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1991 Report of the Auditor General of Canada

Main Points

17.2 The government has introduced some important changes in the management of real property in response to our 1984 comprehensive audit of DPW and other studies. However, at the time of our current audit, certain fundamental accommodation issues remain unresolved (17.13). These include:

• the service and control roles of DPW (17.25 to 17.32);
• the question of whether departments should pay rent for accommodation (17.33 to 17.38); and
• long-term accommodation planning and investment strategies (17.39 to 17.46).

17.4 Although the government has taken steps to make the planning and acquisition of leased accommodation more businesslike, we believe that improvements can still be made in the following areas:

• defining tenant departments' requirements (17.52 to 17.61);
• delivery times (17.62 to 17.68);
• the tendering process (17.69 to 17.75);
• meeting small space requirements (17.76 to 17.78); and
• market surveys and rental costs (17.79 to 17.87).

Introduction

17.7 Over the past five years, DPW and the Bureau of Real Property Management within the Treasury Board have taken steps to make the acquisition of leased office space more businesslike. However, at the time of our audit, DPW was at a crossroads because, despite all the efforts and past research, certain fundamental accommodation issues (the service and control roles of DPW, the question of whether departments should pay rent for accommodation, and long-term accommodation planning and investment strategies) remained unresolved. Resolution of these issues would facilitate essential reforms in the planning and acquisition of leased office space.

17.8 This chapter shows that, in the spirit of PS 2000, DPW has an opportunity to become more responsive to the accommodation requirements of its tenant departments and to reduce costs by streamlining its leasing operations.

Background

17.10 In providing these services, the Department has two major roles: as a common service agent and as a custodian. In its common service agent role, the Department provides its own Accommodation Branch, other government departments, and government agencies with services related to building design (architectural), engineering, real estate and property management. These services are provided at market-based rates.

17.11 As a custodian, the Department is responsible for the administration and control of general purpose office accommodation and a variety of other real property, such as bridges, highways, dams and the Parliamentary Precinct. The costs of general purpose office accommodation are financed, for the most part, from DPW's appropriations.

17.12 DPW accommodates about 155,000 government employees of 104 federal departments and agencies in 4.8 million square metres (1,200 acres) of office space across the country. This space includes 380 Crown-owned office buildings, 9 lease-purchase facilities, and 2,446 leases. In recent years, the government has relied increasingly on leased premises to meet its office space needs. Leased office space in 1991-92 is estimated to be 2 million square metres (over 40 percent of total office space) and requires annual rental expenditures of $379 million. DPW conducts over 1,000 leasing transactions each year.

Government Real Property Initiatives

17.14 One response to the Nielsen Task Force's recommendations was the transfer of custody of special purpose space to the responsible tenant department. An important objective of the custody transfer was to streamline DPW's custodial role, allowing the Department to focus on its office accommodation role and service to tenants. As a result, DPW has retained responsibility for approximately 20 percent of the total federal inventory (measured in square metres of building space); other departments and agencies are responsible for the remaining 80 percent, which includes buildings such as laboratories, airports, warehouses and military establishments.

Audit Scope

17.16 We reviewed the Department's accommodation planning activities and leasing process for office space. The audit concentrated on the Planning, Definition and Implementation Phases of the accommodation/leasing process as shown in Exhibit 17.2 . These three phases of DPW's Project Delivery System contain the key tasks in the acquisition of leased space.

17.17 To understand the historical context, we analyzed the results of previous studies of the Department conducted by various independent groups, including two Royal Commissions (Glassco in 1962 and Lambert in 1979), the Standing Senate Committee on National Finance (1978) and the Ministerial Task Force on Program Review (1985 Nielsen Report). To supplement the audit work with a cross-section of opinion on office leasing issues, we interviewed DPW staff in all regions and headquarters, facilities management staff of selected tenant departments, and several representatives of the real estate industry.

