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)
Clerks:	Kate Ryan-Lloyd Craig James
* denotes member present

[ Page 1227 ]

The committee met at 9:40 a.m.

R. Thorpe (Chair): Chris Sullivan is here. Is that correct?

A Voice: I think he's on his way now.

R. Thorpe (Chair): That's not correct either. We understand that Mr. McFarlane is on his way and will be here shortly. Sorry about the delay.

It's a pleasure to have you here, Joy, and we look forward to your participation in the Public Accounts.

J. MacPhail: I started my career at Public Accounts, and it's been a successful beginning and really made my career take off. So I'm very happy to be back.

R. Thorpe (Chair): So you then fully support the "Always remember where you're from, because one day you're going to be back there" sort of philosophy.

J. MacPhail: Exactly.

R. Thorpe (Chair): So we look forward to all your experience in making this committee effective.

The other thing that I'd like to talk about today -- the Deputy Chair and I talked about this earlier today -- is that at this point in time we do have one non-member of the committee here, MLA Doug Symons from Richmond. As has been the practice in the past, guest MLAs are allowed to ask questions provided that it's done in the context of other members also having the ability to ask questions. So welcome to the meeting, Doug.

The other way we thought we would try to optimize our time and make sure that there's fairness in asking the questions is that we'll start with questions from the government side and then go to the other side. For every question there will be one related supplementary or follow-up question. Then that way we can make sure that no one individual is dominating the time frames that we've allocated there, because we do want to attempt to stick to our time frames as best we can. Of course, if we get into areas where members feel more questions are required and needed, then we will make that decision at the time. If some of the witnesses that are scheduled to be here today are required to come to our next meeting, which is scheduled for January 25, then that's what we'll do.

Oh yeah, one other thing that we did receive from B.C. Ferries, and that I believe the Clerk's office has circulated, was some questions from our November 4 meeting, I believe it was -- to answer some of the questions. So for members who don't have that, the Clerk's office will be glad to supply it to you. It's my understanding that Mr. Lingwood and a couple of members of his staff will be here this afternoon from 1 o'clock onwards as needed. So that's where we are. Do any of the members have any questions or. . . ?

Oh, there we go: the late Lawrie McFarlane is the first witness, if you would like to come up. If all witnesses that are here today could announce their name and their position and the group or entity that they're representing, that would be useful.

L. McFarlane: I'm Lawrie McFarlane. I'm the secretary to Treasury Board.

J. MacPhail: Happy new year.

L. McFarlane: Thank you.

R. Thorpe (Chair): Does anyone have any questions of Mr. McFarlane?

E. Gillespie (Deputy Chair): My first question is to ask if you want to start with the list of questioners from the end of our November 4 meeting or if they're prepared to. . . . At the end of the November 4 meeting it was requested that those people have first opportunity to ask questions; we could begin with that. Or if they're prepared to stand down and we start fresh, then that's fine too.

R. Thorpe (Chair): As long as we go from side to side, that's fine with me. Who remembers? Who has a list from November 4? I remember Erda Walsh.

E. Gillespie (Deputy Chair): I remember Erda Walsh.

R. Thorpe (Chair): Erda, did you want to ask Mr. McFarlane the first question?

E. Walsh: I don't have a question for Mr. McFarlane right at the moment. But I did have a question for the auditor general from the last meeting. So I would like to ask a question of Mr. Morfitt, and that is that, on reading the report, I read a lot on risk management. Also, I found myself looking at the report and wondering why there was no mention of any benefits that the province has received. That includes people who live in coastal communities throughout the province and the workers who live throughout the area.

[0945]

I'm curious to know the benefit for those people, on the other side of the balance sheet that we talk about, that in fact we don't hear about and that I didn't have a chance to read in your report and also what the long-term benefits are for the salmon fishing industry and for the coastal communities that they may have received from retraining, from skills upgrading, from consultants that have been involved in the project. The list goes on. I would really like to hear what kind of value has been placed on those returns, also, to the province.

G. Morfitt: I think those are valid comments from your perspective. We didn't pursue a cost-benefit analysis at all. That wasn't the purpose of our work. Our work was to determine whether the program that was entered into was

[ Page 1228 ]

We make a comment on page 6: "In addition, there was no evaluation of the likelihood that an important public policy goal -- rejuvenating the British Columbia shipbuilding industry through the export of aluminum ferries -- could realistically be achieved." So we did touch on whether or not some of the goals that the government itself was very hopeful would be gained from this would be realistically achieved. Now that the program's in place and well along, the next question is: are those goals being achieved? We haven't examined that. This was a look at how the program was managed from a cost point of view; that's correct. We have not looked at the benefits.

E. Walsh: You have not looked at the benefits.

G. Morfitt: No, except from the perspective of determining whether or not the government at the front end really had enough information to make a good judgment as to whether the benefits were going to outweigh the costs. Our feeling was that the people involved at the front end really didn't have the information they needed to make that assessment well.

E. Walsh: Can I just follow up?

R. Thorpe (Chair): Yes. But could we make our questions a little bit briefer and to the point, please, on all sides?

G. Morfitt: I think the benefits of this program, by the way, are still. . . . The judgment is still out. I think that they could be huge, for all we know. We could be selling these ships on a daily basis. We don't know that at this point in time.

E. Walsh: I just want to respond to that, and I thank you. I have been known to be quite brief in my questions and in my conversations, and I will keep this brief.

R. Thorpe (Chair): Was that in '99 or 2000?

E. Walsh: That was a resolution.

I'm assuming that from what you're saying, there have been none, and there are no plans on looking into what the benefits have been that have now come out of the actual building of the fast ferries. That includes everything from tax revenues to supplies, as I said, and there are no plans to insure that those figures are known to the public.

G. Morfitt: No plans from the perspective of my office. I think it would be very good for the government to do that. Then we could audit it. [Laughter.]

E. Walsh: And it would be all good news.

G. Farrell-Collins: My question is to Mr. McFarlane. The auditor general stated in his report that it's his opinion that the second and third ferries were removed from the capital freeze despite the fact that the requirements for removal set by cabinet were not met. A couple of those requirements were that Treasury Board had to ensure that the projects included appropriate cost containment measures and standards. Given that the fast ferry project, at that point, had no business plan and no set budget -- even up until a year later there was still no budget, and to this day I'm not sure whether there's a real budget or a business plan -- can you tell us how it is that those ferries were removed from the capital freeze so quickly?

[0950]

Can you put a time frame around that for me?

G. Farrell-Collins: The capital freeze?

L. McFarlane: The specific event you're referring to.

G. Farrell-Collins: The capital freeze was instituted by this government almost immediately after the 1996 election. You will recall that all the announced hospitals, schools and other projects which were announced right up until a month prior were suddenly frozen. People had to go to Treasury Board and have approval from Treasury Board to have them removed. There was a set of criteria that was set up by the government, the Premier of the day, which included appropriate cost containment measures and also certain standards in order to ensure that the projects that were released actually had control.

Interjection.

G. Farrell-Collins: I'd be glad to ask the former Minister of Finance that question if she wants to answer it. As long as somebody can, I'm happy.

J. MacPhail: Those were projects that weren't underway yet. I'm just trying to speed up the events here. The capital freeze applied to projects that weren't under construction.

G. Farrell-Collins: Yes, the first ferry was under construction; ferries 2 and 3 were not. They were caught in the freeze.

L. McFarlane: In the notes I have, the view was that it was not going to be practical to hold the second and third ferries, for the same reasons that the corporation had advanced originally, when the issue was raised by Treasury Board staff that perhaps only one ferry should be built, as a prototype or as an experimental boat or technology. The argument that the corporation used at that original time and reused again, on the issue of the freeze, was that having one boat was impractical. You could not effectively make a fast ferry operate by itself on either of the major routes it was likely to run on, because of the problem of running into the back of the boat in front of it. Therefore, although it was quite

[ Page 1229 ]

G. Farrell-Collins: Right. I guess my question was a little more specific. It wasn't whether or not the Ferry Corporation had reasons for going ahead; it was whether or not that capital project included proper cost containment measures and standards that were a component of release from the capital freeze. One would think that you could release it for the reason that was stated but merely ensure that those proper cost containment measures and standards were in place. It appears that what happened is that they were released, for that argument, without those cost containment measures and standards in place. And certainly they could have been in place, despite the fact that the two ferries were released from the freeze.

L. McFarlane: I think the auditor's report points out that one of the salient deficiencies of the project from the get-go was that there was not a contingency or a risk strategy in place to deal with the possibility of cost overruns and that with the new technology, which had not been fielded before, it would have been prudent to do that. In other words, the problems that existed at the beginning of the project carried on throughout it.

E. Gillespie (Deputy Chair): I would like to take a step back from this and ask you to describe, from your point of view, the relationship between Treasury Board and the B.C. Ferry Corporation, in particular with respect to the fast ferry project. I would like you to speak to some of the assumptions that were in the previous question about whether or not there was a business plan or a budget in place.

[0955]

L. McFarlane: Well, there certainly was a business plan and a budget in place. The fundamental question that the auditor's report raises is whether that was adequate. Clearly, in hindsight, it was not. In particular, it was not because there was not an adequate account-taking of the fact that this was a new and untried technology -- that you had people who were going to be building the boat who weren't trained in the high-pressure welding and other technologies that would be required. Any major corporation introducing a completely new technology would normally set aside a contingency fund to cover the possibility of overruns or technological issues that would arise, and that was not adequately done. I don't think there's any point in arguing about that; that is precisely what the report says, and in my opinion, that's quite clearly the case.

E. Gillespie (Deputy Chair): Sorry -- the first part of my question had to do with the relationship between Treasury Board and the B.C. Ferry Corporation.

L. McFarlane: The relationship between the Treasury Board in B.C. and Crown corporations goes back into previous decades, I guess. The traditional expectation in B.C. has been that Crown corporations operate with a degree of operational independence that exceeds that of line ministries. It's normal and, I think, appropriate that line ministries will appear in front of Treasury Board to defend their budgets on an annual basis and that there's a lot of correspondence back and forth on a day-to-day basis between senior officials of line ministries and senior officials of the Treasury Board staff and that that process is the traditional scrutiny- and inquiry- and analysis-based relationship that we all understand.

The relationship with Crown corporations is different. Each province has a different arrangement. The arrangement in B.C. is that corporations are given a significant amount of operational independence, and many of the responsibilities that ministers would take on their shoulders appearing in front of Treasury Board to deal with the operational aspects of their affairs are lodged with the board of directors. So the relationship between the Treasury Board staff and the Crown corporation is that the Treasury Board will make known to the corporation what the envelope of funds is that is available in a capital budget. There will of course be correspondence through the office of the minister responsible as to how the direction of the programs that the funds are for is anticipated, but you don't get the same degree of day-to-day scrutiny, precisely on the theory that the board of directors is there to do that, and we do not want to turn Crown corporations into line ministries.

G. Farrell-Collins: Throughout this process, CFI was required by Treasury Board to submit monthly reports. Those seemed to cease at some point during this process, and I'm wondering what Treasury Board's response was when those ceased. Did somebody phone them and ask them for them? Did the minister ask? Did certain individuals make them available then? Was there informal discussion? The auditor general's report says that there were some weekly reports made, but it appears the monthly reports -- which I would hope added more detail -- were late. In fact there was a March report which wasn't turned in until August of 1998, and then they ceased altogether. What efforts did Treasury Board take to ensure that they were getting proper information in a timely manner? It would seem to me that there would be alarm bells ringing when those reports didn't show up.

[1000]

I would point out that during that period, all of the monthly reports that were submitted indicated that the project was on budget and on time. That cannot have been the case, but that was nevertheless the information that was provided. During that period of time. . . . I have a schedule of a signifi-

[ Page 1230 ]

Right at the end of the period -- which is to say, getting into that sort of August time period when. . . . If I were to speculate, my guess is that it became clear to senior managers of the corporation that the project could not stay on time and could not stay on budget. The paperwork dried up. At that same time, the corporation was heavily involved in the issue of whether or not there could be a sale or a leaseback of the boat or some other financing proposition. The central agencies turned themselves in that direction for a period of two or three months to see whether or not that was a viable possibility. At the end of that period, of course, the full facts became known.

G. Farrell-Collins: Just probably 15 seconds ago you said something to the effect that when CFI was asked for further information, more detailed information, the information dried up entirely. Is that what I heard?

L. McFarlane: Not quite. The monthly reports went on in a reasonably timely way until late April.

G. Farrell-Collins: Of '99?

L. McFarlane: No, of '98.

G. Farrell-Collins: Right -- March, April.

L. McFarlane: At that point, the next one should have come in around May. It did not in fact come in until August. Toward the end of that period, when it hadn't come in, Treasury Board staff asked for a fuller report and eventually received one. There was no indication in that report, again, that the project was off-budget. The drying-up process -- which I think is one way to put it -- is coincident, at the end of the project, with the arising of this other issue: could the boats be refinanced? Could they be sold? Could there be a private sector partnership with some American-based or some other entity?

It was in that period of time that Treasury Board staff and other agencies laid aside the issue of monthly reports and attended, for a period of about three months, to the question of whether or not there was a viable business case for a sale of the technology. At the end of that period, it was decided -- at least as far as the central agencies were concerned -- that there was not a viable business case. It was at that same period of time that information emerged from the corporation that the boat was not on time and on budget.

J. MacPhail: Of the three recommendations that the auditor general makes, I really think recommendation 2. . . . You may not have them in front of you, Lawrie, so I'll read it to you. I think recommendation 2 -- I'm reading from page 11 -- really goes to Treasury Board directly. The report came out in October, and I know this committee has been dealing with the recommendations. But is there some work being done -- or has been done -- at Treasury Board, in anticipation of the recommendations being accepted, to deal with this specific recommendation around project management -- changes that have occurred?

[1005]

Mr. Gordon gave us a paper -- my recollection is that it would have been in the April-May period of 1999, but I wouldn't want to be tied to the precise timing of it -- that recommended altering an important aspect of the way central agencies review capital projects. That is to say that it is not sufficient to simply ask if the project is on time and on budget, which is the nature of the questions that had been asked and had been answered. The process should be attended with a value analysis that shows what the value is for the funds that are being expended along the way. So if you're getting yourself in a situation that although you're on budget, which we were being told was the case, you do not have the value for funds spent that you ought to have at that point in the schedule, you would have been made aware of that. That process has been adopted by Treasury Board staff and is now part of the way we review projects.

D. Symons: I might go back, if I can, to the question asked at the beginning regarding the coming out of the capital freeze. I gather from your answer to the member for Vancouver-Little Mountain that this did not go through the usual procedure that we had been told, when the capital freeze was put in place, would be used for removing items or projects from the capital freeze. They were supposed to go through some sort of scrutiny. Your answer implies that because of the particular nature of these three ferries being needed for that particular project. . . . It implied, then, that there was not that scrutiny performed on ferries 2 and 3. It was just held up in the freeze for a certain period of time, then released without any sort of real judgment as to the cost-effectiveness of the project or whether there was good project management in place or indeed whether it was on budget. Were any of those studies done on the cost of ferry 1 before you allowed 2 and 3 to be removed from the freeze?

L. McFarlane: I think I'd have to say no. There was information collected at that time by the Treasury Board, but it was simply the same information that had been submitted before. It was re-examined from the points of view that you've given. Was there an effective option for leaving traffic at Horseshoe Bay and Departure Bay by going with fast ferries? The answer was yes. Did we have to have three ferries in order for it to be effective? The answer was yes. Was there continued confidence that the technology was going to work and that the budget was realistic? The answer was yes. In other words, all the same information that supported the carrying forth of the project in the first instance was there to support carrying on. But there was not the introduction of the issues that the auditor general has raised in his report at that time, as there was not at the beginning.

[ Page 1231 ]

L. McFarlane: I don't think there was. . . . Again, this predates my involvement in this, and so I can't give you this from personal memory.

R. Thorpe (Chair): Would you like to consult with staff? Maybe they have the answer.

L. McFarlane: The only additional information that I can give you immediately. . . . If this is something important enough that you need something in writing, then we can go back over that, because I don't want to get it wrong. The recollection of staff is that the case that was made by the corporation, which I've articulated a bit of, was the case that was made to begin the project -- that in addition, as I think members of the committee are aware, a lot of the costs of the three boats had been precommitted. The aluminum had been bought up front, the engines had been brought up front, labour contracts had been signed, there were contracts with the shipyards and so on, to the point where if the projects had been stopped at that point, there would be fiscal consequences that would come with that. There was not then, in the Ferry Corporation or in government, a belief that the project was a bad project, and on that basis it was allowed to go forward.

[1010]

L. McFarlane: Well, the reports that were coming in, as I've indicated, went on until late April of 1998. The next one should have been due in May -- perhaps as late as June. But it should have been during that period of time. As I've indicated, all of those reports -- supplemented by face-to-face discussions with the most senior people in the corporation -- continued to indicate that the project was on time and on budget.

J. Weisgerber: But as I understand it, through June, July and August there were no reports coming.

L. McFarlane: I'm getting there.

J. Weisgerber: Okay -- sorry.

L. McFarlane: Up until, let's say, May or June, the track record was: on time, on budget. At that point we did not get the next report until August, which said the same thing: on time and on budget. When we hadn't gotten. . . . When the last report was late -- which is what I'd indicated earlier to Mr. Farrell-Collins -- we asked for a quarterly report to substantiate where the project was at. We got a quarterly report. We got those up to and including October of 1998. There again, the project was on time and on budget. So there was a process of going back and trying to supplement the monthly reports, which did not produce information that was different.

There were meetings that went on all the way through late November into December with the most senior people in the corporation, face to face. I've counted nine meetings in 1998 that I attended face to face with the chief executive officer of the corporation, in none of which was the information provided that the project was off budget or late. I can't recall another occasion in my professional career where I had to meet face to face with the chief executive officer of a corporation over such an extended period of time -- giving information that apparently was not correct.

At the end of that period of time -- I think this is the additional information you have to have in front of you -- a significantly different proposition had come forward from the corporation, which was that it might be possible to arrange a sale and leaseback or some other different approach to the construction and deployment of the vessels. That occupied a period of about three months, from August, September and October of that year. Treasury Board staff became fully engaged in examining whether or not that was a useful way to deal with the carry-forward of the project.

My own sense is that although we were not aware of this, one of the reasons that the sale and leaseback proposition came forward was because it was evident to senior people in the corporation that the project had trouble -- that it was not going to be on time and on budget and that it might be necessary to find someone somewhere else who would be a part of the project. When that did not work out, the information then came forward that the project would not be on time and on budget.

[1015]

J. Weisgerber: Just a moment. I was trying to finish up, if I could.

The question that I was trying to get at -- perhaps clumsily, at that -- is: during that period of time, during the sort of escalation of concerns through November and December, through the nine meetings -- which, as you indicate, is somewhat unusual. . . ? At what point in that process did you start to express concerns either to the chair of Treasury Board or to the minister responsible -- to someone outside of the executive at B.C. Ferries? It would just seem logical, given the frustration you're expressing now, that this issue would have been raised with someone who might have been able to assist in obtaining that information from the corporation.

L. McFarlane: I have a schedule of meetings that occupied. . . . Let's just deal with 1998; the 1997 stuff is perhaps too early on in this process. There were meetings with the Ferry Corporation and with the Minister of Finance in August of 1998. There was another meeting in November, with the minister responsible for the corporation.

J. Weisgerber: I'm sorry -- that was when?

[ Page 1232 ]

J. Weisgerber: At that point, was the purpose of that meeting -- or one of the purposes of that meeting -- to discuss this lack of information coming from the corporation?

L. McFarlane: No, I don't think it would be fair to say that. The purpose of those meetings was to get a briefing from the senior officials of the corporation about where their budget stood and where the fast ferry project was headed, including this issue that I had mentioned about an interest in pursuing a sale-and-leaseback option or some other option. Those aspects, I suspect, occupied most of the meeting, but these were face-to-face meetings, again, with senior officials of the corporation, specifically on the fast ferry budget.

J. Weisgerber: What I'm trying to determine is: at what point in your frustration over your inability to get these monthly reports after March of 1998 did you seek some political assistance from the minister responsible, the chair of Treasury Board, the Premier or somebody -- to say: "Look, I want this information. Make a phone call and assist me in getting it." When did that take place, or did it take place?

L. McFarlane: No, it didn't. As I've indicated, I had meetings through that period of time with the chief executive officer himself. I continued to get the information face to face that the project was on time and on budget, so there was no point -- until very late in the project -- when anybody in the Treasury Board staff or any other central agency was given information to suggest that the project was not on time and on budget. That information was being provided, as I've indicated, by the chief executive officer right up until the end of the project, in face-to-face meetings with me.

J. Weisgerber: But in the latter half of 1998 the monthly reports ceased, or at least ceased to be transmitted to Treasury Board. So from that point, you were working simply on verbal assurances?

[1020]

I guess the point I'm trying to make is that if any of those reports -- either the quarterlies or the monthlies -- had conveyed the impression that the project was not on time or not on budget, that was the point at which I certainly would have felt obliged to raise the issue and seek political help or whatever. As long as the assurance was that the project was on time and on budget. . . . That reassurance -- I want to impress on members of the committee -- was given in the most forthright terms, face to face. I'm not used to being lied to face to face, frankly. When that sort of thing happens face to face, you don't have a basis to go and talk to the minister and say: "I need some more information."

J. Weisgerber: So the quarterly report that you received in October, and an assumed one in January of 1999. . . . Those reports and subsequent ones continued to indicate that the project was on time and on budget until some point where obviously that no longer occurred. . . .

L. McFarlane: Until January of 1999.

J. Weisgerber: So basically there was one quarterly report that suggested the budget was on time and on budget.

A Voice: No, two.

L. McFarlane: If I can ask Mr. Sakalauskas. . . .

J. Weisgerber: Okay, sure.

A. Sakalauskas: If I could just. . . . There seems to be some great interest in terms of the. . . .

R. Thorpe (Chair): Please just introduce yourself for Hansard.

A. Sakalauskas: Oh, I'm sorry. I'm Al Sakalauskas, assistant deputy minister, Treasury Board staff. I'm also in charge of the capital division.

I think there should be some further elaboration about the process that we go through in terms of capital budgeting and decision-making. It falls within this time frame -- this interest -- in terms of stopping the flow of information to Treasury Board staff. I can put it in context, and I think I will take responsibility for not aggressively pursuing the chase-down of a corporation to get a monthly report for this reason. In August and September, agencies, including all tax-supported Crowns and the social capital ministries, are preparing the next year's capital budget, which is going to come to Treasury Board in September -- in that case it was November -- of 1998.

To the extent that we were missing a few months of information, the priority for Treasury Board staff for that was to compose next year's consolidated capital plan and capital projects request. To the extent that the Ferry Corporation stopped reporting -- the last report was in August -- we would have captured information in September and November, because they were coming in to give their capital budget. Also at that time, in November of '98, we were receiving weekly reports from the Ferry Corporation that indicated, again, that there were no identified cost pressures on the project and that the project was in project cost limits of $262 million.

So just to support. . . . There was a timing issue there, and in allocating my staff time and resources, the higher priority at that time was to get next year's budget up and in front of Treasury Board for the fall review.

R. Thorpe (Chair): Thank you. I have a question.

Interjection.

R. Thorpe (Chair): Yeah, you are next, but after me. Thank you.

So we weren't getting the reports. A senior management member of Treasury Board had had more face-to-face meet-

[ Page 1233 ]

I understand that your reviews at the capital division took place on November 10 and 12. At that date, you still had not received the 1999-2000 capital plan for Ferries. Is this the scenario we have? We're not getting the monthly reports, we have a senior executive from Treasury Board who has never experienced this before in his career, and everybody's attention is focused on the capital budgets. But when you go to do your review on November 10 and 12, you don't have the Ferries capital budget, and there are no bells and whistles and flags going off? Could you address that, please?

[1025]

At the same time you have proposals that are coming forward from the corporation at the end of this period -- in this sort of October, November, December period -- which are talking about a significant alteration in the way the project should be carried forward and where the attention of staff is captured around the issue of whether or not we should have a sale and leaseback or some kind of financing transaction or some sort of different approach.

It's evident that in this last period of time -- this last three or four months -- the information was available within the corporation. This is evident, after the fact, from the auditor general's report: that the information then available was that the project was no longer on time and on budget. I would say you have a period of three or four months at the end of the period when it would have been possible to nail that down by asking the right questions -- if you'd gotten the right answers -- when staff's attention was, I think, legitimately but nevertheless focused elsewhere on this issue of sale and leaseback. That's the sequence of events.

R. Thorpe (Chair): Let me just follow up here. We have a monthly capital reporting process, which you say had broken down but nobody really kind of reacted to it. We have a disciplined capital planning program going forward for the year 1999-2000. Having a little bit of background in major corporations in reporting on capital expenditures and doing capital plans, I know that in our organization, the flag went up when somebody was late. The flag would definitely go up with missing reports.

