EdinburghNLP/nunavut-hansard-plusplus huggingface dataset:
If we anticipate looking ahead in that five to six year horizon, that there may be an opportunity for government to move away from an expensive lease into a capital build project, then we would work with the Department of Finance in particular to do an analysis on that, to do a costing of the project and to present a proposal as part of the capital planning process because if we can’t get the capital funds then there really is no other alternative, other than to lease the property.
So, that would be done several years ahead because of the lead time that is required for capital construction projects.
In the last couple of years, we’ve not faced a lot of those situations where we’ve had to do that sort of analysis.
Certainly looking five to six years down the road with some of our leases maturing we will be coming to that positions where we will be able to look some of those leases and look at what the alternatives are.
According to the government’s own policy, and I’ll quote from it, it says, leasing should impose no greater cost than outright purchase and any exceptions must clearly identify tangible benefits arising from the lease that offset the additional costs.
I’m sure the minister will recall in the Auditor General’s 2001 report, there was one lease where they reported the cost was 50 percent higher than it would have been to build the building.
I’m just wondering how many other leases that we’ve entered into since then that the Government of Nunavut is paying more than it would have cost to build that actual facility.
I am going to have to refer that question to Mr. Clark, if you’ll allow me.
Mr. Clark.
The building being referred to as being 50 percent higher than what we should have paid for, if you’re referring to the building that we did purchase, in that case, we resolved that issue.
I’m not aware of other leases that we’ve entered into where that kind of situation exists.
I’ll clarify my question.
I’m sure Mr. Clark answered it correctly, but I just want to rephrase it to make sure.
My question was not specifically to that one lease that was identified by the Auditor General but have we entered into any other leases in which we are paying more than it would have cost us to build the facility, not any more that were fifty percent more but any more that were more than it would have costs us to build the facility?
Yes, there are one or two leases that one could identify where one might have built a building over the course of, let’s say ten or twenty years.
That would have been roughly the same cost or been slightly less than the cost of the lease.
However, the equation is complex.
One needs to make sure whether one is comparing net or gross lease and the other costs that are factored into it.
One needs also to look at the fact that a premium is in fact allowed for generally in leasing.
One knows that you do pay for the privilege of leasing.
In the past the federal government, for instance, has identified fifteen percent as a premium level that they accept to lease, as opposed to purchase, as long as there is some benefit to doing that.
There are times when government simply does not have the capacity to build a building.
A number of the leases that were entered into for long term were done prior to Nunavut becoming a territory, or entered into by the previous government.
In some cases we really are not privileged with the information of why those leases were entered into.
Certainly, we can state that we analyze those very carefully now, particularly before entering into long, ten or twenty year leases, to see whether or not the purchase option is an option.
The other issue is the emergency issue, that I mentioned before, sometimes it is something that happens, particularly of the government that has been building rapidly and taking form rapidly, as the Nunavut Government over the last six to seven years, which does require buildings to be acquired sometimes in a faster fashion than you can simply can construct the building to house the people that you are hiring.
When I go through this list and there are a number of long-term leases, I think there are 14 twenty year leases on there, I think it wouldn’t be fair to blame this government for being saddled with some of those leases.
Some of those are no doubt carried over from the Northwest Territories’ Government.
The biggest one that really jumped out at me, and I asked the minister in the House, is for Government of Nunavut leased property in Cambridge Bay over a twenty year lease period would have cost us over $22 million for that lease.
My first question on that is when that particular lease expires?
The information that I have for the expiry of that lease is 2006.
Is that building, as they are paying $22 million for a building over twenty years, that probably costs anywhere from $5 to 7 million to build in the first place; are we going to own it after the lease is done?
No, we will not own the building at the end of this lease.
After Mr. Rich’s earlier comments I might not be able to get a response to this question, but I am going to ask it anyway.
What accounts for the higher costs of that lease?
Why, when you look at it, it’s $1.1 million a year.
Why is that one so much higher than all the other ones that are there?
Yes, I guess you will hear a similar answer.
That was a lease entered into 1996 and I really don’t know the reasons for that.
I suspect we likely share with you an interest in finding out some of the reasons.
If we were betting men, my bet would be that we’ll never find out the real reason why.
When the minister and the staff had indicated earlier in major leases like this that come up, I’m pretty sure I know which facility that is in Cambridge Bay, I believe it was a facility that houses the government offices there that some portion of it was closed down, they had to get the health inspector to close it down because of mildew or mold or something and they had to clean it out before they can let people go back into the work place.
