HANSARD

NOVA SCOTIA HOUSE OF ASSEMBLY

COMMITTEE

ON

PUBLIC ACCOUNTS

Wednesday, March 24, 2010

LEGISLATIVE CHAMBER

P3 Contract Management

Printed and Published by Nova Scotia Hansard Reporting Services

PUBLIC ACCOUNTS COMMITTEE

Ms. Diana Whalen (Chairman)

Mr. Leonard Preyra (Vice-Chairman)

Mr. Clarrie MacKinnon

Ms. Becky Kent

Mr. Mat Whynott

Mr. Maurice Smith

Hon. Keith Colwell

Hon. Cecil Clarke

Mr. Chuck Porter

[Mr. Allan MacMaster replaced Hon. Cecil Clarke]

WITNESSES

Department of Education

Ms. Rosalind Penfound, Deputy Minister

Mr. Darrell Youden, Senior Executive Director, Corporate Services

Mr. Darrell MacDonald, Director, Facilities Management

In Attendance:

Mrs. Darlene Henry

Legislative Committee Clerk

Mr. Jacques Lapointe

Auditor General

Mr. Terry Spicer

Assistant Auditor General

[Page 1]

HALIFAX, WEDNESDAY, MARCH 24, 2010

STANDING COMMITTEE ON PUBLIC ACCOUNTS

9:00 A.M.

CHAIRMAN

Ms. Diana Whalen

VICE-CHAIRMAN

Mr. Leonard Preyra

MADAM CHAIRMAN: I'd like to call the meeting of the Public Accounts Committee to order. We are doing one thing a little differently today for the committee, we are putting our committee business first rather than at the tail end of the meeting. That's following our last meeting of the agenda-setting subcommittee. We don't have a meeting set for next week, so we'd like to get authorization from the committee for the topics that have been suggested by the agenda-setting subcommittee.

When we do that, then our clerk will be able to go and try to line somebody up for next week. Hopefully by the end of the meeting we'll be able to know who can come in next week to keep the ball rolling on the work of the Public Account Committee.

Just to begin, formally, I would like to ask the members of the committee to introduce themselves and while we're doing that, we'll have our guests introduce themselves, as well, for the upcoming questioning.

[The committee members and witnesses introduced themselves.]

MADAM CHAIRMAN: Thank you. Perhaps if I could, Mr. Preyra, maybe you would make a motion to accept the recommendation from our subcommittee?

MR. LEONARD PREYRA: Just before I make the motion, I'm not exactly sure why we reversed the order today.

1

[Page 2]

MADAM CHAIRMAN: Okay, let me be very clear about this, we've been trying to set up a list of approved subjects that the committee has approved, that have come from our discussions from the agenda-setting subcommittee. We have no approved subjects right now and that's why we have no upcoming meeting for next week.

So if we approve this at the beginning of this meeting, we have two hours for our clerk to make some phone calls to the deputy ministers or other suggested witnesses that we have before us and line somebody up for next week and that means we will not be missing a week of our Public Accounts Committee.

MR. PREYRA: Is the normal process not for this committee to have a discussion and debate about the topics and the order of them and explain why particular topics are chosen? I'm not sure, we've got witnesses in front of us and I'm wondering why we don't go ahead with the witness and do the business later.

MADAM CHAIRMAN: I understand what you're saying, Mr. Preyra, and perhaps you and I could have that discussion after the meeting. What we do normally is allow about five minutes at the end of our meeting after we've had our full two rounds of questioning so we do not allow a great deal of time unless it's necessary that we stay. Your job, and Mr. MacMaster's and mine, is to take back these subject matters to our caucuses and see if there's agreement there before we get here today. The discussion should have happened at caucus. Mr. Preyra.

MR. PREYRA: I'm sorry, Madam Chairman, but the discussion should have happened at this committee as well.

MADAM CHAIRMAN: Mr. Preyra, could I ask for your co-operation today to move forward with these six items?

MR. PREYRA: Well, if I could note then before we proceed that we would prefer that agenda and procedures and business of the committee be dealt with after we've had witnesses and not in the presence of witnesses and have them waiting for a presentation then.

MADAM CHAIRMAN: I understand that, Mr. Preyra, but I did indicate at our last subcommittee meeting that we would be reversing the order because you had raised some objections to even making some preliminary arrangements for the next meeting. You didn't want any arrangements made until we had met as a full committee; that, therefore, ties our hands. I wanted to ensure that we could do it at this meeting.

MR. PREYRA: Yes, you're right, Madam Chairman, but the objection was based on the fact that we would like this committee to have a discussion of the issues, to consider them where there is a public debate, where the media is aware of why we're choosing certain topics on certain dates, and this avoids that process. I know it would be rude to continue this

[Page 3]

discussion because we have witnesses here, but the reason why we have the Agenda and Procedures Subcommittee is to make recommendations to the committee so the committee can have a discussion and a debate about what we want to put on the agenda.

I would like to make it clear that we would like to have that discussion and debate in the committee before these topics and dates are approved. I'm willing to go ahead and we're willing to go ahead, but really, we should have a committee discussion about topics before they're formally approved and we should have an approval of the agenda, as well, in that case before we proceed. Having said that, I would be willing to move it.

MADAM CHAIRMAN: Thank you very much, Mr. Preyra, and we will have a discussion ourselves later and if I could have anybody else on any discussion on these items before us today.

So for the record we should look at what's coming. We have Mr. Keefe, which was the government-wide information technology. He is our chief information officer. That was our number one priority from the 45-minute meeting that we had, I believe, the last meeting on agenda setting. We also have the Departments of Environment and Transportation and Infrastructure Renewal, which was environmental monitoring and compliance; the Department of Labour and Workforce Development, we're looking for the Superintendent of Pensions for that meeting; the Nova Scotia Gaming Corporation; the Department of Community Services; and we had a request from the Auditor General for his next report, which is a suggested date of June 2^nd. So that's in anticipation of the next Auditor General's Report.

So with that, would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is carried.

Thank you very much and I'll ask our clerk to make some calls during this meeting and we'll know by the end of the meeting if we have somebody lined up for next week.

With that we will resume what is our normal process here and that is to begin with our witnesses. I do welcome Ms. Penfound, the deputy minister, and I would ask if you have any opening statements, if you'd like to begin with that.

MS. ROSALIND PENFOUND: I do, thank you very much. Thank you and good morning, Madam Chairman, and members of the committee. I want to thank the committee for inviting us here today and allowing us an opportunity to respond to the Auditor General's review and to speak a little more in-depth about how the Department of Education and school boards manage leases and service contracts with our P3 partners.

[Page 4]

Before we begin I'd like to introduce two of my colleagues. I know they've given their names but to perhaps indicate their roles. Darrell Youden on my left is the senior executive director of Corporate Services and Darrell MacDonald, on my right, is the director of Facilities Management and these are the folks who are intimately involved with P3 administration.

Madam Chairman, as you and many members of this committee know, the public-private partnership schools comprise a very small but noteworthy, some might even say controversial, segment of our public school system. Of the 432 schools in Nova Scotia, 39 are P3 schools which we lease from private developers. They represent a significant financial obligation to the province - representing an investment of almost $830 million over the 20-year life of these contracts.

P3 schools have been part of the public school landscape for almost 12 years now. The government of the day was looking for an innovative way to build badly-needed schools in the most affordable way possible. I'm not here to pass judgment on decisions that were made in the past. Every government is faced with its own unique challenges. It's my experience that governments work very hard to make the right decisions that will be in the best interests of the public given the context in which they find themselves.

There's no doubt that the management of these contracts negotiated with three private developers back in 1998 and 1999 present us and our school boards with some unique challenges. Although there are areas where we need to improve our management practices as they relate to these contracts, I want the committee and Nova Scotians to know that we'll continue to work closely with school boards and our P3 partners to ensure these leases achieve a maximum benefit for the students who learn in these schools and the taxpayers who foot the bill.

Madam Chairman, we take all of our contract obligations seriously and I feel comfortable in saying that we try to do the best job we can managing these leasing arrangements under what many people might argue are imperfect contracts. That said, I agree with the Auditor General that we can do better. We've taken steps to improve management and compliance. We're currently in the process of developing guidelines that will go beyond Mr. Lapointe's recommendations and give all parties to these agreements a helpful and simple checklist that ensures the Department of Education, school boards and P3 partners will fulfill the terms of the contracts.

The Auditor General has also expressed concern in areas of the service contracts which speak to student health and safety. Anyone who has been in a P3 school knows that these schools are clean, safe, well-run facilities. They are appreciated by the students, staff, the school administrators and the communities they serve. These schools have proven themselves to be valuable community assets. However, the Auditor General has made it clear that he would like to see us meet a higher standard of compliance when it comes to child

[Page 5]

abuse and criminal registry checks, first-aid training and fire safety inspections. Despite reasonable efforts, we can and will do better.

Madam Chairman, the safety of our students and staff is our highest priority and we expect compliance from our P3 partners. We acknowledge that there have been gaps and we've notified our partners and reminded them of their obligation to make sure all checks and training are done in advance of hiring and we will be vigilant into the future.

We also work closely with the Fire Marshal's Office to make sure we are compliant with the Fire Safety Act. Our schools operate on a self-inspection program where school boards go through a checklist approved by a committee comprised of representatives from the department, school boards and the Fire Marshal's Office. Schools do their own inspections that are logged and recorded with the committee. Annual audits are done to ensure the inspections are being done properly.

This is an inspection process that has the approval and directly involves the fire marshal. In addition, the fire marshal will also respond to any complaints that are filed. The joint committee met last month to review the Auditor General's recommendations and to make sure we're properly documenting safety procedures. I think it's important to note that the fire marshal has told us the majority of issues raised in the audits do not pose a safety risk.

The contract management and procedures related to cleaning and maintenance of P3 schools were also raised as a concern by the Auditor General. Again, I think it's important to restate these schools are safe, clean and well maintained. We on the board simply employ an alternate and equally effective method of ensuring that standards are met. We believe that cleaning, minor repair work and issues of ongoing maintenance are assured through the awareness of school board staff and the oversight of board-based property service divisions. If the principal sees the floors aren't cleaned or a broken pipe in a washroom, he or she notifies the P3 partner and the work gets done.

This is a similar approach to that taken for all publicly owned and managed schools in Nova Scotia. We rely on regular inspections and clearly identified steps to escalate issues once identified by onsite staff. This is a system that we believe works. Our principals, when interviewed by the Auditor General, certainly indicated to him that they are satisfied with the level of service being provided. I believe this approach strikes the appropriate balance between cost and benefit and represents good value for the Province of Nova Scotia. We believe this is a system that identifies issues in a timely manner and provides a clearly understood, cost effective and efficient path to remedy with the developer.

