Chair:	* Rick Thorpe (Okanagan-Penticton L)
Deputy Chair:	* Evelyn Gillespie (Comox Valley NDP)
Members:	* Pietro Calendino (Burnaby North NDP) * Rick Kasper (Malahat-Juan de Fuca NDP) Joy MacPhail (Vancouver-Hastings NDP) * Steve Orcherton (Victoria-Hillside NDP) Glenn Robertson (North Island NDP) * Erda Walsh (Kootenay NDP) * Murray Coell (Saanich North and the Islands L) * Gary Farrell-Collins (Vancouver-Little Mountain L) * John Weisbeck (Okanagan East L) * Jack Weisgerber (Peace River South Ind)
Clerk:	Craig James
* denotes member present

[ Page 1199 ]

The committee met at 10:33 a.m.

R. Thorpe (Chair): Good morning. After discussions with the Deputy Chair, the Public Accounts Committee is going to have a ten-to-15 minute in-camera session. Sorry for the inconvenience. We're going to stick to that ten-to-15 minute maximum. We ask that people who are not members of the Public Accounts Committee, the auditor general and the comptroller general if they could please just leave us in camera for a maximum of 15 minutes. Thank you.

Interjection.

G. Morfitt: They said you could stay.

R. Thorpe (Chair): No, Arn, you can stay.

Interjections.

R. Thorpe (Chair): MLAs can stay -- if you want.

Interjections.

R. Thorpe (Chair): It's up to members of the committee. Do you object to other MLAs staying?

Interjection.

R. Thorpe (Chair): So you object. Mr. Calendino objects, so please leave. Thank you.

P. Calendino: And staff as well.

E. Gillespie (Deputy Chair): We're going to be talking about committee operations.

P. Calendino: Okay.

M. Coell: I would like to know, before we go to the committee, what we're going to talk about and whether it is indeed in camera.

E. Gillespie (Deputy Chair): Yesterday the Chair and the Deputy Chair had a discussion about committee operations, and I asked at that time that it come back to the committee in camera to discuss basically how we operate as a committee, what kind of information we need. And I asked the Chair this morning if we could also discuss briefly the schedule of the committee. So this is just strictly committee operations, and I think we can deal with it, really, fairly quickly.

R. Thorpe (Chair): In that regard, I am going to hold this meeting to 15 minutes. If we do not conclude it, so be it. It's going to be 15 minutes, full stop.

M. Coell: I have been involved in politics for 16 years, and I know what in-camera meetings are. This doesn't qualify -- period.

Interjection.

M. Coell: This doesn't qualify under our guidelines provincially -- or federally either. This is not in-camera-meeting business. You tell me how it is.

E. Gillespie (Deputy Chair): Yesterday, at the end of the meeting, I asked for an in-camera session and discussed with the Chair of the committee that we would bring back our discussion to this committee. It is strictly the business of the committee about how we operate, what kind of information we need and what kind of schedule we're going to pursue.

M. Coell: And how does that qualify as in camera?

E. Gillespie (Deputy Chair): Because it strictly relates to the committee.

M. Coell: That doesn't qualify.

E. Gillespie (Deputy Chair): I would beg the indulgence of the Chair that we proceed with the 15 minutes.

Some Voices: Move a motion.

E. Gillespie (Deputy Chair): I move the committee move in camera for discussion of committee operations business.

Motion approved.

M. Coell: I want my. . .opposed registered.

A Voice: Division.

M. Coell: Division.

Interjections.

R. Thorpe (Chair): We have to take the vote again, as a recorded division.

Motion approved on division.

[Committee proceedings in camera.]

R. Thorpe (Chair): Good morning once again. Before we get into the details of today's session, let me just officially advise of some changes to the Public Accounts Committee. First of all, the committee would like to thank Mr. Doyle and Mr. Giesbrecht for their service to this committee. They have been replaced by Mr. Robertson and Ms. MacPhail, who will be participating in the future.

Today we are discussing the auditor general's. . . . Yes, Mr. Farrell-Collins?

G. Farrell-Collins: I want to address the issue of membership on the committee, if I may. I have a bit of a concern around this report and the makeup of the committee. I don't know that there is any formal way to proceed, but perhaps I can just call on members who are part of that to hear what they have to say. I have a concern because throughout the

[ Page 1200 ]

I want to say this with the greatest amount of respect: having the former Minister of Finance now sitting on the Public Accounts Committee gives me a little bit of concern, given that she sat on Treasury Board and then chaired Treasury Board throughout the duration of a significant portion of the fast ferry time frame that we're dealing with in the report. Again with the greatest amount of respect, Ms. Gillespie, having sat on the B.C. Ferry board -- since the election in 1996 until the board was fired by government -- also gives me some concern.

The reason for it is this. It's not that those members are necessarily. . . . I'm not trying to suggest that they're in a conflict of any personal nature. But I think from the public. . . . Looking at the review of this report and given the process that evolved around the review of the budget review report that the auditor general did, with government members of the report voting against hearing witnesses and then voting to shut down the committee, I would be very, very concerned if the same type of votes took place in this committee when there are two members who had a part to play, and played a part, in the fast ferry fiasco. Perhaps Ms. Gillespie can give us some sort of assurance on that, and we can move on. But it is a concern that I have.

[1055]

What I would say, for my own part, is that we make a practice in this committee of it being a non-partisan committee. The work of this committee is to delve into the reports of the auditor general and to hear from the respondents and make our recommendations in that respect. I feel I have no personal conflict with that. I know that I can do that role effectively -- in particular, with the knowledge that I bring as a past member of the board of B.C. Ferries.

R. Thorpe (Chair): Thank you. No other comments?

"Report No. 5 of the Auditor General of British Columbia -- "A Review of the Fast Ferry Project: Governance and Risk Management." I just want to make some very brief comments as the Chair. Today we will be reviewing and discussing, and no doubt questions will be asked on report No. 5. Report No. 5 has already raised a number of questions for which, hopefully, this legislative committee and the public of British Columbia will receive full and complete answers. The review will take time and will require all members of the committee to work in a positive and cooperative manner, in order that all British Columbians can be better served.

With past reports considered by the committee, the key issues for this committee are: what were our governance checks and balances, and why do they appear to have failed? The purpose of this committee is to examine, with due diligence, the reports of the auditor general and to report our observations and bring our recommendations to the Legislative Assembly.

As the member for Victoria-Hillside said at this committee on Tuesday, November 2: "I think we all can learn from history, and by learning from history, we can always work to plan a better future." Thus I ask the members of this committee to participate constructively in this review, basing our thrust and questions on obtaining all of the pertinent facts.

The committee has a pivotal role to play to ensure that our province's financial resources are managed effectively, efficiently and economically. We must ensure that British Columbians have confidence in their governance and risk-management systems and procedures. As the current Minister of Finance stated on November 1: "Government must have the trust and confidence of taxpayers in the management and use of their money."

I know all members of this committee look forward to a full and open hearing on the auditor general's report.

[1100]

The construction of fast ferries within this province has been a subject of public interest for some time. Earlier this year the government undertook to commission two studies. One was to do with what the accumulated costs of the construction project were likely to be, and the second was to look at the technical aspects of the fast ferries.

We as an office decided to wait until those reviews had been completed before deciding whether we should undertake any work ourselves. Having looked at those two reports, which were well done, we thought there were two areas that still needed review and that weren't covered by those reports. They are areas that our office had a longstanding interest in when looking at all government programs. One was governance and the whole matter of who is responsible for what, who is accountable for what and were they meeting those responsibilities; second was the management of risk, when you're talking about the large expenditure of public dollars. We took on those two aspects of this program, and this report is the result.

With me at the table are Mr. Morris Sydor and Mr. Ken Lane of my office, two of the members of my staff who were intimately involved in the preparation of this report. I'll just turn matters over to them, if I may, and they'll lead us through a summary of what the findings are.

R. Thorpe (Chair): Thank you very much, George. Just introduce yourselves, gentlemen, for Hansard.

K. Lane: I'm Ken Lane, from the auditor general's office.

G. Morfitt: I think this was turned off a little earlier.

R. Thorpe (Chair): I guess this Y2K system hadn't been checked.

While we're just waiting for this equipment to get up to speed, anyone who is scheduled to present today, if you have official presentation material, could you please let us know? Kelly, would you make sure that members of the committee have adequate copies, please? Thank you.

Just to keep everyone informed, we are rebooting the laptop.

[ Page 1201 ]

[1105]

R. Thorpe (Chair): We may as well, yes. Go ahead.

J. Weisgerber: I'm delighted to see that we have witnesses here today from B.C. Ferries, from Crown corporations secretariat and from Treasury Board. As an independent member of the committee, I didn't have any input into who those witnesses would be. While I have no argument with them, there are individuals that I would like to see come before the committee.

What I would like to suggest is that each member of the committee be facilitated with providing a list of witnesses -- perhaps in priority -- that they would like to see called and that, on some rotation, each member of the committee have an opportunity to have the witnesses they select brought before the committee, as opposed to some kind of a different process. So I would like to move that lists of witnesses be submitted by individual members and that witnesses be called on a rotation, so that at least some of the witnesses requested by each member of the committee be heard.

R. Thorpe (Chair): Would you suggest that those individual members would send those lists to the Clerk's office?

J. Weisgerber: Yes, I would suggest -- with a priority rating on them. Obviously we're not going to hear from. . .

S. Orcherton: . . .the Chair and the Deputy Chair.

R. Thorpe (Chair): So we have a motion on the floor.

E. Gillespie (Deputy Chair): I agree in principle with the intent of the motion and would suggest that the Chair and Deputy Chair, then, be the ones to make the final determination on the list, along with the comptroller general.

J. Weisgerber: Well, the only difficulty with that is that I don't have any particular involvement with either of the parties in that respect. I would like to have at least one or two witnesses that are important to me called forward.

R. Thorpe (Chair): In the spirit of everyone working together and wanting to get to the bottom of this and get the facts on the table, I think we could agree, Evelyn, that no request will unreasonably be withheld. Is that the spirit of it?

E. Gillespie (Deputy Chair): Given a schedule of meetings that we can agree to.

R. Thorpe (Chair): So are there any other comments on the motion?

Motion approved.

R. Thorpe (Chair): Are we rebooted? Up, up and away.

K. Lane: Good morning. Today we will be presenting the results of our review of the fast ferry project. I'll start with a short history of the project.

In June 1994 the provincial government announced that as part of a ten-year capital plan for the B.C. Ferry Corporation, three aluminum fast car ferries would be built in British Columbia for $210 million and in less than three years. The government believed that these ships would meet B.C. Ferries' operational needs and, at the same time, revitalize the province's ailing shipbuilding industry. During the project, the design of the ferries changed considerably, announced launch dates kept being revised forward, and the budget was increased several times. By early 1999 it was apparent that the project was seriously behind schedule and over budget. There were also concerns about the ships' performance.

[1110]

As you can see from this table, the original expectations are not being met. The initial budget for the project was $210 million; the current estimate for completion is $463 million. The time period for building the three ships was estimated at 30 months to 36 months. It will take about 66 months. The loaded top speed will be lower than planned -- 33 knots rather than 37 knots. Carrying capacity will be less than the planned 1,000 passengers and 250 vehicles. How much less is currently unclear. As well, operating costs are estimated to be significantly higher. In addition, the public policy objectives to be achieved from the project have only been partially met. Although it is clear that many person-years of employment were created by the project, the revitalization of the shipbuilding industry and export capability are uncertain.

The financial results of the fast ferry project will affect the corporation in several ways. Cost overruns will result in a higher debt load for the corporation. This, combined with the higher-than-expected operating cost for the fast ferries, will put a further strain on the ability of the corporation to provide current levels of service without major increases to subsidies or fares.

We will now present our major findings on governance, risk management and the fast ferries' impact on B.C. Ferries, each followed by our recommendation. We'll start with governance. We believe that the decision to proceed with the fast ferry project was more of a ministerial directive than a board decision. The minister directed the Crown corporations secretariat to develop B.C. Ferries' capital plan, which had the effect of compromising the board's responsibilities when the project was approved. That is, it left unclear who among the many stakeholders was responsible for understanding and managing the risks inherent in the project.

To manage the construction project, B.C. Ferries set up a subsidiary called Catamaran Ferries International, or CFI. The boards of both B.C. Ferries and CFI have faced considerable problems throughout the life of the project. The decision to proceed with the project was hurried; it was made on a tight schedule and without sufficient analysis of the significant issues surrounding the project. The boards of both corpora-

[ Page 1202 ]

There were indications of cost, schedule and scope problems from the outset of the project. However, the boards of B.C. Ferries and CFI were not well informed by their joint CEO about problems with the project. This was made possible because that CEO was put into a position of conflict. Having had a significant role in developing the concept of the project and being responsible for its delivery, he was reporting on his own performance. Although the B.C. Ferries board recognized his conflict, it did not rectify it.

Cabinet's approval was contingent on having the project re-examined once better information was available and before significant expenditures and commitments had been made. Although there were several logical opportunities to carry out such evaluations, they were not taken. For example, Treasury Board's approval of a budget increase for the project was not supported by adequate information.

On a project of this size, we expected to find good accountability reporting to keep the Legislative Assembly and the public informed about the project. We did not find it. Also, central agencies that were trying to monitor progress on the project, such as Treasury Board staff and the Crown corporations secretariat, had difficulty obtaining information.

Our findings clearly indicate that there were significant governance problems throughout the life of the project. We make one broad recommendation in this important area. We recommend that the province commit to putting the principles and practices of good governance in place for its Crown corporations, including, specifically, allowing boards to function effectively within their mandates.

