The Nova Scotia Legislature

The House resumed on:
September 21, 2017.

Public Accounts -- Wed., Dec. 8, 1999

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8:00 A.M.


Mr. Russell MacKinnon

MR. CHAIRMAN: Good morning, ladies and gentlemen. For those who are new to the Public Accounts Committee, my name is Russell MacKinnon, I will be chairing the meeting today. In attendance with us we have, on my left, the honourable member for Sackville-Cobequid, John Holm, at the far end; next to Mr. Holm is our colleague, the member for Dartmouth-Cole Harbour, Mr. Darrell Dexter; we have a replacement this morning, the member for Queens, Kerry Morash; then we have Mr. DeWolfe from Pictou East; we have Mr. David Morse, the member for Kings South; we have Mr. Langille in the second row, the member for Colchester North; and we have Mr. Dooks, the member for Eastern Shore.

The first issue on the agenda, members of the committee, is with regard to the Freedom of Information request, with regard to an issue that we had in our briefing session last week with regard to the three appraisals on the school site. Apparently one of the three parties that was involved in providing an appraisal on the property is a private individual and apparently, and I am going by memory at this point, we have our legal counsel here - can you hear me?

MR. JOHN HOLM: I am having difficulty, your voice comes and goes.

MR. CHAIRMAN: I never did think that John Holm had a problem hearing me.

Apparently one of the three parties, who is a private individual, has appealed the Freedom of Information request to the Supreme Court asking, for a number of reasons, that it not be released at this particular point in time and that appeal is pending. We have our legal counsel here who has an opinion on it. Now should we deal with this in camera or should we deal with this in an open forum?


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Mr. DeWolfe.

MR. JAMES DEWOLFE: We will just confer for a second, please.


MR. HOLM: One of the difficulties that I have is that we just got these documents about 30 seconds ago so I haven't had a chance yet to digest, for example, the comments made by our own legal counsel. Maybe for speed it might be, and this certainly can be done in an open forum, this section anyway, just to get a recapping of our legal counsel's recommendations or advice to us.

MR. CHAIRMAN: With us we have Mr. Gordon Hebb who is our Legislative Counsel. Mr. Hebb.

MR. GORDON HEBB: I could summarize what I have written.

MR. CHAIRMAN: That would be fine.

MR. HEBB: Unfortunately, apparently I faxed this to the Committees Office last night upside down, I am told. I apologize for my ineptitude at operating the fax machine. In short, to me, there were actually two issues, although only one was really raised. One was the position of the committee, vis-a-vis the Freedom of Information and Protection of Privacy Act. As I have said, it is my opinion that that does not fetter the committee in any way legally and that secondly there is an issue of Crown privilege and, again, it is my opinion that that does not fetter the committee in any way.

However, having said that, what I would like to emphasize, which I have not emphasized in here, the committee may well wish not in any way to impair the process under the Freedom of Information and Protection of Privacy Act. There are several ways that that can be accomplished. One is for the committee to postpone its consideration of those documents until such time as the Freedom of Information and Protection of Privacy Act has run its course or secondly, to meet in camera so that the document will remain private except to members of the committee, or third, which is probably less satisfactory, is for the document to remain private even if the meetings aren't in camera. But that presents the difficulty of trying to discuss something which is private in public. That would not be a very easy course.

My recommendation would be one of the first two courses of action. As I say, the legal position of the committee is to do what the committee wishes but the authorities are quite clear that the committees should be, I think maybe the best thing would be to read from two of the quotes that I have quoted in here on the authorities - sorry, actually one quote - this is from Maingot, Page 191 and it is on the bottom of Page 3 of my opinion. It is the words that I have bolded, "In the final analysis, witnesses must rely on the collective common

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sense of the members of the committee and their good graces.". That is all I really have to say unless there are some questions, Mr. Chairman.

MR. CHAIRMAN: Mr. DeWolfe, what is your caucus position on this?

MR. DEWOLFE: I concur with the Legislative Counsel that we should decide on one of the two actions that he preferred. I would like to discuss the matter with our group for a moment, if I could, if there is that possibility.

MR. CHAIRMAN: That is fine with me. Mr. Holm.

MR. HOLM: I don't know if it is the acoustics or if it is my ageing ears or where I am sitting but I am having difficulty (Interruption) I just had a medical report that it is my ageing years but I had difficulty hearing.

MR. CHAIRMAN: Mr. DeWolfe has indicated that they would like to caucus it for a few moments and consider the first of the two options that have been outlined by Mr. Hebb.

MR. HOLM: Just before we do that, two of the individuals or companies that have provided appraisals have no difficulty making those public, is that correct?

MR. CHAIRMAN: I stand to be corrected but my understanding is two out of three are government appraisals - one by the Department of Natural Resources and one by the Department of Transportation and Public Works and the third is private. That is the one that is subject to appeal. Personally, myself, and we have legal minds here and expertise, but my understanding is that if we have something on appeal before the Supreme Court, whether it contradicts our legislative authority here, the fact that we have just recently passed that particular piece of legislation with that provision allowing for a 30 day appeal, from a layman's point of view, I would suggest there is no problem in waiting for the 30 day appeal because the information is not going away regardless and we will be coming back on a future day. I don't know the implications.

I also recognize that there is some difference of opinion, as well, in terms of whether we should have gone back to the Legislature in terms of securing a subpoena by the committee and that is one issue that we canvassed on a number of occasions. We have shown the precedent is there that we did not have to go back to the Legislature for the committee to be able to secure a subpoena. We are dealing with differing opinions, and I am open, but that is my take on it.

MR. HOLM: What I guess I would just propose, or throw out as a suggestion at the outset, is that maybe we could receive the two that are government and wait for the 30 day appeal period or until that appeal process for the third. Maybe at the end of that time it might be helpful for the committee to at least receive the third on a confidential basis. We could

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decide that we would do it on a confidential basis maybe at that point in time, if it hasn't worked its way through, although I must admit I do have some personal difficulty if somebody is providing an appraisal to the government that that would not be . . .

MR. CHAIRMAN: Was it an appraisal to the government or was it an appraisal to the owner of the property? I don't know all the particulars, . . .

MR. HOLM: I don't know that either.

MR. CHAIRMAN: . . . other than the fact that this issue is put on - I had been notified by Mora at approximately 5:00 p.m. last evening. I asked her to secure a written opinion from Gordon, as well as to receive a written opinion from the Freedom of Information officer. She wasn't able to make contact with the Freedom of Information officer. Whatever information we could secure on such short notice, that is what we did. I am trying to be fair to all parties.

The honourable member for Kings South.

MR. DAVID MORSE: I would like to speak to this. I am not so concerned today that we actually get the appraisals. There possibly will be another day pending the decision of the committee as to what comes out today, but I certainly do want to talk about the acquisition process. My understanding was that because of the circumstances involving the purchase of the site for the new Horton school, they went through sort of an arbitration process whereby there were three appraisals: one by the vendor; one by the purchaser, which was the Province of Nova Scotia; and one by an independent third party. They brought them in and they tried to pick a mid-point.

It is the numbers that came in and their tremendous variance, as somebody who lives in the area, the lack of correlation between what was paid for the land and clearly what comparable pieces of land were being sold in the area. If we can talk about the process that led up to the appraisals, I think it would become absolutely apparent why it is critical that ultimately this committee see those appraisals.

I have concerns, and I suspect that the committee will have concerns after they have been more fully briefed on this. I am prepared to bypass looking at the appraisals today, but perhaps after we are through today we may want to have a special session where we do subpoena those appraisals and we bring in the appraisers.

MR. CHAIRMAN: By that time the appeal period will have expired in any event.

MR. HOLM: I don't wish to drag this out because we are eating up other time, but is it appropriate to ask which one of the three appraisers doesn't wish to provide it at this point in time?

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MR. CHAIRMAN: I will be honest, I don't have that information. I asked Mora this morning, she said they are sealed. I am not privy to that, the same as any other member of the committee, because it is Freedom of Information and it is under appeal to the Supreme Court. I am not even allowed to know.

MR. HOLM: It is not all three, is it, just one?

MR. CHAIRMAN: No, just the private. The other two, as I have indicated - and I stand to be corrected - I believe are the Department of Natural Resources and the Department of Transportation and Public Works.

MR. HOLM: My understanding from what has just been said is that one was done by government . . .

MR. CHAIRMAN: Two were done by government.

MR. HOLM: I am just going from what I heard the previous member say: one was government, done for government I should say; one was independent; and one was for the owner of the land.

MR. CHAIRMAN: I guess I can't speak for Mr. Morse, he can speak for himself, but that is not my understanding.

MR. MORSE: I am going to be a good deal more specific and perhaps I could ask Mora to photocopy this. Just before she takes it, the three appraisers were East Coast Appraisals Limited of Halifax, that came in at $200,000; Coastal Real Estate Limited of Halifax, which came in at $515,000; and MacKay Real Estate Limited of Wolfville, which came in at $1 million.

Perhaps I could give this to Mora and she could photocopy it and distribute it. I apologize for bringing it in under these circumstances, but it is something that I was able to dig through just yesterday and find. I thought it would perhaps be of interest to the committee.

