The Committee met at 10:00 a.m.

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

If we're all ready, I'll call the meeting to order. There is one member of the media. I don't see any cameras or anything with this gentleman, but normally, I inform the media if they wish to take some silent footage they may do so. We'll give a few minutes to do that sort of thing. You don't want to do any photographs or anything? So we'll dispense with that for the moment. The rules, by the way, for the interest of the media, applied in Committee are the same as in the House of Assembly. Voice clips can be used discreetly, of course, trusting to the integrity of the media, but we don't use sound on film.

I'd like to introduce the members of the Committee who are with me: to my right, Mr. Tom Murphy, MHA for St. John's South, who is Vice-Chairman of the Committee; Mr. Danny Dumaresque, MHA for Eagle River; and Mr. Garfield Warren, MHA for Torngat Mountains. Other members of the Committee who are not present have advised us they will not be here for various reasons of other commitments.

First of all, I'd like to ask the witnesses who are here with us today to identify themselves, and then we'll have the Clerk formally swear in the witnesses before we get on to other business. First, I ask the representatives from the Auditor General's department - Mr. Drover, I believe.

MR. WILLIAM DROVER: Thank you, Mr. Chairman. I'm Bill Drover, the Audit Principal responsible for the annual report representing the Auditor General today. With me is Mr. Gordon Withers, the Audit Senior responsible for the audit of the Department of Works, Services and Transportation.

MR. CHAIRMAN: Thank you. Before I go on to the department, for the benefit of Hansard and the people who are recording the proceedings here, I will attempt to identify each person before he speaks, so that Hansard knows who's speaking. If I fail to do so, please help me by identifying yourself before you speak, so that the people back in Confederation Building, when they have the tapes in front of them, have some idea who is speaking.

Mr. Peckford, would you care to identify the people who are with you this morning?

MR. BRUCE PECKFORD: My name is Bruce Peckford. I am currently the Deputy Minister of Social Services, formerly the acting Deputy Minister of Works, Services and Transportation. With me today are: on my far right, Keith White, Director of Construction; Terry McCarthy, Director of Highway Design; Harold Stone, Assistant Deputy Minister of Works, Services and Transportation; Robert Hoyles, Office Manager, Project Management Division; Austin Sheppard, Manager of Tendering and Contracts; William Knight, with the Tendering Contracts Division.

MR. CHAIRMAN: Thank you very much. Maybe the Clerk now would like to proceed with the swearing in of the witnesses.

MR. GORDON WITHERS: I, Gordon Withers, swear that the evidence I shall give on this examination shall be the truth, the whole truth, and nothing but the truth, so help me God.

MR. KEITH WHITE: I, Keith White, swear that the evidence I shall give on this examination shall be the truth, the whole truth, and nothing but the truth, so help me God.

MR. TERRENCE MCCARTHY: I, Terry McCarthy, swear that the evidence I shall give on this examination shall be the truth, the whole truth, and nothing but the truth, so help me God.

MR. PECKFORD: I, Bruce Peckford, swear that the evidence I shall give on this examination shall be the truth, the whole truth, and nothing but the truth, so help me God.

MR. HAROLD STONE: I, Harold Stone, swear that the evidence I shall give on this examination shall be the truth, the whole truth, and nothing but the truth, so help me God.

MR. ROBERT HOYLES: I, Bob Hoyles, swear that the evidence I shall give on this examination shall be the truth, the whole truth, and nothing but the truth, so help me God.

MR. AUSTIN SHEPPARD: I, Austin Sheppard, swear that the evidence I shall give on this examination shall be the truth, the whole truth, and nothing but the truth, so help me God.

MR. WILLIAM KNIGHT: I, William Knight, swear that the evidence I shall give on this examination shall be the truth, the whole truth, and nothing but the truth, so help me God.

MR. CHAIRMAN: Thank you very much. Before we proceed any further, perhaps I could dispense with the minutes of the meetings of August 10 and June 2, 1992.

On motion, minutes adopted as circulated.

MR. CHAIRMAN: For the information of the witnesses, now that we have gone through that great formality, you are not on trial, let me assure you. You are here to give evidence and to give us the benefit of your advice and your knowledge of what took place. We're simply here to hear evidence, not to stand judge and jury over anything that may have taken place.

It is our role on behalf of the House of Assembly to inquire into matters that occurred, and particular matters that we will be looking at over the next two days, this one dealing with the tendering of the Department of Public Works and Services ... Works, Services and Transportation - excuse me, I'm still back in the dark ages - as it relates to, particularly, the Ossokmanuan bridge. I am sure we are all aware of the circumstances surrounding that.

But again, you are not on trial, you are here to give evidence. If there is information that you do not have available, you are entirely free to say, 'I do not have the information, but I will provide it in writing later,' if it is detailed information or something you just don't have with you. That is quite acceptable. If a question is directed to somebody and the question should be directed to somebody else, please feel free to say so and let somebody else respond. Mr. Peckford, I assume you would lead the way in that regard, advising us who best could answer a question.

It is fairly informal although you have been sworn in formally. You are under oath. It is basically a meeting of the House of Assembly or a Committee of the House. You are giving testimony, but we try to keep it fairly friendly and informal. Our purpose here is to get information and nothing else. So I hope we know the spirit in which we are dealing here this morning.

To start out, perhaps I would ask Mr. Drover, on behalf of the Auditor General's Office, if he would wish to make some opening comments.

MR. DROVER: Thank you, Mr. Chairman. Our opening statement, which we presented to the research officer, deals with paragraph 4.12 of the 1990-91 report of the Auditor General entitled Tendering for the Road Construction Program.

Our review of the tendering process for projects comprising the Road Construction Program disclosed that some aspects of the system of control needed to be improved. The monitoring system in place to ensure that contracts were awarded in accordance with the provisions of the tendered documentation was not adequate.

In one case reviewed, a contractor refused to proceed with a project for which he had been the successful bidder, citing the department's failure to officially accept the bid by issuing an award letter within a thirty-day period required by the department's tender form document. Two months later, after a second tender call, the contract was awarded to the same contractor on a bid that was $1.3 million higher than the original and $1.1 million higher than the department's own estimate.

Of the seventeen projects which we reviewed, a total of eight were not awarded within the thirty-day period, but only one was refused by the contractor. We note that the department has since improved its monitoring control system, and we also note that we will be following up in a subsequent year, not the current year. During the current year, I will note for the information of the Committee, as approved in the House of Assembly, the firm of Peat Marwick Mitchell will be performing the audits of the Departments of Social Services and Works, Services and Transportation. That relates to the appointment of the new Auditor General and her involvement. It was a resolution of the House of Assembly, so we won't be involved in those two departments in the current year, but in the following year we plan to revisit a lot of these areas.

So we are making the statement that it has improved as a result of work that we did prior to March 31st. We really do feel that the system has improved. I think that is exemplified by the evidence you have before you in the weekly reporting form, and I think that the Deputy Minister will point that out. But our subsequent audit will not take place in the current year - as I pointed out, it will take place in the subsequent year.

MR. CHAIRMAN: Thank you, Mr. Drover. That certainly brings us to the heart of the matter very quickly and also points out, I guess, and strengthens what I said a moment ago, that part of our purpose as a Committee is to ensure that items of concern that are brought to the attention of the House are followed up and corrective action is taken. If that is a result of these hearings, then the Committee's role will have been fulfilled.

Mr. Peckford, would you like to make any opening comments on behalf of the department? I am assuming that, as the former acting Deputy Minister, you are the head of the delegation here today. I have approached it from that point of view.

MR. PECKFORD: Thank you, Mr. Chairman.

I have here the formal opening statement, as such, to speak to this issue. In reviewing the material which the Committee has been provided with and from my recollection of the events when I was with the Department of Works, Services and Transportation, I don't see any facts or evidence there which I feel are incorrect or need to be elaborated upon to any great degree.

Certainly, the way things are presented are, to the best of my knowledge, the way the events occurred. The department has taken considerable steps in strengthening the system, as the Auditor General's Department has just pointed out. Therefore, it is not likely there will be a recurrence of the kind of situation that we saw in this particular contract and other contracts, as the Auditor General has pointed out, where they weren't awarded on time.

MR. CHAIRMAN: Thank you very much. Perhaps we will proceed with some questions.

Mr. Dumaresque, would you care to lead off the questions this morning?

MR. DUMARESQUE: Thank you, Mr. Chairman.

MR. CHAIRMAN: If I might just interrupt you for one more second, it is warm in here. Please feel free to take off your jackets.

MR. DUMARESQUE: I just want to ask the Auditor General's Department a couple of questions.

The note you provided to the research officer, indicates that there are seventeen projects reviewed. A total of eight were not awarded within the thirty-day period.

What time period did that cover? Was that within the last fiscal year?

MR. DROVER: That was in the period for the review process. There was an overlapping period, but those were just seventeen that we selected. They weren't statistically selected; it was just audit selected. So we did not select them to project and say that 80 per cent or 90 per cent had a problem. These were the ones that we picked.

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

MR. WITHERS: The selection was mainly based on our audit of the ERDA federal/provincial cost-sharing agreement. For that purpose we selected high value items. So the seventeen projects we did select contained expenditure going into the 1991 fiscal year that was, in fact, being claimed for cost-sharing purposes.

Of the seventeen we looked at, eight exceeded the 30-day time frame set out in the tender documentation. They exceeded by varying time periods. One went as high as fifty days and the lowest probably was one or two days.

MR. DUMARESQUE: I have, Mr. Peckford, for your officials, just a couple of questions.

On that particular item, after it goes thirty days, what happens to the second highest bidder? Does that contractor not have the option to come forward and claim the award after the thirty-day period has expired?

MR. PECKFORD: No, it is my understanding that if an award is not made within thirty days, the second bidder does not automatically have the right to the award.

It is still a prerogative of the department to make the award to the low bidder or any bidder.

MR. DUMARESQUE: Are they notified after the thirty days that the contract has not been awarded?

MR. PECKFORD: My understanding is that, normally, after the expiration of thirty days, if additional time is required to evaluate the tender bids, the bidders are notified and asked for an extension.

MR. DUMARESQUE: Okay.

To the Auditor General's Department: To your knowledge, have any of these eight, as a result of the thirty-day overrun, resulted in a request by the department for an extension?

MR. WITHERS: No, we weren't aware of any requests for extensions in those eight contracts. We didn't see that kind of documentation in any of the files related to the projects.