The principles of good governance are not new. For example, the Toronto Stock Exchange reported on these principles in 1994. Similarly, in 1996 our office issued a study of governance in Crown corporations. That report set out what constitutes good governance practice and identified opportunities to improve governance in Crown corporations. Our review of the fast ferry project has confirmed our previous findings and how much still remains to be done.

[1115]

The second failing was that an unrealistic initial timetable led to a rushed process, where opportunities for careful re-evaluation were not taken.

The third failing was that good standard project management practices were not followed.

Although we found that the problems to be solved, such as terminal congestion, were identified, the inherent risks in the project itself were not adequately examined, such as the impact of making significant changes in design and the ship's viability for a short route.

As this exhibit shows, the Pacificat is significantly different from a typical fast ferry. However, no adequate analysis was done on the potential effects when the design changed from a typical fast car ferry to one designed for B.C. Ferries' unique needs. Also, the decision to modify the ferry design to fit existing docks, rather than modify the docks, increased the ship's cost and weight and lowered the speed. This exhibit illustrates the length of world fast car ferry routes. Fast ferry speed pays off only when the distance translates into meaningful time savings. The Horseshoe Bay-Departure Bay route is among the shortest in the world.

In addition, the analysis supporting the decision to proceed with the project was insufficient. In particular, we found that the analysis did not adequately demonstrate that fast ferries were indeed the best solution to meet B.C. Ferries' needs, nor could we find evidence to support that they could be built cost-effectively in B.C. Finally, we found very little to demonstrate that exporting fast ferries was viable. Such exporting was an essential element of this plan for revitalizing B.C.'s shipbuilding industry.

The key to managing the considerable risks of the fast ferry project is to apply tried and true methods of project management. We noted significant weaknesses in three key areas: cost, scope and schedule.

As you can see in this table, the estimated cost has consistently risen. The project started with a total estimated cost of $210 million, and it is now expected to cost $463 million. The initial budget was prepared in a short time, with little analysis, and was also not complete. New cost items were added as the years went by. In some cases, public policy costs, such as training, were assumed to be recoverable from others. This turned out not to be the case.

To make matters worse, fixed-price labour contracts were not used, as no shipyard was willing to enter into them, although this was one of the key assumptions at the start of the build phase of the project. Ultimately, CFI assumed most of the contract risks.

Change is part of every project. Good practice dictates that one should look at each proposed change and determine if it is worthwhile based on an analysis of the facts -- and to do so with appropriate approvals. We found that on this project, scope changes have often been made without a good understanding of the cost implications.

The initial schedule called for completing the last ship in about 30 to 36 months from the announcement date. The actual schedule from start to end will now be about 66 months. Our view is that the original schedule was very optimistic, even for experienced aluminium ship builders. It, like the budget, was never subjected to a reality check, because a detailed implementation plan was never developed. For example, time was not scheduled for workforce retraining, which was a significant undertaking.

As the project progressed, the project assumptions proved invalid, as launch dates kept being delayed. This exhibit, which is also on page 58 on your reports, illustrates how the schedule for completion changed. You may not be able to see all the details, but the column on the left, going from 1994 to 1999, shows the date when the estimate was

[ Page 1203 ]

[1120]

Our findings clearly indicate there were significant shortcomings in risk management. Our recommendation is that the province require that proven project management practices be used on all significant capital projects. This idea is not new. Our office has reported on this issue previously; so have others, such as the inquiry into the Coquihalla Highway project.

Finally, we look at the effects of all this on B.C. Ferries. As we noted previously, the corporation is being adversely affected by the fast ferry program. Debt levels will be higher, as will annual operating costs. All of this adds to B.C. Ferry's already serious financial problems. B.C. Ferry's board has tried to get clear direction from the government about what it calls the fiscal framework for its operations, but without success. In the absence of such a framework, decisions on such issues as fares and subsidies will likely to continue to be made in a fragmented and ineffective way.

We recommend that the government provide a consistent framework of its expectations for the corporation. Such a framework will help to ensure that decisions on routes, fares, schedules and subsidies are coherent and effective.

That concludes the presentation on our review of the fast ferry project. We'll be happy to answer any questions you may have.

R. Thorpe (Chair): We had asked if anyone else had official presentations, and no one has given us an indication that they do. Before we go to questions to the auditor general, let me just read into the record a letter that I received. It's dated November 3, 1999, and it's addressed to the Chair. It was received in my office in Victoria last night.

"Dear Chairperson,

"Relevant to, and without prejudice, upon the tabling of the auditor general's report titled: '1999/2000: Report 5. A Review of the Fast Ferry Project: Governance and Risk Management.'

"Background. I was an independent professional consultant and advisor to B.C. government ministries and agencies during the period 1986 to 1996. I was engaged in various contracts for the design and deployment of both socioeconomic programs and transportation infrastructures that was publicly funded.

"My consulting engagements included:

"Financial coordinator, superferries construction program: vouching for the proper disbursement of public funds and organizations -- e.g., Integrated Ferry Constructors -- systems, and procedures designs; and

"Preliminary draftsman, draft cabinet submission and business plan, Catamaran Ferries International.

"Subsequent to the activity described above, I've had the opportunity to review certain documentation and discuss events and the facts with individuals involved in the fast ferries matter. Those individuals include independent advisers, government personnel, elected officials. Many of these individuals and the detailed facts that they represent do not appear to be detailed in the scope of the auditor general's report now tabled at committee. There has not been adequate time and opportunity to fully review the auditor general's report and compare it to the details provided to me.

"Request. I respectfully request that you provide reasonable time for me to discuss directly with potential information contributors about the nature of the committee as a forum for the presentation of facts regarding the commitment of public funds in this manner. The intent is that the committee might increase the probability of answering detailed questions regarding exactly when, between whom in particular, for whose direct benefit or indirect benefit, and why, with the intention of providing a basis for the design of deterrence to future runaway spending programs."

[1125]

We'll go to questions about the auditor general's report. Any questions?

G. Farrell-Collins: Having heard that letter, can you. . . ? What was the name of the gentleman again?

R. Thorpe (Chair): Andrew G. Fry.

G. Farrell-Collins: Maybe I can just ask the auditor general if he is one of the individuals that was interviewed for the review. Perhaps we've already heard from this gentleman. I don't know.

K. Lane: No, he wasn't.

G. Farrell-Collins: He was not.

I mean, we've all read the report; we've all seen the presentation. We've certainly seen, in the last week, some of the comments and responses that have been made by the minister responsible and the B.C. Ferry Corporation specifically. Do Mr. Cooper and Mr. Lingwood have any comments in response to the auditor general's report? It's there; it's pretty significant. I thought you might have some comments on it.

B. Lingwood: Mr. Chair, I have comments. If I could be allowed. . . .

R. Thorpe (Chair): Do you have something in a presentation form that we can copy for members of the committee?

B. Lingwood: Unfortunately, I do not. But I'll be brief and to the point.

R. Thorpe (Chair): Just a minute, Mr. Lingwood, please.

J. Weisgerber: I'm not wanting to cut anyone off. I have a question I want to ask the auditor general before we get into hearing from the specific witnesses.

[ Page 1204 ]

J. Weisgerber: On page 20 of the report, at the very top of the page, there's a reference to the fact that B.C. Ferries had, for several years, monitored fast ferries and their application for British Columbia. I wonder, in the review, whether the auditor general examined the role that previous cabinets played. I'm thinking particularly of presentations that would have been made to cabinet in the period 1986 to 1991 on a fairly consistent basis and that were rejected on the advice of B.C. Ferries -- the fundamental concept. Was there any examination of those documents or that history leading up to 1991?

G. Morfitt: Unless my staff tells me differently, I would say that we did not do that. We dealt with the circumstances involved with this particular project at the time of its launch. So we were dealing with submissions to cabinet that took place in and around 1994 and onward.

J. Weisgerber: So while it was evident that for several years preceding the decision to start, B.C. Ferries had expressed their concerns. . . . I assume that that's the reference made on this page. The role that the previous government played in considering and rejecting the concept has never been verified by the auditor general.

G. Morfitt: No.

M. Sydor: That's correct. We didn't go back that far. We did start with the MITS process in late 1992-93, I guess. That study led to the decisions that we're dealing with now. But we didn't go back to the period that you alluded to -- 1986 to 1991. In terms of cabinet's interest in the direction that we have given to B.C. Ferries, we have no information that we would have gotten directly from documents relating to that period.

J. Weisgerber: Mr. Chairman, I'd like to look at, then -- on page 18 -- the kind of chronological history of the introduction of fast ferries to the government, going back to 1993. I'm curious to know who first made the presentation to government with the concept for a fast ferry. Did it come from B.C. Ferries? Did it come from the Crown corporations secretariat? Did it come from some outside proponent? Who first tabled this idea with the government?

[1130]

The MITS study did come up with a number of suggestions as to where terminals could be built. As well, it came up with a number of conclusions or assessments regarding where fast ferries may fall into the scheme of B.C. Ferries operations. I think that in one of the pages here, we summarize the main points that the MITS did come to with regard to fast ferries, which was basically that a lot of study was needed and that there were financial considerations that needed to be looked at. But that study didn't recommend, in and of itself, that B.C. Ferries should go with fast ferries at that time. The study was focused mainly on looking at terminal sites, and the secondary part was considering fast ferry alternatives and options.

J. Weisgerber: But at some point in time someone must have come forward to make a presentation, to make a recommendation. I'm curious to know: where did that come from? Who was the initial proponent of the fast ferry concept?

M. Sydor: B.C. Ferries was studying fast ferries. If we're looking at our presentation, again, our report refers to a presentation that was done in February 1994 -- February 4, I think. At that point, B.C. Ferries made a presentation to the minister on its draft ten-year plan. Within that were concept studies of fast ferries that B.C. Ferries was looking at. It had a number of alternatives that it was considering. But I don't think that at that time, we can say it was recommending a particular route or a particular configuration in terms of the number of fast ferries that should be purchased or where they should be running. There were a number of routes that they were looking at as maybe potentials that fast ferries could be applied to, but I'm not sure that at that time, I would say that it was being proposed that we go with a particular configuration.

J. Weisgerber: For some years there was a local representative of an Australian firm that was a proponent of the technology. I'm wondering whether or not B.C. Ferries paid for this technology. Was there a payment made to some corporation initially for the technology around this? There must have been some genesis for this. I'm curious to know whether the same people who were supporting this notion in the late eighties were finally successful in making a sale in the early 1990s.

M. Sydor: In terms of payments, I'm not aware of any information that we came up with that would suggest payments. In terms of the individuals -- the company that you're referring to -- there were consultants being used at that time to study transportation issues. The minister did have a transportation consultant that he used, who reported to him on a number of occasions. Yes, there was interest in fast ferries through that process.

[1135]

K. Lane: We found no evidence of that until the contract with Incat. So B.C. Ferries had not bought the technology prior to the decision on the ships we're now discussing.

J. Weisgerber: The contract with Incat, I suppose, is something we can examine at some point in this process. I'm wondering who the consultant was. You said that the minister had a consultant who advised him.

K. Lane: Yes -- Mr. Bawlf.

[ Page 1205 ]

K. Lane: Yes.

D. Symons: Just following along with the same thing, it's obvious. . . . Obviously the report which you did didn't look back prior to the initial part of this program, but B.C. Ferries had looked at -- at the time that they were building the superferries -- the possibility of using catamarans, and they rejected that.

Somewhere along the line, in between that time in 1989 and 1993, there seemed to be some pressure on B.C. Ferries -- and I think this is what the member for Peace River South might have been alluding to -- to consider fast ferries again. It would also seem from your report that B.C. Ferries, in putting that ten-year capital plan before the government, were hesitant to get involved in a fast ferry program and simply said: "Well, maybe we'll try leasing one and give it a try and see how it is."

Did you get any feel, in talking to people then, about that particular aspect of why the Ferry Corporation had thought of leasing rather than going into construction -- why they might have wanted to go that route? I'll refer to it as the cautious route. Did you explore that at all, based on the fact that before, the Ferry Corporation actually rejected fast ferries?

K. Lane: I don't think it's fair to say they had rejected it. We found that they had kept a watching brief on the subject, back to at least 1990. We didn't look at the documents before that. In each case, they were watching the technology carefully to see when and if it would be of benefit to them. But they paid attention to it on an ongoing basis. It didn't suggest any sense that they had looked at it and said: "This is not for us." It was: "Let's see how this is evolving, and we'll keep a watching brief on it."

D. Symons: I think of Mr. Blyth's report to B.C. Ferries, which basically said that he saw no compelling reason for B.C. Ferries getting involved in the fast ferries, as somewhat of a rejection. Maybe we'll differ on the flavour of the words there.

This is going back again to the member for Peace River South. Where did this impetus come from? It seems that somehow you're indicating that the minister responsible had a consultant or somebody giving him advice, on the one hand, and that the corporation seems to have allowed the possibility in their ten-year plan to bring in the concept of fast ferries as a consideration.

In the discussions you had with the people, did you feel that possibly the reason the ten-year plan brought in the possibility of considering the use of catamarans was that there might have been some pressure from the minister responsible or, in some way, that the corporation was acquiescing to wishes expressed to it?

M. Sydor: I'm not sure that we can say that we found pressure. I think one of the reasons why B.C. Ferries may have been looking at it is that with the change in government in 1991 -- or whatever the period was -- the Crown corporations secretariat was set up with a mandate to try to utilize Crown corporations to implement the public policies of government and create greater economic development opportunities.