MR. CHAIRMAN: I think you have just negated any sense of purpose of debating whether that individual or group of individuals or private entity has any rights that are on appeal. We have already made a decision in that context. I really don't understand the full dynamics. We have legal counsel here, and we will abide. What is the decision of the committee? We might as well just proceed and operate on that basis.

MR. MORSE: The request under the Freedom of Information and Protection of Privacy Act was to determine how they came up with those numbers. That is a concern to me.

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MR. CHAIRMAN: I don't have that information. I haven't seen the Freedom of Information request, I am not privy to that. If you are privy to it, then you know something I don't know and perhaps other members of the committee don't know. I thought that information was confidential according to the Act. You may know something we don't know.

MR. MORSE: I suspect that I do in terms of trying to acquire the information, but in terms of the information that was requested, it was the methodology that was used to determine those prices and specifically within the methodology comparable land purchases within the area at about that time that would justify those numbers. That is why the request was made for the appraisals, paid for with public monies, to facilitate a purchase of land with public monies.

MR. CHAIRMAN: I do stand to be corrected, but I believe the honourable member did indicate that he knew the particulars of what the Freedom of Information request was all about. Obviously he knows something of which other members of the committee and perhaps all members of the Legislature are not aware. I cannot comment any further. I thought we just passed a piece of legislation assuring that sense of independence and confidentiality, which is also why I asked, when Mora notified me at approximately 5:00 p.m. yesterday afternoon, for both our legal counsel to provide us with a written opinion as well as to get some type of written opinion from our Freedom of Information officer, so that all members of the committee would have the benefit of that.

MR. HOLM: Mr. Chairman, I had made a suggestion, maybe I should make it a motion at this point in time, just so that we can move forward.

MR. CHAIRMAN: I believe so.

MR. HOLM: My motion would be that the appraisals that are not subject to any kind of Freedom of Information . . .

MR. CHAIRMAN: Or legal challenge.

MR. HOLM: . . . or legal challenge, be made available to the committee, and that the committee wait for the time-frame to lapse prior to the release of the third appraisals.

MR. CHAIRMAN: Would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is carried.

With us today, I have the list of our witnesses that Mora will pass out. We have with us, starting with the Acting Deputy Minister of Education, Mr. Doug Nauss; Mr. Greg Lusk, Executive Director of Procurement with the Department of Finance; Mr. John MacLean,

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Executive Director, Real Property, Department of Transportation and Public Works; Mr. John O'Connor, Director of Engineering and Design, Department of Transportation and Public Works; Mr. David Giovanetti, legal counsel, Department of Justice; Mr. Chris Welner, Director of Public Affairs; Mr. Alan MacRae, Executive Director, Specialized Support Services. Also, as well, Mr. Roy Salmon, our Auditor General, who usually attends - if not, someone from his staff - is here today.

Perhaps our witnesses, if they wish, may make a brief opening statement and then we will open up the floor to questioning by various members of the committee.

Mr. Nauss.

MR. DOUG NAUSS: Thank you very much, Mr. Chairman. I don't have a prepared opening statement except to say that we are all pleased to be here this morning. I know there are some concerns with regard to the Horton school project. I hope we have brought the right people with us to enable us to respond fully to any of your concerns and any of your questions. So with that, I don't think my colleagues have any comments.

MR. CHAIRMAN: In that case, we will open up the questioning to the NDP caucus, Mr. Holm.

MR. HOLM: I didn't get much fuel for questions out of the opening statement, may I say. If I could, just briefly, even going back, setting a bit of a stage. Horton, of course, wasn't the first and is not the last of the P3 school projects. Mr. Nauss, you certainly have been around the department for some consideration period of time, when was the idea of P3 schools first conceived, when did that idea first begin within the department?

MR. NAUSS: The idea of developing school projects through a P3 process was discussed in and around the 1993-94 time-frame. There were several school projects approved. We were looking for a way of putting those schools forward as quickly as we could. We were looking for, I guess, different methods of financing of projects that would enable those projects to move ahead given some difficult financial conditions in the province at the time.

MR. HOLM: Was that before or after the election of 1993?

MR. NAUSS: It would have been after.

MR. HOLM: Did the idea germinate from within the department, was it department staff who came up with this idea as the approach for building the schools or did the idea originate elsewhere?

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MR. NAUSS: I think it was a combination of both. We were challenged with looking at new and innovative ways of delivering school capital construction projects. We were challenged with looking at new and innovative ways of financing these projects. It was certainly a partnership of staff and a decision of the government of the day to proceed in that way.

MR. HOLM: Ideas don't generally occur simultaneously at two different areas and you have said it came from both. So I guess either both were on the same wavelength at the same time or one came up with the idea before the other. My question, I guess, in being a little bit more specific, did the department recommend or suggest that to the political people or did the political people suggest to the department that that may be an approach to look at?

MR. NAUSS: As I recall, there was, again, discussions with the minister and government of the day, but our private sector became involved and made some suggestions as well concerning how they may help with the delivery of school capital construction projects and help us develop some new and innovative ways of financing the schools.

MR. HOLM: So are you suggesting or saying that the private sector approached either your department or government with the idea of P3s or were they responding to enquiries or requests for ideas?

MR. NAUSS: As I recall it, there was an approach by a particular consortium with an idea. That idea was discussed and considered in the department and by government.

MR. HOLM: So you are saying this particular consortium really came forward with a suggestion or an idea and that is where the idea began?

MR. NAUSS: I would suggest that was my first involvement.

MR. HOLM: Are you at liberty or would it be inappropriate for you to tell us who that consortium was?

MR. NAUSS: It was a group of businesses consisting of a leading technology manufacturer and supplier, an architect. I am trying to recall. I can recall there was an architectural firm, an engineering firm and a technology supplier.

MR. HOLM: Has that consortium ended up winning any of the contracts to build and/or own any of the schools?

MR. NAUSS: Not that particular group that we met with on the first occasion.

MR. HOLM: Okay, but are any of those members involved, you know, partners in any of the consortiums that did end up winning contracts to build schools?

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MR. NAUSS: Some of those people became members of consortia that bid on projects.

MR. HOLM: And were successful?

MR. NAUSS: On one occasion.

MR. HOLM: So at least somebody has benefited from the suggestions that they put forward.

At that time, what kind of rigorous analysis was done to do a cost-benefit analysis for the long term of this P3 approach versus a traditional financing? I want to draw a line here and when I talk about traditional process, I am talking about traditional financing. I have been around here long enough, as you have Mr. Nauss, to know that I was never enamoured with the lengthy delay process that used to take place where a government would announce a new school before an election, then they would announce by the time the next election began basically that the ground was being broken and you would have the start of a structure going up, and it would be in occupation by the third one.

The process was very lengthy and drawn-out and certainly did need tremendous streamlining and improvement, but that is separate from the financing and the ownership type of issue. I would like to know what kind of a cost-benefit analysis was done and by whom, comparing this P3 process as we are in right now with a more traditional method of financing.

MR. NAUSS: As we have moved through the process, we would do a lot of internal analysis in doing comparisons of the, for example, the cost per square foot on delivering schools via traditional means versus delivering via a P3 model, if you will. We looked at the cost per square foot, we would look at the square footage per student and we would look at the cost per student for delivering schools by both methods.

[8:30 a.m.]

MR. HOLM: I am puzzled. How could you actually look at those full costs when the contracts had not yet been worked out? You didn't know what the final tab was going to be to government. Yes, the deliverer was selected, but the final contracts were negotiated, in more than one case, after the building was occupied.

MR. NAUSS: The leases were negotiated, in some cases - you are right - after the school had been occupied, but we knew what the costs for the project would have been before it started under construction. So those are the costs that we would have compared and benchmarked.

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MR. HOLM: But the lease deals with costs, and whether you are in the lease, if you are talking about the maintenance or if you are talking about a whole bunch of different items, those, in effect, would really work out as part of the per student cost of that building per square foot basis type of thing over the period of the lease and if that information was not known at the front end, I am not totally sure how you can do a full comparison.

MR. NAUSS: But I think the basis of the information was known before we started. We knew what the cost per square foot would have been to deliver the projects. We knew we had to meet the requirements of CICA guidelines, which would have required an equity contribution and a risk transfer to the private sector, so we knew some of the parameters around which we had to work.

MR. HOLM: Of course, Horton did not cut the mustard, so to speak, insofar as being deemed an operating lease.

Going back for just a second before I get into Horton specifically, the decision to go with the P3, and I am thinking here, for example, of a media report from just yesterday in our neighbouring province on the toll highway where the Auditor General has pointed out - and I am going here from sketchy media reports that I heard last evening - that the primary motivating factor behind that was to, yes, certainly be able to deliver the roadway in that case, and here we want to deliver infrastructure in schools, but it was to have the financing appear off book. Was a driving principle behind the P3 process to have the financial costs hidden off book? Is it fair to say that that was a primary reason that a P3 option was chosen?

MR. NAUSS: I would say that is one of the reasons.

MR. HOLM: One, but not the primary?

MR. NAUSS: Not the only.

