Public Accounts Committee — Department of Public Works and Services — 10 September 1992

1992-09-10

Newfoundland and Labrador — Committees

September 10,

1992 PUBLIC ACCOUNTS

COMMITTEE

The Committee met at 10:00 a.m.

MR. CHAIRMAN (N. Windsor): Order, please!

If we're all ready, I'll call the meeting to order.

There is one member of the media. I don't see any cameras or anything with this

gentleman, but normally, I inform the media if they wish to take some silent

footage they may do so. We'll give a few minutes to do that sort of thing. You

don't want to do any photographs or anything? So we'll dispense with that for

the moment. The rules, by the way, for the interest of the media, applied in

Committee are the same as in the House of Assembly. Voice clips can be used

discreetly, of course, trusting to the integrity of the media, but we don't use

sound on film.

I'd like to introduce the members of the Committee

who are with me: to my right, Mr. Tom Murphy, MHA for St. John's South, who is

Vice-Chairman of the Committee; Mr. Danny Dumaresque, MHA for Eagle River; and

Mr. Garfield Warren, MHA for Torngat Mountains. Other members of the Committee

who are not present have advised us they will not be here for various reasons of

other commitments.

First of all, I'd like to ask the witnesses who are

here with us today to identify themselves, and then we'll have the Clerk

formally swear in the witnesses before we get on to other business. First, I ask

the representatives from the Auditor General's department - Mr. Drover, I

believe.

MR. WILLIAM DROVER: Thank you, Mr. Chairman.

I'm Bill Drover, the Audit Principal responsible for the annual report

representing the Auditor General today. With me is Mr. Gordon Withers, the Audit

Senior responsible for the audit of the Department of Works, Services and

Transportation.

MR. CHAIRMAN: Thank you. Before I go on to the

department, for the benefit of Hansard and the people who are recording the

proceedings here, I will attempt to identify each person before he speaks, so

that Hansard knows who's speaking. If I fail to do so, please help me by

identifying yourself before you speak, so that the people back in Confederation

Building, when they have the tapes in front of them, have some idea who is

speaking.

Mr. Peckford, would you care to identify the people

who are with you this morning?

MR. BRUCE PECKFORD: My name is Bruce Peckford.

I am currently the Deputy Minister of Social Services, formerly the acting

Deputy Minister of Works, Services and Transportation. With me today are: on my

far right, Keith White, Director of Construction; Terry McCarthy, Director of

Highway Design; Harold Stone, Assistant Deputy Minister of Works, Services and

Transportation; Robert Hoyles, Office Manager, Project Management Division;

Austin Sheppard, Manager of Tendering and Contracts; William Knight, with the

Tendering Contracts Division.

MR. CHAIRMAN: Thank you very much. Maybe the

Clerk now would like to proceed with the swearing in of the witnesses.

SWEARING OF WITNESSES

MR. GORDON WITHERS: I, Gordon Withers, swear that

the evidence I shall give on this examination shall be the truth, the whole

truth, and nothing but the truth, so help me God.

MR. KEITH WHITE: I, Keith White, swear that the

evidence I shall give on this examination shall be the truth, the whole truth,

and nothing but the truth, so help me God.

MR. TERRENCE MCCARTHY: I, Terry McCarthy, swear

that the evidence I shall give on this examination shall be the truth, the whole

truth, and nothing but the truth, so help me God.

MR. PECKFORD: I, Bruce Peckford, swear that the

evidence I shall give on this examination shall be the truth, the whole truth,

and nothing but the truth, so help me God.

MR. HAROLD STONE: I, Harold Stone, swear that the

evidence I shall give on this examination shall be the truth, the whole truth,

and nothing but the truth, so help me God.

MR. ROBERT HOYLES: I, Bob Hoyles, swear that the

evidence I shall give on this examination shall be the truth, the whole truth,

and nothing but the truth, so help me God.

MR. AUSTIN SHEPPARD: I, Austin Sheppard, swear

that the evidence I shall give on this examination shall be the truth, the whole

truth, and nothing but the truth, so help me God.

MR. WILLIAM KNIGHT: I, William Knight, swear that

the evidence I shall give on this examination shall be the truth, the whole

truth, and nothing but the truth, so help me God.

MR. CHAIRMAN: Thank you very much. Before we

proceed any further, perhaps I could dispense with the minutes of the meetings

of August 10 and June 2, 1992.

On motion, minutes adopted as circulated.

MR. CHAIRMAN: For the information of the

witnesses, now that we have gone through that great formality, you are not on

trial, let me assure you. You are here to give evidence and to give us the

benefit of your advice and your knowledge of what took place. We're simply here

to hear evidence, not to stand judge and jury over anything that may have taken

place.

It is our role on behalf of the House of Assembly to

inquire into matters that occurred, and particular matters that we will be

looking at over the next two days, this one dealing with the tendering of the

Department of Public Works and Services ... Works, Services and Transportation -

excuse me, I'm still back in the dark ages - as it relates to, particularly, the

Ossokmanuan bridge. I am sure we are all aware of the circumstances surrounding

that.

But again, you are not on trial, you are here to give

evidence. If there is information that you do not have available, you are

entirely free to say, 'I do not have the information, but I will provide it in

writing later,' if it is detailed information or something you just don't have

with you. That is quite acceptable. If a question is directed to somebody and

the question should be directed to somebody else, please feel free to say so and

let somebody else respond. Mr. Peckford, I assume you would lead the way in that

regard, advising us who best could answer a question.

It is fairly informal although you have been sworn in

formally. You are under oath. It is basically a meeting of the House of Assembly

or a Committee of the House. You are giving testimony, but we try to keep it

fairly friendly and informal. Our purpose here is to get information and nothing

else. So I hope we know the spirit in which we are dealing here this morning.

To start out, perhaps I would ask Mr. Drover, on

behalf of the Auditor General's Office, if he would wish to make some opening

comments.

MR. DROVER: Thank you, Mr. Chairman. Our opening

statement, which we presented to the research officer, deals with paragraph 4.12

of the 1990-91 report of the Auditor General entitled Tendering for the Road

Construction Program.

Our review of the tendering process for projects

comprising the Road Construction Program disclosed that some aspects of the

system of control needed to be improved. The monitoring system in place to

ensure that contracts were awarded in accordance with the provisions of the

tendered documentation was not adequate.

In one case reviewed, a contractor refused to proceed

with a project for which he had been the successful bidder, citing the

department's failure to officially accept the bid by issuing an award letter

within a thirty-day period required by the department's tender form document.

Two months later, after a second tender call, the contract was awarded to the

same contractor on a bid that was $1.3 million higher than the original and $1.1

million higher than the department's own estimate.

Of the seventeen projects which we reviewed, a total

of eight were not awarded within the thirty-day period, but only one was refused

by the contractor. We note that the department has since improved its monitoring

control system, and we also note that we will be following up in a subsequent

year, not the current year. During the current year, I will note for the

information of the Committee, as approved in the House of Assembly, the firm of

Peat Marwick Mitchell will be performing the audits of the Departments of Social

Services and Works, Services and Transportation. That relates to the appointment

of the new Auditor General and her involvement. It was a resolution of the House

of Assembly, so we won't be involved in those two departments in the current

year, but in the following year we plan to revisit a lot of these areas.

So we are making the statement that it has improved as

a result of work that we did prior to March 31st. We really do feel that the

system has improved. I think that is exemplified by the evidence you have before

you in the weekly reporting form, and I think that the Deputy Minister will

point that out. But our subsequent audit will not take place in the current year

- as I pointed out, it will take place in the subsequent year.

MR. CHAIRMAN: Thank you, Mr. Drover. That

certainly brings us to the heart of the matter very quickly and also points out,

I guess, and strengthens what I said a moment ago, that part of our purpose as a

Committee is to ensure that items of concern that are brought to the attention

of the House are followed up and corrective action is taken. If that is a result

of these hearings, then the Committee's role will have been fulfilled.

Mr. Peckford, would you like to make any opening

comments on behalf of the department? I am assuming that, as the former acting

Deputy Minister, you are the head of the delegation here today. I have

approached it from that point of view.

MR. PECKFORD: Thank you, Mr. Chairman.

I have here the formal opening statement, as such, to

speak to this issue. In reviewing the material which the Committee has been

provided with and from my recollection of the events when I was with the

Department of Works, Services and Transportation, I don't see any facts or

evidence there which I feel are incorrect or need to be elaborated upon to any

great degree.

Certainly, the way things are presented are, to the

best of my knowledge, the way the events occurred. The department has taken

considerable steps in strengthening the system, as the Auditor General's

Department has just pointed out. Therefore, it is not likely there will be a

recurrence of the kind of situation that we saw in this particular contract and

other contracts, as the Auditor General has pointed out, where they weren't

awarded on time.

MR. CHAIRMAN: Thank you very much. Perhaps we will

proceed with some questions.

Mr. Dumaresque, would you care to lead off the

questions this morning?

MR. DUMARESQUE: Thank you, Mr. Chairman.

MR. CHAIRMAN: If I might just interrupt you for

one more second, it is warm in here. Please feel free to take off your jackets.

MR. DUMARESQUE: I just want to ask the Auditor

General's Department a couple of questions.

The note you provided to the research officer,

indicates that there are seventeen projects reviewed. A total of eight were not

awarded within the thirty-day period.

What time period did that cover? Was that within the

last fiscal year?

MR. DROVER: That was in the period for the review

process. There was an overlapping period, but those were just seventeen that we

selected. They weren't statistically selected; it was just audit selected. So we

did not select them to project and say that 80 per cent or 90 per cent had a

problem. These were the ones that we picked.

I think Mr. Withers can give you more details on it

than I can.

MR. WITHERS: The selection was mainly based on our

audit of the ERDA federal/provincial cost-sharing agreement. For that purpose we

selected high value items. So the seventeen projects we did select contained

expenditure going into the 1991 fiscal year that was, in fact, being claimed for

cost-sharing purposes.

Of the seventeen we looked at, eight exceeded the

30-day time frame set out in the tender documentation. They exceeded by varying

time periods. One went as high as fifty days and the lowest probably was one or

two days.

MR. DUMARESQUE: I have, Mr. Peckford, for your

officials, just a couple of questions.

On that particular item, after it goes thirty days,

what happens to the second highest bidder? Does that contractor not have the

option to come forward and claim the award after the thirty-day period has

expired?

MR. PECKFORD: No, it is my understanding that if

an award is not made within thirty days, the second bidder does not

automatically have the right to the award.

It is still a prerogative of the department to make

the award to the low bidder or any bidder.

MR. DUMARESQUE: Are they notified after the thirty

days that the contract has not been awarded?

MR. PECKFORD: My understanding is that, normally,

after the expiration of thirty days, if additional time is required to evaluate

the tender bids, the bidders are notified and asked for an extension.

MR. DUMARESQUE: Okay.