But not only were they late -- because it was due September 15; this is well after the fact you know you're not getting the monthly reports -- but the reports are still not received on November 10 and 12, when you're doing your capital review. Does that seem to you to be a professional way to approach the capital planning in the province of British Columbia and the taxpayers money of British Columbia?

L. McFarlane: As I've indicated, the event that happened at the end of that calendar year was a proposal that came forward from the corporation that the government should consider taking a different approach to the handling of the fast ferry project, that there was a potential private sector candidate in the U.S. who was interested in ownership or a sale-and-leaseback arrangement with the Ferry Corporation for some or all of the fast ferry fleet and, conceivably, for all of the major boats on the major runs.

It was felt at that time by the corporation that it made sense to pursue that option, and the discussions that were happening in the period that you've talked about -- September, October, November -- were focused around whether or not that should happen. There was not a review of the B.C. Ferry's capital budget until that critical decision was taken, and it took three or four months of intensive work to beat down the answer to that. The answer to that at the end of that period was no. It was not a go.

R. Thorpe (Chair): Before I hand it over to my colleague, did Treasury Board drop the ball?

[1030]

E. Gillespie (Deputy Chair): I really want to focus our discussion on the recommendations of the auditor general's report, because it is not our purpose here to redo that investigation. My colleague has already mentioned the responsibility of Treasury Board with respect to the second recommendation on project management.

I want to ask about the response of Treasury Board to the first recommendation on governance. I asked you initially to describe the relationship between Treasury Board and the B.C. Ferry Corporation with respect to this project. I can tell you that in my view, the relationship between Treasury Board and the B.C. Ferry Corporation in general is much tighter, much closer, than it is with other Crown corporations. In terms of the recommendations around the ability of the board to function independently -- that management of the corporation should be left to managers and governance to the board of governors, etc. -- has there been any thought given or any action taken around governance issues and responsibility issues between Treasury Board and the B.C. Ferry Corporation?

L. McFarlane: The question that you're raising is one that the government, I think, considered intensively after it was elected back in 1991. There were studies done at that time that looked at altering the relationship between government and Crown corporations by creating a Crown corporations secretariat and giving it legislative authorities that would be equiv-

[ Page 1234 ]

Some of the discussion I've been having a moment ago with the Chair entails a concept of obligation on the part of the Treasury Board staff to inquire deeply into the affairs of the Crown corporation and to inform itself in the same manner that it informs itself about the activities of line ministries. You can argue that system of governance, and I believe the auditor general has it in mind in the report that he's written. But it is not the system of governance that the government is working with, and I don't think it's a system that any previous government for many decades has worked with in B.C.

E. Gillespie (Deputy Chair): As I mentioned, from my experience the relationship between Treasury Board and the B.C. Ferry Corporation is closer, perhaps, than with other Crown corporations, in that there are decisions taken in Treasury Board that affect the operations of the B.C. Ferry Corporation -- for instance, decisions about fares and direct operations. So that's what I'm trying to get at: is there a different kind of relationship between Treasury Board and the B.C. Ferry Corporation, and is there a reason for that?

L. McFarlane: Certainly you're right. In the case of hydro tariffs, those are affected by the workings of the Utilities Commission, so you have an independent body that has some regulatory ability there. On the other hand, governments traditionally have been involved with corporations like ICBC about what rate structure should be. There have been protracted discussions between government and that corporation about how insurance rates should be structured. The same would be true, I suppose, for B.C. Transit over tariff issues there as well. So it's certainly the case that Crown corporations are not private corporations. They do function subject to some degree of government policy.

[1035]

E. Gillespie (Deputy Chair): Has there been discussion in Treasury Board, subsequent to the auditor general's report, about the issues of responsibility and governance, as are identified in this report?

L. McFarlane: There have been ongoing discussions. This is an area of debate. . . . When I was at the Crown corporations secretariat, I actually brought forward a draft piece of legislation to alter the responsibilities of the Crown corporations secretariat to be closer to the kind of model that perhaps the Chair has in mind, in which a kind of inquiry-based and investigative-based relationship would exist, and there would be authority for it. We didn't proceed with that. There wasn't a wish or a will at that time to do that, and I don't believe that it is current government policy to fundamentally change the roles and responsibilities of boards of directors. I have not seen any evidence that that is the case. It seems to me that the government believes that when you give a board of directors responsibility and they take that oath of office, they have to conduct it. That's not a defeasible responsibility.

M. Coell: I'd like to ask just a narrow-focused question. In December we received a freedom-of-information response from Treasury Board on the fast ferry project. Treasury Board has prepared a response document to the draft report of the auditor general. In the draft and final reports, it is stated that Treasury Board staff tried to inform decision-makers about their concerns. Treasury Board wished to have that changed from "tried to inform" to "did inform." I'd like the auditor general to explain why that change wasn't made and what or who would have stopped that information from getting through to decision-makers. Mr. McFarlane can comment on that as well.

G. Morfitt: I'm sorry. I don't have the information at hand. I'll try and get it from my staff.

R. Thorpe (Chair): Mr. McFarlane, would you like to comment while. . . ?

L. McFarlane: Yeah. My recollection is that we felt that the original wording of the report, which was "tried to," might be taken to imply that that advice was not given or wasn't heard or was obstructed in some way. That's not the case. The advice was given, and it was heard. The purpose of the request for the change was to draw attention. . .in case there was any misunderstanding about what the report, in its draft shape, was saying. You need to ask the auditor why he didn't do that.

M. Coell: I can wait to hear from the auditor general.

R. Thorpe (Chair): Yeah. We'll let the auditor general dig out that information.

R. Kasper: I just have a question, and it relates to the weekly reports that Treasury Board requested B.C. Ferries to supply them between October and January. In those weekly reports, did the Ferry Corporation still maintain their previous positions that they were basically on time and on budget? Were you satisfied with the face-value information that you received at that time -- during that four-month period?

L. McFarlane: Yes. The weekly reports continued to show that the total budget -- I think it was $262 million at that point in time -- was going to be met.

R. Kasper: When you originally requested the weekly budgets, did you feel that there was anything awry with the Ferry Corporation -- i.e., not complying or any reluctance on their part in supplying that information?

[ Page 1235 ]

[1040]

R. Thorpe (Chair): Auditor, do you have the answer to the first question as of yet?

G. Morfitt: Well, the response from my staff is that we just didn't have the evidence that would allow us to change the wording that we had put in -- that we already had. Treasury Board staff was doing its job as best it could, but there didn't seem to be any uptake to what information they were providing.

M. Coell: Just a quick follow-up: the Treasury Board staff said that they did inform decision-makers. I would presume that the decision-makers are the politicians on Treasury Board.

L. McFarlane: My recollection is that it was the secretary of Treasury Board at the time and the minister at the time. When the draft report came into staff hands, staff said to me: "No, we told the secretary, and we told the minister." We didn't try; we succeeded -- I mean, that was the point of the distinction. Nobody barred the door or declined to receive that information. The information was given and received, and the point of the note to Mr. Morfitt was to draw that to his attention. I'm not clear what's meant by saying there wasn't evidence, unless you don't trust what you were told.

M. Coell: Maybe I could ask what date that would have taken place. And who was the minister at that time?

L. McFarlane: I believe it was Andrew Petter who was Minister of Finance at that time.

R. Thorpe (Chair): Perhaps if you have documentation at your office on the point that Mr. Coell is raising, you could supply it to the Clerk, and he could distribute it to the committee.

L. McFarlane: So that we're really clear about this, the state of the record here is that this is based on the personal recollections of staff who approached the secretary of Treasury Board and the minister at that time. They recollect doing that and not being, as I've said, prevented from giving that advice. So they responded to the draft report, which said that they attempted to do it, by wanting a clarification that they did do it.

M. de Jong: I'm trying to reconcile what we're hearing today with some of the information that appeared in the report and other. . . .

R. Thorpe (Chair): Mr. de Jong, could you just speak up to the microphone so Hansard can hear you, please? Thank you.

M. de Jong: It's still unclear to me, based on what I'm hearing, as to when the alarm bells first went off for Treasury Board. We've heard a lot of questions about when you -- Treasury Board -- should have been alarmed, what they might have done to improve the information. But maybe I can try to pin you down on that, first of all.

L. McFarlane: Again, some of this predates my life here. There is an ascending degree of anxiety all the way through the process. That's what originally precipitated the request from CCS back in December of 1996 for monthly reports. That was what precipitated my writing to the CEO at that time, in December of 1996, asking many of the questions that we're talking about here today. That led the secretary of Treasury Board to ask for monthly reports. That led to some of the face-to-face meetings between myself and other senior officials and the senior officials in the corporation.

Entirely throughout that period of time the same information was given: that the project was on time and on budget, that there had been startup problems, that those had been overcome, that it was preferably true that more money had been spent on the first boat than was anticipated, but that money was reassignable from the second and third boats. Basically the corporation put its professional name and reputation on the line that the project was on time and on budget, and it did that until the very end, right up until the resignation of the CEO.

[1045]

L. McFarlane: I think it's perfectly fair to say -- particularly after about July or August, when it could not have been true that the project was on time and on budget -- that a more detailed and intrusive investigation would have disclosed that. I can't tell you otherwise. If the question is: why wouldn't you carry out such a thing. . . ? As I've said, it's partly because that traditionally hasn't been the responsibility of Treasury Board staff and partly because of the forthright nature of the assurances that the project was on time and on budget.

M. de Jong: Just so I'm not putting words in your mouth, you would characterize a reference to the quarterly financial report of the B.C. Ferries fast ferry program as an "intrusive investigation."

L. McFarlane: No. To dig in and say, "You've given us quarterly reports; you've given us monthly reports; you've given us face-to-face reports that say something different," and then go and seek to be informed -- which would be

[ Page 1236 ]

M. de Jong: But we agree that the paper was not consistent with what you were being told.

L. McFarlane: I would need to see the paper that you have with you.

Let me put this thought in front of you. There were at this point in time well over 100 major projects going on in Crown corporations. This one got into trouble. If we position responsibility for this degree of examination on central agencies. . . . You can't do it once. You can't come along afterwards and say: "Ah, that was the one you should have followed up." You have to take responsibility at that point for carrying out that kind of diligence on every project. Otherwise, the one that goes wrong is going to be the one where somebody is going to say: "Ah, you should have done that."

In retrospect, clearly it would have been possible to get better information that would have controverted the story that was being brought forward. What I'm placing in front of the committee is that at that point in time, that was not the nature of the working relationship between Treasury Board staff and Crown corporations.

M. de Jong: The last question is: is it fair to say that that information, in part, was available?

L. McFarlane: I can't say that it was available with sufficient authority to cause someone to act on it. Again, because of the authority that attaches to the statements that were coming out at the highest level, the thing was fine.

[1050]

The original decisions that were taken by Treasury Board in regard to this project. . . . We heard at our last meeting, from the auditor general's staff, that they were based on a vessel that never really came to fruition. The vessel that ended up being constructed was one that was longer and narrower. It had a number of critical changes to the design put in place. I heard you mention that the overall budget was being spread over three vessels, in terms of construction. I wonder if those responsible for taking the decisions regarding changing the design of the ferry ever quantified the additional costs in any of the discussions that you had with Ferries on the fast cat proposal.

L. McFarlane: I gather that you have some officials from the corporation on your witness list today. I think you ought to ask them that.

S. Orcherton: Okay -- fair enough. I will keep the question for later, then.

R. Thorpe (Chair): Did you have a question?

G. Farrell-Collins: Yeah. A quick one.

R. Thorpe (Chair): Okay. Last question.

G. Farrell-Collins: You stated, in response to Mr. de Jong. . . . You said that you'd been getting reassurances continually that the project was on time and on budget. You said that it became clear -- I think you said in the May-to-July window -- that that simply couldn't be the case. Can you clarify that statement for me? That seems to. . . .

Interjection.

G. Farrell-Collins: Well, I'll check the Hansard, then. I'll refresh my memory.

L. McFarlane: If I did, I misspoke myself. It's clear today that in that period of time, it had to have been obvious to the senior officials of the corporation that the project could not be on time and on budget. I think that was what I was trying to say. It wasn't clear to us. The information that was being provided externally was still that the project was on time and on budget. It appears from the auditor general's report -- and I have no other authority than that -- that that may have been because moneys were moved between the boats or because information was provided that had been arranged in a way to make that appear to be possible.

G. Farrell-Collins: I would just say that given that the boat was 16 months late, the information had dried up and there was no capital plan forthcoming, I think it was clear to just about everybody that this project was not going to come in on budget.

R. Thorpe (Chair): Thank you very, very much. You answered this question, and I just want to make sure I got the right answer. It's a yes or no. I could check the Hansard -- you're right -- but I may ask this question later. Vessels 2 and 3. . . . Mr. McFarlane, you did say -- or I thought I heard you say -- that they were exempt from the capital freeze. Is that correct?

L. McFarlane: No, they went through the process, but. . . . Again, I'm going from notes; I'm not going from personal recollection here. I don't think that they were given a deep scrutiny. The case was made, in their favour, that there was no point in having one boat -- we needed three -- that there were outstanding commitments of a financial nature that had already been made and that the need for a review, in that case, was moot.

R. Thorpe (Chair): Thank you very much for coming today. If any members have any additional questions for Treasury Board staff, I would ask that they get them to the Clerk's office by the end of this week. We would ask, Mr. McFarlane, that those questions -- if in fact we get any -- be replied to within a week so that we can have that information for our next meeting. Thank you very much for taking the time to come.

Now we call forward the representatives from the Crown corporations secretariat. Please, when you're speaking, introduce yourselves so that the people from Hansard know who you are. We'll start now. Are there any questions?

E. Gillespie (Deputy Chair): Again, I want to. . . .

[ Page 1237 ]

M. de Jong: Oh, I'm sorry. I thought I heard the witness indicate. . . .

N. Carter: We do have some opening remarks that we wish to make.

R. Thorpe (Chair): Well, then, why don't you just go right ahead?

N. Carter: My name is Nancy Carter, and I'm a director with the Crown corporations secretariat, responsible for, among other things, governance. With me is Brad Brohman, who is a manager with CCS. As many of those who were involved in this project at the relevant time have since left CCS, Brad has been closely involved in collecting the information and speaking with the people who were involved in the project at that time.

[1055]

Firstly, the board and government both had difficulty monitoring the fast ferry project due to a lack of access to accurate and timely information. As far as CCS is concerned, this is one of the most significant findings in the auditor's report. It's worth noting some of the observations made even at this last November committee meeting, where it was acknowledged that in light of the combination of the lack of information as well as inaccurate information, it made it very difficult for the board, ministers and central agencies to be aware of the true status of the project. I think that in that committee meeting, Mr. Morfitt himself even said that regarding the kinds of financial statements that were being provided, even though there would be signals that costs are running ahead, they wouldn't necessarily get everybody "hopping up and down." While all the information was coming from the CEO, as the auditor general and a number of committee members said, it was quite appropriate and usual to depend on the CEO as the primary conduit of information. From CCS's perspective, this was a critical problem. We relied on the information from senior management, and on a project of this complexity it would have been difficult to second-guess the information that was being provided.

The second point that I think is important to emphasize is that the design changes to the fast ferries that were introduced by the corporation after the initial decision did have a very critical impact on both the cost and the schedule. As the auditor general notes, not systematically considering the effects of those changes was a fundamental failing in project management. In hindsight, it appears that neither the board's senior management nor government fully appreciated the implications of those changes, and the analysis that was provided about those changes did not indicate any cause for concern.

The auditor general also recognizes in his report that the initial decisions by both the board of B.C. Ferries as well as Treasury Board were all in principle and were contingent on there being opportunities for re-examining the proposal once further information was available. We agree and think this is critical to emphasize. We note that although the auditor general was critical of the interest that then-minister Clark showed in the fast ferry project, he also acknowledges that a minister has the right to provide guidance to the corporation. We agree that providing that kind of guidance is appropriate for a minister. In fact, if you go back and look at the auditor general's 1996 governance study, he states that Crown corporation board members generally look to ministers as key players for establishing or conveying government direction for a Crown. That report also encouraged ministers to have more frequent meetings with boards to discuss government direction.

We agree with the auditor general's observation that if the board had concerns about approving the capital plan, it should have addressed them to the minister. It's curious to note that in fact not only did the board appear to not express concern, but in the months following the approval of the ten-year capital plan, the board carried out a number of decisions and actions connected to the project without noting concerns at that time.

Lastly, one of the observations the auditor general makes, which we'd like to emphasize, is that we agree that having Tom Ward act as the CEO of both B.C. Ferries and CFI put him in a very difficult and conflicting position. Clearly this situation contributed to the issue of access to information and the ability to adequately monitor the project.

[1100]

The initial decision was made with the clear expectation that the corporation would determine whether the broad financial and design parameters, including the construction of fast ferries, was supported by more in-depth analysis. The initial decision was not intended to answer all the questions or deal definitively with all the potential risks. It was a strategic plan, not a business plan. In our opinion, there is insufficient weight given to the many opportunities which were available to the corporation during the two-year designing and planning phase prior to construction to reconsider and, where appropriate, modify those early assumptions set out in the

[ Page 1238 ]

The second area where CCS has concerns pertains to the characterization of the role of CCS as having taken over completion of the capital plan. By asserting that CCS took over and controlled the strategic planning process, the report does not adequately record the extent to which the capital plan was in fact the product of a collaborative process between the corporation and CCS.

Since its creation in December 1991, CCS has been asked on many occasions to work with Crowns in the development and review of their strategic plans and of projects. CCS's involvement in the planning process at Crown corporations has been and continues to be a collaborative one, intended to bring together the best people and the most appropriate agencies to seek creative solutions to difficult issues. CCS, because of its cross-Crown presence, often facilitates this process.

The framework for Crown corporations in B.C. clearly contemplates that boards do not operate in isolation from government direction on key strategic issues. Crowns bring forward capital and strategic plans to ministers and cabinet, and they involve central agencies in their development. This process, again, was acknowledged in the auditor general's 1996 governance study, where the auditor noted that Crowns would like to see a process in which government regularly and clearly communicates direction and noted that most Crowns want government input into their planning processes.

In this context, some important background is necessary. At government's request around 1992, B.C. Ferries undertook to prepare a long-term capital plan. At the same time, there was another challenge facing the corporation: the increasing traffic at both the Departure Bay and the Horseshoe Bay terminals. CCS at the time played a significant role in coordinating the development of options to address the Horseshoe Bay - Departure Bay challenge, in documents related to the mid-Island transportation strategy. Within B.C. Ferries, there was also separate work being undertaken on both the capital plan and the mid-Island transportation strategy. And work on both those plans was progressing through 1993, nearing finalization in early 1994. With both the mid-Island transportation strategy and the capital plan, a number of options, including B.C. Ferries' own capital plan options, supported the introduction of fast ferry technology.

In March 1994, CCS was directed by then deputy minister -- who was also the past and future president of B.C. Ferry Corporation -- Mr. Frank Rhodes, to assist the corporation to bring these two documents together into a submission that could be made to cabinet. Having worked with B.C. Ferries on the mid-Island transportation strategy, this wasn't an unusual request to be made to CCS.

[1105]

In this context, CCS's role was to work with the corporation on a major strategic and capital planning exercise to ensure that options that government and the board wanted to consider were canvassed. That was done with B.C. Ferries, using B.C. Ferries data. As mentioned before, the analysis was at a high level, and more detailed questions to identify potential risks were to happen after the initial decision. This was a strategic plan, not a business plan.

Once those directions and decisions had been made, it was appropriate to then allow the board and senior management to fulfil the objectives and plans set for it by government. CCS did, in fact, what the auditor general suggests we should have done: once the project moved into an operational implementation stage, we let the managers manage. We left the board and senior management to run the project and report on any difficulties or variations in the plan that arose. While CCS and Treasury Board continued to receive high-level reports, CCS was neither tasked with, nor had the capacity to undertake, detailed project management monitoring.

In June 1994 and July 1995, when Treasury Board approved the capital envelope, parameters were set for the project, and subject to various reporting requirements, the corporation was left to manage within those envelopes. Given the highly technical nature of this project, it was both reasonable and necessary to rely on senior management to undertake primary responsibility for the project. The governance structure was entitled to forthrightness and accountability from that senior management.

I want to turn to the three recommendations that the auditor general makes in his report and to talk a bit about our progress. On the first recommendation, the auditor talks about putting the principles of good governance into practice and allowing boards to function effectively. We agree that is a sound principle, and in fact it's a principle that we reinforce in our board orientation sessions. However, I think that we also have to consider the fact that it's difficult to imagine what governance framework would have prevented the particular instance that happened here. It was the exceptional circumstance that one or more of the most senior management at B.C. Ferries and CFI prepared and submitted inaccurate and, at times, misleading information to the respective boards. We were involved in the strategic end of the decisions. Once those decisions were made, we let the managers manage. We were entitled to rely on the accuracy of the information that those managers were providing.

I want to talk a bit about some of the progress that has been made in the general area of governance. We've been before this committee several times to talk about our approach to governance. Our general approach has been to continue to build on accountability measures, such as performance measurement and strategic planning, but there are some additional activities that I think it's important for the committee to know are underway.

Firstly, CCS has done considerable work to clarify roles and responsibilities between boards and cabinet regarding strategic planning. We've also been working with agencies, boards and commissions to involve boards in assessing skill sets and needs when filling board vacancies. We continue to work with ministers' offices to regularize meetings with boards, where cabinet direction and priorities can be discussed. We're also consulting with Crowns on processes for regular reviews of Crown corporation mandates. We continue

[ Page 1239 ]

An important initiative that we've undertaken is with respect to board orientation. CCS has delivered two board orientation sessions, both of which have been very successful events and have been well received by boards. Those sessions focus on providing board members with information and guidance on their roles and responsibilities in relation to ministers and central agencies. They're provided with information about their duties as directors and the types of checks and balances and measures that a well-functioning board should have in place. This includes things like ensuring that adequate information processes are in place, ensuring the board has appropriate committee structures, seeking outside advice where necessary and playing a key role in evaluating the CEO. These sessions, I think, are a significant step towards both clarifying roles and responsibilities and ensuring that directors are fully apprised of the responsibilities and liabilities.

[1110]

On the second recommendation that the auditor general makes around project management, we agree with the principle articulated in the report and point to the fact that there is now a formal and independent review of major construction projects that is ongoing. Treasury Board and CCS are co-funding that study. CCS will be participating with Treasury Board staff and others on the steering committee for that project, and we look forward to receiving those recommendations.

In addition, government is introducing more controls, checks and balances into its major capital projects. The best example is with the SkyTrain extension project, which is being governed by a number of project control processes, including a financial and management controls document and a protocol agreement between central agencies and project managers.

On the last recommendation that the auditor general makes regarding giving the corporation long-term direction on its performance expectations, again we agree with this principle. Going back to the ten-year plan and throughout the period of 1996-1998, that is in fact much of the work that CCS has been engaged in with the corporation. Pointing to things like the mid-Island transportation strategy, CCS and government have been working with B.C. Ferry Corporation on the best long-term strategy. Currently, at the request of B.C. Ferry Corporation, CCS is participating in and cost-sharing a project to assist the corporation in developing a long-term strategic plan. The findings of that study will be reviewed by cabinet and will form the basis for B.C Ferry's strategic plan, which will include performance expectations for the corporation and strategic goals.

Just to conclude, two areas of disagreement: we disagree that the initial decision was what doomed the project, and we disagree with the characterization of CCS's role. With respect to the three recommendations, we agree, and I think I've outlined some of the work that is ongoing in that area.

R. Thorpe (Chair): Thank you very much. Just who was in charge of CCS on June 19, 1994?

B. Brohman: On June 19, 1994, that was Marvin Schaffer. Reporting-to deputy minister was Frank Rhodes.

R. Thorpe (Chair): The deputy minister responsible was Frank Rhodes -- is that what you're saying?

B. Brohman: For Employment and Investment, the ministry in which CCS was then housed.

R. Thorpe (Chair): So CCS fell under the deputy minister, Frank Rhodes, at that time.

B. Brohman: Yes, it did.

R. Thorpe (Chair): Did the auditor general want to make any comments at all, or would he like us just to go to questions?

G. Morfitt: Firstly, I would like to compliment Ms. Carter on a very well prepared presentation this morning. I'm glad CCS agrees with most of what was in the report.

[1115]

Secondly, on the matter of the ten-year capital plan, we have again examined this matter in great detail, because it's one of the senior issues in the report. We are very comfortable with the comments that we have made on pages 20 and 21, particularly that in late March 1994, CCS "was instructed by its minister to take over the completion of B.C. Ferries' cabinet submission on implementing the mid-Island transportation strategy" and that "this marked the end of B.C. Ferries' development of the capital plan, except for providing technical information. . . ."