I think that with regard to fast ferries, the fast ferries executive at that time was advised that the government was looking for a broader strategic outlook -- you know, looking at all the routes and how they should be configured. At that time, I think B.C. Ferries was advised that there should be no limitations on their considerations and that new technologies should be part of what they were considering. So B.C. Ferries was basically given carte blanche to do as broad a review as they could as to what sort of transportation strategies and vehicles might be appropriate to meet their needs, and maybe that's one of the reasons these studies came back in. If you're right, as you indicate, there seems to have been a period where they weren't looking at them. Certainly, as we found, in the early nineties and into 1994 there were a number of studies being proposed to evaluate how feasible the concept was. I think that's where it was at that stage.

[1140]

D. Symons: If B.C. Ferries was, as you're implying, willing to look at various options and bring in a plan that left those possibilities there, then it would seem that they were doing due diligence and what was required of the B.C. Ferries Corporation. If we take a look at the Crown corporations secretariat, I would have to ask if you might give me an opinion as to why the Crown corporations secretariat. . . . I didn't think its mandate would quite include doing what they did, as far as pretty well taking over the operation of the fast ferry program. Did you explore at all the rationale for taking that particular responsibility away from B.C. Ferries and putting it on the shoulders of the Crown corporations secretariat to basically put the ten-year capital plan together?

M. Sydor: The Crown corporations secretariat, as you're all aware, came into being in 1991. There's no legislation supporting its existence; it isn't clear what its role is to be. Its role is provided to it by government, and historically, it's always reported to a minister. It's acted as a central agency. I guess it's a counterpart to Treasury Board staff but focusing on Crown corporations. So in terms of its direction for taking over the cabinet submission that B.C. Ferries was working on and completing it, direction to take it over was provided to it based on the information we had available.

D. Symons: You've indicated that the direction was given to it, so I guess the implication there is that it was not necessarily a Crown corporation making these decisions but rather the minister responsible for. . . . It turned out that the CCS, the Crown corporations secretariat, as well as the minister who happened to be responsible for B.C. Ferries, just simply changed the role of the organization to now include that particular project, the ten-year capital plan. In looking at management. . . . Management is a big issue throughout this

[ Page 1206 ]

M. Sydor: Well, I guess the need to exist comes from government; it determines that there is a shortcoming in the program structure. I guess at that time, historically, maybe government's view was that Crown corporations can be better vehicles in terms of implementing some broader policies. There were clear roles established for the Crown corporations secretariat; they were to be advisers to both government ministers and the boards of Crown corporations. So they didn't have a decision-making role; yes, that's true. They were there to provide advice on matters of a nature where specialists may not have existed in Crown corporations. If we look at B.C. Ferries in particular, or in other areas, they did have specialists, I guess, in the transportation area that brought in new methodology and strategic planning processes. In some areas, they did do the sort of work that they were expected to carry out. In that regard, they obviously served the purpose -- one that government identified for them and that they fulfilled.

[1145]

M. Sydor: Yes, we did.

D. Symons: In the process of the interview, did you find out whether he had a retainer or was paid for the consulting advice he was giving to the minister?

M. Sydor: Well, I think the public record shows that the company associated with that consultant did receive moneys from government during those periods. I'm not sure whether that would include work beyond B.C. Ferries or work other than B.C. Ferries. I don't remember that we specifically asked him whether his work, with regard to B.C. Ferries and the fast ferries program, was paid for. But we know that his company did receive moneys from government.

D. Symons: Did you look into whether there may be any business or financial relationships between that individual and any member of the Crown corporations secretariat?

K. Lane: No, we did not.

D. Symons: Were you aware of such a one, even though you might not have explored it?

K. Lane: No, we were not.

J. Weisbeck: The report refers to a number of people that were interviewed -- a number of groups and individuals. I thought, considering the fact that we are able to call witnesses forward, that we might have a list from the auditor general of those individuals that they interviewed, just to help us be more efficient in the lists that we create. There's never a reference to any names throughout the whole report, just always. . . .

G. Morfitt: Just as a caution, we've always been very careful about releasing publicly, in full detail, persons that have been interviewed, partly because we're concerned about protecting public servants and making sure that they are forthright and forthcoming in anything they discuss with us. Therefore I would just caution the committee about that. Having said that, if it's the committee's wish, we'll provide whatever you like.

R. Thorpe (Chair): Is it your wish, Mr. Weisbeck?

J. Weisbeck: Yes, it is, please. Thank you. I so move.

R. Thorpe (Chair): Yes, Mr. Weisgerber. Excuse me -- Ms. Gillespie was next, Jack. Sorry.

E. Gillespie (Deputy Chair): There was some discussion earlier about the B.C. Ferries' interest in looking at the fast ferry program and the options of leasing some ships to take a look at how fast ferries might serve the public here in British Columbia. Did the office of the auditor general look into the cost of such a program, given that there wouldn't have been berthing facilities available for the kinds of fast ferries that were available and in production around the world at that time?

K. Lane: We examined it to the extent that we looked at B.C. Ferries' estimate of the cost of the leasing, which was included in their preliminary ten-year plan. B.C. Ferries also examined the cost of adapting the docks by what was jokingly called a "plug." It would be a shaped barge, whose bow end would match a standard B.C. Ferry dock and whose stern would match the bow of an existing fast ferry. They had determined, with quite good engineering estimates, that the costs would be. . . . By memory, I would say under $3 million. The idea was that this plug could be installed in any B.C. Ferries dock, so that they would be able to test it on different runs. Just by towing the plug to a new dock, you'd have a fast ferries facility. It would only be single deck, but then the existing fast ferries were only single deck. So it looked to us that B.C. Ferries had done a reasonable job of working out the costs and the impact of such a test use of the ferries.

E. Gillespie (Deputy Chair): I'm just somewhat amused when I go back to newspaper columns, back in 1990-91, where the superferries which are now lauded as being wonderful, excellent ships were criticized at the time -- criticized for mechanical failures, criticized for inability to keep up the speed, criticized for loading and unloading problems, but criticized most of all for not incorporating or looking at new technology that's available around the world. That was back in '90-91. Those ships are now considered to be kind of the hallmark of the corporation.

G. Farrell-Collins: But you guys were wrong.

E. Gillespie (Deputy Chair): Do you have any comment on the value of new technology in British Columbia?

[1150]

J. Weisgerber: That was an era of different critics.

[ Page 1207 ]

E. Gillespie (Deputy Chair): Newspaper columnists. . . .

J. Weisgerber: The critics. . . .

Anyway, I'd like to go back, if I could, just briefly to the 1993 period in time. At that time, Bob Williams, the current chairman at ICBC, was the senior person at the Crown corporations secretariat. His friend and protégé Mr. Clark was the minister responsible for both the Crown corporations secretariat and B.C. Ferries. I wonder first of all whether or not there were any contracts between Mr. Bawlf or his firm and the Crown corporations secretariat during that period of time; maybe that's my first question.

M. Sydor: The consulting contract was probably with the Crown corporations secretariat.

J. Weisgerber: As opposed to B.C. Ferries or the ministry.

M. Sydor: Yes.

J. Weisgerber: Okay. Did you examine whether or not Mr. Williams, Mr. Bawlf and Mr. Clark made joint presentations either to cabinet or to the B.C. Ferries board on fast ferries during that period of time?

M. Sydor: To the board?

J. Weisgerber: To the board of B.C. Ferries or to cabinet.

M. Sydor: I don't remember a circumstance where Mr. Bawlf was involved in a presentation to the board.

J. Weisgerber: Would that suggest that he was involved in a presentation to cabinet?

K. Lane: We don't know of any presentations to cabinet during the 1993 period.

G. Farrell-Collins: I just want to pursue that line of questioning a little bit if I can. I've got a fax from May 4, 1994, which was to Mr. Shawn Thomas at the Ministry of Employment and Investment. This is in response to your comments about Mr. Bawlf's involvement in presentations. This is a presentation that was. . . . I can't see if it was done to the board or to cabinet; I've just got the information, and I'm trying to determine that. But in either case, it says: "Shawn, here are the first four pages of the draft documents for Mr. Clark's presentation. I faxed a slightly different version to Sam yesterday and handed a different copy again to Michael Renaud yesterday also." It looks as though Mr. Bawlf was in fact involved in a number of these presentations. I assume this is one that Mr. Clark made to. . . . If it's Mr. Clark's presentation, I assume he wasn't making one to the Ferry board. So therefore I would assume it's Mr. Clark's presentation to cabinet as the Minister of Employment and Investment. Is that a likely scenario?

M. Sydor: That timetable sounds right. I think the presentations to cabinet and Treasury Board were probably a week and a half after that time period. I don't remember that Sam Bawlf was actually present at the presentations.

[1155]

M. Sydor: I'm not aware of the details of that fax that you have, to be honest. In his role as a transportation consultant, it's certainly feasible that he would be involved in helping prepare materials for presentations of that nature.

R. Thorpe (Chair): Noting the time, 12 o'clock. . . . It might be an appropriate time to break here. Originally, we were scheduled to resume at 1 o'clock. In the interests of moving forward, is quarter to one. . . ? How much time do people think they need? Do they need an hour, or is 45 minutes plenty?

E. Gillespie (Deputy Chair): We need an hour.

R. Thorpe (Chair): Apparently some committee members need an hour, so we'll go till one. Mr. Lingwood has been fairly patient there. We could start at 1 o'clock with your presentation, whatever you have, and then we could resume questioning.

The committee recessed from 11:57 a.m. to 1:03 p.m.

[R. Thorpe in the chair.]

R. Thorpe (Chair): We'll get started now. Bob, we would ask you to make a presentation to the committee.

B. Lingwood: My name is Bob Lingwood. I'm the president and chief executive officer of B.C. Ferries and also a member of the CFI board of directors. My apologies for not having a formal written presentation that you can review. Hopefully, you'll find my comments brief and to the point and easy to follow.

First off, B.C. Ferries agrees with the conclusions and recommendations that the auditor general has found in his review as they affect B.C. Ferries and CFI. What I would like to review with the committee are the steps we've taken to address issues of governance and issues of risk management that have come out in this report. These, for the most part, also came out in the review done by Hugh Gordon and Arthur Andersen Inc. that the auditor general referenced. It was finished in February '99.

Very importantly, after the two boards -- both B.C. Ferries and CFI -- resigned in February '99, when government appointed a new board of B.C. Ferries, that board appointed a new board of CFI and, I think, made some very important steps in appointing the board. First, Graham Clarke was appointed as chair. Mr. Clarke is an experienced chair and a

[ Page 1208 ]

[1305]

When I joined Ferries in February, on my second day on the job, after meeting with the Ferries board, I was appointed as chief executive officer of Catamaran Ferries International. It was a job that I chose to leave as quickly as possible and I started a search for a new president, which Graham Clarke assisted me with when he became chair. Within a few months Gavin Cooper, who's sitting beside me, was appointed as president and general manager. My only role then, with respect to CFI, was as a member of the board of directors.

In looking at the results that came from the Hugh Gordon report, it was clear that the normal discipline and rigour and reporting relationships which one would expect in a project of this size or even a much smaller project were not in place. I appointed new project management on the B.C. Ferries side to head up our part and our interrelationship with CFI, to get individuals there who had the correct background, particularly in project management, to deal with the situation.

We undertook a comprehensive review of all the issues and recommendations in the Hugh Gordon report. We established new roles and responsibilities for both parties -- both the B.C. Ferries component and the CFI component. We adopted strict procedures to control change orders -- any changes to the design of, really, the second and third ships, which we were now focused on. We created new reporting procedures for both the staff within CFI reporting to the CFI board of directors, new reporting from the board of CFI to the board of B.C. Ferries and also new reporting from B.C. Ferries to the government. Our connections in that regard are through both CCS and Treasury Board. These changes were then reviewed by the corporation's external auditors, KPMG, and signed off as being satisfactory and as having dealt with the issues that were identified by Hugh Gordon.

We then undertook, through CFI and Mr. Cooper, detailed zero-based budgeting for the remaining ships. Although late in the game, it still needed to be done. That was completed in May of this year. Along with that, there were detailed schedules prepared for the second and third ships. These schedules were reviewed extensively by a production committee of the CFI board, and within the internal reporting procedures for CFI, they established discipline on regular reporting of the state of construction of each of the second and third vessels, so that on a monthly basis they knew exactly what had been completed in the time period. Also, fixed-price contracts with all the major suppliers who were involved in the manufacture of these ships were concluded.

[1310]

The first ship has now been in service since June 17 of this year. It's going through what those in the marine industry who have brought in new ships explained to me as normal teething problems. Certainly from those I've spoken with who have been involved in bringing a new high-speed ferry into service, we are having no more problems in the implementation of this technology -- and by some accounts, fewer problems.

We have implemented a very detailed wake-wash study based on the actual effects that we see from the first vessel in revenue service, and the results of that study will be used in our final determination of route, speed and crossing time.

Those conclude my remarks, Mr. Chair.

R. Thorpe (Chair): Let me just ask a couple of questions to start, if I could. How long have KPMG been your auditors?

B. Lingwood: I believe they're completing their second year of auditing of B.C. Ferries. The audit that they completed for last fiscal was the second year. They are also the auditors for CFI, and the audit completed for the past fiscal year was the second audit which they did for CFI.

R. Thorpe (Chair): So they're in their third year of auditing. Is that part of a five-year contract?

B. Lingwood: That's correct.

R. Thorpe (Chair): In their previous two year-end reports, did they advise the executive, the chief financial officer, the audit committee or anyone of any concerns that they had about the controls that were in place with respect to not only the operating financials of the company but also the management of the capital side of reporting to the company? And any letters, any meetings or discussions with KPMG with any executives of B.C. Ferry or CFI. . . . Did they raise any concerns or red flags on these issues?

B. Lingwood: From the information that I've read and from my discussions with the auditors, they did not raise issues that would lead you to expect that the auditor general would have found what was found.