To the Auditor General's Department: To your

knowledge, have any of these eight, as a result of the thirty-day overrun,

resulted in a request by the department for an extension?

MR. WITHERS: No, we weren't aware of any requests

for extensions in those eight contracts. We didn't see that kind of

documentation in any of the files related to the projects.

MR. DUMARESQUE: Okay. One last question on the

monitoring system. Am I to understand from the information we have here that

this monitoring system that was in place up until this particular time was in

place for years before that, or were there any regular changes?

MR. CHAIRMAN: Mr. Peckford.

MR. PECKFORD: A new monitoring system has just

recently been put in place, several months ago, I think, perhaps a year ago,

which provides greater control over which tenders have been placed. There's a

running computer system that monitors the expiration of the time period and

flags warnings at various intervals to show when the time period is getting

close and so forth, so that action can be taken to seek the extension, if one is

necessary.

I should add, though, that as the Auditor General's

sample showed, and as was just mentioned, it wasn't always customary to ask for

the extension. That had not been a problem when you were going over that. It

wasn't always done, as the Auditor General said. There was seldom a problem with

the refusal of a contractor to accept an award if made after thirty days.

However, in the Ossokmanuan case, of course, this is exactly what did happen.

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: Okay. But as I indicated, was this

the system - you know, before the last six months - that was in place for the

last number of years?

MR. PECKFORD: That's correct.

MR. DUMARESQUE: Okay - no further questions.

MR. CHAIRMAN: Mr. Warren, would you care to take

up from there?

MR. WARREN: Thank you very much, Mr. Chairman. I

have one question. On May 25, Mr. O'Reilly, acting Deputy Minister, wrote to our

researcher, and I just want to quote one

section of his second paragraph: 'We

have provided the majority of items you requested; however, the item for the

supplementary estimate is not available and the process for tendering has

changed.' He goes on to say that this could be available sometime after the

project is finished in October. Is that unusual, or is that a system that has

always been followed? Why couldn't the supplementary estimate be available as

requested at that time?

MR. PECKFORD: Mr. McCarthy, I think, has more

current information to speak to that question.

MR. MCCARTHY: The project is now finished and the

contractor is off site, but we still don't have the exact final cost of the

project. We're still working with the contractor. He owes us some GST rebates

which changed; we owe him some monies on the payroll tax that came in during the

life of this contract. So what he is talking about there - we don't have the

exact final cost of the project at this point in time; we know it close, but not

the exact figure.

MR. WARREN: So you still don't know the total cost

of this project?

MR. MCCARTHY: We know approximately what it is,

but we haven't had the exact dollar. The final cost is pretty close to the

second tendered price.

MR. WARREN: Now -

MR. MCCARTHY: Maybe Keith White can better

explain.

MR. WHITE: The final figures that I have right

now, excluding any tax implications, is $291 less than the bid item. I'm having

the final figures - I was speaking with the contractor this morning, and he has

to do his payroll, look at his payroll implications, and he'll have the final

figures for me within a week. They will be less than the tendered price. Right

now, it's only $291 less and it depends on the ramifications of the GST rebate

and the payroll tax.

MR. WARREN: When do you expect to get those

updated figures for us?

MR. WHITE: I should have them within a week.

Because some of the contractor's people are on holidays right now, he hasn't got

the full figure for me as of this morning.

MR. WARREN: Thank you, Mr. Chairman.

MR. CHAIRMAN: Mr. Murphy, would you care to ... ?

MR. MURPHY: Yes, thank you, Mr. Chairman. I would

assume that you gentlemen have the same document in front of you that we have in

front of us. I refer you to page 5 of the Auditor General's comments. It shows

page 127, I think, in the Auditor General's document, but in our book it's

numbered as 5. If you look down past contract A, B, C and D, to the next line:

"These bids compared to a departmental estimate for the project of $7.2

million."

Perhaps somebody might want to explain to us the next

paragraph: "As a result of the lowest bidder's refusal to accept the contract,

the Department decided to cancel the original tender call and retender the

project with minor specification changes." Would somebody want to explain what

the minor spec changes were?

MR. MCCARTHY: In the original tender we had two

other items - there were two bridges that had been built previously on this

road. Through some discussions with CF(L)Co they were concerned about the heavy

loads that they planned to take into the Churchill Falls power station. At that

time, we included an item to strengthen the girders on those two bridges. While

this was taking place it came to light that we might not have to do that

strengthening. The analysis was still ongoing, and we decided if we had to do it

at a later date, it could be done as a separate contract.

MR. MURPHY: In the second tender call, were those

MR. MCCARTHY: Those items were left out.

MR. MURPHY: The second tender call was exactly the

same as the first tender?

MR. MCCARTHY: Except for the strengthening on the

two other structures.

MR. MURPHY: The structural, yes.

Now, I refer you to page - I don't know if you have

this document.

AN HON. MEMBER: Yes, we do now.

MR. MURPHY: Okay, fine - page 34. No, it's not 34,

excuse me. I want to get up to the original Ossok....

AN HON. MEMBER: Forty-two.

MR. MURPHY: Forty-two, yes. This, of course, is

the document associated with the first tender call. Is that correct?

MR. MCCARTHY: Yes.

MR. MURPHY: McNamara Construction bid $6,964,910

on the initial contract. The second tender was $1.3 million more?

MR. MCCARTHY: Yes.

MR. MURPHY: Yes. What I want to try to zero in on:

obviously, the second spec change would not warrant $1.3 million - would it?

AN HON. MEMBER: No, it would not.

MR. MURPHY: No - okay. I guess it goes back to the

Auditor General's statement again, that the thirty-day procedure, the tendering

procedure, which everybody accepts as being part of the norm, I guess; if you're

a contractor out there and you tender any road work with government, you know

that the thirty-day period is there. That would lead me into another question

associated with the thirty days. If you look on page 42 again, I think, right

behind there, and I don't know where that - page 44, actually.

There is no heading on this page as to where it came

from, but I think this is a breakdown of what transpired, in retrospect, to why

the period of time. I find it difficult to understand when the department is

dealing with these types of tenders and these situations over years and years,

and understanding that in 1984 that the legislation associated was brought in

and the thirty-day period obviously was; and it goes through the dates. The

tender closed at noon on the sixth, and the tender was checked by the bridge

design ... Mr. White, on the eleventh. These forms were received back on the

eighteenth.

Would somebody want to talk about - I mean, after a

tender award, even on a job as large as this, and incorporating the fact that

the Federal Government was part and parcel of this tender, because they had some

money coming into it also, it would seem to me that thirty days should certainly

be adequate to award the tender, move McNamara's bid around to the appropriate

people, and award it before thirty days. I notice that it came back from

Transport Canada on July 3 1990, too. So there was adequate time to - would

somebody want to cover this for me?

MR. PECKFORD: Yes, I want to make some general

comments about this, and perhaps Mr. McCarthy and Mr. White may want to add some

supplementary detail to it after I have concluded.

I guess my feeling is that it is with considerable

embarrassment that we are, I think, all here at this table talking about this

particular contract. Certainly, you are very correct that the tender had thirty

days and it should have been able to be awarded within the thirty-day period.

As you have pointed out, it was mitigated somewhat by

the fact that Transport Canada's time wasn't included in there - contracts in

which I do not have the cost-sharing arrangements associated with them. We don't

have to have that period of time; notwithstanding that, there was a period of

time and it was a failure of our system to notice this and to award it in proper

time.

MR. MURPHY: Well, I certainly don't want to point

any fingers. It is not my intent to point fingers here. The problem is that if

you look through the documentation we have here, you would obviously see time

and time again, the minister having to respond to different groups, namely the

construction association, people in Labrador, town councils and everything else

and then, of course, the legal documents associated with O'Connell, who were the

second lowest bidder, and what have you, all of which keeps coming back to the

fact that the thirty-day period was not adhered to, and, of course, the tender

was not awarded within the thirty days which let McNamara off the hook for their

$6,964. Of course, then, when the tender was called again, it obviously cost the

taxpayers of this Province an additional $1.3 million.

I refer you - and I am making statements here because

I think they should be made. I think it should go into the record. I understand

that some work has now been done, hopefully to avoid the recurrence of this

particular problem. Of course, the then - I think it is Ms. Elizabeth Marshall,

and I refer to her letter of 14 January 1992, where she talks to the Auditor

General's Department about clearing up this problem. It is still difficult for

me to conceive that a $7 million project would not find itself through the

system of the department with the expediency to make sure that the award of that

tender was made.

Again, if you look at the findings on page four - and

Mr. Dumaresque already has asked a question on this - a lot of these projects

extend that thirty-day period. I would imagine that the construction industry -

and maybe somebody would like to comment on that - the construction industry

and/or companies who tender and bid out there, are acceptable to receiving a

tender forty-one days or thirty-eight days after, and there isn't any incident

or problem with it; they go ahead and carry out the work. Would that be correct?

MR. PECKFORD: A couple of observations, if I

could; yes, notwithstanding the fact that it should have been made in thirty

days - I think we all recognize that - there are a few factors, perhaps, that I

could mention. One is that where the thirty-day period had been exceeded in the

past without the request for an extension, there was seldom a problem. Many

times, as the Auditor General has pointed out a few, the award was made after

the thirty-day period and the low bidder accepted the contract, so it was highly

unusual for a contractor to refuse.

Another factor at that time, the department had just

been still in the process of the merger of the former Public Works Department

and the former Transportation Department, and the Tendering and Contracts

Division was very much affected by that, so there was possibly some confusion in

the practices of one former department with the practices of the other.

A factor, as well, I think, if we look at the bids,

McNamara's bid and the other three next higher bids, is that subsequently, it

seems as if perhaps one might draw the conclusion that the real value of that

bridge was somewhere around $8 million, a difference of $2 million, and that

there perhaps was an error in the original McNamara bid that brought it so much

lower.

One could speculate that if the contract was awarded

to McNamara's, some difficulties in contract administration might have arisen as

the project went on. But those are just various observations and comments. It

does not take away one whit from the fact that the contract should have been

awarded to McNamara within the thirty days, and there is nothing that I have

said and that I think I can say that would relieve or take away, in any way,

from the fact that it should have been done.

MR. MURPHY: What I was asking, Mr. Peckford - I

appreciate your answer and I think that basically says it, but it would seem

that the industry itself was not surprised to receive a tender award forty days

after, thirty-nine days after, whatever the case may be, and never used the

option at its disposal - the thirty days which is in the tendering legislation -

never used it before. So I can understand why, I guess, the system probably

softened out and nobody got overly excited about it, because many times before

that - and the Auditor General identified that - companies did accept contracts

well in excess of thirty days, for whatever the reason. It might have been a

departmental problem of engineering or materials and pits, and all kinds of

things I can envisage that might happen, that the material wouldn't be accepted

- and this takes time - and finally the tender would be awarded. So, even though

McNamara decided to use its option of the thirty days, it was not unusual prior

to this, I would imagine, over a period of time - and somebody might want to

comment on that - within their memory, and maybe somebody researched it after

this, that tenders were awarded after the thirty days on many occasions and that

might have caused the complacency to get into the department; but when McNamara

did, of course, it brought everybody to a standstill.