You know, we're prepared to speak to these things. But I guess I'm telling the committee that in preparing these types of reports we undertake a significant amount of work. Therefore it's very difficult, perhaps, for the committee to get a rounded view of some of these matters when only speaking to a selected number of people.

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

E. Gillespie (Deputy Chair): Thank you, Nancy, for your introductory remarks, because in doing so you've answered a

[ Page 1240 ]

N. Carter: My recollection is that there have been two sessions that have been held. The first session was in February of '98, and the second session was in October of '98. We are anticipating another session for this spring. We try in every session to target the newest board members, but we are offering the session also to board members who are currently on boards -- who have been on boards for some time.

Right now they're one-day sessions; they cover quite a range of topics. We provide information on, generally, some government processes, information on things like the strategic planning processes, the legislative cycle in government and what respective roles there are between ministers, central agencies and Crown corporation boards and CEOs. We also provide a fair bit of orientation on the issue of ethical standards, conflict of interest and directors' duties and liabilities. We actually work through some small group scenarios to facilitate some discussion in those areas.

We've also been joined at both sessions by the comptroller general, Mr. Arn van Iersel, in talking about financial controls and reporting. I think many board members have found that a particularly useful part of the sessions. Again, we offer an opportunity for the board members at that meeting to work through some scenarios.

Generally, it's designed to try and share with board members the best practices in the area. This is in addition to orientation that Crown corporations provide specific to their own corporations about their individual board-specific issues. This is generally a cross-Crown initiative that's designed to facilitate some of the best practices in the area.

[1120]

N. Carter: In terms of our participation, firstly we're participating in co-funding the study. We're also represented on the steering committee that is working very closely with the consultant, Deloitte Touche, on this project. Various members of CCS are being interviewed by Deloitte Touche to talk about areas such as governance and to also talk about some of the specific capital project areas that the project team is looking at. That's it.

E. Gillespie (Deputy Chair): Could I ask the auditor general to respond too?

G. Morfitt: We've been dealing with Mr. McFarlane on this matter. The government, soon after this report came out, determined that it would be a good thing to pursue a review of how capital projects are approved and managed, so they decided to contract with a private firm to do that. Deloitte and Touche is the firm that was approved for that purpose. We set up a series of meetings -- we've had at least two -- with them just to make sure that everybody is happy with the scope of the work that they're doing and what they expect to accomplish from it and that it would meet the concerns expressed in this report. We're looking forward to seeing the results of that.

E. Gillespie (Deputy Chair): Are you satisfied with the scope that is being undertaken?

G. Morfitt: From what we've seen. . . . We haven't had the last, final contract copy from anybody at this point in time, but we've given our comments. They've come back to us, and we think that the final contract will do the job -- yes.

M. de Jong: Happily, Ms. Carter, I think that virtually all of your comments were contained in a document that the secretariat provided earlier, a document entitled "CCS Response to the Auditor General's Report on the Fast Ferry Project." I'm just a bit curious, before I get to a series of questions. . . . How does a document like that get prepared? How does a formal response from CCS get prepared? Who's responsible for that?

N. Carter: Firstly, I would suggest that it's not a formal response. They were notes that were prepared as. . . .

M. de Jong: Can I consider your remarks today the formal response?

N. Carter: Yes.

M. de Jong: Okay.

N. Carter: They were notes that were prepared for. . . . At the time, I believe it was the deputy minister who was going to be presenting before this committee. Generally, they're prepared by CCS staff and by going through some of the responses that were made to the auditor general regarding some of the concerns that we had with the report. We also turned our minds specifically to the recommendations that the auditor general made and chronicled what steps we've been taking to implement some of those recommendations.

M. de Jong: Thanks. Is anyone outside of CCS involved in the preparation of that kind of response?

N. Carter: Not on this document, no.

M. de Jong: Okay. No approval is required from outside of CCS.

N. Carter: No.

M. de Jong: Then that didn't happen in this case.

N. Carter: No.

M. de Jong: Okay. You candidly identified in your remarks a couple of the areas where there is a difference of

[ Page 1241 ]

[1125]

G. Morfitt: I'll have Mr. Morris Sydor come to the table, and he can answer that question.

R. Thorpe (Chair): Thank you very much.

M. Sydor: As Mr. Morfitt indicated earlier, our judgments and conclusions are based on a number of interviews that we carry out and documents that we review. In this particular case -- in coming to an assessment as to where the direction may have come from, I mean -- it is based on a combination of looking at documents that were made available to us as well as talking to a number of individuals. I mean, we did include an interview with Mr. Clark. We included an interview with CCS staff. We've also talked to Mr. Rhodes. We've also looked at documents that were distributed between CCS and B.C. Ferries at that time, outlining how that process -- if you want to call it a process -- at that time was to work.

In fact, the document indicated that CCS had been directed by the minister to take over the cabinet submission that was being developed at that time and to complete it. So you know, Ms. Carter characterized it as a collaborative effort. We have to keep in mind that one of the definitions of "collaborate" is to cooperate under duress. Now, if that's the definition we want to use, then maybe that's the appropriate term for it. Our findings in our report still stand as far as I'm concerned. The document was taken over by CCS; they completed it, and it was very different from what B.C. Ferries was working on at the time.

M. de Jong: Well, let me just pursue that, because, in fairness, CCS is very specific. They say you're wrong. They say that CCS staff never received direction from then Minister Clark to assist the corporation with its planning process.

M. Sydor: We have to. . . .

M. de Jong: In your earlier comments, I thought I heard you refer to a whole collection of evidence upon which you base the opinion that it is not a correct statement. In particular, I thought I heard you refer to a document where it is clear that Minister Clark gave that direction.

M. Sydor: That document indicates that, as well, it's through the interviews; that's the conclusion that we've come to. As well, we have to look at how the process evolved. When we look at the cabinet submission being presented to the board for review, it was a member of CCS and the minister who made that presentation. I mean, you know, the minister's involvement, as we indicate in our report, was fairly direct. That document I referred to -- yes, that was a key piece. You know, we did ask about that. We talked with the minister about that when we interviewed him. We asked a CCS representative. We had to take all that information into account, including that document, including the process that was carried out -- other documents as well, indicating who was involved and what that level of involvement was. Taking all that into account, this is the judgment we came up with.

M. de Jong: Over to you, Ms. Carter.

N. Carter: I'm going to ask Brad to answer that question, because he went through the history and spoke with a number of people who were involved in this at that time.

B. Brohman: On the question of the evidence that suggests that the Crown corporations secretariat was directed by the minister, if I'm not mistaken, the auditor general is relying on a memo that came from the B.C. Ferry Corporation planning department to CCS, outlining their understanding of our relationship in respect to bringing the MITS proposal to cabinet. That document was prepared by. . . . The counterpart at B.C. Ferry Corp was working on this project.

[1130]

I'm not sure if the auditor general has interviewed Mr. Renaud. But the memo that was prepared -- in Frank's opinion, and he saw it -- was done extemporaneously to a meeting that had occurred. Frank didn't apply any significance to it -- although he was annoyed -- other than that he carried on with the project, and they had to get the job done. They were given a very short period of time in which to bring these documents together, and that's the context in which that relationship was operating.

M. de Jong: Is it possible, Mr. Brohman, that the auditor general's office has more complete and more accurate information than that which CCS is relying upon to draw its conclusion?

B. Brohman: Well, the only evidence that CCS has to rely on is the impression of the relationship at the time by the two

[ Page 1242 ]

M. de Jong: You'll agree with me that the auditor general's office has referred to a wider range or wider body of evidence upon which they have drawn their conclusion.

B. Brohman: Yes, I'm aware of that.

M. de Jong: Just a few moments ago -- correct me if I misstate this -- I think they referred to a submission that the minister of the day actually participated in.

B. Brohman: To clarify that, on April 14 of '94 a submission was made to the board of the B.C. Ferry Corporation on the ten-year capital plan. That was the first sort of compilation of the MITS and the capital plan together in one document. That presentation was led by Frank Blasetti from CCS. The reason for that -- and again, this was in discussions with Frank -- was because by that time CCS had been the primary pen. Somebody had been chosen to write the thing up. CCS had written it up and, on that basis, made the presentation. Planning staff, including Mike Renaud, were at that meeting and were prepared to answer questions and so on. Again, in talking to Frank about this in detail, the impression was clearly left that it was not a takeover and that it was not CCS's own document.

R. Thorpe (Chair): Mr. de Jong, just be very quick, because there are other members, and we were going to go back and forth.

M. de Jong: Well, in fairness, I want to ask the auditor general's department: having heard that response as to the basis upon which CCS objects to the finding contained in the report, what does the auditor general's office say about its conclusion that this took place at the direction of the minister?

M. Sydor: I still stay with that conclusion, basically. When we look at. . . . I've referred to a number of documents. In terms of the process, it was fairly one-sided. As Mr. Brohman just indicated, CCS was the primary author. The process was such that B.C. Ferries basically passed that information. . . . It completed the document. When we look at the April 14 submission that was presented to the board, we have to keep in mind that it contained a $152 million error in terms of the size of the capital plan. Now, if it was a collaborative effort, how could we have come up with such an error? The reason we came up with that error is because information was being passed to CCS, who were completing the plan and didn't have the necessary knowledge to understand that that error was brought in there.

Again, in terms of the collaboration and where the submission came from, the final submission that the board actually evaluated was faxed to B.C. Ferries from CCS's offices an hour before the planning committee met. It didn't come through staff at B.C. Ferries. It came from CCS. So from beginning to end, CCS took the lead role, basically. The recommendation for fast ferries was one generated by CCS. That's who put that recommendation on the cabinet submission, not B.C. Ferries staff. So we stand by our original judgment.

P. Calendino: To Ms. Carter: the role of CCS is to oversee Crown corporations -- is that right?

N. Carter: Yes.

P. Calendino: How much do you monitor the activities of Crown corporations?

N. Carter: The way I would characterize the role of CCS is that it's an agency that really focuses more on strategic issues pertaining to the Crowns. We're quite involved in the strategic planning processes on major projects that the Crowns are undertaking. That's not to say that we aren't interested in receiving information. We do receive things like performance reports and quarterly financial statements -- the same kinds of reports that go to Treasury Board. But I wouldn't say that our primary role is a project-monitoring role. We simply don't have the resources or the capacity to do that. So our tendency is to perform more of a review-and-challenge function with respect to options that are being put forward by Crowns, to identify alternatives and to help maximize Crown performance in meeting government objectives.

[1135]

B. Brohman: In answer to that question, I think we got a lot of that response from Mr. McFarlane previous to us. Certainly when Mr. McFarlane was at Crown corporations secretariat, we were the first agency to sort of indicate to the corporation that we had some concerns, and we wanted them to provide us with some information. That was in December of 1996. As Mr. McFarlane indicated, from that point on, a series of requests was made, primarily more through Treasury Board. We made our requests and then deferred in part to the kind of information that was flowing through Treasury Board staff. We had an agreement with Treasury Board staff that they would forward to us the quarterly reports. Then subsequent to the August '97 Treasury Board decision that required the corporation to provide monthly reports on the project, we started receiving those monthly reports. We didn't receive any other formal reports from the corporation, other than our own sort of performance planning and management documents that were received. But those are on a different. . . . It's a totally different kind of document. It's not a project-based document. It's based on the performance of the corporation as a whole.

P. Calendino: One of the criticisms has been that there wasn't a business plan for the project. But Ms. Carter said that, yes, there was a strategic plan for the corporation in general, and part of the strategic plan was to embark on this fast ferry project early in '94.

The fast ferry project wasn't something new in British Columbia. It had already been developed in various parts of the world. I wonder whether you had done any serious research on whether that would work in British Columbia, or

[ Page 1243 ]

You had calculated a cost for each vessel of about $70 million, I believe. Do you really think that in comparison with other parts of the world, that was a realistic cost?

N. Carter: I'll let Brad answer that one.

B. Brohman: In the opinion of CCS, the corporation and the consultants who were providing advice on developing the costing -- including Mr. Ward and Mr. Bruce from Sandwell -- the $70 million figure was conservative. The Australians were building the same boat for $52 million. We adjusted it up because it was going to be a slightly larger vessel, and we adjusted for some other factors, including slightly higher labour rates.

[1140]

P. Calendino: Can I ask another? Did you have any idea of how much more they might cost? Did you give yourself a contingency for the final cost of that? You're saying $70 million was conservative, so you must have had some sort of idea, more or less, what the final cost would be.

B. Brohman: What we were looking at was a combination of things in terms of a cost benefit: whether the $70 million figure would equate if you charged it out against steel boats making fewer trips and the like, the performance and so on, and whether you would be able to generate the same amount of revenue or more on those runs. That was the way that the cost-benefit was done.

The cost-benefit was done without access to what would have been called a premium-pricing model, where they were looking at the possibility of charging more for the fast ferry run because it was going to be travelling faster. But even without factoring in the premium pricing, the cost-benefit was still positive up to about $72 million to $74 million.

At the time the decision was made, based on all other factors, if you had introduced premium pricing, which you could have, then theoretically the capital cost could have been higher and still been positive.

J. Weisgerber: I'd like to try and get a sense from either of the representatives from CCS with respect to the very early concept of fast ferries. It seems evident, to me at least, that B.C. Ferries themselves had very little appetite for or interest in aluminum ferries or a fast ferry hull design. If you look at the history of B.C. Ferries through the 1980s, there were repeated proposals to the corporation with various configurations of fast ferries that were quite summarily rejected. In fact, B.C. Ferries simply had no interest.

My sense is that the concept for fast ferries, as they were proposed, initially came from outside B.C. Ferries. Every evidence from the auditor general suggests that it came through the Crown corporations secretariat. Can you confirm that, or do you believe that's an incorrect analysis?

B. Brohman: Two things. One, I don't think it's fair to say that the corporation had summarily rejected the concept of fast ferries. They had done their own studies -- in fact, they had commissioned some of their own studies to look at it. They were continually interested in where the technology was going. That's sort of on the side.

In terms of where fast ferries came. . . . There were a couple a major things that were going on. Later in '91, I think that the new government was looking at the decision around the superferries and considering whether the second ferry was to be built or not, looking at whether the corporation had considered all the technology that was available for them to meet their long-term needs, looking at issues around congestion in various parts of the system. At that time, and I think it was described by Mr. Sydor at the last meeting as. . . . It was a time between '91 and '93 when the corporation, with the assistance of CCS, was looking at all different kinds of options, including fast ferries.

Clearly the concept didn't come from within CCS initially. There were people who were working for CCS, including Mr. Williams and Mr. Bawlf and others, who had an interest in fast ferries -- no question. They brought that expertise to CCS, and it was very helpful. But it's kind of hard to say where it came from exactly, because it was all around. Certainly within CCS from the time period of '92 through till the time that this initial decision was made in April of '94, the concept of fast ferries was beginning to gel significantly, and a lot of that expertise was brought by people like Mr. Bawlf.

J. Weisgerber: Certainly one of the interests I have in seeing Mr. Williams and Mr. Bawlf appear before the committee is to try and get a sense of how that process developed.

[1145]

B. Brohman: Again, my understanding is that the concept of fast ferries emerged out of the mid-Island transportation strategy, which was really. . . . It was an enormous study that was undertaken. The primary task of that group was to look at terminal options for the Horseshoe Bay-to-Departure Bay run and whether there was the need for a shift in where the terminus was going to be on the Island side -- whether it was going to shift south, for example, to Duke Point or Crofton or Chemainus -- and, as well, to look at some of the effect on the system that had come from the superferries. They had done some major terminal modifications in Tsawwassen and elsewhere, and they shifted some movement down onto that from Tsawwassen so that it created a new run, etc.

That was the primary purpose of this. But as part of that -- the corporation, CCS and all of the players who were at the table on the mid-Island transportation strategy, including the

[ Page 1244 ]

We've looked back at this. I know that the auditor general looked at this. Nobody could determine the time and date upon which fast ferries all of a sudden became a viable option. I think it was more that it was part of a mix of options that were looked at. It was going back even as early as '91, when the corporation was asked to consider all options for the corporation.

So I don't think there is a study or a proposal or anything of that concrete nature that all of a sudden crystallized in people's minds that fast ferries were it. It was in the context of a whole series of decisions that were being made. In fact, even when the item went to the planning committee of the board and then to the board, then to Treasury Board and cabinet in June of '94. . . . Even there, of the range of options that were available for inclusion in the ten-year plan, only two out of the six had fast ferries attached to them. So it was a much broader look at the issue of what the best combinations of options for the corporation were in the context of the mid-Island transportation strategy.

J. Weisgerber: To move ahead to the meeting of April 14, can you advise who represented CCS on making the presentation to the Ferries board? Who was there from CCS?

B. Brohman: Frank Blasetti.

J. Weisgerber: He was the only member from CCS?

B. Brohman: I can look at the minutes. If I'm not mistaken, he was the only representative from CCS at that meeting. It's possible Marvin Shaffer was there; he was the ADM at the time. I can look at them; I'll have to look at the planning committee or board minutes.

J. Weisgerber: So the minister, Glen Clark, along with Frank Blasetti, to the best of your knowledge, were the people who made the presentation?

B. Brohman: No. To the best of my knowledge, only Frank Blasetti made the presentation.

J. Weisgerber: You have checked that.

B. Brohman: That's to the best of my knowledge.

J. Weisgerber: Okay.

R. Thorpe (Chair): Would you check your records and get the answer back to the Clerk, please? Then he would be able to circulate that information to the members. And as quickly as possible. . . .

B. Brohman: Sure.

J. MacPhail: My question is to both the auditor general and Ms. Carter, and again, it's based on recommendations 1 and 2. The auditor general's report does a good job of documenting examples around principles of good governance in other jurisdictions and also the issue of project management practices in other jurisdictions as well. I'm wondering whether either of you have had an opportunity to learn about how other jurisdictions deliver on project management models in the public sector. Are there other jurisdictions that have an organization such as Crown corporations secretariat? I'm thinking of public sector jurisdictions. Can we look to other governments to perhaps reaffirm the role of CCS or improve upon the role of CCS, or is the organization of CCS unique to British Columbia?

[1150]

J. MacPhail: You mean that previous to that, governments operated out of the operating budget, paid for capital straight on the operating budget? And we were the last ones. . . .

G. Morfitt: Yeah. The concentration of attention on capital projects wasn't as obvious as in those jurisdictions where you have a separate capital budget, so you have information funnelled for that purpose.

N. Carter: I'll just add to that. I think one of the purposes of the Deloitte and Touche review is in fact to look across the country at some of the best practices on what can be done. Certainly in the area of governance, obviously we continue to take a look at what's being done in other jurisdictions. There's a range of models throughout the country, so CCS is not unique in terms of being a central agency with responsibility for Crowns. As far as major capital projects go, I think that work is ongoing right now. We're awaiting that study, which will give us some information on what some of the best practices across the country are.

M. Coell: Noting the time, Mr. Chairman, I just have two quick questions.

You mentioned earlier that you had some concerns over governance and some concerns over financial overruns. Did any member of your staff try to tell the decision-makers -- the politicians -- that there were concerns from CCS?

B. Brohman: Like Treasury Board staff, we attended some of the same meetings, where we were attempting to gain information from the corporation that we felt was important to get to the financial issues that we felt were there. We met with the same basic set of information. There was only one difference, and that is that in November or so of '98, CCS staff had a meeting with the then CEO of the B.C. Ferry Corporation, who reiterated for us again that the figures that had been provided to the minister and the Premier were the figures that were accurate -- that is, the budgeted figures. It was shortly after that that we received a briefing binder that was destined for the minister. We reviewed it and discovered in that the necessary documentation to take our concerns directly to the minister. We did that two days later.

[ Page 1245 ]

The other issue that we've got is from an excerpt from an FOI we received from Treasury Board, and it's a response to the auditor general's draft report. It says: "The issue of confidentiality is being reviewed by MAG." I presume that's Ministry of Attorney General. I wonder whether you were aware of that and whether the auditor general was aware of that.

N. Carter: I'm not aware of what document you're referring to, so I don't think I can comment on that.

M. Coell: It would be pages 18 and 19 of the ten-year plan approved by Treasury Board, with certain conditions: "This section includes direct quotes from a cabinet submission, paraphrased references and a direct quote from a Treasury Board briefing note and a direct quote from. . .Treasury Board. . . . The issue of confidentiality is being reviewed by [the Ministry of Attorney General]."

B. Brohman: Is this from an FOI request?

M. Coell: Yes.

B. Brohman: Presumably it was on cabinet confidence.

N. Carter: I think we'll have to get back to the committee on that. I don't know the answer to that.

G. Morfitt: Well, I imagine that that is going to the question of just what cabinet documents can be made available to the auditor or to people under FOI, and which can't. We've established, over many, many years now, that access to cabinet documents is quite freely given, except for covering memoranda that relate to particular policy issues or political issues that may go to cabinet. So we've been able to freely receive from government all of the backup information documents that cabinet uses to try to make decisions. I don't think that ever was an issue.

M. Coell: I guess I would just be concerned as to why Treasury Board would be taking this to the Attorney General.

G. Morfitt: I have no idea.

M. Coell: Okay. Fair enough.

B. Brohman: Is that a question for the staff at Treasury Board? I'm not even sure what the document is.

M. Coell: I was just interested in whether you were aware of that. If you're not, that's fine.

[1155]

G. Morfitt: Well, I think it's pretty clear from those comments that there were references in our draft report to matters relating to cabinet documents. So out of an abundance of caution, the government felt that it was appropriate to find out from the Attorney General ministry whether or not the inclusion of any of those was a breach of cabinet confidentiality that shouldn't be permitted. As a result of that, they checked that out, and there were none. So there were no changes as a result of that.

R. Thorpe (Chair): Noting the time, Mr. de Jong -- very quickly.

M. de Jong: Very quickly. There is a legislative committee, Ms. Carter, that has been struck and, as I understand it, (a) has never met and (b), if it did meet, is designed to add a legislative component to the review exercise of Crown corporations. Is it the position of the Crown corporations secretariat that it would be beneficial for that committee to be activated?

N. Carter: We would take no position on that. I think that's a better question to be posed to the respective House Leaders.

M. de Jong: Did that add at all. . . ? Would that have assisted at all in preventing some of the very unfortunate events that transpired here?

N. Carter: I won't speculate by answering that.

R. Thorpe (Chair): Brad, just very quickly. You mentioned that you received a binder in 1998, and shortly thereafter you reported some concerns to the minister. When did you receive that binder?

B. Brohman: November 30.

R. Thorpe (Chair): November 30. And who was the minister responsible at the time?

B. Brohman: Minister Miller.

G. Farrell-Collins: I just want to be clear on the timing. You're saying that you received a document on November 30, and two days later you made the minister responsible aware that there were significant financial problems with the project.

B. Brohman: No. What we made him aware of is that we had suspicions based on. . . . It was extrapolated from some information. We then were required, obviously, to go and try and verify that information and determine exactly what was going on. That took place at a staff level for. . . . I'm not sure. I

[ Page 1246 ]

G. Farrell-Collins: My understanding is that Mr. Miller stated that he received the information about the fast ferry overruns in January, I believe it was -- if I'm not wrong, the end of January.

B. Brohman: That's when we concluded our assessment.

G. Farrell-Collins: So as early as December 2, Mr. Miller was forewarned of your concerns in a sufficient nature. You either were authorized to undertake or on your own volition undertook a far more extensive -- or intrusive, to use Mr. McFarlane's word -- review of what was going on at CFI. Is that correct?

B. Brohman: I'm not sure I would characterize it that way. I wasn't at the meeting, and I don't know what the minister said. All I can say is that we did undertake significantly more review. I don't know if he made any conclusions from that, but it was like: "Go get more information." So we did.

[1200]

The last question to the auditor general is: was the auditor general aware that the minister was informed on December 2 of that binder?

M. Sydor: My recollection is that we were aware that at approximately that time CCS expressed serious concerns about the previous information it had been getting and that the minister was one of the people that were advised. I don't recall at this stage the specific timing of that, but that's about the time -- yes.

G. Farrell-Collins: I've read the report a couple of times. I don't recall where that appears. Does it appear in the report? You're obviously more familiar with it than I am -- your report.

M. Sydor: In our report?

G. Farrell-Collins: Yeah.

M. Sydor: No, I don't remember that we put in that specific information.

R. Thorpe (Chair): I'd like to thank the staff from CCS for coming today. I do believe there is some information that you're going to report back to the Clerk's office. We look forward to receiving that very quickly.

There will be a half-hour break for lunch.

Interjection.

R. Thorpe (Chair): Oh yes. If any members do have written questions, please get them into the Clerk's office. We would then expect and ask that CCS turn those around very quickly so that we can get the answers for the January 25 meeting.

Do we need a motion to adjourn for lunch for half an hour?

P. Calendino: Recess.

R. Thorpe (Chair): Recess. We'll reconvene at 12:30. Thank you.

The committee recessed from 12:01 p.m. to 12:37 p.m.

[R. Thorpe in the chair.]