One other, and the last issue I want to address raised by the Auditor General, of course, is the subcontracting of cleaning and maintenance services with school boards. There

[Page 6]

is a lot of media attention focused on the subcontracts. I look forward to the opportunity of talking about those agreements in more detail today as I'm sure there will be questions.

In closing, let me say that we acknowledge all the recommendations put forward by the Auditor General. I want to thank him and his staff for the work they've done and the recommendations they've made. The Department of Education values his advice and we're making every effort to address his concerns. I think it's fair to say the Auditor General's observations underscore the difficulties associated with long-term public-private partnership ventures. Thank you. We would now be happy to answer any questions you may have for us.

MADAM CHAIRMAN: Thank you very much, Ms. Penfound. We'll begin our first 20-minute round of questioning with Mr. Colwell for the Liberal caucus.

HON. KEITH COLWELL: Madam Chairman, before I start, I've got to state that I have to leave early today, I have an appointment, and Ms. Regan will fill in for me when I leave.

[9:15 a.m.]

I have a few questions needless to say. The Auditor General indicated in his report that the Cape Breton-Victoria Regional School Board had six P3 schools, as we all know, and the report also said that the board failed to claim $403,000 from the P3 manager. It was eventually collected but meant that the school board had a $21,000 shortfall as a result of that. The AG recommended that the board ensure that it collects all money due under its contract and suggests the board consider charging interest.

There are some questions around that. Did the Cape Breton-Victoria Regional School Board know right away what money was due under its contract and had not been paid? Why didn't the board move to collect it if they did know?

MS. PENFOUND: Mr. Colwell, it's our understanding that the Cape Breton-Victoria Regional School Board was actually aware of the issue about not having received full payment prior to the Auditor General's work and was already in discussions for more than a year on rectifying that and determining what the number was. In the Strait Regional School Board, we understand they were not aware and they appreciate the fact that the audit identified the problem and the money has been fully recovered in both instances.

MR. COLWELL: Who, either at the school boards or at the Department of Education, was assigned to monitor these contracts, these particular ones?

MS. PENFOUND: Well, the contracts were between the school board and the developer. So the department didn't have a formal role in monitoring that arrangement. School boards have the authority to enter into contracts and have their normal financial staff

[Page 7]

onsite the same as all other boards in Nova Scotia and it would be those folks who would be charged with the responsibility of doing that.

MR. COLWELL: That being the case, why wouldn't they know that there was indeed money owing to the school board?

MS. PENFOUND: I guess I can't speak specifically for them, but I'm assuming that it was some oversight and that perhaps they would have discovered that but, thankfully, the Auditor General helped them along at this point in time.

MR. COLWELL: It seems like a big oversight though, especially when you're facing a deficit. I would think you'd be looking every place you could find to get funds to make sure you don't have a deficit, to do the things I know the department is really dedicated to doing to make sure our children get the best possible education, the safest environment they can get it. Do you know if they had the capacity to properly monitor these contracts?

MS. PENFOUND: I guess I'm not intimately acquainted with the staffing levels of the boards, but our experience is that generally they operate in a professional manner and they have qualified staff on site. Perhaps, Darrell, if you have any comments about that?

MR. DARRELL YOUDEN: First, as an overview, I would comment in terms of the arrangement between the developers and the board, I would say that there's a very good relationship in terms of quality delivered at the school level. I think it's very positively perceived by both the board and by the developer. At the end of the day, I think the results are good.

I think what we have here is an instance in one board where there was an oversight. My understanding, and I have spoken with the board, is that they were aware and that there was - I won't characterize it as a dispute, but an ongoing discussion in terms of how much was owed in terms of escalation provisions. It was under discussion in one case and in the other case, I think it was a legitimate oversight. It's unfortunate, but I do believe it was contributed to by continuity and changes in staffing over the period of time.

MR. COLWELL: How long was this money owed to the school board? Was it for a year? Two years? Five years? It must have been quite a while.

MR. YOUDEN: The term of their contract is really from the inception of the P3 lease with the province, so it's approximately 10 years.

MR. COLWELL: So, over 10 years nobody at that school board identified it? In 10 years, until the Auditor General came along and picked it up.

MR. YOUDEN: In one case, that's correct, yes.

[Page 8]

MR. COLWELL: It's hard to believe. I know the problem we have for funding for schools and everything else we have and I would think they would be looking for money, as I said earlier, everywhere.

Is there any training available through the Department of Education or any requirements for people that look after this stuff at the school board that really understand what's going on? It concerns me. I know I've been to meetings in the communities where some people have come in from the Halifax Regional School Board and have really no experience, but they were responsible for what was going on with the particular issue we were talking about and they're major issues. Is there any requirement for the Department of Education for people to be properly trained to do these jobs?

MS. PENFOUND: I guess I can make a few comments and Darrell may wish to join in.

School boards are fairly mature organizations, they've been around for a long time. They have a set management structure, they have human resources practices and collective agreements that govern how they manage their staff. I think for all their jobs, they would have job descriptions and qualifications that would be used when they recruit people.

Does that mean that everybody who steps into a job is immediately up to 100 per cent? I'm sure it's not. The department, from time to time, does work with boards to offer collaborative opportunities for those folks to learn and I'm sure it's the same as managing any cadre of employees charged with responsibility for work.

MR. YOUDEN: I would echo those remarks and I guess to repeat a little bit of what I had indicated earlier, I think that in one situation with one board, they were not aware of the issue. I believe it was to have been an oversight. My own perspective on it would be that it is not systemic, in a broader sense of the skills and abilities of anybody in that board. I think it falls under the category of mistakes. The school board is a very large operation and sometimes the magnitude of those mistakes can also be large.

MR. COLWELL: I appreciate that. It seems like if you're training somebody, somebody new, that would make sense and it takes time for people to learn. I have no objection or any concern about that, but 10 years is a pretty long time to make the same mistake. It was probably different staff looking at the same thing, so someplace in the system, this really failed.

The question is, not only this failed, but what else has failed when you go through the process? What other things are in the system that maybe the Auditor General didn't happen to find or the school board definitely didn't find and doesn't appear they will find. What are your comments on that, you know, how can this happen over 10 years? I mean if it was last

[Page 9]

year it happened and it was a year and somebody new comes to the job, you can understand that and away you go. But 10 years is a long time.

MR. YOUDEN: To, I guess, expand on my understanding of what occurred at the board level on this item, this is one particular clause of the contract of a fairly complex contract and I think there was a certain degree of oversight. While it had been outstanding for some 10 years or eight years roughly, it's one of those issues that somebody lost sight of and it was in the rearview mirror and it wasn't showing up on an ongoing basis in the relationship between the developer and the board.

Interestingly enough the particular developer had not billed the province for what we're talking about - escalation clauses under the contract. The developers themselves had lost sight of it and had not billed the province on that same clause. So, you know, in our assessment at this point in time, it falls in the category of a mistake. It's unfortunate but it happened.

MR. COLWELL: On that same issue of collecting this money, when it was finally arrived at and understood, was there any interest charged on the back money owed to the province, a matter to the school board?

MR. YOUDEN: My understanding is that interest is under discussion in at least one case and I'm not entirely sure of the other case.

MR. COLWELL: Isn't there a policy province-wide about issues like this where interest would be charged?

MR. YOUDEN: The legal issue surrounding the charging of interest, there is an obligation for people to raise the claim and in the absence of raising the claim in the first instance, that can erode your rights with respect to claiming interest if you had not raised the issue. So it's not a black and white issue and I wouldn't profess to be the expert on it but my understanding is it's more of a negotiated item between the parties than an outright claim.

MR. COLWELL: Yes, I can understand this. Was it only after the Auditor General identified this that the proceeding started to collect this money?

MS. PENFOUND: With Cape Breton-Victoria, they had been in discussion on this for about a year and I think in the Strait situation, it was indeed only after the Auditor General noticed the issue.

MR. COLWELL: How long after the Auditor General noticed this did they actually collect the money?

[Page 10]

MR. YOUDEN: We're talking a short term, roughly 60 days would be my understanding, in that range.

MR. COLWELL: So what I'm hearing is, it took the Auditor General's report for a one year negotiation to come to an end? Is that correct?

MR. YOUDEN: I would very much support the notion that the Auditor General lent weight to the arguments of the board in settling it with the developer. On the situation with the Cape Breton-Victoria Regional School Board, there was also some discussion as which costs were subject to escalation. That was what the delay related to and there were some items that the board wanted to claim escalation on that the developer did not support that claim. So as a result the issue wasn't new but it had bogged down in the calculation and determination of what was owed. Did the Auditor General's report add to and even assist the board in resolving that with the developer? Absolutely.

MR. COLWELL: That's at least one real good positive thing that came out of the report. The other thing is, and you've partly answered this question but there's a great deal of concern - does the board really have the expertise to negotiate and work with these contracts? I mean these things, I think, are pretty complex and it's important best probably people of the province that they're enforced as they can be. Now, the principal is aware of what they should be - the services they should be getting under the contract. Is there enough information? I find it's difficult sometimes for the school board to get information down to the schools.

MADAM CHAIRMAN: Ms. Penfound.

MS. PENFOUND: I think as a general comment you've highlighted, and we would agree, these are very complex contracts. The ones between the province and the developers are complex, the ones between the developers and the school boards are complex, and they present challenges. The other challenge is that they are long-term contracts. They were negotiated 11 or 12 years ago and they present historical challenges in terms of the continuity of people who were there when the contracts were negotiated, let alone the day-to-day management and fitting those contractual obligations into the context that a board might be operating under at the time.

So I don't know if I have a further answer to the questions you've posed before, except to agree that they do present challenges for both board staff and for the department.

MR. COLWELL: No matter how complex a contract is, there are some points that a school principal, for instance, should know and they should know that the school should be - if it's a contract to clean the school, this work should be done, here's the standards to be done by and what services the contractor is supposed to supply with the building. Do they change the light bulbs? All those operational sorts of things that would cause all kinds of

[Page 11]

grief for a principal trying to make sure the place is safe and make sure the staff was happy working in the building and all those sorts of things. They could be broken down very, very easily and that information given to a principal to have it on file. Has that been done?

MS. PENFOUND: I think, first off, I wouldn't necessarily agree that principals need to know all the complexities of these kinds of contracts. It isn't necessary for them to know that. These are largely financial arrangements and contractual obligations between boards and the developers. Do principals need to know what it takes to run their school and who's responsible if an issue comes up? Absolutely. We're confident that they are, the same as they are in other publicly managed schools.

If a principal knows that the lights are out or the pipe is broken or whatever, they know there's a clear escalation process in terms of what you do to get that fixed, they know who the staff are in the schools that are responsible for those and to a large extent, it probably matters not to a principal whether that janitor is employed by the board proper or whether that janitor is employed by the developer. What they need to know is, who's the person that does this work and where do I go when a problem arises?

Darrell, you may wish to add something to that.