MR. DUMARESQUE: Okay. One last question on the monitoring system. Am I to understand from the information we have here that this monitoring system that was in place up until this particular time was in place for years before that, or were there any regular changes?

MR. CHAIRMAN: Mr. Peckford.

MR. PECKFORD: A new monitoring system has just recently been put in place, several months ago, I think, perhaps a year ago, which provides greater control over which tenders have been placed. There's a running computer system that monitors the expiration of the time period and flags warnings at various intervals to show when the time period is getting close and so forth, so that action can be taken to seek the extension, if one is necessary.

I should add, though, that as the Auditor General's sample showed, and as was just mentioned, it wasn't always customary to ask for the extension. That had not been a problem when you were going over that. It wasn't always done, as the Auditor General said. There was seldom a problem with the refusal of a contractor to accept an award if made after thirty days. However, in the Ossokmanuan case, of course, this is exactly what did happen.

MR. CHAIRMAN: Mr. Dumaresque.

MR. DUMARESQUE: Okay. But as I indicated, was this the system - you know, before the last six months - that was in place for the last number of years?

MR. PECKFORD: That's correct.

MR. DUMARESQUE: Okay - no further questions.

MR. CHAIRMAN: Mr. Warren, would you care to take up from there?

MR. WARREN: Thank you very much, Mr. Chairman. I have one question. On May 25, Mr. O'Reilly, acting Deputy Minister, wrote to our researcher, and I just want to quote one section of his second paragraph: 'We have provided the majority of items you requested; however, the item for the supplementary estimate is not available and the process for tendering has changed.' He goes on to say that this could be available sometime after the project is finished in October. Is that unusual, or is that a system that has always been followed? Why couldn't the supplementary estimate be available as requested at that time?

MR. PECKFORD: Mr. McCarthy, I think, has more current information to speak to that question.

MR. MCCARTHY: The project is now finished and the contractor is off site, but we still don't have the exact final cost of the project. We're still working with the contractor. He owes us some GST rebates which changed; we owe him some monies on the payroll tax that came in during the life of this contract. So what he is talking about there - we don't have the exact final cost of the project at this point in time; we know it close, but not the exact figure.

MR. WARREN: So you still don't know the total cost of this project?

MR. MCCARTHY: We know approximately what it is, but we haven't had the exact dollar. The final cost is pretty close to the second tendered price.

MR. WARREN: Now -

MR. MCCARTHY: Maybe Keith White can better explain.

MR. WHITE: The final figures that I have right now, excluding any tax implications, is $291 less than the bid item. I'm having the final figures - I was speaking with the contractor this morning, and he has to do his payroll, look at his payroll implications, and he'll have the final figures for me within a week. They will be less than the tendered price. Right now, it's only $291 less and it depends on the ramifications of the GST rebate and the payroll tax.

MR. WARREN: When do you expect to get those updated figures for us?

MR. WHITE: I should have them within a week. Because some of the contractor's people are on holidays right now, he hasn't got the full figure for me as of this morning.

MR. WARREN: Thank you, Mr. Chairman.

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

MR. MURPHY: Yes, thank you, Mr. Chairman. I would assume that you gentlemen have the same document in front of you that we have in front of us. I refer you to page 5 of the Auditor General's comments. It shows page 127, I think, in the Auditor General's document, but in our book it's numbered as 5. If you look down past contract A, B, C and D, to the next line: "These bids compared to a departmental estimate for the project of $7.2 million."

Perhaps somebody might want to explain to us the next paragraph: "As a result of the lowest bidder's refusal to accept the contract, the Department decided to cancel the original tender call and retender the project with minor specification changes." Would somebody want to explain what the minor spec changes were?

MR. MCCARTHY: In the original tender we had two other items - there were two bridges that had been built previously on this road. Through some discussions with CF(L)Co they were concerned about the heavy loads that they planned to take into the Churchill Falls power station. At that time, we included an item to strengthen the girders on those two bridges. While this was taking place it came to light that we might not have to do that strengthening. The analysis was still ongoing, and we decided if we had to do it at a later date, it could be done as a separate contract.

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

MR. MCCARTHY: Those items were left out.

MR. MURPHY: The second tender call was exactly the same as the first tender?

MR. MCCARTHY: Except for the strengthening on the two other structures.

MR. MURPHY: The structural, yes.

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

AN HON. MEMBER: Yes, we do now.

MR. MURPHY: Okay, fine - page 34. No, it's not 34, excuse me. I want to get up to the original Ossok....

AN HON. MEMBER: Forty-two.

MR. MURPHY: Forty-two, yes. This, of course, is the document associated with the first tender call. Is that correct?

MR. MCCARTHY: Yes.

MR. MURPHY: McNamara Construction bid $6,964,910 on the initial contract. The second tender was $1.3 million more?

MR. MCCARTHY: Yes.

MR. MURPHY: Yes. What I want to try to zero in on: obviously, the second spec change would not warrant $1.3 million - would it?

AN HON. MEMBER: No, it would not.

MR. MURPHY: No - okay. I guess it goes back to the Auditor General's statement again, that the thirty-day procedure, the tendering procedure, which everybody accepts as being part of the norm, I guess; if you're a contractor out there and you tender any road work with government, you know that the thirty-day period is there. That would lead me into another question associated with the thirty days. If you look on page 42 again, I think, right behind there, and I don't know where that - page 44, actually.

There is no heading on this page as to where it came from, but I think this is a breakdown of what transpired, in retrospect, to why the period of time. I find it difficult to understand when the department is dealing with these types of tenders and these situations over years and years, and understanding that in 1984 that the legislation associated was brought in and the thirty-day period obviously was; and it goes through the dates. The tender closed at noon on the sixth, and the tender was checked by the bridge design ... Mr. White, on the eleventh. These forms were received back on the eighteenth.

Would somebody want to talk about - I mean, after a tender award, even on a job as large as this, and incorporating the fact that the Federal Government was part and parcel of this tender, because they had some money coming into it also, it would seem to me that thirty days should certainly be adequate to award the tender, move McNamara's bid around to the appropriate people, and award it before thirty days. I notice that it came back from Transport Canada on July 3 1990, too. So there was adequate time to - would somebody want to cover this for me?

MR. PECKFORD: Yes, I want to make some general comments about this, and perhaps Mr. McCarthy and Mr. White may want to add some supplementary detail to it after I have concluded.

I guess my feeling is that it is with considerable embarrassment that we are, I think, all here at this table talking about this particular contract. Certainly, you are very correct that the tender had thirty days and it should have been able to be awarded within the thirty-day period.

As you have pointed out, it was mitigated somewhat by the fact that Transport Canada's time wasn't included in there - contracts in which I do not have the cost-sharing arrangements associated with them. We don't have to have that period of time; notwithstanding that, there was a period of time and it was a failure of our system to notice this and to award it in proper time.

MR. MURPHY: Well, I certainly don't want to point any fingers. It is not my intent to point fingers here. The problem is that if you look through the documentation we have here, you would obviously see time and time again, the minister having to respond to different groups, namely the construction association, people in Labrador, town councils and everything else and then, of course, the legal documents associated with O'Connell, who were the second lowest bidder, and what have you, all of which keeps coming back to the fact that the thirty-day period was not adhered to, and, of course, the tender was not awarded within the thirty days which let McNamara off the hook for their $6,964. Of course, then, when the tender was called again, it obviously cost the taxpayers of this Province an additional $1.3 million.

I refer you - and I am making statements here because I think they should be made. I think it should go into the record. I understand that some work has now been done, hopefully to avoid the recurrence of this particular problem. Of course, the then - I think it is Ms. Elizabeth Marshall, and I refer to her letter of 14 January 1992, where she talks to the Auditor General's Department about clearing up this problem. It is still difficult for me to conceive that a $7 million project would not find itself through the system of the department with the expediency to make sure that the award of that tender was made.

Again, if you look at the findings on page four - and Mr. Dumaresque already has asked a question on this - a lot of these projects extend that thirty-day period. I would imagine that the construction industry - and maybe somebody would like to comment on that - the construction industry and/or companies who tender and bid out there, are acceptable to receiving a tender forty-one days or thirty-eight days after, and there isn't any incident or problem with it; they go ahead and carry out the work. Would that be correct?

MR. PECKFORD: A couple of observations, if I could; yes, notwithstanding the fact that it should have been made in thirty days - I think we all recognize that - there are a few factors, perhaps, that I could mention. One is that where the thirty-day period had been exceeded in the past without the request for an extension, there was seldom a problem. Many times, as the Auditor General has pointed out a few, the award was made after the thirty-day period and the low bidder accepted the contract, so it was highly unusual for a contractor to refuse.

Another factor at that time, the department had just been still in the process of the merger of the former Public Works Department and the former Transportation Department, and the Tendering and Contracts Division was very much affected by that, so there was possibly some confusion in the practices of one former department with the practices of the other.

A factor, as well, I think, if we look at the bids, McNamara's bid and the other three next higher bids, is that subsequently, it seems as if perhaps one might draw the conclusion that the real value of that bridge was somewhere around $8 million, a difference of $2 million, and that there perhaps was an error in the original McNamara bid that brought it so much lower.

One could speculate that if the contract was awarded to McNamara's, some difficulties in contract administration might have arisen as the project went on. But those are just various observations and comments. It does not take away one whit from the fact that the contract should have been awarded to McNamara within the thirty days, and there is nothing that I have said and that I think I can say that would relieve or take away, in any way, from the fact that it should have been done.

MR. MURPHY: What I was asking, Mr. Peckford - I appreciate your answer and I think that basically says it, but it would seem that the industry itself was not surprised to receive a tender award forty days after, thirty-nine days after, whatever the case may be, and never used the option at its disposal - the thirty days which is in the tendering legislation - never used it before. So I can understand why, I guess, the system probably softened out and nobody got overly excited about it, because many times before that - and the Auditor General identified that - companies did accept contracts well in excess of thirty days, for whatever the reason. It might have been a departmental problem of engineering or materials and pits, and all kinds of things I can envisage that might happen, that the material wouldn't be accepted - and this takes time - and finally the tender would be awarded. So, even though McNamara decided to use its option of the thirty days, it was not unusual prior to this, I would imagine, over a period of time - and somebody might want to comment on that - within their memory, and maybe somebody researched it after this, that tenders were awarded after the thirty days on many occasions and that might have caused the complacency to get into the department; but when McNamara did, of course, it brought everybody to a standstill.