R. Thorpe (Chair): Who were the auditors before KPMG?

B. Lingwood: I don't know that. But I can certainly find out for you.

R. Thorpe (Chair): Could you find that out? Could you also, when you're finding that out -- the same type of question as I've just asked with respect to KPMG -- check your records and report back to this committee on whether they had given any advice, either verbally or written, with concerns about operational financial controls or capital management financial controls?

[ Page 1209 ]

B. Lingwood: Again, I do not have that information. But. . . .

G. Farrell-Collins: If it's not available now, we can get it later.

[1315]

G. Farrell-Collins: That's fine. I'm willing to do that.

B. Lingwood: I certainly asked the auditors about this. In other words: "Why did you miss this issue when you did the first review of the corporation?" When I refer to the corporation, I'm referring to CFI now. The response was that they had a relatively short period to prepare the audit and, in that period of time, did not cover any of the issues which have now been identified for us.

G. Farrell-Collins: I guess I find that sort of astounding -- that the errors of magnitude that we see, on the order of 100 percent cost overruns, wouldn't have been picked up, that there would have been no signal of that whatsoever. It would seem to me that there would have been accounting done of payments made, of looming liabilities and of assets on hand. All of that, certainly in my opinion, would have. . . . Simply looking at the project labour costs -- one of the first things anyone looks at when looking at something like this -- would have been alarming. It would have been way outside of the targets. It would seem to me. . . . Being the CEO of the corporation, are you satisfied that KPMG performed that audit in a manner that you would say is satisfactory or professional?

B. Lingwood: Well, I wasn't there at the time. I questioned them about their first audit and took at face value what they told me. I am certainly prepared to find that record and provide it to the committee.

G. Farrell-Collins: I don't mean to sound. . . . I think there have been a lot of people -- at CFI, the B.C. Ferry Corporation and the board of directors, senior executives -- who've taken an awful lot at face value for the last four or five years. That's been a big problem. That, it seems to me, has been the problem. People weren't asking the right questions.

I think that there is certainly some potential there for the Ferry Corporation and CFI to go back and find out why it was that the auditors -- who I assume we pay a great deal for -- and probably the previous auditors, too, didn't recognize this.

Do you have any idea why the auditors were changed?

B. Lingwood: My understanding is that it was just the normal competitive process, a regular tendering of the services.

G. Farrell-Collins: At one point there was a change in membership of the board of CFI. When those who had sort of been tagged as independent members -- or business members -- of the CFI board started to ask those questions, they were moved on. It would seem to me that there must have been members on the board who were members of the audit committee who would have been dealing with the previous auditors and who must have been asking those questions to find out what exactly was going on at the corporation.

I'm wondering if you've taken the time -- or had the time -- to look into that, above and beyond the assumption that it was a change of auditors just in the normal bidding process.

B. Lingwood: No, I have not.

R. Thorpe (Chair): In forwarding that information to the committee, Bob, please direct it to Craig, the Clerk. He will make sure that committee members get it.

Also, in your review, I might just add that when you're looking at it, letters that were dispatched from KPMG and whoever the previous auditors were, where management, executive or boards signed off as part of an audit procedure. . . . If we could include that, it would be helpful.

I guess, just quickly, to the auditor general: did the auditor general's staff, in looking at this audit, look at any of this material that we're just asking about now with respect to the independent auditors and what they had observed or not observed?

[1320]

R. Thorpe (Chair): Fine.

S. Orcherton: This is a question for Mr. Lingwood, and if you can answer it, that will be helpful. If not, maybe, Mr. Morfitt, you could assist. In 1994 there was a number of things occurring around ferry and ferry transportation issues in British Columbia. I understand there was a mid-Island transportation study that had just been completed, a number of options having been looked at -- the location of different terminals, what kind of vessels would be most appropriate and those kinds of issues. I understand, as well -- and I know it's a difficult question for you, Mr. Lingwood, because you weren't there at the time, but I'm hopeful that you've looked back into the past to see what transpired -- that the mid-Island transportation analysis pointed to the solution, to future ferry transportation issues, of moving to a fast cat program. The fast cat program that was presented in 1994 was a vessel somewhere in the neighbourhood of $60 million.

Between 1994 and today, my sense is that clearly we've moved to a vessel that costs a lot more. But it wasn't the

[ Page 1210 ]

B. Lingwood: I personally can't shed any light on the question other than the obvious -- that the vessel was changed. There were changes made by B.C. Ferries to produce the vessel that we have today. The precise reason for those changes other than, I think, what is on the record -- design changes to increase the capacity slightly and also to configure the vessel in a way that it would fit within the existing docks of B.C. Ferries. . . . I do not have any more precision behind the thinking or who was involved.

S. Orcherton: Maybe the auditor general could shed some light on this. I know it's difficult, as well, because it appears that the report of the auditor general on this topic begins in 1994, but there clearly must have been some discussions and some meetings. The mid-Island transportation task force had been working diligently to prepare recommendations for all of those concerned. What was going on at that time? It seems to me that that was a prudent, responsible way to move. It strikes me that in 1994, decisions were based on the recommendations from the planning committee. I guess my question specifically is: from pre-1994 to 1994, when the initial decision was taken to move forward on this initiative, were all the necessary processes in place?

M. Sydor: Could you just clarify which planning committee you're referring to?

S. Orcherton: The mid-Island transportation task force.

M. Sydor: Okay. You're referring to that committee.

S. Orcherton: Yes.

[1325]

There was no recommendation out of MITS that fast ferries actually be implemented. In fact, the chair of the task force -- who was also a B.C. Ferries board member at the time, Gretchen Brewin -- sent the recommendation to the minister at the end of that process. The recommendation was limited to recommending that Duke Point be developed as a ferry terminal. There was no recommendation provided with regard to fast ferries. The B.C. Ferries board subsequently, in the next month, made basically the same recommendation. In February and March, the minutes will reflect that they recommended that as a result of the MITS process and their own deliberations, Duke Point be developed as a ferry terminal. There was no recommendation at that time for fast ferries. So if we cover that period, during 1993 and to March 1994 nobody made a recommendation with regard to implementing fast ferries.

S. Orcherton: I was under the impression that the decision to move towards fast ferries was taken in 1994. Is that correct?

M. Sydor: Yes, it was taken in 1994.

S. Orcherton: On what basis was that decision taken?

M. Sydor: On the basis of the cabinet submission that went to Treasury Board and cabinet.

S. Orcherton: Okay. My review of the shipping industry is that there are currently about 950 ferry vessels globally. Nearly 100 of those, over the last decade or two, are of a fast ferry-catamaran type or a mono-hull type. They're certainly a fast ferry technology. What strikes me clearly is that the industry, predominantly in the private sector, was moving in that direction throughout the world. Was that part of the decision taken -- to move in that direction with the rest of the shipbuilding industry around the world? Was that a component? I mean, in the course of your discussions with people, was that an issue that was raised?

K. Lane: We had seen similar material in 1994, discussing the direction the industry was going in general. That was raised as a point. But I think it's equally important to recognize that when the discussion came to what was feasible in B.C., questions such as the distance, the fare structure and the ancillary revenues that most fast ferries receive from liquor sales and duty-free meant that we had a very different industry from most other ferry businesses in the world. So both of those factors were being discussed in 1994.

S. Orcherton: As well, were discussions taking place -- if you discovered these in the course of your review -- around the cost of a fast ferry versus the cost of a traditional ferry? I mean, the superferry costs were somewhere in the neighbourhood of $130 million plus. Initial costs, as articulated in 1994, for this particular design -- which never came to fruition, because it was modified substantially -- were around $60 million to $70 million. Were those part of the discussions as well, in terms of coming to a final decision on how to proceed?

K. Lane: We mentioned that B.C. Ferries had had a watching brief on this since at least 1990. One of the issues that was always looked at was both the capital cost and the operating cost of fast ferries. The essential argument for them had to be an operating cost one. So we have seen material back to at least 1990 looking at those issues.

[ Page 1211 ]

[1330]

S. Orcherton: Did you ever interview a company named Sandwell Engineering?

K. Lane: Yes, we have.

S. Orcherton: What were the results from that interview?

K. Lane: They're reflected in our report.

G. Plant: I just want to go back to the discussion about the KPMG audit for a moment or two. I heard Mr. Lingwood's answer or, I guess, distillation of a discussion that you had with the auditors about why certain things may and may not have been picked up in the first KPMG audit of CFI. I think you indicated that they said they might have been under some time constraints or something like that. I just want to be clear: was there any qualification to the audit opinion given by KPMG of the books of CFI that indicated that their opinion should, in any way, be qualified by reference to the fact that they were having to work under unreasonable time pressure?

B. Lingwood: There was not.

G. Plant: Would I be right in assuming that in talking about this issue the way I believe I heard you talk about it, you are somewhat surprised that KPMG, as the auditor of CFI, didn't unearth some of the things that have now come to light as a result of the governance and risk management report we have here before us?

B. Lingwood: In hindsight, yes.

G. Plant: Would you have considered investigating cost overruns in a corporation where. . . ? We're talking about a corporation, CFI, that is not an operating business. It's a corporation created for the sole purpose of constructing an extraordinarily expensive project. The corporation, at the time of the audit, is in the middle of that construction project. It seems to me, as someone who is not an auditor, that looking at cost overruns for what amounts to the whole purpose of the corporation's business would be a natural part of the inquiry of an auditor into the books of that company. Is that your experience as a chief executive officer?

B. Lingwood: That would reflect my experience. Just a comment: my discussions with KPMG were really focused on the audit for last year. As I said, I took their comments at face value. We had much more rigorous discussions with them concerning their audit for the past fiscal year, which -- it was clear -- they had sufficient time to prepare for.

G. Plant: And I might quote the fact that an audit is just that: an audit of the books that are usually prepared by the company itself. To some extent, an audit is only as good as the books and the bookkeeping of the company itself. Would I be right in assuming that you're not now in a position to determine whether the problem, if there was one, with the first KPMG audit is a problem with the work done by the auditors as opposed to a problem with the quality of the information given to them by the company?

B. Lingwood: That's a correct assumption.

G. Plant: The second audit, which I gather means the second-year audit done by KPMG. . . . Was there any qualification given in that audit opinion with respect to whether or not KPMG had been forced to provide an audit opinion under circumstances of time pressures or cost constraints that would, in any way, have qualified that opinion -- which, I assume, was an unqualified opinion?

B. Lingwood: No, there was not.

G. Plant: Right. To your knowledge, would KPMG have been under any of those time constraints that you talked about earlier when they were doing that second audit?

B. Lingwood: The second audit?

G. Plant: Yeah.

B. Lingwood: No.

G. Plant: Right. Thank you, Mr. Chairman.

D. Symons: Just carrying on with the audit question asked earlier by the member for Vancouver-Little Mountain. . . . He asked again whether the auditors had noticed or made comment about some of what should have been, I think, apparent problems. I'm curious, now that you have taken on the position of CEO. . . . To me it was obvious a year and a half or two years before, as mentioned before -- the fact that it was taking two years, going into three years, to build the first one, when they were going to have all three of them built within the three-year time frame. So their budget was based on a ferry a year, basically, and the first ferry was already into two and a half years. Certainly not just to the auditor but to everybody involved in the corporation. . . . Somebody must have put two and two together and said that this thing must be considerably over budget.

[1335]

[ Page 1212 ]

B. Lingwood: The people that would have known about that reported to the CEO, and their responsibilities were to that CEO. So if the CEO chose to take their information, change their information or not report the information to someone else, they get bound in a very difficult situation, because that is their line of responsibility.

D. Symons: I wonder, then -- maybe to the auditor general's office. . . . Taking the answer just given, with the number of people that could have possibly known that this was taking place. . . . When you were interviewing people, did you have any indication from them that it was fairly well known within the corporation that this project was really out of control?

M. Sydor: Well, certainly there were a lot of concerns. The question of knowing comes down to the quality of information actually available to different people involved in the process. I think what we have seen is that from the summer of 1997 to the fall of 1997, there were concerns expressed by managers as to what the figures were showing -- whether in fact they would represent a large cost overrun. I think our report recognizes that Treasury Board staff, as well, was looking into it at the time and also expressed concerns. The difficulty is that what they recognized, as you pointed out, was that the schedule was extending. That doesn't necessarily mean that the costs are going to rise in the same proportion. There may be opportunities because of the high learning curve initially to, you know, absorb those high or initial costs and still come in within a reasonable time frame. So I guess it comes down to: at what point should the situation have been to the extent that managers would have raised their voices to a greater extent? I think that over time, what we've seen is that there was a recognition that things were getting out of control.

But as Mr. Lingwood indicated, if you have a CEO who has the sole responsibility of reporting to the boards, to the committees of the boards, and takes the information and makes decisions, that's the way the process works. Unfortunately, in this particular case, it failed significantly.

D. Symons: If we move beyond the CEO, we had a Crown corporations secretariat, and we had a Treasury Board responsible to cabinet that also had some responsibility in here. Every so often, the CFI or the Ferry people went back to Treasury Board, saying: "We have to lift the cap on this program." Surely those people should have caught on to the fact that this program was, again, out of control. Did you get any indication, in speaking to those people, that they recognized, prior to this thing blowing up in the press, that there was a serious problem?

M. Sydor: I think they also had concerns, but the process is such that in August of '97, I think it was, there was an increase in the budget for the fast ferry. That then set a new benchmark against which the reports would be provided. My recollection is that the reports were in relation to that large figure, and they weren't in terms of components. It was just in regard to what Treasury Board had approved. So on that basis, it would be very difficult to see whether in fact there was going to be a problem down the road, until you got further and further along and the costs got closer to what Treasury Board had approved as a budget. But I did recognize that they had concerns. I think Treasury Board staff and CCS both tried to get quarterly and monthly reports through the process. As our report indicates, they did come along for some time, and then they stopped. That was the end of it. It didn't seem to be pursued by CCS or Treasury Board staff.