17.18 To examine specific leasing transactions in two regions, we selected a random sample, based on dollar values, of new and renewed leases whose terms began between 1 January 1989 and 31 July 1990. We selected this period because, on 1 January 1989, Treasury Board transferred to DPW the responsibility for administering the government's office accommodation policy (Chapter 120 of the Treasury Board's Administrative Policy Manual). Chapter 120 deals with tenants' accommodation entitlements (space, location, fit-up), which may lead to the acquisition of office space through leasing. To support the Chapter 120 transfer and its management philosophy of Increased Ministerial Authority and Accountability, in 1989, the Treasury Board introduced major revisions to the policy and guidelines on contracting and granted the Minister of Public Works increased authority to enter into lease contracts without prior Treasury Board approval.

17.19 Our sample of 28 leases was limited to two regions: Pacific and Quebec. We excluded the Western, Ontario, Atlantic and National Capital Regions from our detailed testing, because the Department's Management Audit and Program Evaluation Directorate was conducting a compliance audit of leasing in those areas. At the date of writing this report, the results of the internal leasing audit were not available. We will review the internal audit work when it is completed.

17.20 In order to determine if the rents being paid by DPW were in line with those charged for comparable space, we employed real estate appraisers to perform independent market value appraisals. This was an essential "test of economy" in our audit.

The Government Accommodation Leasing Process

17.22 The main features of government leasing are:

• Tenant departments specify their space requirement.
• DPW exercises a control function by reviewing and approving the specified requirement.
• Most tenant departments obtain their office space (about 70 percent of DPW's space inventory) without charge; commercial tenants and departments funded through revenue sources pay rent on the remaining 30 percent of the inventory. All tenants pay for "tenant services", i.e., interior renovations after occupancy.
• DPW seeks to be responsive to the government's social, economic and environmental objectives.

Fundamental Accommodation Issues

DPW's Service and Control Roles Are Difficult to Manage

17.26 Recent surveys conducted on behalf of DPW have confirmed that both the lack of timeliness in meeting tenants' needs and DPW's control role were sources of tenant dissatisfaction. PS 2000, which reviewed the role of common service agencies, noted that the services provided by DPW were of more concern to public service managers than any other common service area. It reported that clients were frustrated with the system, particularly with the slowness of DPW's response in acquiring facilities.

17.27 Effective 1 January 1989, a decision was made to fundamentally change the relationships among DPW, its tenant departments and the Treasury Board. Treasury Board transferred to DPW the responsibility for administering the policies contained in Chapter 120 of the Treasury Board's Administrative Policy Manual that affect DPW-managed accommodation. The essence of the transfer will be to shift control over government office accommodation (quantity, quality, location) from Treasury Board to DPW through a four-phase process, the first two phases of which have been completed.

17.28 In meeting the office accommodation requirements of departments and agencies, DPW must ensure compliance with the relevant authorities and standards. This can delay the process and generate tenant dissatisfaction. Successful implementation of Chapter 120 accommodation policies depends upon DPW being able to temper its control role with sensitivity to tenant departments' needs. DPW's efforts to balance the service relationship with the control aspects of government office accommodation policies, coupled with inconsistencies (real and perceived) in providing office accommodation, often bring DPW into conflict with its clients over the timeliness of meeting their space requirements and over the quantity, quality or location of space provided.

17.29 The office accommodation control limit and fit-up cost limit contained in Chapter 120 illustrate the inadequacies of using outdated control standards:

• Office accommodation control limit: This limit was developed in the 1970s and is calculated according to the average salary levels in an organization. This approach was based on studies that showed a correlation between average salary levels within an organization and functional space needs. Since then, however, the rapid spread of information technology has revolutionized the nature of office work. In addition, departments and agencies are increasingly aware that the quality of the workspace affects employee performance and productivity; however, DPW has been unable to meet their expectations concerning the location, quantity and quality of office space. Despite the recognition that the accommodation control limit is outdated, DPW continues to use it to validate departments' and agencies' space requests.
• Fit-up cost limit: In 1984, we reported that the per square metre fit-up cost limit of $82.85 that had been established by Treasury Board in 1977 was outdated; costs had increased significantly, and DPW was spending a lot of time and resources obtaining Treasury Board approvals for exceptions to the limit. In 1990, the fit-up cost limit had still not been changed. DPW continues to monitor and report cases where this limit is exceeded.