I might add, Mr. Peckford, you are correct, that the

department estimates always come up, but I am glad that the department, itself,

doesn't bid any work, because according to the information we have here you

wouldn't get a job. You wouldn't get one. You would never be low. I don't know

where you get your figures; however, perhaps one of you gentlemen might want to

comment on preceding experiences that led up to this type of problem.

MR. McCARTHY: In my seventeen years involved with

the department prior to this tender, I have never known of a case where the

contractor refused the contract after the thirty-day period.

Just going back a few years, sometimes that period

used to get even longer than what the Auditor General reported in this report.

In some of the previous agreements we used to have to go to Ottawa office to get

approval to award contracts after tenders had closed, and the approval process

at that time from Transport Canada was much more cumbersome in that they wanted

plans and specs and they did a technical assessment, as well as the financial.

In this particular agreement, we did get that approval

process moved to the local Transport Canada office; but I think therein lies the

problem, that we never had a case previously where the low bidder refused the

contract.

In this particular case - this is another observation

- as the design branch and involved in the approval of shop drawings and things

that normally are part of contracting, McNamara, in that thirty-day period,

certainly were proceeding on the basis that they were going to take the

contract; we had a number of conversations with them on approvals on suppliers

for the steel; they had people on-site after the tender had closed. They were

talking to us, figuring out where they were going to start first, where they

were going to set up. So every indication from McNamara was that they were

proceeding as if the contract was going to be awarded and they would take it.

MR. WHITE: May I make a comment? I worked with a

contractor for a good many years and one consideration that he has to look at is

that a job is a job, and if it goes to a second tender he may very well lose

out.

MR. MURPHY: That's right.

MR. WHITE: I know of its happening in a few

instances in other type work rather than highway work, but you can easily lose

sleep over the decision to refuse a tender. It's not lightly taken.

MR. MURPHY: But I guess, Mr. White, in all

fairness, that McNamara, somewhere along in the $7 million, realizing what they

had left on the table, probably decided this was going to be -you know, I mean

there are people out there doing business, too - decided it might be a little

fine and they were probably going to have a tough time making a dollar on the

job, and took advantage of the thirty-day situation. Nobody guaranteed them that

when you called the tender the second time they were going to get it. I mean,

they came in with another bid. There's some correspondence in this document that

indicates they had an advantage from what other - I don't see it and perceive it

as being that way.

The only thing I want to highlight here is that even

though the thirty-day period is there, and anybody who is out there doing

business has a right to opt into it and use it, which McNamara did, it is not

unusual, as Mr. McCarthy outlined, over a period of years. It is the

department's experience that tenders have been awarded well beyond the

thirty-day period without any problems whatsoever. That's what I - the incident

that McNamara took an option - and rightfully so, it was theirs to do - is why

we're all here, I would guess. If McNamara had accepted the original tender at

approximately $7 million, we wouldn't be here.

So I just wanted to clear that up, because it is my

understanding. I can understand why, in thirty days, when you consider a big

project such as that, a $7 million project, and some other projects concerning

engineering, that it may stretch out and exceed. I see some of the new changes

that obviously are now in place to prevent that from happening, to expedite the

contract award through, and the letter sent out prior to that now. I understand

that - okay. But I just wanted to draw in on that, because I felt that we all

should know that it looks like it's an exception, and it is not an exception.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you, Mr. Murphy.

Unless other members of the Committee have questions

they urgently want to bring forward, perhaps I might indulge myself in a few

questions to the Committee.

First of all, let me deal with this same issue that

Mr. Murphy has raised so well. It apparently is past practice to go over thirty

days, but I don't think that excuses us from the fact that these are our

specifications, it's our legislation. It says a tender shall be acceptable for

thirty days. We decided on the thirty days, and I'm sure everybody was aware of

the thirty-day period, so I think it must be recognized that we're really

missing the boat.

Even though, as you say, in all your experience nobody

has refused to accept a highway contract, that's simply because of the state of

the economy out there and the fact that these contractors need work desperately

and don't want to take a chance on not taking it. We've finally come to a

situation where a contractor saw enough potential benefit in it that he would do

it, and we're all embarrassed, Mr. Peckford, but the taxpayers are embarrassed

by $1.3 million. That is the Committee's concern here and the reason we're here

today. Although it has been practice in the past, I would submit, that we have

been leaving ourselves open, and it may well have occurred before, perhaps it's

only going to occur once, and this once has cost us $1.3 million to learn a

lesson.

I have some concern about the overall timing of the

thing, in reading through all these background documents very carefully. First

of all, to get into another sort of related issue here, if the Committee will

bear with me for a moment. Tenders closed June 6. It's been an age old problem.

We're talking the Labrador construction season. Tenders are only closing on June

6 to be awarded by July 6. Isn't that late in the season? Is there nothing that

we can do to get these sorts of things - I realize there are budget approval

processes and the House of Assembly holds you up to some degree, but we have

initiated, in the past few years, early tendering and early approval of certain

blocks of capital funding. Surely, construction projects in Labrador would have

to be given top priority for tendering as early as possible, knowing the

shipping season to Labrador and the difficulty of getting materials up there, if

you wanted to get a construction project finished in that construction season,

or more importantly, if you wanted to ensure that you got the lowest tender

price. Because a contractor will base his price on his cost and difficulty of

getting materials to a site and doing the job. It is to the taxpayers' benefit

to have tenders called well in advance so that the contractor has plenty of time

to plan, to expedite materials, equipment and personnel to the site. June 6,

closing of a tender contract for Labrador, to me seems ludicrous. It should have

been January 6, February 6, so that a contractor had plenty of time.

Could somebody address that? I realize it's a little

bit off the topic, but I want to take this opportunity, now that we have all the

people there from one department. This is not specific to this department; there

are other departments that are equally guilty. I'm talking about the tendering

process per se. Why can we not do something to get these things up front? Would

you care to address that for us?

MR. MCCARTHY: You're correct, Sir, in that, as far

as the approval to proceed with the tender on this project was concerned, we had

that, if I recollect, somewhere in November, early December, the previous year.

The intention was it would be tendered before the spring. Now, at that time, the

design was not completed but it was completed sometime during that winter.

The decision not to close until June 6 was based on

the fact that it was a remote site, to which there was no road access, and ice

conditions were a real concern to us. So we decided not to close the tender

until a contractor had an opportunity to observe the break-up of the ice

conditions in the spring, and by June 6, that would have happened.

Now, in this particular case, what we did - we

actually gave a pre-tender notice to contractors that the tender would be coming

in the spring and suggested they get familiar with the site. We gave them just a

preliminary indication of what the work involved.

MR. CHAIRMAN: When was that given to the

contractors? That would have been my next question: Why could we not use a

pre-tendering system? - plan these projects far enough in advance that you

really give the contractor a year's advance notice of the projects going. Let me

ask this question as well: I don't recall what the deadline for completion was

on the original tender call. The second one I realize went an extra year, I

think. Was it September of 1991, the original one?

MR. MCCARTHY: That's correct.

MR. CHAIRMAN: Yes, okay.

MR. MCCARTHY: Then it was extended to July - the

end of July.

MR. CHAIRMAN: So the contractor basically had two

seasons, the summer of 1990 and the summer of 1991, to complete the job.

MR. MCCARTHY: That's correct.

MR. CHAIRMAN: Which probably would have been more

than sufficient for him.

MR. MCCARTHY: It should have been sufficient, yes.

MR. CHAIRMAN: Okay. Let me ask you: In looking at

the time - and I have a little bit of sympathy for the department in this,

because you have a thirty-day period to review the tender, look at the technical

aspects of it, which goes back to your design department, I understand, and it

goes back through the various procedures, then it goes to the Federal

Government.

I read through the documentation from Mr. Oldford on

behalf of the Federal Government as to why they are refusing to participate in

the extra costs. Out of a thirty-day period, they basically had the documents

for almost fourteen days, half of that period. That would indicate to me two

things: First of all, it says the documents were forwarded to the Federal

Government. Was that by mail, or was it by courier, with an urgent red stamp on

it saying: to be reviewed and back? Is there a time period, or was there then? -

there may well be now. Is there sort of an agreed time period within which the

Federal Government would normally respond to you? Do they normally agree that:

we'll get it back to you within four or five working days, or is it two weeks?

If there was a standard practice or agreement, verbal or otherwise, as to what

the normal time period would be, how does that compare with the fourteen days in

this particular case?

MR. WHITE: I can only speak for what happens now.

In conversation with Doug Oldford since this happened, he has made the comment

that he will get them back to us as soon as he can. If we get them to him

immediately, he will get them back to us immediately. But with regard to the

method of sending this P.A. down to him at the time, Bill Knight is probably the

best one to answer that.

MR. CHAIRMAN: Mr. Knight, do you want to address

that question, just to give your advice as to what the general understanding

between the two levels of government or the two halves of the joint committee

might have been?

MR. KNIGHT: Yes. Previous to amalgamation of our

Department of Transportation with Public Works and Services, our system was that

when we had the documents ready to sign by the provincial co-chairman, they were

then delivered to Transport Canada by hand; we would have a draughtsman find a

vehicle and deliver that by hand. When we came together, when I moved over with

Public Works, I found that there was no vehicle and no personnel available, so

these documents were sent to Transport Canada by ordinary mail and returned by

ordinary mail and this sometimes took, just going back and forth, ten days, by

that process.

MR. CHAIRMAN: As it did in this case. So what you

are telling me is that the fourteen days in this particular case was not unusual

for the procedures that had been followed for other contracts?

MR. KNIGHT: That is right.

MR. CHAIRMAN: Well, that perhaps leads us to two

conclusions, I guess, two possible conclusions. One, we needed a faster system,

courier service or whatever, to deal with these things going to the Federal

Government.

MR. KNIGHT: Yes, well, now things have changed,

that was when we first came together - it was at that time. Now, we send it down

by the motor-pool. We have a motor-pool that I always considered was just for

driving personnel around but now we use it for delivering the mail in cases like

this and Transport Canada also sends it back the same way by courier, so it

comes back and forth within the same day.

MR. CHAIRMAN: Well, whether you use motor-pool or

courier - actually, courier is probably cheaper than motor-pool, I would

suspect, and the department would advise us on that. Courier is fairly cheap and

very efficient today, in fact. I think it sort of indicates that at that

particular - under the old system, the procedures that were being followed,

thirty days would probably be hardly enough, you know.

MR. KNIGHT: Yes.

MR. CHAIRMAN: It may be fine for provincial

projects which are all internal, but for joint projects, obviously, that extra

time period, maybe that should have been accommodated and it wasn't, or

otherwise special procedures put in place to deal with the fact that it had to

go back and forth.