[1340]

M. Sydor: I don't remember seeing any instructions along those lines. I think that what we recognized is that the things both the first board and the second board were asking for weren't being provided by senior management. Things that come to mind are completion of the strategic plan, a budget and a clearer estimate of what the forecast costs were. I think we saw both boards, in their own different ways, striving to get information that would allow them to carry out their monitoring role of senior management. And we saw that information not being provided, either before April 1997 or after. So there were serious shortcomings in information provided.

D. Symons: If I were a board member or a member of Treasury Board or a member of CCS, and I were asking for information from somebody at Catamaran Ferries International and that information was not forthcoming, I think I would say: "I want to see that audit report on my desk next Monday. And if you don't produce it, you're out the door." That didn't seem to happen. I mean, these people had the authority to demand that information. It seemed that it went on and on and on, and nobody really did anything about it.

M. Sydor: The board had the authority to demand that information. Treasury Board staff and CCS, I guess, are in a different position. They get their authority from the minister, from government. They didn't get that information; that's correct. Certainly the board could have directed that they get that information, and I think we saw efforts to do so. Those efforts were unfulfilled, for whatever reasons.

D. Symons: And people didn't get fired because they refused to or they ignored those. . . .

M. Sydor: People didn't get fired. Yes.

[ Page 1213 ]

K. Lane: With Sandwell Engineering?

S. Orcherton: With Sandwell.

K. Lane: The technology being fast ferries in general, or fast ferries as used here?

S. Orcherton: You made reference to Sandwell. It's documented in the report, as Mr. Sydor said. You're advancing the view that the fast ferries' cost and operating parameters were assumed, and they were unrealistic, overly optimistic and the technology was not adaptable to operation in Georgia strait. How did you come to that conclusion? You had conversations with Sandwell. Did you retain an expert to talk to Sandwell to arrive at that, or did you rely on B.C. Ferries? How did you come to that kind of determination?

K. Lane: I don't believe that we have said it. We should have not said that the technology was not usable in Georgia strait. That wasn't the issue that was raised. Have you. . . ?

S. Orcherton: I might be incorrect. That's my recollection from reading through the report.

K. Lane: Okay.

S. Orcherton: Did you hire an expert?

[1345]

S. Orcherton: Mr. Morfitt, you were quoted on a radio show, Rafe Mair, when the report was released. I haven't actually had an opportunity to read it yet. In any event, I think you said -- and I'm not absolutely sure of my quote here, but it'll be fairly close: "He gave the ten-year plan to the Crown corporations secretariat and took it away from B.C. Ferries. In the haste of doing all of this, they came up with the cost of $210 million. That was based on fast ferries of a different size and style and shape than we were going to have to build." Then you went on to say: "We were going to have to build ships for the docks we already had in place. Therefore the ships had to be quite changed in configuration from those on which the cost estimate was based."

This is sort of back to the point that I started with. We had a vessel that was presented, and it became substantially altered over a period of time. I think what we're trying to get at in this committee is: how did all that occur without due diligence and those sorts of things happening?

G. Morfitt: I think my staff can speak to the arrival at the $210 million figure -- how that came about.

K. Lane: Perhaps we should distinguish. . . . There's more than one design being discussed here. The 1993 work, which showed in MITS, used what you might call a generic design. It was based upon an Incat, a 76- or 78-metre boat, which was the standard boat. The costs for it, with a rough estimate of what it would cost to build in Canada, were used for the MITS study. Sandwell's work on the dock alteration, on the dock-modifying plug, was done at that stage to give a sense of what those costs would be. So there we have, essentially, a rough estimate, good enough for the purpose of. . .the cost of building an existing ship in B.C.

That is reflected in the decision of MITS that there were neither strong advantages nor disadvantages to a first-order estimate for fast ferries for the mid-Island. By the time we got to the B.C. Ferries February ten-year capital plan, the draft plan. . . . Although the ships weren't specified, from what we could see, again, the thinking was roughly around what it would. . . . The standard Incat was the ship being used. By the time of the announcement of the project, the specifications had gelled around a larger ship -- the 240 AEQ, 800-passenger boat. Also, the specifications had gelled by that time to modify to fit B.C. Ferries' berths and docks. So the berthing meant the ships were substantially narrower in proportion than the existing ships, and the docking meant, as it turned out, they required different bow and stern configurations.

The only estimate we've been able to find to support the $70 million which relates to that took the Incat 78 design. Again, B.C. Ferries had done an order-of-magnitude estimate that said: "Build that in B.C., and it'll probably be about $80 million." That was adjusted to $70 million by recommendation of the consultants to CFI, and that's where the $70 million came from. We found no linkage between the change in the specifications to the ship and the change in the price. That is our essential concern here -- that this is a substantially different ship -- but we found no evidence of the work that we'd expect for even an order-of-magnitude estimate to link that change in ship to that change in cost.

S. Orcherton: You found no evidence of that, but clearly that was causal in driving the costs up. I mean, it begs the question. . . . If there was this thing called a dock plug, which I understand Sandwell said could be used with these lightweight ferries and not at an enormous cost, the driving up of the cost was to redesign the ferry to fit the dock. Is that not fair to say?

[1350]

S. Orcherton: Okay. So how did CFI or B.C. Ferries or somebody come to the decision to redesign the ferry, thereby increasing substantial costs? I mean, Mr. Morfitt made comment about that on the radio interview -- that it was $210

[ Page 1214 ]

G. Cooper: I have no idea.

B. Lingwood: I have no information on exactly how that decision was taken and what analysis, if any, was used in arriving at that decision.

S. Orcherton: I think it's fair to say that that's the causal factor that drove the cost from the initial estimate of $210 million to what it is today -- the redesigning of the ship to fit the berth. Is that right?

K. Lane: Yeah, plus the increase in size of the ship. We're talking about a larger ship as well as a different ship.

S. Orcherton: Okay. One other point, and I'll let someone else have a turn. It's coming out of Mr. Morfitt's report. I've raised this before in committee, and the auditor general of British Columbia really looks at three different factors these days. One is the traditional auditing process that an auditor does. The other is moving into areas about performance and what kind of value-for-dollar expenditure you get -- or the taxpayer gets -- in terms of government decisions. The third is into areas around how ethical decisions are made. I think we're talking, really, about all three of those issues here today. I am still at a loss as to how one can fully measure the performance aspects of an expenditure in a really objective way. I'm talking specifically about the spinoff of the construction of these ferries: the shipyards that were revitalized, the workers who worked, the communities that had jobs and continue to have jobs building these ferries.

I'm just a little disappointed that in terms of performance, we didn't get into more of that in the report. I'm not sure how you measure it. I'm not sure how you measure performance in any event. If it's a straight-line thing that, you know, you spend money and you get this, that's one thing. But in this instance, we're expending taxpayer dollars, and there's a whole variety of different positive things that occur out of that expenditure, not the least of which is jobs in the shipbuilding industry and revitalizing communities and those kinds of things. Maybe you can make some comments on that, because my view from talking to people around the province is that from that perspective, this has been a very positive endeavour.

The shipbuilding industry, historically, has relied upon government -- through the First World War, the federal government, and the Second World War, the federal government -- and largely relies these days on B.C. Ferries to keep the shipbuilding industry going in British Columbia. So I think there's clearly been a performance that can be measured, but you really didn't talk about it a whole lot. Have you got a comment?

G. Morfitt: Well, I've been consistent in saying that the government, in moving ahead with this project, felt that that was a big component of this project; that it wasn't just the establishment of fast ferries but the establishment of the industry in the province, and what future that might hold for shipbuilding here. I've consistently said that the jury is out on that, because we haven't come to the end of the process. We don't know that there will not be a marvellous, flourishing shipbuilding industry in British Columbia making aluminum fast ferries.

[1355]

R. Kasper: Could I just have some follow-up on Steve's?

S. Orcherton: I'll defer and have someone else move -- perhaps come back in a while.

J. Weisgerber: I guess I can't resist an observation to begin with. Cost-plus government contracts are a boon to any supplier and its employees. If you have any doubt about that, you should look at the defence industry in the U.S. and at how hard politicians fight to have those industries located in their constituencies. So quite honestly, I think to suggest that we can spend public money the way money was spent on this project and rationalize it because people were employed is a long stretch of the bow.

I'd like to ask a couple of questions of the auditor general to begin with. With respect to this information or lack of information that came from the CEO to the board, do I understand that it was an unwillingness by the CEO to provide the information to the board rather than the provision of incorrect information that was at the heart of that problem?

M. Sydor: I think probably both problems crop up. As I've indicated, there seems to have been an inability, for whatever reason, to provide a good budget, to provide a good idea of what the actual schedule should be. While that commitment was made several times, it was never fulfilled.

On the question of incorrect information, yes, that was certainly part of it, in the sense that the information being provided wasn't identified as to how it had been developed. You know, basically in that regard, my sense is that the board thought they were looking at actual costs rather than costs that had been averaged out, which then presented a different picture for them.

J. Weisgerber: I have had some, although limited, experience with Crown corporations and their boards. It seems to me an unusual situation where the board would meet with only the CEO in attendance as opposed to being there along with the treasurer or the equivalent, a senior vice-president or two with responsibilities in the areas relevant to the agenda topic. It troubles me -- the possibility that senior management staff at B.C. Ferries sat quietly while the CEO either provided

[ Page 1215 ]

M. Sydor: Yeah. I mean, obviously that's a very difficult subject. You know, when we look at an organization, there are roles and responsibilities identified. At the same time, I guess, there are expected standards of conduct and ethics applicable to all staff. Certainly it's a difficult situation for the staff who understand what's going on. At the same time, it's difficult to try to identify what sort of alternative is available to them, other than with the board raising it directly at that time or maybe subsequently going around the CEO, contacting a board member and making their views clear at that time. I don't think the business environment is set up in such a way that most staff feel comfortable doing that. Clearly what we have here is an issue that maybe needs further review to try to identify for the future how staff in that sort of situation can resolve the conflicts that they do have.

[1400]

M. Sydor: Yes.

G. Morfitt: This is why in certain other parts of the world, they have whistle-blower legislation to protect people who can come forward, speak up and be protected in that regard. We don't have that here.

J. Weisgerber: I think that unless someone else has something to add about the reporting by the CEO to the board, we have been led to believe by the minister who was responsible during most of this time -- Mr. Miller -- that in fact he got either no information or incorrect or incomplete information from the CEO. Has there been any attempt by the auditor general to identify the information flow that was going on at that time? Were there requests from the minister that were flatly denied?

M. Sydor: No, I don't think that's the case. My sense is that the minister did rely on the CEO, and he was basically getting the same information as the board was. So they were both in the same position with regard to the quality of information they were getting. The minister chose to rely primarily on the CEO.

J. Weisgerber: It characterizes in my mind this enormous silence. Nobody asked any questions; nobody volunteered anything. The world kind of moved along -- for substantial periods of time, it would appear -- with no information. Or if there was information, it had to have been incomplete or incorrect.

M. Sydor: Certainly there were opportunities, because of the signals from a number of sources, where maybe more should have been done by way of carrying out an independent audit or a review, using CCS or Treasury Board staff to carry out more work. Those opportunities weren't taken.

J. Weisgerber: Finally, I have a couple of questions that I'd like to direct to Mr. Lingwood, if I could. I'm reluctant to try to go back before your tenure as CEO. I quite honestly don't think that's fair either to you or to Mr. Cooper.

But with respect to the current situation which you outlined for us -- in part, at least -- at the beginning of your presentation, I've been struck with the repeated musings of the current minister with respect to alternate routes for the fast cats. It seems to me that on a number of occasions, we've heard that indeed these vessels may not be the right vessel for the Departure Bay to Horseshoe Bay run. I wonder if B.C. Ferries has identified lists of potential new runs. As I think about the ferries operation, I'm trying to think: where else are you going to put them? You have a blockage on the Swartz Bay to Tsawwassen run in Active Pass. If not there, where?

B. Lingwood: First, the Pacificats and the service around them were really designed for the Horseshoe Bay to Departure Bay run. The size of the vessel, the speed of the vessel and the number of vessels all fit within the cycle and service requirements of that run. As well, there is the fact that it's basically a passenger and automobile ferry as opposed to a ferry which also takes commercial traffic, and there's the strong desire to reduce commercial traffic within our Horseshoe Bay and Departure Bay terminals. So we have three vessels and a service plan very closely linked and very closely tied to that specific route. We're moving to implement that route. If for some reason that implementation proved to be unsuccessful -- if that were to start emerging -- we would definitely look for alternate routes.

But the point is well made. Given that a variety of aspects of this vessel has been designed for that route, how they would be fit into the service elsewhere is an open question and, hopefully, not one that we will have to face.

[1405]

If I understand correctly -- I don't want to engage you in this kind of debate -- I should take from your comments that B.C. Ferries has never suggested to the minister that (a) the current route may not be the best route for the ferries and that (b) B.C. Ferries has not considered alternate routes.

B. Lingwood: We have no detailed plans for alternate routes. The situation is very much as I describe. If, for whatever reason, the implementation of the three vessels on route 2 proves to be unsuccessful from a variety of possible standpoints -- if we saw that emerging -- we would definitely try to find alternate and better uses for the vessel. But we're not actively engaged in that at this time.