R. Thorpe (Chair): If we can call the meeting back to order, our first witness this afternoon is Mr. Frank Rhodes, the former president and chief executive officer of B.C. Ferry Corporation and deputy minister responsible for the Crown corporations secretariat. I understand that Mr. Rhodes has an opening statement or comments that he would like to make. I don't know how long they are, but if he could aim for the ten- to 12-minute mark, that would be perfect and allow the committee members the opportunity to ask questions. Mr. Rhodes, over to you.

F. Rhodes: Thank you, Mr. Chairman. I'm not sure I can make ten or 12 minutes. I'll do my best to move along as quickly as I can. I appreciate your call on January 4 advising of the meeting of this committee and asking that I attend, and I do so willingly and voluntarily. I understand that I'll have an opportunity to overview, from my perspective, issues relating to and key findings of the auditor general's report and thereafter answer questions that you or your committee members may have.

My willingness in attending is driven by a respect that I have had for the Legislature and committees of the Legislature over the close to 30 years that I have worked in the public service. I hope that the discussions in your committee contribute to positive changes in governance structures and processes, particularly for Crown corporations. My interest is not in attributing blame or avoiding it. I believe that the problems of the project lie in structure, not in individuals.

I'd like at the outset to acknowledge the effort represented by the auditor general's report and, primarily and importantly to me, the fairness of the process that he and his staff endeavour to employ. That does not mean that I agree with all of the findings of the auditor general's report; I do not. But at least he and his staff sought my views and knowledge of the issue. That contrasts very sharply with the process that was followed in a previous report on the project, where my information was not sought. The difference in the reported genesis and history of the project and the difference in some of the conclusions in those two reports is, at best, troublesome. So, also, is the application of concepts of natural justice and administrative fairness, all practised by the auditor general. I advised the auditor general, and I must indicate to this committee, that I must qualify my remarks by observing that for the most part I am relying on information that is contained in the auditor general's report, some retained documents that I have and memory. When I was first requested to appear before the auditor general, I asked for access to documents at the Ferry Corporation, and they were not made available.

[ Page 1247 ]

[1240]

B.C. Ferries had experience in effective project management and capital planning. Also important is that every one of these projects was completed under the guidance and direction of a committee of the board of directors. The high-speed ferry project has been somewhat different in origin and result. In that regard, I believe that the auditor general's report provides a generally accurate history of the development of the high-speed ferry project.

I'd like to comment on the history as he has observed it. In '93-94 B.C. Ferries was attempting to development a strategic plan to deal with both its pressing financial circumstance and a need to replace an aging capital asset base. In '94 the corporation commissioned a number of reports into vessel technologies and types. While BCFC recognized developing trends worldwide in high-speed ferry technology, it was not prepared to commit to that technology as the backbone of a fleet replacement program or even as the technology to be employed on one of its major routes.

The corporation's position was to monitor the technology, employ it on a charter basis and additionally consider enhancements to service through passenger-only vessels. The corporation board and management were focused as a priority, however, on the deteriorating financial position of the corporation and the need to obtain government consideration of that matter. In 1984, as the auditor general notes, the Crown corporations secretariat was reviewing and developing the capital programs of all Crowns, including BCFC. Ultimately, a plan that was developed was presented to the board, Treasury Board and cabinet for approval.

Based on the information then available, the minister and government believed that the high-speed-ferry program could concurrently achieve a number of public policy goals. They included (1) provision of new capital assets to BCFC; (2) an opportunity to restructure and revitalize the shipbuilding industry; (3) an opportunity to create exportable technologies and services; (4) rationalization of mid-Island and Horseshoe Bay traffic; and -- importantly -- (5) reduction of other capital spending that would be associated with highway construction.

As noted by the auditor general, the decision-making process, intermingling public policy or industrial strategy goals and meeting the specific service and capital needs of BCFC underscored problems of governance. What objectives were being pursued? How were they defined? Who was accountable for defining them? Who was responsible for achieving them? How would they be financed? Who would finance them? Who would fund which elements? Those issues were blurred and not dealt with.

It was, however, the minister's and the government's and CCS's honest belief that the goals of the project and its budget and time frames could be realized. It was also clear that within a range of alternatives but given certain critical planning assumptions, high-speed craft appeared to be an acceptable option in a range of options. BCFC was instructed to proceed on that basis.

The government announcement to proceed with the project rather than initiate a review had some immediate consequences. They may have been highlighted more in the auditor general's report perhaps, but the consequences were: first, in the technology choice it made; second, the prospects of offshore supply were eliminated, unlike the superferry; third, negotiations with the B.C. shipyards were significantly weakened; fourth, the prospect of federal funds from existing shipyard and labour programs was virtually eliminated -- it was certainly narrowed; and fifth, a public expectation was created in respect of schedule and budget.

[1245]

Interestingly, on this point I think I disagree with the auditor general. In 1994, I met with the auditor general and his staff, because he was contemplating a BCFC governance audit. Well, the audit did not proceed -- in retrospect, I think, unfortunately. The draft terms of reference included the following: "We will review the development of the ten-year capital plan and the needs assessment for major proposals in the plan. The report will recognize that the government has a major role in defining the type of vessels the corporation builds." With that I do not agree, although it has in large measure been the history of this corporation.

[ Page 1248 ]

It is clear to me that when the timetable for the project was first set by CCS, it was their honest belief that the schedule was achievable. It was very aggressive and, in retrospect far, far too ambitious. Notwithstanding the originally announced schedule, BCFC did not, in my judgment, rush perilously into this project. In fact, the front end of the project was extended to ensure that an appropriate foundation was created.

While the project had failures, they did not arise because of a blind adherence to an initial schedule from the announcement of June 1994. It was almost two full years before construction was commenced. During that initial two-year period, the corporation had to complete business case development, resolve design issues, negotiate with shipyards, develop alternative building strategies and facilities, complete labour negotiations and labour upgrading programs and assess supplier capability worldwide.

The first major task was to determine the type of vessel to use. An expression of interest was issued on a worldwide basis. We recruited, to review that expression of interest, Mr. Nigel Gee, who is from the United Kingdom and a renowned expert in high-speed ferries; the senior vice-president of Sandwell Engineering in Vancouver; and the two senior vice-presidents of B.C. Ferries. We had 20 respondents, from every type of craft -- from catamarans to SWATHs. Incat was successful. They had two-thirds of the then high-speed tonnage operating in the world under their design. Catamaran technology was chosen because it best met the operational needs. It's very important -- I think there's a blurring of this issue in the auditor general's report -- that the initial expression of interest called for the use of existing terminals. It wasn't an add-on.

That entire process wasn't finished until 1995. Of critical importance to me and the board of directors was that during this process, all proponents tendered both design concepts and preliminary estimates of price. The catamaran bids were below $60 million. The SWATH bid was close to $90 million. It was the first and critical verification, we felt, of the order and magnitude of the costs associated with construction. The Incat vessel that was proposed is not the one shown in the auditor general's report, which is 78 metres. I know he's only done that for schematic reasons. The vessel they tendered as a design concept was over 100 metres. I believe that the impact of scope changes is not quantified in the auditor general's report. I believe it should have been if that was possible. I'll speak to that in a minute.

Through the first half of 1995, the corporation's senior vice-president undertook extensive discussions with B.C. shipyards, attempting to secure private sector investment and leadership. That was not successful. In the absence of private sector interest, it was clear that BCFC would have to develop a building strategy. As it became clear, we had to put in place the most appropriate structures and seek the most qualified personnel to manage the overall project. That was the priority for me, based on our success in other projects: create a structure, recruit the best people and have them implement appropriate project management systems -- risk management.

[1250]

My point in identifying a few key management personnel is to point out that these were experienced and primarily private sector project managers. They had exceptional track records. We then retained Det Norske Veritas -- DNV, the world's largest classification society dealing with high-speed ferries -- to deal with quality assurance, quality control and standards. Then we went and hired Finnyards, who had just finished building, or were building, the largest high-speed ferries in the world. I believe that this group of individuals and companies brought together all of the requisite skills and experience for successful project management and risk management. I do not believe that this effort and approach by BCFC was recognized at all in the auditor general's report. They may have disagreed with what we did, but I don't think they recognized or acknowledged that which we had done.

Through mid-1985 we ordered aluminum water jets and engines on a fixed-price contract basis. By September of '95, the major design elements were complete. Even at that point, the corporation did not rush. We delayed the project further while we went to Norway for extensive tank testing. Those tests confirmed performance, load factor and powering requirements. We believed that we had completed due diligence on ship performance issues.

In late 1995, when the building strategy was being finalized, the corporation was approached by a major industrial interest from eastern Canada to discuss the possible purchase of and assumption of responsibility for the entire high-speed-ferry project. The board approved negotiations for the sale. I structured a negotiations team, from legal and management consulting firms in Vancouver, to represent our interests. Negotiations took place to the end of 1995 and early 1996. At the outset of 1996, that firm indicated that for tax and other reasons, it would withdraw from the process. Therefore, by April -- the first quarter of 1996 -- we were back to looking at carrying on through B.C. Ferries. In that quarter, we also had final verification of tank tests and initiated a welder training program. Interestingly, in April 1996 the Canadian transport centre of Transport Canada completed a draft report on the application of high-speed ferries and determined that the route chosen by B.C. Ferries was an appropriate use of high-speed technology.

It wasn't until mid-1996, two years after the announcement, that construction commenced on the basic hull modules of the first vessel. I recall being advised by one of the government members that their problem was that the only aluminum

[ Page 1249 ]

By June '96, the corporation brought together shipyards and unions as a Council of B.C. Marine Industries. Its purpose was to petition Industry Canada to put money into the program for technology change in shipyards and for labour upgrading. There was $29 million in unspent funds in federal programs for B.C. for that purpose. The answer was no.

Rather than utilize the board's capital committee, the corporation committee created a separate building entity to oversee construction activities, spending in one demisable entity, such that the disposition of the program facilities to the private sector would be facilitated. CFI was created in May '96 and held its first business meeting in July 1996.

Unfortunately, as we commenced CFI operations in June 1996, the government announced a freeze on capital projects, including two of the three high-speed ferries. The impact was profound and obvious. How do you complete a strategic budget or marketing plan? How do you deal with operational planning? Furthermore, in August 1996 the corporation was advised by a newly established Treasury Board working group on Crown corporations of a review of the corporation's plans, including capital and whether or not to cancel the high-speed-ferry program.

The working group was attempting to deal with the government's overall financial situation, but Treasury Board and Treasury Board staff also had a keen awareness of the structural financial problem of B.C. Ferry. As much as these developments created difficulties for the corporation's capital program, we had the much larger issue of the problem with our high-speed ferries. Do you want me to conclude, Mr. Chairman? I'm two-thirds of the way through.

R. Thorpe (Chair): No. No, go ahead.

[1255]

R. Thorpe (Chair): No, I have my watch on.

F. Rhodes: Oh, I thought it was invoking closure or something.

R. Thorpe (Chair): You won't have to guess when I'm. . . .

F. Rhodes: No, I understand you have a loud voice, but. . . .

As I indicated, as much as these developments were creating difficulties for B.C. Ferries, the more profound issue was the structural financial problem of B.C. Ferries. I wrote to the chairman of the board on that issue on July 30, 1996 -- a memorandum from me to the chairman of the board, "BCFC Future Directions":

"We have discussed on several occasions the developing urgency associated with the current financial situation of the corporation and our inability to attract any government focus on the situation. In my judgment, the situation is becoming more acute and the solutions more difficult, given the government's current financial situation generally. As a consequence, I think it is essential that we press firmly to try and achieve a resolution of these fundamental policy issues confronting BCFC. In the absence of a definitive and sustainable policy framework, the corporation will not be in a position to effect a meaningful strategic plan, implement annual business plans, develop budgets or plan for capital expenditures.

"In short, we are at a crossroads, and our ability to continue to function in this environment will not be based on principles of good public policy or business but on ad hoc and random financial decisions by government. We must press this issue with the minister and achieve some kind of resolution of these issues. In doing so, I believe that the board should find the course that it believes is achievable and sustainable, and create a financial framework which ensures that such a plan is affordable and achievable."

G. Farrell-Collins: I'm sorry; I hate to interrupt you. I just want to get the time frame of this memo.

F. Rhodes: The memorandum was written on July 30, 1996.

G. Farrell-Collins: Thank you.

F. Rhodes:

"In the short term, there is a tariff revenue problem, compounded by slowing the rate of traffic growth. The capital plan should be driven by affordability levels within a defined financial plan for the corporation. The financial plan lacks definition because of a lack of direction from government and conflicting instructions flowing from cabinet, Treasury Board and the capital approval process. The plan also carries important implications for government in terms of sustaining the shipbuilding infrastructure in the province and maintaining shipyard and marine worker employment. The issue is also of strategic importance to the corporation if it wants to maintain critical mass within the private sector. The most significant issue facing the corporation is the ability of BCFC to continue to sustain capital spending expectations, which are requirements, while sustaining a financial position where operating revenues are fully recovered by operating costs."

"Dear Mr. Minister:

"I'm writing to advise you of the likely consequences that BCFC will face by complying with the government's constrained capital spending program."

"BCFC's approved and announced ten-year capital plan contains an ambitious building program centred around the high-speed-ferry construction program. The corporation has, per instructions from cabinet, begun implementing this program even though Treasury Board revised the spending targets associated with the ten-year capital plan. The disparity between the cabinet-approved and announced building program and the Treasury Board spending targets has been identified and communicated to government by BCFC on a number of occasions.

[ Page 1250 ]

"Government's request to further tighten capital spending, both major and minor capital, will require a major shift in corporate plans if the capital envelope constraints are to be met and/or if the capital program is at the same time to be continued."

"In summary, the capital plan cannot proceed within the constrained limits without significant re-engineering. It should be noted, however, that whatever course is chosen, it must deal with the more fundamental and demanding question of affordability and the overall financial strategy government intends the corporation to pursue. That matter is urgent, in terms of defining service levels, subsidy issues, tariff proposals, capital initiatives and a strategic and business plan."

[1300]

By early 1997. . . . Could I just digress for a minute, Mr. Chairman? This is just a debate -- not between Mr. Morfitt and his staff and mine. . . . These are financial reports that went to CFI. From day one, CFI adopted something called the CS2 system. That's an acronym from the federal government for the cost/schedule control system. It monitors budget, application of budget and scope and requires verification of scope changes. It calendarizes all expenditures by module of the ship. They're all in here. That might not have been acceptable to the auditor general, but he didn't even acknowledge that we did it. I don't think that's fair. I think that's a debate. Maybe it's just not clear. Maybe "fair" is too strong a word; maybe it's not clear. I'd rather say that. Maybe it's not clear.

By early 1997 -- and I'm almost finishing, Mr. Chairman; I appreciate your time -- the board instructed me, as a priority, to focus on resolution of the corporation's structural financial problem. In the absence of its resolution, I indicated that I, the board's audit committee or external auditors would have to qualify the financial statements of the corporation. Treasury Board staff and Treasury Board knew the problem. They were trying to help; they were part of the solution.

Three issues happened in May 1997. Firstly, the capital freeze was lifted May 7 -- almost a year after CFI started this program. In the week of May 8, I advised the board chairman and the vice-chairman of my intention to resign. On May 16, the hon. Mr. Petter communicated with the chair of B.C. Ferries, providing the necessary financial support requirements to avoid qualification of our statements. In mid-1997, after reviewing scope and engineering issues and reports from CFI staff, a revised budget was prepared and presented to the board and approved. It was also presented to Treasury Board. I had every reason to believe that the project budget was complete and correct -- as did Mr. Ward, as did the board, as did CCS, as did Treasury Board. We would not have made a submission to Treasury Board otherwise. Shortly thereafter, Mr. Ward assumed responsibilities as president.

Mr. Chairman, that's my history of the project and observing on a number of the issues raised in the auditor general's work. There are two issues I'd like to finish with.

Mr. Morfitt's report is critical of changes made to the board structure of CFI in 1997. The view preferred is that the BCFC subsidiary board should have remained structured much more along commercial lines against criteria such as provided in the Toronto Stock Exchange report. We have a difference of view on that issue. As I have noted, CFI was created to crystallize staff and infrastructure within one entity for ultimate transference to the private sector and to manage a specific building project. The original board was constituted with senior BCFC staff and outside directors. That structure was agreed to by the chairman of the board, given the vacancies in board membership and the financial issues consuming board attention. The outside directors were recommended to the BCFC board of directors by myself. I based those recommendations on a number of years of very positive, professional acquaintanceship with each of them. They are outstanding individuals.

In 1997 the BCFC board assumed direct responsibility for CFI operations. That decision was respectful of the work undertaken by the initial CFI board and was only undertaken because of a number of issues then facing the BCFC board. The overriding concern of the board at the time was the financial sustainability of the corporation and affordability and direction of its capital programs. The capital project freeze had severely constrained development of a strategic or business plan. Was there one ship, or were there three? Could we even continue one, for financial reasons?

[1305]

Finally, there was also a concern we had arising from the Raiwind power project report by former Attorney General Smith. An overriding theme for me -- for me -- in that report was the loss of direct accountability by a parent board of the activities of a subsidiary company. CFI was an in-house project entity, not one with broadly based private sector shareholdings managed in a securities-regulated environment. For those reasons, I have difficulty in thinking we should follow the Toronto Stock Exchange rules. If we had created a committee to manage the capital project -- as we could have; as we did in the past -- would we use Toronto Stock Exchange rule?

For those reasons, the BCFC board made the changes -- to enhance accountability, not to avoid it. That's open to honest debate. I may have made a mistake in judgment, but if I did, it was based on what I believed to be honestly true.

[ Page 1251 ]

The minutes of the CFI board meeting indicate that one original board member stated: "The decision made public policy sense, and the current state of development of CFI offered an appropriate time for a transition." It was a debate.

I will close, Mr. Chairman. I strongly endorse the auditor general's principal finding that the major difficulty of the project is defined by governance. In my view, it is essential for the public interest that government -- current or future -- create a statutory framework for Crown corporations clearly articulating the shareholders' strategic, public policy and financial objectives and provide clear authority for boards of directors and management staff to achieve them.

Equally important in such a framework is definition of ministerial accountability and clarity for agencies such as Treasury Board and CCS. I truly believe that CCS could be an effective public policy instrument in such an environment. Boards and staff of Crown corporations and agencies of government would welcome such structures and process. It merely requires political will. Others have done it.

R. Thorpe (Chair): Thank you very much.

Mr. Rhodes, you mentioned a few minutes ago some information that you have -- or it's my interpretation that you had -- but that you didn't want to share because it is confidential in nature.

F. Rhodes: I only at the outset indicate that I have cabinet submissions and other things that. . . . Mr. Chairman, I think that I am restricted in reading cabinet submissions into the minutes of this meeting. I think that there are protocols that are associated with that. That's what my reference was.

R. Thorpe (Chair): Okay, I just wanted to get some clarification on that. We can think about that.

G. Farrell-Collins: Interesting presentation. You stated repeatedly your level of confidence with Mr. Ward and virtually every single individual at CFI and at the Ferry Corporation through this process -- that everybody operated to the top of proficiency, professionalism, etc. You were very confident in that. You also showed us your CS2 financial accounting system. I'm not familiar with what's in that binder, obviously, and perhaps the auditor general isn't either.

Somewhere there's a disconnect here, though. . .

F. Rhodes: Yes, there is.

[1310]

F. Rhodes: I must tell you, Mr. Farrell-Collins, that since this issue broke or since the problem was identified, I can't think of a day that I haven't thought about that. It's difficult for me to answer. It has eaten at me, in some respects. I have looked at the problems of the project, and I really believe that we had a problem of structure or institutions rather than a problem of individuals. I also appreciate that there is a different form of. . . . What is the nature of the problem we're trying to identify? I'd like to go with that. What's the quantum of the problem that we're identifying? What specific issue are we dealing with?

Within the ferry project itself, I believe that there was an understatement at the outset -- and this would have been a human failing -- of the weights of the ship, of the complexity associated with building certain components of the ship and with productivity assumptions that were made that, while monitored on the front end of the project, didn't see themselves through to the back end of the project. For that reason, I tend to think there are a number of technical reasons, but I must caution you: I'm not best to advise on that, because I haven't seen any of that information.

G. Farrell-Collins: Can I interrupt for just a second and try and narrow my question perhaps?

F. Rhodes: Yes.

G. Farrell-Collins: I'm not looking for the technical explanation about the weight of the ship, the power of the engines, the wake, etc. I think we all know that it's not what everybody expected. What I'm concerned about here is closing that accountability link between the public's right to know -- because they're the ones paying for it -- and the Ferry Corporation's obligation to provide information through the chain up to the CEO, yourself, the board of directors, the minister, the minister to the Legislature and the Legislature to the public.

Somewhere along that line, the minister who was responsible at the time and the former Premier have said that they were essentially lied to. Mr. McFarlane sat in that very seat a couple of hours ago and said that he had face-to-face meetings with the CEO of CFI repeatedly and was lied to. Obviously, if that red binder contains all the information that has been tracking the costs as thoroughly and as accurately as you've told us here today, somebody had that information. Somebody knew the project was going to be over budget. Somebody knew that things were not going as they were expected to go. I don't know -- maybe it was as early as 1997. I don't know what that red binder tells you. But at some point along there, clearly either there was information going to the Ferry Corporation or going to the CEO of CFI that was not being communicated to the minister, or the minister is not telling us the truth. I'm not alleging one or the other; I'm just trying to find out which it is.

We also had the current CEO here last time -- in November, I think our meeting was.

R. Thorpe (Chair): November 4.

G. Farrell-Collins: On November 4. He told us that he, along with Mr. Ward, was in fact part of an executed plan that knowingly delivered inaccurate information to the board of directors. I'm trying to find out, being here on the outside,

[ Page 1252 ]

F. Rhodes: I don't know that I can answer that, Mr. Farrell-Collins. I know I can say this: through the course of the project and the course of my involvement, I believed that I was receiving all of the information fully and truthfully. I don't have any reason to believe that the information that I was being presented with, particularly the information that was coming out of the project budget staff through Mr. Hamilton, was in any way fabricated -- that there was anything in it. So I have the same trouble you do: where did the management information system break down such that the distant early warning line of this project. . . ? Where did we not pick up on some of those changes? I believe that's an important part of it.

I can just give you an example of that. During the course of the construction of the superferry project, I received such a distant early warning line notice from Mr. Lindsay and the project manager. It said: "We have a hot situation developing in this area of the project." Well, I interdicted that; I got outside auditors, outside managers. We looked at the problem, we analyzed it, and we totally restructured part of the building program. I'm not saying that is heroics, Mr. Farrell-Collins; I'm just saying that if you get the information, you develop a plan of action to deal with it. I believe there's a lag in information; that may have been a problem. We are dealing with the complex issue of averaging. There were certain costs going into the first ship that would be spread across to all ships. Mr. Morfitt is more expert than I to talk about the complexity of CICA rules and those kinds of things. I honestly believe that the staff at that time were bringing forward the information they thought to be true; I certainly thought it to be true.

[1315]

G. Farrell-Collins: Let me follow up on that, because it's clear from the testimony of Mr. Cooper, who was here in November, that they weren't given accurate information -- that's clear -- and that that was intentional.

F. Rhodes: At what time, Mr. Farrell-Collins?

G. Farrell-Collins: This was after your departure, I believe.

F. Rhodes: I don't see that's avoiding. . . .

G. Farrell-Collins: No, I understand that. I just want to ask. . . .

E. Gillespie (Deputy Chair): Point of order. I'm referring back to the Hansard of the November 4 meeting and this specific conversation in which Mr. Cooper was quite clear that it was not inaccurate information; it was a change in the way the information was organized. But he states very clearly that the information was not inaccurate under regular accounting principles.

G. Farrell-Collins: Perhaps I'm wrong; perhaps the word he used was "misleading." I will check that. I'm not trying to. . . .

E. Gillespie (Deputy Chair): I'm reading from the record.

G. Farrell-Collins: Thank you. The reality, though, is that prior to the original board of CFI being dismissed, they repeatedly requested information. You've stated here that you believe they had all the information they needed, that people had the information they needed. . . .

Interjection.

G. Farrell-Collins: I'm sorry. . . ?

F. Rhodes: I said that this was information they had. Whether or not they determined it was all the information would have been up to them. They challenged us in other areas, Mr. Farrell-Collins, like updating the strategic plan, the business plan. I don't want you to think that this document has all of that.

G. Farrell-Collins: Thank you. It was clear, though, that they repeatedly asked for further information. In fact, at the March meeting of 1997, my understanding is -- and I think the minutes reflect this -- that you had stated to them that they would have a full budget at the next meeting.

F. Rhodes: Yes.

G. Farrell-Collins: Did they receive that budget at the next meeting? They were fired -- or they offered their resignation -- at that meeting.