MR. KNIGHT: That is right. If it is government's

decision to put the thirty days in our contracts, the bid bonds that were

supplied by the contractors and are still supplied by the contractors usually

read sixty days, but we said: 'Well, we will let you know in thirty days,' in

our contract. So this is what we have to abide by, the Department of Justice

ruling, as you know.

MR. CHAIRMAN: It still doesn't excuse the fact

that thirty days was the limitation. And we are told, through an administrative

error - the only explanation we have been given is that it was just an

oversight. We have discussed the normal procedures here this morning and they

are all well and good, but that still doesn't excuse the fact that a thirty-day

time limit was imposed by our own legislation and that we were left open, I

think, from the point of view of the contractor, who saw an opportunity to get

back $1.3 million you left on the table, and he seized it. And I don't blame

him, I would do the same thing under the circumstances. He gambled that somebody

else may have cut their bid by half-a-million dollars and beat him by $100,000,

I mean, that is the chance he took. There is always a discussion with

contractors. I have been through it many times as to, if you recall, who was at

advantage and it works both ways. In this case, it was to the advantage of the

low bidder, who was able to get more money. It could just as easily have worked

in reverse that the second or third bidder could have had the advantage. Perhaps

I am commenting where I shouldn't, on some of the claims made by the second

bidder, nevertheless, there it is.

Just a basic question, and I think I already know the

answer: in your Tender Board Report, you quoted the first bidder at $6.9

million, the second bidder at $8.6 million, and then, down below in the notes,

the second bidder had dropped his price by $1.3 million. That $8.6 million is

the reduced price, I would assume. The second bidder had sent in a fax which was

accepted by the department, which is standard procedure; several faxes sometimes

come in on the tender day. That is the old trick - put in a bid, we will finish

our bid tomorrow night and then fax in the changes. But, in this particular

case, the second bidder did submit a fax which was received by the Tender Board

reducing the price by $1.29 million; that is reflected in the bid of 8.6, I

assume. It would not come -

MR. KNIGHT: That is common practice, you know.

MR. CHAIRMAN: It is common practice?

MR. KNIGHT: Yes.

MR. CHAIRMAN: Yes. But that bid is still $8.6

million. It must have been $9.9 million originally.

MR. KNIGHT: That is right, yes.

MR. CHAIRMAN: Okay. I just wanted to clarify it

because it's not really clear here. Because if that were the case, then the

second bid would have been $7.3 million, and we would have a different story

here. Okay, I just wanted to clear that up.

Some of the other members of the Committee - Mr.

Warren, I'll pass to you for now.

MR. WARREN: Thank you, Mr. Chairman. Mr. McCarthy,

earlier in response to Mr. Murphy's question, you said there were changes made

to the second tender, having something to do with structures on the bridge. Can

you just go over that again with me, please?

MR. MCCARTHY: Okay. In the original tender - there

were two bridges built previously by other contractors. They were built to

highway design modes. CF(L)Co notified us that they were thinking about changing

from the Esker Siding and bringing in their big transformers and equipment they

need every now and then for Churchill Falls, that they would use this new road

rather than the railway and Esker Siding. They asked us to look at the design of

the bridge to see if it could accommodate this heavy load.

Now, when we looked at it initially, we felt we were

going to have to add some strengthening to the bridge.

MR. WARREN: That was in the first tender, was it?

MR. MCCARTHY: That was in the first tender.

MR. WARREN: Okay.

MR. MCCARTHY: By the time the tender closed and

those events happened, we had some more analysis done and we felt that the

bridges were okay as they were and they possibly would not need this extra

strengthening. So we took those items out of the contract. Then, the other

change that was made was that we were originally hoping to have this project

finished by 1991, but because we had basically lost out the summer of 1990, we

extended the completion date for the contract to 1992.

MR. WARREN: Okay. So the department's estimates

for the second tender with the deletion of those structures was less than your

estimates for the first tender, or were they the same?

MR. MCCARTHY: The estimate for the two items that

were deleted was only $20,000. That's all the difference. It was $20,000 worth

of work that we were talking about. Now, in the original bids, in the original

tender, we had gotten some pretty high prices for that work. I guess, another

reason for taking it out, we felt that it was a small item, and if we had to

tender it separately we could get a better price, because some local, smaller

contractors could probably do the work.

MR. WARREN: Thank you. Let me refer you to pages

61 and 62, and also pages 65 and 66. So we will take page 62 first, probably. It

is a letter from the Justice department to you, Sir, saying that: "Options

available include going to the next lowest bidder or retendering ...". That was

the Justice opinion to you. I notice the minister wrote back to the advisors of

a particular company saying: On the opinion that we received, we're going to go

to tender, although the opinion was either/or.

Then you go to pages 65 and 66. You wrote a letter to

Mr. Locke saying in the letter: "It has been the practise in the past not to

disclose to the public any information ..." - it's two different writers, but

you've said that: in the past we didn't disclose any information about a

particular bidder. Apparently, Mr. McCarthy wrote you back and said: Well, it's

entirely up to you, if you want to do it or not. Have you ever released public

information to anyone in the past at all?

MR. MCCARTHY: Not to my knowledge, Sir. The only

information we release as a matter of policy is just the total bid. What he is

referring to there is that they were looking for the actual unit prices. This is

not a lump sum contract. Every item is a unit price contract, so every item is

paid on unit prices. What O'Connell was looking for was the actual unit prices

of McNamara's bid.

MR. WARREN: Yes. I'll go back to my original

question. Maybe I should ask Mr. Peckford my question. Has the department

released financial information pertaining to a particular bidder to a third

bidder in the past?

MR. PECKFORD: Not to my knowledge. Mr. McCarthy's

experience, I think, bears that out.

MR. MCCARTHY: Is the same, yes.

MR. WARREN: Just one final question, Mr. Chairman.

Is this still before the courts or is there any legal action still pending

between the company and the department?

MR. MCCARTHY: We haven't had any further

correspondence or action, that I am aware of, from O'Connells, since the last

letter.

MR. WARREN: Going back to pages 61 and 62 - when

the minister wrote back saying he had decided to recall the tender, but there

were two options open, either to go to the second bidder or recall the tender,

was this the advice of you, as an official? How often does this happen with

tendering in your department? You said you have been there, I think, seventeen

years or so. How many times have you seen a tender not going to a second tender

or being re-tendered? Is it very common?

MR. McCARTHY: It is not very common, but I can

recall one or two instances whereby we did not award a tender at all because we

felt the low bidder, as well as all other bidders, was too high - well in excess

of the estimated cost.

MR. WARREN: Is that the only reason?

MR. McCARTHY: No. I can recall a case whereby a

contractor bid extremely low on a project and requested to get out of it. As

staff, I agreed, and the advice was passed along. It ultimately went to Cabinet

and the contract was awarded to the second bidder, because we felt that his

price - he had never done road work before, didn't know what he was bidding on,

and his price was so low he couldn't do it. We knew he couldn't do the work for

what he had quoted. But those are the only two instances I can recall.

MR. WARREN: I guess the contractor was quite happy

at not doing the job though, wasn't he?

MR. McCARTHY: This particular one?

MR. WARREN: Yes.

MR. McCARTHY: I would assume so.

MR. DUMARESQUE: I guess also, if we are right, the

option to go to the second tender saved the taxpayers $300,000 because, as you

know, the second lowest bid was $8.6 million and the lowest bid on the second

tender was $8.28 million. So there was some $300,000 when you take out the

$20,000 for the other part of it. So I guess, in that respect, it was a wise

decision to go to the second tender.

MR. WARREN: But it still cost the taxpayers $1.3

million more than it should have cost.

MR. DUMARESQUE: Yes, but just addressing your

point, you would have wanted to go $8.6 million, so it would have been $1.6

million.

MR. CHAIRMAN: Mr. Murphy.

MR. MURPHY: Mr. Chairman, if I might go back to

our federal friends, tell me, Mr. Knight, about the agreement with the

department and the feds. It would seem that they were committed to 62.5 per cent

of the cost of the total tendered price. That is the Fed contribution into the

project. Is that correct? I refer you to page 72, third paragraph, a letter from

Mr. Oldford, the Regional Director of Policy and Co-ordination for Newfoundland.

MR. KNIGHT: I would prefer Keith White, the

Director of Construction, to answer that, please.

MR. WHITE: This project fell under the ERDA

cost-shared agreement with the Federal Government and it is, as you say, 62.5

per cent federal and 37.5 per cent provincial cost-shared ratio. The

discussions, both verbal and written, that I have had with Doug Oldford on this

project - and there are two or three letters that form part of this document -

the Transport Canada viewpoint is that they followed the proper procedure, that

the project should have been awarded for the $7 million price, and that was the

extent of their financial obligation on the total project, that they would not

fund any increase in the project because of an administrative error on the part

of the Province. As you can see, they went to their legal advisers in Ottawa, we

discussed it and had quite an extensive discussion and research on the thing,

and we were not able to get them to change their mind in that regard.

MR. MURPHY: So they only picked up 62.5 per cent

of the original tender award?

MR. WHITE: That is correct.

MR. MURPHY: Is there any room for our Department

of Works, Services and Transportation to argue the point that they are 62.5 per

cent responsible for the tendered price?

MR. WHITE: We tried various discussions and

various leverages with them, and they always came back and said: 'Look, the

total agreement has $291 million in it. We are going to fund the $291 million' -

their share of the $291 million. 'Now, there is a million we are not going to

fund here, but we are going to fund it somewhere else.' Really, that is what it

came down to, and that agreement ends the end of March 1993 and we will spend

the $291 million.

MR. MURPHY: So what we are saying here is that the

additional cost on the second tenet was totally absorbed by the Department of

Works, Services and Transportation under whatever subhead associated with that

particular tenet.

MR. PECKFORD: But, in addition, as Mr. White just

pointed out, the total contribution of the Federal Government under the total

agreement remain the same.

MR. MURPHY: Oh, yes.

MR. PECKFORD: So the Federal Government did not

reduce the amount.

MR. MURPHY: No, but they didn't pick up any part,

Bruce, of the addition.

MR. PECKFORD: That is correct.

MR. MURPHY: Okay, we have that out of the way.

Perhaps somebody would, for my benefit and the Committee's benefit - we

understand that there is a new procedure in place. And let me do it

hypothetically, probably, so that the Committee can get an understanding and a

better concept of what would transpire.

If we had an ERDA agreement today for $10 million to

build a road from, oh, I don't know, probably from Water Street to Cape Spear,

just going through that particular part of the Province, or whatever - what

would take place from the engineering design work that the department would do,

etc. before the tender call. Now, once the tender call is responded to by a

half-dozen companies out there and we have the tender opening on the 30th day of

June, the last day of June, our legislation hasn't changed. We still only have

thirty days to award the contract or somebody could do the same thing that

Mcnamara did, legally and rightfully so. Can you walk us through what would

happen to expedite that and make sure that we have lots of time on our side? I

mean, I see suggestions from the Auditor General. I know that the committee is

in place within the department. But, so that we understand that this never comes

across anybody's desk again, what takes place?