J. Weisgerber: Finally, then, the third vessel is intended for use on that existing run so that there would be. . . . Rather than what we've seen historically with B.C. Ferries on these runs -- kind of one starting at each end, meeting in the

[ Page 1216 ]

B. Lingwood: In the peak season there would be three on the same route. In the off-season, there would be two. As the vessels go through maintenance cycles, the third. . . . Those maintenance cycles would be scheduled in the off-peak. The vessels would relieve. . . .

J. Weisgerber: So that route would be serviced, then, exclusively by the fast cats?

B. Lingwood: That's correct.

M. Coell: I'd just like some clarification on a couple of questions that were asked. When the decision was made to go ahead with the fast cats, I think we've been told, the recommendation was not made by the mid-Island group. The recommendation was not made by the board of directors or the staff of B.C. Ferries. Yet a recommendation was taken to Treasury Board. Who prepared that recommendation?

M. Sydor: The recommendation was part of the cabinet submission that CCS completed on a ten-year capital plan. So the recommendation was contained within that cabinet submission. That was presented to the board on a couple of occasions in April; they basically endorsed the recommendation. Then it moved forward to cabinet and Treasury Board.

M. Coell: Who worked on the CCS presentation to cabinet and Treasury Board?

M. Sydor: Primarily one of the CCS staff members. I think there was also input from the consultants that were employed during that time on the fast ferry technology.

M. Coell: Could you name the staff person and the consultant for me, please?

M. Sydor: There were two consultants who were providing information that was part of the whole process. One was Sam Bawlf; the other was Tom Ward. The CCS staff member who was working on that cabinet submission was Frank Blasetti.

[1410]

M. Sydor: Yes. He had his own consulting company.

M. Coell: At that point, Tom Ward was not the CEO of CFI?

M. Sydor: No. I'm talking about the period April 1994, and Tom Ward became a vice-president of B.C. Ferries in August of '94.

M. Coell: Who appointed Tom Ward to that position?

M. Sydor: Well, the record shows that he was hired by Frank Rhodes, who was the CEO at the same time. They both came to B.C. Ferries in August of '94.

M. Coell: Did Mr. Bawlf have anything further to do with the corporation as a consultant after that date?

M. Sydor: I'm not sure whether he was employed by the corporation after that date, but I think he did have continuing involvement for some time.

K. Lane: I believe Mr. Bawlf has gone on record as saying that he ceased to have any involvement in the project after, if memory serves me, September or October of 1994. And I don't believe he was a consultant to the corporation, if you mean the B.C. Ferry Corporation.

M. Coell: On page 36, there's a number of actual costs to date. It appears to me that the board was being given figures and that there was another set of books. In your research, did you find there was actually another set of books that had actual costs in them that weren't being forwarded to the board?

M. Sydor: I wouldn't say another set of books. I think what we're talking about are spreadsheets and information you keep that's ancillary to the main accounts. As we show here, what we're looking at are projections. We're not talking about actual costs that were kept in a separate book. What we're talking about is people sitting down and saying: "Where are we now? What is it going to cost in the future? What's the final cost?" -- and then putting it down in some notation in a particular record. Those costs weren't provided to the board. I mean, this was a cost that the board had been asking for, for over a year. The CEO undertook to provide that and, in fact, didn't.

M. Coell: One of my colleagues asked about the audit being done and the information provided to the auditors. It strikes me that if they were given the projections -- or, as I would say, the second set of documents -- they might well have had a reason to do a more in-depth audit. I'm just wondering, in your research, whether you actually found documentation that wasn't given to the auditor and the board but that was kept separately.

M. Sydor: Other than what we show here, no. We don't have any other evidence that anything was withheld from the auditors.

M. Coell: Other than projections.

M. Sydor: I'm not even sure whether that was withheld from them. We only looked at what was withheld from the board.

M. Coell: Okay. Thank you. That's fine.

R. Thorpe (Chair): Just quickly, are B.C. Ferries on a cash or accrual accounting method?

B. Lingwood: Accrual.

R. Thorpe (Chair): If you were making a commitment and going forward, as I think you would do with major capital expenditures, would you not have a purchase order system which would link with your accrual system and give you a pretty good handle on what's going on?

[ Page 1217 ]

[1415]

P. Calendino: I will start with the auditor general. The focus of your report seems to be on governance. I was appointed to a board around '94. At that time, the push from the bureaucracy was to adopt a certain model of governance -- which has definite roles between board members, staff and the CEO -- for boards. I'm referring to -- you must be familiar with it, and maybe you will comment on it -- the Carver model of governance. I'm wondering whether you inquired as to what model the two boards of BCFC and CFI were employing at the time.

You're talking about definite roles of governance, and under that model there are definite roles. Obviously the role of board members is quite limited. Maybe you can comment on the Carver model to begin with and then let me know what model they were using on those boards -- if you're familiar with it.

G. Morfitt: No. But the model that was followed by all of the boards in the B.C. government is very similar to anything that you might find elsewhere in the private sector. The boards have a responsibility to ensure that the programs of the corporation are well managed. They receive reports from senior officials, they deliberate on those reports, and they give approval or give separate direction to the managers.

I mentioned before that this interaction, this relationship, between all of the Crown corporations of government and the agencies and commissions -- and we're talking about you know, several dozen enterprises that are now operating around government and are not part of the ministries; they're sitting outside of the ministries -- has expanded tremendously over the last several decades. It's very important that there be a very solid understanding within all of government as to what the relationship is between these boards and agencies and central government agencies.

A few years ago, as most of you know, we did an in-depth review of the governance of Crown corporations in B.C. The Crown corporations had expressed concern for some time as to the fact that they didn't really understand or enjoy the relationship between them and the rest of government. What was happening was that you had all sorts of groups and individuals playing a governance role in and around government. You had ministers and deputy ministers; you had utility commissions, for example; you had chairs of boards; you had boards; you had CEOs. And you had all of this swirling around and everybody not sure, firstly, as to just what their individual roles were and, secondly, the relationship of the roles between these various people and entities.

Now you've added Treasury Board to that. You've got the Crown corporations secretariat and their advisory, and they ask for information. You've got all these things happening. So we did an in-depth review with the cooperation of all the Crown corporations and all the presidents of those corporations at the time, and we issued a report where we tried to capture all of the considerations involved in Crown corporation governance. One of the points that we're making in this report is that we still see those problems out there. We see a need for some way to wrestle with this question and get it resolved.

In talking to one of the ministers the other day, he said: "Well, you know, I'm responsible for a few boards and commissions." But then there's this other minister responsible for a few boards and commissions, and there's another minister over there responsible for a few boards and commissions, and there's no one looking at the whole governance aspect of this question. So there's no way to pull this together and get a consensus as to how government should operate. I'm not sure how that should happen, but I think it's important to do.

[1420]

G. Morfitt: I think the board does have to rely on information coming from management, and therefore the board has to make sure that management is operating well. The board has to make sure that all the checks and balances and all of the responsibilities within the corporation are well spelled out, so that they can be sure they're getting the right information. We hear over and over again -- not from just the public sector but the private sector -- of boards acting in a vacuum and not getting the information they require. This happens over and over again. The secret to success, I think, is for the board not to micromanage but for the board, as I say, to make sure -- through investigation and through understanding with the people hired to manage the entity -- that the managers are responsible for certain things, for certain reportings, and that within the management of the company, there are proper checks and balances to make sure that the information that does flow forward is accurate and complete.

P. Calendino: That's easy to say when you do your audit, but how is a board to know that the information is not reliable and complete when you have hired staff to do exactly that for you? What checks and balances are you referring to here? I mean, you hired staff to do that work for you, and you trust -- and there is a trust relationship between board and management -- that they are bringing you the information that is correct and accurate and reliable and that you can make decisions on. I'm not sure what you refer to as checks and balances. There are checks and balances everywhere, but the information is always coming through the same channel. The board doesn't necessarily have the opportunity to verify those checks and balances, because -- and, as I said earlier, we

[ Page 1218 ]

G. Morfitt: Well, boards often use the device of subcommittees. For example, you have an audit committee; you have a planning committee. You have a variety of other committees that you can use to focus in on certain aspects of government and corporation management so that they can go a little bit further in depth. I meet all the time with audit committees of the universities and major corporations, and they get quite involved in the specifics of something like this. I don't know if the Ferry Corporation had or has an audit committee. Maybe they could answer that question. A question that would then arise is: what did the audit committee do?

I agree with you. If somebody wants to not provide you with accurate information, it's often very difficult to find that out.

P. Calendino: Well, I'm pressing on this point because I'm hearing that the CEO of the B.C. Ferry Corporation was not providing accurate information to the board, even though the board asked several times. You put that in your report, and you've said it today. Yet your comments here indicate that the boards were not applying due diligence in forcing that information to come forward. I guess I have to maintain that the board did its best to require that information, but management was not forthright in providing that information.

You know, we're trying to make politics here. There are some members who want to score points, and there are other members who want to put a light on this. The board was between a rock and a hard place. Which way do you go when you get certain figures coming to you? You think they're accurate, and you make decisions on those figures. Then, when it's too late, you discover that those were not the figures.

[1425]

Getting incorrect information. . . . It's really up to the intelligence of individual board members looking at the circumstances that they're dealing with to say: "Well now, let me think. This was to be an operation that was supposed to take three years. We're now into the second year, and we've only got one ship half done. I think maybe the cost might be increasing somehow." You know, you can't be categorical about all this. All we're saying -- and we're being quite muted about it; reasonably, I think -- is that the board could have been more diligent.

P. Calendino: You're saying you can't be categorical about it, but that's exactly what you're doing. You are being categorical. The board was asking for information, and the management was providing certain information, and the board was making decisions on that information. Nobody really indicated to the board at any time that the project was about to incur cost overruns. The first indication, according to the figures in your report, was in August 1997, when there was a report indicating that the cost had gone up to $262 million, from $210 million. Up to that time, there weren't any indications.

Actually, I want to know from staff: how did you come to the conclusion that the board was not asking for information with due diligence? Did you rely just on minutes, or did you actually interview board members to see whether they had been forceful or not?

M. Sydor: We did both. We relied on minutes, and we looked at copies of financial reports that would've been provided. It was based on that that we came to our assessments. So it wasn't just a case of looking at the minutes; it was looking at the reports, the minutes, talking to board members and getting from them their views as to what went on and how they were viewing these particular issues at the time.

P. Calendino: Right. And you indicated that board members kept asking for information on the cost of the project, which wasn't coming. I mean you're saying there were financial reports, and obviously the financial reports did not indicate at any time -- unless you can tell me differently -- that there were cost overruns.

M. Sydor: The financial reports indicated that the original budget had been surpassed. The financial reports were not adjusted for revised budgets. What we did show was a commitment and how much had been spent to date. It was never told to the boards that, in fact, the projected final cost would be much higher than what was shown in those financial reports they were getting.

P. Calendino: There was an indication of that?

M. Sydor: There was no indication provided to the board that the costs would be higher than what they were seeing in front of them.

P. Calendino: Okay. Did you, in your analysis of the balance sheets or financial statements, find any evidence at all that there were actually cost overruns being assumed by Ferries but the information was not going to the board or to the minister or to the secretariat?

M. Sydor: Well, cost overruns in terms of exceeding the total budget -- no. At the time, the costs had never totalled the $260 million, or whatever the figure was, that Treasury Board authorized in August of '97. So from that standpoint, we never got to the point where we were over that target. We won't get over that target, because Treasury Board wouldn't authorize the additional spending.

P. Calendino: But cost overruns were being incurred. So who knew about the cost overrun? Was there anybody who knew that there were cost overruns?

[1430]

[ Page 1219 ]

P. Calendino: What year are we talking about here? In '97 there's a global figure that's brought to the board.

K. Lane: Right -- for three ferries. But it's not broken down to say. . . . There wasn't a budget figure for ferry No. 1 that the board could compare against. That is the problem of reporting that we show on page 36 -- that the allocation of cost among the three ferries gave some flexibility to the CEO, because the board didn't hear about ferry 2 and ferry 3 separately.

P. Calendino: I realize that. But management had a certain knowledge of where the costs were. Did they not?

M. Sydor: Yeah.

P. Calendino: I mean, I think it was Mr. Symons that said they must have had receipts being sent to them, and they must have had payables. So management must have known.

M. Sydor: But you're not going to get a cost overrun until you actually exceed your budget. I mean, if you finish the ship. . . . Let's say 50 percent of the ship is finished, and you've spent 80 percent of the budgeted dollars. I mean, technically that's still not a cost overrun. You've still got money in your budget to finish it.

P. Calendino: I understand that. But if you have $260 million, you've built half of one ship, and you've spent $220 million, that should turn a light on.

M. Sydor: Yeah, exactly.

P. Calendino: But why didn't management then provide that information to the board?

M. Sydor: That's a good question. That information was available. In fact, managers had financial information that showed the dollars spent as a percentage of budget and what that translated to -- into completion as a percentage of the total project. Those figures did show. . . . If you examine them, and we did over a number of months, you'd see that what they show you is that the final figures would be over $300 million.

P. Calendino: So you're saying the board could have extrapolated if it had been given all these figures?

M. Sydor: If the board looked at that information and did the analysis, it was there month by month.

P. Calendino: Would people who are not accountants and experts like you be able to do that?

A Voice: I figured it out.

P. Calendino: Oh, yeah. But how long. . . ?

G. Farrell-Collins: He didn't even have a lot longer.

P. Calendino: The member said if he were. . . . How long did it take you, though?

G. Plant: Actually, my recollection is that it took about five minutes by calculator.

P. Calendino: Anyway, in your analysis of the thing, can you indicate to me what led to these cost overruns after '97?

M. Sydor: Probably a number of factors. I mean, (1) I don't think anybody accepts that the initial budget was realistic, and (2) the nature of the contract, as well, lends itself to cost overruns. We didn't have a fixed price. Nobody agreed to a fixed price. So we were paying for whatever work was done. We ran into a situation just as you described, where we've expended, say, 35 percent of the money, and we've got a quarter of the project finished. Once you've done that, you're just falling behind month by month until it escalates to what we have now, a $100 million overrun.