F. Rhodes: I need to reserve on that. I believe that the full budget was presented. I'm not sure. . . . The budget was certainly in the financial reports. Whether or not there was a restatement of that budget is another issue.

G. Farrell-Collins: Mr. Rhodes, would you expect board members to read that binder?

F. Rhodes: Yes.

G. Farrell-Collins: All of that binder?

F. Rhodes: Oh, I hope.

G. Farrell-Collins: Okay -- thank you. Let me ask you this. . . .

F. Rhodes: The other thing that's in this. . . . It's pretty important, because one of the issues raised by the outside directors is monitoring change orders. The CS2 system

[ Page 1253 ]

G. Farrell-Collins: Good. It's too bad they didn't stay.

The reality is that those board members repeatedly requested additional information that they never received. There were certain amounts of it or certain individual reports, whatever it was they were looking for -- business plans, budgets, etc. -- that they repeatedly asked for. That's been their testimony to the auditor general. They didn't receive them, and they subsequently left. I would assume, then, that if you had asked Mr. Ward for a copy of that budget to present to the board for the April meeting, you would have been in possession of that going into the meeting. I would have expected that -- unless you had no intention of delivering it to the board.

F. Rhodes: No, I would have had the intention.

G. Farrell-Collins: Do you recall whether you had that at the meeting?

F. Rhodes: I can't, Mr. Farrell-Collins.

G. Farrell-Collins: It would seem to me that if I were in your position and I had made a commitment to the board members that I would arrive with that budget, then I would either have had it in my pocket, or the person I would have been asking for a resignation at that meeting would have been the CEO of CFI, not the board who was requesting the information.

F. Rhodes: Yes.

G. Farrell-Collins: To your knowledge, did you ever receive that information or an up-to-date budget at that point in time?

[1320]

G. Farrell-Collins: Within the limits of your documents. . . . You can perhaps let us know at some later date, through the Clerk, if you can add anything to that in the future.

F. Rhodes: Yes, I will.

G. Farrell-Collins: Lastly, there was now no CFI board. In fact, I think what we ended up with was the B.C. Ferry Corporation board taking over responsibility for CFI, if I'm correct.

F. Rhodes: That's correct.

G. Farrell-Collins: Did they receive that report?

F. Rhodes: These reports?

G. Farrell-Collins: No, did they receive the updated budget that the independent directors had requested quite adamantly for the April meeting?

F. Rhodes: I believe they would have, simply because it did become the basis of the board submission that ultimately became the Treasury Board submission. It was the material that was the building block for the submission to Treasury Board.

G. Farrell-Collins: Through the duration of your time at B.C. Ferry Corporation up until the time you left, did you receive accurate monthly reports as to the status of the project that coincided with what you were regularly reading in the red binder?

F. Rhodes: Yes, the bottom line didn't move. It certainly wasn't in this detail, Mr. Chairman. This is an aggregated document as well; it's a higher-level document. So there are documents within CFI. . . . I didn't get inside those lower-level documents, because I didn't see that as my particular function. Certainly there were rollups of our entire capital plan, because in addition to these things, we had other capital elements that we were trying to manage. The board had a cap. . . .

Interjection.

F. Rhodes: Just quickly. The board structure was to divide itself into a planning, audit and capital function. Management aligned itself in a capital audit and financial management function, so there were committees of the board and committees of management. All of the capital initiatives flowed through the management's capital committee and then went to the board. The board meetings were every bit like this one, Mr. Farrell-Collins. They were probing, examining, receiving documents, challenging and limiting, but they were thorough.

G. Farrell-Collins: I guess I end where I started. If it was all thorough, if the board meetings were probing, if they were examining, if people had these red binders and were reading them, if they got accurate monthly updates in the budget that reflected what was in that red binder, then how in heck did this thing end up being twice the cost it started at?

F. Rhodes: Well, I'd like to come back and answer that. To give this committee a view of that, I would have to assess and look at some of the technical documents, which I haven't been able to see. But there is no doubt to me, Mr. Farrell-Collins, that there has been no effort made to try and reconcile. . . . That might be the wrong word. I'm not challenging or. . . . I'm certainly not challenging you. I'm just saying that I'm challenging the reports that came out on the high-speed-ferry program. In my judgment, there has been no attempt to reconcile what B.C. Ferries advanced to Treasury Board by way of an end budget versus that which came forward in the initial Gordon report. Some of those assumptions might have been clarified had they just undertaken to ask.

G. Farrell-Collins: How do you know that? I'm just curious. You're not involved with B.C. Ferries anymore -- are you?

[ Page 1254 ]

G. Farrell-Collins: Okay.

F. Rhodes: I think there was a reason for not asking me. But can I just carry on, Mr. Chairman?

G. Farrell-Collins: What would that reason be? I'm curious, because that's a pretty strong statement. I'm just curious what that reason would be -- because they didn't want to hear the answer?

F. Rhodes: It's the other issue, Mr. Farrell-Collins, that I've thought of every day since this thing came up: why wouldn't you ask?

G. Farrell-Collins: Do you have any idea why?

[1325]

G. Farrell-Collins: Okay.

F. Rhodes: I didn't finish answering the question in this respect. . . . The auditor general's report says that the cost of the high-speed ferries is $366 million. I think that's in the table in there. Well, as I understand it, the cost of the first ship is $115 million. The cost of the second ship is about $105 million. There's every prospect that the third ship could be under $100 million. I add those up, I look at them, I round it off a bit, and I say: "That's $320 million. Where'd the $366 million come from?"

Then I go back to my days as the Deputy Minister of Finance. As the Deputy Minister of Finance, we had a tough public policy decision to be made by Treasury Board, and I think they still wrestle with it -- and have through succeeding terms: should interest costs during construction be capitalized within the project or reported outside of it? Within B.C. Ferries, they were always reported outside of it, including under the superferry program, and that was known to Treasury Board. It was done for a reason -- that those capital costs and the interest expenses would be deferred across all passengers and vehicles in the system. No one route could take the system shock of a rate that was applied to that route specifically for its capital purposes. It was known that the interest costs were held and segregated in a general financing account of B.C. Ferries. Suddenly, I get the CCS report, and there's this eureka observation that we forgot to budget for it. Why didn't they ask?

What about recoveries? At one time, I understand that CFI was offered $20 million for its construction facility -- no attempt to take that off the project budget.

I'm saying that I'm not satisfied that it's been reconciled, Mr. Farrell-Collins. I can't reconcile the numbers. I don't believe the change or the differences between $463 million and $266 million, for whatever reason. . . . I understand the auditor general accepted the reports because they were accepted by the auditors to the Ferry Corporation. I don't want to put words in his mouth, but I think that's a fair summary. Well, why can't you accept the same thing? The auditors to the Ferry Corporation accepted the way the superferries were done, and interest costs were aggregated outside of the project.

What is the real end cost to the project? By my looking at it, the ships cost $320 million. If you want to -- and you could legitimately; it's an honest public policy debate -- add everything else in, it would be different than the Vancouver Island Highway project. It would be different than a lot of capital projects. How are all capital projects treated? Are they all done that way? I think there's a real public policy issue, and it was a huge challenge for Treasury Board. And they tried to manage it.

I'm sorry. I thought that was important, because I don't know what. . . .

G. Farrell-Collins: It wasn't my question, but it was good information.

R. Thorpe (Chair): Mr. Morfitt, there have been several references to your office in the last 30, 35, 40 minutes. Do you have any comments you want to make at this time, or do you want to wait till later?

G. Morfitt: There seem to be a lot of figures being thrown around, but I'll just make a couple of observations. Going back to the earlier remarks by Mr. Rhodes that back in 1994, I think he was mentioning, we got together to talk about governance of Crown corporations and, in particular, the B.C. Ferry Corporation. . . . As Mr. Rhodes has said today, it has for a long time been his view that the government and the Legislative Assembly have to give increased attention to the model. We talked about that a little earlier today -- the model of governance -- and the interface between these Crown corporations and the ministries of government, the ministers of government and the Legislative Assembly.

A mention was also made of the fact that the intention of this government some years ago was to have a legislative committee to pursue, with the Crown corporations, what their plans were and so on. That hasn't been mobilized yet, so I think there are a lot of. . . . That's an important matter that the government of the day should readdress and reconsider. We did proceed with issuing a report on governance of Crown corporations, so we didn't single out the B.C. Ferry Corporation in particular.

Mr. Rhodes has made a lot of comments today about our report. We, as he also mentioned, had extensive discussions with him and received documentation from him in the course of our audit work. We took those into account, as we've said about other witnesses that have come before the committee. This report reflects the consensus that we reached, taking everything into account. What I'd like to do is review today's testimony and come back to you with any comments that I might want to make.

[1330]

I want to be careful, in the interests of time, that we give time to all of the witnesses we have here today and try to keep to the recommendations of the auditor general's report, some of which you have spoken to. By and large, I think that the framework of expectations for B.C. Ferries, as outlined in the

[ Page 1255 ]

F. Rhodes: Yes, I think it is achievable. I think it is desirable. I agree with the recommendation. I think it's a good recommendation. It really goes to the heart of governance issues, however. It's very important that we resolve what the expectation is for B.C. Ferries in terms of performance. Is B.C. Ferries a public policy instrument or a commercial Crown corporation? If a determination is made that financial goals have to be put in place for B.C. Ferries and that they will be accountable for achieving them, then I think you have to give certain financial levers to the B.C. Ferry Corporation.

The current Ferry Corporation Act requires that cabinet approve or disapprove of any route changes, capital assets, fiscal agency arrangements and, most importantly, tariff. Well, how can you manage against a set of financial or performance targets if all of the key elements that pertain thereto are not in your control? I'm writing a book on the galactic experience of Crown corporations, and every once in a while, the corporations called Crowns whirl around the planet called government. B.C. Ferries seems to be in an orbit that's far too close to the government, whoever the government is.

Why in the world would you not be able to have a rational discussion around things like what kind of ships to pick? Should we have free travel for seniors? Why was B.C. Ferries suddenly told that we were going to pay for the ferry costs of people seeking hospital services? Why are we paying $4 million a year to transport students? We wrote to Treasury Board and said: "Why doesn't Treasury Board pay for those things, and we will bill them back? Then our bottom line will be a true statement of our costs and services." The answer was: it moves up the bottom line of the budget. That's not a good public policy answer.

J. Weisgerber: You've made reference to the genesis of the project, and that's an issue that has particularly interested me. You and I are both familiar with the long historical resistance within the corporation -- to fast ferries, to aluminum hulls and to the concept of the ferries that we're talking about. I wonder if you could give me your sense of the genesis of this project and if you would be good enough to tell me when you personally were persuaded, either in your role as CEO of Ferries or as deputy minister for CCS, that this was the route to go, that this was the proper vessel for the route, that this was a decision that you enthusiastically endorsed.

[1335]

J. Weisgerber: This was Minister Clark?

F. Rhodes: Yes. It was his honest belief at the time that that was the appropriate technology to be employed. He had been persuaded to that point of view by honest representations by others who held that point of view.

You asked when I became enthusiastic. My job as a deputy minister or as a president is to become enthusiastic at the time the minister makes a decision. You advise the decision the best you can, and once it's taken -- whatever it is -- then you become enthusiastic. I was not an advocate, but I recognized that within a range of acceptable alternatives and given critical planning assumptions, it was one in a set of solutions that would work. It wasn't my belief that it was the best solution, but that's not relevant. It was within a range of what would work, given critical planning assumptions. Accordingly, the project proceeded on that basis.

J. Weisgerber: Interesting. It seems to me that from 1990 through 1997, you were either the president or the deputy responsible for CCS, so the continuum in that period of time was you.

F. Rhodes: Yes.

J. Weisgerber: You were there through two governments, through a series of ministers, and you were well respected in British Columbia in those various positions.

F. Rhodes: Thank you.

J. Weisgerber: Were you expressing this apprehension -- these concerns that you had -- to the various ministers? I think there were several in those positions: Mr. Charbonneau, Mr. Clark, Mr. Miller. Were they aware that you weren't enthusiastic about these things?

F. Rhodes: I was not an advocate for the high-speed-ferry system. When ministers receive information, they receive it from numbers of sources, and they make judgments accordingly. I don't feel, Mr. Weisgerber, that I could advise you of my personal advice to ministers or to cabinet -- just as I wouldn't advise this committee, if you had been my minister in a previous incarnation, of advice I gave you. I don't think I can do that.

J. Weisgerber: That's fair enough.

There was a meeting, which has been much discussed, on April 14, 1994, where Mr. Clark and a representative of CCS made a presentation to the B.C. Ferries board with respect to the ten-year capital plan. I assume that the decision was made either then or immediately after that to go ahead with fast ferries. On that date, April 14, were you deputy minister in charge of CCS, or were you back as president of B.C. Ferries at that time?

[ Page 1256 ]

[1340]

J. Weisgerber: When did you go back to B.C. Ferries?

F. Rhodes: In June of 1994, I think, I was approached by Caldwell Partners to accept a position outside of government, outside of the deputy ministry. It was not B.C. Ferries. In June that offer was made to me, but it was subject to government confirmation that that was what they wanted me to do. That confirmation wasn't given. They wanted me -- if I was going to leave, which I told them was my intention -- to go back to B.C. Ferries, not the other position that I had been recruited to. So I went back to B.C. Ferries in August 1994.

J. Weisgerber: Just a couple of other questions. Did you attend that presentation made to the B.C. Ferries board on April 14?

F. Rhodes: I can't picture the date, Mr. Weisgerber.

P. Calendino: Point of order, Mr. Chairman.

R. Thorpe (Chair): Yes.

P. Calendino: The member for Peace River South is referring to a question he asked this morning, and he is including the minister with a representative of CCS that made the presentation. I believe it was clarified this morning that there was no minister present at that presentation, and I would like to make that point clear.

R. Thorpe (Chair): That's not a point of order.

Carry on with your questioning.

J. Weisgerber: Mr. Chairman, the answer we got was that Mr. Clark was there with Frank Blasetti, who made the presentation. My question was. . .

F. Rhodes: Was I at the board meeting?

J. Weisgerber: . . .were you at the board meeting? It's a simple enough question.

F. Rhodes: No. I was, however, at a presentation -- that's why I was being fuzzy on it, Mr. Weisgerber -- in Vancouver where there was discussion by then acting president Admiral Martin on the B.C. Ferries draft capital program, which did not include high-speed ferries.

J. Weisgerber: In your initial presentation to us you laid out a series of goals that the minister, government and CCS believed fast ferries could deliver. You didn't include B.C. Ferries or the board of B.C. Ferries in the list of agencies that believed fast ferries could deliver this rather lengthy list of objectives. Did B.C. Ferries ever buy into that?

F. Rhodes: Oh yes, I think so. I indicated that it wasn't a technology solution that was advocated by management, but I'm trying to be fair. Given the planning assumptions that were then available, it fell within a range of acceptable options. So knowing that that was what government wanted to do, you accepted instructions or directions or preferences of shareholders.

J. Weisgerber: Finally, several times you made reference to Incat. Did they have a local representative in British Columbia?

F. Rhodes: Not at the time of negotiating with B.C. Ferries. They certainly had. . . . Under the previous government, I think representation had been made by Incat with local representatives. Cancat, I think, was the name of the company.

J. Weisgerber: Was that Mr. Bawlf's company?

F. Rhodes: Yes, it was.

J. Weisgerber: Thank you.

D. Symons: Mr. Rhodes, on various occasions I believe that at least five different questions were asked, and you were director of CFI and also the CEO of the current corporation. A comprehensive business plan was asked for and basically was promised. These were members of the CFI board who were asking for these particular documents. I didn't receive my copy of that until January of 1999, but they were asking for these in '97. They asked for a full budget, they asked for a contract between CFI and B.C. Ferries, they asked for a construction schedule, and they asked for a rationale as to why there were no cost increases in the ferry even though there was an increase in the size of the ferry. All these questions were asked by the CFI board at meetings of the people running the project. As a director of that board and as the CEO for B.C. Ferries, why did you not make sure that the proper answers were given to those questions?

F. Rhodes: I guess that's presuming, Mr. Symons, that I didn't think they were being given. We minuted everything as a follow-up item. Part of our standard business procedure was to go through and minute everything that was in a question that was raised or asked. I know the business plan was provided. My memory tells me that that was the case. The CFI-B.C. Ferries contract was being drafted. All of these things were at the front end of the CFI process. The schedule was certainly in the budget here.

One of the documents that I found most instructive. . . . It was consumption of hours versus project completion. All of those things were provided. I thought that the minutes reflected that these were questions they were asking in addition to material that they were being provided or how they wanted the material improved, and that's fair comment. All material can be improved, but it wasn't as if these things weren't there.

[1345]

In respect of the strategic plan, part of the role of that initial group was to develop a strategic plan. We assigned that to the vice-president of CFI. We hired outside staff to work with him to do it. As I recall, we had weekend meetings to start the process with the original CFI board. What are the inputs? How did they want it shown? How do they want it changed? How do they want it developed? So I looked at all those things, and I thought we were doing them.

[ Page 1257 ]

F. Rhodes: I take your observation, Mr. Symons. I don't agree with that. I'd like to say, I guess with some delicacy, that I find the word "coerced" to be pejorative. You may want to say that we made a mistake, but I would trust that you would believe that that mistake, if made, was made honestly. Coercion, for me, strikes of something else.

They did repeat questions; there is no question about that. Some information needs, I'm sure, were not satisfied. We worked very hard to do that. Scope changes were identified, and we tried to deal with the best way of reporting this through the CS2 financial management system. I believe we were trying to do that. Whether or not we did it adequately is another issue. But I don't want to leave the inference or the impression that it was denied or frustrated for purposes of not trying to manage the project well. I don't think coercion is a fair approach to that, but that may be a vocabulary issue. . . . It might not be.

D. Symons: I must admit I might have almost used the word intentionally, but I'm wondering. . . . If we look at the auditor general's report, which seems to take issue with the reasons that were given at the time for -- whether you want to call it a request or whatever -- those members leaving the board. . . . Certainly those reasons did not seem to hold water. It seemed to be manufactured to suit the situation rather than being the facts.

F. Rhodes: Yes, some might say that. All I can tell you is that that's not my position. It wasn't the position of the board. It was a judgment issue, Mr. Symons. If we were wrong on the judgment, then I stand to be wrong. But at the end of the day, it was a decision honestly made.

[1350]

I can only guess. . . . I don't have access to all the B.C. Ferry board minutes or CFI board minutes. It would seem to me that if, as you've said, standard operating procedure for the boards was that items requested were minuted, then I would assume, generally, the minutes were the first item of approval at the next board meeting -- that's usually the way they work -- and that the request was made again.

How does your. . . ? You've told us a couple of things here today. You've told us the reasons for the release of this board -- their resignation. The auditor general has a different take on that. As you've said, that's a matter of debate. You've told us that as far as you knew, everybody who worked on the program was top-notch and professional and did the best job they possibly could. You also are now telling us that you took every effort to provide individuals with that information and that as far as you know, with the way the process works, they would have received that information. The auditor general is pretty strongly stating otherwise. It seems to me that we have a whole bunch of directors on the CFI board, some of whom, quite frankly, don't have a political axe to grind. They couldn't care less and just wanted to do a good job and make sure that this project went ahead. Upon being interviewed by the auditor general, they have told him that they repeatedly, over a ten-month period, asked for all sorts of information and didn't get it.

I have to ask you, as the CEO of the Ferry Corporation. . . . You know, the buck stops with you until it goes up to the minister. Why is it that there's that discrepancy between your assurance to us that everybody should have had the information they had and the directors -- not just one but virtually all of them -- repeatedly saying that they didn't get the information they needed?

F. Rhodes: I can't explain that, Mr. Farrell-Collins, in the sense of understanding that. . . . The auditor general's report is a summary of some issues that he didn't think were being dealt with. I thought each of those issues was being dealt with. I thought reports. . . .

G. Farrell-Collins: Didn't it twig with you when they asked the second, the third, the fourth and the fifth time over a ten-month period that maybe it wasn't being dealt with?

F. Rhodes: Well, let me just, for example, pick one: "Asked for a construction schedule." We had it.

G. Farrell-Collins: What about the budget?

F. Rhodes: Yes, we had that. The CS2 report was providing budget information.

G. Farrell-Collins: Did you tell the board members that?

F. Rhodes: Well, sure. But then they would go on and ask, appropriately, other questions: "We'd like to see more information on that and more information on that" or "Could we please have it subdivided in different ways?" or "Could you please show us different kinds of commitment systems?" So it was an ongoing discussion. I don't know that I would ever have totally perfected the budget process. I'm just saying that we were working very hard to feed that information -- the best information we had possible -- to the B.C. Ferry Corporation board as well as to the CFI board.

[ Page 1258 ]

F. Rhodes: To the best of my knowledge.

G. Farrell-Collins: Okay.

F. Rhodes: Well, if you read the paragraph -- I think it was written by the auditor general -- I take umbrage at one part and take refuge in another. At the top of page 33 it says their requests were ignored. Mr. Farrell-Collins, in 33 years I've never ignored a request for information given to me by people to whom I was responsible. I've attempted to provide it. Then it goes on to say "or only partly met." Well, if we partly met it, we were obviously trying to solve and respond to some of the questions.

G. Farrell-Collins: Or to stop the questions from being asked.

F. Rhodes: Well, it's glass half full, glass half empty, I suppose.

[1355]

F. Rhodes: Well, I take your point, but. . . .

G. Farrell-Collins: But people will have to make that judgment. It appears to me that your characterization of how this worked is your impression. We're obviously in line -- at some point, I think -- to speak to at least one of the CFI directors, and we'll ask them those questions. Perhaps you can take some time and think about that. It would be interesting to find out what actually happened there, because I think that's a fundamental breakdown in that area. You know, we talked about the dislocation earlier on. This is one of them. This is one of the big ones.

F. Rhodes: I believe that there was an element of that. I understand what you're saying. I think that we were working as hard as we could to try and meet those needs and met most of them. That's what we have to try and work through.

The other thing is. . . . Could I observe, Mr. Farrell-Collins, that according to you, the minutes indicate that all the tough questions were asked by the outside directors? I don't know if that was because you wanted to specifically record them, but if you go into some of those early minutes, you will find my name attached to the absolute rigidity that existed around the budget -- asking budget questions.

G. Farrell-Collins: And you were very comfortable that you were getting all the answers. You've said that today. So I guess that at the end of the day, one has to ask: how did we end up here?

F. Rhodes: And I'd like to continue to analyze that, but there are some things that I don't have access to that would enable me to.

J. MacPhail: I missed the first part of your presentation. Were you interviewed by the auditor general for his report?

F. Rhodes: Absolutely. He was very fair in that respect.

J. MacPhail: So where is. . . ?

F. Rhodes: I was not in the previous report, Ms. MacPhail.

J. MacPhail: So which report are you distinguishing that you might have had questions to answer if they'd asked you -- the Hugh Gordon report?

F. Rhodes: Yes.

J. MacPhail: When you were interviewed by the auditor general, did either of you explore those differences between the Hugh Gordon report and your opinion or. . . ?

F. Rhodes: I gave the auditor general my views on where I thought there were differences that I held with conclusions drawn in the CCS report, as I call it, from information that he may have. So I did highlight those to him.

J. MacPhail: Thanks. And. . . .

F. Rhodes: My difficulty was really whether or not there was any vestige of what I call natural justice or administrative fairness in how that report was conducted. It certainly didn't meet the test that is applied by the auditor general unto himself, and it certainly didn't meet the test applied by the Canadian Institute of Chartered Accountants. How can you look at the first conclusion in that report and also read the auditor general's report?

J. MacPhail: Are those questions you were willing to answer, Mr. Morfitt, or did you. . . ? Well, I have two questions for you. First, I'll reiterate Mr. Rhodes's question. Secondly, in the course of your investigation, did you take into account -- did you give a certain weight to -- the Gordon report? Thirdly, do you distinguish in terms of the flow of accurate information between CEOs?

G. Morfitt: I think I'm right in saying this. My staff can correct me if I'm wrong. We reviewed the detailed information underlying the Hugh Gordon report thoroughly. So we knew what information they had gathered, and we were able to use that in connection with our review. The Hugh Gordon report was more narrowly focused than this review.

The second. . . .

J. MacPhail: Do you, in your investigation, distinguish between the accuracy of the information that flowed from the corporation to government. . . ? Do you distinguish the accuracy of that based on what CEO was in office?

We just had evidence. . . . I mean, we just had quite a persuasive presentation from Mr. Rhodes that he was comfort-

[ Page 1259 ]

G. Morfitt: Well, I think all of the. . . .

J. MacPhail: It didn't hold up, so. . . .

G. Morfitt: All the details regarding. . . .

J. MacPhail: I'm persuaded by Mr. Rhodes, so I'm asking: are you persuaded? And if you are, then was there a point in time when you would assess that the accuracy of that information may have changed?