MR. HOLM: I am not saying it is the only, but is it one of the primary?

MR. NAUSS: I suggest it would have been one of the primary reasons and that is why we attempted to negotiate leases that were operating leases.

MR. HOLM: Okay, let's ask this question. Can government finance as cheaply or cheaper, or borrow money as cheaply or cheaper than the private sector?

MR. NAUSS: My understanding is, the bond issues that were arranged with our private sector partners for the last 31, the interest rates were comparable.

MR. HOLM: Higher or lower?

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MR. NAUSS: Just slightly higher.

MR. HOLM: Slightly higher so there is a slight cost increase. Even 0.2 per cent of a few hundred million dollars on an annual basis is a lot of money. So we could borrow it slightly cheaper. I don't know, Mr. Nauss, if you, or maybe somebody in Public Works wanted to address this, but I have always had trouble with this belief that the private sector can always do something better than the public sector.

We have got some pretty talented people working in government and I say that without any hesitation whatsoever. If they are given the same opportunities to deliver a product, given the same kind of instructions, I would just like to ask the question of, maybe it would be somebody in Public Works or whoever, and we have always had partnerships in the actual building. I mean I cannot remember government carpenters and electricians going out and actually building or drawing the designs and doing the architectural work. We have always had partnerships in the construction and the actual development.

I would just like to ask, is it not possible and probable, in fact, that if the government departments were given the mandate to have brought forward a project, could they not have brought forward that project as, if not more, cost effective than the private sector?

MR. JOHN O'CONNOR: I can try to address that one. I am John O'Connor with the Department of Transportation and Public Works. You are right. The delivery model that we would use in our department would involve private sector consultants to do the design work as well as private sector contractors to do the construction. The difference, I think, would be that with the volume of projects and the number of projects, it would not have the people at this point to properly administer and manage that many projects in that short a time-frame. With respect to the end product, we are using the same design requirement standards, our manual, whether it is done through a Crown construct or through a P3 model. We are trying to deliver the same end product, which should be equal through either delivery model.

MR. HOLM: I guess the only thing I would say is that the private companies that are doing the administration, doing the bidding and all those kind of things, they have costs related to those services that, of course, they have to calculate into the cost of the overall project which they then would have to bill back to the government in terms of kinds of lease payments. So if the government was using their own staff or contracting people specifically for those purposes, again, they would have costs that would be billed against it, and I have yet to see anybody come out and state that they cannot, or government could not, deliver the project as well.

When I take a look at some of the new facilities that have been built under these P3 processes, I don't think that they have come onstream with any fewer problems than those that have been built traditionally by government. Let me go back, if I can, to Horton. What was the total cost of constructing that school, and when I am saying total costs I am talking

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about putting up the physical building, I am talking for the price of land, I am talking for any services that have to be installed, any kind of roadways, the technology, everything, what was the total cost of that school?

MR. NAUSS: The total cost of the school was $25.4 million.

MR. HOLM: Does that include everything other than the desks, or does that include the desks?

MR. NAUSS: It includes the desks, but the technology would have been extra.

MR. HOLM: How much extra was the technology?

MR. NAUSS: The value of that is about $1.8 million.

MR. HOLM: That includes the computers and . . .

MR. NAUSS: The land system, wiring.

MR. HOLM: All that type of thing.


MR. HOLM: All right, that is really $27.2 million in total, that includes the land and everything else?


MR. HOLM: What did that work out to on a per-square-foot basis?

MR. NAUSS: I have all of those comparisons and I can table that information for you.

MR. HOLM: I would appreciate that. Not wanting to wait to get that information and to ask another question, do you have, off the top of your head, the per-square-foot cost for Horton?

MR. CHAIRMAN: The honourable member has one minute left.

MR. NAUSS: I will try to get that for you before our time is up.

MR. HOLM: I guess I will have to come back if there is time available.

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MR. NAUSS: If I may, Mr. Chairman, it is in around $160 to $162 per square foot.

MR. CHAIRMAN: The honourable member for Pictou East.

MR. DEWOLFE: Mr. Chairman, I am just going to go from another direction here, if I may, and I am going to refer back to excerpts from the 1996 Auditor General's Report. Under Section 3.24, there is an interesting clause under Policies and guidelines, and the Auditor General goes on to say, "There are no formal policies or guidelines established with respect to these partnerships. In order for the government to avoid or minimize potential risks involved in PPP, the process followed must be formalized, with a comprehensive policy framework and guidelines established. These guidelines should include criteria for identifying suitable PPP opportunities, evaluating proposals received, training requirements, risk identification and management, content and monitoring of agreements, an accountability framework, and post-implementation reviews.".

This one clause draws attention to a number of issues surrounding the P3 relationship and I guess now we have to perhaps look at where we have come from, from 1996. The process of identifying the risks involved; let's start there with P3 transition. A formalized and comprehensive analysis must be completed in advance of committing to formal agreements when one takes into account more than merely the financial costs and risks associated with this new form of financing. When was this established and can you define the parameters of this initiative?

MR. NAUSS: I believe the Auditor General's Report you are referring to is comments on the early pilot projects carried out under the P3 process. I would like to speak, if I may, to improvements that have taken place since then and improvements that are acknowledged in subsequent Auditor General's Reports.

With the initial three projects - the Sydney project, the Porters Lake project and the Horton project - we didn't have established procedures to follow to deliver these projects, simply because it was a new initiative and there was no template to follow. Pilots are put in place so we can learn, and I think we did learn an awful lot from those pilots. With the next 31 schools that came onstream, we saw a design requirements manual in place and a design requirements manual that was developed in consultation and cooperation with our colleagues in Transportation and Public Works.

We saw a request for proposals that had built in some pretty stringent requirements, for example, we advised our private sector consortia, who were interested in bidding on these projects what our expectation would be for cost per square foot, for example. We built right in the RFP, the request for proposals, our requirements that the design requirements manual be followed and so on. We built in the RFP our expectations with regard to financing the project. Have we stopped improving on the process even after the 31 schools? The answer to that is no. The new government wanted to have a look at that design requirements manual

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to make sure it represented good value for money, and not only the cheapest price today but good value for money over the life of a school.

We wanted to make sure there was some consistency and standardization in the design of schools. We are doing all of that right now and we have the design requirements manual just about completed in terms of revisions. Again we are doing that, not in the Department of Education alone, we are doing it with our partners in Transportation and Public Works. On top of all of that, overlaid on all of that, we now have the Department of Finance that just recently announced the appointment of KPMG to do a study, to look at the appropriateness of delivering government infrastructure through a public-private partnership model. We are looking forward to the results of that report so we, and the government, can get some pretty solid direction concerning how we will deliver these capital projects in the future.

MR. DEWOLFE: You do now have a policy for identifying the risks involved in the transactions and so on?

MR. NAUSS: The Department of Finance has put together a document to guide us.

MR. DEWOLFE: When was this document originally created?

MR. NAUSS: That document was created in November 1997. If you wish, we could table a copy of that.

MR. DEWOLFE: Yes, I would appreciate that. Thank you. Let's talk about the system of performance measure, the development of a system of performance measurement based on outcomes like student education attainment, that best prepares them for today and tomorrow, like a true measure of value for the money. Was the term value for money mentioned or consideration given to it when the policy decision to pursue P3 schools was first introduced? Was that given much consideration?

MR. NAUSS: Yes, it was. In the evaluation of proposals, particularly with the last 31 schools, the evaluation criterion was very heavily weighted in terms of financing, methodology, and proposals put forward by the partners, by the consortia.

MR. DEWOLFE: How would we measure whether P3 schools have a positive or a negative effect on education? How do you go about that, to determine the effect on education?

MR. NAUSS: I am not sure how to answer that exactly. Living in an information age, we were looking for a way to deliver schools with the appropriate level of technology to support teaching and learning. One of the challenges we have had, and I think other jurisdictions in North America have, is building schools in a traditional way, equipping them with the latest in technology, only to find a year or two years later the technology is becoming

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obsolete and boards don't have sufficient funding to keep that technology fresh. We have built in a technology refresh component in our leases so that the technology can be kept fresh during the life of the lease. We also feel that putting technology in for technology's sake is not a proper way to go, so we are building in professional development as well.

MR. DEWOLFE: Mr. Nauss, I wonder if you could tell me exactly what the original objective is underlying the policy decision to construct all future schools in Nova Scotia based on the P3 arrangement?

MR. NAUSS: I would suggest that it was a decision made by the previous government. I would suggest that there is a financial underpinning to that decision. I would suggest, as well, it answered a question for the government of how do we deliver these much-needed schools quickly and on time. I think it was, in part, the result of the positive reaction we received from staff, students and school boards concerning the quality of the facility, the amount of involvement at the local level into this kind of school.

MR. DEWOLFE: I just have one more quick question then I will yield to my colleague. An accountability framework based on objective quantifiable criteria on which to develop and monitor a P3 process from policy development to outcome measurements, does one exist?

MR. NAUSS: No, not as a policy document. In our department, we have a partnership with the Department of Justice, the Department of Transportation and Public Works, and the Department of Finance, and of course we have our CICA guidelines. We work through the Department of Finance with the Auditor General's office to ensure that any leases that are negotiated now or in the future represent good value for the taxpayers of this province.