MR. PECKFORD: Mr. Harold Stone has been very much

involved in the new process that is in place now, so I will ask him to take us

through the process that occurs now from the time the tender is called.

MR. STONE: Mr. Chairman, I can speak from the time

the tender is called, but did you want to get beyond back to the engineering

stage? I can start from the time we put the tender in the paper and follow it

through. How far do you want to go back?

MR. MURPHY: From the time the tender is open until

the contract is awarded. I don't really care who responds. I just want to make

sure that this, regardless of whatever - if there is a problem at the Fed level

at ERDA, our friends, Transport Canada absorb ten or twelve days of the time

frame associated with the thirty. Now, whether that is their fault or not - and

the Chair makes an exceptionally good point when he talks about getting the

document down and in their hands through courier, signed for and making sure

that if anything ever happened that we understand they received the document on

such a day, at such a time, etc. Just walk us through that, if you don't mind.

MR. STONE: Sure, that is no problem, Sir. I

provided a copy in your package -

MR. MURPHY: Yes.

MR. STONE: - and also provided the Auditor

General, well in advance of this, is a report that we prepare. But what happens

- when this hypothetical contract or award tender you are talking about is

placed in The Evening Telegram, in the papers for advertisement, it immediately

goes into our record in the data base. So it is immediately on file that we know

that this project is identified with a number, it is given a description, it is

given a tender closing date, it is given a tender validity date, which is thirty

days after; there is a space for the contractor's name, and a space for the

amount that the contractor - eventual award can be made, and there is a

departmental estimate.

After the tender is advertised and the tender closing

date comes up, there is a public opening and it is attended by the Tender

Opening Board. There is a Chairman, there is a secretary somewhere from the

Highway Design Division, and they open tenders, call out the names of the

bidders and the amounts. These are then evaluated by the highway design division

and whatever. The approval is received from the Federal Government, from Mr.

White -

MR. MURPHY: If I might. When it is opened and the

award is made, as such, and the lowest bidder is a reputable contractor with his

bid bond in place and everything is okay, is there a time frame now at

engineering - you say the engineering, okay, you have five days to review all of

this and get it back to us. Does that take place?

MR. STONE: The time frame that we are working

under is about twenty days. We have twenty days to get all our work done, and if

you let me carry it a bit further, you will see. We have given a window - not

thirty days anymore - of twenty days to get all the work done. When this

division, back last August, a year August past, moved under my direction, we

appointed a manager whose sole responsibility - now, not as before, various

responsibilities - sole responsibility, was tendering a contract.

So he gets a report each and every morning - and it is

Austin Sheppard, he can probably speak further to this. But he gets a report

every morning, as we described in our notes, of any contract that has been

advertised, has been open; twenty days after the public opening, he has a

report. This report shows every morning any tenders that have been advertised,

public, open, and not yet finalized, not yet awarded. Within that ten days

period of time he will follow up on it to make sure that it is awarded within

the thirty-day time period.

There is another control of that - he gets it every

morning. A report is produced, a copy of which I have shown you, every Friday -

usually Friday morning. I get a copy every Monday. This report goes to the

Deputy Minister, the Assistant Deputy Minister, which is me, in this aspect, the

various directors. The ADM of Works gets all of the projects associated with the

Works branch. The ADM of Transportation gets all the projects associated with

Transportation. Every Monday morning, I follow up with Austin Sheppard, as does,

in a number of cases, the Deputy Minister and possibly the other ADMs, any

projects that are within that ten-day or six-to-seven-day time frame. I will

follow up and get a reason why these projects have not been awarded and make

sure that they are awarded. If they are not awarded within that time frame, we

make sure, prior to the thirty days - and I get a copy of it - of letters of

extension.

Because there could be a reason, and there may be a

reason why, because of the evaluation of the project, that we can't get it done

in thirty days, we will go to the first two or three bidders and get a letter of

extension for another thirty days. But the follow-up - I mean, if it happens

anymore, it will mean that the manager (inaudible) the contract is falling down

on the job because he gets it every morning. It will mean that I am falling down

on my job, because I get this report and go down over it religiously, checking

it out, comparing one week with the next, making sure all the ones that have

been advertised are on the list. I sign the letter of award, so I make sure that

the letter of awards are there, so the contracts have been entered into, they

have gone out. The Deputy Minister receives a copy; two ADMs receive a copy;

directors receive a copy.

So if this same thing happens, it will be on the

shoulders of an awful lot of people, and not just the weakness in the system

before. And it was a weakness in the system, in that we never followed up on the

thirty-day time period.

MR. MURPHY: There were no bells going off.

MR. STONE: There were no bells going off. Now,

Sir, there are bells going off all over the place. I don't think - the blame

will have to be shared if it happens anymore. Because there is so much - I think

we have put in more controls, probably, than are necessary. But because of this,

we check it every morning, we check it every Monday.

MR. MURPHY: Well, I guess, once bitten, twice shy.

MR. STONE: Yes. So we have provided a copy of

this. I have gone back - I ran a report the other day with about 600 contracts.

I went back as far as we could with our data base. I think there were two or

three on it where we had letters of extension already signed. There was one with

a lease of some small property that was in the thousand of dollars, that was a

day or two over. Another was the sale of a house that we wanted removed, that

went one or two days over. But as to road contracts, or larger Works, Services

and Transportation (inaudible), I could not find one.

MR. MURPHY: So what you are saying, in essence, is

that you feel confident that the situation related to Ossok could never happen

again.

MR. STONE: I feel, Sir, we have put in more than

adequate controls, that at least, everybody is made aware of.

MR. MURPHY: Right.

MR. STONE: The Deputy Minister now becomes aware

every Monday of these projects. He knows which ones are advertised, he knows

which ones are awarded and they stay on this same list for two weeks after we

award them. And I check it, and my habit has been that I - you know.

MR. MURPHY: Okay. I thank you for your

explanation.

MR. STONE: It is the best control system we have

put in place.

MR. MURPHY: Yes, and I would think - I don't know,

either - that probably, because of the tremendous amount of people involved at

that level, it would be very unlikely for this to ever take place again.

However, it brings me to another question. Because it doesn't matter, really, if

you are talking about Works, Services and Transportation, I suppose, and it

needs to be answered. We have a responsibility, I think, in Public Accounts, not

only to chase a situation that costs the taxpayers a fair amount of money -a lot

of money really, when you look at it, but we also have a responsibility to

ensure that procedures are now in place that this, in any area of that

department, would not happen again. Are the department people satisfied, even in

Services, to the purchasing of fountain pens, that the thirty days are going to

be looked after, and what have you - that we don't have somebody, you know,

coming after the department with a technical and/or a thirty-day loop that is

going to cost the department a hundred dollars? Because if so, it is a hundred

dollars we don't need to spend. What I am trying to really zero in on is, are we

satisfied now with Works, Services and Transportation? We talked about the

amalgamation problems and all of those good things; are we satisfied that all of

these tenders can now be awarded in the time frame and given to a competent

bidder with a competent product and/or to do a competent job?

MR. STONE: Well, Sir, I am satisfied, with the

system we have in place now, that the information is provided to everybody, so

this should not happen again. I can't guarantee that it won't happen again but

the system is there. Unfortunately, before, with the system that was in place,

it wasn't available to enough people to monitor, and not only that, it was the

experience in the past that thirty days really wasn't the problem. But since

then, obviously, for good reason, we are taking the position that thirty days is

the limit, I mean we are not going thirty-one days or thirty-two days without a

letter of extension from the original bidder. These have been awarded, in most

cases, many times, many days prior to the thirty days and I reviewed, as I said,

some 600 contracts that go back a ways; but I can't guarantee it would never

happen again.

MR. MURPHY: No, no.

MR. STONE: But, as I said, with this system in

place, it shouldn't happen.

MR. MURPHY: I understand that, and realizing that

Mr. Peckford has now moved on to Social Services, it is not fair, I don't feel

it is fair, to ask Mr. Peckford, does he - I would like to see the Deputy

Minister here, from the department, to guarantee this Committee that he is

satisfied with other areas of the department. This is specific to the roads and

transportation end of the department, but it has a much broader mandate on

behalf of the taxpayers. And I would like to hear the ADM say to this Committee,

that he is satisfied that the tendering system now in place will not find the

government at fault for not awarding any tender; that is what I would like to

hear, and what I think the Auditor General would like to hear. It is not only a

concern, I mean, we have an experience here in front of us from which we found

out that complacency, I guess - and I use it - and Mr. McCarthy talked about it,

that we have to accept the fact that if somebody did not receive a letter - and

this goes down I guess, Mr. McCarthy, over the years; this is not something new

or fresh, it has been going on for some time -

AN HON. MEMBER: That is correct.

MR. MURPHY: - so that people, and the industry -

and the Chairman brought it out, now, that we are in a time of, you know,

contractors out there bidding. And suppliers will be doing the same thing. If

they can make half-a-cent on a pen or a pencil, they are happy to get that

business, and I would imagine that the contractors out there, with a lot of

senior staff, competent people, are bidding tenders at a very marginal degree of

profit to keep their companies and what have you together over this recession.

But we did, in other times, kind of accept the fact that forty-two days or

forty-nine days - you know, because you are on the phone with So-and-So, who has

the tender award, and as I said, we need another little info on your material

and what you are going to use for rip-rap and we need for coring and what have

you, and that was accepted, until McNamara found a hole on Ossak and brought

everybody to attention.

I don't know whose responsibility it is, but I would

like for correspondence to come to this Committee stating that the Deputy

Minister is satisfied that the procedures and policies of the department are in

place, that the taxpayers of this Province are not going to pick up any more

bills because of failure to observe the thirty-day regulation. I think that is

extremely important.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you, Mr. Murphy. I think this

is probably an excellent time to break for coffee for ten minutes. Is everybody

agreed? We will break until 11:30. The meeting is recessed.

Recess

MR. CHAIRMAN: Order, please!

Does anybody have any questions? Mr. Dumaresque, do

you want to lead off?

MR. DUMARESQUE: I have just one final question to

the Auditor General's Department, picking up on what Mr. Murphy has been saying,

and others. Are you satisfied now with the process that is in place in the

monitoring of the tender process?

MR. DROVER: Mr. Chairman, we audited, as I said

earlier, the Department of Works, Services and Transportation up to March 31 of

the current year. Up to that time, we had done a preliminary review and received

some documentation from the officials there, and we were completely satisfied. I

will point out that we haven't performed a detailed review or audit on it and we

will be commenting on it probably in the 1993 - we won't be commenting on the

1992 Auditor General's report, because we are not going to be performing the

audit of that department.

So I can say that without going into a detailed audit

of all this type of work, we are completely satisfied with the information and

the new system that has been developed by the officials at Works, Services and

Transportation now.

MR. CHAIRMAN: If I might just interject here, Mr.