G. Morfitt: We don't impute motives, of course. If Mr. Rhodes felt in his heart of hearts that the information that he was conveying up the line was accurate, I'm sure he felt it was accurate. The issue, then, is: if it wasn't accurate, what was happening within the Ferry Corporation or its subsidiary that made that information inaccurate? We tried to point it out, then, in this report.

[1400]

J. MacPhail: Mr. Rhodes, your information never anticipated an overrun.

F. Rhodes: Ms. MacPhail, the last submission that I made was at the end of 1997, after I had announced I was leaving. It went to Treasury Board, and I think that was based on -- I might ask Mr. Morfitt's help on this -- the March or April 1997 budget report of CFI. I think it was around then. It became the basis of the Treasury Board submission. I believed in that. More than that, I warranted to the ministers of Treasury Board that that was my truth and that's what I believed.

J. MacPhail: Okay.

P. Calendino: One single question to the auditor general. We've heard Mr. Rhodes do a quick calculation that the cost of three fast ferries amounts to approximately $320 million. There may be a few more millions somewhere. In your report, you come up with a figure of $463 million. I would like to know where you found the discrepancy and what it is due to.

G. Morfitt: That's the schedule on page 56. The far right-hand column is the B.C. Ferries budget. It has all those figures set out. That's where it comes from. It's not mine.

P. Calendino: Mr. Rhodes, would you like to have another. . . ?

F. Rhodes: My point was that there had to be a reconciliation between those two that I thought could offer some explanation -- for example, the treatment of interest during construction, concepts of recoveries. One's a net number, and one's a gross number. I thought that it would be possible to reconcile those, but I didn't have the data to do it.

G. Morfitt: The schedule does set out interest on construction.

F. Rhodes: On the right-hand side but not the left.

G. Morfitt: Well, the left does have it in the March '95 Ferries plan, at $7 million.

F. Rhodes: Yes.

G. Morfitt: Now it's up to $26 million.

P. Calendino: You also mentioned that perhaps this format of auditing is not done with every major project. Is that an assumption that you were making, or is that what happens?

F. Rhodes: No, I think my observation wasn't about our audit. We certainly did reviews of our projects internally. I'm not sure I understand your question. Is it: does the auditor general do audits of all these things?

P. Calendino: No, I thought you were implying there that the way the fast ferry project was audited was not consistent with the auditing of other major projects -- for example, including cost recoveries or deducting cost recoveries or interest.

F. Rhodes: I was talking not so much about audits; I was talking about Treasury Board -- the development of project budgets, what was included in the project budget and what was not, why certain elements were demised and why they were not. There was no common template -- is that the word I'm looking for? -- that made sure that all the slots were filled for every project evenly. I think Treasury Board staff has done a marvellous job in trying to improve that, but it wasn't the case.

R. Thorpe (Chair): Thank you very much, Mr. Rhodes. There's one thing I do want to say, though. The public of British Columbia were told that it would cost them $210 million. They don't care if you put it in the right pocket, the left pocket, the front pocket or the back pocket. It has now cost them $463 million -- the latest figure. Would you agree with that?

F. Rhodes: I don't know about the $463 million, Mr. Chairman. I mean, I've tried to go to some lengths to say that I'd like to reconcile the difference between $210 million and $463 million. I'm not being an apologist for it. If you were my minister, I wouldn't give you the assertion you seek until I did the research on that.

[ Page 1260 ]

[1405]

R. Thorpe (Chair): So between May 1997 and the report we learned of this morning -- to CCS in November '98 -- this thing went completely haywire. Is that correct?

F. Rhodes: I don't think there was a CCS report in '98, was there?

R. Thorpe (Chair): We had a witness give us that information this morning, I believe. Or excuse me, '99. I stand corrected -- '99.

F. Rhodes: Yes.

M. Coell: I've listened with interest to you, Frank, and I have known you for almost 20 years. We've had a series of top bureaucrats present to us. You may not even want to comment on this, but it strikes me that it's blatantly obvious to all of us that there's a financial crisis. You don't have to go very far to substantiate that. But what really is more important is a crisis of public confidence in government and government's ability to manage. It strikes me that the root of it is when a politician, an elected person, says something. . . . What is really the truth and what they say after they know more facts has created that -- or what they don't say after they know more facts.

What I've found disturbing is that there has been a propensity by the civil service to protect ministers, as an obligation. I think the days of that are gone. I think the civil service needs to be there to protect the public more than it is there to protect government members or members of the Legislature in general. There has been a trend to that through all of the presentations, and I find it disturbing. As I say, you may not want to comment on that.

F. Rhodes: I appreciate your involving me in the discussions. I think that the auditor general's report, if it is implemented in terms of this recommendation, will go a long way to dealing with restoration of credibility. I believe that we have to continue to hold very high traditional values and ethics in the public service. I believe that's very important. I think -- and you all know more about this than me -- that politically, transparency is always a very good process. It's a very good process.

G. Farrell-Collins: I have one final question, if I may.

R. Thorpe (Chair): Yes, you may.

G. Farrell-Collins: Mr. Rhodes, you said that up until the time you left B.C. Ferry Corporation, the project was on budget. Is that correct?

F. Rhodes: To the best of my knowledge it was.

G. Farrell-Collins: To the best of your knowledge. And that budget was $262.3 million? That is the revised figure, I think.

F. Rhodes: Yes, I think it was.

G. Farrell-Collins: When did you leave B.C. Ferry Corporation?

F. Rhodes: The end of summer. I can't remember the exact date, Mr. Farrell-Collins. At the end of the summer, there was a transition period between my advising of resignation and the assumption of responsibilities. I think it was August or something like that -- August or September.

G. Farrell-Collins: You take your pick of which you'd like to comment on. You left in 1997, not 1998. That's correct?

F. Rhodes: That's correct.

G. Farrell-Collins: That's fine; that's all I need to know.

R. Thorpe (Chair): If any members have questions of Mr. Rhodes, please give them to the Clerk in writing. We will then forward them to you, Mr. Rhodes, and we would appreciate very, very much a response a week after you have those, if you get any. If there are too many questions, then we could discuss that. But we want to try to keep this process moving forward, and our next meeting is January 25.

F. Rhodes: Would those be soon, Mr. Thorpe? I was hoping to take a Christmas vacation one day.

R. Thorpe (Chair): Was that an early Christmas this year or a late Christmas last year?

F. Rhodes: It's one I haven't had yet. But I will do my best to stay in touch.

G. Farrell-Collins: Don't change your plans.

R. Thorpe (Chair): Don't change your plans -- exactly. Thank you very much.

Our next witness is Mr. Ward, and I would ask that he please come forward. Mr. Ward, I see that you took some papers out of your pocket. Does that mean that you have a statement to make also?

[1410]

I'd like to add at the beginning that since I left the corporation, in the middle of 1999, almost exactly a year

[ Page 1261 ]

The committee, for the most part, is probably aware that I have a strong background in shipping. I was a ship designer. My wife and I stopped off here in the 1960s, when we were on our way to Australia, and we've been here ever since. But I did a number of years as a designer of ships and was probably involved in more than a hundred of the ships that are on the coast here now. When Seaspan was formed in 1972, I joined them as their capital programs manager, and I was their construction manager for the rationalizing of the fleet and for the building of the new fleet. I probably did 50 new ships there. I built a number of ships in Japan, probably all of the shipyards in Canada. . . . At one time I had 14 ships under construction at the same time. In the early 1980s, I became the operations manager at Vancouver Shipyards. At that time it was the second-largest yard in the province. When Versatile closed, it became the largest in the province. I became the general manager there in 1986 and was with them until the beginning of 1994. In 1994, I was leaving the company. I was plateaued in the corporation. The president of the parent company looked as if he was going to be there a long time. That was the only place to go, so I accepted an invitation to become the president-designate of a large shipyard on the east coast. In between my leaving the one yard and getting there, there was a change of ownership in that shipyard. It was bought by a large conglomerate that I didn't particularly care to work for, so I decided to stay on the west coast. My wife is very pleased at that.

I was approached in March of 1994 by Sam Bawlf, who identified himself. . . . I hadn't met him previous to that, but he introduced himself as a special adviser to the minister, and that's what his business card said. He asked me if I would help him put some cost estimates on some fast ferries. Mr. Bawlf provided me with a general arrangement of two ferries, a 93-metre and a 103-metre, and he also gave me some information on the aluminum weight of the smaller ship, which was 600 tonnes. Up to that time, I'd had no direct exposure to fast ferries, other than a conversation I'd had a number of years earlier with Mr. Bawlf and Mr. Hercus when they were looking, as Cancat, to have some ships built here. At that time the Ferry Corporation was building the superferries, and if you recall, there was a strong lobby going on through the press to have the corporation change from building the superferries to building fast ferries -- triggered mainly, I think, by Mr. Bawlf.

[1415]

I gained that information. . . . I just looked at the date on my printout of the estimates, which was April 6. I know that there are some questions about a meeting on April 4, but the copy that I've got says April 6.

J. MacPhail: Of what year? Sorry.

T. Ward: In 1994.

The government made the announcement in June. I wasn't involved in that. I did some work for Mr. Rhodes, talking to the federal government about their participation in the operating of infrastructure on the west coast. I'd had two terms as chairman of the Canadian shipbuilders association, and I'd worked with the federal government on the development of the national shipbuilding program, which had seen $300 million put into shipyards on the east coast and almost nothing put on the west coast. Mr. Rhodes said that there was $20 million earmarked for the west coast; I believe the number was $29 million. In 1994 that was still sitting in the federal government. I had a discussion with them about whether that money would be available on the west coast. Subsequently, not enough money came either in training or in infrastructure. But it was expected at the beginning that the federal government would participate. The rationale for the federal government is that they get income tax from the work that's done, and it flows back.

But in July '94, I was asked to join the Ferries, and I joined them in August of 1994, the same day that Frank Rhodes came back. Previous to that, I'd been a candidate to be the president of B.C. Ferries. I'd been interviewed by the board, and I understood I was on a shortlist of two to become the CEO in 1994. But I was asked to join as senior vice-president to take responsibility for all of the hardware, the engineering operation of the fleet, the Deas dock operation and the capital program. That's the general background.

Was the fast ferry program rushed? Now, if the early part of the program leading up to the June announcement was rushed, certainly the part after that wasn't. It was obvious to me when I joined B.C. Ferries that there was no real buy-in within B.C. Ferries of the fast ferry program. There was a construction group in place with project managers. In fact, the business manager who was in place at that time is still in place, as is the senior project manager at the time. So B.C. Ferries had a group of people who had worked on the fast ferries. When I started, I had both the terminals and the ships. I kickstarted Duke Point.

Then we separated out the terminals internally, and a colleague of mine took over as vice-president for that. They had separate offices on Courtney Street. The place leaked like a sieve. My first memo to the board of directors -- I read it in the Georgia Straight. I think the present minister had leaked it to them.

[ Page 1262 ]

[1420]

T. Ward: Okay.

To get the buy-in, we went into a process to try and determine what the technology was. We went for international competition for a designer. All of them gave cost estimates. Mr. Rhodes talked about the numbers. But the numbers -- I looked them up. There was a report prepared by Nigel Gee, who was one of the independent people on the committee. Three designers said the 800-passenger ship would be between $56 million and $60 million. The monohulls would be $67 million to $72 million, and the SWATH was $90 million. Incat was picked as the designer. The catamaran technology was accepted at that time. Even though it had been announced in June that it was to be a catamaran, the process of selecting the catamaran took place in October of 1994. Teams of people from B.C. were sent to Australia, to Finland, to other places. We purchased the training technology from Australia. We purchased the construction technology from Finland.

In a conversation I had with the owner of the large shipyard in Tasmania, he gave us the production reports for 14 ships, the first 14 fast ferries that they had built. I sent down two estimators to meet with his staff, and they bought a suitcase down there and brought back 14 cost reports from Australia, giving their productivity rates. Their rates varied between. . . . The worst they did was 3.7 pounds, and the best they did was five pounds per man-hour. We had a seven-pound. . . . The international designers gave us a range that was in the same magnitude. The Australians said: "Here are 14 ships." From ship 1, 2, 3. . . .. Actually, the third ship was the lowest. The first ship was about 4.7 pounds.

In mid-1966 the government froze most of the capital projects, including the second and third ship. I won't go into that, because I thought that was well placed. But we were faced almost at the same time, when at the tail end of '95. . . . Vancouver Shipyards, who had been expected to lead this program, announced that the shareholders of that company were uncomfortable about the magnitude of this project, and while they wanted to participate, they didn't want to be the lead. At that time, we looked at alternatives. Abandon the program? Find another private sector operation? Mr. Rhodes thought about the east coast people who came in -- or to form a government-controlled entity. The decision was made to continue on the program with a new corporation that we formed, CFI, which was IFC backwards -- IFC, Integrated Ferry Constructors, that built the superferry. CFI came out of that, and then we put Catamaran Ferries International to it.

I was appointed the first president. There was an interesting question asked by the board of directors about whether they could change my salary. Well, I'll tell you my salary was zilch. I didn't draw out any salary from CFI, nor any fees or expenses. I was paid as the senior vice-president of B.C. Ferries.

[1425]

I was looking back through the minutes. The question was asked whether the information had been given to the board. If you go back, in November '96 the board was given the manpower plan. Then, at the next meeting, they were given a breakdown of the budget -- multiple pages -- by ship. At a later meeting, they were given multiple breakdowns of the schedules -- by shipyard, by unit. Actually, they were given the overall schedule in September 1996. There are about 14 pages there. That's in the minutes. In February '97 they were given a cost index forecast, which is one of the bases of the CS2 system. You have to do this to get the project management system, and that breaks down the budget into multiples. There are probably 600 items there.

So the board was provided with a lot of detail, and they were fed this. There were presentations; it wasn't just giving the documents and saying to read that. It sort of came in packages like that -- those presentations. So it was complex. You know, the ship is very complex, and the problem of building it was extremely challenging. They had six shipyards in different parts -- only one of them of any size and magnitude -- with project teams. Mr. Hamilton and his team had to push all of this through. At the same time we were finishing the building, and we were putting the training program in. When people say the board didn't have the information. . . . It's there. If anyone wants to read it, it's in the public library now. It was certainly presented and documented.

R. Thorpe (Chair): Mr. Ward, will you be much longer in your presentation, or would this be a good place to start questions? Are you going to be finished shortly?

T. Ward: No. I want to touch on. . . .

J. MacPhail: Relax. You don't like what you're hearing, or what? [Laughter.]

R. Thorpe (Chair): It's so nice to have you with us, Joy.

J. MacPhail: Thank you.

T. Ward: That goes to the question of whether there were appropriate project management tools in place. This is a federal government system that was brought in by people that have been on large federal government projects. We haven't had any projects as complex as this on the west coast. I had managed a number of the ferry construction projects.

One of the things you're looking for is changes to the scope of work and the costs associated with that. I can tell you

[ Page 1263 ]

Then I'd like to talk about: was the program rushed? In the November meeting you were talking about, 33 months were originally allocated to the program. It's probably going to take 72 months. I'll point out that World War II took less than that. This is not a rushed program.

[1430]

T. Ward: Debatable. [Laughter.]

Contrary to what the written report says, fabrication was not started until the drawings were there. Pieces of ship are cut on a computer. The computer has to be told what the ship looks like, and that's done on a drawing. That information was there. All of the information wasn't there, of course. You don't have the details of the funnel when you start in the middle of the ship, but by the time you get to build the funnel, you need to have that. I think there's something like 5,000-odd drawings on this ship.

Mr. Rhodes talked about the cost of the program and what should be included -- what should be in the budget -- and what you're comparing it with. One of the things the CFI board asked for -- and I'll go back to the first board -- was that the budget not be changed at all -- that it be put in the same format so they always see what the first budget was. If you look at the minutes, every month there's a financial report that says: "Budget commitment, actual cost to date." The original board was very keen that that budget not change from time to time. If there were changes in the budget, they wanted to see the. . . .

J. MacPhail: The budget format not change.

T. Ward: No, the numbers -- the original budget.

J. MacPhail: Oh, I see.

T. Ward: They wanted to keep their eye on that, and the second board kept the same policy so that you'd always see the three ships at $210 million. That number stays there, and comparisons are always. . . . Despite the fact that Treasury Board changed the approval on that, they wanted that number in there so that they could always keep an eye on where it was going. On a monthly basis, the board meetings had presentations from the general manager -- who was the chief project manager, Mr. Hamilton -- and other members of the staff.

I think Mr. Rhodes discussed quite well what should and should not be in the budget -- whether interest recoveries should be there. One of the questions I have is whether in fact income tax paid by the people who work on our projects should go back. This project will have generated $80 million in income tax for people in B.C. working on this project and a further $10 million in sales tax. Half of that money goes to the federal government, and half goes to the provincial government, but there's no mention of that in the reconciliation.

R. Kasper: I finally get an answer -- the bottom line.

T. Ward: I want to come back to this question of productivity, because it's an important one, and it goes to the heart of the issue. In 1995 and the early part of 1996, B.C. Ferries had been dealing with the shipyards on how they were going to structure the contract for the construction. I was looking through a box of various stuff I must have been carrying around in the trunk of my car -- stuff like that. But I found the twelfth draft of the contract between the shipyards and CFI. This is the document. Well, people say that there was no contract. I mean, it's not a very small document. This is the twelfth iteration of it. It wasn't the final one, but it's very fat.

One of the parts of this document deals with how the construction costs were to be looked at, where the risk was, what the mechanism was for setting the targets and how it was to be applied. It's quite complex. But it basically said that for the fabrication, the government would pay for the direct labour costs. But the profit and the overheads. . . . The recovery was at risk with the shipyards, based on targets that were set and agreed to with the private sector yards and then would be monitored. This is part of the CS2 system. The numbering -- it's in appendix F at the back end; there's quite a few appendices -- is 4.8 pounds per man-hour. I used seven originally. The Australians gave us this range, but it's generally in the high fours and fives. That was for their early one. People who went down there saw that they were actually doing much better than that.

[1435]

R. Thorpe (Chair): Mr. Ward, could we move to some questions now, in the interests of time?

T. Ward: You can. I was going to tell you about the changes in the numbers -- if the committee is interested in knowing. . . .

R. Thorpe (Chair): Maybe we could come back to that, because. . . .

G. Farrell-Collins: May I make a suggestion?

R. Thorpe (Chair): Yes.

G. Farrell-Collins: Mr. Ward has waited a year to tell his story. I'm glad to hear it, and I think the numbers are pretty significant.

R. Thorpe (Chair): Well, just one thing, Mr. Ward. If we don't get to the questions today, are you going to be able to come back to this committee on January 25?

T. Ward: I would have to check that.

R. Thorpe (Chair): Thank you.

[ Page 1264 ]

There was also the labour issue, which was started. . . . We had a very serious labour situation that was taking a long time to develop, but it became critical in 1998. We were faced with demands by the union which I would say were outrageous. They were more than 50 percent of the labour cost of the ferry base, which is about $200 million. It was clearly outside the government's guidelines of zero-zero-and-2. We had a series of rotating strikes and stoppages and a withdrawing of services. But I just say. . . . These were going outside. Mr. McFarlane, this morning, talked about the sale of CFI and the sale of the ships. That was taken. . . . I heard him. . . . I sat here and heard him talk about the nine meetings we had. I don't think I was at nine meetings. All of those meetings were focused on the sale of ships, the sale of CFI, alternate financing. . . . Most of them were half-hour meetings. Mr. McFarlane was always late -- I noticed he was late for the meeting today -- and he would leave spot on at the end of the meeting. If I wanted to tell him anything, I never had the chance, and I'm damn sure that I've never given him misinformation. I certainly wouldn't have said that the fast ferry program was on time and on budget, because the first year it was finished it was six months late. So I am sort of puzzled at that.

I just say that I was running B.C. Ferries on a full-time basis. I had handed over responsibility for the capital program to one of my colleagues within B.C. Ferries. I was still the president of CFI. I had changed the general manager of CFI; I changed Mr. Hamilton in the beginning of 1998. I'd expressed concern to the chairs of both CFI and B.C. Ferries in September of 1998 that I was afraid we were going to miss the Christmas launch. Remember, the first ship was due to launched at. . . . I was concerned in September, and I wanted to do something. I was dissuaded from doing something about it at that time, but by Christmas I was ready to do something. I changed Mr. Hamilton; I brought in Mr. Wells.

[1440]

In March of '98, I read in the Vancouver Sun that the first fast ferry was going to cost $86 million. I didn't get that from Mr. Wells; I got it from the Vancouver Sun. The press in this province is always well informed and advise us. Mr. Wells indeed had let it slip to the press that that was the number he was going to give to the board. He gave that to the board in March: $86 million for the first vessel.

In April of that year -- this is a month after the $86 million -- Mr. Wells gives me a handwritten overview. This is April 17. I provided a copy of this to the auditor general's staff. There's no mention of it in the report. At that time he said that the first ship was going to be $86 million, and the second ship, HSF2 -- because by that time we'd started work on the second ship -- was going to be $78 million max, down to $76 million possible. He gives a breakdown of the man-hours by structure, by the electrical system, etc. He had 850,000 man-hours on that.

In June of that year, or at least the June report to the board on the financial numbers, Mr. Wells told me that the numbers were changing. This was in July of '96, only three months after he'd advised me that he was receiving cost data that indicated that the first ship was going to exceed the April projections. In the March 1998 CFI board meeting, there had been a discussion on the question of averaging. The $210 million comes out of three $70 million numbers. Now, I don't think anyone expected every ship to cost $70 million. The $70 million was an average cost. The first would have cost a bit more; the second would have cost a little less. But there was a discussion on "average" and what is a reasonable thing. It was a question that had to be taken over the external audit of the company. What is an appropriate amount of the learning curve? Mr. Cooper was concerned about it. He didn't know the answer. He was coming up for an audit at that time, and he wanted to raise the issue then.

So when the numbers started to change, I focused my attention away from the labour situation back onto what was happening at CFI. I had a heck of a job getting an answer that made sense to me. Over the next couple of months, I took myself out of doing some of the B.C. Ferries stuff. But in the early stages, I was doing this on weekends. I was living here on the Island. We had more than the odd issue in B.C. Ferries, but I was fitting them in evenings and weekends.

[1445]

It was at that time that I found that the actual rate achieved on the steel fabrication was somewhere between 1.3

[ Page 1265 ]

I found out -- and I was a bit surprised, caught off guard -- that work had been competitively tendered. It wasn't awarded to the shipyards; it was awarded to people outside the shipyards, reputable contractors outside. They had bid on defined work, and then their contracts were subsequently negotiated that they had a method of getting paid for additional work outside of that work. When I pressed for what that number was, I was having difficulty trying to get the end number. I looked in my files, and we were getting letters from those contractors in September and October telling us what their final billing was going to be. That number started building up.

I didn't want to give wrong information to the board. I had, as Mr. Cooper had said in his November. . . . The numbers were accurate; the total was accurate. There was some averaging, but I wasn't satisfied at that point that I knew all of the reasons. I still don't know the reasons, because I was cut off and didn't have the opportunity. But I had promised the B.C. Ferry board that I would bring them a report. I was surprised when I found out that CCS and the Treasury Board hadn't been receiving reports. If Mr. McFarlane -- he said he was at all the meetings -- had asked me where the reports were that would be coming through the normal channels, I could probably have done something about them. I didn't send the reports personally. They came through a system. I was dealing with the board. I didn't want to give the board wrong information, and I didn't know what the end number was. I was searching for it. I'm an experienced builder in putting together final costs. I got all of the numbers down. I had Mr. Lindsay at B.C. Ferries do an awful lot of work. Mr. Lindsay was the business manager for B.C. Ferries and had been in the project right from the outset. He was doing numbers parallel to me.

I presented an overview; I was ready to give it in January. I hadn't quite finished the numbers at the beginning of January, but I was ready to give a report to the CFI board in January. The chair of CFI was away in December; there was no meeting in December. I had indicated in. . . . Both the chairs were aware that I was working on trying to get to the bottom of this. I gave the overall numbers -- I think it was the 15th of January -- to the CFI board that said the first ship was going to be $113 million, the second ship $96 million or $97 million and the third ship about $92 million. That was based on what we had there and what we saw.

[1450]

But I think at that time my relationship with the board was in a tenuous position. The next day was a Saturday. I met with the chairs of the two boards, and I submitted my resignation. I think this is the first time I've had the opportunity to talk about this program since then. I'd be happy to answer any questions on the issue.

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

M. de Jong: Thanks for that vivid account of your part in this project. You were here for the testimony this morning, Mr. Ward.

T. Ward: The first part of it. I was here for most of Mr. McFarlane's testimony; I left just before the end.

M. de Jong: I want to put a couple of, I guess, rather pointed questions to you. Mr. McFarlane described a standard that he believes public servants are expected to uphold and meet. He suggested in fairly unequivocal terms that in his view you had not met that standard. The terms he used are quite astounding. He said he couldn't recall another occasion in his career when he'd met face to face with the chief executive officer of a corporation over such an extended period of time and been given information that apparently was not correct. He then later said that he had been lied to by you, face to face.

