there is a concern that the change from MTO staff
doing highway maintenance to private contractors is resulting in
a lessening of safety standards. As you talk to people in
northern Ontario, they are quite convinced about that. I think
that a study of this nature, if it's not true, would put that
concern to rest and deal with it effectively.
Second, with respect to
cost savings, I have to say that I tried in a number of ways to
get at the issue I think the auditor has raised-and all of
us-with respect to what are the cost savings of this exercise.
You only have to look at page 243 of the auditor's report, where
clearly the Provincial Auditor's estimate of savings on the four
AMCs was 0.3%. The ministry's estimate of cost savings was in the
order of 5.2%. It's a $5-million gap between what the ministry
estimated savings to be and what the Provincial Auditor, in his
work with his staff, assessed those savings to be.
If the ministry continues
to use the same methodology in interpreting their savings, as
they told us today they were, that would result in a significant
gap in any number of contracts. And the total of that would be
quite significant, which is why I think the auditor said,
"Despite these one-time savings, outsourcing may ultimately
result in a significant increase in the cost of highway
maintenance for these contracts."
I regret to say that I was
not convinced by much that the ministry said today with respect
to dealings with this issue. We may get some information, some
new documentation, which would give the auditor some comfort
about the $900,000 in estimated savings that he said the ministry
did not provide documentation for; that was for the pilot. We've
got an outstanding issue of a gap of well over $5 million between
the potential savings estimated by the ministry and what the
auditor found in the four AMCs that were then tendered in
1998.
My concern is that the
ministry will come back to this committee and say, "For
confidentiality purposes, for protection of commercial interests,
we can't release information to you," information which would in
fact give us some clear understanding and reasonable, legitimate
knowledge of what the actual savings are. I think that before
we're finished the ministry will come back and say they can't
give us much at all that will allow this committee to make an
informed decision about whether or not what the ministry says is
true; ie, they are receiving substantial savings because of
privatization of highway maintenance.
I think if we send the
auditor back in to look at this information again-clearly he has
a right under his act to look at all these details, to look at
all this information-we may then finally get to a situation of
determining whether or not what the ministry says is correct,
that those estimated savings are live and are real and the
taxpayer is benefiting.
I would support the motion
on those two grounds: (a) to deal with a very strong public
perception in northern Ontario that safety is being compromised
as a result of privatization; and (b) cost savings, because not
much of what I heard today gave me any confidence. I don't feel
confident that we would get the information we would need to make
that determination. The best way the cost savings issue, which
was clearly a major part of the auditor's concern, would be
sufficiently and adequately dealt with if is we sent the auditor
back in.
Mr
Hastings: If I may respond to Mr Gravelle's motion that
he has put forward from this morning, I think it's well intended.
We certainly share, from a government perspective, the issue of
safety. I want to deal with the cost item in a broad perspective
as well.
First, I would start by
reiterating that we have had, through a lot of thorough
questioning today, some ways in which some of the disagreements
over cost can be handled. I think there is going to be some
information brought forth by the deputy to alleviate those
concerns. I also believe that my colleague Mr Maves will present
very shortly a whole set of items that the legislative clerk
could be examining that would answer some-possibly not all-of the
concerns raised in Mr Gravelle's motion.
Let me also state that it's
interesting that the case is trying to be made that safety is
being compromised here by a different methodology than the one that
was offered before; that is, that the traditional MTO approach to
highway maintenance is presumably the only and best way to go in
the future. That would be, I think, the way I interpret Mr
Gravelle's motion, part of the thesis that, in and of itself,
that provided sustenance and comfort to the whole issue of
highway safety throughout this province.
1550
We asked a question this
morning in anticipation of this issue. I asked the assistant
deputy minister if he had any specific verbal or written evidence
from any of the jurisdictions that MTO contacted, whether in
Europe or North America, that indicated that, in and of itself, a
different methodology of carrying out highway maintenance could
uniquely contribute to the fatalities or severe injuries of any
driver or passenger in the province of Ontario. I think we got an
answer back pretty clearly. If you look at the record from this
committee when it comes out, there was a negative. He said "No."