Drover. I mentioned the fact that the audit will not be carried out by the

department because of the Auditor General's previous commitment. The Auditor

General also called me in relation to being here today. I felt, in fairness to

her, since she really wasn't involved in the project, at least, during her time

in the department, that it was better for her to stay away today. On behalf of

the Committee, I agreed that Mr. Drover is more than capable of dealing with

what we needed here today. She would have happily come if the Committee

insisted, but it is probably better to -

MR. DROVER: Mr. Chairman, I will point out,

because this is a public hearing, I wouldn't like anybody to get the impression

that the Departments of Social Services or Works, Services and Transportation

are not being audited in the current year. The national firm of Peat, Marwick

Thorne has been appointed, I guess, pursuant to a resolution of the House of

Assembly. They will be completely auditing those and giving us some assurance -

and this is all in accordance with the Auditor General's Act, by the way. So

that independent national firm will be doing the audits of those departments in

the current year, and we will just resume our work in the following year.

Any comments they have relating to their findings in

those two departments will go either: (

a) directly into the Auditor General's

report, or (

b) be tabled separately outside the report in the House of Assembly.

MR. CHAIRMAN: Thank you. Mr. Warren, do you have

some questions?

MR. WARREN: I have a final one. Mr. McCarthy, I

would like to go back to pages 65 and 66 again for a second. When Mr. Reg Locke

asked for information concerning the bidder of McNamara's. Then he wrote you

back a letter which is copied there on page 66. I also refer you to the last

letter in this booklet, pages 119 to 122, the one to Mr. Cumming from Brian

Furey, who is a solicitor. I notice there that on page 121, after talking with

Mr. John McCarthy: "It is our view that the determination of whether the release

of this information would affect a company's or the companies' competitive

position(

s) is not one which we feel qualified to make." So, actually, the

Justice department has not made a recommendation of whether the department

should release the information or not.

He does go further to say that you could, if you

talked to McNamara, and McNamara said: you can release it. While this was going

on, had there been any conversation with McNamara, either verbally or in

correspondence, asking them could you release the information?

MR. McCARTHY: I didn't have any conversations with

McNamara to that effect.

MR. WARREN: Thank you.

MR. CHAIRMAN: Mr. Warren?

MR. WARREN: No, that is all.

MR. CHAIRMAN: That is it for you?

Mr. Murphy.

MR. MURPHY: Thank you, Mr. Chairman. In this

situation now, because of what took place on this particular tender, I feel it

is incumbent upon us, again, that we will receive - and, again, I suppose, it is

fair to ask the Auditor General: when we have situations where amalgamation

takes place of different departments for different reasons, whether it be change

in government and/or present government sees, as just happened, that Tourism

being what it is, it should wing out of Development and become its own - does

that cause policy problems? Was that a difficult procedure for you? Is the

Auditor General satisfied now that all aspects - when you consider it is under

one roof. This is the concern that I have. I think we have seen what has

transpired here and everybody understands the thirty-day situation and McNamara

opting out.

I have a concern about other areas in which government

spends money, where we don't expect and/or foresee any problems with the

legislation now in place. Because that is important. This Committee may decide

that where there is an ERDA agreement and documents have to leave the department

and go to the Federal Government, that thirty days is not adequate to do it.

Perhaps the department would want to say something of that nature, that the

tendering legislation is not sufficient now under the thirty-day regulation.

Maybe you folks just find it cumbersome and a difficulty, because of all the

things that you understand, that somebody else doesn't understand in the

engineering problems.

I don't want to see, as a member of the House of

Assembly and/or as a part of this Committee, anything happening because of

policy not being firm enough - that we are going to spend the taxpayers' money

in an unwise fashion and/or get caught in a legal situation where we have no way

to opt out. So that is a concern I have with this. I think there is a lesson

here,a very expensive lesson, I might add, and I would not want to see it happen

in any facet of the department again. Perhaps the Auditor General might want to

comment on this.

MR. DROVER: Our Act specifically states that the

Auditor General shall not - and this is a standard across the country - comment

on the merits of a policy. That area is within the framework of Cabinet and the

House of Assembly. But the Act does require us - again, similar to some of the

other provinces, but probably even more powerful - that the Auditor General

shall give some assurance to the House of Assembly on systems, and I think that

is where there are systems in place.

In the amalgamation of any department, I think most of

the amalgamations in recent years have brought divisions or branches over from

existing departments. So procedures and strengths have been in place. The

Controller General's office and Treasury Board have standard, central procedures

of control, in place. There is some concern for controls, as you get further out

from the center -departments that are quite unique. I think, over a period of

time, the onus would be on the Auditor General's Office to ensure that such

systems are reviewed, and we would have to - that is why I am emphasizing here

today that while we are not going back into that department in the current year,

we would certainly have to go back in the following year, to give some assurance

to this Committee and to the House that what we are saying and what we have been

assured of, is, in fact, taking place.

On an ongoing basis, it is fundamental in the role of

the Auditor General. The Auditor General's role is almost a year away from the

happening of things. So something could have happened six months ago that we

might report on six months hence, but it has already taken place. We are not

involved in the decision-making, we are involved in informing members of the

House of Assembly, such as yourselves. I will say that from a fair bit of

experience dealing with central government, a generalized comment would be that

there has been a lot of, I guess, effort put into strengthening a lot of

systems. You have some good people involved in various divisions, subdivisions,

and so on, and internal audit divisions have been created in many of our larger

departments now.

So there are good people out there who are trying to

support the role of the departments. That, in my own humble opinion, is better

than it was, say, ten or fifteen years ago. So the Auditor General comes a year

afterwards, but you may find that Social Services or Transportation may have an

internal audit division advising the deputy minister, who may advise him on a

monthly basis that: look, this system is strong, or it is weak, or whatever.

Those people are out there now moreso than they were quite a number of years

ago.

I don't know if that deals with your point. There are

certain controls there that didn't exist ten years ago. An example is: this is a

$1.3 million problem - but the department has initiated a control mechanism now

that we feel right now, looking at it in a very superficial way, strengthens

that system. That system has been strengthened. So, as things happen, systems

become strong, and as government gets more involved in other areas, I think,

overall, the systems are getting strong. But the onus is on the Auditor General,

for her to ensure that her staff, over a three, four or five-year period,

reviews the major - and that is what we take seriously. But that is a year after

things happen, in many cases. I hope you understand this.

MR. MURPHY: I understand, yes. Basically, what you

are saying is that the Auditor General's role, the sad part about it, is that

usually it is after the fact, rather than its having the ability, you know, if

you find a discrepancy, then it is there and it comes out and you make

recommendations and what have you. If there are no discrepancies, obviously,

even though the policy may be weak, you would have no comment on that until an

incident took place that was negative enough to do a report and, of course, put

your findings and recommendations in there, which probably would strengthen the

policy.

AN HON. MEMBER: Yes.

MR. MURPHY: Yes, I understand.

AN HON. MEMBER: Or a system related to the policy.

AN HON. MEMBER: We can get into the system. We are

required to get into the system.

MR. MURPHY: I think what I am trying to get here

is that understanding, through this, and coming from a prevention background, an

average of ten to twenty-seven years in Occupational Health and Safety, the name

of the game is prevention, and I would hope that this would turn on a light that

would say to the department, even now with their problems over amalgamation,

that we would look at our policies throughout the department, to try to

incorporate the decisions we have made on this experience into other areas and

venues of the functions of the department, to insure that we do not get caught

in a similar situation doing something else, whether it be buying desks or

tables or whatever the case might be.

Thank you, Mr. Chairman.

MR. WITHERS: Mr. Chairman, if I could just make a

point on the thirty-day time limitation. The thirty days is not part of the

Public Tender Act or regulation. The thirty days actually is part of the

department's tender form documentation, so it is my understanding that it would

not require an amendment to the Act to make that sixty days, for example.

AN HON. MEMBER: I see.

MR. CHAIRMAN: The department would be well-advised

in federal/provincial contracts to specify tender should be acceptable for

forty-five days, if necessary; however, if you can do it in thirty days we

should stick with that, I would think - I mean, for expediency and for the

benefit of contractors and government. But that option is clearly available.

Obviously, that has been one of the problems.

Maybe I would just proceed with a couple of questions.

First of all, a further comment that I made earlier in relation to federal

responsibility in this particular issue: I would suggest the department might

partly responsible. I am not sure, by being the administrators of these

particular contracts, that the Province accepts full responsibility for anything

that may go wrong, even if the Federal Government is not responsible - and I

don't like the concept of the Federal Government washing their hands of any

responsibility for the cost that was involved here, unless it were some

deliberate action of the Government of Newfoundland and Labrador, where they

made a conscious decision not to do something.

In this particular case, it was, as we have been told,

at least, and we have to accept, straightforward administrative error. It could

have happened in the federal service, as well as in the provincial service, and

I, for one - I am speaking only my own opinion, not on behalf of the Committee,

but it would be my view that we should go back to them and say that they had ten

or twelve or thirteen days, the procedures that were followed were normal

procedures, we accept the fact that it was an administrative error on the part

of the Province that caused it, but I don't think they should be able to walk

away from it as quickly as that. That is just a comment which I probably may or

may not be in order in putting forward.

The completion date was September 1991, according to

the contract. When was the contract actually completed? When was the contractor

given the certificate of substantial completion?

MR. WHITE: The completion was late July - I don't

have the exact date. It was late July, and he has now applied for his hold-back.

MR. CHAIRMAN: Late July of -

MR. WHITE: July 1992. He has applied for his

hold-back. It hasn't reached my office yet but it is in the district office and

when that is processed through my office, that is substantial completion at that

time. And that will take place within this month, within the next two or three

weeks. Really, we are just waiting on the tax changes, the GST and the payroll

tax figures to finalize the whole project.

MR. McCARTHY: If I could just comment?

MR. CHAIRMAN: Mr. McCarthy.

MR. McCARTHY: The completion date of the contract

was 31 July 1992. The original tender had a September completion date of 1991

but the second tender, we changed the scheduled completion date to July 1992.

MR. CHAIRMAN: Okay. So the document I am looking

at here on page 91 of our booklet is the original. It said September 30 of 1991.

That is the original unit tender contract.

MR. McCARTHY: Yes.

MR. CHAIRMAN: Okay. So the completion date then

was July 31, we'll say.

MR. McCARTHY: That is correct.

MR. CHAIRMAN: Okay. My next question: Do we apply

the penalty clauses? I am sure there are penalty clauses for failure to complete

within the prescribed time period? Do we apply that in every case? Do we go to

the contractor, and unless he has due cause for which the Province has some

responsibility, do we claim penalties from him?

MR. McCARTHY: There are no penalty/bonus clauses

per se in the provincial government contracts, documents. The only penalty

clause we have in the contract is we have the right to charge him extra

engineering and administration costs if the project takes longer than scheduled.