Again, I am really looking forward to the results of our cost benefit analysis . . .

MR. DEWOLFE: There is no real criteria.

MR. NAUSS: . . . which will hopefully help us establish some of those and make recommendations concerning what needs to be done.

MR. DEWOLFE: I may come back to this if I have time. I will pass on to my colleague.

MR. MORSE: Because of my colleague's questioning and the questioning of the honourable member for Sackville-Cobequid, this kind of confirms something that I thought was the case with P3, specifically that the suggestion originally came from the private sector. I would just like to comment on that, and then I would like to talk about something a little

[Page 16]

bit more specific and that was the land acquisition costs that we debated at the start of the session.

The whole stage for P3 was set, from what I can see in the provincial estimates back on March 31, 1993, there was a change in the way we account for capital projects. It reads something to the effect, and all capital construction assistance will be provided for by way of capital grants in the capital appropriations. The Auditor General's report referred to the fact that basically we were no longer able to de facto write off schools over an extended period of time, which created a tremendous bottleneck because truly, as we are today, we were in a situation then where we needed a lot of new schools.

My problem here is that having made the change in the way we account for capital construction, we created a pent-up demand and then the consortiums came in like white knights and offered us a way to circumvent the accounting changes which we had just made to our system, in other words, to write it off over time. There is nothing wrong with writing off capital assets over time. I would suggest that the department was put in a very difficult situation. Unfortunately the consortiums came in at a price, and it is sort of like you are drawing your water from a brook, somebody dams the brook, opens a water bottling plant up the stream and comes down and wants to sell to the people who were getting it for a much more reasonable price at bottled water prices.

It is just a comment, and I know that with the change to generally accepted accounting principles that it provides the department with new opportunities. I know the department will move forward with these prudently with the assistance of the Department of Finance and, I am sure, the Auditor General. Hopefully that will go a long way towards solving some of those problems.

The next section that I want to talk about, and I guess I have about five minutes and I could probably go on for about five hours on many aspects of this which are of concern, but I think we have to have a better understanding of the process that allowed the province to pay $600,000 for that piece of land which the Horton School was built on. My questions, I believe, are now directed probably to the Department of Transportation and Public Works, as I think they are the ones who were responsible for securing the land. I would like to just sort of walk through this, and I would encourage Mr. Welner, perhaps, to comment if I go astray on any of this.

I first became aware of the land acquisition process as a municipal councillor and I was sitting in on a village commission meeting. A document was passed about which talked about potential Horton School locations. It evaluated five locations under the guidance of the municipal planning strategy. Vernon Parker, who was Chief Planner for the Municipality of the County of Kings at the time, gave his report. In this document they showed the five locations and I think it is interesting to note that this was distributed to us one week before the Minister of Education got on the radio and announced the chosen site.

[Page 17]

What may be of more interest is that while this set of five locations was not deemed necessarily to be conclusive, within one week another site was chosen which was not on the list. My understanding is that it came through the back door at the last minute. I have it from several sources and I think it has been reported in the media that the initial asking price of the vendor was $200,000. The problem was created, I would suggest, when the Minister of Education at the time got on the radio, announced that this was going to be the site, and then subsequently we learned that the Department of Transportation and Public Works had never been given the opportunity to secure a firm price on the land before this announcement, which may have, to say the least, somewhat jeopardized your negotiating position.

Would that be a fair statement? Am I fair so far? I guess I am directing this, probably, to Mr. Welner. The deputy minister is very graciously willing to answer the question but I am not sure that he is responsible for this.

MR. CHRIS WELNER: I don't know if I am the right person to direct that particular question to. My role here is as the Freedom of Information coordinator for the department and with the issues before the committee with the appraisals. That is basically my role in it. In terms of the property acquisitions, I don't know, if I might defer somewhat to Mr. MacLean who is our Executive Director of Real Property Services. If he can help us through some of that process as well.

MR. JOHN MACLEAN: Not to pass the buck around, but I can speak to the acquisition process, our activities with regard to the acquisition once we were asked to acquire that particular site. The selection process precedes that as you are suggesting. I can't speak to how that site was selected by the school board as the site. I can talk about the actual acquisition if you like.

[9:00 a.m.]

MR. MORSE: Well, it is the specifics that went around this one that are so troubling to me, and I hope by discussing this today that maybe some changes can be made, so that if there is a concern on the committee's part and indeed perhaps on the part of the department that this not be able to happen again. Maybe I could go through it and then you could comment.


MR. MORSE: As a result of this, what I would suggest maybe . . .

MR. CHAIRMAN: The honourable member has 15 seconds left.

MR. MORSE: Well, what I think I am going to suggest is that we get back to this. This is an interruption. We are going to have another 10 minutes?

[Page 18]


MR. MORSE: We will go through it in more detail at that time and we will try to pick up the thread.

MR. CHAIRMAN: Now we turn it over to the Liberal caucus. I turn it over to my colleague, Dr. Smith.

DR. JAMES SMITH: One of the advantages of being the only metro member is you get to visit all these interesting committees. I am having trouble keeping my schedule up. Yesterday morning I was at one and now today I am pinch-hitting for Michel Samson. My purpose in saying that is to point out that I am new to this committee, so bear with me and I will try to represent our group along with you, Mr. Chairman.

I have a few comments and probably a question or two. I was interested in following the P3. I was Chairman of Priorities and Planning and different matters came before us. I think the importance of doing things right and the accountability of the P3 system to meet the needs, certainly the issue of safety, we have schools that were built prior to the turn of the century, and in another few days would have lived through three different centuries, or at least been built in three different centuries. So I think the need was there.

Certainly the idea of financing, but I object to the issue of hiding - my colleague to my left, and some days quite far left, commented about hiding - I think it was just a term that has really come into the vernacular of our description of this. We hear the P3 has been maligned in many different ways so the idea of hiding, we have just come through an election and this has been a very used term. In fact, we saw a budget tabled in this Legislature here that showed that our Liberal budgets had been readjusted, but yet the Cameron budget had not been consolidated. Had that been consolidated, the $617 million deficit - and the bar graph that I am referring to was tabled in the budget documents - it could not have been done because it would have gone down off the bottom of the page.

So there are lots of ways to sort of project how issues are evolving and the costs. Within health we saw there was going to be so much money saved within administration for health, but yet we see this government has come in and has allocated $208 million extra.

Yesterday we saw the Premier of New Brunswick saying that the books have been cooked, and he is obviously looking for some way to justify not removing tolls from the highway. So it has been a hot-ticket item. It has been a very political issue and there has been a lot of misrepresentation, probably on different sides, for political advantage. The fact is I look at it from the needs of our community. We have not been the beneficiary of new schools in Dartmouth East, and we certainly have some that are really in need. So whatever the reasons, and this was put to you Mr. Nauss earlier, the questions of why and I think that you gave a fair answer of that.

[Page 19]

What we haven't talked about probably is that whole process and continuation of it. The Auditor General has mentioned that the system needed improvement and has noted that there have been improvements. But it's when you come into government, you find things that have been on the burner for long periods of time. We saw this with emergency health services and there again, much like the P3 system, the maintenance program is really, I think, very important. We have schools that have been neglected and I think the encouraging thing here when I looked at the terms of the Horton maintenance agreement, I think that is extremely important. We are taking ambulances off the street now that have been the beneficiary of a good maintenance program, refurbishing them, and selling them at a profit to other countries. I think our schools will realize that, as well.

So I see the P3 as comprehensive, as financial, as meeting a need and there are long-term maintenance agreements there. At the end of a day, I think we will have a better product, not only the children but the whole community is benefiting from the technology. So those are some of the comments that I want to make. It's an advantage in being the last speaker because you can summarize what others have said. I don't want to take too much of the time here, but those are some of my thoughts. Those who have benefited from the schools, they have been very positive. You go and ask those people, you are going to get a pretty clear answer. But the idea of the Horton School costing $70 million and that sort of thing, that sort of flies out in the communities. As you mentioned, it came in at budget at $25.4 million.

I will just end my comments. I know they have been a bit rambling but I have tried to tie them in with the P3, a few things like gun control and a few other things that just tend to become very hot political issues and they tend to get maligned as they go. But in the future, Mr. Nauss, how do you see the unmet needs and the ongoing goals of your department proceeding? How do you see this rolling out in the times ahead if you gave your advice to government?

MR. NAUSS: There is no question, we have 460 schools in this province, and as you point out, many of them are 30 years, 40 years and older. We have our share of deferred maintenance with those buildings, as do other entities that are managing public infrastructure. So I think the need is there. It is going to be ongoing. I am looking forward to the results of the KPMG report that will talk to the appropriateness of moving forward with the current method of delivering schools or, indeed, will make recommendations concerning other methods to help the government move ahead in meeting the needs of school construction across the province.