But if that lease is expiring in 2006, maybe the minister could explain what work has been done to look at the analysis for this, whether to renew the place or build on these.
I’m not sure if I understood my colleague’s question clearly enough, but the analysis on this lease began in 2002, after the transfer of responsibility to headquarters.
The result was arbitration hearing that concluded November 2003, and the arbitration ruling favoured the government’s value for money arguments on this particular matter.
Mr. Tootoo, your time is up, if you have any further questions I will put your name down once the other members have finished their questions.
I think I’m on the right track now.
One of the summaries of the government report, I don’t know whether if this one was tabled or not out of the 227 large contracts which I assume, I’m not sure if they were part of these.
At least, of the other contractors are unsatisfied that out of 227, 135 contracts without competitive bid process.
On the list of all the leases that you submitted, there is no indication on what mode of contract procedure was used.
Could the minister or his staff explain, understanding that not all these are Government of Nunavut directed, we’re not sure exactly which ones were Government of Nunavut directed or initiated, why there’s no description of which general mode of contract procedure was used, to the committee?
The information that I have, they were all under RFP except for six, but I will get my deputy minister, Mr. Rich to respond further to this question.
Yes that information is correct.
All but six of the 59 leases were done by tender or RFP and six of them were not.
Mr. Curley: Of the leases that are currently before us that we’re dealing with, any of those leases, was a sole sourced arrangement used in any of these leases that the Government of Nunavut currently have for the private companies?
Yes, the six I was just referring are those that were sole sourced.
I am generally in support of the private sector involvement.
I do believe the government has a responsibility of crown construction, but at the same time a crown construction would take almost 100 years, I think, to catch up with the facilities needed Nunavut.
In my view, involving the private sector is really quite important.
Could the minister or his staff indicate to us whether or not the division that he has in Community and Government Services has the ability or the capacity to analyse and look at options for financing private deals.
Do you have a particular real-estate group or do you refer all these matters to the financial office.
Are you satisfied that your staff has that capacity to really deal with a private real-estate P3 type projects.
I’m going to get Mr. Rich to further elaborate because he has direct involvement in the process.
So I’ll ask him to explain that for my colleague.
In answer to your question, the Department of Community and Government Services works closely with the Department of Finance on those issues, as is characteristic of most government departments.
I’m confident of the capabilities of the staff that we have within the department.
We have a small section on property management with a wealth of experience in that field.
For the financial analysis aspect, which is particularly the issue that comes in P3 projects, we rely quite heavily on the Department of Finance.
We are fortunate, in the Department of Finance, of having one or two individuals who have some rather substantial experience in similar sorts of projects in previous careers in other jurisdictions.
And then, where necessary, we call on outside consulting services to give us additional analysis when it becomes necessary.
One of the things, having had some experience myself with P3 projects in previous lives, they are complex, you’re absolutely right.
They do require a depth of analysis to them, when one gets involved in them.
And we borrow quite heavily on the expertise even of other jurisdictions when we’re confronted with unique projects.
The reason I’m asking that is because I think if the department were to have a group that specialized on all the real-estate, capable of analysing and doing proper cost evaluation, you wouldn’t have to be relying on three different departments to try and put all the facts together.
I’m not saying to exclude them from their involvement, but I’m never 100 percent sure whether that technical capability is there.
When the Auditor General says your costs are two times higher or 50 percent more than some projects, I’m not really sure what value she is using to evaluate costs in Nunavut, whether she’s using the same procedure as she would use for Toronto, for instance.
To date, I don’t believe this committee is 100 percent satisfied that the ability to establish and evaluate property and construction analysis, including long term capital requirements of all these projects is really in one division.
I believe you are really going to need that because we will still require private sector involvement to build infrastructure in Nunavut.
I don’t think we’re going to be frightened off from allowing the involvement of the private sector, provided that there is a public process involved.
Could the minister maybe have himself, or his officials assure this committee that there may be room for improvement.
If so, why wait until later to bring that expertise in?
I do agree with my colleague that there is room to improve.
As a matter in my comments earlier, we know that we are just presenting this to the Committee of the Whole here today.
It is a learning experience for us.
After having been the Minister of Community and Government Services, after there were some re-alignment of departments.
I have to agree that it would be nice that if we could get our own group to look at the leases and find areas where we can improve.
At the present time because of our budget and limited staff, we are not able to meet that, but it is definitely an area that we can see improving in the coming years.
I also would like to hear from the deputy minister or any other officials.