The only other option open to us if he is not on

schedule is we can go to the

bonding company and say that he is not progressing on schedule. There are no

penalty/bonus clauses in Provincial Government contracts per se, that I am aware

of.

MR. CHAIRMAN: That would seem to me to be somewhat

unusual, from my own experience at tendering contracts, unless you are

(inaudible), the member of the Committee - he is coming in the front door,

there. But from my own experience with contracts it is quite common, in fact, I

would think normal, accepted practice, to have a penalty clause in there - so

much per day, per week, per month, or whatever. Are you telling me that no

government contracts have any penalties in there?

MR. McCARTHY: Well, I am not aware on the building

side, or other departments, but I know, on the highway side there are no penalty

clauses. We have had discussions with the Construction Association and the

Newfoundland Roadbuilders' Association, over the years on that particular item.

We have had discussions with the Justice people and, I guess, the word we get is

you can't have a penalty clause without a bonus clause. Therein lies the catch.

We would like to put in a penalty but bonus is another issue.

MR. CHAIRMAN: I would like to argue that with both

of them - depending on the work that is being performed; highway work may be a

little more difficult. Although I could certainly substantiate if a contract was

- if a road is built and not paved, the cost of snow clearing, and maintenance,

is substantially higher on a piece of road that wasn't paved on schedule. So you

could certainly argue that there are increased costs to the Province for not

having that job completed. In the case of a building, if government is leasing

somewhere else, there are direct costs that can be identified, and I can go on

down through the list.

I would think that we should have in our contract a

very strong penalty clause that says: if you say you will be finished by July

31, you will be finished by July 31 or pay the price, be it costs that can be

identified. I wouldn't think your engineering costs would be very significant,

any increased engineering cost - a little bit of supervision. That wouldn't be

very significant in the overall cost of the project. But the cost of increased

maintenance on a highway or the cost of leasing alternate accommodation in the

case of a building could be very significant.

I would think we should look at that. I would question

the fact that we can't put in a penalty clause without a bonus clause. I don't

accept that. Why can't we? We can put what we want in a contract - unless you

can tell me why we can't. The Construction Association may well not like it.

MR. McCARTHY: No, I think the Construction

Association would like to see a penalty/bonus clause. It takes a change of

government policy right at the present time to add that to the contract.

MR. CHAIRMAN: I can see putting a bonus in if it

can be documented that there are savings to the Province. Again, if you are

leasing a building, and it is to the Province's benefit, if it is costing us

$5,000 a month to lease alternate accommodations, and by getting in a month

early we save $5,000, well, then, I don't have a problem with, say, paying 50

per cent of that, or whatever may be deemed appropriate, to a contractor. In

that light I can see that. I still don't think that we are bound - that anything

would bind government from putting that in, that we can't put in a penalty

clause if he is late. If we choose to put in a bonus, fine.

Anyway, if anybody wants more comment on it, I will

move on. So there are no penalty clauses that are being imposed on anyone?

MR. McCARTHY: There are no penalty clauses in the

current contracts.

MR. CHAIRMAN: Can you tell me this: Off the top of

your head, in your experience, how are we in finishing contracts, generally? Are

contracts normally finished within the required time, or do you have a lot of

problems with getting contractors to complete?

MR. McCARTHY: Generally, they are finished within

the required time, but we do have problems from time to time. We get into some

scheduling problems, in particular. We normally separate grading contracts,

paving contracts, and bridge contracts. With some of the larger projects on the

go now, like building overpasses that have to be co-ordinated with the paving

projects, the completion dates are important, and we have run into some

scheduling problems with contractors not finishing the project.

MR. CHAIRMAN: Let me ask you this: Have you ever

had a case, and your example is a prime one, where an overpass being built by a

contractor was behind schedule, and because of that, the paving contractor

couldn't complete his work and you had to pay penalties to the paving

contractor?

Let me ask you this question: Is there a penalty

clause on government if the contractor is held up for any reason? Have you had

to pay those sorts of penalties?

MR. McCARTHY: No, we have a provision in the

contracts whereby the contractor is required to

schedule his work with the other

contractors working in the area, and in the event the other contractor doesn't

finish on time, there will be no compensation for delays caused by other

contractors. Now, it has never been tested in court, but we do have those types

of clauses saying that we are not responsible for delays.

MR. CHAIRMAN: That wouldn't give the first

contractor an awful lot of security. If another contractor holds him up, I

assume he has no claim on that contractor. He doesn't have a contract with him.

Are you telling me, that therefore you disclaim any claim from contractor A to

government, so he has no recourse if he is held up - he has to just hope that

the other contractor will co-operate; is that the situation?

MR. McCARTHY: That is correct.

MR. WHITE: Mr. Chairman.

MR. CHAIRMAN: Well in that case - and I will give

you an opportunity, Mr. White - does that not make a strong case for having

penalty clauses both ways in here - that if contractor B is not completed on

time he will pay the price, either to the government or to contractor A, or

through government to contractor A for any penalties we may have to pay

contractor A because contractor B has not completed his job?

MR. McCARTHY: It is one of the strong arguments

for penalty clauses.

MR. CHAIRMAN: Mr. White, you wanted to say

something and I interrupted you.

MR. WHITE: The first part of your question there a

short while ago: We just recently within the last year had an incident where

contractor A was not finished and was really holding up contractor B. We just

said: Look, contractor A, here is the situation. Here is what you have gotten

yourself into - now, you straighten it out with contractor B; and they did

mutually make an agreement in which we were not involved and had no reason to be

involved.

MR. CHAIRMAN: I would submit that we are copping

out and passing the buck to the construction industry, and it must be very

difficult for them to work within those kinds of conditions.

I really think that in fairness to both contractors,

one should be protected; and as the agency or the owner, I think we have a

responsibility to do that.

MR. McCARTHY: In tendering there is a lot of

serious thought given to that very issue, and what we have been doing more and

more is that if we feel there was some conflict between two contractors, we have

actually been including the work, combining the work in one tender, and let the

prime contractor go out and hire sub to do the bridge if he doesn't have his own

capabilities. So we do give a lot of though in putting the contracts together

like that and looking at what potential scheduling problems could exist.

MR. CHAIRMAN: But you have no remedy after the

fact, if something occurs that you had not predicted?

MR. McCARTHY: No we do not.

MR. CHAIRMAN: I would submit, that needs to be

looked at very carefully. Perhaps the department would take that under

advisement and look at that, because I think the construction industry would be

very receptive to some sort of a concept that deals with that, because it seems

to be very wide open to me.

MR. McCARTHY: If I could make one other comment,

we have had many discussions with the association on that particular issue and

what they get is really a polarization, particularly in bridge work. A lot of

the bridge contractors are only into that area and they are generally not happy

when they have to give a price to a prime, as a sub on the work. They

(inaudible) pressure. They would like to see all bridge work as separate

tenders.

MR. CHAIRMAN: I wasn't suggesting that, actually.

I would think you are probably better served by having them separate. I am

suggesting that the contracts have some interrelationship that protects both

contractors and government so that you don't have a problem. Perhaps it is not a

major problem and you haven't had to deal with it, but it appears to be very

loose to me. Maybe when we are finished straightening up the tendering act, you

could address that aspect of it at the same time.

Let me ask you this: Mr. Stone, you told us about the

new procedures that are in place, and you told us that in your view they are now

adequate and certainly reasonable to try to protect against this sort of thing

occurring again. Are you talking now just the Department of Works, Services and

Transportation or has this translated to all other departments of government and

Crown corporations? Are we simply talking about this department now, or can you

tell me - and I realize it is outside the department - do other pro... is it

possible that other departments have the same problems that you have had before?

MR. STONE: I really cannot speak for other

provinces, Mr. Chairman, but this system we have put in place is just for the

Tendering and Contracts Division.

MR. CHAIRMAN: That is coming through your

department?

MR. STONE: That comes through our department, that

really handles road construction, building construction, maintenance and service

contracts. So only what goes through the Tendering and Contracts Division is

what is controlled under this; ones that are advertised in the minister's name

for this division.

MR. CHAIRMAN: That would be the bulk of

contracting for government, no doubt - certainly, from the dollar point of view.

MR. STONE: Yes.

MR. CHAIRMAN: But I am thinking, for example,

Municipal Affairs puts out many millions of dollars worth of work on behalf of

municipalities. We may be well-advised to ask those departments what procedures

are in place.

So you are saying that no action has been taken to

benefit other departments from the experience of this particular case and from

the provisions that you have put in place.

MR. STONE: Well, Mr. Chairman, we have started a

committee, and again, it seems it hasn't gone as far as we would like - but we

have started a committee and I have had one meeting with Municipal Affairs

already, to hopefully bring all departments that award tenders, issue contracts

to come in on this review and get some common ground for all of this, because

there are differences. There are, between Transportation and Public Works, some

differences that we are trying to address. There are, possibly, differences

between how we do things and Municipal Affairs, Fisheries or Forestry do things.

So we have initiated a committee, albeit it hasn't got

too far up to speed, but I had one meeting with Municipal Affairs, with the ADM,

and we are going to address those issues.

MR. CHAIRMAN: Is that committee moving toward

recommending or with a thought toward recommending a central tendering agency,

that all tendering contracts of government come under one central tendering

agency rather than having x numbers of departments of government and Crown

corporations all out to calling tenders, rather than having so many people

interpreting the Public Tender Act and local preference policies and all the

rest of it? Is this not a strong argument for having one central agency that

administers all of the tendering and contracts and all of that legislation, and

the purpose and intent of that legislation? - probably not a fair question.

MR. STONE: Mr. Chairman, we have discussed briefly

in the department that aspect. Really, the main outcome we hoped of that

committee would be that at least we would have one common system, one set of

guidelines for all of government. In other words, if we accept faxed tenders to

somebody else, (inaudible) or vice versa we don't, then they wouldn't, or

whatever. So at least the construction industry and the contractor out there, if

they bid for Municipal Affairs, they at least use the same system as when they

bid for us and whatever. We are trying to set like ground rules. There has been

a discussion and it has only been internal, within the department. It hasn't

gone any further than just the discussion stage of that aspect to have one

tendering agency for all that. In all fairness, I guess it has been within the

department. We have not discussed it with other departments. We don't know how

other ministers would feel about it, how other deputies and other departments

would feel about it, but it has been brought up, yes.

MR. CHAIRMAN: Could you tell me if you have any

knowledge of other provinces, if they have central agencies or if various

departments call their own? Are you aware of any other provinces (inaudible)?

MR. STONE: I am not certain.

MR. CHAIRMAN: It is not a fair question. I just

wondered if anybody had any information.

Could I ask the Auditor General for his views on this

whole thing? He wants to speak, I can see. He is like me, I can tell when he is

biting to get at the microphone. But I would just like to ask him his views on

what we have just discussed, whether there should be a central agency or a firm

set of guidelines approved and issued by Cabinet to all Crown corporations and

departments. What would be your view of that?

MR. DROVER: I am speaking on behalf of the office.