The Transfer to DPW of Responsibility for Office Accommodation Policy

Phase 1 (Completed)

Phase 2 (Completed)

Phase 3 (Ongoing)

Phase 4

17.30 The Department has initiated a pilot project in conjunction with four leading tenant departments to develop new office accommodation standards (subject to Treasury Board approval) based on the functional requirements of tenants. This may reduce the conflict between DPW and departments by helping to ensure that accommodation decisions better support the program delivery needs of tenant departments; it would also enable DPW to put more emphasis on its service role.

17.31 DPW is responsible for preparing regular reports to Treasury Board showing cases where the office accommodation standards have been exceeded. In order to do this, the Department requires information about the amount of space each department holds in excess of its authorized limits. The Department informed us that there were problems with the accuracy and completeness of the space data. In the absence of reliable statistics on the amount of space utilized by departments, DPW cannot meet its own and Treasury Board's information requirements.

17.32 DPW needs to clarify and communicate its service and control roles for the benefit of tenant departments. DPW also needs, within a reasonable time frame, to complete the development of appropriate accommodation standards based on tenants' functional requirements.

Should DPW Charge Rent for Office Accommodation?

17.34 DPW, whose office accommodation activities encompass a large measure of commercial-type undertakings, has progressively implemented revenue dependency for its Realty Services and Architectural and Engineering Services Branches over the 1985-88 period. Moreover, PS 2000 suggested that client departments should have more choice in using these services. It recommended that Architectural and Engineering Services become optional effective 1 April 1992 and that some tenant services become optional where they do not affect a building's operating systems. The government agreed to these recommendations in its response (White Paper) to PS 2000.

17.35 Advocates of revenue dependency claim that making departments pay for their office accommodation would increase their awareness of its cost and make them accountable for it, thus restraining their space demands in terms of location, quality and quantity. This would in turn reduce the government's total accommodation costs.

17.36 Those opposed to revenue dependency have stated that giving tenants full control over their accommodation decisions is inadvisable in an area of such public sensitivity. The government would no longer be able to plan or control the location of federal office buildings and would lose the ability to promote "federal presence". (It is not clear, under revenue dependency, how much tenant departments would or should be charged for a location with "federal presence", which they may neither need nor desire). As a result, public works projects would no longer serve as direct vehicles for implementing the social, economic and other objectives of the government. With the transfer of Chapter 120 responsibilities to DPW, the accommodation program remains mandatory. Opponents of revenue dependency argue that to introduce this concept without giving tenant departments the freedom to choose their own office space and without forcing DPW to compete with the private sector would merely add to the administrative process and create little overall savings in accommodation. Accommodation costs would merely be passed through the tenant departments using an elaborate accounting and billing system.

17.37 In our view, time and experience have shown that the revenue dependency concept can work for common service agencies in some situations, but it is not a panacea. These agencies invariably require good management practices, appropriate management information systems, adequate controls and realistic performance measurement systems, no matter how they are organized or how their services are financed.

17.38 Following the Nielsen Report, Cabinet requested that the Minister of Public Works, in consultation with the President of the Treasury Board, take action to operate DPW properties on a revenue-dependent basis under an Accommodation Revolving Fund starting 1 April 1987. In 1988, when it was decided to transfer the administration of Chapter 120 accommodation policies to DPW, Treasury Board decided to defer consideration of the issue of charging rent to all DPW tenants until the end of the implementation process. In Phase 4 of the process (as described in paragraph 17.27), Treasury Board will evaluate DPW's increased managerial control of the accommodation program and assess the value of implementing revenue dependency. The evaluation had not yet been conducted at the time of writing this report. Consequently, the future of revenue dependency for government accommodation is uncertain.

Improvements Required in Accommodation Planning and Investment Strategy

17.40 The objective of a well-functioning long-term accommodation planning process is to ensure the availability of the right facilities at the right time in the most economic manner to meet existing and projected demands. It should also ensure the optimal use of existing facilities.

17.41 DPW prepared a 10-year accommodation plan in 1985 in response to the Public Accounts Committee's recommendation. The plan was approved in principle by the Treasury Board, but DPW was instructed to seek project funding on a case-by-case basis. However, because of fiscal restraints or changes in government priorities, many of the large capital and leasing projects identified in the plan have been either deferred or cancelled.