I might add, Mr. Peckford, you are correct, that the department estimates always come up, but I am glad that the department, itself, doesn't bid any work, because according to the information we have here you wouldn't get a job. You wouldn't get one. You would never be low. I don't know where you get your figures; however, perhaps one of you gentlemen might want to comment on preceding experiences that led up to this type of problem.

MR. McCARTHY: In my seventeen years involved with the department prior to this tender, I have never known of a case where the contractor refused the contract after the thirty-day period.

Just going back a few years, sometimes that period used to get even longer than what the Auditor General reported in this report. In some of the previous agreements we used to have to go to Ottawa office to get approval to award contracts after tenders had closed, and the approval process at that time from Transport Canada was much more cumbersome in that they wanted plans and specs and they did a technical assessment, as well as the financial.

In this particular agreement, we did get that approval process moved to the local Transport Canada office; but I think therein lies the problem, that we never had a case previously where the low bidder refused the contract.

In this particular case - this is another observation - as the design branch and involved in the approval of shop drawings and things that normally are part of contracting, McNamara, in that thirty-day period, certainly were proceeding on the basis that they were going to take the contract; we had a number of conversations with them on approvals on suppliers for the steel; they had people on-site after the tender had closed. They were talking to us, figuring out where they were going to start first, where they were going to set up. So every indication from McNamara was that they were proceeding as if the contract was going to be awarded and they would take it.

MR. WHITE: May I make a comment? I worked with a contractor for a good many years and one consideration that he has to look at is that a job is a job, and if it goes to a second tender he may very well lose out.

MR. MURPHY: That's right.

MR. WHITE: I know of its happening in a few instances in other type work rather than highway work, but you can easily lose sleep over the decision to refuse a tender. It's not lightly taken.

MR. MURPHY: But I guess, Mr. White, in all fairness, that McNamara, somewhere along in the $7 million, realizing what they had left on the table, probably decided this was going to be -you know, I mean there are people out there doing business, too - decided it might be a little fine and they were probably going to have a tough time making a dollar on the job, and took advantage of the thirty-day situation. Nobody guaranteed them that when you called the tender the second time they were going to get it. I mean, they came in with another bid. There's some correspondence in this document that indicates they had an advantage from what other - I don't see it and perceive it as being that way.

The only thing I want to highlight here is that even though the thirty-day period is there, and anybody who is out there doing business has a right to opt into it and use it, which McNamara did, it is not unusual, as Mr. McCarthy outlined, over a period of years. It is the department's experience that tenders have been awarded well beyond the thirty-day period without any problems whatsoever. That's what I - the incident that McNamara took an option - and rightfully so, it was theirs to do - is why we're all here, I would guess. If McNamara had accepted the original tender at approximately $7 million, we wouldn't be here.

So I just wanted to clear that up, because it is my understanding. I can understand why, in thirty days, when you consider a big project such as that, a $7 million project, and some other projects concerning engineering, that it may stretch out and exceed. I see some of the new changes that obviously are now in place to prevent that from happening, to expedite the contract award through, and the letter sent out prior to that now. I understand that - okay. But I just wanted to draw in on that, because I felt that we all should know that it looks like it's an exception, and it is not an exception.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you, Mr. Murphy.

Unless other members of the Committee have questions they urgently want to bring forward, perhaps I might indulge myself in a few questions to the Committee.

First of all, let me deal with this same issue that Mr. Murphy has raised so well. It apparently is past practice to go over thirty days, but I don't think that excuses us from the fact that these are our specifications, it's our legislation. It says a tender shall be acceptable for thirty days. We decided on the thirty days, and I'm sure everybody was aware of the thirty-day period, so I think it must be recognized that we're really missing the boat.

Even though, as you say, in all your experience nobody has refused to accept a highway contract, that's simply because of the state of the economy out there and the fact that these contractors need work desperately and don't want to take a chance on not taking it. We've finally come to a situation where a contractor saw enough potential benefit in it that he would do it, and we're all embarrassed, Mr. Peckford, but the taxpayers are embarrassed by $1.3 million. That is the Committee's concern here and the reason we're here today. Although it has been practice in the past, I would submit, that we have been leaving ourselves open, and it may well have occurred before, perhaps it's only going to occur once, and this once has cost us $1.3 million to learn a lesson.

I have some concern about the overall timing of the thing, in reading through all these background documents very carefully. First of all, to get into another sort of related issue here, if the Committee will bear with me for a moment. Tenders closed June 6. It's been an age old problem. We're talking the Labrador construction season. Tenders are only closing on June 6 to be awarded by July 6. Isn't that late in the season? Is there nothing that we can do to get these sorts of things - I realize there are budget approval processes and the House of Assembly holds you up to some degree, but we have initiated, in the past few years, early tendering and early approval of certain blocks of capital funding. Surely, construction projects in Labrador would have to be given top priority for tendering as early as possible, knowing the shipping season to Labrador and the difficulty of getting materials up there, if you wanted to get a construction project finished in that construction season, or more importantly, if you wanted to ensure that you got the lowest tender price. Because a contractor will base his price on his cost and difficulty of getting materials to a site and doing the job. It is to the taxpayers' benefit to have tenders called well in advance so that the contractor has plenty of time to plan, to expedite materials, equipment and personnel to the site. June 6, closing of a tender contract for Labrador, to me seems ludicrous. It should have been January 6, February 6, so that a contractor had plenty of time.

Could somebody address that? I realize it's a little bit off the topic, but I want to take this opportunity, now that we have all the people there from one department. This is not specific to this department; there are other departments that are equally guilty. I'm talking about the tendering process per se. Why can we not do something to get these things up front? Would you care to address that for us?

MR. MCCARTHY: You're correct, Sir, in that, as far as the approval to proceed with the tender on this project was concerned, we had that, if I recollect, somewhere in November, early December, the previous year. The intention was it would be tendered before the spring. Now, at that time, the design was not completed but it was completed sometime during that winter.

The decision not to close until June 6 was based on the fact that it was a remote site, to which there was no road access, and ice conditions were a real concern to us. So we decided not to close the tender until a contractor had an opportunity to observe the break-up of the ice conditions in the spring, and by June 6, that would have happened.

Now, in this particular case, what we did - we actually gave a pre-tender notice to contractors that the tender would be coming in the spring and suggested they get familiar with the site. We gave them just a preliminary indication of what the work involved.

MR. CHAIRMAN: When was that given to the contractors? That would have been my next question: Why could we not use a pre-tendering system? - plan these projects far enough in advance that you really give the contractor a year's advance notice of the projects going. Let me ask this question as well: I don't recall what the deadline for completion was on the original tender call. The second one I realize went an extra year, I think. Was it September of 1991, the original one?

MR. MCCARTHY: That's correct.

MR. CHAIRMAN: Yes, okay.

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

MR. CHAIRMAN: So the contractor basically had two seasons, the summer of 1990 and the summer of 1991, to complete the job.

MR. MCCARTHY: That's correct.

MR. CHAIRMAN: Which probably would have been more than sufficient for him.

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

MR. CHAIRMAN: Okay. Let me ask you: In looking at the time - and I have a little bit of sympathy for the department in this, because you have a thirty-day period to review the tender, look at the technical aspects of it, which goes back to your design department, I understand, and it goes back through the various procedures, then it goes to the Federal Government.

I read through the documentation from Mr. Oldford on behalf of the Federal Government as to why they are refusing to participate in the extra costs. Out of a thirty-day period, they basically had the documents for almost fourteen days, half of that period. That would indicate to me two things: First of all, it says the documents were forwarded to the Federal Government. Was that by mail, or was it by courier, with an urgent red stamp on it saying: to be reviewed and back? Is there a time period, or was there then? - there may well be now. Is there sort of an agreed time period within which the Federal Government would normally respond to you? Do they normally agree that: we'll get it back to you within four or five working days, or is it two weeks? If there was a standard practice or agreement, verbal or otherwise, as to what the normal time period would be, how does that compare with the fourteen days in this particular case?

MR. WHITE: I can only speak for what happens now. In conversation with Doug Oldford since this happened, he has made the comment that he will get them back to us as soon as he can. If we get them to him immediately, he will get them back to us immediately. But with regard to the method of sending this P.A. down to him at the time, Bill Knight is probably the best one to answer that.

MR. CHAIRMAN: Mr. Knight, do you want to address that question, just to give your advice as to what the general understanding between the two levels of government or the two halves of the joint committee might have been?

MR. KNIGHT: Yes. Previous to amalgamation of our Department of Transportation with Public Works and Services, our system was that when we had the documents ready to sign by the provincial co-chairman, they were then delivered to Transport Canada by hand; we would have a draughtsman find a vehicle and deliver that by hand. When we came together, when I moved over with Public Works, I found that there was no vehicle and no personnel available, so these documents were sent to Transport Canada by ordinary mail and returned by ordinary mail and this sometimes took, just going back and forth, ten days, by that process.

MR. CHAIRMAN: As it did in this case. So what you are telling me is that the fourteen days in this particular case was not unusual for the procedures that had been followed for other contracts?

MR. KNIGHT: That is right.

MR. CHAIRMAN: Well, that perhaps leads us to two conclusions, I guess, two possible conclusions. One, we needed a faster system, courier service or whatever, to deal with these things going to the Federal Government.

MR. KNIGHT: Yes, well, now things have changed, that was when we first came together - it was at that time. Now, we send it down by the motor-pool. We have a motor-pool that I always considered was just for driving personnel around but now we use it for delivering the mail in cases like this and Transport Canada also sends it back the same way by courier, so it comes back and forth within the same day.

MR. CHAIRMAN: Well, whether you use motor-pool or courier - actually, courier is probably cheaper than motor-pool, I would suspect, and the department would advise us on that. Courier is fairly cheap and very efficient today, in fact. I think it sort of indicates that at that particular - under the old system, the procedures that were being followed, thirty days would probably be hardly enough, you know.

MR. KNIGHT: Yes.

MR. CHAIRMAN: It may be fine for provincial projects which are all internal, but for joint projects, obviously, that extra time period, maybe that should have been accommodated and it wasn't, or otherwise special procedures put in place to deal with the fact that it had to go back and forth.

MR. KNIGHT: That is right. If it is government's decision to put the thirty days in our contracts, the bid bonds that were supplied by the contractors and are still supplied by the contractors usually read sixty days, but we said: 'Well, we will let you know in thirty days,' in our contract. So this is what we have to abide by, the Department of Justice ruling, as you know.