P. Calendino: Was the design change a major factor in the cost overrun?

M. Sydor: The design change led to the higher cost. The cost overrun is because nobody went back and looked at the original budget and asked: "Is that realistic? What should the real budget be?" I mean, we started with a $210 million figure, and it carried forward for three years, I guess, until August 1997, when B.C. Ferries went to Treasury Board and said, "We need an increase," and they got an increase.

P. Calendino: What was the reason for that request?

M. Sydor: Well, it's because by that time they realized that the costs were going to be higher, but I don't think they realized the extent of how much higher they would be.

P. Calendino: Was that request due because of design changes or because of training of workers or because of interior decorating that changed or because of the docking mechanism that had to be adapted to the bigger ferry?

M. Sydor: It's a combination of all of those. All of those go into the cost of the ship. They recognized that, yes, the budget had to be increased, because of how much had been spent and how much still had to be done.

P. Calendino: Did you, in your analysis, talk to any of the workers to see whether they had any benefits out of all of these cost overruns?

M. Sydor: No, we didn't talk to any workers.

[1435]

G. Morfitt: Do you mean if you continually ask for information and never get it? Or if you get information, and

[ Page 1220 ]

P. Calendino: Once it was discovered that incorrect information had been provided, was action not taken?

G. Morfitt: I believe it was.

G. Farrell-Collins: It's been interesting to see an attempt, particularly by my colleagues opposite, to try to characterize this as something that just came out of the blue -- that Mr. Miller received a phone call one night that all of a sudden the ferry project was over budget, and that was the first anybody had ever heard of it.

Well, the reality is that the current Ferries minister had been highlighting the cost overruns and delays for years. My colleague from Richmond Centre, who wasn't privy to all the board information, was able to sit down and use the grey matter between his ears that God gave him and say: "This project is a year and a half to two years behind schedule. We still don't have a boat functioning. There is a cost-plus contract. There is no way that this project can be on schedule, on time and on budget." He in fact mentioned that year after year in the Legislature. I sat there and listened to him.

The thought that this came out of the blue and nobody was paying attention is a ludicrous one and simply can't be made. The reality is that any reasonable person paying attention would have known that there was a problem -- anybody would have. In fact, the minister certainly would have. Members of the board would had to have known. If I was sitting there as a member of the board and saw that the project was that far behind schedule and the CEO was not giving me the information I asked for, I would be asking a lot of questions.

It seems to me that what did happen -- the only action that was taken throughout that whole time period to deal with board members and information -- was the firing by Mr. Rhodes of those members of the CFI board who were, I guess, aggressive enough to pursue the line of questions. What I would say is: what kind of a signal does the auditor general think that sent to all of those people who might have had concerns about the cost overruns, when those few people who were raising the issue were fired?

G. Morfitt: That's something I can't answer.

G. Farrell-Collins: I want to ask a couple of questions about what happened here.

Mr. Lingwood, you talked very early in your presentation today about the lack of proper reporting structures which should have been in place, no accountability for those decisions that were made, poor exchange of information between the Ferry Corporation and the CFI and either inaccurate information or poor information. I know you're new to the Ferry Corporation, but in all your time in the public service and your time heading up another Crown corporation, have you ever seen anything that was as dysfunctional as what you saw when you took over the B.C. Ferry Corporation, as far as the issues you raised earlier?

B. Lingwood: No.

G. Farrell-Collins: I want to come back a little bit, if I can, to the financials. It seems to me that the reason businesses keep financial information is so that they can manage; that's what it's all about. You have data, you have numbers, you track invoices and you track your paycheques, so you know how much money is going out and how much money is coming in and where you are as far as your plan goes and how you are proceeding. Indeed, the financials are the tools that you use to measure whether you're getting where you want to go.

[1440]

What you're telling me -- yourself in your examination, Mr. Lingwood, or the auditor general -- is that the only one who was ever involved in seeing all or any of that information was Mr. Ward. Was there no one else in the corporation who participated in the audit committee or who met with the auditors to go through financial statements to prepare an annual report? I can't imagine that Mr. Ward was the only one doing any of that.

Mr. Morfitt, Mr. Sydor, do you have any sense. . . ?

M. Sydor: Well, you're right. Mr. Ward wasn't the only one doing it. There were different financial reports prepared at CFI and at B.C. Ferries. There were committees in place; there were management committees. There was a management committee -- I think it was called the capital program and budget committee. . . . They were getting financial information that showed them what the situation was. In fact, if you look at the minutes from that committee, you can see that managers did express concern about what the figures were showing them. But in the end, it's the CEO who makes the presentation to the board. So what we have are reports that get assembled and accumulated in different levels of detail. Presentations are put to the board based on the information that the board asks for. It's usually the CEO who makes that presentation, if that's his wish.

G. Farrell-Collins: Mr. Cooper, did you participate in any way in any of that assembly of information in your time at CFI?

G. Cooper: Certainly. I was appointed in March of '96 as the CFO of Catamaran Ferries International. It happened exactly the way the auditor general has indicated. We had a very small finance group, which kept very accurate records, being subjected to several financial audits, both by internal auditors of B.C. Ferries and by external auditors. The systems were found to be accurate and to be working properly, and the information was found to be reliable by these external auditors. The information was gathered. My reporting function was through a general manager who reported to the president

[ Page 1221 ]

G. Farrell-Collins: Did you participate in the drawing up of financial statements for CFI?

G. Cooper: Yes, I did.

G. Farrell-Collins: Did you ever see those financial statements in any annual report from CFI or as part of the B.C. Ferry Corporation?

G. Cooper: Up to the CFI level, yes. I was responsible for preparing those for audit purposes.

G. Farrell-Collins: So once the financial statements were prepared, you don't believe that that information went to the B.C. Ferry Corporation, to the parent company or to the minister? They were changed somewhere along the way?

G. Cooper: It depends on the information we're talking about. There were several reports prepared for B.C. Ferries. The annual financial statements -- which are the ones audited by the external auditors, KPMG, and Doane Raymond prior to them -- would have gone to B.C. Ferries for consolidation into their financial statements. I'm assuming that the consolidated financial statements would have been presented to the B.C. Ferries board. I don't know.

G. Farrell-Collins: Did you ever read the B.C. Ferry annual report after you'd done your financials, to see what came out the other end?

G. Cooper: Yes, I did.

G. Farrell-Collins: Did you ever have any concern that the information you'd presented hadn't made its way to the B.C. Ferry Corporation?

G. Cooper: The information presented actually did make its way to the B.C. Ferry Corporation and was accurately presented on the annual financial statements. The annual financial statements are primarily the balance sheet, which is the accumulation of costs to date, and the income statement, which is expenses written off. Those were accurately stated, audited and presented to B.C. Ferries for consolidation into their financial statements. I did not notice any changes to those numbers at that particular level.

[1445]

B. Lingwood: I'm not aware of the information he would be getting.

G. Farrell-Collins: Mr. Morfitt, do you think that Mr. Rhodes would have been receiving accurate financial statements from Mr. Cooper?

G. Morfitt: Well, I have no doubt that they were accurate. You see, it's a continuum. We have to keep reminding ourselves that this is an accumulation of costs at a stage where all of the future costs aren't recorded in the financial statements. So even though there would be signals that costs are running ahead of where they should be at that stage, they still wouldn't necessarily get everybody all excited and hopping up and down.

Something that I haven't asked my staff or anyone else is: it seems to me that if there were contractual obligations that were outstanding and long-term, those would be noted in the notes to the financial statements. If that is so, that would trigger some questions.

G. Farrell-Collins: It would certainly trigger some questions, I would think.

M. Sydor: I would just like to point out, as well, in regard to your question about Mr. Rhodes and the financial information. . . . Because he resigned in October 1997, he would have looked at the March '97 financial statements, which would mean only, like, six or seven months of construction. So I don't think there would have been anything noticeable at that particular time.

G. Farrell-Collins: But there was a CEO of the B.C. Ferry Corporation throughout this time period.

M. Sydor: Right.

G. Farrell-Collins: So whoever that CEO was should have noticed that or would have been able to notice that -- would have had the information they needed to put two and two together.

M. Sydor: Yes. But after Mr. Rhodes, Tom Ward was the CEO for both. So, I mean, he would have seen it and carried it forward.

G. Farrell-Collins: I have some more, but if you. . . .

R. Thorpe (Chair): Yeah, I just have one question of Mr. Cooper. Mr. Cooper, in doing your financial statements. . . . Are you a CA by designation?

G. Cooper: I'm a chartered accountant, yes.

R. Thorpe (Chair): Thank you. Would you not have, when you were preparing your actuals and taking in your

[ Page 1222 ]

G. Cooper: As the auditor general's report has pointed out -- and the Hugh Gordon report prior to that -- the budget that we had when we started the project in March '96 was the $210 million, which is one which, it became apparent right from the beginning, was unreliable. That was the only budget that we had until we redid the budget at the beginning of this year. We'd attempted, by the end of 1997, to start making forecasts, but the budget was never changed. What we had was the original budget, which was unreliable; we had our commitments system, against which we could track costs and compare commitments with actuals. At the end of 1997 and the beginning of 1998, we made our first attempt to forecast cost to completion, and it was at that particular stage that the information was passed on to senior management as to our real concerns about cost overruns.

G. Farrell-Collins: Thank you. So you're telling us that you had a budget and, at very early stages, management became aware that that budget was simply unrealistic?

G. Cooper: I believe that the budget was changed in the latter part of 1997 -- was it? -- up to $262 million. So it was around that stage that we realized that the budget certainly was unrealistic, because we were having to move it forward at that stage already.

G. Farrell-Collins: Now, I want to read from the auditor general's report, page 37, the second paragraph, partway through. It says: ". . .the board was told that spending on the first ship to March 31, 1998, was $83.7 million. Subsequently, it was told that spending on the first ship to June 30, 1998, was $82.1 million. In other words, during three months of continued work on the ship, the total spent had apparently gone down by $1.6 million. No directors questioned this anomaly."

I have a copy of the board minutes from CFI from Thursday, July 16, 1998. Throughout, the story we've been told is that it was Mr. Ward who was presenting these inaccurate pieces of information to the board -- that the information that was getting to the board and to the minister was inaccurate and that Mr. Ward was the one responsible for that. You made that presentation in July, did you not?

G. Cooper: Yes, I did.

G. Farrell-Collins: Were you not aware that that information was inaccurate?

G. Cooper: Yes, I was.

G. Farrell-Collins: You presented information to a Crown corporation board that you knew to be inaccurate?

[1450]

G. Farrell-Collins: What was it?

G. Cooper: In terms of accounting principles, it was accurate information. What had transpired under Mr. Ward's instruction. . . . Prior to that, the actual costs incurred on the first ship -- because the first ship was the only one under substantial construction at that stage -- were being accumulated. Mr. Ward had presented to the board, prior to that, the actual costs; or if I was present, I had done so.

In this particular month, because the actual costs on the first ship were increasing to a point that they were going to exceed the budgeted cost -- as the board was aware -- Mr. Ward instructed the general manager, who instructed me, to use an accounting concept called averaging. Where you have, for instance, three vessels being constructed under one project, the numbers can be averaged. Certainly the numbers -- the learning curve -- can be averaged over the three ships. So an adjustment was made at that particular stage. It was obvious to me that the June number was going to be less than the March number. I made the presentation on that basis. No questions were asked about it. But the numbers were not inaccurate for the project as a whole.

G. Farrell-Collins: Did you advise the board at that time that you had changed the method of accounting?

G. Cooper: Not at that time, no.

G. Farrell-Collins: Why not?

G. Cooper: I was reporting through a general manager reporting through the CEO of the company. I was not reporting directly to the board. I answered questions when asked. If the questions weren't asked, I was instructed by Mr. Ward not to provide any information beyond what was actually asked for.

G. Farrell-Collins: Do you think that's normal procedure?

G. Cooper: I don't know.

G. Farrell-Collins: Has that ever occurred to you before in your professional career as a CA?

G. Cooper: I've never reported to a board. . . .

G. Farrell-Collins: Have you been advised to report to a board information which is different from the pattern and been advised specifically by your general manager -- in this case, the CEO -- that you were not to go beyond in any way, shape or form exactly what was to be said?

G. Cooper: I've never reported to a board before.

G. Farrell-Collins: Do you think it was professional to sit there and present information to a board, knowing that they were very likely to be misled by that information, given that they didn't have the background information to go with the change in accounting procedures?

G. Cooper: I struggled with that one. It was discussed earlier on in this committee, and I struggled with it. I took informal advice from my peers in the accounting profession. I took informal advice from an associate in the legal profession. Both of them advised that my question was a moral issue as opposed to an ethical or legal issue. I struggled with it. In

[ Page 1223 ]

G. Farrell-Collins: Did you disclose that to either your new CEO of the Ferry Corporation or anyone from the auditor general when they were conducting their review?

G. Cooper: Absolutely. I was, to the extent possible, as cooperative as I could be with both the former board of CFI when this became knowledge. . . . I cooperated entirely with the author of the report that was presented to the old board in January of this year. I cooperated with Hugh Gordon and with the auditor general to the fullest extent possible.