MR. YOUDEN: Thank you. One of the things that we work very hard to do and the boards work very hard to do, we have very, very busy principals with a lot of responsibilities and a lot of demands on their time. As much as possible, we want for their time to be directed towards supporting the school learning and not directed towards the elements of the operation which are not directly attached to learning.

We very much do not want a principal's time to be invested in administrative responsibilities to the extent possible - you're always trying to minimize that. In that culture, we don't want them spending their time on a P3 contract. We do expect that the board and the property services division within the board are paying attention and providing oversight with the conditions in the school.

One thing I would expand on, when I visit schools in the province - and I wouldn't want to count how many I've been in - one of the things that I do when I walk around the school and when I first introduce myself to the principal is the common icebreaker, if you will, is just to talk about the condition of the school and the cleanliness and whether or not they're being supported the way they should be. Every single principal that I've ever had that conversation with, without exception, has always been very well informed and had very high expectations as to the cleanliness, having repairs fixed on a timely basis. They know very clearly the expectations that they need to run that school. They do a marvellous job.

Our experience is that they're very well informed as to the outcomes we're looking for, they're not informed on the contract and shouldn't be.

[Page 12]

[9:30 a.m.]

MR. COLWELL: I wasn't talking about the details of the contract, I was talking about the daily operations a principal is responsible for. If the principal doesn't know who is to fix what and who is responsible under the contract, which is very important, the problem may not get fixed. If that problem doesn't get fixed, it could cause a safety hazard for the students or the staff. That's really what I'm talking about. It appears that even the school boards themselves don't really understand how all this works.

It'd be very, very simple to provide the information to the principals and say, here, this area of responsibility is the people that own the building and this area of responsibility is the school board and here's who you have to call in either case. Just something that simple. Has that been done?

MR. YOUDEN: I think we're actually saying the exact same thing because that expectation, I would suggest, is being met. The process that exists is that the principal very much would turn to their property services director and they expect the problem to be - if a pipe breaks, they expect it will be cleaned up, fixed properly and they would not have to be engaged in the arranging of that. Their only role, really, is to make sure that there is awareness triggered and that it happens.

The developer will look after those things, but in the absence of the developer acting promptly, all the principal needs to know is how to escalate that - they do through the board property services division and they do it routinely. In actual fact, one of the positive comments in this report was, there was an acknowledgment in discussions with the school principals that, in fact, that was happening.

MR. COLWELL: Yes, I can say I have a P3 school in my area and I can tell you the community loves it, the staff love it, and it's a really good arrangement all the way around. Indeed when you go through this process, there has been a lot of discussion about P3 schools whether they're good or not.

One of the things I've learned over the many years I've been in politics is that once a school becomes abandoned, it becomes a huge cost to the municipality and the province. Some organization that wants to save it and run it and do all the things, probably a new community centre would be a lot less expensive to do and a lot better suited to the community and that problem is going to go away, but when you go in the school and you see the technologies in the school, I would say at least in the one in my area, it's incredible, just incredible, and that would not be possible without co-operation from many, many people. So I think that's very positive and the questions I'm asking here aren't negative. They're just information gathering.

[Page 13]

What other issues do you see with - there are all kinds of things the Auditor General has raised for this and I'm very pleased he did - but other issues you see between a school board and the Department of Education with these contracts that could be easier to deal with or better for the Department of Education and the interests of children really?

MR. YOUDEN: That's a very good question. One of the challenges and it's neither negative nor positive vis-à-vis P3 as a delivery system but we have created a situation where we have, say, less than 10 per cent of our schools are delivered under one method and the rest of our schools are delivered under another method. I guess the analogy I would give you is if I was a mechanic in a garage, I would rather service one brand of cars than multiple brands because of the complexity and the different processes that are entailed. So from a pure administrative management perspective at both the department and at the board level, there's a complexity which has been introduced for a relatively small number of schools. That is an element that we all deal with and it's reflected in the report.

MADAM CHAIRMAN: Your time is just about up, Mr. Colwell. Did you have a quick one?

MR. COLWELL: Thank you.

MADAM CHAIRMAN: No, okay. I would like to turn the floor over to Mr. MacMaster for the Progressive Conservative Party.

MR. ALLAN MACMASTER: Thank you, Madam Chairman, and thank you for the opportunity today. Who were the developers around the province?

MS. PENFOUND: There are four of them. Ashford Investments has constructed 16 schools. Nova Learning has constructed nine and Scotia Learning has constructed 13 and one was built by Hardman.

MR. MACMASTER: Did you notice any irregularities in how the developers were selected?

MS. PENFOUND: I guess I wouldn't be able to comment on that. I mean these contracts were contemplated and developed over 12 years ago. None of us sitting here today were even employed in any capacity that would have anything to do with that process. So I guess it would be very difficult for us to look in the rear-view mirror and be able to comment on that process.

MR. MACMASTER: Was there any discussion with staff who might have worked in the department at the time?

[Page 14]

MS. PENFOUND: In my extensive experience in the department of eight weeks, I'm not aware that there are many staff left in the department now who were even around at the time that this occurred. Darrell, you may want to chime in but I think you've highlighted one of the issues that we confront, is the continuity of people who were there in the beginning when these things were begun and it wasn't just the Department of Education. It was the Department of Finance, the Department of Transportation, the Department of Education - a number of partners across government who worked to put this together.

So there are very few people around who were involved in that at the time and I think certainly as a transition, of course, staff would work with those folks who would be handing off responsibility but, you know, memories pale and these are extensive files and we're doing some significant work to try to even be sure that we have all the documentation from all the departments, trying to sort of build - we recognize that there are some gaps, even in the original documentation. So it presents significant challenges for us.

MR. MACMASTER: Darrell, did you have anything to add to that?

MR. YOUDEN: As long as you're shining the spotlight on me, certainly. No, certainly we have a grounding in the issues and have some appreciation but if your question is leading into the ground of sort of an evaluative comment around what occurred back then, it's really just too far in the rear-view mirror for it to be meaningful.

MR. MACMASTER: The schools that were constructed, would you say they were constructed to the same level of quality as ones that would be constructed by the province?

MS. PENFOUND: I guess I can make a general comment and then these folks who are more acquainted with the nitty-gritty could chime in. Those P3 schools, as Mr. Colwell noted, those are good schools, they were built to a high standard at the time, they're appreciated by the students, the communities, the teachers and the administrators, just as the schools that we build under our public program are.

This was just a different delivery model in terms of how you finance the construction of these schools. I think if you've been in them, you'd recognize they are really great schools, just as the newer schools that are being built. Everybody likes a new school, and if it's 12 years old, it's not the same as the one that's now one year old. But in terms of the quality and standards, I think those schools are high-end.

MADAM CHAIRMAN: Mr. MacDonald, did you have a comment too?

MR. DARRELL MACDONALD: The provincial standard that is used to construct new schools today grew out of the standard that was created for the P3 schools. It was of a very high standard at that point and, of course, it has evolved since. That was really the

[Page 15]

genesis of today's standard so I can reiterate what has been said, they are of a very high quality.

MR. MACMASTER: How have they weathered?

MR. DARRELL MACDONALD: They've weathered very well. The response that I continually get from the school boards is that they're easy to maintain, which was originally a criticism people had predicted, that they would be difficult to maintain and that hasn't borne out. They have been easy to maintain and they've worn very well.

MR. MACMASTER: What would you say the lifespan is of these buildings?

MR. DARRELL MACDONALD: We generally look with the current standard at a 40-year or more lifespan with usually a 20-year, mid-life refreshment.

MR. MACMASTER: Can you tell us a little bit more about the contracts? I noticed in the opening comments it was noted there were imperfections in the contracts. Can you tell us a little more about that?

MR. YOUDEN: I guess I would start by giving you some context comments because I don't want to just be critical of the contracts of the day. How contracts are developed and how we improve our contracts, really, is through repetition. If we put out a tender or a contract for a piece of work and through operationally working through that for the next year or six months, whatever it is, both parties note the gaps which exist and you correct them as that service gets renewed in a fresh contract and they progressively become better.

One of the challenges though with the P3 agreements is that, first off, it was relatively new for the province and it was a point in time when both sides of the table had not attained a lot of experience in placing those contracts. Secondly, your mistakes are 20 years in duration so you don't have that freshening improvement ability which occurs in the normal course of procurement and contracting. That creates a real burden on the parties to try to sort out the gaps which exist.

Some examples of the kinds of gaps - and the Auditor General does a very good job of identifying some of those gaps - the contract does not have, as an example, the ability to audit some of the information of the P3 partners. In the absence of that, it's difficult to know in some cases whether you're getting exactly what you should be getting. Another example could be anticipating - and the Auditor General didn't make comment on this, but I will - the possibilities which may unfold.

As an example, if the province - and we've done this - has had situations where it was in our best interests to place a portable to meet the demands of a certain school environment, we've placed a portable. But the contract did not have provisions determined in advance as

[Page 16]

to how that would be entertained. As a result, you're in a position of negotiating with the P3 developer and the leverage, depending on the issue, may not be in your favour. It's always in your interest to negotiate those things in advance rather than when the tables tip in a different direction later.

There are issues like that which, having gained the experience down the road, are easy to see but aren't necessarily easy to see at the front end.

MR. MACMASTER: These facilities, they last for 40 years, the contracts last for 20 years. I suppose you don't want to lay your cards on the table, but I can appreciate there could be some challenges to negotiating if you're in a community where there's a building already in place, facilities are in place, for education, presumably you'd have to negotiate with the same developer and they'd be the only game in town, unless you were to start to construct a new facility. Do you have any thoughts on that that you could share?

MS. PENFOUND: Just as they're the only game in town, to a large extent we're the only game in town for them too. These developers have built public buildings largely in the middle of residential areas that really are designed for single use. So when it comes time to have a discussion, there are cards on both sides of the table on this one. We're just beginning that process now. We're about four years away from having to make the first decisions or enter into the first decisions on this. We've formed a committee to start to examine this and look at, you know, what are the elements that we would have to consider when moving into negotiating with these developers and, of course, we're meeting with boards because the decisions around these are the same as they would be around looking at any school and what your future decision is for them.

We have a number of options at the end of these contracts. We can renew for a minimum of 10 years. We could walk away and build our own school and that would have a whole suite of issues around that. We can purchase the buildings. One of the interesting things though is that the contracts are not all the same. So some of them require us to use a different formula in terms of figuring out what the costs would be for doing that and some of that ranges from 40 per cent to 50 per cent of original construction right through to fair market rental value. So, again, the complexity and the difference in the contracts is playing into this decision making.

We are a few years away and as you've indicated, it wouldn't be appropriate nor would we even be ready to figure out what our position is on this. But again, to reiterate, these are really unusual situations for both the developer and for us - a significant risk for the developer to build this kind of a building knowing that at the end of the contract they might well be left with an asset that would not be very sellable to anybody else. On the other hand, if that school is being used and we have students in there and it's meeting their needs, the developer knows as well that we have a need for that school. So it's a process that we're just

[Page 17]

beginning but it certainly will probably be equally as challenging as the original negotiation of the contracts.