We have spent about three or four years - and I am going to deal with the point

you that when I am going out to many of the Crown agencies - there are 128

including all the departments of government that are defined as Crown agencies;

that includes the school boards, all the Crown corporations, the hospitals, and

so on.

I can't speak on the current report, but I can give

you some general comments dealing with the last three reports. We have found

major problems; a lack of understanding of the role of the agency, a lack of

complete understanding of the Public Tender Act and the responsibilities. There

is a document that the minister is supposed to table - anything over $5,000 that

is not tendered, etc.

We found major problems, particularly with the

agencies. As a matter of fact, I guess, to a certain extent, probably some of

the central government departments are filling a much better role than some of

the agencies. As you get further out, the - so I think that adds weight to your

recommendation or your suggestion, Mr. Chairman, that maybe there be an

education process or an authority created. We can't get into policy at all -

that comes from people like yourself.

I will say that both the Auditor General and I, over

the summer, have attended meetings on the West Coast and in other areas and

heard many points. Recently, I attended one in Stephenville, and heard a point

that: 'Well, we didn't know we had to comply with the Public Tender Act' or 'We

didn't know what...' - those types of things. In Corner Brook I have heard the

same thing. We have completed audits dealing with the North Coast of

Newfoundland and have heard the same comments. We have even completed audits,

which you will see in the current report, with large bodies here in St. John's

that have said the same thing to us: 'We didn't know.' So, there are a lot of

people, particularly in hospitals, school boards and other entities out there,

who are really saying they didn't know they had to comply. There is an education

process, whether it is done through central government or how it is done.

The Auditor General, at some point in time, I think,

will have to give a fair bit of consideration to doing a major comment in the

report on this whole aspect. Next year will probably be our fifth year in

getting into this. We have made recommendations on it, and I think that maybe

what we will have to do is just bite the bullet and say, we feel that central

government or someone should be giving more direction to these people, or

requiring it.

There is a split, Mr. Chairman, what you do. The

entities are independent, they're autonomous, and then you have the Public

Tender Act that makes specific requirements. So how do you balance one with the

other? That is, I guess, the area of Cabinet and the area of the departments. I

must say, it is a decision that has to be taken seriously. From a standpoint of

the experience in our office, we have touched, I would say, a good dozen

agencies, major entities, and I think you would know every one of them if I were

to list them. They are all either major school boards, hospitals, or major Crown

corporations. Without naming, this year we have done sort of a review of

probably our largest Crown corporations. I will say that we have found,

particularly in the smaller entities, problems of a lack of knowledge of the

requirement: 'I didn't know I had to inform the minister,' and 'I didn't know I

had to go with the lowest tender,' and that type of thing.

You are going to deal with that tomorrow, I believe,

but I thought I would preface your discussions tomorrow with the experience that

this office has had in the last three to four years in that matter. So there is

a major problem out there, yes.

MR. CHAIRMAN: I thank you for those comments. I

think you are quite right. The Committee is beginning to realize that there are

Crown corporations that don't know they should comply, others that don't wish to

comply and don't think there is any reason why they should comply, either with

the Public Tender Act or with the wishes of this Committee. I think it would be

a very valid purpose of this Committee if we can let everybody out there - Crown

corporations and otherwise, and the general public - realize that these

corporations are certainly subject to the Public Tender Act and do answer to

this Committee, to the House of Assembly and to the Auditor General, obviously.

MR. MURPHY: If I might make a comment, Mr.

Chairman.

MR. CHAIRMAN: Mr. Murphy, by all means.

MR. MURPHY: It was only the other evening,

watching our friends at New Gower Street, City Hall - the most popular show on

television -

MR. CHAIRMAN: A matter of opinion.

MR. MURPHY: A matter of opinion - some people call

it the 'Gong Show.' But one piece of information that came forward, I think it

was from Councillor Jamieson, and the Chairman brought it to my mind, is that

municipalities all across the Province are losing all kinds of money by not

taking advantage of purchasing - whether it be a backhoe or whatever - through

government. Because the indication is that the Federation of Municipalities has

found out in recent months that there is a tremendous saving if they go that

way. Subsequently, that would reduce probably the requests from the

municipality, the government, to buy that piece of equipment or what have you.

So it would seem that we have lost a fair amount of

opportunities to purchase at a better price over time through the Municipal

Affairs Department. So all of this, tied into the comments of Mr. Rowe, the

beckoning and questioning and suggestions by the Chair, is obviously an

indicator that we are not getting the best bang for our buck. Maybe it is worthy

of this Committee to make some suggestions and/or recommendations, along with

the Auditor General, that the findings at Works, Services and Transportation be

shared with Municipal and Provincial Affairs and other government departments so

that everybody could key in on a policy and a procedure that would save us

money.

MR. DROVER: I might add, Mr. Chairman - since this

is a very current topic with our office - because of the Auditor General's Act,

we went through several legal opinions on what a Crown agency is. The Crown

agencies include all of the school boards because they are specifically

accountable through a minister to the House of Assembly. We don't include the

municipalities, but there is no doubt about it, the Auditor General of this

Province can send her officials into any municipality to follow up on any

expenditure of funds which has come through central government, and the

municipalities are to comply with the Public Tender Act.

I have talked to the former solicitor for the City of

St. John's, who is now the City Manager, and outside business, and he recognized

that we could send an audit team into the City of St. John's to follow up on

those. We could send them into Corner Brook or into any municipality. But we

don't regard them as agencies of the Crown for definition of the Auditor

General's Act. In other words, we are not required to do the audit; if we

regarded them as agencies we would be required to do the audit of those. So that

is a definition under the Auditor General's Act, but we can examine the records

of any municipality, whether it is city or town in this Province, and ask, 'What

did you do with the $10 million or whatever the Province gave you? - and show us

how you dealt with it. And did you call public tenders?' We haven't gone into

municipalities, we have gone into the other ones, I have been pointing that out

for the last two or three years.

MR. CHAIRMAN: Thank you. Mr. Warren, I think you

have a comment.

MR. WARREN: Mr. Chairman, I noticed that in the

Public Accounts and at the meeting in Fredericton a couple of months ago, which

Mr. Murphy and I attended, this was one of the debates.

MR. CHAIRMAN: Thank you.

Mr. Peckford, do you have any final remarks you would

like to make on behalf of the department - any closing comments?

MR. PECKFORD: Maybe just a brief comment.

Certainly, the changes that have been happening to the government in

amalgamation and things like that, particularly in Works, Services and

Transportation, have resulted in a lot of clarification and I think, from what I

have seen, that Works, Services have the systems that are in, that are also in

the Government Purchasing Agency, which have been there for some time to monitor

and administer the contracting and the tender process. Certainly, it appears to

provide, as the Auditor General has already said, an element of control that

wasn't there before and certainly needs to be there.

If I could briefly comment on another issue to which

you were just referring, I did do some work with the government years ago when

the Public Tender Act came in. I was an employee of Treasury Board at that

particular time and had a fair bit of contact with departments and various

agencies and the question of their autonomy came up quite frequently. And it is

amazing and continues to amaze me, not only with agencies but with other

bureaucratic units of the government, the extent to which the autonomy question

tends to override a lot of other questions and, personally, I could never quite

understand how that could play such a large role in the administration of the

organization. But it is certainly a very major point in the introduction of the

Public Tender Act and the Provincial Preference Act. I recall having many

discussions with agencies and departments around adherence to the Public Tender

Act and Provincial Preference Act and the question of a central body carrying

out all the tenders and things like that is - personally, I was never convinced

that greater central control of this, would in fact, impair upon the autonomy of

a particular agency to carry out its program, but certainly, that point of view

wasn't shared with many others.

MR. CHAIRMAN: Well, Mr. Peckford, if I might. In

response, I say that you have identified very well the age-old problem of empire

building which is so inherent in the public service and points out that too many

public servants are more concerned with their own role than with realizing the

fact that they are employed by the taxpayer, and meant to be serving the general

public and not their own purposes. Unfortunately, that is widespread through the

public service. It is not going to be dealt with very soon, but this is one area

where we should certainly begin.

Mr. Drover, do you have any final comments on behalf

of your department?

MR. DROVER: Just to thank you, Mr. Chairman. I

will say that the officials at the Department of Works, Services and

Transportation were very co-operative with us during this whole process. We were

in there constantly for a period of about a year, doing not only this work, but

other work. I think that subsequent to our audit we were satisfied with the - as

I pointed out earlier.

The other point which you just touched on, and which

the Deputy Minister addressed, I think is one that is close to the - the Auditor

General and I have spoken on it many times, and maybe, at some point in time,

you will hear it in one of our reports: that is, some sort of a central control

mechanism, whether it be the GPA or whatever, to give not only training and

development - which I think is already offered to some of these entities out

there - but also to enforce it, whether it be an audit scheme or whatever. We

have wrestled with the point of what we could recommend in our own reports.

I will predict that at some point in time, perhaps not

in the current report, but maybe the one after - you will probably see the

recommendation in an Auditor General's report. I thank you for bringing it up

today, because I can see that the Committee, itself and certainly yourself, are

well aware of it and are very concerned about it.

Thank you very much, Mr. Chairman.

MR. CHAIRMAN: Thank you, Mr. Drover, I would

agree. I think this discussion, although a little bit outside the ambit of what

we came here to discuss, has been very worthwhile from our point of view.

Perhaps the Committee members may wish to consider in our report to the House, a

recommendation that this issue be addressed on an urgent basis before such a

thing happens in other departments as well, and that some committee that

includes all departments of government - perhaps organization and management, a

division of Treasury Board, perhaps the Auditor General's Department, whatever

is appropriate - be put together. We can discuss that when we are considering

our final report.

Do any of the Committee members have final comments or

questions or anything to make before we clue up this particular item? If not,

let me thank the witnesses. We are finished earlier than we had thought. We had

this afternoon scheduled, as well, for this particular item in the event that we

may have needed it. I want to thank you for coming, and for your frankness and

honesty in giving the Committee the information required. I want to thank the

Committee members for being very straightforward with their questions, I think,

as well, which has helped us go through this issue quickly. It is an important

issue - not one that can be resolved, it is something that has happened, and we

have had to live with that. The department will have to deal with that as it

sees fit. Hopefully, from what we have seen, measures are in place to deal with

it.

That being the case, we will excuse the witnesses and

the Auditor General's people. I would like to ask the Committee members to stay

for five minutes just for some administrative in camera things that we have to

do. We will be back tomorrow morning at 10:00 for further public hearings with

the next set of witnesses. Thank you all very much.

The Committee is adjourned.

Document details

Collection	Newfoundland and Labrador — Committees
Citation	1992-09-10
Type	committee
Volume / chapter	committees_standingcommittees_publicaccounts_ga41session4_1992-09-10_pac_.htm
Language	en
Format	html
Source	PROVINCIAL
Identifier	c4de07b9bf68f06743e030b693fd21159ceb1741

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