17.42 DPW revised its 1985 plan in 1988. This update provided an estimate of the most likely volume of demand for capital acquisitions, renovations, and improvements over the next 10 years through to 1997-98 and the resources that would be required. Treasury Board reviewed the plan and approved a funding approach that required DPW to manage within existing resource levels with annual inflation adjustments. The Board also requested that DPW provide further information regarding the criteria and assumptions used in determining its estimate of the amount of Crown-owned and leased space required within the planning horizon.

17.43 Regional leasing strategies are a key component of an effective long-range accommodation plan and investment strategy. These strategies should address such fundamental issues as: When is leasing the most effective method of meeting office space needs? Should government offices be located in core or non-core areas of cities? What are the optimum terms for leases?

17.44 There are no leasing strategies for Vancouver and Montreal, the two largest cities in the regions we examined. DPW's multi-year operational plans note the need for preparing leasing strategies for major Canadian cities because of the unique real estate market conditions and the large government presence in metropolitan centres.

17.45 Our findings illustrate the consequences to the government of the planning uncertainties noted above:

• DPW continues to have difficulty in developing a long-term accommodation plan and investment strategies due to inadequate information, particularly about current and future tenant requirements. As a result, property investment decisions in DPW are not being made within the framework of a government-approved long-term accommodation plan and property investment strategy.
• Although a limited number of government office buildings are still being constructed or renovated, fiscal restraints have virtually removed the option of Crown construction. The 1985 Auditor General's Report (paragraphs 9.73 to 9.81) noted an instance where the leasing of space to meet long- term accommodation requirements probably cost the Crown substantially more money than alternative arrangements, such as purchasing a property at fair market value.
• In some cases, DPW has entered into short- term leasing arrangements in anticipation of proposed Crown-owned buildings or other long-term solutions that did not materialize; these arrangements are due in part to external factors such as changes in operations requirements and government priorities. For example, in one property, involving two leases, the tenant department had asked for a five-year term, but DPW entered into a three-year term based on the expectation that a Crown-owned building would be available at the end of the period. However, the Crown-owned building was not available, and the additional cost to the government was approximately $100,000 over the term of the three-year lease, 6.3 percent greater than it would have been for a lease with a five-year term.
• In 1984, we reported the case of a downtown Vancouver property, Block 56, which has been owned by the government since 1972. Since 1985, the Pacific Region of DPW has generally limited lease terms in Vancouver to five years in anticipation of the construction of a major federal government office complex on Block 56. As outlined in Exhibit 17.5 , proposals to develop this property are under discussion.

Areas for Improvement in the Acquisition of Leased Office Space

17.48 DPW's task in acquiring leased space is difficult: It operates in a fast-moving, commercial milieu, but must do so within the constraints imposed by its political and government environment. The Department has taken steps to improve client services and institute a more businesslike approach. However, DPW recognizes, and our work confirms, that more can be done to streamline its operations, providing greater flexibility in responding to tenant demands.

17.49 There are substantive differences between the way DPW leases space as compared to the methods generally followed in the private sector. The principal features of commercial leasing practices include: a market analysis to identify the most suitable properties (the tenant must be satisfied with the location and premises); intensive negotiations with potential landlords to identify all possible concessions; rapid closing of the deal as a complete leasing package (major terms and conditions including fit-up requirements); use of a standard industry lease; and fast turnaround times for the completion of leasing transactions.

17.50 In the private sector, property investment and accommodation decisions generally support specific corporate objectives. For example, location decisions are based on proximity to markets and suppliers. In short, the effects of property investment decisions can usually be measured and assessed. In the case of the government, however, it is generally more difficult to assess the impact of location decisions.

17.51 From our examination and discussions with DPW staff, tenant department officials and industry representatives, we identified five areas for improvement in the acquisition of leased office space:

• defining tenant departments' requirements;
• delivery times;
• tendering;
• meeting small space requirements; and
• market surveys and rental costs.

Defining Tenant Departments' Requirements

17.53 Tenant departments are responsible for producing and presenting DPW with an accurate definition of their space requirements. In our 1984 audit, we noted that client departments frequently did not clearly state their requirements as directed by Treasury Board. In addition, DPW did not always satisfy itself that all necessary information was provided to permit a judicious real property acquisition before commencing action on client requests.