DR. SMITH: Thank you. That will end my comments. I just shared some of my thoughts as a new minister - whose idea was it first, and all these sort of things. I think there are ideas which lay dormant that often are good. I know when I was in the Department of Health, telehealth had been put on the shelf. We resurrected that and Dr. Stewart had already done the emergency system. I think it is working together and moving forward, in spite of the criticism, we are in the arena of politics. I accept that, but I would like to compliment you

[Page 20]

personally. I know that you have worked hard at this. A lot of times people maybe forgot to say thank you to you and your staff and I would like to do that today. Thank you.

[9:10 a.m. Mr. David Morse took the Chair.]

MR. CHAIRMAN: The honourable member for Cape Breton West.

MR. RUSSELL MACKINNON: Mr. Nauss, through you, Mr. Chairman, it has been suggested that the land acquisition was, in fact, somewhat approached in a circumvented fashion. What was the involvement of the parents and the people in the community who became involved in the P3 process at Horton?

MR. NAUSS: I would like to answer that question and then speak to an improvement as we move forward. There was a site selection committee established to identify sites for the Horton school. The site selection committee had membership from the school board, there was parent representation, our partner was a part of that process and the architect for the school. There were four sites identified. There was unanimous support for what is known to me as the Old Orchard site, the site adjacent to the Old Orchard hotel. A close second was the existing Horton school site but there was unanimous support for the site.

MR. MACKINNON: So if I understand, through you, Mr. Chairman, what you are saying is that the community unanimously supported this particular site.

MR. NAUSS: The site selection committee of which the community had parent representation.

MR. MACKINNON: Was there the appearance of any type of circumvented approach or action that would cause you or anyone within your department to be uncomfortable with that particular site selection?

MR. NAUSS: No, the normal site selection process requires a school board to identify three sites, prioritize them and then make recommendation concerning the most appropriate site.

MR. MACKINNON: Did the school board identify this particular site where the school is located presently as being one of those?


MR. MACKINNON: Okay, thank you.

[Page 21]

MR. NAUSS: Now, if I may, Mr. Chairman, one of the improvements we want to make as we go forward with future school capital construction projects is to identify sites before we have a partner and perhaps option the site so that we know going in just exactly what the site characteristics are and the cost of acquisition and the cost of development will be.

MR. MACKINNON: Pretty much the same as what they did for the Mira P3 school site selection. As I understand it, it took almost two years for them to fine-tune a number of options, three or four sites and even then they still went back and rethrashed it. So this is a similar type concept?

MR. NAUSS: The improvement would be that we would have that site identified and optioned before the partner bid.

MR. MACKINNON: Rated on a pointing system, different criteria like access, the quality of the property, soils, cost, and so on and so forth.


MR. MACKINNON: My next question, Mr. Chairman, is with regard to the whole idea of P3 and I understand that Nova Scotia is probably one of the first provinces to entertain this, along with Ontario. Has there been much interest shown on the P3 process from outside of Nova Scotia on what we are doing here in Nova Scotia?

MR. NAUSS: Yes, there are people in different jurisdictions investigating the pros and cons of delivering schools and other infrastructure through this model. New Brunswick has at least two schools; some jurisdictions in Ontario are looking at this model and, as well, we have been contacted by some jurisdictions in the United States to get an understanding of what we are doing here in Nova Scotia.

MR. MACKINNON: So, despite some of the growing pains, the general thrust and the concept, the idea, the innovative approach on technology incorporated with traditional modes of school construction and any type of public construction, because we have the Cobequid Pass issue as well, many view this as being in the forefront of innovative and financially sustainable ways to achieve our goals and public policies, is that not correct?

MR. NAUSS: Certainly there are other jurisdictions that have expressed an interest in what we are doing.

MR. MACKINNON: Are you familiar with the Canadian Council for Public-Private Partnerships?


[Page 22]

MR. MACKINNON: It is a fairly well recognized organization? (Interruption) Unbiased. Well, I think it does cover a lot of different political strata. For the purposes of my friends to the left in particular, they may want to investigate the award that was received in Saskatchewan for service delivery. I noticed here in Nova Scotia in the 1999 National Awards: the 1998 Award for Infrastructure, O'Connell Drive Elementary School; also the 1998 Award for Project Financing was the Cobequid Pass toll highway. I noticed they also made reference to, in Ontario, the Land Registry Information System, POLARIS, also received a national award.

Essentially what I am leading up to is that this is really becoming the way to be able to achieve a lot of the goals and public policy without crunching the financial purse to the point where there is no money for the classroom. Is that correct?

MR. NAUSS: There are certainly a lot of jurisdictions carrying out infrastructure projects in this way.

MR. MACKINNON: In the Wednesday, March 11, 1998, edition of The Halifax Chronicle-Herald, the then Progressive Conservative candidate for Kings South was quoted as saying that the Horton project will take a massive amount of money right out of the classrooms. Would you agree with that assessment?

MR. NAUSS: The lease that was negotiated for the Horton project we believe and believed the financial arrangement was comparable to financing the project via a traditional means.

MR. MACKINNON: You mean in terms of an operating lease versus a capital?

MR. NAUSS: Yes, in terms if the government built the school it would have to borrow the money and, when you add those kinds of financing costs in, the lease cost would be comparable given the fact that the partner takes an equity position.

MR. MACKINNON: So you stand by your figures, at the 20 year lease option program that if the province decided to walk away, in essence the bottom line is it would be cheaper for them rather than going the traditional mode, is that correct, these figures . . .

MR. NAUSS: That is the result of analysis in our Department of Finance, but those are the kinds of issues that will be dealt with in detail by KPMG as they study the P3 model.

MR. MACKINNON: I was rather struck, as my colleague, Dr. Smith has suggested with regard to the budget, these leases were approved by the Auditor General as being operating leases and yet the government turned around and put them in as a capital expense on this year's budget. It is almost as if they were front-loading to make the debt to the

[Page 23]

province a lot worse than it actually was, so perhaps on a future day they can come back and say we have done all these wonderful things.

I guess if you are an economist, or if you are a chartered accountant, it is very easy to take numbers and spin them around. To the layperson, they would say, gosh, the Liberals did a terrible job. The fact of the matter is this P3 program is a good program to be able to enhance the educational opportunities for the next generation without breaking the bank, is that not correct?

MR. NAUSS: The KPMG report . . .

MR. MACKINNON: And as you say, it is cheaper.

MR. NAUSS: . . . will, hopefully, point us to the most appropriate way of delivering these projects.

MR. MACKINNON: I have 30 seconds, Mr. Chairman. What is your assessment of how the teachers, the parents and the students in and out Horton High feel about this P3 school?

MR. NAUSS: I would have to say there is a high degree of satisfaction among staff and students in the school.

MR. MACKINNON: Thank you.

MR. CHAIRMAN: The honourable member for Dartmouth-Cole Harbour.

MR. DARRELL DEXTER: So far today I have not had an opportunity to ask any questions and, frankly, I have another obligation that I have to go to. I wondered, with the permission of the committee, whether or not my colleague, the member for Halifax Fairview, could take my spot on the committee and ask questions.

MR. CHAIRMAN: The honourable member for Halifax Fairview.

MS. EILEEN O'CONNELL: Mr. Chairman, how long do I have, 10 minutes did you say?

MR. CHAIRMAN: Approximately 10 minutes.

[9:21 a.m. Mr. Russell MacKinnon resumed the Chair.]

[Page 24]

MS. O'CONNELL: Mr. Chairman, I just have a whole series of rather particular questions, they are not so general, and I apologize for being late. I did get from my colleague the figures that were given earlier, $27.2 million for Horton, and of that, $25.4 million was the building and $1.8 million was the technology, is that correct? My recollection from the budget estimates, and I can't remember the exact figure, is that there is over $1 million in the provincial budget this year to repair technology glitches at Horton?

MR. NAUSS: No, there would not be $1 million to repair the technology. That technology is under lease from GE Capital.

MS. O'CONNELL: Pardon?

MR. NAUSS: The technology in Horton is leased from GE Capital so there would not be a line item in the budget to repair the technology at the Horton School, not to my recollection.

MS. O'CONNELL: There was a line item for, I believe it was called renovation and repairs. When I asked to have that broken down, I was told that there was a substantial sum in there, so we don't agree on that. Let me ask you another question then. Under the net lease system isn't the government responsible for a good deal of the repairs and replacements even though the consortium owns the building?

MR. NAUSS: Mr. Chairman, can I ask for clarification?


MR. NAUSS: Are we talking about the Horton . . .

MS. O'CONNELL: We are talking about Horton, who pays?

MR. NAUSS: In the case of Horton, there are two documents. There is a net lease and there is a maintenance agreement.


MR. NAUSS: Taken in their totality they represent a gross lease. The partner is responsible for the ongoing maintenance of the school, responsible for the ongoing capital requirements of the school. There is an amount set aside for future capital in a segregated interest-bearing account and to the extent that that amount is not sufficient to carry out any capital in the future, the partner takes on that responsibility.

[Page 25]

MS. O'CONNELL: I read those leases some time ago so my memory could be faulty, but I recall a discussion about things like soccer balls and reading, I recall, that although they were supplied initially with the building, that as they wore out, they were required to be replaced by the lessee. Am I wrong about that?