MR. CHAIRMAN: It still doesn't excuse the fact that thirty days was the limitation. And we are told, through an administrative error - the only explanation we have been given is that it was just an oversight. We have discussed the normal procedures here this morning and they are all well and good, but that still doesn't excuse the fact that a thirty-day time limit was imposed by our own legislation and that we were left open, I think, from the point of view of the contractor, who saw an opportunity to get back $1.3 million you left on the table, and he seized it. And I don't blame him, I would do the same thing under the circumstances. He gambled that somebody else may have cut their bid by half-a-million dollars and beat him by $100,000, I mean, that is the chance he took. There is always a discussion with contractors. I have been through it many times as to, if you recall, who was at advantage and it works both ways. In this case, it was to the advantage of the low bidder, who was able to get more money. It could just as easily have worked in reverse that the second or third bidder could have had the advantage. Perhaps I am commenting where I shouldn't, on some of the claims made by the second bidder, nevertheless, there it is.

Just a basic question, and I think I already know the answer: in your Tender Board Report, you quoted the first bidder at $6.9 million, the second bidder at $8.6 million, and then, down below in the notes, the second bidder had dropped his price by $1.3 million. That $8.6 million is the reduced price, I would assume. The second bidder had sent in a fax which was accepted by the department, which is standard procedure; several faxes sometimes come in on the tender day. That is the old trick - put in a bid, we will finish our bid tomorrow night and then fax in the changes. But, in this particular case, the second bidder did submit a fax which was received by the Tender Board reducing the price by $1.29 million; that is reflected in the bid of 8.6, I assume. It would not come -

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

MR. CHAIRMAN: It is common practice?

MR. KNIGHT: Yes.

MR. CHAIRMAN: Yes. But that bid is still $8.6 million. It must have been $9.9 million originally.

MR. KNIGHT: That is right, yes.

MR. CHAIRMAN: Okay. I just wanted to clarify it because it's not really clear here. Because if that were the case, then the second bid would have been $7.3 million, and we would have a different story here. Okay, I just wanted to clear that up.

Some of the other members of the Committee - Mr. Warren, I'll pass to you for now.

MR. WARREN: Thank you, Mr. Chairman. Mr. McCarthy, earlier in response to Mr. Murphy's question, you said there were changes made to the second tender, having something to do with structures on the bridge. Can you just go over that again with me, please?

MR. MCCARTHY: Okay. In the original tender - there were two bridges built previously by other contractors. They were built to highway design modes. CF(L)Co notified us that they were thinking about changing from the Esker Siding and bringing in their big transformers and equipment they need every now and then for Churchill Falls, that they would use this new road rather than the railway and Esker Siding. They asked us to look at the design of the bridge to see if it could accommodate this heavy load.

Now, when we looked at it initially, we felt we were going to have to add some strengthening to the bridge.

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

MR. MCCARTHY: That was in the first tender.

MR. WARREN: Okay.

MR. MCCARTHY: By the time the tender closed and those events happened, we had some more analysis done and we felt that the bridges were okay as they were and they possibly would not need this extra strengthening. So we took those items out of the contract. Then, the other change that was made was that we were originally hoping to have this project finished by 1991, but because we had basically lost out the summer of 1990, we extended the completion date for the contract to 1992.

MR. WARREN: Okay. So the department's estimates for the second tender with the deletion of those structures was less than your estimates for the first tender, or were they the same?

MR. MCCARTHY: The estimate for the two items that were deleted was only $20,000. That's all the difference. It was $20,000 worth of work that we were talking about. Now, in the original bids, in the original tender, we had gotten some pretty high prices for that work. I guess, another reason for taking it out, we felt that it was a small item, and if we had to tender it separately we could get a better price, because some local, smaller contractors could probably do the work.

MR. WARREN: Thank you. Let me refer you to pages 61 and 62, and also pages 65 and 66. So we will take page 62 first, probably. It is a letter from the Justice department to you, Sir, saying that: "Options available include going to the next lowest bidder or retendering ...". That was the Justice opinion to you. I notice the minister wrote back to the advisors of a particular company saying: On the opinion that we received, we're going to go to tender, although the opinion was either/or.

Then you go to pages 65 and 66. You wrote a letter to Mr. Locke saying in the letter: "It has been the practise in the past not to disclose to the public any information ..." - it's two different writers, but you've said that: in the past we didn't disclose any information about a particular bidder. Apparently, Mr. McCarthy wrote you back and said: Well, it's entirely up to you, if you want to do it or not. Have you ever released public information to anyone in the past at all?

MR. MCCARTHY: Not to my knowledge, Sir. The only information we release as a matter of policy is just the total bid. What he is referring to there is that they were looking for the actual unit prices. This is not a lump sum contract. Every item is a unit price contract, so every item is paid on unit prices. What O'Connell was looking for was the actual unit prices of McNamara's bid.

MR. WARREN: Yes. I'll go back to my original question. Maybe I should ask Mr. Peckford my question. Has the department released financial information pertaining to a particular bidder to a third bidder in the past?

MR. PECKFORD: Not to my knowledge. Mr. McCarthy's experience, I think, bears that out.

MR. MCCARTHY: Is the same, yes.

MR. WARREN: Just one final question, Mr. Chairman. Is this still before the courts or is there any legal action still pending between the company and the department?

MR. MCCARTHY: We haven't had any further correspondence or action, that I am aware of, from O'Connells, since the last letter.

MR. WARREN: Going back to pages 61 and 62 - when the minister wrote back saying he had decided to recall the tender, but there were two options open, either to go to the second bidder or recall the tender, was this the advice of you, as an official? How often does this happen with tendering in your department? You said you have been there, I think, seventeen years or so. How many times have you seen a tender not going to a second tender or being re-tendered? Is it very common?

MR. McCARTHY: It is not very common, but I can recall one or two instances whereby we did not award a tender at all because we felt the low bidder, as well as all other bidders, was too high - well in excess of the estimated cost.

MR. WARREN: Is that the only reason?

MR. McCARTHY: No. I can recall a case whereby a contractor bid extremely low on a project and requested to get out of it. As staff, I agreed, and the advice was passed along. It ultimately went to Cabinet and the contract was awarded to the second bidder, because we felt that his price - he had never done road work before, didn't know what he was bidding on, and his price was so low he couldn't do it. We knew he couldn't do the work for what he had quoted. But those are the only two instances I can recall.

MR. WARREN: I guess the contractor was quite happy at not doing the job though, wasn't he?

MR. McCARTHY: This particular one?

MR. WARREN: Yes.

MR. McCARTHY: I would assume so.

MR. DUMARESQUE: I guess also, if we are right, the option to go to the second tender saved the taxpayers $300,000 because, as you know, the second lowest bid was $8.6 million and the lowest bid on the second tender was $8.28 million. So there was some $300,000 when you take out the $20,000 for the other part of it. So I guess, in that respect, it was a wise decision to go to the second tender.

MR. WARREN: But it still cost the taxpayers $1.3 million more than it should have cost.

MR. DUMARESQUE: Yes, but just addressing your point, you would have wanted to go $8.6 million, so it would have been $1.6 million.

MR. CHAIRMAN: Mr. Murphy.

MR. MURPHY: Mr. Chairman, if I might go back to our federal friends, tell me, Mr. Knight, about the agreement with the department and the feds. It would seem that they were committed to 62.5 per cent of the cost of the total tendered price. That is the Fed contribution into the project. Is that correct? I refer you to page 72, third paragraph, a letter from Mr. Oldford, the Regional Director of Policy and Co-ordination for Newfoundland.

MR. KNIGHT: I would prefer Keith White, the Director of Construction, to answer that, please.

MR. WHITE: This project fell under the ERDA cost-shared agreement with the Federal Government and it is, as you say, 62.5 per cent federal and 37.5 per cent provincial cost-shared ratio. The discussions, both verbal and written, that I have had with Doug Oldford on this project - and there are two or three letters that form part of this document - the Transport Canada viewpoint is that they followed the proper procedure, that the project should have been awarded for the $7 million price, and that was the extent of their financial obligation on the total project, that they would not fund any increase in the project because of an administrative error on the part of the Province. As you can see, they went to their legal advisers in Ottawa, we discussed it and had quite an extensive discussion and research on the thing, and we were not able to get them to change their mind in that regard.

MR. MURPHY: So they only picked up 62.5 per cent of the original tender award?

MR. WHITE: That is correct.

MR. MURPHY: Is there any room for our Department of Works, Services and Transportation to argue the point that they are 62.5 per cent responsible for the tendered price?

MR. WHITE: We tried various discussions and various leverages with them, and they always came back and said: 'Look, the total agreement has $291 million in it. We are going to fund the $291 million' - their share of the $291 million. 'Now, there is a million we are not going to fund here, but we are going to fund it somewhere else.' Really, that is what it came down to, and that agreement ends the end of March 1993 and we will spend the $291 million.

MR. MURPHY: So what we are saying here is that the additional cost on the second tenet was totally absorbed by the Department of Works, Services and Transportation under whatever subhead associated with that particular tenet.

MR. PECKFORD: But, in addition, as Mr. White just pointed out, the total contribution of the Federal Government under the total agreement remain the same.

MR. MURPHY: Oh, yes.

MR. PECKFORD: So the Federal Government did not reduce the amount.

MR. MURPHY: No, but they didn't pick up any part, Bruce, of the addition.

MR. PECKFORD: That is correct.

MR. MURPHY: Okay, we have that out of the way. Perhaps somebody would, for my benefit and the Committee's benefit - we understand that there is a new procedure in place. And let me do it hypothetically, probably, so that the Committee can get an understanding and a better concept of what would transpire.

If we had an ERDA agreement today for $10 million to build a road from, oh, I don't know, probably from Water Street to Cape Spear, just going through that particular part of the Province, or whatever - what would take place from the engineering design work that the department would do, etc. before the tender call. Now, once the tender call is responded to by a half-dozen companies out there and we have the tender opening on the 30th day of June, the last day of June, our legislation hasn't changed. We still only have thirty days to award the contract or somebody could do the same thing that Mcnamara did, legally and rightfully so. Can you walk us through what would happen to expedite that and make sure that we have lots of time on our side? I mean, I see suggestions from the Auditor General. I know that the committee is in place within the department. But, so that we understand that this never comes across anybody's desk again, what takes place?