T. Ward: I heard him say that.

M. de Jong: Did you lie to him?

T. Ward: No.

M. de Jong: Do you have any idea why he would say that you lied to him?

T. Ward: Well, I'm puzzled, because the subject he was talking about never came up in the meetings, as far as I know. The meetings were focused on the financial, fiscal, framework of the government. It was high on the Treasury Board's issues; it was being pushed on the cabinet by lobbying from the coastal communities. That's what the meetings were about.

I don't think I ever had a one-on-one meeting with Mr. McFarlane in any time that I was at B.C. Ferries. There were always groups of people, and there were always lots of people on both staffs and everyone taking down every word that we were saying. The books are full of whatever. . . . If I wanted to talk about a project that I had concerns about, I certainly wouldn't have talked about it in an open meeting. I was very careful not to give people wrong information.

I also wanted to give it to the board of CFI and B.C. Ferries first. I had an obligation to them. I didn't know what the answer was; I was trying to find out what the answer was. And at the same time that I brought the answer, I wanted to come in with an action plan and a set of recommendations.

At that time, we were trying to sell CFI. Mr. Rhodes was quite right that we had a proposal on the table which would have purchased the high-speed ferries and leased them back, with the purchase of CFI. We also had two other proposals, which had been out in a public process, that offered to finance the fast ferries and other ferries -- the future ferries or existing ferries -- at a rate that was less than the government's rate of borrowing and would have made a big difference on the balance sheet of B.C. Ferries.

[ Page 1266 ]

I heard either Mr. McFarlane or Mr. Sakalauskas say this morning the reason we didn't have a B.C. Ferries capital plan was because there was no point in having a capital plan until we knew who was going to own the ships and whether the ships were going to be leased the same as planes -- in which case, the amount would then be shown as an operating expense. I think fast ferries cost round about $5 million a year; that would be the order of magnitude for servicing the ferries at the $86 million. At the higher number we were looking at, it was about $6.25 million.

[1455]

T. Ward: Yes.

M. de Jong: And what is that?

T. Ward: There was the whole series of meetings at CFI, and I was there personally with the financial people at CFI and the general manager trying to get to the bottom of the numbers. Then, as I asked for information, if it wasn't there, it was brought in. There was the tracking of those numbers within B.C. Ferries by the people who had been associated with the project right from the beginning. There was my report. The numbers that came up weren't discovered by the government. They're my numbers. I brought them up, and I gave them to the CFI board. Before I gave them to the CFI board, I advised the minister that I was going to change the numbers and tell the CFI board.

M. de Jong: Sorry -- you advised the minister. . .

T. Ward: . . .that I was going to give a report to the CFI board that would change the numbers of the fast ferry.

M. de Jong: When was that?

T. Ward: January of 1999.

M. de Jong: Who sent monthly reports from B.C. Ferries to the secretariat and to Treasury Board?

T. Ward: I don't know.

M. de Jong: You didn't.

T. Ward: No. But the system would accumulate these and send them. There was a reporting system. Generally, the dealing with CCS and Treasury Board was handled through the finance group and the treasury group of B.C. Ferries. They would gather their information from within B.C. Ferries' system. There are 4,000 employees in B.C. Ferries.

M. de Jong: You've been made the scapegoat. We've heard people testify specifically that this was your fault.

T. Ward: Fault? I think that by the time the committee has finished its investigation, the committee can draw its own conclusions.

M. de Jong: What's the strongest evidence that will suggest to this committee that that is not the case?

T. Ward: Well, I don't know, because they clearly, you know. . . . And the auditor general used the numbers from the Hugh Gordon report. Mr. Gordon didn't talk to me; he didn't attempt to find out what was at the bottom. I couldn't write a paper now to specifically say these are the three specific items. Of course, I know the general cause for the change. What I don't know is what's happened on the second ferry and what the third ferry's doing. You have to look at those numbers to see what the overall thing is. If you look at this, this was a six-year project. I found out that we had a problem in April of 1998.

[1500]

In June -- well, it was the June numbers which I think we were looking at, at the end of July; you know, there's a lag in this -- the numbers started to change. I don't know why. So I basically hunt to try and find what's the reason; it took me a couple of months, along with lots of other things that were going on. I wanted to come back with not only what the final cost is but a good explanation that I was happy with, that I could stand up in front of people and say: "These are the things, and these are the things that we've done to change it, and this is what's going to happen at the end." I never had the opportunity to do that.

A lot of it is driven by the way things leak to the media. B.C. Ferries leaks to the media like a sieve, as does the ship of state here. You know, I talked about my. . . .

M. de Jong: Maybe I'll just wrap up my part in this exercise for the moment. When it became apparent in some of the monthly and quarterly reports earlier in 1998 that the project was going significantly over budget. . . .

T. Ward: It was in the middle of '98.

[ Page 1267 ]

T. Ward: No, it was June and July of '98.

M. de Jong: All right. I think we have some documentation that suggests that by March that was apparent, but let's. . . . Were questions. . . ? If I can to hand this to Mr. Ward, Mr. Chair. I'm looking at a status report on the B.C. Ferries fast ferry program as of March 31, 1998, that shows a $16 million cost overrun. I have another one that showed a $27.7 million overrun as at September 30, '98.

T. Ward: What documents are you looking at?

A Voice: The ten-year capital plan.

M. de Jong: Those documents are prepared and, I take it, available and distributed to all of the involved parties, all of the interested parties. Would that be a fair assessment, Mr. Ward?

T. Ward: This is a document prepared by the treasury group of B.C. Ferries, and it would be distributed quite widely, I would think.

M. de Jong: Were you queried at that time with respect to those figures?

T. Ward: This is the September. . . ?

M. de Jong: Well, March and September.

T. Ward: These are March.

M. de Jong: Did you find yourself confronted by questions from either Treasury Board or at the ministerial level?

T. Ward: No.

M. de Jong: You were not?

T. Ward: No.

M. de Jong: I guess my last question. . . . I'm not sure that you're going to answer this. You referred in your presentation to some observations you provided, following your departure, in submissions to the minister.

T. Ward: I said that I wrote to the minister, offering to provide the minister with assistance and comments to help him try and get to the bottom of it.

M. de Jong: To ascertain how this massive overrun could have occurred.

T. Ward: Yeah.

M. de Jong: . . .in your former capacity as CEO. And you received no response.

T. Ward: No, not yet.

[1505]

T. Ward: Well, one of the main recommendations is that the boards of Crown corporations be allowed to control the board. B.C. Ferry's board was faced, on a constant basis, with frustrations. They were trying to do the right thing. I've never met people who were so dedicated to trying to do the right thing. They were very hard-working people. They were trying to find the right answers. They were constantly running up against brick walls. Months and months of work would disappear in a day because the government would either change its mind or the officials at Treasury wouldn't take it forward. I think the auditor general's recommendation that the boards be given the leeway to manage the corporations and to be accountable. . . . I think that's a good recommendation. I notice Mr. Morfitt said that the board only appointed one of the three presidents of B.C. Ferries. I believe that I was the only one appointed by the board.

I raise the issue of the tariff. That board spent a whole year dealing with communities to find a variable set of tariffs that fitted the various routes. It was overthrown. It went to Treasury Board. Treasury Board accepted it, basically. Then it was stopped. A public announcement was made, and several years of work was lost. Now, if the board had had their way, I think the coastal communities wouldn't have had the consternation and upset they had. That's only one example.

E. Gillespie (Deputy Chair): The other thing I want to pursue is. . . . You've had a year to reflect upon this and also to watch what's happening in the industry. Clearly government had some broader objectives. We've heard about the mid-Island transportation strategy -- that there were a number of different proposals that came forward as part of that. Then, in the selection of the particular strategy, including the fast ferries, there were a number of public interest concerns brought forward: for instance, revitalizing the shipbuilding industry or providing an opportunity for high technology in British Columbia to get a stronger foothold -- that kind of thing. Have you, in your observations of the industry over the last year, seen any of that uptake as a result of this program?

T. Ward: Well, I can tell you that the industry we have now is in far better shape than it ever was. Early in 1994 I had done work with the job protection commissioner to do a strategy for the shipbuilding and ship repair industry in B.C. If you recall, Versatile had gone into bankruptcy. When I worked with the then commissioner, Doug Kerley -- he passed away a number of years ago -- I drafted a document which became a working document. I've seen the industry change. It's a far better industry than it was. The facilities are better.

It was doing quite well. The delay in the construction of the ship -- that two-year delay at the beginning, in starting -- hurt the program, because people kept saying there was no market there. There are 80-odd high-speed fast ferries in the world. Most of the ones now are in the higher. . . . There are 800 to 1,000. . . . I read something on the e-mail the other day

[ Page 1268 ]

[1510]

Frank Rhodes and I opened up a lot of those doors. I suspect that whoever is knocking on the door now is finding it a bit difficult; firstly, because the players in the field aren't well known -- they don't have many years in the business to be able to get in to speak to the right people -- and secondly, since the Internet became part of our lives, everyone reads the newspaper. I read in the North Shore News the other day, "Fast ferry missed its sailing again," and it reiterated every sailing that it had missed. Then the sixth paragraph said: "It didn't sail because someone had plugged every one of the toilets with paper." That was paragraph 7. Anyone scanning the news media would say: "Oh, the fast ferry failed again." No one ever reads paragraph 7.

E. Gillespie (Deputy Chair): Just one further question, again from your opening remarks. You speak to the lag in information that was available to you and therefore to the board and therefore to the minister, which is really. . . . There is a difference in language, perhaps, but it's similar to the information that we heard this morning from CCS and from Treasury Board. With the recommendations of the auditor general's report, in terms of good project management principles and practices do you think that there would have been a way -- or that there will be a way in the future -- of avoiding that kind of lag in getting out a more up-to-date reporting?

T. Ward: Yes, I think there is. That really goes to the heart of the issue, because one of the things that has always puzzled me is why Mr. Wells, when he gave me that note in April, didn't have a better set of numbers. I'm sure that if he had had a better set of numbers, he would have told me. I think he was blindsided by the system a little bit.

E. Gillespie (Deputy Chair): That's the CS2 system?

T. Ward: Yeah, there was obviously a lag in the. . . . Part of that probably goes to the invoicing. I know that when I was in the shipyard, it was always a challenge to try and get invoices out. I think a couple of months is not unusual.

[1515]

T. Ward: The contract was based on that.

J. Weisgerber: Who was that contract with?

T. Ward: That contract was with Vancouver Shipyards, the Consolidated Pacific shipyards and CFI. That was after Catamaran Ferries had been formed. That's the working document for the relationship between the various shipyards, CFI and B.C. Ferries.

J. Weisgerber: So did it oblige them as contractors to build for a given labour. . . ? Did B.C. Ferries and CFI simply pick up the overruns? Or was it because CFI were continually changing their minds and therefore responsible for that lack of productivity?

T. Ward: I'll address the last question first, which is the changeover. I said there was a formal changeover system in place. There is tons of paper on that. They had DCRs -- design change requests. There was another thing for quality. It became a big issue, because Vancouver Shipyards wanted to claim for some things as extras -- all the design changes. As I said, I was a bit of an expert on design changes and on how to get extra money in the contract. I used to run VanShip. A lot of those people were still there -- the people who supported me. Their system would look at that. That became a big issue. Mr. Hamilton wouldn't pay them for rework. He was quite firm that if they had to rework, it was to the shipyard's account.

Design changes. It was a change originating from B.C. Ferries or within, because the federal government or the classification society changed things. This was a fairly big ferry, and it had a lot of new features, so the approval process was very complex. There was a lot of finite element calculations, but CFI would pay for them. One of Mr. Wells's first tasks. . . . Mr. Hamilton got into quite a strong argument with the shipyards, and it's well documented in the board minutes. In fact, the board at one time wanted to cancel the construction contract with Vancouver Shipyards unless the performance improved, and that is minuted. But that was a hard issue between CFI and the shipyards.

When Mr. Wells came in, I asked him to try and cool the war down and get the ship delivered. Part of that was a negotiation for how we dealt with the extras. I myself got involved in that a little bit. We paid for the extras. The design change requests for Vancouver Shipyards, I think, amounted to $1.7 million in the whole program. We've heard a lot about the design changes. The number for the design changes was

[ Page 1269 ]

J. Weisgerber: There was a significant cost increase on the ferries. Was it labour? Are you saying that the contractors provided the labour as agreed by contract except for design changes?

T. Ward: No. The labour contract had an element in it that said the contractor would always get paid for the direct cost of his labour. But on his profits and his overheads, there was a formula where at certain tiers he would lose that.

J. Weisgerber: But Ferries were always responsible -- and ultimately were responsible -- for the direct labour costs, no matter how much labour was used.

T. Ward: Yes, and we're basically locked into the base cost of the labour.

J. Weisgerber: Is that the issue with respect to these cost overruns? I mean, were there. . . ?

T. Ward: It's a major issue.

J. Weisgerber: In terms of quantum, would it amount to 80 percent of the overrun?

T. Ward: Well, the structure was probably 70 percent of the total labour cost of the ship.

[1520]

T. Ward: My understanding is that the Australian government did very similar in the early part of their program.

J. Weisgerber: But they were getting 3.5 to five pounds per man-hour.

T. Ward: You know, it puzzled me, because one of the. . . . Right at the outset, there was a lot of cooperation between industry and labour. I pulled together. . . . Probably one of the first things I did was that I kept a council, which besides. . . . It became the Council of Marine Industries in B.C. But I had all of the main union people and the shipyards to address productivity. My issue was that if we want to be competitive in the outside world and if we want to play with the Australians in something where they already had a head start. . . . I had dealt with the Australian shipbuilding industry a decade before, and believe me, they were no shakes over there. They were a horrible group of people to deal with. But they had changed, and they were marketing their product to the farthest end of the world. I had sold, I think, the group that we had to end up being competitive on a world basis and that anything we did to achieve that helped B.C. Ferries in their program.

There was an acceptance by the union that they. . . . Some of the practices that were endemic in the business and that were recognized as not being appropriate in modern times had to change. The shipyards were agreeable to making the changes. I don't think many of those changes took place until way into the latter part of the first ship.

J. Weisgerber: In your estimation, if the shipbuilders in B.C. were today offered a hard labour contract to build an aluminum fast ferry, what kind of productivity would they have to build into their contract? What kind of productivity could they build in? Could they build in three pounds an hour, four pounds an hour? Could we possibly be at all competitive at two pounds an hour?

T. Ward: At two. . . . There's a number. I think the number is about six.

But one of the things that I'll tell you is that the international ship-owning business is done in U.S. dollars. The Canadian dollar is very well placed in that. I have seen productivity in the shipyards here that is really good. I've been in places when the whole thing zings, and you're really proud to be part of that. But I suspect that the shipyards now have enough information. They're well into the third ship; they know what the appropriate number is. When we started this program, they had no idea what the number was.

J. Weisgerber: Two questions, finally. What do you project the rate will be on the third ferry? Will it be above three pounds an hour?

T. Ward: No, it'll be considerably higher than that.

J. Weisgerber: Considerably higher than that.

T. Ward: Yes.

J. Weisgerber: Okay. Finally, in your opening remarks you indicated that back in March of 1994 you were approached by Sam Bawlf to assist him with some early estimates and that you contracted with the government as a consultant -- or at least I assume that that was the relationship -- up until you joined the corporation in August. Who were you working for? Who did you bill?

T. Ward: I billed the Ministry of Employment and Investment at the end of the day, because I was told to send the invoice there. But there were components in there. . . . I had done work directly for Employment and Investment. I'd been to Ottawa on their behalf and written a report to the deputy minister, Mr. Rhodes, at that time. But all the early stuff was done. It was my impression that I was going to bill CCS for it, and Mr. Bawlf was somewhere between CCS and the minister's office. Mr. Bawlf, of course, stayed with the program for several years.

[1525]

[ Page 1270 ]

My first question may seem somewhat simplistic, but it struck me this afternoon hearing Mr. Rhodes and you both referring to this different kind of accounting practice called CS2 . It's something I hadn't heard of before. No other witnesses have made reference to it. But both of you characterized it as something new that no one really had a whole lot of involvement with. I'm wondering if that contributed to some of the difficulties as you were going through this process. That's my first question for you.

T. Ward: I say it was relatively new to the west coast. The system itself is at least ten years old. The federal government has done it. I believe Versatile had worked on a number of federal contracts using that method. But the other shipyards use a variation of that, where you basically break the program down into material and labour, and then you break the ship down into the front, the middle, the back, the funnel, the engine and as many components as you can. You allocate a cost both in terms of material and labour, and then you map the labour out into how many days and then how many people you have, and you plan your resources.

I wouldn't like to give the impression that people on the west coast weren't able to deal with the system. When Mr. Hamilton came in, he came fresh from projects that were using it. He came up from the Hibernia project, which was using it. He came out of the frigate program that was using it. He brought with him a number of people who had the skill sets. When I pointed to the information I was presenting to the CFI board, by that time the ship is broken down into units, and there was probably a couple of hundred units in the ship. Then what you do is monitor each piece. The puzzle -- and it's still a puzzle to me -- is that when the productivity wasn't meeting where the targets were, why didn't I get a bell on that?

S. Orcherton: That's interesting. That's what kind of puzzles me, as well. You've got Mr. Hamilton, who is well versed in this process, giving you some figures, and an associate of yours for some years, Mr. Wells, is saying: "No, this is not right." It puzzles me as well. That's why I ask the question about this particular. . . . I'm not an expert in these matters by any means. It just struck me that there's a different process. I wonder if there were a number of people in the Ferry Corporation and CFI that had difficulty in understanding this particular process, which arrived at a situation where Mr. Hamilton was saying one thing and Mr. Wells was indeed saying another.

T. Ward: I never got the opportunity to get into that sort of discussion. Even the time I was putting the CFI stuff together to try and get to the number. . . . Probably I'd be here in Victoria in the morning and fly over to Vancouver in the afternoon and maybe spend three or four hours on this. I know that for the final report, I wrote it over Christmas. I also missed my Christmas holiday that year.

S. Orcherton: Was I correct when I heard you say that it was April of '98 that it became clear that there were two conflicting opinions on where things were? Mr. Hamilton. . . .

T. Ward: Mr. Hamilton left in January of 1998. Mr. Wells came in to take his place. I'd literally taken Mr. Wells from Palm Springs. I phoned him in Palm Springs. He was on the golf course. He was going to spend a few months there. So he came back. He had got the $86 million number. Maybe Mr. Hamilton was working up towards that number. But in April, he gives me a document that's broken down. It's not just one number; it's showing the different areas. It confirms his $86 million number and says: ". . .but it looks as if we're going to do a lot better on the second ship."

S. Orcherton: Okay. So it was April '98 that. . . .

T. Ward: April '98, yes.

S. Orcherton: So I got the date right. The two people weren't there at the same time.

T. Ward: As I said, I provided that particular document to the auditor general's staff. I didn't see it in the report, but it certainly was provided, along with a number of other documents, including the Australian productivity numbers.

S. Orcherton: I think you said that you felt cut off in terms of. . . . I think that was the quote that you used.

[1530]

S. Orcherton: No, but cut off in terms of trying to find out what was going on around the budgetary process and where things were. I think, if I recollect correctly, you said that you were reluctant to get into any kind of detail with the board around the budget and where things were because you were still trying to get the information that was required. You didn't want to give people wrong information, and you were trying to get it. Is that right?

T. Ward: Yeah. I knew the number was changing and was changing significantly. I didn't want to give the board half a set of numbers. I also knew that the moment I started talking about that in the board meeting, I'd read it in the newspaper. I wanted to give them a plan of action and some guidance, because it was a complex issue. Before I could give that guidance, I had to get to the bottom of it. It was far more complex than I had thought. I was a few months in there. . . . But that was only one of a whole handful of major issues that were at critical mass. The fact that the ferry system was about to close down because of the labour situation. . . . We had been in front of the Labour Relations Board asking for essential service designation, and that wasn't an easy thing to do. Ferries had never gone through the Labour Relations Board before. It wasn't a popular decision, but it was a necessary thing to do.

S. Orcherton: So am I right. . . ? I think I heard you say that in January of 1999, you had a set of numbers in front of you that you believed were as close to accurate as they could be, and you presented that to both the boards.

T. Ward: No, I gave it to the CFI board, because I'd had CFI staff working on them. I had Mr. Lindsay doing a parallel

[ Page 1271 ]

S. Orcherton: And then to the Ferries.

T. Ward: Well, the B.C. Ferry board. The B.C. Ferry board knew that I was working on the numbers. The chair certainly knew I was very concerned about it, but I didn't give them any hard numbers until I knew what the number was. Then when I had the number -- and I think I finally drafted the numbers all together over the Christmas period; I was ready to present that at the January 7, 1999, board meeting -- the board asked me not to present it at that meeting but said that they would convene a meeting on the 16th, I think.

S. Orcherton: I have two more quick questions. We've heard testimony from previous witnesses previous that the board was presumably getting reports. Mr. Farrell-Collins said that they were asking for more information, and those kinds of things were recorded in the minutes. What was being reported to the board through your office between April and January in relation to the budget -- April '98 to January '99? What kind of information. . . ? I understand you were reluctant to give people the wrong information, but what information was being presented? That's a considerable period of time.

T. Ward: As I said, it was the June numbers that first rang the bell for me, and we were looking at them at the end of July '98. The numbers were presented to the CFI board. The numbers in total were correct, according to the information that I understood was correct. I was aware that there was some averaging between the first and the second ships, but they were relatively low numbers, if you look at the magnitude of the program. Once I had an understanding of what those numbers were going to be. . . . I think that when we started off, there was about $5 million, and $5 million on a project of that magnitude. . . . It's very easy to see that the external auditors would have agreed to that sort of number. So it was a holding pattern while we tried to find. . . . But the issue got more and more complex, and it was only in late December that I started to get to where I felt comfortable enough to write the report.

[1535]

S. Orcherton: I just need a little bit of help here, and this will be my last question on this matter. I still need to know what you were telling the board of CFI and the board of the B.C. Ferry Corporation in regard to the matters around budgeting on the fast ferry project during that period of time when it became clear that there was something wrong in terms of what was being estimated, to the point where you said, in January: "Here are the numbers that I believe are wholly accurate or as close to accurate as they can get in this matter."

T. Ward: I advised both boards that I wasn't in a position to give them final numbers that I was comfortable with, but I had staff working on it. I asked the indulgence of the board till I had the right numbers. I expected to have had all these numbers long before I actually got the numbers that I was comfortable with. I had expected to be able to give the numbers in November. I'd asked the B.C. Ferry board for their indulgence till I was able to give them final numbers. The CFI board had met in July and September and October, I think. They got the total numbers, but there was averaging between the first and second vessel.

The boards were aware that I was trying to find a reason. I was looking to see: (1) was there a scam somewhere. . . ?

G. Farrell-Collins: A which?

T. Ward: A scam. Was any money going in the wrong direction? Mr. Symons had asked me at one time whether we'd paid any money to someone in Grand Cayman or something like that, and I think I satisfied him at the time. I had had an investigation done. The same question occurred to me, you know: have we lost track of $20 million here? I came to the conclusion that we hadn't. But you'll see that in one of the B.C. Ferry board minutes, I raised that issue, and I told them that I was looking at that but couldn't see any sign.

S. Orcherton: Just in closing, I want to thank you for coming in today. Canvassing you -- and the other members of the committee canvassing you -- and the other witnesses today on this question really has offered a great deal of information for me around this matter. So I really want to thank you. I know it's likely been quite difficult, but I really want to thank you for coming in and adding some clarity to the situation when the Ferry Corporation was your responsibility. Just a personal note: thanks very much for doing that.

T. Ward: Can I just add that I came on the fast ferry yesterday? It was the first time I rode on it since it went into service. I've been on the trials, and I'd seen that the boat performed, but it was the first time. . . . I've been following this issue of the seats. I believe there's a real issue there -- that people don't like sitting as close -- and I would certainly change them. I'm surprised they haven't been changed on the second and third ships. They were put there for a reason connected with the revenue. I'm not sure what the revenue is like, but the Europeans found that if they put tables with the seats, on-board sales went up. That was the motivation. But if it hasn't worked, we should take them off.

[1540]

G. Farrell-Collins: I actually want to thank you for coming here today. It has added to the information. I guess we'll have to try and sort through it over time.

[ Page 1272 ]

When Mr. Weisgerber was speaking to you, he asked the question about the cost overruns, and you talked about the changes and the fact that all of the labour costs for change orders were the burden of CFI -- that that had to be paid. You said a significant portion -- 70 percent -- was the portion of labour for this project. How often were employees paid at CFI?

T. Ward: It was 70 percent of the labour. The labour is not 70 percent of the total project. Of the $115 million number that's been used, I think labour is about $55 million.