MR. NAUSS: The replacement of furniture and equipment would be a responsibility of the partner. There are some expendable kinds of things that would not be, books, paper and those kinds of things. That would be still the responsibility of the board.

MS. O'CONNELL: Well, I would like to talk about books for a minute actually. Was there seed money to stock a library at Horton?


MS. O'CONNELL: Do you know how many books are in the Horton library?

MR. NAUSS: No, I am not aware of that.

MS. O'CONNELL: Do you know what the annual book budget would be to build the collection and replace lost books?

MR. NAUSS: Replacement would be an ongoing operating expense of the board and I don't have that.

MS. O'CONNELL: Thank you. Site selection. I heard you say a few minutes ago that you were going to now proceed with site selection prior to the community input. Is that correct?

MR. NAUSS: No. Once a project has been approved to go forward, one of the recommendations for improvement we will bring forward to the government is the ability to select our site and determine the cost and take an option on that site before the partners bid on the delivery of the project.

MS. O'CONNELL: So does that mean there is community input prior to involvement with a developer? Or does that mean that there is no community input?

MR. NAUSS: Oh, no, there would still be community involvement. The school board would still be responsible for identifying three sites, putting in place a process that would involve the board, the community and the department in that site selection process.

MS. O'CONNELL: We all know that O'Connell Drive, as soon as it was built, was too small. Do you know the current enrolment at Horton?

[Page 26]

MR. NAUSS: The current enrolment at Horton is about 920.

MS. O'CONNELL: I understand there is room there for the Kentville students, should the Canning situation become unsolvable, if there is such a word?

MR. NAUSS: The design capacity of Horton is slightly over 1,000. Whether or not there is the capacity there for all of the KCA students, I am not aware. I think that would certainly overcrowd the Horton situation. But, at any rate, that's a decision to be made by the school board. The department wouldn't be making those determinations.

MS. O'CONNELL: I take your point but the initial capacity is defined by the building; O'Connell Drive is a good example. I was a little bit alarmed to hear you refer to the New Brunswick schools. New Brunswick has basically increasingly rejected private-public partnerships and the Evergreen School in Moncton, as I am sure you know, the costs of that were analysed by the New Brunswick Attorney General some time ago. His determination was that the figures had not been clear and that, in fact, the school is more expensive. In fact, the Auditor General of New Brunswick yesterday was discussing in somewhat the same terms the toll highway. So I just wanted to mention that because I don't think New Brunswick is a good example of strong support for public-private partnerships.

MR. NAUSS: I responded by saying New Brunswick has a couple of projects. New Brunswick does have two projects, Evergreen and Fredericton North.

MS. O'CONNELL: Some months ago I heard, I guess back in the spring, from teachers of other schools that were closing so that students could move to P3, that they were required to throw out everything. In other words, the FF&E in the new schools had to be new because the schools had to be showpieces and I was told by a couple of anonymous teachers that in desperation they went to the schools before the dump trucks came and took encyclopedias and books and things to the new school. Is it true that everything has to be dumped?

MR. NAUSS: I am not aware of that at all. Schools boards can move in at least two directions: they can make an arrangement with the partner to take relatively new or useful equipment in the new environment or more appropriately, school boards could choose to move furniture and equipment and books that have some useful life to other schools in the system, not new schools. But certainly I am not aware of materials that have useful life being dumped.

[9:30 a.m.]

MS. O'CONNELL: Mr. Chairman, my colleague wants to know if he can ask one question.

[Page 27]

MR. CHAIRMAN: Yes, 17 seconds.

MR. HOLM: I just want to do a little bit of a sum up, if I can, from some of the things that I heard earlier: the first number of schools were pilot projects from which the department and government were trying to learn, and that the ideas were germinated back in late 1993-94; that the design requirement manual is almost complete at the present time and that would be going out for these various schools that we are going to be asking about, that is about five years after the process has started; that the cost-per-square-foot expectations are now included in those requests that are going out, five years after; and of course that the Department of Finance developed a process for risk assessment in November 1997, just about two years ago, over three years ago.

That sure as heck sounds an awful lot like the whole process of P3s was being driven by philosophy - and maybe politically motivated. I know some members to my right in the Liberal caucus were concerned about my notion about things being hidden, but is that a proper businesslike approach to be developing a project, doing all your design work, preparing your manuals after many hundreds of millions of dollars have been committed, to go down this road?

MR. NAUSS: I don't think I made myself clear. We had a design requirements manual before the first public-private partnership school was developed, and it was used as a guideline before the 31 schools were called. We had developed a design requirements manual with Transportation and Public Works, so that was in place before the award of the last 31 schools. What we are doing now is fine-tuning and putting in place lessons learned and looking at the appropriateness of certain finishes and design requirements to make sure, again, that as we move forward via whatever model is determined by the study, that we will have good, solid standards by which to build these schools. That is not to say we didn't have design requirements before, we did.

MR. MORSE: I would like to start, Mr. Chairman, by confirming that we have this until just a little bit before . . .

MR. CHAIRMAN: Until 9:44 a.m. I will give you an extra 30 seconds.

MR. MORSE: I would like to start by directing this question to Mr. Lusk from the Department of Finance. Mr. Lusk, do you recognize this document, Transferring Risk in Public/Private Partnerships?

MR. LUSK: Yes . . .

MR. MORSE: And that document is from your department?

MR. LUSK: Yes, it is.

[Page 28]

MR. MORSE: One of the former questioners quoted a newspaper article attributed to me, and I accept responsibility certainly for the comment that P3 was taking a massive amount of money out of the classrooms. He also asked the question as to whether it was cheaper to lease. I would like to just read one little section out of this book and ask you whether you recognize it as coming from your document. "The annual rental for a proposal based on pure operating terms . . . would very likely be cost-prohibitive and would not likely be pursued by government." Does that sound like something that came from this document?

MR. LUSK: I believe so, yes.

MR. MORSE: I just wanted to give some independent justification for my statement. My concern is that by taking money and putting it into leases, it has to come from somewhere because there is a finite budget and clearly that means the classroom. Thank you.

I would also like to just comment very briefly on the excellence of the maintenance agreement as referred to by the member for Dartmouth East. Yes, there is a wonderful job maintaining the Horton school in particular at $1.14 million. My concern is that I was told by the Annapolis Valley Regional School Board that at $4.00 per square foot for maintenance of the previous school, that would be about $360,000. It is always easier to maintain a building if you have more than three times the budget. I am sure that the deputy minister would very much appreciate having more money for maintenance. Would that be so, Mr. Nauss?

MR. NAUSS: I guess what we are doing is comparing buildings of substantially different size. The basic fee for maintaining the Horton school is in and around $5.49, $5.50 a square foot. That is in line with what we believe should be spent on schools for maintenance to avoid the deferred maintenance problem we have in this province, that school boards are not spending enough money on schools. I guess we collectively are not spending enough money on our schools to maintain them properly and avoid deferred maintenance.

That makes the comparison of the per-square-foot cost that boards are putting in buildings now with what we are paying through the leases, it makes that a little difficult. We want to avoid that future problem.

MR. MORSE: I just wanted to make the point that if you put the resources in to maintain a structure, you are going to clearly get a better result in the short run and the long run, but then it gets back to the old question of all these different departments such as Health, Transportation, Education, and Community Services vying for scarce tax dollars.

The point was brought up, I thought rather well, by the chairman during his questioning that the site selection process involved the community, which was so, it was confirmed by the deputy minister. I would ask just one question, was the site selection committee considering the cost of the land when they recommended the site?

[Page 29]

MR. NAUSS: No, as a matter of fact their task was to identify what they believed to be the most appropriate site, and then we would turn that over to our colleagues in Transportation and Public Works to procure.

MR. MORSE: So basically the answer is that cost was not a consideration, but I think that if we were to bring some of the members in from that site selection committee they would tell you that the understanding was that the cost was going to be $200,000.

MR. NAUSS: Yes, I would suggest that is true.

MR. MORSE: And that was well reported in the newspaper. I want to draw attention to the fact that a recommendation was made on the implicit understanding that this was the expected cost, and in actual fact the cost ended up being $600,000. That is just a statement. I appreciate your concurrence. I think that that should be brought into consideration. One last point, then I am very quickly going to go back to the land purchase.

To the Auditor General, would you please comment very briefly - we are pressed for time - on the appropriateness of those four leases as operating leases versus capital. If you had to choose one or the other, would you say that they were capital or would you say they were operating?

MR. ROY SALMON: Capital leases.

MR. MORSE: Thank you. That is contrary to what was perhaps inferred by the chairman during his questioning; I appreciate that clarification. All right, back to the land purchase. So we have a situation where there were five sites that were brought in and vetted through the Municipality of the County of Kings. I still maintain that the actual site was a late entry, the understood price was $200,000. From my own research, 10 acres were assessed through the assessment department at $3,800; 31 acres were assessed at $4,700, for a total of $8,500. Horton carved out a portion of this piece of property at 38.5 acres. The land sold for $600,000. I think that there is enough concern here, for me, because of the great variance in the appraisals that came back that ultimately led to selling the land for $600,000 that perhaps the committee would consider bringing in some of the appraisers on a future day to explain how we could have a fivefold variation from $200,000 to $1 million on that one.