MR. PECKFORD: Mr. Harold Stone has been very much involved in the new process that is in place now, so I will ask him to take us through the process that occurs now from the time the tender is called.

MR. STONE: Mr. Chairman, I can speak from the time the tender is called, but did you want to get beyond back to the engineering stage? I can start from the time we put the tender in the paper and follow it through. How far do you want to go back?

MR. MURPHY: From the time the tender is open until the contract is awarded. I don't really care who responds. I just want to make sure that this, regardless of whatever - if there is a problem at the Fed level at ERDA, our friends, Transport Canada absorb ten or twelve days of the time frame associated with the thirty. Now, whether that is their fault or not - and the Chair makes an exceptionally good point when he talks about getting the document down and in their hands through courier, signed for and making sure that if anything ever happened that we understand they received the document on such a day, at such a time, etc. Just walk us through that, if you don't mind.

MR. STONE: Sure, that is no problem, Sir. I provided a copy in your package -

MR. MURPHY: Yes.

MR. STONE: - and also provided the Auditor General, well in advance of this, is a report that we prepare. But what happens - when this hypothetical contract or award tender you are talking about is placed in The Evening Telegram, in the papers for advertisement, it immediately goes into our record in the data base. So it is immediately on file that we know that this project is identified with a number, it is given a description, it is given a tender closing date, it is given a tender validity date, which is thirty days after; there is a space for the contractor's name, and a space for the amount that the contractor - eventual award can be made, and there is a departmental estimate.

After the tender is advertised and the tender closing date comes up, there is a public opening and it is attended by the Tender Opening Board. There is a Chairman, there is a secretary somewhere from the Highway Design Division, and they open tenders, call out the names of the bidders and the amounts. These are then evaluated by the highway design division and whatever. The approval is received from the Federal Government, from Mr. White -

MR. MURPHY: If I might. When it is opened and the award is made, as such, and the lowest bidder is a reputable contractor with his bid bond in place and everything is okay, is there a time frame now at engineering - you say the engineering, okay, you have five days to review all of this and get it back to us. Does that take place?

MR. STONE: The time frame that we are working under is about twenty days. We have twenty days to get all our work done, and if you let me carry it a bit further, you will see. We have given a window - not thirty days anymore - of twenty days to get all the work done. When this division, back last August, a year August past, moved under my direction, we appointed a manager whose sole responsibility - now, not as before, various responsibilities - sole responsibility, was tendering a contract.

So he gets a report each and every morning - and it is Austin Sheppard, he can probably speak further to this. But he gets a report every morning, as we described in our notes, of any contract that has been advertised, has been open; twenty days after the public opening, he has a report. This report shows every morning any tenders that have been advertised, public, open, and not yet finalized, not yet awarded. Within that ten days period of time he will follow up on it to make sure that it is awarded within the thirty-day time period.

There is another control of that - he gets it every morning. A report is produced, a copy of which I have shown you, every Friday - usually Friday morning. I get a copy every Monday. This report goes to the Deputy Minister, the Assistant Deputy Minister, which is me, in this aspect, the various directors. The ADM of Works gets all of the projects associated with the Works branch. The ADM of Transportation gets all the projects associated with Transportation. Every Monday morning, I follow up with Austin Sheppard, as does, in a number of cases, the Deputy Minister and possibly the other ADMs, any projects that are within that ten-day or six-to-seven-day time frame. I will follow up and get a reason why these projects have not been awarded and make sure that they are awarded. If they are not awarded within that time frame, we make sure, prior to the thirty days - and I get a copy of it - of letters of extension.

Because there could be a reason, and there may be a reason why, because of the evaluation of the project, that we can't get it done in thirty days, we will go to the first two or three bidders and get a letter of extension for another thirty days. But the follow-up - I mean, if it happens anymore, it will mean that the manager (inaudible) the contract is falling down on the job because he gets it every morning. It will mean that I am falling down on my job, because I get this report and go down over it religiously, checking it out, comparing one week with the next, making sure all the ones that have been advertised are on the list. I sign the letter of award, so I make sure that the letter of awards are there, so the contracts have been entered into, they have gone out. The Deputy Minister receives a copy; two ADMs receive a copy; directors receive a copy.

So if this same thing happens, it will be on the shoulders of an awful lot of people, and not just the weakness in the system before. And it was a weakness in the system, in that we never followed up on the thirty-day time period.

MR. MURPHY: There were no bells going off.

MR. STONE: There were no bells going off. Now, Sir, there are bells going off all over the place. I don't think - the blame will have to be shared if it happens anymore. Because there is so much - I think we have put in more controls, probably, than are necessary. But because of this, we check it every morning, we check it every Monday.

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

MR. STONE: Yes. So we have provided a copy of this. I have gone back - I ran a report the other day with about 600 contracts. I went back as far as we could with our data base. I think there were two or three on it where we had letters of extension already signed. There was one with a lease of some small property that was in the thousand of dollars, that was a day or two over. Another was the sale of a house that we wanted removed, that went one or two days over. But as to road contracts, or larger Works, Services and Transportation (inaudible), I could not find one.

MR. MURPHY: So what you are saying, in essence, is that you feel confident that the situation related to Ossok could never happen again.

MR. STONE: I feel, Sir, we have put in more than adequate controls, that at least, everybody is made aware of.

MR. MURPHY: Right.

MR. STONE: The Deputy Minister now becomes aware every Monday of these projects. He knows which ones are advertised, he knows which ones are awarded and they stay on this same list for two weeks after we award them. And I check it, and my habit has been that I - you know.

MR. MURPHY: Okay. I thank you for your explanation.

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

MR. MURPHY: Yes, and I would think - I don't know, either - that probably, because of the tremendous amount of people involved at that level, it would be very unlikely for this to ever take place again. However, it brings me to another question. Because it doesn't matter, really, if you are talking about Works, Services and Transportation, I suppose, and it needs to be answered. We have a responsibility, I think, in Public Accounts, not only to chase a situation that costs the taxpayers a fair amount of money -a lot of money really, when you look at it, but we also have a responsibility to ensure that procedures are now in place that this, in any area of that department, would not happen again. Are the department people satisfied, even in Services, to the purchasing of fountain pens, that the thirty days are going to be looked after, and what have you - that we don't have somebody, you know, coming after the department with a technical and/or a thirty-day loop that is going to cost the department a hundred dollars? Because if so, it is a hundred dollars we don't need to spend. What I am trying to really zero in on is, are we satisfied now with Works, Services and Transportation? We talked about the amalgamation problems and all of those good things; are we satisfied that all of these tenders can now be awarded in the time frame and given to a competent bidder with a competent product and/or to do a competent job?

MR. STONE: Well, Sir, I am satisfied, with the system we have in place now, that the information is provided to everybody, so this should not happen again. I can't guarantee that it won't happen again but the system is there. Unfortunately, before, with the system that was in place, it wasn't available to enough people to monitor, and not only that, it was the experience in the past that thirty days really wasn't the problem. But since then, obviously, for good reason, we are taking the position that thirty days is the limit, I mean we are not going thirty-one days or thirty-two days without a letter of extension from the original bidder. These have been awarded, in most cases, many times, many days prior to the thirty days and I reviewed, as I said, some 600 contracts that go back a ways; but I can't guarantee it would never happen again.

MR. MURPHY: No, no.

MR. STONE: But, as I said, with this system in place, it shouldn't happen.

MR. MURPHY: I understand that, and realizing that Mr. Peckford has now moved on to Social Services, it is not fair, I don't feel it is fair, to ask Mr. Peckford, does he - I would like to see the Deputy Minister here, from the department, to guarantee this Committee that he is satisfied with other areas of the department. This is specific to the roads and transportation end of the department, but it has a much broader mandate on behalf of the taxpayers. And I would like to hear the ADM say to this Committee, that he is satisfied that the tendering system now in place will not find the government at fault for not awarding any tender; that is what I would like to hear, and what I think the Auditor General would like to hear. It is not only a concern, I mean, we have an experience here in front of us from which we found out that complacency, I guess - and I use it - and Mr. McCarthy talked about it, that we have to accept the fact that if somebody did not receive a letter - and this goes down I guess, Mr. McCarthy, over the years; this is not something new or fresh, it has been going on for some time -

AN HON. MEMBER: That is correct.

MR. MURPHY: - so that people, and the industry - and the Chairman brought it out, now, that we are in a time of, you know, contractors out there bidding. And suppliers will be doing the same thing. If they can make half-a-cent on a pen or a pencil, they are happy to get that business, and I would imagine that the contractors out there, with a lot of senior staff, competent people, are bidding tenders at a very marginal degree of profit to keep their companies and what have you together over this recession. But we did, in other times, kind of accept the fact that forty-two days or forty-nine days - you know, because you are on the phone with So-and-So, who has the tender award, and as I said, we need another little info on your material and what you are going to use for rip-rap and we need for coring and what have you, and that was accepted, until McNamara found a hole on Ossak and brought everybody to attention.

I don't know whose responsibility it is, but I would like for correspondence to come to this Committee stating that the Deputy Minister is satisfied that the procedures and policies of the department are in place, that the taxpayers of this Province are not going to pick up any more bills because of failure to observe the thirty-day regulation. I think that is extremely important.

Thank you, Mr. Chairman.

MR. CHAIRMAN: Thank you, Mr. Murphy. I think this is probably an excellent time to break for coffee for ten minutes. Is everybody agreed? We will break until 11:30. The meeting is recessed.

MR. CHAIRMAN: Order, please!

Does anybody have any questions? Mr. Dumaresque, do you want to lead off?

MR. DUMARESQUE: I have just one final question to the Auditor General's Department, picking up on what Mr. Murphy has been saying, and others. Are you satisfied now with the process that is in place in the monitoring of the tender process?

MR. DROVER: Mr. Chairman, we audited, as I said earlier, the Department of Works, Services and Transportation up to March 31 of the current year. Up to that time, we had done a preliminary review and received some documentation from the officials there, and we were completely satisfied. I will point out that we haven't performed a detailed review or audit on it and we will be commenting on it probably in the 1993 - we won't be commenting on the 1992 Auditor General's report, because we are not going to be performing the audit of that department.

So I can say that without going into a detailed audit of all this type of work, we are completely satisfied with the information and the new system that has been developed by the officials at Works, Services and Transportation now.