We'll also, I presume, get more confirmation of that from the
tabled material that will come later.
It's also important to
remember that this isn't uniquely different from what has been
going on in this ministry or other ministries across the
government of Ontario or in other provincial operations across
Canada. We have had for a number of years, since the mid-1970s,
and I can recall during the 1980s, when I was on a city council,
some specific things, by function, contracted out, outsourced.
There is a history to that.
One could argue then that
if that were the case, where there has ever been an accident,
whatever dimension that accident had during those years, you
could then go back and say, "Ah, because you had outsourced a
specific activity in the maintenance area, that must have been a
major or very vitally contributing factor to that accident,"
whether it be on the provincial highway system or on a municipal
road system. I'm not sure that would be the case.
Mr Gravelle says in his
motion "may have compromised safety." On a logical basis one
could say-and this is not to dismiss the concerns people have
around safety, whether it be in northern Ontario or southern
Ontario-that a whiteout or a very bad rainy night could in and of
itself be the decisive contributing factor to another type of
accident. That doesn't sound very logical.
Usually what happens in
these circumstances is, if you look at provincial inquests of
whatever the size of an accident, you have a series of factors.
Some of them are mindsets; some of them are external. Depending
on the time of year, the season, that can also contribute. So I
think we have to be very prudent in terms of how we approach this
issue.
Furthermore, I wanted to
point out that we had from staff some statistics. While some
people take a very skeptical approach to this, I think there is
some good substance in the material that was presented regarding
northwestern and northern Ontario that undermines or does not
confirm Mr Gravelle's motion, even on the basis of "may," if you
use those statistics over a 15-year period. I think that shows a
pretty strong trend line.
Furthermore, I would like
to add that when I visited northwestern Ontario on at least two
occasions, I remember reading, I think before I became the PA-I
may be off in the year-an article in Reader's Digest about a
killer strip in northwestern Ontario near Vermilion Bay. I drove
that after it was changed, and from what I could see from photos
and video before we had reconfigured that section of the highway,
from the design then, combined with the speeding and some other
factors, there was a great potential for accidents.
After that project was
started and completed between 1995 and 1999, costing about $25
million, I asked the region engineer if he could recall any
fatalities since completion, and he said he couldn't say. But
from what he says people tell him and from what I saw in the
summer of 1998, there was a great deal more comfort in terms of
that specific area. It was much easier to maintain. The wider
design gave a lot more forgiving quality for people driving
through it. That, remember, is in a managed outsourcing
arrangement, if I'm correct on that section of northwestern
Ontario.
If one wants to go into
greater detail about this, look back at the expenditures made by
other governments, including ours, over the last 15 years. If you
take 1987-88, there was about $283 million expended on capital
construction programs across the province. In this past year we
were up to $692 million. If you specifically look at the north
again, expenditures back in 1987-88 in the north were $57
million, the northwest $47 million; in 1999-2000, $174 million
for the north, $66 million for the northwest.
The figures vary, depending
on which ministers were successful in getting more money per
year. But if you go and talk to a lot of the people in the
north-and I've had them through Ontario Good Roads, I've had them
through AMO-they are generally satisfied with a lot of the money
we put up in terms of improving the design not only in the
Vermilion Bay project but in other areas of northwestern Ontario.
We've brought the highways back up and we dealt with that through
questioning in terms of the pavement index.
In essence, we've made some
significant progress in terms of managing the number one priority
we have, which is public safety in the province of Ontario,
through questioning, through statistics, through anecdotal
evidence, including the mayor of Kapuskasing. The mayor of Fort
Frances, Mr Witherspoon, said to the minister recently that he
didn't have any problems with the way in which MTO was
supervising and monitoring managed outsource arrangements. I want
to specifically quote the mayor of Kapuskasing, in the Sudbury
Star on January 19, a very positive endorsement of road
maintenance on Highway 11: "The subcontractors who clean 11, we
hired them to do the town's portion so it can be all uniform
because they were doing better work than we were doing
ourselves." There's one example. That doesn't say everybody else
is happy-we understand that-but we need to put on the public record some of those
particular comments.