MR. MACMASTER: Can you tell us a bit about the profit margins that the developers made on these schools?

MS. PENFOUND: I'll make a stab at that - I don't think it will be a great stab at it - and then Darrell may be able to add to this. When these contracts were negotiated, it was a time when the government of the day was trying to meet a need for more schools. We had the baby boom schools that were built, you know, 50 years, 60 years before and they were aging and you get to a point where all of a sudden the stock is not in great shape and you have to deal with this stuff.

At the time the accounting rules employed by the province required that if you built a school, you had to book the cost in that given year. So if you build 30 schools in a particular year, it's a huge, huge hit on the books. So trying to find a way to get those schools in place and meet the needs that were out there that were clear and obvious, the government of the day decided to look to another delivery option. So this was a way to spread the costs over a 20-year period. The rules have changed now, now you can build it and you can amortize the costs over the life of the asset. But at the time that's what was going on.

[9:45 a.m.]

So I guess following on from my comments earlier, there are certain inherent risks in these for the developers in terms of what it is they're being asked to do. So they have obligations to actually build the school. They have obligations to maintain and run the schools and provide certain services and then at the end there's going to be that opportunity to negotiate or figure out what happens with the asset. So built into the costs for the developer would be a number of things. They're not doing this for nothing, they want to recoup their costs, they want to make some profit and they want to have the risk somehow handled in the total cost. In terms of what the developer's profit is, I think that's probably something that the developer would have to speak to. We're not privy to exactly what happens on their books. Darrell, you may wish to add something on that.

MR. YOUDEN: I would. I understand the question. It is impossible to get at what you have alluded to. Effectively the P3, we could be talking about government entering into a contract to construct a road. The developer is the only person who knows their costs for delivering that service, would be point number one. We just do not have the information as to what their cost was to build that building. We don't have information as to what their complete cost is to service that building - only they know - and we do not have a contractual right to know that, nor would it be in their interests to ever have agreed to that.

[Page 18]

Secondly, we're roughly 10 years along in these contracts in a 20-year deal and in terms of the costs of those buildings, I would never try to conclude that the capital maintenance costs associated with those buildings has even begun. We know full well the nature of the roofs on these buildings. If you look at their experience in maintenance and costs in the first 10 years, similar to a brand new home, it's very low. The expensive years are coming, so to try to prejudge that is just impossible to do. It just cannot be done.

MR. MACMASTER: Was there competition at the time, in the sense that there were other bids? Were there more than one bid for each school whereby you could help to evaluate the fairness of the price put forward by the proponent?

MR. YOUDEN: I can only speak generally so I have to limit my comments because, again, we're going backwards to the period of the P3 process but my understanding is there was an RFP that was placed which selected the partners and then negotiation of a specific price occurred with the limited pool of partners, as opposed to a public tendering in a broader way.

MR. MACMASTER: Have you ever conducted some work, with perhaps the help of people at the Department of Finance, to do an analysis of leasing versus owning?

MR. YOUDEN: Leasing in the context that we're talking about is P3 leasing which is really sort of a turnkey to deliver us all elements of the building and the support to the building. Certainly the past two governments have looked at that at a global level and made policy decisions with respect to whether or not P3 was desirable or not desirable and there have been a number of positions on that.

MR. MACMASTER: We heard a little bit about the operation costs. Have the operation costs been a positive or a negative with the P3 experience? Are they very similar to what you would have if we owned the assets, the facilities?

MS. PENFOUND: I guess I can start and the finance guys here will help me out on this but, you know, this is a significant amount of money - $830 million over a 20-year period. Having said that, it would be very hard to say, okay, if we had built our own school 12 years ago, you know, you would have to do that kind of calculation. But if you look in really general terms at what it costs us to build schools - a brand new school could cost you $12 million or it could cost you $30 million depending on the school, the size, the location, the grade level, all those kinds of things. If we've got 39 schools and they're costing us $830 million over 20 years, that brings the average cost of those schools in the $20 million, $21 million range.

So in my simplistic view of looking at it, I would say, well, you know, it's kind of in the ballpark. It's difficult perhaps for me anyway to address that in any greater detail and, Darrell, you may have something to add on that.

[Page 19]

MR. YOUDEN: The difficulty in answering the question, the difficulty in doing that assessment is that what we have by way of costs today is the cost for delivering schools for the 20 years from inception and in most cases presumably we would be looking at a much longer service life. So what you're doing is, you're comparing the costs with 20-year schools with the costs of delivering 40 year or 50 year or 60-year-old duration schools and we don't yet know, it's really comparable to my past answer, we don't know how that cost is going to turn out over the longer term.

I can tell you that that issue has been looked at. I mean, it was looked at the front end as being part of this process and the decision was made that it seemed to make sense. I can't quote directly - and the colleagues from the Auditor General's Office may or may not want to correct me if I'm wrong - but I believe that the Auditor General's Office looked at that question, you know, around the time of the P3 and basically came to a similar conclusion that it is very difficult to determine without the benefit of history as to how those costs will turn out. So it's difficult to project.

MS. PENFOUND: If I could add in, to reiterate a point that Darrell hit on there - that $830 million is what it cost us for those 39 schools for 20 years. At the end of the 20-year period there will be a cost clearly. We have to buy the building. We have to lease it. We have to make decisions to house children elsewhere. So it's a cost that we're paying for 20 years of use and certainly there will be a cost and negotiation and decision making that has to be made at the end of that 20 years. There will be a significant price tag no matter what the choice is.

MR. MACMASTER: Would you be conducting these kinds of analysis the next time around, like when you go into renegotiations the next time? Would you look at things like lease versus buy?

MS. PENFOUND: We have no indication from government that there will be any consideration of P3 contracts in terms of new construction. That doesn't mean that we won't have to make decisions or recommend to government choices about what to do at the end of these contracts and perhaps renewing them. I guess that's what I could add on that one.

MR. YOUDEN: Maybe to speak to it globally, and again, we're not really wanting to go too far down the road in terms of how the negotiations with the developers in those instances would go. I would very much want it to be understood that the framework would be what is the best business case for the province and evaluating each of those individually, with the backdrop of that, of course, being the sensitivity to communities, but do appreciate that the contract gives us approximately four years of time prior to expiry of the lease to deal with that and that's ample time.

[Page 20]

You may still desire to have a school for the community but if the negotiations don't make sense, the backdrop to that, of course, is that you can build a school and make choices at that time. So obviously there would be a careful evaluation in each individual case.

MADAM CHAIRMAN: About a minute left.

MR. MACMASTER: Madam Chairman, one minute. Will I have another opportunity later on to continue with questions?

MADAM CHAIRMAN: Yes, there is a second round but it's good if you use your minute.

MR. MACMASTER: Well you know what, I think I'll pass at this time before I start into the next theme of questions.

MADAM CHAIRMAN: I understand. So with that, we'll move for the next 20 minutes to the NDP caucus and Mr. Smith, I believe, is taking the questions today.

MR. MAURICE SMITH: Thank you, Madam Chairman. I have some general questions of my own that I want to get to but there were some questions that came up in listening to your responses. I guess this money that the school boards didn't collect - was that money connected with the maintenance payments? The subcontracts?

MS. PENFOUND: Yes, there are two instances. Two boards contracted the developers to provide the routine maintenance - janitorial services, those kinds of things - and those amounts related to those contracts. So there are contracts between the board and the developer, as opposed to the developer and the department.

MR. SMITH: Yes, okay. So in my case, the Strait Regional School Board, there was something like $800,000 over the 10 years that was missed, in terms of us collecting it from the provider, for services that we provided. Is that fair?

MS. PENFOUND: Yes, I think the number is just a bit over $700,000.

MR. SMITH: Okay, $700,000, and effectively that money was owed to us but we never bothered asking for it. Now similarly, the providers would have known that they owed that money. So it's not just the school board missing it, the providers obviously knew that they got the service and should have paid for it.

MS. PENFOUND: I think it was probably a point of interpretation on some fairly complex language in the contract.

[Page 21]

MR. YOUDEN: You're absolutely correct that the board missed it, it had lost sight of that. Interestingly enough, the developer had also lost sight of it, had not claimed that money from the province.

MR. SMITH: Okay, so then it goes one step back; the provider then would have got the money from the province to buy those services, wherever they wanted to go to buy them - in this case it was the school board they bought them from - so the province had that money in hand that would have been paid out over those 10 years.

MR. YOUDEN: Correct.

MR. SMITH: So it wasn't as if the provider had the money and just didn't pay it out, they didn't even bother to go looking for it.

MR. YOUDEN: Correct.

MR. SMITH: Okay. The Auditor General obviously was quite critical of the way the P3 leases have been administered by the province. Does the department agree with that and, if they do, what has the department learned and what steps are going to be taken to improve the monitoring and compliance with these contracts?

MS. PENFOUND: I guess I should start off first by saying that I have complete confidence in the staff of the Department of Education, that they try every day to do the absolute best job they can. Do we agree with the Auditor General's comments on this point? Absolutely. These are complex contracts, we've had staff change, there are all kinds of things that have happened over a long period of time and we are thankful for the comments and review that the Auditor General did.

In terms of specific things that we've been working on to help improve, we're working very closely with the boards and with the P3 developers to be sure that we have a clear understanding of everybody's obligations. Within the department, some of the things that we're doing is having those regular meetings with the board and the developers, which have been ongoing for quite some time although we've escalated them a bit in recent days. We're reinstating and re-establishing and enhancing some of the protocols that we have that allow us to appropriately monitor what is happening. We are enhancing the documentation that we have because oftentimes we know that we're doing the job but we might not be able to actually verify on paper what is happening and what is going on. So we're making sure that we have the appropriate documentation, which then allows us to manage and everyone to understand what is going on.

We helped follow up with the school boards on that uncollected money and thankfully that has been resolved. We had a couple of vacant positions at the department in

[Page 22]

the area where this monitoring would occur and I am pleased to say that we have those positions now filled with people who are qualified to help us with this.

We had been working on and are near completion of a procedures manual which we think would have been great if it had been developed 12 or 10 years ago when these things first came into play. That should help with any continuity issues, that procedure manual, with staff changes. You've got that thing there for reference.

As I mentioned earlier, we're working on trying to fill in some of the historic gaps, in terms of information from back when contracts were negotiated because there are some things - Darrell mentioned the issue of, what do you do about portables. So understanding some of the issues and some of the things that were contemplated at the beginning, we're trying to build as much of that file as we can and fill those gaps. Those are just a few of the things that we're working on to try and address the issues raised by the Auditor General, and help us do a better job of laundering these contracts.

MR. SMITH: Okay, thank you for that. Do I glean from what you're telling me then that the department is accepting the recommendations of the Auditor General?