With that I would like to give my colleague a chance to close.

MR. DEWOLFE: Mr. Chairman, in case I don't have time at the end, I would like to thank you, Mr. Nauss, in particular, and the others for coming here today.

[Page 30]

Mr. Nauss, KPMG, as you saw in the Chronicle-Herald, has won the contract to review Nova Scotia's private-public projects. This firm will report next month on the best way to build public projects. I would be very interested to hear your opinion on this initiative by our government. Do you feel that we are going down the right road with this, Mr Nauss?

MR. NAUSS: I feel we are certainly going down the right road in engaging a consultant to review public-private partnerships. I should point out the review is broader than just schools. It will give your government some insight and some direction concerning the appropriateness of moving this way. I, quite frankly, look forward to the results of that review. It would be inappropriate for me to give an opinion at this stage.

MR. DEWOLFE: I appreciate that and I am certainly pleased that you look forward to the review. Do you think that we are in for any surprises in the final analysis?

MR. NAUSS: I don't think we would be in for a lot of surprises. Certainly any information that we have, that my colleagues in Finance, Justice, Transportation and Public Works have will be put at KPMG's disposal. I am sure they will come out with a full and detailed report and good solid recommendations.

MR. DEWOLFE: I just have a minute left and I just wonder maybe I could ask one quick question. Horton High's lease payment, is it based on an occupancy rate?

MR. NAUSS: It is a monthly lease rate . . .

MR. DEWOLFE: Based on occupancy?

MR. NAUSS: Well, there is a ceiling of 1,300 students. Once we go beyond 1,300 students in the school then there has to be a negotiated adjustment to the lease. But with a design capacity of little more than 1,000, we shouldn't have a difficulty with that.

MR. DEWOLFE: What is the current population of the school body?

MR. NAUSS: It is over 920. The other restriction, there are 3,000 hours available for school use for the school board to do whatever it is legally empowered to do.

[9:44 a.m. Mr. David Morse took the Chair.]

MR. CHAIRMAN: The honourable member for Dartmouth East.

DR. SMITH: Mr. Chairman, I will be very brief and I will pass it to my colleague. I wanted to say that I have enjoyed this morning. I don't perceive that there has been any earth- shattering revelations here, although I think some misunderstandings that have been floating in the communities perhaps have been cleared up to some extent. I think it is an interesting

[Page 31]

comment by my colleague here to my immediate left that the O'Connell Drive school would be filled or enlarged or the numbers of students increased, but I think generally from my area what I was hearing was that the school was so well-appreciated that people were moving into that community just to be at that school. I know some schools in our ridings, and one of the schools is Ellenvale, have only half the numbers that they had a few years ago. I don't see how they ever accommodated during the 1970's and that, maybe it was the LSD they were using at that time, it was fairly rampant in the community. (Laughter)

So populations do change - and I think the flexibility of this whole program is really so important, but schools are such an emotional and political issue in our communities - they like moving into areas where the new schools are, and I know people who are looking at where to build a home will go to those areas because they have been so popular.

I guess that would bring me to my final comments to you. I want to thank you for coming with your staff. There has been an election, there is a new government now and I think the new government should get on with it and do the job and meet the needs of the students and stop bellyaching about what has happened here in the past. I think it is accountable, nothing has been hidden. Whether the budget report is consolidated debt or not, the books have been public for a long period of time. I think Horton school, whatever has taken place there, basically it is a good deal and it is meeting the needs of the students. I just want to thank you for all the work that you have done - as I said before - and I will pass over to my colleagues.

We are in a new era of doing business and the needs remain in the community. I know in my riding we have needs for schools, and we are still paying for schools that were built years and years ago; that is in that $10 billion or $11 billion debt of this province. So it is there. I think if there is any hiding, it has been in the past where it has been incorporated into large debt. That is what this province has to do, try to manage as well as we can and prepare for the future with our children and do it the best way. I am sure the analysis will show this to be a satisfactory process.

MR. CHAIRMAN: The honourable member or Cape Breton West.

MR. RUSSELL MACKINNON: Mr. Chairman, one quick question to the Auditor General. Did you ever approve Horton as an operating lease?

MR. SALMON: No, never. The only lease that we audited in detail and reported on was O'Connell Drive.

MR. MACKINNON: The O'Connell Drive one. Okay.

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MR. SALMON: Yes, and we reported that the most appropriate accounting treatment was as a capital lease, but it met the mathematical test and therefore could be classified as an operating lease, but the most appropriate treatment was as a capital lease.

MR. MACKINNON: So your report on Horton is coming out in your annual report, I believe that . . .

MR. SALMON: No. The only audit activity we have engaged in this year, related to leases, is related to the accounting treatment for purposes of the financial statements as at the end of March 1999. The government announced in September that those leases would be treated as capital leases and I agreed with that.

MR. MACKINNON: Yes, and that is in the budget, that's great. Going back to the issue that my colleague, the member for Kings South, raised with regard to the pricing - I feel very uncomfortable getting into it, especially when there are appeals, but when the information is put on the table and left in suspended animation - what he suggested is the actual price of $600,000. That is 40 per cent less than the appraisal for the private landowner, is it not, with the information he tabled today?

MR. MACLEAN: Yes, that is correct.

MR. MACKINNON: So the landowner really didn't get everything he was looking for if he was using a private appraiser, he got 40 per cent less.

MR. MACLEAN: His counter offers were higher than what we ended up, yes.

MR. MACKINNON: There is an arbitration process, that is essentially . . .

MR. MACLEAN: A negotiation process.

MR. MACKINNON: Yes, and that is usually the way it works, is it not?

MR. MACLEAN: That is right, yes.

MR. MACKINNON: Thank you. I had occasion yesterday to speak with an educator at Horton High, quite a lengthy conversation actually, for a little more than two hours. I did that because I wanted to find out what it was like on the front lines. I believe Mr. Nauss has kind of captured the essence, really, of my experience through this particular educator. He said, yes, there were growing problems, as with any new process but they were quite pleased with the impact it is having on the students and the community and the whole educational process.

[Page 33]

He also raised a concern that there was a bit of an obsession by the honourable member for Kings South, who seemed to be somewhat fixated on his predecessor, even to the point where he suggested that the member for Kings (Interruption) Well, some win, some lose and that's the way elections are. But he was particularly concerned about a conversation he had with a local reporter who advised him that the honourable member for Kings South was asking the reporter to prepare questions for the question period here today.

It is one thing to have your political differences and be fixated on certain things but the impact it would have on the community, and his concern was that that type of ripping and tearing would eventually unfairly project a very negative view on P3 construction in the province, whether it be Horton, whether it be the Mira P3 school in my constituency or the O'Connell Drive School or what have you. Looking for some sense of a comfort level, do you believe that this is the best way to proceed, given all of the options that are available?

MR. NAUSS: Again, that is a difficult question for me to answer at this particular time. It was certainly a direction of the former government and we delivered 39 schools through a public-private partnership model. Again, if we have the patience of about a month from now we will have the benefit, the wisdom, of KPMG and that will point us and give us some direction, give the government some direction.

MR. MACKINNON: Well, Mr. Chairman, maybe I will ask it slightly differently, and I agree with Mr. Nauss on that assessment. Let's turn it around and look at it from a different perspective, the same issue. Have you ever seen any evidence to suggest it is not a good approach to dealing with the challenges that were confronting the Department of Education?

MR. NAUSS: It certainly served us well in terms of delivering those 39 schools quickly. But there is a time now to stand back and reflect and I think that is what the new government is doing.

MR. MACKINNON: One final comment. It is with regard to the usual departmental memos that you prepare - and I will table this, Mr. Chairman - and it is with regard to the Horton High School lease. The first statement in there is, This is a real success story. We said all along we wouldn't sign unless we had a good agreement, it took months of tough negotiating and now we have a solid lease for a great school. It was prepared by Doug Nauss, you, do you stand by those words?

MR. NAUSS: Yes, I think we have a good school there. We have satisfaction.

MR. MACKINNON: Good value for the dollar. Thank you.

MR. CHAIRMAN: Thank you. I am going to turn the Chair back over to our full-time Chairman.

[Page 34]

[9:54 a.m. Mr. Russell MacKinnon resumed the Chair.]

MR. CHAIRMAN: Well, that concludes our questioning with our guests here today. We certainly appreciate our guests coming and answering questions forthrightly and comprehensively. We will now move on to the next item on our agenda. I believe we agreed at the last briefing session that we would take a few moments to deal with an issue, John, that you had raised in terms of potential witnesses on another matter.

MR. HOLM: Before that, maybe, there is another issue still coming out of this that we should go back to. The member for Pictou East, we had a brief discussion, and maybe we could deal with that first.

MR. DEWOLFE: Mr. Chairman, in light of some further information that was brought to our attention, I would suggest that the appraisals that were turned out earlier be considered as confidential and we will call on them at a later date and perhaps turn them back in at this time.


MR. DEWOLFE: Certainly my caucus is in agreement to that.

MR. CHAIRMAN: Our caucus would certainly support that.