MR. CHAIRMAN: If I might just interject here, Mr. Drover. I mentioned the fact that the audit will not be carried out by the department because of the Auditor General's previous commitment. The Auditor General also called me in relation to being here today. I felt, in fairness to her, since she really wasn't involved in the project, at least, during her time in the department, that it was better for her to stay away today. On behalf of the Committee, I agreed that Mr. Drover is more than capable of dealing with what we needed here today. She would have happily come if the Committee insisted, but it is probably better to -

MR. DROVER: Mr. Chairman, I will point out, because this is a public hearing, I wouldn't like anybody to get the impression that the Departments of Social Services or Works, Services and Transportation are not being audited in the current year. The national firm of Peat, Marwick Thorne has been appointed, I guess, pursuant to a resolution of the House of Assembly. They will be completely auditing those and giving us some assurance - and this is all in accordance with the Auditor General's Act, by the way. So that independent national firm will be doing the audits of those departments in the current year, and we will just resume our work in the following year.

Any comments they have relating to their findings in those two departments will go either: (a) directly into the Auditor General's report, or (b) be tabled separately outside the report in the House of Assembly.

MR. CHAIRMAN: Thank you. Mr. Warren, do you have some questions?

MR. WARREN: I have a final one. Mr. McCarthy, I would like to go back to pages 65 and 66 again for a second. When Mr. Reg Locke asked for information concerning the bidder of McNamara's. Then he wrote you back a letter which is copied there on page 66. I also refer you to the last letter in this booklet, pages 119 to 122, the one to Mr. Cumming from Brian Furey, who is a solicitor. I notice there that on page 121, after talking with Mr. John McCarthy: "It is our view that the determination of whether the release of this information would affect a company's or the companies' competitive position(s) is not one which we feel qualified to make." So, actually, the Justice department has not made a recommendation of whether the department should release the information or not.

He does go further to say that you could, if you talked to McNamara, and McNamara said: you can release it. While this was going on, had there been any conversation with McNamara, either verbally or in correspondence, asking them could you release the information?

MR. McCARTHY: I didn't have any conversations with McNamara to that effect.

MR. WARREN: Thank you.

MR. CHAIRMAN: Mr. Warren?

MR. WARREN: No, that is all.

MR. CHAIRMAN: That is it for you?

Mr. Murphy.

MR. MURPHY: Thank you, Mr. Chairman. In this situation now, because of what took place on this particular tender, I feel it is incumbent upon us, again, that we will receive - and, again, I suppose, it is fair to ask the Auditor General: when we have situations where amalgamation takes place of different departments for different reasons, whether it be change in government and/or present government sees, as just happened, that Tourism being what it is, it should wing out of Development and become its own - does that cause policy problems? Was that a difficult procedure for you? Is the Auditor General satisfied now that all aspects - when you consider it is under one roof. This is the concern that I have. I think we have seen what has transpired here and everybody understands the thirty-day situation and McNamara opting out.

I have a concern about other areas in which government spends money, where we don't expect and/or foresee any problems with the legislation now in place. Because that is important. This Committee may decide that where there is an ERDA agreement and documents have to leave the department and go to the Federal Government, that thirty days is not adequate to do it. Perhaps the department would want to say something of that nature, that the tendering legislation is not sufficient now under the thirty-day regulation. Maybe you folks just find it cumbersome and a difficulty, because of all the things that you understand, that somebody else doesn't understand in the engineering problems.

I don't want to see, as a member of the House of Assembly and/or as a part of this Committee, anything happening because of policy not being firm enough - that we are going to spend the taxpayers' money in an unwise fashion and/or get caught in a legal situation where we have no way to opt out. So that is a concern I have with this. I think there is a lesson here,a very expensive lesson, I might add, and I would not want to see it happen in any facet of the department again. Perhaps the Auditor General might want to comment on this.

MR. DROVER: Our Act specifically states that the Auditor General shall not - and this is a standard across the country - comment on the merits of a policy. That area is within the framework of Cabinet and the House of Assembly. But the Act does require us - again, similar to some of the other provinces, but probably even more powerful - that the Auditor General shall give some assurance to the House of Assembly on systems, and I think that is where there are systems in place.

In the amalgamation of any department, I think most of the amalgamations in recent years have brought divisions or branches over from existing departments. So procedures and strengths have been in place. The Controller General's office and Treasury Board have standard, central procedures of control, in place. There is some concern for controls, as you get further out from the center -departments that are quite unique. I think, over a period of time, the onus would be on the Auditor General's Office to ensure that such systems are reviewed, and we would have to - that is why I am emphasizing here today that while we are not going back into that department in the current year, we would certainly have to go back in the following year, to give some assurance to this Committee and to the House that what we are saying and what we have been assured of, is, in fact, taking place.

On an ongoing basis, it is fundamental in the role of the Auditor General. The Auditor General's role is almost a year away from the happening of things. So something could have happened six months ago that we might report on six months hence, but it has already taken place. We are not involved in the decision-making, we are involved in informing members of the House of Assembly, such as yourselves. I will say that from a fair bit of experience dealing with central government, a generalized comment would be that there has been a lot of, I guess, effort put into strengthening a lot of systems. You have some good people involved in various divisions, subdivisions, and so on, and internal audit divisions have been created in many of our larger departments now.

So there are good people out there who are trying to support the role of the departments. That, in my own humble opinion, is better than it was, say, ten or fifteen years ago. So the Auditor General comes a year afterwards, but you may find that Social Services or Transportation may have an internal audit division advising the deputy minister, who may advise him on a monthly basis that: look, this system is strong, or it is weak, or whatever. Those people are out there now moreso than they were quite a number of years ago.

I don't know if that deals with your point. There are certain controls there that didn't exist ten years ago. An example is: this is a $1.3 million problem - but the department has initiated a control mechanism now that we feel right now, looking at it in a very superficial way, strengthens that system. That system has been strengthened. So, as things happen, systems become strong, and as government gets more involved in other areas, I think, overall, the systems are getting strong. But the onus is on the Auditor General, for her to ensure that her staff, over a three, four or five-year period, reviews the major - and that is what we take seriously. But that is a year after things happen, in many cases. I hope you understand this.

MR. MURPHY: I understand, yes. Basically, what you are saying is that the Auditor General's role, the sad part about it, is that usually it is after the fact, rather than its having the ability, you know, if you find a discrepancy, then it is there and it comes out and you make recommendations and what have you. If there are no discrepancies, obviously, even though the policy may be weak, you would have no comment on that until an incident took place that was negative enough to do a report and, of course, put your findings and recommendations in there, which probably would strengthen the policy.

AN HON. MEMBER: Yes.

MR. MURPHY: Yes, I understand.

AN HON. MEMBER: Or a system related to the policy.

AN HON. MEMBER: We can get into the system. We are required to get into the system.

MR. MURPHY: I think what I am trying to get here is that understanding, through this, and coming from a prevention background, an average of ten to twenty-seven years in Occupational Health and Safety, the name of the game is prevention, and I would hope that this would turn on a light that would say to the department, even now with their problems over amalgamation, that we would look at our policies throughout the department, to try to incorporate the decisions we have made on this experience into other areas and venues of the functions of the department, to insure that we do not get caught in a similar situation doing something else, whether it be buying desks or tables or whatever the case might be.

Thank you, Mr. Chairman.

MR. WITHERS: Mr. Chairman, if I could just make a point on the thirty-day time limitation. The thirty days is not part of the Public Tender Act or regulation. The thirty days actually is part of the department's tender form documentation, so it is my understanding that it would not require an amendment to the Act to make that sixty days, for example.

AN HON. MEMBER: I see.

MR. CHAIRMAN: The department would be well-advised in federal/provincial contracts to specify tender should be acceptable for forty-five days, if necessary; however, if you can do it in thirty days we should stick with that, I would think - I mean, for expediency and for the benefit of contractors and government. But that option is clearly available. Obviously, that has been one of the problems.

Maybe I would just proceed with a couple of questions. First of all, a further comment that I made earlier in relation to federal responsibility in this particular issue: I would suggest the department might have another go at the Government of Canada on this one. They are at least partly responsible. I am not sure, by being the administrators of these particular contracts, that the Province accepts full responsibility for anything that may go wrong, even if the Federal Government is not responsible - and I don't like the concept of the Federal Government washing their hands of any responsibility for the cost that was involved here, unless it were some deliberate action of the Government of Newfoundland and Labrador, where they made a conscious decision not to do something.

In this particular case, it was, as we have been told, at least, and we have to accept, straightforward administrative error. It could have happened in the federal service, as well as in the provincial service, and I, for one - I am speaking only my own opinion, not on behalf of the Committee, but it would be my view that we should go back to them and say that they had ten or twelve or thirteen days, the procedures that were followed were normal procedures, we accept the fact that it was an administrative error on the part of the Province that caused it, but I don't think they should be able to walk away from it as quickly as that. That is just a comment which I probably may or may not be in order in putting forward.

The completion date was September 1991, according to the contract. When was the contract actually completed? When was the contractor given the certificate of substantial completion?

MR. WHITE: The completion was late July - I don't have the exact date. It was late July, and he has now applied for his hold-back.

MR. CHAIRMAN: Late July of -

MR. WHITE: July 1992. He has applied for his hold-back. It hasn't reached my office yet but it is in the district office and when that is processed through my office, that is substantial completion at that time. And that will take place within this month, within the next two or three weeks. Really, we are just waiting on the tax changes, the GST and the payroll tax figures to finalize the whole project.

MR. McCARTHY: If I could just comment?

MR. CHAIRMAN: Mr. McCarthy.

MR. McCARTHY: The completion date of the contract was 31 July 1992. The original tender had a September completion date of 1991 but the second tender, we changed the scheduled completion date to July 1992.

MR. CHAIRMAN: Okay. So the document I am looking at here on page 91 of our booklet is the original. It said September 30 of 1991. That is the original unit tender contract.

MR. McCARTHY: Yes.

MR. CHAIRMAN: Okay. So the completion date then was July 31, we'll say.

MR. McCARTHY: That is correct.

MR. CHAIRMAN: Okay. My next question: Do we apply the penalty clauses? I am sure there are penalty clauses for failure to complete within the prescribed time period? Do we apply that in every case? Do we go to the contractor, and unless he has due cause for which the Province has some responsibility, do we claim penalties from him?