MS. PENFOUND: Yes, we are. I guess this is far too simplistic, but the Auditor General, in our view, you can categorize the comments and suggestions and recommendations he made into several categories. Some of them are retrospective, they are rear-view mirror things about what would you do if - like the quality of these contracts, the things that are wrong with these contracts and we certainly don't have any comment on that. We agree and those are legitimate and correct observations by him. Those result in recommendations about what would happen if these were ever considered in future. Absolutely legitimate and we understand that.

In terms of the things that he said about how the department manages these, we absolutely accept his recommendations and are working actively to be sure that we are addressing any of the shortcomings that he has identified.

The other category of his comments are with respect to those contracts between the developers and the boards, and there have been some questions already. So we don't take any issue with his general comments. We have a different interpretation on a few of those things but we're thankful for the report that he has made and we accept the suggestions that he has for us.

MR. SMITH: Well, just following up on that then, I guess if you look at some of the things that you don't agree on, I want to talk a little bit about this $52 million gap. As I understand it, the province pays the developers to do these, we'll call it, service contracts. The developer then subcontracted to some of the school boards for that very work. The

[Page 23]

amount that the province paid to the contractor is a certain amount but then the contractor went back to the school board and they are paying them less. Is that basically it?

[10:00 a.m.]

MS. PENFOUND: Sort of.

MR. SMITH: Let me just finish, then. So ultimately, as I understand, you have some school boards that are doing this work on a subcontract basis and actually making money on it and some are losing money and that over the 20-year life of this contract my understanding is that $52 million more will have been paid by the province for these services than actually is paid out by the contractors. Am I right on any of that?

MS. PENFOUND: I can make a few comments on that, and this has certainly been a question that has garnered a lot of attention. The government objective of the day - and some of this I've said already but to reiterate - was to negotiate agreements that would enable government to build badly needed schools at a time when the accounting rules would have meant you have to capture the cost of that capital construction in the given year. That was just going to be too onerous for the province to do.

The decision was made by the government of the day to move to P3 contracts, which effectively spreads the cost over a 20-year period. The developers' objective obviously would be to cover the cost, in the initial instance, make a profit and take into account what they were risking at the end of the deal, that they're going to have this building that we might choose not to buy, and to figure out a way to cover the costs and provide the services that the contracts required them to provide - maintenance, repairs, all those kinds of things.

The leases are structured that they have a capital component and an operating component. Globally, the global number paid to a developer was to cover all of those factors - construction, maintenance, risk, ongoing operations, all of those kinds of things. We wouldn't necessarily agree that it would be appropriate to isolate the operating component from the total lease agreement. In other words, we feel you have to look at the total lease arrangement.

Some developers have contracted with boards to provide specific maintenance services - the janitorial stuff, the day to day things. As Mr. Youden mentioned earlier, we're about 10, 12 years in on some of these contracts and the developers have responsibility if the roof leaks, if the basement leaks, if something major happens, they have responsibility for that. That is over and above anything that they've contracted with school boards to provide.

So, yes, you can take just a quick calculation and say it's $52 million on the operating side going from the province to the developer and less going out to boards for the same service. I guess what we would say is, you have to look at the totality of the contract and

[Page 24]

recognize that that operating part of the arrangement was not just to cover those kinds of services that are now asked of boards to provide.

The other thing I think it's good to note here is, these P3 schools clearly contemplated contracts, clearly contemplated subcontracting. There was a clear understanding in the very beginning that some of these services would need to be contracted out by developers and in fact, we understand, contemplated that some of them might well be contracted back to school boards.

P3 schools largely replaced other schools and those other schools were run by boards who hired employees to do that work. Those schools have been operated by the boards and those employees had collective agreements that covered the terms of their employment. Many of those collective agreements would have had provisions in them that said, if you're going to contract out a service - like you're going to have somebody else run your school for you - those employees would have certain rights. They would have successor rights, there would be an obligation on the part of the board to ensure their employment status.

In many respects I think these subcontracts to boards accomplished the board being able to have a cadre of people that managed all of the schools, both the public ones and the ones that were owned by private developers, and also to ensure that in some instances the collective bargaining rights of these employees was recognized. The person who was the janitor in the school that was replaced by a P3 school has now moved over and is the janitor in the P3 school. So that was a significant consideration, I think, at the time and one of the things that was achieved in some of these circumstances of subcontracting.

I go back to my point that I think to a certain extent it's apples and oranges to look at what the developer contracted with the boards for and what the operating portion of the lease provided for. You have to look at the totality of the agreement.

MR. YOUDEN: I would add to that or highlight a couple of points there within. What has really happened here is the report contrasts the operating payment from the province with the operating payment between the board and the P3 contractor. The difference extrapolated over the life of the contract is the $52 million reference. We don't take any exception with the calculation of that, I think it's the interpretation of it.

The context that I would put to it would be that there's an assumption when you compare those two that the basket of goods and services for which the province is paying to the developer is the same basket of goods and services that is under contract between the board and the developer. We believe that there are elements or components of the payment from the province which differ. Some examples of that - there is a specific limitation in the contract and schedule after the contract, which limits the capital payment from the province to the developer to 85 per cent of the cost of the building.

[Page 25]

I would suggest to you the developer expects to be paid in full for that building. So right away off the top there is 15 per cent of $350 million in building value which those developers expect to be paid for. If you were asked to contract with anyone to build a special use building, located in a residential neighbourhood where it has very little or no other commercial value with a huge cost to convert it to other purposes, you would want to be paid in full. You would want to be paid in full for the risks associated with being overrun on construction, for being over cost during the life of that 20-year contract. These contracts, quite frankly, the risk element can bankrupt a developer if they're not careful, so they expect compensation for that.

Other things that are not contained within the basket to which it has been contrasted to - as an example, we regularly experience issues of environmental contamination at school sites that easily run into $300,000 to $800,000. Those are all risks that are retained by the P3 developer and are not subcontracted. Also in the basket, the developers themselves have cost of staff and oversight.

There are differences in the two baskets and when you simply compare them, I think the inference that people have taken from the report is that it is profit and I guess alluding to earlier comments, I don't think any of us has the ability to get at what the profit margin of the developers are in these arrangements.

MR. SMITH: So just to sort of try to sum up on that point, is it then that the service contracts - I'll call them that - were a way of justifying the low capital lease expense? Is that a way of saying it? In effect, I think that's what the Auditor General pointed out, that it was an inappropriate way for us - we were saying it was service contract, but, in fact, it was a component that gave the contractor money really for the leases basically. Is that it?

MR. YOUDEN: It is awkward to be trying to speak to what the Auditor General has said. What I would say is there's an inference that has been taken in the public discussion of this issue that that $52 million is representative of profit of the developers. That is not something that I would agree with.

MR. SMITH: No, I understand that.

MR. YOUDEN: But I do think that the Auditor General was perhaps alluding to the overall arrangement and asking, does it make sense in this instance? But, again, I don't want to position myself as speaking on his behalf.

MR. SMITH: But effectively it was putting money in the hands of the contractors that were going to cover the risk and that kind of thing on the leases, when they were really service contracts. That's what has happened.

[Page 26]

MR. YOUDEN: I'm not sure if I'm speaking to your point, but I would suggest that the risks under the overall contract are retained by the P3 developer. If you enter into a contract and have obligations under a contract, you may subcontract that back to anybody you choose but the overriding risks remain with you as the signatory to the contract.

MR. SMITH: Well, the effect of some of the subcontracts were that some of these school boards lost money on these deals. Effectively, the province has lost because if they're losing money on their service contracts, then that money has to come from the school board's funds from somewhere. Other things they could have done with that money, they don't have it anymore.

MR. YOUDEN: Overall I would say that if you look at the subcontracts which exist and you look at them between the two boards, I think that while there was one instance identified where there was a $21,000 calculated loss - I understand the school board has been in conversation with the Auditor General and that calculation may be subject to some debate, but the school board would be in a better position to speak to it. I understand there were some costs not considered.

Beyond that one particular instance, my understanding is that the board subcontracts are - I don't want to use the word "profitable" maybe in this context, but are quite favourable to the boards. They're delivering the services that are essential to those schools and it is not costing the boards, the boards are not subsidizing the developers.

MR. SMITH: Are there not some sinking funds to cover some of the things like the roof expense that you said might be coming down the road and that sort of thing?

MS. PENFOUND: Yes, there are indeed some funds in there, but it's our belief that they would not cover the totality of the risks of items that could come up.

MR. SMITH: You have already alluded to this earlier, that we've got two systems of school in Nova Scotia now - we've got 39 P3 schools and the rest we own. You suggest that that's causing some difficulties. How are you dealing with those kinds of things? How do you sort that through?

MS. PENFOUND: I think it's a day-to-day, week-to-week relationship that we have with boards. We have to manage the P3 contracts, they have to manage those schools. We provide the infrastructure, the stock for them to deliver programs in and it's an ongoing process. As we have indicated, we are continuing to meet regularly with the boards and with developers and trying to ensure that the P3 schools - like all of our public schools - are in a position to properly provide the facility for our programs to be offered. Darrell, you may have other comments.

[Page 27]

MR. YOUDEN: At the end of the day the services that are being delivered are identical with the services delivered by the property service units within the school boards. To some extent while there are complications created by the contractual arrangement, at the end of the day it's about delivering the same services and the school board property services divisions oversees the P3 school delivery much in the same way as they do their own schools.

At the same time, the Auditor General's Report identifies gaps for us which we then amend and then go forward accordingly.

MR. SMITH: I guess the contracts that we have now, the Auditor General has clearly indicated that there are some weaknesses in them and you've already told us that you're going to be sort of looking with the four-year window you have and that kind of thing. Is there going to be any kind of opportunity to have these contracts renegotiated? It seems to me that if there are faults with them and we have the clout of saying, well we can walk away from these things, surely there's an opportunity or perhaps there will be an opportunity to clean up some of these weaknesses that have been pointed out. Do you see that as a possibility?

MS. PENFOUND: Yes, I do, although as I mentioned, the contracts with the developers are all different. Some of them you start from scratch and you're negotiating, you know, where do you go from here. Others have some specific terms in them, in terms of, if you choose to renew, you have to take it as it was before, and some of them have opportunity to renegotiate.

Having said that, at the end of 20 years, I think all bets are off. The developers and the province will be in the position of trying to come to an arrangement about the proper use of these schools. They will have their interests, we will have ours and as I alluded to, I think there are pluses and minuses on both sides of the equation. I mean they have a school that we have kids in, that obviously puts significant pressure on us to try to retain those schools, in the same way that we would look at any public school in terms of enrolment and the demand.