G. Farrell-Collins: So half-ish.

T. Ward: Yeah, half-ish. There's the materials, because of the engines. . . .

G. Farrell-Collins: Close enough. Just leave it there. If that's the case, how often were the employees paid?

T. Ward: I don't know. But probably. . . .

G. Farrell-Collins: How often were you paid? Every two weeks?

T. Ward: People paid hourly would be paid every two weeks; staff people would probably get an advance in the middle of the month and a final salary at the end of the month.

G. Farrell-Collins: Okay. Having run a small business, one of the things I watched was payroll. I mean, it came through every month, and it was a big cost. It was there, and you could see it.

T. Ward: Me too, when I was in the private sector.

G. Farrell-Collins: Yeah, well, I'm baffled. I'm quite frankly totally baffled that CFI could continue cutting these cheques for about 55 percent of the project and thereby 55 percent of the cost overrun -- perhaps more; perhaps 80 percent of the cost overrun. I don't know what that final figure will work out to be. That on a biweekly basis or a monthly basis, your corporation was cutting cheques to pay employees, and nobody saw that. . . . You know, you get the cheque, the ledger, and you do it at the bottom, and then you look out the window, and you see the ship still sitting up there on blocks. Certainly somebody with your experience would know about how far along the project was. That a cost overrun on labour in the order of magnitude that we're talking about in this project wouldn't have twigged -- to yourself or your chief financial officer or the guy in the accounting room who was writing the cheques. . . .

T. Ward: Most of the labour wasn't done directly by CFI. The CFI employees are clearly identified in the reports -- what they cost. Most of that was done by the shipyards, who would then send an invoice, with a time lag.

G. Farrell-Collins: Mr. Ward, you've built enough ships in your time that you must have a pretty instinctive sense of how many guys are working on that ship at any one time. You must have a pretty good sense of how much money's going out that door almost on a daily basis.

T. Ward: When I was running projects, I'd walk around the ship and I would count them.

G. Farrell-Collins: Absolutely.

T. Ward: Damn right.

G. Farrell-Collins: So you must have had a sense that there were a lot of people there and the boat wasn't finished yet.

T. Ward: By the time I was aware that there was going to be a significant difference to the $86 million, the boat was finished.

G. Farrell-Collins: That's fine, but maybe you didn't walk around this ship.

T. Ward: If I could just go back to your question on the income tax.

G. Farrell-Collins: No, I don't want to have a debate on that, because. . . .

[1545]

G. Farrell-Collins: Well, great.

T. Ward: Now, I understand the accounting issue; I'm not trying to change that.

G. Farrell-Collins: That's a public policy issue.

R. Thorpe (Chair): It's been a long day. But income tax is not the issue here today.

[ Page 1273 ]

But from June 1998 until November 30, which is where. . . . The Crown corporations secretariat this morning said there was a document, a binder, that went over to him November 30, and the minister was briefed on December 2 about a potential for overruns. There was some very serious concern at that point that the project was not coming in on budget, as people had thought. That's a big expanse of time, ferry strike or no ferry strike, Labour Board or no Labour Board, protests at the Legislature -- which happen every second day anyways -- or no protests. You know, as a CEO, if that was an overburden, then I would expect that you should have had people to manage some of those things, because you had a project that was running out of control at that point in time.

So I want to ask a couple of questions about that, because we had Mr. Gavin Cooper in here earlier, and he talked to us about the July 16, 1998, board meeting where he presented new figures in the budget to the board. At that point, the cost of the ferry, per ship -- from March 1998 -- had been $83.7 million. At the presentation on July 16, the cost was $82.1 million. Mr. Cooper told us that that was a change in accounting practices; they had gone to averaging, which is something that you raised earlier. He also said he was told that -- and I'm quoting now -- "Mr. Ward instructed the general manager, who [in turn] instructed me, to use an accounting concept called [advertising]."

Some Voices: Averaging.

G. Farrell-Collins: Sorry, what did I say?

Some Voices: Advertising.

G. Farrell-Collins: Sorry -- averaging.

D. Symons: Not much difference.

G. Farrell-Collins: Yeah, not much difference.

A Voice: Not on a ferry.

G. Farrell-Collins: ". . .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."

I asked him if he had told the board that the accounting method had been changed. He said no, he did not advise them of that. In fact, he said: "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."

[1550]

It seems to me that Mr. Cooper had serious concerns about the change in the accounting, and he sought advice. He was uncomfortable with it. He went ahead and did it, yet sometime, about four months later, which by my math puts it at April, May, June, July-ish -- a similar time frame to what you raised earlier -- he informally spoke to some of the board members about that.

Did you ever advise the board members that you had changed the accounting procedures?

T. Ward: I'm not certain that your months are right. Mr. Cooper was talking about his report to the CFI board in July.

G. Farrell-Collins: July 16.

T. Ward: Not in April, in July. So if you count down the three or four months from there. . . . The CFI board discussed in March. . . . I think it was March, because I was looking back in the minutes, and I saw that there was a discussion in March about the concept of averaging. That was done in advance of a discussion that Mr. Cooper was going to have with the external auditors -- I think Doane Raymond were the auditors then -- on what sort of quantum would be acceptable. I'd been advised by Mr. Cooper and others that averaging was an accepted. . . .

G. Farrell-Collins: I'm not questioning whether it was accepted or not. I've asked the question of whether you ever advised the board that you changed the accounting process.

T. Ward: No.

G. Farrell-Collins: Was there a reason for that?

T. Ward: First of all, the change in July wasn't a big number change, and it's not unusual for numbers to. . . .

G. Farrell-Collins: Mr. Ward, with all due respect, you said earlier today that the alarm bells really started to ring for you in June -- that you were very nervous in June about the costs on the June numbers.. . .

T. Ward: On the June numbers, which started to show up in July.

[ Page 1274 ]

T. Ward: Oh, I think the board was aware that I was concerned about the costs.

G. Farrell-Collins: You think, but. . . .

T. Ward: There's no doubt that they were aware that I was concerned about it.

G. Farrell-Collins: If you felt they were that concerned, you didn't think it was important to advise them that you'd changed the accounting practice.

T. Ward: No. I was expecting that the final number would have been popping out fairly soon and that if we were going to be doing the averaging, I would be giving a report to that board very soon as to what the amount of the averaging was and what the discussion. . . .

G. Farrell-Collins: Fine. And when you didn't make that presentation to the board very soon, did you think that it would have been appropriate at that time to advise them of the change -- maybe in the September meeting or the October meeting or the August meeting or in November. . . ?

T. Ward: I certainly told both chairs that I was concerned about the numbers, and I was. . . .

G. Farrell-Collins: No, the question was whether you told them at subsequent meetings that you had changed the accounting procedure.

T. Ward: No, I don't recall that I did tell them, but I don't recall that I didn't tell them.

G. Farrell-Collins: Okay. Earlier today we were told about this binder or report that was given to Mr. McFarlane, I believe it was -- that he saw it and. . . . I apologize if I'm wrong; it was one of our many witnesses.

A Voice: CCS.

G. Farrell-Collins: Crown corporations secretariat -- sorry. And they briefed the minister two days later, on December 2, that the numbers were going to be significantly different from what they. . . . They didn't know what the numbers were, but the numbers were going to be significantly different. They presented that to the minister, and then they went back and did a more extensive review. What precipitated the November 30 report?

T. Ward: I'm not quite sure which one you're talking about, because I wasn't here when they were talking about that. But I believe that on November 30, we would have been looking at where we were going in the next year.

G. Farrell-Collins: So when that report -- the November 30 window. . . . Did you ever advise the board members about the change in accounting practices, or was it Mr. Cooper?

T. Ward: It was me that advised the board.

G. Farrell-Collins: About the change in the accounting practices?

T. Ward: Yes.

G. Farrell-Collins: To averaging?

T. Ward: Yes.

G. Farrell-Collins: Do you recall when that was?

T. Ward: Yes.

G. Farrell-Collins: Can you tell me?

[1555]

G. Farrell-Collins: Which was in January?

T. Ward: Yes.

G. Farrell-Collins: Well, Mr. Gavin Cooper has told us that he advised members of the board informally four months after July 16, which would be about the middle of November. Did his report to them precipitate this November 30 report that you don't recall?

T. Ward: No. We report to CCS. It's not something that stands out in my mind, so it would have been part of a routine report. I'd have to see the document, but it certainly wasn't a document that went to them under my signature. I had told the board -- and I had lots of discussions with various members of the board -- of my concern about the costs.

G. Farrell-Collins: Did you ever speak to the minister?

T. Ward: No. I tried to get an appointment with the minister on a one-on-one basis.

G. Farrell-Collins: When was that?

T. Ward: My office tried from about mid-November right through to Christmas. I offered to go off to Prince Rupert to meet with the minister, so that I could tell him face to face. I've had a couple of meetings with the minister, but there were always other people there, and the subject was concerned with labour issues or the. . . .

G. Farrell-Collins: Did you ever write a letter to the minister?

T. Ward: No.

G. Farrell-Collins: A memo?

T. Ward: No.

G. Farrell-Collins: Have your staff hand-deliver something to him? Explain to him the urgency for the meeting -- anything like that?

[ Page 1275 ]

G. Farrell-Collins: In retrospect, do you wish you had?

T. Ward: Probably, but I. . . . You know, I'm not sure I wrote any letters to the minister the entire time I was at the corporation.

G. Farrell-Collins: Do you think maybe it would have helped if you had?

T. Ward: Oh, I'm certain. . . . In hindsight now, it would be nice to trot out letters.

G. Farrell-Collins: Do you know why it is that from. . . ? You said that from mid-November to sometime in January -- till January 15 -- you tried to have a meeting with the minister. You offered to go to Prince Rupert. That's about a two-month period. Do you have any idea why it was that he didn't meet with you?

T. Ward: The meetings with the minister were scheduled by the minister's staff.

G. Farrell-Collins: Yes.

T. Ward: I had several meetings that were made, and the appointments were cancelled because of urgencies of the day.

G. Farrell-Collins: You're the CEO of one of our major Crown corporations. You would think you would have better access to the minister than. . . .

T. Ward: You would think.

G. Farrell-Collins: Yes. Do you have any idea why those meetings were cancelled?

T. Ward: No. I don't think they were cancelled deliberately because the minister didn't want to speak to me. I think there were just so many pressing things going on at the time that. . . . The meetings that I did have with him were focused on labour issues and stuff like that.

G. Farrell-Collins: I have one last question for you. Earlier in your presentation you stated -- and it was earlier, when you were talking about the reports that they receive -- that the CFI board members asked for the budget numbers not to change. You raised the $210 million figure. Did they ask for the presentation method not to change or the breakout of numbers in a format not to change, or did they ask that the numbers themselves not change?

T. Ward: The format developed in the early stages of the first board. . . . They were formatted to suit what the board wanted. The board was fairly specific about what it wanted to see. Mr. Cooper and Mr. Hamilton -- Mr. Cooper mainly did the work -- generated the report in exactly the format that. . . . The board said: "That's what we want to see."

G. Farrell-Collins: When they asked for that specific of a reporting process and a report, you still didn't think it was important to tell them that you had changed the whole structure of your accounting process to averaging?

T. Ward: I think you've misconstrued the. . . . It wasn't my intention to stay on an averaging system till we knew what the magnitude of the numbers was -- in fact, whether this was a blip or a. . . .

G. Farrell-Collins: No. I understand that, but they asked you specifically not to change the formats of the report. Not only did you change the format, you changed the whole entire way the accounting was being done. You went to a different format, and you didn't feel a need to tell them.

[1600]

G. Farrell-Collins: So the numbers went in -- just no explanation that it was now based on averaging.

T. Ward: As you'll have seen from the reports. . . . They report out probably five components. There's the ships, CFI operations, CFI capital. . . . There were a couple of other things. It was the total of the subtotals. Within that, they had some breakdowns. That format didn't change.

D. Symons: Mr. Ward, you were present in the legislative chamber on a number of occasions when I was questioning the minister regarding the fast ferry program. I'll just refer for a moment back to June 22, 1995, when the minister actually turned to you, and you gave the answer to my question about the labour and the costs of the vessel. You are quoted here in Hansard as saying: "Approximately 60 percent of the total cost of the vessel will be labour." You happened to add as well: ". . .all of that's Canadian."

We have a news release of April 1 -- April Fool's Day, 1996 -- where it's stated: "The first of three fast ferries are expected to enter service for the 1997 summer season, with the second and third ships following in 1998." Further on, just to fit in with that particular quote there, back in 1995, with you sitting beside the minister -- I was asking about the schedule for these -- as he gave this answer: "We should have construction begin sometime this fall." Fall of '95. "It takes about ten to 12 months to construct a vessel. . . ."

Now, it would seem to me -- and I am not a shipbuilder, as you are -- that these figures are somewhat overexaggerated or overoptimistic, that you can build a new ship like this in ten to 12 months. You haven't done it on vessel 1. Vessel 1 took somewhere close to. . . . Well, it was over two years from the time it began construction to the time that it was in the water -- not fully completed, because it wasn't launched until 1998, although it was begun, supposedly. Unless they said they began it immediately on April 1 of 1996. . . . I would grant you that not all the labourers were there at that time.

But we find in July '97 another news release which says, in a quote from Mr. Clark: "Construction of the first ferry is well underway, and the timing is perfect to begin construction on the remaining project." This was the announcement for the continuation of ferries 2 and 3 in the project. Well, that's more than a year after the date when it was first announced that it would be in service by that time, and in July of '97 the ship was nowhere near complete.

At that time, would it not have been possible for anybody looking at this project, let alone a project engineer for this -- the public, anybody at all -- to be able to look at the facts? If

[ Page 1276 ]

I made a comment in the newspaper in July of '96. I'm quoted in the Province of that date saying: "The B.C. Ferry Corporation may have to hike fares between Horseshoe Bay and Nanaimo by 25 percent when it puts three fast ferries on the run." Well, I was under, naturally; at the time, I was way under in my estimate. But certainly I at least was out there saying that there's a problem with this, and as I say, I'm not a marine engineer. So why, with all those experts you have, could this thing carry on for the length of time it did before people started to give us numbers that were accurate?

T. Ward: The occasions you talk about, I believe, are on the estimates, which took place in this room. Twelve months to build a ferry like that? If you look at what's being offered on the market now, that's what the Australian shipyards are taking. They're taking 12 months to deliver ferries. The information that we had at that time was based on what was happening in the world markets.

[1605]

D. Symons: I know the Chair is getting anxious to wind up the meeting here, but my question really related to the fact that news release or not -- and the motives behind some of the news releases. . . . When it came to July '97, fast ferry No. 1 was nowhere near ready to be in the water. As a matter of fact, at Christmas of that year it still wasn't near being ready to go in the water. It dragged on; in fact, the tides were wrong, we were told. The fact that the jet room, and so forth, wasn't fastened on the hull had nothing to do with them not putting it in the water. Long after it was in the water. . .

R. Thorpe (Chair): Doug, could you focus your question, please?

D. Symons: . . .there was a lot more work to be done. So in July of '97 we're one year into the project on a project that you were estimating. . . . And I suppose our budget estimates were based on the assumption that we could build a ship in one year. Well, now we're well into year 2 without a ship anywhere near being finished. Why at that time did you not re-evaluate the cost of this project?

T. Ward: As I mentioned in my presentation, I believe that I had drawn to the attention of the chairs of B.C. Ferries and CFI in early September of that same year that I was very concerned that we weren't going to make the Christmas launch. I had the same concerns. One of the things that I did was change the general manager of the company when we did miss the launch, so I shared the concerns. But the hard numbers didn't pop out until much later in the project.

D. Symons: My point is that those numbers are really beginning to stare us in the face, and they seem to be ignored.

R. Thorpe (Chair): Let me ask one question, maybe two. I want to be clear here, Mr. Ward. I too thank you on behalf of the committee for coming and sharing your experience and insight with us.

One of the things that has been troubling to me -- and I think it has troubled you a bit -- is that Treasury Board, CCS and central government monitoring arms say that for some reason they were getting reports, and all of a sudden they just stopped. I don't want to put words in your mouth, but I thought I heard you say earlier that it wasn't your responsibility to issue those reports -- that you thought that came out of the finance side of the operation. One, could you confirm that's what you thought was happening? And two, could you also confirm. . . ? I think you said that neither of those organizations pursued you aggressively about the fact that they were not getting the reports that they were supposed to be getting. Have I got that correct?

T. Ward: Partly, Mr. Chairman. The reports that would go to CCS or Treasury Board would come from the treasury group at B.C. Ferries. I wouldn't see those documents in the normal course of events. Had Mr. McFarlane said to me, as I heard him say this morning. . . . If any of those briefings at the tail end -- because the meetings were all about something else. . . . If he had said, "By the way, I'm missing a couple of documents," I would have done something about it. Even though I didn't have to report, if the people were reporting to me, the accountability was with me.

[1610]

R. Thorpe (Chair): I'm also troubled a little bit, because Mr. Rhodes was a witness before you, and he talked about this CS2 or whatever the package is. We talked about this wonderful package, we talk about all these great human resources we had, yet nobody could get their hands around the ball. I guess it must really trouble you today that with this sophisticated

[ Page 1277 ]

T. Ward: Well, they weren't coming out at a time that you could do anything about it. You know, to manage something you have to have the ability to do things. I had expected to see in the auditor general's report the answer to that question, because it was one of the questions that I was pursuing at the time that I left the corporation. Believe me, I wouldn't have stopped till I had the answer and I'd corrected it.

R. Thorpe (Chair): Well, you've been in the construction business, the shipbuilding business, a long time. I've had some small dealings with capital projects. You know and I know that change orders are what kill your budgets, especially if you're not on top of it. Those are the things that can sneak up and grab you and throw you to the ground.

T. Ward: I don't think change orders were certainly of the influence that the auditor general's report puts on it. I get some answers on what I thought the magnitude was. If I was able to go back to the records, I'd probably be able to put that. But the number I gave came out of the minutes of the CFI board meeting. People will note that the CFI board had asked for a running report on change orders.

R. Thorpe (Chair): This is my last question, and I appreciate other members' patience. In a report you wrote April 30, 1997 -- it was called the "Fast Ferry Program Budget Review" -- you made the following statement. I would like you to just briefly explain to me what it means.

T. Ward: April 1997?

R. Thorpe (Chair): April 30, 1997. The document's called "Fast Ferry Program Budget Review," prepared by yourself. It says: "To keep the capital plan moving forward in accordance with cabinet's explicit instructions. . . ." What was meant by cabinet's explicit instructions? What did you mean by that when you wrote this document?

T. Ward: I'd really have to look at the document, because it's not one that springs to mind.

R. Thorpe (Chair): Okay, here's what. . . .

T. Ward: But certainly I had been asked in the early stage of the project to drive the project to meet the objectives, and I think I did that.

R. Thorpe (Chair): What I'll do, in fairness to you, is get a copy of that report for you. Then perhaps you could write, through the Clerk's office, your formal answer to that. Would that be fair?

T. Ward: Yeah.

R. Thorpe (Chair): Thank you very much.

Does anyone else have any other questions?

P. Calendino: I'll take the opportunity to thank you for coming here today as well, as the others have done.

Mr. Farrell-Collins and Mr. Symons have spoken a lot about your shipbuilding experience. I want to pose a simple question here. In March of '98 you were told by Mr. Wells, I believe, that the costs were already somewhat higher than the $70 million, and then by July, I think, they were even higher than that. You never reported to the board until January of the following year. What I want to know is: even before March of '98, given all your experience, did you not suspect at all that the $210 million budget was totally unrealistic, that it should have been revised, that the minister should have been warned, that the board should have been warned and that you perhaps should have taken that step?

T. Ward: You know, at this stage the fact that you're asking that question goes to the heart of a lot of the issues. The $210 million number was in the June 1994 announcements. When B.C. Ferries went to Treasury Board, they had a $230 million number.

[1615]

G. Morfitt: March of '95.

T. Ward: That was 1995. So the $210 million number came out of CCS. We went to Treasury Board with a B.C. Ferry submission that was $230 million. That number changed to $265 million at a later time. So the change from $70 million to $86 million wasn't a surprise, because the number had moved a couple of years before that.

In December of '97, Mr. Hamilton had already advised that the fabrication was going to be at least 36,000 man-hours over, so I knew the number was coming up. What I wasn't sure of was where it was going to go to. The $86 million number came out in March of '98. I wasn't totally surprised by that number.

P. Calendino: I'm glad you mentioned those two items -- the 36,000 man-hours over the allocated or expected time plus the $262 million that was presented in '97. Part of that $262 million wasn't because of labour overruns but because of the infrastructures that had to be set up -- that's my understanding -- and for the training of workers that we did not have. The aluminum welding, etc., and the hangar in North Van. . . . Those are all costs that brought the original estimate of $210 million up to $262 million. But when you see 36,000 man-hours more than expected. . . . You said earlier that it's not a big number. I'm not sure what the hourly wage would be -- probably $30 an hour, and that's a decent figure. Obviously at that time only half of a vessel was completed, and you had two and a half to go still. You didn't suspect that you had to go and look at the expenses?

T. Ward: The 36,000 man-hours. . . . I expected that once enough of the second vessel was underway, you could get a good idea of how much better that was. Then you could basically put that in perspective. What was the offset on the second, and what was the third ship going to be? You have to look at the total cost; I wasn't concerned about that. The $86 million. . . . I didn't like the number, but I wasn't shocked out of my mind about it. When the numbers starting changing in July and August, then I started getting very concerned. I think the actions that I took in trying to get to the bottom of that show the degree of concern that I had.

[ Page 1278 ]

T. Ward: It was a very complex issue. By the time I had the number so that I could go and talk, it was the end of the year. In a six-year program, a couple of months is not really a long time. Believe me, had I been running the project on a day-to-day basis. . . . But I had to go back and bring myself up to speed on the details of it and the contracting, on top of a lot of other more pressing things. So had I worked on a full-time basis every day, it might have taken me three or four weeks to do that. As it was, it was spread over a number of months. But you can see from the reaction when I gave the number. . . . If I'd given the wrong numbers, how much worse would the reaction have been?

E. Gillespie (Deputy Chair): I want to make a couple of comments and to thank all of the witnesses who have appeared before this committee in the last couple of days. It would appear that all of the witnesses who have appeared support the recommendations of the auditor general's report, which provides some broad direction both to government and to the corporation. I think that the observations of the witnesses over the last couple of days have really provided somewhat more light than heat, which has been much of what's been generated before, so I thank you for that.

[1620]

Comptroller general, do you have anything to say today?

A. van Iersel: Just quickly, a couple of comments. With respect to interest during construction, that is a legitimate cost, particularly in the private sector, when you're constructing an asset over time. One of the things it facilitates is a comparison of make or buy, as long as you don't inflate the cost beyond market value. So that cost is something that should have been in, in the beginning and considered that way.

There was also talk today about an operating lease. An operating lease, in and of itself -- I'm talking to you about the sale-leaseback transaction -- doesn't get around the situation we find ourselves in. It only helps in the sense that you transfer costs or risks away from yourself to the lessor. In terms of some of the benefits and in terms of financing, government has one of the lowest financing rates. Traditionally, there's very little extra that a sale-leaseback will provide in terms of a more competitive rate than the province itself has. It really is driven by: are you getting rid of some risk, in terms of obsolescence or some other costs related to construction risk, and so on and so forth? It could be a valid question regarding these boats, but it doesn't change it. I guess at the point in time it was being considered, I'm not sure there would have been a significant transfer.

Governance. As was mentioned, my office has been involved in the two governance presentations that have gone to board members. They have gone very well. Members, partly based on what's happened with B.C. Ferries, are very interested in knowing what their roles are. This is an issue that I think will need a lot more discussion in the future, particularly when you consider the Enns recommendations and the fact that government has agreed to go to the summary accounts. Part of those summary accounts are made up of self-supporting and non self-supporting Crown corporations. What does that mean in terms of the responsibility of the government and in terms of accountability for those bottom lines, and so on and so forth? I would ask members to think about that in the future, because that's something that everybody has to come to grips with in terms of what's appropriate.

The last thing I'll talk to briefly is the project system. I'm not familiar with the one that was quoted today, but it may be a situation where the system was capable but we weren't able to get the information in. In order to make effective program management, you have to have very detailed budgets in terms of the various components of the ships that were constructed and then follow those details month by month, including the commitments and the various changes, to make use of it. I hope that's one lesson that we can all take away from here.

Those are my brief comments.

R. Thorpe (Chair): Thank you, Arn.

Does the auditor general have any comments?

G. Morfitt: No, I don't.

R. Thorpe (Chair): There are going to be some responses where you're going to look at some of the things that were said today and perhaps report back to the committee.

G. Morfitt: Yes, that's right.

R. Thorpe (Chair): Thank you very much, Mr. Ward, for coming and sharing your experience with us. It's very much appreciated.

The committee adjourned at 4:24 p.m.

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