It's also been noted by the
OPP in northwestern Ontario that generally speaking they are
relatively happy with the way in which traffic safety is being
observed and the way in which the roads are being maintained in
that part of Ontario.
1600
Much as I appreciate Mr
Gravelle's intentions here through the motion, I think Mr Maves
will present some other ways in which we can handle his concerns.
Also, we have the auditor already asking in the four questions
this morning-certainly the one that he will be getting
information on, I'm sure-the cost evaluation regarding the pilot
project at the end of April. Even if it wasn't clearly
delineated, I know that under the powers of the Audit Act, he has
that capacity and obligation to do so anyway. So we will get some
answers on that specific contract.
The other final thing I
want to say is, being in government compared to being in local
government, I can understand and appreciate where the
opposition's coming from when they hear this term "competitive
intelligence" and that somehow, if you can't get those numbers
out, there is hardly any validity to the savings that have been
achieved by MTO, or in other circumstances. I think what clearly
has to be maintained is that when you do have competitive
intelligence and that information was given out and it could get
out, that gives a great advantage to other bid competitors in new
contracts arising in the future. It wouldn't be very difficult to
piece together where those numbers come from and where the
contracts are situated when you see that kind of information.
That's one of the problems anybody in government has today,
whether it be provincial or federal or, in some instances,
local.
I think there are other
ways of handling this motion, Mr Chair, and thank you for the
time.
The Chair:
Any further debate?
Mrs Julia Munro
(York North): I want to comment on two aspects of this
motion, and certainly the first one with regard to road safety. I
think all of us as individuals recognize this as the important
issue. In the presentations provided by the deputy throughout the
course of the hearing, it's clear that that has been a
significant and, perhaps more accurately, their most important
concern. I think that recognizing that as a paramount concern of
us as individuals and of the ministry, we can look at the
material that was provided for us with regard to the studies that
they have done on the fatalities that have taken place in the
areas under consideration. That is certainly what has been asked
for in this motion. We have seen some of the material today.
The second area I want to
deal with is the issue of the role of the Provincial Auditor in
this motion. The first part asks about undertaking a full review,
and the fact that the auditor would report back. I just call your
attention to the fact that when you look at what the auditor has
provided us with and given us direction to work on, particularly
those pages of 237 to 242 in the auditor's report, they in fact
give us very clear direction on where, as a committee, we should
be looking in the areas of the measures that the ministry has
undertaken and looking at questions of the alternative delivery
service, and clearly asking the kinds of questions with regard to
the way in which that delivery is being provided.
I would suggest to members
of this committee that the auditor obviously doesn't need the
committee to instruct him in this regard. He regularly, as part
of his responsibility, provides us with a follow-up of his
recommendation as part of the regular business. That is perhaps
something that makes part of this motion something that is
already covered by the normal business of the committee and the
auditor.
Finally, I would just
comment on a couple of the individual points made in this motion.
We have heard today about the initiatives around performance
standards, the fact that Management Board is providing some
direction in this area on the development of the performance
measures. I think that when you take this as a whole, we can see
that the Provincial Auditor is operating within his purview and
therefore this becomes redundant.
Secondly, many of the
individual parts of this motion have already been addressed by
some of the things we've heard today,
The Chair:
It's my understanding that this motion, in effect, is a special
request under section 17 of the Audit Act for the auditor to
perform a special assignment as directed by this committee.
Normally what the auditor would do, subject to any other
directions that may come out of these hearings, is go back as a
matter of course in two years to look at this again. That's the
major difference: whether it's a special assignment or a regular
part of his audit that proceeds every two years.