On the other hand for the developer, we know that if we don't engage in discussion and continue with that school, their opportunity to do something else with it is limited. I think that gives us an opportunity to look at it and with what would then be 14 or 15 years experience on each side, we would know what worked well and what didn't and what things we'd have to be sure that if we were going to enter into further arrangements with these developers, we would want to ensure was addressed. It will definitely be on our mind and that's why we're starting as early as now to start putting together folks who can help us develop positions on these so that we are in the position to get the best possible arrangement for the province to meet the needs that we would have when these contracts expire.

MR. SMITH: Thank you, deputy.

[Page 28]

MADAM CHAIRMAN: Thank you. Actually, your time has elapsed, Mr. Smith. If I could, I am going to turn the next round of questioning over to Ms. Regan, who we welcome to the Public Accounts Committee. This round will be 14 minutes each.

MS. KELLY REGAN: Thank you, Madam Chairman. We've talked about the people who are responsible for overseeing these contracts and the various boards. I'm wondering, what would be their backgrounds, the people who were charged with this responsibility?

[10:15 a.m.]

MS. PENFOUND: With the Department of Education, there would be people like Mr. Youden, who is a CA and has extensive experience. He has been with the department for just about 10 years and prior to that was with the Halifax School Board. He has on his staff a number of people with professional designations and significant experience. I would hazard to say a few of them are long in the tooth, they've been around for awhile and have significant experience with these kinds of contracts and indeed, all matters financial and good experience in terms of how government works.

One of those folks is Darrell MacDonald, who is an architect and has working with him folks with similar designations, engineers. We have in that group a police officer who helps us make decisions about proper security issues as we develop schools, manage them and do renovations. We have a significant number of people with credentials and experience that I'm confident do a great job on this.

At the school board level, they would have similarly professional folks in their operations, they're fairly large operations, they run significant budgets. They would have a director of finance who would have a CA designation likely and staff that work for that person, so those are the kinds of people that we have involved. As well at the Department of Education, as all departments, we have access to significant assistance as needed from the Department of Finance, from Treasury Board and indeed from the Department of Justice because we have several lawyers who are designed and assigned to provide us advice when we have these contractual issues that come up. So we have a significant number of professional people available to us.

MS. REGAN: Do we know if the boards in question actually made use of those experts? Did they know they were available for their use? If so, did they actually use them?

MR. YOUDEN: Yes, and not only would they have used them but those would be people who would be responsible for the mistake having occurred. If I can repeat, because I don't believe you were here for the earlier conversation, the mistake element, one board was advised - and I've had conversations with them and I accept the explanation of that - and had been under discussion for some time with the developer. So I don't think it was a mistake, it was rather an ongoing negotiation with the developer as to how to resolve it. In

[Page 29]

the other case of the Strait board, it was, in fact, a mistake and my earlier comment was I don't believe that it is systemic or representative of a broader problem. I think the reality is that a mistake occurred.

MS. REGAN: I'm wondering if there is perhaps some training that could be made available to people who are administering these contracts for the boards. The Auditor General identified two instances where we had problems with it. I know you have the training manual, which sounds like that is a good step forward. Is there some training, some kind of a course that would assist these people?

MR. YOUDEN: I'll answer your question a little bit differently, if may. I am not sure, per se, that training is perhaps the issue. I would come at it perhaps differently from the notion of accountability. I can assure you that the people responsible for this mistake having occurred are aware of that. They report to boards that take their responsibilities very seriously. There's not a person on the board of that organization who doesn't look at that as a serious matter - money that can and should be spent in the classroom. So with that as a context, I can assure you that people are well aware the problem occurred and are making every effort that it doesn't happen again. I guess the message would be that it is not being treated lightly either at the board level or the department level.

MS. REGAN: Does the Department of Education routinely review its contract management processes or is that something that isn't done?

MR. YOUDEN: Well I think there are two elements of answering that question. The first is, and the deputy minister has spoken with respect to what we're trying to accomplish, vis-a-vis making action changes of the specific items mentioned in this report and that is helpful. At the same time, the P3 environment - and I have about nine years, I guess, of dealing with these issues - has been an ongoing education and development and evolution. It has been continuous negotiation, arbitration and intensive problem-solving of both parties trying to work through and make sure that at the end of the day the public accessing those schools is as seamless as possible. I think there are two sides of the coin on that.

MS. REGAN: I guess my point is that if it's a continuing learning experience, you want to make sure that everybody gets the benefit of that continuing learning experience. I'd like to see something where information is shared among the boards, so if you have an issue with one board and it comes to a resolution or it doesn't, perhaps best practices could be shared among the boards.

MR. YOUDEN: We would certainly support that as a concept and I would refer to it actually being the case. As a case in point, we've been meeting both with the P3 partners because in many cases the recommendations that are contained here - one of the things we would like to have done when we received this report would have been to immediately respond and say we're onside, we're going to do that, we're going to do that.

[Page 30]

The practical dilemma is that you can't necessarily commit to doing something if your contract doesn't empower you to do it. You have to negotiate, seek agreement of the developers because you can't force them, other than their contractual rights. The second element of that is that in many cases the boards are the best placed parties to help us in the administration of this so we also have to consult with them about how we do that.

There have been ongoing meetings with all the developers and with the school boards and, as part of our regular property services meetings, P3 is a component of that on an ongoing basis and that is how you get at some of those things. At the same time, there is a challenge and there is a point here that we should have a manual to ensure some of the continuity and we agree with that.

MADAM CHAIRMAN: Ms. Penfound, would you like to add to that?

MS. PENFOUND: I would, perhaps on a broader level of your question. You will be happy to know, I hope, that we meet regularly - department senior staff - with board superintendents, often as frequently as every six or eight weeks, and we are in constant contact with them in between. We have a regular process of meeting with them on a wide range of things beyond P3, in terms of our ability and our commitment to work with them. As well, our financial folks have regular meetings with the CFO types and the boards. We also share at the department level a group of human resource directors from the boards.

We have these forums where we have folks with similar responsibility who meet regularly. So that's in a general way, we deal with the P3 issues as they come up but generally that's the kind of relationship we have with those boards and the process that we employ to be sure that we're sharing information on a broad range of issues, including these.

MS. REGAN: I'd like to turn our attention now to a recent article that was in the ChronicleHerald by Charles Cirtwill. He says that our education spending has increased by 50 per cent in the last 10 years. I'm just wondering - boards spent about $35.5 million in 2006-07 on regional board management. I'm wondering how much of that money is going to managing contracts?

MS. PENFOUND: I'll maybe start with a few general comments and then I'll turn it over to the folks who know the details better. I think it's important to note that it's a good thing that education spending has increased. We have teachers who are in classrooms but we also have many, many support processes that are there to help students, everything from math mentors to guidance counsellors to program consultants and all of those things.

If you look historically, the enrolment in schools has been declining, in fact it is going down significantly, as many as 3,500 students every year. So as the per diem rate for students - you know boards get funded on a very complex formula but one of them is an amount of money that would go on a per diem basis. The funds have been reinvested, in terms of

[Page 31]

providing better and more comprehensive service to the students who are there. That's one of the things, I guess, it's important to note, that that increase in spending has been reinvesting in programs that are there for students.

In terms of how that fits with contract administration, maybe, Darrell, you have a comment on that.

MR. YOUDEN: In terms of the contract administration piece, it's impossible to separate that, simply because the responsibilities aren't in a separate unit but it's tracked in that way. There is a multitude of contracts which school boards have, everything from snow-plowing to salting and on and on and huge collective agreements so it's impossible to get at that.

The danger in the analysis of education spending in a narrower or a very narrow conversation is that you have to be careful that you don't skip merrily past issues, such as changes that are evolving in the classroom, greater levels of professional support outside of the classroom, changing supports to special needs students. There's always a danger in newspaper columns trying to deal with those things in a very short medium.

MS. REGAN: Actually I don't want to deal with what's happening in the classroom in this particular case. I'm just wondering what is the cost of administration per student?

MR. YOUDEN: I'm not sure that I could express it on a per student basis but I think you'd find that overall the administration is probably in the area of 3 per cent.

MS. REGAN: Would that differ from one board to another?

MR. YOUDEN: Yes, it would. For the smaller boards, administration is going to constitute a larger part of their spend. There's a certain base cost associated with maintaining, I'll call it a head office, and then all the administrative support which exists. The larger operation, obviously the lower that percentage is going to be because you have a larger base to spread the cost over.

MS. REGAN: So there's no way of us determining sort of what the cost is for each board to administer contracts? I guess the second part to my question would be, is it possible to determine per student cost per board, for administration?

MR. YOUDEN: If I was to reshape your question a little bit, it is very easy for us to get for you - I don't have it at my fingertips but certainly we would engage to get for you the administrative cost per board and that can be expressed as a percentage, if you will, or it can be expressed on a per student basis. We can do it for you either way.

[Page 32]

The danger with the per student is it is not necessarily the best criteria on which to do that but we can provide it. In either instance, that's not a problem. The difficulty - your comment when you've asked for that to be expressed for management of contracts, we simply don't track costs in that way so it's just not attainable.

MS. REGAN: Okay. So if I can actually get it in percentage and per student for administration per board, I would really appreciate that. Thank you.

The Auditor General, in his Recommendation 3.11, indicated the Department of Education should maintain a control copy of all significant contracts which includes all approved changes and supporting documentation. This kind of seems obvious to most of us, but I'm wondering, has the department moved to address this issue?

MR. YOUDEN: Yes, we have. We actually brought somebody in who had some history. One of the difficulties that we were faced with - which was to speak to the practical side of it - is this very much at the front end was a process that involved multiple departments and people, and there was a loss of continuity because those people weren't necessarily around.

That's the practical challenge of it. The presentation here in the report deals with the surface level, there is a huge amount of detail that is referred to. It's even dates of substantial completion, exact square feet, measurements of schools, under a various number of measurement approaches. A tremendous amount of detail and in some cases, we had some real challenges and continue to have some challenges in tracking down some of that documentation. We've made major gains - I forget the duration - we had somebody in trying to pull that together, but there was some investment of time. We're almost there.

MS. REGAN: So it is happening but it's not completed yet?

MR. YOUDEN: It's still a work in progress.

MS. REGAN: When you talk about the tremendous details, I'm assuming this is what you're talking about when you say - I was outside listening to the earlier part of this session and you were talking about the incredible complexities. This is the kind of thing that we're talking about?

MR. YOUDEN: Very much so and appreciating that there is an individual contract for every school, they're not all the same, they're subject to architectural measurements, et cetera, et cetera. In some cases, the area of the school under which payments are going to flow, the quick analysis - you would think that's the exterior of the building but there may be components of the building which are produced by the developer and not the responsibility of the province. The onion has many layers.

[Page 33]

MADAM CHAIRMAN: Thank you, Mr. Youden. The time has elapsed for the Liberal Party and we'll now turn it over to Mr. MacMaster for the Progressive Conservative Party for 14 minutes.

MR. MACMASTER: Thank you. I'd like to ask some questions about the recreation facilities that are included as part of these P3 school facilities. Can community use of schools be included in negotiations for future contracts?