Could the deputy minister explain to us whether or not that improvement may be needed in his department in order to satisfy that cost analysis and evaluations are solid and professional?
I am confident that the analysis that has been done over the last year on one or two projects, and we have not had to do a large number of project analysis, has been good.
I do agree that as we look forward, and as government continues to grow, and as our properties mature, also as we look at our capital construction program, there is likely a need to increase the resources that are available for the combination of capital planning and property management.
Those are often dealt with in a joint fashion.
As this government matures and as funding becomes available to look at those areas, its an important area to address to ensure that we have the top expertise to manage the projects, both from a capital standpoint and a lease standpoint.
The reason I am presuming that is business is because in view of the fact within the year 2000 I think that things have changed quite a bit.
The financing deals and arrangements with the financial institutions have significantly changed to that effect.
So they rearrange all their resources and personnel to be able to.
I am quite supportive of the lease to own facilities and so on, with the government, because I don’t believe that the government has the financial resources to crown construct, only to provide public infrastructure; housing; or office complexes.
We will never catch up.
Normally the homeowners don’t have 100 percent cash to own a home in Nunavut so we mortgage them.
Similarly I am in support of this kind of arrangement for public infrastructure, including office buildings, and so on.
Having said that, I am going to ask you one last question that I have here, really with regard to the three regional hospitals that are being built.
Are you getting close to deciding which mode; whether you are going to buy them out; or are you going to enter into long-term leasing?
If so, are you currently negotiating with them to conclude those before the keys are turned over to you, or are you going to negotiate even after you have been given the keys to open the doors to the public?
No, we are making decisions on that prior to the keys being turned over.
A decision has been made on one property, the second property is being built directly by Government so the option for the decision is not there, and discussions have started with regards to the third property.
Mr. Curley. Mr. Tootoo.
The minister’s last response really intrigued me.
He indicated that they first started looking at that lease in 2002 and then it ended up going to arbitration, and the arbitrator ruled in favour he said in November 2003.
I’ll just ask him if he could explain, what happened, what was looked at, and why did it have to go to arbitration to start off with.
Well, that stems from concerns regarding over payments and the high cost which led to the arbitration period, Mr. Chairman.
Mr. Tootoo: Thank you, Mr. Chairman. Can the minister be a little more specific?
Thank you, Mr. Chairman.  Chairman: Thank you, Mr. Tootoo.
Minister Kilabuk.  Hon. Peter Kilabuk: Thank you, Mr. Chairman.
For more specific responses, I’ll have to refer to my deputy minister because that’s as far as my notes go.
Arbitration proceeding are typically confidential and this one was confidential so I can’t go into too much detail, other than to simply say the file was monitored, it was determined that it looked like there was some overpayments and a settlement was reached.
How did it become, when you first started looking at the lease at 2002 that someone realized that they were overpaying the lease, is that basically what happened.
That actually predates me, it goes back about two years.
Mr. Clark, I think can provide the information on when that was first determined.
In answer to that, in 2002 that first came back to headquarters, and we did a review, I did a review myself actually, of all the leases that came back to headquarters.
I found a lot of things that didn’t look correct and that’s exactly what happened.
We analyzed the lease, determined we weren’t receiving a value for money on a number of items, and went to arbitration to make restitution.
Sound like in laymen’s terms we were being ripped off.
Is it confidential as to how much was determined to how much we were being ripped off?
Mr. Clark: I believe that is confidential.
I guess to go into any lease or any landlord that you’re dealing with and you run into a situation like that, one would think that would seriously jeopardize breach of contract and breach of the lease and not result in grounds to drop it all together or not even look at reconsidering renegotiating in such circumstances, when the leases do expire.
I question the choice of words of my colleague.
I refuse to use the word fear because there were some adjustments that will justify the reasoning.
Mr. Rich will elaborate in response to Mr. Tootoo’s question.
As in any complex lease, and this is a complex lease, there can be differences of opinion about what is a chargeable expense and what is not a chargeable expense, etcetera.
Also, with long term leases, over time, practices can fall into leases that probably shouldn’t be there. We consulted in depth.
Actually, the consultation pre-dates me.
I was just involved in the very tail end of it but there was intensive consultation with the Department of Justice.
It was not a question of being in default of the lease. It was a question of it being a different interpretation of the lease and what was chargeable. There are, as often happens in complex leases, disputes between two parties which need to be resolved in an external process which is the external process we went through.
So, it’s not a question of defaulting on the lease. It was a question of a difference of opinion about the amount of charges.
That was settled.