MR. DEWOLFE: So we will turn them back in then, is that the best approach?

MR. CHAIRMAN: Thank you. None of our witnesses would have that information out of hand. Mora, our witnesses don't have that information, do they? Ones that shouldn't, anyway. Okay.

MR. HOLM: . . . the Auditor General.

MR. CHAIRMAN: The Auditor General probably does.

We will move on to the issue of potential witnesses, John, that you raised with regard to the last issue that we had before us. I don't have my file right here in front of me, but I believe it was either Mac Timber or you were requesting potential witnesses with regard to Nova Scotia Resources Limited. We were looking at the possibility of bringing in the former chairman of NSRL and Mr. French, and I believe, Mr. DeWolfe, at that time you suggested that you would like to have that caucused . . .

MR. HOLM: Mr. Chairman, in addition to that there were certain bits of information that were suggested that we should be trying to get hold of.

[Page 35]

MR. CHAIRMAN: Yes, the minutes of the meeting, the board meeting.

MR. HOLM: The minutes of the meeting, correspondence and so on, and a list that had been provided.

MR. CHAIRMAN: I must say, even the days leading up to the last meeting that we had with NSRL, when I wrote and asked for Mr. Livingstone's expenses, they were very forthcoming and sent them over, and I believe I had Mora distribute them to all members.

MR. HOLM: I appreciate that, but . . .

MR. CHAIRMAN: They were fairly open.

MR. HOLM: . . . there were some other documents that were suggested by Mr. Livingstone. The list that Mora had submitted to us, I got it last week sometime, I can't remember. There were four items, copies of correspondence and copies of minutes, and I think that it might be helpful for us to request that information and have that information before we make our decision, prior to the next one.

I would just like to add to that that any correspondence dealing with those issues, that are in NSRL's possession that were also done by the Chairman, I think that we should be trying to get those documents as well.

MR. CHAIRMAN: I believe as well, John, Mr. Livingstone indicated when he was before the committee that he would present us with certain documents that he had in his possession which I believe, Mora, he has not done to date?

MS. STEVENS: He said all the documents are copied at NSRL.

MR. CHAIRMAN: That wasn't the question at the time, we asked him to provide those, but anyway . . .

MR. HOLM: No, I think that what we had asked him is for a listing of documents at NSRL that he thought we should get. I think that it would be appropriate for us to be making the request of the government agency rather than of a former employee. So the list of materials, I think that we should, I make it as a motion, request those documents from NSRL, and in addition to that any correspondence that NSRL may have on file from Mr. MacKay on those same things during the period he was Chair.

MR. DEWOLFE: Mr. Chairman, I will second that motion because our members are in agreement with that.

[Page 36]

MR. CHAIRMAN: Could I add a little appendix to that as well? Mr. Livingstone at the time of his presentation indicated that he had certain certificates of qualification, when he was questioned by my colleague, the member for Richmond, and he said they were home somewhere. I felt he made a little light of it, I thought it would be appropriate that he provide those to the committee to validate the certificates of qualification that he claimed he had. I think if you put it in your curriculum vitae and there is nothing to substantiate what you are saying, then questions are raised. I thought it would only be a professional courtesy.

[10:00 a.m.]

MR. HOLM: If I may, I made a motion and you are trying to do an appendix to it. If you would like to make a separate motion, that is fine.


MR. HOLM: But I think that we should deal with the motion that is on the floor first because I think that they deal with two entirely different areas.

MR. CHAIRMAN: Would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is carried.

I respectfully put before the committee that we ask Mr. Livingstone to provide the certificates of validation to the professional credentials he claims he has.

MR. MORSE: I am not in favour of the motion and the reason is that some time was taken here under examination going over his qualifications and indeed by yourself, Mr. Chairman, you questioned him extensively. I really fail to see what we are going to accomplish by doing this.

MR. CHAIRMAN: But he made some assertions and he failed to back them up when he was asked for those certificates of qualification as to whether he had them and he didn't answer the question. The records will show that. You cannot claim to be having certain degrees of expertise and claim that you had those certificates of qualification and then fail to produce them, albeit you would not expect him necessarily to have them at hand, but certainly if I were to say that I am a Nova Scotia land surveyor and go to do a survey on your property, you would expect that at some point I would be able to provide proof that I am, in fact, a professional land surveyor. That is simply all I am asking. He has made some assertions as to his qualifications. I see no evidence to back it up.

[Page 37]

MR. HOLM: Mr. Chairman, I guess the first point I would like to make, that it seems like we have a debate going on between two members except one of those members is the chairman. If you are taking part in this kind of debate, it would seem more appropriate if you were to relinquish the Chair and have somebody else acting as the chairman because it gives you a certain advantage from position purposes in terms of points of argument.

Secondly, you know, I get the view here that this is part of - I don't want to say witch-hunt - but some kind of an attempt to question again the credibility of the witness and maybe as a way to, I don't want to put any thoughts into your head or suggest certain motivations may be behind it, but to discredit. We have asked for certain bits of information from NSRL. We will be judging that information. We are not judging Mr. Livingstone. We are judging that information that we get.

When Mr. Livingstone was here, he talked about certain kinds of courses that he went on. All kinds of businesses send people for upgrading programs, a week's training, whether that be on negotiations, or this, that, or the other thing, maybe even as a surveyor you went on some training programs for a day or two learning how to use a new this, that, or the other thing. I don't know that you have necessarily kept every one of those.

I know in my former life as a teacher we went on professional development days. Maybe that would classify too. We did not get certificates. If you want to ask if he can come across his degrees or any major kind of things, if he is so inclined to send them to us, we can ask him to send them but I certainly would not be suggesting that we should be asking him to dig through every archive, go through every corner in his attic and see if he can find a piece of paper that said he attended a two day course, or a one day course on this, that, or the other thing. I mean that is going to the extreme.

MR. CHAIRMAN: I am not exercised about it. It is simply an issue that was raised at the committee. Is it a question of credibility? Yes, it is and when somebody makes an assertion they have certain degrees of expertise and certificates of qualification, I generally expect as a professional you would be able to produce those, but if he is not able to or if there is some reason that he refuses to provide them - perhaps he doesn't have them - it is not for me to judge. I simply asked the question.

MR. DEWOLFE: This debate is going nowhere and some of us have some . . .

MR. CHAIRMAN: I will send him a letter and if he wishes to provide, fine, if not, well, we will take it on notice. Is that fair enough?

MR. HOLM: As yourself or as the chairman?

MR. CHAIRMAN: As myself or chairman, it is whatever the committee desires. I am not going to be exercised about it. It is simply a matter of fact.

[Page 38]

MR. DEWOLFE: Mr. Chairman, did you put this on the floor as a motion?


MR. DEWOLFE: Then why don't we deal with it there and if something comes out of the motion, then we will give you direction.

MR. CHAIRMAN: Would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is defeated.

Just before we adjourn, what is the schedule of events? We are not having any more meetings until January, a date?

MS. MORA STEVENS (Legislative Committee Coordinator): We have not set a date yet. One of the things that is coming out is the Auditor General's Report and usually as soon as we have that, we have a briefing session with him. So it would be at the committee's convenience when they would like to come back in January.

MR. HOLM: Could I ask a question of the Auditor General?

MR. CHAIRMAN: Sure, you have never been restricted here, John, you know that.

MR. HOLM: Thank you. The report normally comes out the end of December?

MR. SALMON: The report is at the printer at the present time and we expect that we will be able to have it deemed tabled between Christmas and New Years.

MR. HOLM: Am I correct in this, that in the past, the day that the report is tabled, prior to the tabling there is a briefing of the Public Accounts Committee, albeit in camera? Has that not been done?

MR. SALMON: I am prepared to do that if the committee so desires. I realize though the timing is difficult because of the time of the year. I do have a legislative deadline of December 31st, that was put in place and was applicable for the first time last year and I missed the deadline by 11 days, it was tabled on January 11th and I believe we had a briefing that day. I am prepared to do as the committee wishes, to brief in camera or openly on the day it is tabled, or to delay and brief in January if that is more acceptable.

MR. HOLM: Can I just ask this question then, and I don't know if this is viable or not, because I would like to know what is coming out and what is in it. It is at the printer and certainly it is going to take a little time to come back, would it be viable between now and

[Page 39]

Christmas to have a special in camera session to have a briefing about what is going to be contained in that report?

MR. SALMON: I would be uncomfortable doing that. I certainly am prepared, the day it is deemed tabled, to brief, but I would be uncomfortable even in camera doing it in advance of that.

MR. HOLM: That's fair.

MR. CHAIRMAN: So we will set a date for the first or second week of January or the middle of January at the very latest will be our first session and we will have an in camera briefing with the Auditor General.

Is it agreed?

MR. HOLM: I think that we should be having our session as soon as is possible after the report comes out.

MR. CHAIRMAN: Around January 8th, that will be after the dust settles and you shake off the cobwebs, John, and get with the new millennium . . .

MR. HOLM: I never do that.

MR. CHAIRMAN: Motion to adjourn.

The motion is carried.

[The committee adjourned at 10:08 a.m.]