MR. McCARTHY: There are no penalty/bonus clauses per se in the provincial government contracts, documents. The only penalty clause we have in the contract is we have the right to charge him extra engineering and administration costs if the project takes longer than scheduled. The only other option open to us if he is not on schedule is we can go to the bonding company and say that he is not progressing on schedule. There are no penalty/bonus clauses in Provincial Government contracts per se, that I am aware of.

MR. CHAIRMAN: That would seem to me to be somewhat unusual, from my own experience at tendering contracts, unless you are (inaudible), the member of the Committee - he is coming in the front door, there. But from my own experience with contracts it is quite common, in fact, I would think normal, accepted practice, to have a penalty clause in there - so much per day, per week, per month, or whatever. Are you telling me that no government contracts have any penalties in there?

MR. McCARTHY: Well, I am not aware on the building side, or other departments, but I know, on the highway side there are no penalty clauses. We have had discussions with the Construction Association and the Newfoundland Roadbuilders' Association, over the years on that particular item. We have had discussions with the Justice people and, I guess, the word we get is you can't have a penalty clause without a bonus clause. Therein lies the catch. We would like to put in a penalty but bonus is another issue.

MR. CHAIRMAN: I would like to argue that with both of them - depending on the work that is being performed; highway work may be a little more difficult. Although I could certainly substantiate if a contract was - if a road is built and not paved, the cost of snow clearing, and maintenance, is substantially higher on a piece of road that wasn't paved on schedule. So you could certainly argue that there are increased costs to the Province for not having that job completed. In the case of a building, if government is leasing somewhere else, there are direct costs that can be identified, and I can go on down through the list.

I would think that we should have in our contract a very strong penalty clause that says: if you say you will be finished by July 31, you will be finished by July 31 or pay the price, be it costs that can be identified. I wouldn't think your engineering costs would be very significant, any increased engineering cost - a little bit of supervision. That wouldn't be very significant in the overall cost of the project. But the cost of increased maintenance on a highway or the cost of leasing alternate accommodation in the case of a building could be very significant.

I would think we should look at that. I would question the fact that we can't put in a penalty clause without a bonus clause. I don't accept that. Why can't we? We can put what we want in a contract - unless you can tell me why we can't. The Construction Association may well not like it.

MR. McCARTHY: No, I think the Construction Association would like to see a penalty/bonus clause. It takes a change of government policy right at the present time to add that to the contract.

MR. CHAIRMAN: I can see putting a bonus in if it can be documented that there are savings to the Province. Again, if you are leasing a building, and it is to the Province's benefit, if it is costing us $5,000 a month to lease alternate accommodations, and by getting in a month early we save $5,000, well, then, I don't have a problem with, say, paying 50 per cent of that, or whatever may be deemed appropriate, to a contractor. In that light I can see that. I still don't think that we are bound - that anything would bind government from putting that in, that we can't put in a penalty clause if he is late. If we choose to put in a bonus, fine.

Anyway, if anybody wants more comment on it, I will move on. So there are no penalty clauses that are being imposed on anyone?

MR. McCARTHY: There are no penalty clauses in the current contracts.

MR. CHAIRMAN: Can you tell me this: Off the top of your head, in your experience, how are we in finishing contracts, generally? Are contracts normally finished within the required time, or do you have a lot of problems with getting contractors to complete?

MR. McCARTHY: Generally, they are finished within the required time, but we do have problems from time to time. We get into some scheduling problems, in particular. We normally separate grading contracts, paving contracts, and bridge contracts. With some of the larger projects on the go now, like building overpasses that have to be co-ordinated with the paving projects, the completion dates are important, and we have run into some scheduling problems with contractors not finishing the project.

MR. CHAIRMAN: Let me ask you this: Have you ever had a case, and your example is a prime one, where an overpass being built by a contractor was behind schedule, and because of that, the paving contractor couldn't complete his work and you had to pay penalties to the paving contractor?

Let me ask you this question: Is there a penalty clause on government if the contractor is held up for any reason? Have you had to pay those sorts of penalties?

MR. McCARTHY: No, we have a provision in the contracts whereby the contractor is required to schedule his work with the other contractors working in the area, and in the event the other contractor doesn't finish on time, there will be no compensation for delays caused by other contractors. Now, it has never been tested in court, but we do have those types of clauses saying that we are not responsible for delays.

MR. CHAIRMAN: That wouldn't give the first contractor an awful lot of security. If another contractor holds him up, I assume he has no claim on that contractor. He doesn't have a contract with him. Are you telling me, that therefore you disclaim any claim from contractor A to government, so he has no recourse if he is held up - he has to just hope that the other contractor will co-operate; is that the situation?

MR. McCARTHY: That is correct.

MR. WHITE: Mr. Chairman.

MR. CHAIRMAN: Well in that case - and I will give you an opportunity, Mr. White - does that not make a strong case for having penalty clauses both ways in here - that if contractor B is not completed on time he will pay the price, either to the government or to contractor A, or through government to contractor A for any penalties we may have to pay contractor A because contractor B has not completed his job?

MR. McCARTHY: It is one of the strong arguments for penalty clauses.

MR. CHAIRMAN: Mr. White, you wanted to say something and I interrupted you.

MR. WHITE: The first part of your question there a short while ago: We just recently within the last year had an incident where contractor A was not finished and was really holding up contractor B. We just said: Look, contractor A, here is the situation. Here is what you have gotten yourself into - now, you straighten it out with contractor B; and they did mutually make an agreement in which we were not involved and had no reason to be involved.

MR. CHAIRMAN: I would submit that we are copping out and passing the buck to the construction industry, and it must be very difficult for them to work within those kinds of conditions.

I really think that in fairness to both contractors, one should be protected; and as the agency or the owner, I think we have a responsibility to do that.

MR. McCARTHY: In tendering there is a lot of serious thought given to that very issue, and what we have been doing more and more is that if we feel there was some conflict between two contractors, we have actually been including the work, combining the work in one tender, and let the prime contractor go out and hire sub to do the bridge if he doesn't have his own capabilities. So we do give a lot of though in putting the contracts together like that and looking at what potential scheduling problems could exist.

MR. CHAIRMAN: But you have no remedy after the fact, if something occurs that you had not predicted?

MR. McCARTHY: No we do not.

MR. CHAIRMAN: I would submit, that needs to be looked at very carefully. Perhaps the department would take that under advisement and look at that, because I think the construction industry would be very receptive to some sort of a concept that deals with that, because it seems to be very wide open to me.

MR. McCARTHY: If I could make one other comment, we have had many discussions with the association on that particular issue and what they get is really a polarization, particularly in bridge work. A lot of the bridge contractors are only into that area and they are generally not happy when they have to give a price to a prime, as a sub on the work. They (inaudible) pressure. They would like to see all bridge work as separate tenders.

MR. CHAIRMAN: I wasn't suggesting that, actually. I would think you are probably better served by having them separate. I am suggesting that the contracts have some interrelationship that protects both contractors and government so that you don't have a problem. Perhaps it is not a major problem and you haven't had to deal with it, but it appears to be very loose to me. Maybe when we are finished straightening up the tendering act, you could address that aspect of it at the same time.

Let me ask you this: Mr. Stone, you told us about the new procedures that are in place, and you told us that in your view they are now adequate and certainly reasonable to try to protect against this sort of thing occurring again. Are you talking now just the Department of Works, Services and Transportation or has this translated to all other departments of government and Crown corporations? Are we simply talking about this department now, or can you tell me - and I realize it is outside the department - do other pro... is it possible that other departments have the same problems that you have had before?

MR. STONE: I really cannot speak for other provinces, Mr. Chairman, but this system we have put in place is just for the Tendering and Contracts Division.

MR. CHAIRMAN: That is coming through your department?

MR. STONE: That comes through our department, that really handles road construction, building construction, maintenance and service contracts. So only what goes through the Tendering and Contracts Division is what is controlled under this; ones that are advertised in the minister's name for this division.

MR. CHAIRMAN: That would be the bulk of contracting for government, no doubt - certainly, from the dollar point of view.

MR. STONE: Yes.

MR. CHAIRMAN: But I am thinking, for example, Municipal Affairs puts out many millions of dollars worth of work on behalf of municipalities. We may be well-advised to ask those departments what procedures are in place.

So you are saying that no action has been taken to benefit other departments from the experience of this particular case and from the provisions that you have put in place.

MR. STONE: Well, Mr. Chairman, we have started a committee, and again, it seems it hasn't gone as far as we would like - but we have started a committee and I have had one meeting with Municipal Affairs already, to hopefully bring all departments that award tenders, issue contracts to come in on this review and get some common ground for all of this, because there are differences. There are, between Transportation and Public Works, some differences that we are trying to address. There are, possibly, differences between how we do things and Municipal Affairs, Fisheries or Forestry do things.

So we have initiated a committee, albeit it hasn't got too far up to speed, but I had one meeting with Municipal Affairs, with the ADM, and we are going to address those issues.

MR. CHAIRMAN: Is that committee moving toward recommending or with a thought toward recommending a central tendering agency, that all tendering contracts of government come under one central tendering agency rather than having x numbers of departments of government and Crown corporations all out to calling tenders, rather than having so many people interpreting the Public Tender Act and local preference policies and all the rest of it? Is this not a strong argument for having one central agency that administers all of the tendering and contracts and all of that legislation, and the purpose and intent of that legislation? - probably not a fair question.

MR. STONE: Mr. Chairman, we have discussed briefly in the department that aspect. Really, the main outcome we hoped of that committee would be that at least we would have one common system, one set of guidelines for all of government. In other words, if we accept faxed tenders to somebody else, (inaudible) or vice versa we don't, then they wouldn't, or whatever. So at least the construction industry and the contractor out there, if they bid for Municipal Affairs, they at least use the same system as when they bid for us and whatever. We are trying to set like ground rules. There has been a discussion and it has only been internal, within the department. It hasn't gone any further than just the discussion stage of that aspect to have one tendering agency for all that. In all fairness, I guess it has been within the department. We have not discussed it with other departments. We don't know how other ministers would feel about it, how other deputies and other departments would feel about it, but it has been brought up, yes.

MR. CHAIRMAN: Could you tell me if you have any knowledge of other provinces, if they have central agencies or if various departments call their own? Are you aware of any other provinces (inaudible)?

MR. STONE: I am not certain.

MR. CHAIRMAN: It is not a fair question. I just wondered if anybody had any information.