There was a settlement that was reached that satisfied both parities and in that case the lease continues.
I wouldn’t want to be calling it something that it isn’t.
My question is, for those payments and stuff like that, what is the process or what is the channel that it goes through.
In this particular case, it doesn’t say which department the lease is with.
Which department would control and authorize the payment for those leases.
Hon. Peter Kilabuk: Thank you, Mr. Chairman. The Department of Community and Government Services does that.
Chairman: Thank you, Minister Kilabuk. Mr. Tootoo.
I’ll go back again a bit here. The minister and his staff indicated that they had first started looking at that lease in 2002 and it is expiring in 2006. That’s four years.
Earlier, they said they start looking at these leases anywhere from five to seven years ahead of time to see what options are going to be available to them if they’re going to decide to build their own building or to be putting out a request for proposal for another facility or whatever.  Why is this one only a four year window, where the norm, as indicated earlier is between five and seven years.
Chairman: Thank you, Mr. Tootoo. Mr. Rich.
Again, it’s difficult to discuss or talk about since I don’t the information on what happened previous to me being in the Department of Community and Government Services.  Chris mentioned that there was a change in 2002.
Prior to 2002, a number of leases were administered out of the regional offices as opposed to being administered out of headquarters.
In 2002, as I understand it, a change was made and they were pulled back into headquarters.
One of the reasons they were pulled back in 2002 is so that we could do that central analysis and look at those leases.
The regional offices in fact really don’t have the human resources in order to do that.
So by pulling them back in centrally in 2002, it was able for the department at the time to do that.
We’ve done some minor changing in the last year with the creation of Community and Government Services to also beef up that capability to manage leases in a more proactive fashion and to review the leases and turn them into a process where we can make sure that we have enough lead to do the analysis that you had mentioned.
Given that then when they first started looking at the leases they discovered that a difference of opinion on what should be paid for and what shouldn’t as outlined in the lease.
That had gone to arbitration.
Did anything else take place on evaluating that lease on whether or not to renew, build, or go look elsewhere, whatever the process is and the analysis that you talked about?
Did everything get put on hold when it went to arbitration over whatever it was that you guys didn’t agree on with the landlord?
No, everything did not get on hold.
In fact, we have been looking at several options in Cambridge Bay, analyzing the space requirements, analyzing what will happen when the lease, in fact, has run its natural course.
What was the result of that analysis?
I think 2006 is next year.
That doesn’t give a whole lot of lee time to anybody, including the government if they decide to go on their own, or if they want to look to the private sector to provide something else that there is more remediable, if not so bold to look at those.
Why hasn’t anything been done?
Has it been kept secret? What was the result of that analysis?
Because of ever changing safeties in government, that analysis does continue and the recommendations from the department go to the minister to take those forward to Cabinet.
In this case did that happen?
Was the recommendations made from the department passed forward to the minister to take to the Cabinet?
No, that has not taken place yet.
Mr. Tootoo: Why?
The information that I have is that the options are still being reviewed at this time and nothing has come forward to me yet.
Is the minister stating that three years hasn’t been long enough for his department to look at and determine what is the best option to go with on this, because they started looking at this in 2002 and we are 2005 now, and the lease is expiring next year?
Three years hasn’t been long enough to determine what option to go with?
A couple of factors in the slow process that my colleague is referring to, one, which was mentioned earlier, about the complexity of the lease arrangement.
We expect the recommendation to come forward within the next four to six months.
That is probably a realistic timeframe that I can share with my colleagues at this time.
Is the minister stating that the only reason it is taking this long is because it is so complex?
Not necessarily but I will get Mr. Rich to add to my comments.
This was a particularly difficult lease to come to grips with because there were legal question on ownership after the twenty years.
Members had asked about that issue and it did take us a while to determine that.
One of the things that we’ve discovered in doing the contract analysis of several contracts that were entered into, a long time ago by previous government, is that the terms of the contracts, particularly with regards to some of the ownership issues, which are further complicated by land issues in Nunavut where there appears to be some differences between land ownership issues and building this on the land ownership issues, have meant it’s been exceedingly complex to get a final determination of what may happen at the end of some leases.
This is one of those leases where there was some very complicated issues.
As a result, that did in fact slow down the process of making a determination.
In addition to that, there’s been a process of looking at what other options may open up in Cambridge Bay, and there are some other opportunities in Cambridge Bay.
So that situation has been changing a bit over the last year.
The final aspect of it is the need to match to government capital planning process and as a result that process has unfolded to make a firm recommendation at this particular point in time.