[10:30 a.m.]

MS. PENFOUND: I guess we can include anything we like in future negotiations. Our ability to actually achieve that will be determined in some instances by the requirements of the existing contracts. Some of them put in play certain assumptions. But as I mentioned before, my personal view is, at the end of these contracts, all bets are off. We have an interest, the developer has an interest and we need to find our way to a solution that best meets the province's needs. I think that could absolutely be a point of discussion.

MR. MACMASTER: I think, if I may make the statement, we have, as you know, different departments in government and every department is tasked with different responsibilities. I know there are many Nova Scotians out there who never distinguish that and when they look at these facilities, they see them as being owned by the people, which they are, and there's potential there for them to be used.

The example I think of the most is gymnasiums. They're located sometimes in rural communities where there's not a lot of other recreational facilities and they could be used by seniors, by youth, by everyone. I know when I was a young fellow we used to play a lot of floor hockey and I know if we were allowed to get into the schools in the evening, I'd probably still be there. I'd just like to make that statement.

Would the Department of Education see value in working with the Office of Health Promotion and Protection to improve access to recreational facilities in P3 schools?

MS. PENFOUND: Absolutely. I guess we have to recognize - and the reason we're all here is because these schools are owned by a private entity. P3 schools, as much as they are a public resource, they are used by the public service, they are owned by somebody else. Our ability to use those schools is 100 per cent dictated by the terms of our contract with them.

We've had, in the beginning, there were issues about community use in some schools and for the most part, I believe, the department and boards have been able to work out amicable arrangements with those P3 developers to ensure the most appropriate and most use of those schools by the public. But we are constrained by the fact that we do not own them,

[Page 34]

you know, we have contracts that say these are the hours you get out, these are owned by somebody else and, Darrell, you may have something to add on that.

MR. YOUDEN: I would offer and I'm conscious that it's your time and not ours, but I would offer that if it is helpful for you, I can give you a little bit of a recap, a sort of a starting point of the P3 contract and the access which is now available because I think it might help. Secondly, I can provide you with a comment on some examples that we have done with HPP, if that was your wish?

MR. MACMASTER: Absolutely.

MR. YOUDEN: At the outset of these P3 contracts, those schools which are subcontracted back to a board, one of the advantages of that arrangement is that the public can access those schools on the same basis as they could of any public school of that board. So, for all intents and purposes, if you're a member of a community group and want to get into one of those schools, it would be seamless. You're probably aware that it's a P3 but it matters in no other respect, you'll be charged whatever fee the board charged and it would be the same.

The problem we had, though, was for the other schools, which are roughly 50/50, 16/15 of the 31, the developer owned the building and had full rights to charge whatever fee they thought was appropriate, and I think all the members here today would appreciate, the cost the board charged associated with using a gym is nowhere near the real value that is being offered and the P3 developers were charging fees from their perspective as owners of the building, they were looking for, I'll call it, market rates.

That was the problem with communities getting into schools. As a result, that one particular developer, where that problem largely existed, we entered into a period of negotiation and were able to change that and to effectively allow the public into those schools on the same basis as they would other schools. So, we were able to greatly take the edges off the issue of public access to P3 schools. We're pleased to say that the ground has improved greatly over where we were 10 years ago.

With respect to HPP, there have been a number of instances over the years where we have worked with HPP to try and do whatever we could to improve access of the public to all schools and examples for that are, as some of you may be aware, there have been issues of insurance creating an impediment for groups using buildings and we've worked to try and solve that problem with HPP.

We've also worked to try and understand where the problems exist because oftentimes the perception of not being able to get into schools may simply be because they are very busy. Like a high school, as an example, with a very high quality gym facility - it is very difficult to get into that gym because the school is using it. So often we found that the

[Page 35]

problem isn't that the community can't get into the school but it is more of a prime time competing for space issue, so it becomes a discussion which we had with HPP about how do you, perhaps, move that demand and allow people in on Saturdays and Sundays and that brings a challenge because you don't necessarily have staff there to open the building.

There has been a lot of talk and discussion as to how you remove some of those logjams, not all of which have been removed but a lot of gains have been made. Thank you.

MR. MACMASTER: Thank you for that update; I think that's important. Do you see any other challenges going forward for these negotiations to happen with making the schools more accessible or do you think it will be easier the next - perhaps I should ask, would the Department of Education be willing to pay the cost for community use of schools if these P3 contracts are extended for another 20 years?

MS. PENFOUND: I think our experience with the developers in the past 10 to 12 years has been a positive one in terms of getting their co-operation to be sure that schools have been made accessible to the public, so I think that has shown all of us that that is an important issue. It is one that the province has a significant interest in, it is one that communities demand of us. As you mentioned, these are used as public buildings and should be made available for the public to use. So, I think with that experience going in, both sides are going to understand that this is an issue that must be addressed.

In terms of what the department would or wouldn't pay, I mean, we certainly don't want to tip our hand to anybody on this, so we're in very, very early days. I guess what I could say is that it would be high on our list of ensuring that it was taken into account in any renegotiation for these schools.

MR. MACMASTER: I'm glad to hear that, thank you. I would like to talk a little bit and ask you a question about the future of schools in some communities. I remember, this would have been back in 1999, I remember seeing a debate on television, there was an election on at the time and there was a comment made by Dr. John Hamm about, what does it say about the future of these communities, what is government saying about the future of these communities when we're choosing to lease schools? It would almost suggest that we don't really see a future for them.

I can appreciate in a lot of cases these decisions are made by the school boards, with the input of the school boards, but are there communities in the province today where P3 facilities exist that you may see yourself handing over the keys to the developer when the lease comes due in the next 12 years time or 8 years time? Are there other communities now that you see where this could happen?

MS. PENFOUND: I'll speak generally to it and my colleagues may be able to add something. Decisions about the viability of a school are larger than the viability of the

[Page 36]

building. As your question alludes to, these are of significant interest for communities. If you look at real estate, they say location, location, location. One of those locations is how close are you to a school, in terms of the value that it places on real estate, in terms of the kind of businesses that want to locate to communities. So they are a significant barometer of the health, interests and well-being of communities and we absolutely recognize that.

Decisions made about what we do at the end of these P3 contracts have factored into them the same kind of decisions and factors that go into decisions about any other school. The kinds of things that the department and boards have to look at are the condition of the facility, what's the infrastructure like, what's its life span and is it worth investing in, is it worth doing, what's the population, what's happening with enrolment, is it declining. We know it's declining across the province and that has been a trend that has been happening for a number of years. That puts significant pressure on boards and on the department to fund infrastructure over a broad geographic area that's serving fewer students.

If you could take 3,500 students out of one or two places you could say, okay, there's a couple of schools and it's done; that's not how it works. Those students decline in two or three people in a grade here or there. In a particular community you might say, perhaps the board should consider reviewing that school and closing it, but it might not be reasonable. It's not reasonable for the community, it's not reasonable in terms of how far students would have to be transported on buses, all of those factors. All of those have to weigh into the equation.

I think it's even bigger than that and I believe government is very much on this page in terms of understanding that these schools can be more than just schools - they are community assets. So schools that we may have a wing or hallway that has a couple of empty classrooms, if that's a government asset and the taxpayer has paid to build it, how can we look at using that facility in a way that would support the school continuing in that location and providing good educational experience and also providing services for the community? We have a couple of things going on at the department, one is called the Schools Plus program that we're coordinating with other departments of government. We are moving to offer more comprehensive services to students and families in the school building because the facilities are there.

I think all of those things need to weigh into, what do you do in terms of these schools, what do you do in terms of other schools? School boards have a significant, rigorous obligation in terms of what they do as they go through a review process to be sure that the public has input and that all these factors come into play. So I hope that might help answer that question.

MR. MACMASTER: Thank you. Related to that, we see in a lot of these rural communities, I know the Strait Regional School Board which serves the area that I represent, they receive a larger amount of funding than some of the other school boards across the

[Page 37]

province on a per student basis, but there's a reason for that, a lot of students are travelling in some cases almost an hour and perhaps over an hour just to get to school every day. Our population is dispersed to the degree that we almost can't close any more schools because it's becoming an issue of distance for the children.

One of the things I would think would be important - and perhaps you can comment if you've given any thought to it - if we come to a point down the road where the way we are running the school year, the way we see it now becomes cost prohibitive to a point where we're having difficulty keeping schools open for children in rural areas. There was a decision made to perhaps, and there could be many ideas around this, but perhaps to change the way the school year, the time of the school year, things like that. How flexible would P3 agreements be that if the Department of Education made a decision to make a change in the way the school year operated, how flexible would these contracts be to accommodate those changes?

MS. PENFOUND: I'll make a few general comments, I guess, to your point. I think the Strait board is an excellent example of where these issues really come into play. At one of the first meetings I had with superintendents, the superintendent for the Strait Regional School Board pointed out to me that the Strait region covers 20 per cent of the province's geography and 6 per cent of the student population. To me, that really highlights the issue of how difficult it is to manage in that kind of an environment with shrinking enrolments, a wide geographic area and a need to serve communities.

In terms of, would we adjust the school year, wow, that's a big question. I'm not saying that there won't be any number of things on the agenda as we move through a number of years of confronting the demographic challenge that the province has, which then translates into the number of students in schools and marrying that with the need to ensure economic viability in communities.

In terms of, would the P3 contracts be amenable to that? Now, they provide for a certain number of hours for the province and the boards to access these schools. I would suggest that we are a long way from ever looking at something like adjusting the school year. In that context, we're pretty short-term in terms of looking at these contracts. So is it possible? I suppose it is. Are we planning to go there immediately? No. Is it something that should be completely off the table? I suppose not.

MADAM CHAIRMAN: Thank you, Ms. Penfound. The time has elapsed now for the Progressive Conservative caucus so I'm going to turn the floor over now to Mr. Whynott.

MR. MAT WHYNOTT: Thank you very much, Madam Chairman and just so you know, I will be sharing some of my time with some of my other colleagues here.

MADAM CHAIRMAN: Very good, 14 minutes.

[Page 38]

MR. WHYNOTT: Thank you. I just wanted to make a follow-up question from my honourable colleague for Antigonish. In the wake of the Auditor General's Report, in that report, it noted inadequate management processes at the Department of Education. Can you explain a little bit and maybe go into a little bit more detail - I know you've addressed the question a little bit already - what specific measures have been taken to improve the processes?

MS. PENFOUND: I guess I would reiterate some of the things I said before. We have established new protocols and renewed some of the ones that we had in place before, in terms of falling off and monitoring. We're looking at enhanced documentation to be sure that we've got the right documentation so that we're not reinventing the wheel every time something comes up. We have staff in place now that we didn't have before, in terms of filling a couple of vacant positions to help with this. Some of those folks are helping us rebuild some of the paper file that has been absent and fill the gaps that we have identified.