Could I ask the Auditor General for his views on this whole thing? He wants to speak, I can see. He is like me, I can tell when he is biting to get at the microphone. But I would just like to ask him his views on what we have just discussed, whether there should be a central agency or a firm set of guidelines approved and issued by Cabinet to all Crown corporations and departments. What would be your view of that?

MR. DROVER: I am speaking on behalf of the office. We have spent about three or four years - and I am going to deal with the point you that when I am going out to many of the Crown agencies - there are 128 including all the departments of government that are defined as Crown agencies; that includes the school boards, all the Crown corporations, the hospitals, and so on.

I can't speak on the current report, but I can give you some general comments dealing with the last three reports. We have found major problems; a lack of understanding of the role of the agency, a lack of complete understanding of the Public Tender Act and the responsibilities. There is a document that the minister is supposed to table - anything over $5,000 that is not tendered, etc.

We found major problems, particularly with the agencies. As a matter of fact, I guess, to a certain extent, probably some of the central government departments are filling a much better role than some of the agencies. As you get further out, the - so I think that adds weight to your recommendation or your suggestion, Mr. Chairman, that maybe there be an education process or an authority created. We can't get into policy at all - that comes from people like yourself.

I will say that both the Auditor General and I, over the summer, have attended meetings on the West Coast and in other areas and heard many points. Recently, I attended one in Stephenville, and heard a point that: 'Well, we didn't know we had to comply with the Public Tender Act' or 'We didn't know what...' - those types of things. In Corner Brook I have heard the same thing. We have completed audits dealing with the North Coast of Newfoundland and have heard the same comments. We have even completed audits, which you will see in the current report, with large bodies here in St. John's that have said the same thing to us: 'We didn't know.' So, there are a lot of people, particularly in hospitals, school boards and other entities out there, who are really saying they didn't know they had to comply. There is an education process, whether it is done through central government or how it is done.

The Auditor General, at some point in time, I think, will have to give a fair bit of consideration to doing a major comment in the report on this whole aspect. Next year will probably be our fifth year in getting into this. We have made recommendations on it, and I think that maybe what we will have to do is just bite the bullet and say, we feel that central government or someone should be giving more direction to these people, or requiring it.

There is a split, Mr. Chairman, what you do. The entities are independent, they're autonomous, and then you have the Public Tender Act that makes specific requirements. So how do you balance one with the other? That is, I guess, the area of Cabinet and the area of the departments. I must say, it is a decision that has to be taken seriously. From a standpoint of the experience in our office, we have touched, I would say, a good dozen agencies, major entities, and I think you would know every one of them if I were to list them. They are all either major school boards, hospitals, or major Crown corporations. Without naming, this year we have done sort of a review of probably our largest Crown corporations. I will say that we have found, particularly in the smaller entities, problems of a lack of knowledge of the requirement: 'I didn't know I had to inform the minister,' and 'I didn't know I had to go with the lowest tender,' and that type of thing.

You are going to deal with that tomorrow, I believe, but I thought I would preface your discussions tomorrow with the experience that this office has had in the last three to four years in that matter. So there is a major problem out there, yes.

MR. CHAIRMAN: I thank you for those comments. I think you are quite right. The Committee is beginning to realize that there are Crown corporations that don't know they should comply, others that don't wish to comply and don't think there is any reason why they should comply, either with the Public Tender Act or with the wishes of this Committee. I think it would be a very valid purpose of this Committee if we can let everybody out there - Crown corporations and otherwise, and the general public - realize that these corporations are certainly subject to the Public Tender Act and do answer to this Committee, to the House of Assembly and to the Auditor General, obviously.

MR. MURPHY: If I might make a comment, Mr. Chairman.

MR. CHAIRMAN: Mr. Murphy, by all means.

MR. MURPHY: It was only the other evening, watching our friends at New Gower Street, City Hall - the most popular show on television -

MR. CHAIRMAN: A matter of opinion.

MR. MURPHY: A matter of opinion - some people call it the 'Gong Show.' But one piece of information that came forward, I think it was from Councillor Jamieson, and the Chairman brought it to my mind, is that municipalities all across the Province are losing all kinds of money by not taking advantage of purchasing - whether it be a backhoe or whatever - through government. Because the indication is that the Federation of Municipalities has found out in recent months that there is a tremendous saving if they go that way. Subsequently, that would reduce probably the requests from the municipality, the government, to buy that piece of equipment or what have you.

So it would seem that we have lost a fair amount of opportunities to purchase at a better price over time through the Municipal Affairs Department. So all of this, tied into the comments of Mr. Rowe, the beckoning and questioning and suggestions by the Chair, is obviously an indicator that we are not getting the best bang for our buck. Maybe it is worthy of this Committee to make some suggestions and/or recommendations, along with the Auditor General, that the findings at Works, Services and Transportation be shared with Municipal and Provincial Affairs and other government departments so that everybody could key in on a policy and a procedure that would save us money.

MR. DROVER: I might add, Mr. Chairman - since this is a very current topic with our office - because of the Auditor General's Act, we went through several legal opinions on what a Crown agency is. The Crown agencies include all of the school boards because they are specifically accountable through a minister to the House of Assembly. We don't include the municipalities, but there is no doubt about it, the Auditor General of this Province can send her officials into any municipality to follow up on any expenditure of funds which has come through central government, and the municipalities are to comply with the Public Tender Act.

I have talked to the former solicitor for the City of St. John's, who is now the City Manager, and outside business, and he recognized that we could send an audit team into the City of St. John's to follow up on those. We could send them into Corner Brook or into any municipality. But we don't regard them as agencies of the Crown for definition of the Auditor General's Act. In other words, we are not required to do the audit; if we regarded them as agencies we would be required to do the audit of those. So that is a definition under the Auditor General's Act, but we can examine the records of any municipality, whether it is city or town in this Province, and ask, 'What did you do with the $10 million or whatever the Province gave you? - and show us how you dealt with it. And did you call public tenders?' We haven't gone into municipalities, we have gone into the other ones, I have been pointing that out for the last two or three years.

MR. CHAIRMAN: Thank you. Mr. Warren, I think you have a comment.

MR. WARREN: Mr. Chairman, I noticed that in the Public Accounts and at the meeting in Fredericton a couple of months ago, which Mr. Murphy and I attended, this was one of the debates.

MR. CHAIRMAN: Thank you.

Mr. Peckford, do you have any final remarks you would like to make on behalf of the department - any closing comments?

MR. PECKFORD: Maybe just a brief comment. Certainly, the changes that have been happening to the government in amalgamation and things like that, particularly in Works, Services and Transportation, have resulted in a lot of clarification and I think, from what I have seen, that Works, Services have the systems that are in, that are also in the Government Purchasing Agency, which have been there for some time to monitor and administer the contracting and the tender process. Certainly, it appears to provide, as the Auditor General has already said, an element of control that wasn't there before and certainly needs to be there.

If I could briefly comment on another issue to which you were just referring, I did do some work with the government years ago when the Public Tender Act came in. I was an employee of Treasury Board at that particular time and had a fair bit of contact with departments and various agencies and the question of their autonomy came up quite frequently. And it is amazing and continues to amaze me, not only with agencies but with other bureaucratic units of the government, the extent to which the autonomy question tends to override a lot of other questions and, personally, I could never quite understand how that could play such a large role in the administration of the organization. But it is certainly a very major point in the introduction of the Public Tender Act and the Provincial Preference Act. I recall having many discussions with agencies and departments around adherence to the Public Tender Act and Provincial Preference Act and the question of a central body carrying out all the tenders and things like that is - personally, I was never convinced that greater central control of this, would in fact, impair upon the autonomy of a particular agency to carry out its program, but certainly, that point of view wasn't shared with many others.

MR. CHAIRMAN: Well, Mr. Peckford, if I might. In response, I say that you have identified very well the age-old problem of empire building which is so inherent in the public service and points out that too many public servants are more concerned with their own role than with realizing the fact that they are employed by the taxpayer, and meant to be serving the general public and not their own purposes. Unfortunately, that is widespread through the public service. It is not going to be dealt with very soon, but this is one area where we should certainly begin.

Mr. Drover, do you have any final comments on behalf of your department?

MR. DROVER: Just to thank you, Mr. Chairman. I will say that the officials at the Department of Works, Services and Transportation were very co-operative with us during this whole process. We were in there constantly for a period of about a year, doing not only this work, but other work. I think that subsequent to our audit we were satisfied with the - as I pointed out earlier.

The other point which you just touched on, and which the Deputy Minister addressed, I think is one that is close to the - the Auditor General and I have spoken on it many times, and maybe, at some point in time, you will hear it in one of our reports: that is, some sort of a central control mechanism, whether it be the GPA or whatever, to give not only training and development - which I think is already offered to some of these entities out there - but also to enforce it, whether it be an audit scheme or whatever. We have wrestled with the point of what we could recommend in our own reports.

I will predict that at some point in time, perhaps not in the current report, but maybe the one after - you will probably see the recommendation in an Auditor General's report. I thank you for bringing it up today, because I can see that the Committee, itself and certainly yourself, are well aware of it and are very concerned about it.

Thank you very much, Mr. Chairman.

MR. CHAIRMAN: Thank you, Mr. Drover, I would agree. I think this discussion, although a little bit outside the ambit of what we came here to discuss, has been very worthwhile from our point of view. Perhaps the Committee members may wish to consider in our report to the House, a recommendation that this issue be addressed on an urgent basis before such a thing happens in other departments as well, and that some committee that includes all departments of government - perhaps organization and management, a division of Treasury Board, perhaps the Auditor General's Department, whatever is appropriate - be put together. We can discuss that when we are considering our final report.

Do any of the Committee members have final comments or questions or anything to make before we clue up this particular item? If not, let me thank the witnesses. We are finished earlier than we had thought. We had this afternoon scheduled, as well, for this particular item in the event that we may have needed it. I want to thank you for coming, and for your frankness and honesty in giving the Committee the information required. I want to thank the Committee members for being very straightforward with their questions, I think, as well, which has helped us go through this issue quickly. It is an important issue - not one that can be resolved, it is something that has happened, and we have had to live with that. The department will have to deal with that as it sees fit. Hopefully, from what we have seen, measures are in place to deal with it.

That being the case, we will excuse the witnesses and the Auditor General's people. I would like to ask the Committee members to stay for five minutes just for some administrative in camera things that we have to do. We will be back tomorrow morning at 10:00 for further public hearings with the next set of witnesses. Thank you all very much.

The Committee is adjourned.