G. Farrell-Collins: Mr. Morfitt, can you tell me why, on page 37 of your report, in the immediately following paragraph, it says: "Clearly neither the B.C. Ferries board nor CFI's second board were well served by their joint chief executive officer"? Do you feel that it was only Mr. Ward's responsibility to present accurate and clear and full information to the board at that July meeting?

G. Morfitt: I think this is a comment about the chief executive officer. It's not a comment about others.

G. Farrell-Collins: I refer to the information that's in the immediately preceding paragraph. . .

G. Morfitt: Oh, I see.

G. Farrell-Collins: . . .which I read to this committee moments ago. It's specifically referring to the reduction of the costs in the three-month period. Despite the fact that this project had been worked on for three months, the costs went down. Nobody offered information or explanation to that board as to why that might have happened. Certainly it seems to me that while Mr. Ward certainly had a role to play in that, Mr. Cooper and the general manager and others at CFI had a role in presenting what I think is incomplete information to the board. Do you not feel that that's the case?

[1455]

M. Sydor: Yes. As Mr. Cooper indicated. . . . We've looked at the documents involved, and it was clear that it was the CEO who was directing the activities and the information that was being presented to the board. I think that's what our report reflects. I mean, we're looking at roles and responsibilities. It's the CEO's responsibility to report to the board. The position we're taking is that in a governance environment, there has to be a good relationship between the board and the CEO. We wanted to focus on that, because throughout, it was Mr. Ward that was making the decisions.

G. Farrell-Collins: I agree.

M. Sydor: At some point, that's where the buck stops.

G. Farrell-Collins: Thank you.

Mr. Lingwood, what do you think are the requirements of a chief executive officer for Catamaran Ferries? What do you think are the requirements -- the basic requirements? When you went out and looked for a CEO, what were you looking for?

B. Lingwood: We were looking for someone who could complete the project -- in other words, complete the second and third vessels, manage it on time -- and fit the role; address the issues that I've mentioned in my earlier statement with respect to the shortcomings found in the Hugh Gordon report; and then deliver the project on an approved schedule within an approved budget.

G. Farrell-Collins: Did you think about leadership, integrity and getting proper information? It seems to me that one of the big problems we've had throughout all this is that accurate information wasn't getting to people. At least that's what the whole auditor general's report says. Was that a concern?

B. Lingwood: It was a concern, yes. The issues which Mr. Cooper has raised were gone through at length with Mr. Cooper in the process of interviewing him, and then outside advice was also sought by the chair, who's involved in those interviews.

G. Farrell-Collins: So you knew that Mr. Cooper gave information to a board that I think, by any analysis, was not full, whether it was under the direction of Mr. Ward or not. You were aware of that at the time of hiring Mr. Cooper.

B. Lingwood: Some parts, yes; to some extent, yes. We went through the issues of his responsibility, both as a CA and ethical responsibility.

G. Farrell-Collins: I'm a member of the Legislature. Part of my job is to hold the government to account, to hold Crown corporations to account and, as a member of this committee, to look at financial information and try to make a determination. I'm expected now -- and so are you, quite frankly, as the chairman of the B.C. Ferries Corp -- to assume. . .

B. Lingwood: CEO.

G. Farrell-Collins: CEO -- sorry.

. . .that the information you're going to receive is going to be full, frank, complete, honest, upfront, forward. Any changes are going to be made available to you and made clear to you. I'm not comfortable, leaving here today, that I'm going to get that. I mean, how do I know that somebody else -- not like Mr. Ward, but perhaps another minister or someone else at B.C. Ferry Corporation or some people on the new board -- is going to tell Mr. Cooper that he should report information this way: "Don't change it; don't offer any advice; don't offer any clarity. And if anybody asks any questions, just stick with what we've told you"? How am I to go away as a legislator, given a $253 million cost overrun on a $210 million project, with any assurance that we're going to continue to get accurate information?

B. Lingwood: Well, we've set up a variety of checks and balances within B.C. Ferries and CFI to ensure just that, really, from the board on down.

[ Page 1224 ]

[1500]

G. Farrell-Collins: Well, I'm not reassured. It seems to me that when somebody takes on the role of a profession, they have a job to do that profession to the best of their ability; they have a job above and beyond, whether it's legal or ethical. They have a moral responsibility to behave appropriately and to make sure that the information gets to the people it's supposed to get to. I don't think that was. . . . Certainly as far as this report goes -- as far as this individual report to the board on July 16, 1998, is concerned -- it didn't happen, and I think that. . . . You know, some days when you sit there and there's pressure put on you, whether it's by a government that is overbearing or a minister who is overbearing or a CEO or a chair who is overbearing, there is a role for an individual to stand up and say: "That's not good enough." And the option of just sitting quietly and hoping it all goes away isn't the only other option. You don't get to say something or not say something. There is accountability to be paid. . .

E. Gillespie (Deputy Chair): Hon. Chair, I'd like to interject.

G. Farrell-Collins: . . .and I think that this has been handled very inappropriately.

R. Thorpe (Chair): A point of order.

E. Gillespie (Deputy Chair): I'd just like to interject here, because. . .

R. Thorpe (Chair): Is it a point of order?

E. Gillespie (Deputy Chair): . . .while it's very important that we go through this audit and consider it very carefully, we are not here to moralize to public employees. Given the discussions we've had over the last week about the importance of public employees, I would think that there would be some respect shown on that account. I think it would be appropriate to pursue lines of questioning about the checks and balances that are in place and whether or not they meet the satisfaction of the auditor general, but this line of questioning, I believe, is not appropriate.

G. Farrell-Collins: On the point of order, Mr. Chair. I think that if there had been better leadership shown by the board of the B.C. Ferry Corporation over the years, perhaps. . . .

Interjections.

G. Farrell-Collins: Let me finish.

If there had been better leadership provided, then perhaps we wouldn't be in this situation. The reality is that we are in this situation. The people of British Columbia deserve some answers, and I think they should be entitled to hear them -- whether you like it or not, Evelyn.

R. Thorpe (Chair): Noting the hour and noting the progress we did make today, I want to make a suggestion before we adjourn. The subcommittee of Public Accounts has meetings scheduled for December 14, 15 and 16, to look after finding a new auditor general. In the interest of moving this report along, I would like to know if the committee would like to take one of those days and dedicate it to this project, report No. 5. I would just like to have feedback on that before we move forward with adjournment today.

E. Gillespie (Deputy Chair): Just looking at the people who are here, we need to canvass our members on that.

R. Thorpe (Chair): Would all members please canvass all members on that subject?

The auditor general wanted to make a comment.

G. Morfitt: Mr. Chair, I asked you if you could clarify for me the instruction to provide the names of people we interviewed, and so on. I would like it as a committee motion. It's a unique request, and I need to know that the committee wants that information.

R. Thorpe (Chair): The individual who made that request, Mr. Weisbeck, I understand, had to leave.

M. Coell: I can make the motion that I think was contemplated this morning. I move that the auditor general submit the list of witnesses he interviewed to the committee and that the list be kept for the confidential use of this committee.

R. Thorpe (Chair): Does anyone have any comments on that?

S. Orcherton: I am going to speak against the motion. One of the greatest assets the auditor general has, indeed, is the ability to canvass and discuss issues with employees of the government or the public service in a very confidential way. I think that going in this direction will, at the end of the day, be very damaging to the auditor general and his ability to have completely candid responses to the questions he needs to pose in the course of his duties and for the reports he needs to prepare for this committee and for the assembly. So I don't support the motion.

R. Thorpe (Chair): Does anyone else want to speak to the motion?

[1505]

[ Page 1225 ]

R. Kasper: On specific request.

G. Morfitt: And we've talked of several today.

R. Kasper: In doing so, I would feel greater comfort if consent was granted by those individuals in order to deal with the issue that Mr. Orcherton has raised. I think there has to be a degree of comfort between those witnesses and the auditor general's office as to where those names go and who in fact is going to be seeing those names. If we're talking about protecting the integrity of the office and also whether matters were raised in a confidential fashion -- as they have been in the past -- then I would support the motion only on that basis.

R. Thorpe (Chair): Rick, is that an amendment to the motion?

R. Kasper: No, I would move as an amendment "with the consent of the witnesses." That means work would have to be done on the part of the office.

On the amendment.

G. Farrell-Collins: Can I suggest that there. . . ? I understand what the member is trying to achieve, and I think it's a noble attempt. The auditor general does have to meet with people who perhaps aren't really enthusiastic about having it public that they are offering their advice or their insight. I think that the committee should go out of its way to try and accommodate that. There's probably a way to do that and still get the information.

However, if we say that we're only going to interview or only going to get a list of names of people who are volunteering or who are enthusiastic about coming to the committee, I think we miss part of the information. We may find, if we look in confidence -- in a confidential way -- at that list, that there are certain people we need to speak to. If we offer to those individuals the same courtesy that the auditor general has given them, which is that they'll be spoken to in private -- their advice or issues, their concerns, their comments will be kept that way -- then I think the committee can operate within the same bubble that the auditor general creates. It's really just a need for our committee to agree to that: that we can interview those people, we can approach them in confidence, they can come and speak to us in confidence, and we can get that information.

But I think that if we limit the powers of the committee to talk only to people who like to come here, we're giving up a huge amount of our ability to subpoena witnesses, to investigate, to look into that. I think it's a dangerous precedent for us to set. I think we can certainly provide the same assurances to those individuals that the auditor general has provided and still get the information if there's somebody we need to speak to.

R. Kasper: Well, my understanding of the purpose of the motion was so that the committee would in fact have a list of those individuals or corporations who were interviewed by the auditor general's office in preparation of this report. There's been a number of members who have asked specific questions in open sessions where certain individuals were interviewed, and that's been acknowledged by the staff of the auditor general's office.

My support for the motion is so that there is a list, so that members don't necessarily have to go through the agony of asking the question or perhaps going on a fishing trip. I thought it would be of assistance to all members. Whether or not the purpose of the list is perhaps to add more fuel to the fire or perhaps to see the committee wanting to, as Mr. Farrell-Collins suggested, subpoena other witnesses in this endeavour, I think we'd have to cross that bridge when we come to it.

But that's not the support that I've garnered behind the motion. It is to clarify matters raised by the committee over the past two and a half hours as to who in fact has been questioned on these matters.

[1510]

S. Orcherton: I don't want to belabour the point. I think arguments have been made pro and con.

G. Morfitt: I just want to add the comment that there are plenty of people, too, that we didn't interview who said that instead of being interviewed, they'd like to give a written submission. So we've got all sorts of different ways of gathering evidence, and interviews are just one of them. Not to repeat myself too much, but we got some very important information provided to us in other ways. So getting a list like that isn't the be-all and end-all either.

P. Calendino: Before we go on, I just want to understand the intent of the motion, because I've heard a conflicting message coming from the other side.

R. Thorpe (Chair): Mr. Coell, you started the original motion.

M. Coell: I believe the intent was that members of the committee were going to supply the Deputy Chair and the Chair with a list of people they wish to have before this committee as witnesses. In order to do that, we wanted to see who had been before the auditor general, but if. . . . I'm going on what members said this morning.

R. Thorpe (Chair): We have an amendment put on the floor by Mr. Kasper, so first of all the question on Mr. Kasper's amendment. All those in favour? All those. . . ?

J. Weisgerber: With respect to. . . .?

[ Page 1226 ]

J. Weisgerber: Witness consent.

R. Thorpe (Chair): Mr. Kasper's was a safeguard -- clarify where I'm wrong here, Rick -- so that before the list would come forward, the auditor general's office would talk with the individuals or corporations, whatever they may be, to have their consent that their name went forward. Is that correct, Rick?

R. Kasper: Yes, and I base that on previous reports where I'm assuming individuals may have given information in confidence. I'm assuming.

R. Thorpe (Chair): So that's the question.

Amendment negatived. Now we're on the main motion. Motion negatived.

Could I now have a motion to adjourn to the call of the Chair?

E. Walsh: I would just like to ask that you do have a speakers list. . .

R. Thorpe (Chair): Yes, I do. I have it right here.

E. Walsh: . . . and if you could just read that speakers list into the record and if we could carry on from there whenever we do get together again. . . .

R. Thorpe (Chair): Thank you, Erda. Yes, the speakers list is: Erda, Mr. Kasper -- Erda wants to be first; that's good -- Doug, Murray Coell and Ms. Gillespie.

[1515]

R. Kasper: Could I ask a question? It's a request for information in the event that we revisit. . . . We're perhaps going to be dealing with this in the future, so I would like to ask whoever -- the Ferry Corporation, Mr. Morfitt's office -- about the costs or the benefit analysis to the provincial treasury on provincial taxes generated from this project. That would include personal income tax from wages and provincial sales tax or other taxation measures from this project. I'm having a hard time discerning that information when we look at the total cost of construction -- when labour, materials and other items are rolled in together. I'm assuming that the auditor's office did do that analysis, but I can't see it in the report. And perhaps somebody did do an analysis.

R. Thorpe (Chair): Thank you very much, Mr. Kasper.

J. Weisgerber: I'm not speaking on this issue.

R. Thorpe (Chair): I hope not. Just quick -- very quickly.

J. Weisgerber: What I would like to do is confirm that when we meet again, Mr. Lingwood and Mr. Cooper will join us. I would also like to extend, at least on my own behalf, my thanks to them for their candour here today. I think it was useful.

R. Thorpe (Chair): Thank you, Jack. Yes -- to all of our witnesses. I know that it was difficult at one particular point in time, so thank you for being candid witnesses and coming forward.

Could we have a motion to adjourn to the call of the Chair?

Motion approved.

The committee adjourned at 3:17 p.m.

[ Return to: Legislative Assembly Home Page ]

Copyright © 1999: Queen's Printer, Victoria, British Columbia, Canada