Any further discussion?
Mr
Gravelle: One quick comment. I do want to respond, if I
can, to Mr Hastings. I'm not sitting here for a second saying
that all the fatalities that took place, let alone any of them,
are absolutely as a result of the road maintenance changes in the
province. What I am suggesting or concerned about is the fact
that they may be. I appreciate you making it clear that I said
"may or may not."
The fact is, we have an
opportunity through this motion to have the auditor explore this
aspect. This is obviously the most crucial issue one can imagine,
if it's possible we may be able to discover that there has been
some change in the process that we've been expressing those
concerns about that has had an impact on the roads. If they're
not getting to them as quickly as they can, if the process by
which the patrollers are going out is not working in terms of
getting the message back to the contractors, and if indeed it's
not working, this is an opportunity for us today, and in many
ways it's a non-partisan opportunity.
The auditor is in a
position where he can do it. I heard him earlier say that it
might not be easy to do this-it would be more difficult-but he
could. I think that's very important. Responding to Mrs Munro, as the
Chairman kindly pointed out, he otherwise wouldn't be going back
for probably two years.
I would like to think we
would view this as an opportunity as a committee of the
Legislature to look at something where obviously there's the cost
aspect, which is one that I think needs to be further explored.
But certainly from the public safety perspective, if there is any
chance-listen, if we're wrong, we're wrong. But is it not our
responsibility to be as concerned as possible about that
possibility, all of us in this room? If we have a chance to have
the Provincial Auditor explore that, then I think we should be
taking advantage of that opportunity.
Mr Maves:
Just quickly, we've kind of had a battle of quotes and a battle
of perceptions, and that is exactly what a lot of the quotes are;
they're just perceptions.
Charlie Caldwell, the mayor
of New Liskeard, has said that the standards have been not
reduced, when talking about this issue. Jack Burrows, the mayor
of North Bay, has said, "We are satisfied that highway standards
are being maintained." Bob Beatty, OPP traffic sergeant in
Thunder Bay, has said: "My perception of it is the motoring
public is getting the same service they got before. I would say
there is more sanding being done and more plowing being done." So
there is the desire to use all of these quotes about perceptions
and whatnot.
But what I wanted to get at
is that during my questioning with the ministry, I very clearly
asked them some questions that were actually derived from Mr
Gravelle's motion. I asked if they were reviewing, and they said
they were, highway maintenance contracts on a regular, continual
basis. I asked if they were continuously reviewing the economics
of those highway contracts, and they said they were. I asked if
indeed inspection and monitoring of highway maintenance was
ongoing and in fact increased, and it was. I wanted to note
that.
I want to also note that a
lot of things my colleagues and I are ready to propose with
legislative research will actually cover some of the things in Mr
Gravelle's motion for the rest of the year 2000. Beyond that, in
the year 2001, I believe it is, Mr Peters will probably be back
at it anyway. As Mrs Munro said, because of that, that he's
already going back anyway, it becomes somewhat redundant. I
think, with some of the things that we're going to propose to the
committee and to legislative research, it will become redundant
for this year also.
The Chair:
Any further discussion by anyone? Any comments?
Mr
Gravelle: I'd just like this to be a recorded vote.
If I may, to Mr Maves, the
fact is you're right, in terms of going back and forth. There was
also acknowledgement that the maintenance standards had changed
in 1995, the patrols had lengthened. There was an acknowledgement
of that by the deputy.
Mr Maves:
It wasn't acknowledged, actually.
Mr
Gravelle: Yes, it was. Anyway, I would like to have that
be a recorded vote.
The Chair:
I'm going to call the question, then. All those in favour?
AYES
Cleary, Gravelle,
Martel.
NAYS
Hastings, Maves, Munro,
Mushinski.
The Chair:
The motion is lost.
Any further matters to be
discussed in public session? Then the hearings are adjourned
until tomorrow morning.
The committee continued
in closed session at 1611.