[10:45 a.m.]

We are meeting on an ongoing basis with people like the fire marshal, to be sure that we are on track with the requirements of the Fire Safety Act, and not that we're just doing it but that we can actually show that we're doing it, so that there's confidence in everybody that we're meeting those obligations. We're working with boards and developers to be sure that the obligations with respect to criminal record checks and child abuse registry checks are done. Those are just some of the things. My colleagues may add something or you may have further questions.

MR. WHYNOTT: Yes, it's interesting you note that because that's my next few questions. Early, I think, in your opening remarks you discussed safety as number one for the Department of Education and for the school boards across the province, making sure that the schools are clean and that sort of thing. I think it's important for parents, students, teachers, administration to know that. In the constituency that I represent, there's eight schools in total and two of them are P3 schools. I visit most of the schools in my riding on a regular basis and they are all very clean and appear to be safe and those sorts of things.

I just want to talk a little bit about the concern that came out in the article in the ChronicleHerald, of course, that discussed concerns of parents, students, particularly of CUPE. You touched on that you want to make sure that you address the fire safety concerns. Can you go a little bit deeper into that and be a little bit more specific. Is that the responsibility of the school board or of the DOE?

MS. PENFOUND: I can first make a few comments and I have with me these gentlemen who have been intimately involved with this stuff. The Office of the Fire Marshal is, of course, the office which is responsible for ensuring that the Act is complied with and they determine that a three-year review cycle is reasonable in terms of ensuring compliance.

[Page 39]

The department, in collaboration with the Office of the Fire Marshal and the school boards and the P3 partners and Fire Code experts have gone above and beyond that and we have a Fire Safety Committee that meets regularly and we have instituted a 10 per cent review every year.

So, we have a revolving review that happens every year and this Fire Safety Committee is charged with making sure that review takes place and that we're meeting all of the necessary requirements in the codes and regulations and, more importantly, touching base with the Fire Marshal's Office all the time to be sure that his office is absolutely comfortable with what we're doing. We've had that reassurance from him and he has, in fact, helped us look at the recommendations of the Auditor General and, as indicated, that the issues raised by the Auditor General, for the most part, did not pose any kind of safety risk and that he is very comfortable with the process that we have in place.

So, in terms of frequency of review, we're there all the time, we're doing it. We think we're going above and beyond and, most importantly, we are in lockstep with what the Office of the Fire Marshal is suggesting is appropriate.

MR. WHYNOTT: I think that's great and I think it is good for parents and community members and for all the folks who go into schools to know that.

My last question and then I will go to my fellow colleague is, you talked about fire safety concerns - can you address the issues identified with regard to child abuse and criminal records checks?

MS. PENFOUND: I can make a few comments and, again, my colleagues may help me on this. I guess a couple of things in general about those kinds of checks in terms of my understanding. Criminal record checks, when you do that - and I have had some experience in my own family because I have children who are involved in professions that require these kinds of things - when you do a criminal record check, you get the scoop if somebody has a criminal record and have they been convicted in an across Canada basis, so that's what a criminal record check does.

The Child Abuse Registry only exists in three provinces in Canada, so it is not consistent across the country and, in fact, there isn't any real sharing of information among those three provinces. So what you get from the Child Abuse Registry check - yes, it's useful stuff, but it isn't as complete in terms of the breadth of stuff that you would get from the criminal record checks and I would suggest that the Child Abuse Registry often contains things that are largely related to custodial issues within families.

Do I think that it is good to do? Absolutely, but I guess I'm just putting on record that there are different functions of these things and they provide different levels of information.

[Page 40]

With respect to the criminal record checks, of 40 checks that were done, the Auditor General uncovered one instance where the check was not done and 19 where it wasn't done in advance of employment. It was done afterwards, but there was probably a reason to get the person on site, get the job going and doing it. It can take a number of weeks to actually get that done. So, I think we're pretty confident that the criminal record checks stuff is being done and agree that it is absolutely appropriate for that to happen.

With respect to the child abuse checks, we do note the discrepancy or inadequacies of what that really can tell you and note, yes, it is important to do as the contracts require it to be done. We've already met with the P3 developers and the boards to be sure that we're on top of that and that we'll use our enhanced monitoring systems to be vigilant, to be sure that those are done. We think they're important to be done, first off, just to know, I mean, you want to know if there is an issue and to the point that you make, to be sure that people are confident in the folks who come to our schools.

The people who are employed through these P3 contracts, they are custodians of buildings, not of children and I think it is important to note that. Having said that, they are in the environment where children are present and that means that it is just as important for them to have these checks as it would be for anybody in that kind of situation.

MR. WHYNOTT: Thank you very much and I just want to say that it is great to hear that you're taking action on those recommendations.

MADAM CHAIRMAN: Thank you. Mr. MacKinnon.

MR. CLARRIE MACKINNON: Thank you, Madam Chairman, we are sharing three ways, so I had a series of questions and I will only ask one. I think MLA MacMaster has done a very good job on the community use aspect and as a former vice-chair of a fairly large school board in the 1980s, we were very concerned about community use of schools. I remember in those days, we had a series of community school coordinators appointed to ensure the schools were being used more than just daytime use. Everything from hunter safety courses to needlework were being offered by those various schools.

I'm wondering if the 430 publicly owned schools have taken a hit in community use because of the blending of the 39 P3 schools?

MR. YOUDEN: The community use, number one, is an interesting topic. Depending on where you go in the province, the views of it are different. We do very much experience intense demand for buildings in metro and it's different than, as an example, the Strait region. The challenges in the Strait region, I can give you an example of some creative things being done to facilitate community use. If a substantial percentage of your population lives a distance from the school, it's hard to go there in the evening, it just doesn't lend itself if you live 40 kilometres from the school, whatever the distance may be.

[Page 41]

In the Strait region, one of the things that they've done is, in some cases, they're running a bus. At the end of the day, the bus will leave the school and it will actually do a circuit and pick up some kids and bring them to one gym and create some after-school opportunities. Again, the sparsity of population issues.

There are different pressures in different parts of the province. The real challenge though is finding ways to open up the schools. In actual fact, I would suggest that we have less of a problem with the difficulty of the public accessing schools as we do with the public wanting certain schools. There's very much a demand for the best gym facilities, the high-end facilities are where the elite sports leagues want to be in those same places and they want to be there at the same time which is - we really don't experience a lot of demand for facilities on a Friday, Saturday or Sunday night, the same hours of the week. Our problem has got more to do with a log-jam of demand than perhaps access.

The shame is, there are periods of time when we have an awful lot of facilities sitting idle that are not being accessed.

MR. MACKINNON: Just very quickly, my concern is that we have approximately 470 schools that could be used a lot more than they currently are. I believe they used to be used a lot more in the 1980s than they are now. Thank you.

MADAM CHAIRMAN: Would you like to comment on that? Okay, Mr. Preyra, for the last few minutes until 10:58 a.m.

MR. PREYRA: I just have a quick question. Going back, mostly looking at the future. We've talked a lot about the boards and the department being accountable. In looking at the documents at that time, it seemed there was a lot more going on. Effectively, what the Auditor General is saying is that the government of the day negotiated a contract that really didn't adequately protect the public interest.

We can attribute it to learning 10 years down the road, but at the same time, there are other things going on. There are allegations about how sites were selected, for example, that there was some patronage involved in that. There were allegations that money that came to the Party at the time, came from developers who ultimately got contracts. The fact is, the government of the day wanted to avoid having these contracts as capital leases and transferred them and negotiated them in a different way.

My question really goes to where we are now. What have we done to deal with some of them in the order the Auditor General comes up with? With site selection, do we have a process that you can feel comfortable with now about how sites are selected for schools?

[Page 42]

MR. YOUDEN: Yes, we're very comfortable with the site selection process, we'd be pleased to indicate. That starts with the board identifying three sites. There's no particular preference indicated by the boards, but they submit that to the Department of Education, there's an evaluation of the sites done, a technical evaluation, which considers the suitability of the site, which would include the cost because different sites are different. From that, there would be a final determination Barb 10:56 a.m.

include the cost because different sites are different and from that, there would be a final determination and - I guess, as an observation - it seems to be working very well.

MR. PREYRA: Mr. Youden, in response to an earlier question, you said that the contracts, as it stands, and I guess you can talk about them in the plural if they're different contracts, does not empower the government to correct mistakes. What lessons have we learned about accountability? The Auditor General says, the lack of such important contract terms and adequate contract management processes and procedures significantly impairs the department's ability to hold developers accountable for their services and effectively manage the contracts.

What mechanisms do we have now in the contracts? It doesn't sound like we have very many that we can impose at this stage, but what mechanisms do we have now and what lessons have we learned about accountability?

MR. YOUDEN: I think I very much understand the challenges that were faced in the late 1990s when these contracts were drafted. When you're entering into a 20-year contract, it's almost irreversible or subject to negotiations and the leverage is very different down the road as you try to solve those problems, but maybe I can answer your question better by referring to some of the obstacles that exist that are very difficult to anticipate. As an example, a live discussion which has occurred with P3 developers would be, let's suppose a school had a designed enrolment of 500 students, but the enrolment of that school rises to 550 students, which may be something that can be adequately addressed. Is the developer entitled to more money under the operating payment in that example?

That's something that is very, very difficult at the front end of developing those contracts, having never had them before. Anticipating that there might be a need for a portable. These are things that we regularly accommodate in the balance of the school of a school system that are not necessarily addressed in the situation or the contracts or alternatively, we build wings on schools or provide expansion to schools. These are things that regularly occur in your regular stock of buildings. Those have not been anticipated in the contracts and that then presents challenges for us as you run into those instances and having them solved. But you do learn from having done that and you reach protocols and approaches with the developers to allow it to happen.

MR. PREYRA: Thank you, Mr. Youden.

[Page 43]

MADAM CHAIRMAN: Yes, time has elapsed. Now, we just have a couple of minutes to close and I would just ask that if our witnesses would remember that there has been an agreement to give us, at a future time, the administration cost by board and if possible, by student, so that we have the up-to-date student number too. If you like, Ms. Penfound, you can have a short closing statement.

MS. PENFOUND: I and the department appreciate the chance to come and address some of these issues and we're very appreciative of the report that the Auditor General has done and we'll be moving forthwith to realize some of the gains that we can from implementing his suggestions. Thank you very much for your questions and courtesy.

MADAM CHAIRMAN: We thank you and appreciate you being here this morning.

Again, just for our closing business, we do have now a confirmation for next week's meeting, so there will be a meeting on March 31^st and it will be Mr. Greg Keefe, who is the chief information officer for the province, talking about government-wide information technology. So, with that, I would like a motion to adjourn, please.

MR. MACKINNON: So moved.

MADAM CHAIRMAN: Thank you very much. The meeting is adjourned.

[The committee adjourned at 11:00 a.m.]