17.54 In our current audit, we noted continuing difficulties in the definition of tenant requirements, an area of shared accountability between DPW and tenant departments. In general, tenants have to explain and justify their requirements to several groups within DPW's Accommodation, Realty Services and Architectural and Engineering Services Branches. This repetition is both time-consuming and annoying to tenants. It can also result in different interpretations of tenants' requirements and lead to disputes. The Department needs to streamline its method for defining and validating tenant requirements.

17.55 We found 11 cases, out of our sample of 28 leases, where problems occurred due to unclear, changed or misinterpreted requirements. In one lease, for example, a tenant department submitted an urgent request for approximately 4,500 square metres of office space. The request was submitted in early February 1988, and the space was required for occupancy by 1 July 1988.

17.56 In June 1988, DPW selected the lowest bid; however, the tenant rejected the proposed space on the grounds that it did not meet its requirements. After three months of discussion, DPW agreed that the space was unsuitable because of security considerations.

17.57 DPW then informed the second lowest bidder that they wished to negotiate a lease. By January 1989, these negotiations had broken down, and DPW selected another potential site. The tenant department agreed to the third proposed space and moved in at the end of May 1989, almost 11 months after the initially specified occupancy date.

17.58 Much of this delay was due to the confusion caused by poorly defined requirements. The acquisition process was started without a clear understanding of the client's specialized requirements.

17.59 In another case, in order to consolidate the space requirements of a major tenant, DPW undertook a tender call for a "build to lease" project (that is, a developer offers to build to DPW's specifications in return for a long-term lease). Nineteen months elapsed from the inception of the project to the date when the four qualified bids were analyzed. DPW's Realty Branch recommended selection of the lowest bid.

17.60 DPW's Accommodation Branch and the client department both stated that the lowest bid did not meet the tender specifications. The problem was eventually sent to the Deputy Minister and the Minister for resolution. However, in April 1989, before a decision was taken, the project was cancelled as part of the government's restraint program. Although the project did not proceed, this case illustrates that a disagreement over the evaluation of the requirements can result in extensive delays and significant costs for the tenant department, DPW and the bidders.

17.61 To avoid such situations, DPW should ensure that it has a clear understanding of the tenant's requirements and that these are agreed to by the appropriate branches of DPW and the tenant department before commencing the leasing process.

Delivery Times

17.64 We noted a similar case that took 20 months to lease and fit up 1,047 square metres of office space. The space was acquired in a competitive manner using public tenders. The fit-up work was contracted and implemented separately from the leasing of the space.

17.65 However, in another case involving 425 square metres of office space, only six weeks elapsed from the time the requirement was identified to the move-in date. This lease was acquired in a non-competitive manner by negotiating directly with the landlord. The tenant had identified a preferred location and accepted the premises with minor fit-up.

17.66 From our sample of leases and discussion with departmental officials, we found that lengthy delays can occur at all stages of the lease acquisition process, because of disputes with the tenant department, competing lessors and various other involved parties over location, suitability and detailed specifications of the space.

17.67 The Department is aware of these problems. In 1987 and in 1989, DPW used consultants to conduct client satisfaction surveys. The results of both surveys indicated dissatisfaction with DPW's lengthy and complex lease acquisition process. In the Expenditure Plans of both its 1990-91 and 1991-92 Part IIIs of the Estimates, DPW stated that it will seek to improve the time frames for delivery of leased accommodation from 12-24 months to 6-12 months.

17.68 During this audit, we requested Department-wide statistics from DPW that show the amount of time required to deliver leased space. Department officials responded that they were unable to provide this information. In the absence of such information, it is difficult for the Department to determine whether progress is being made in improving the timeliness of the delivery of leased space.

Tendering

17.70 According to DPW officials, the Department uses public tenders or asks for expressions of interest when it is practical. Also, DPW has recently encouraged owners to register their buildings in regional inventory systems; these "representative lists" are used to invite tenders for some small and medium-size office space requirements. Although only 15 percent of leases were considered "competitive" in 1990, they represented 49 percent of the dollar value of lease commitments made (full term of leases) and 28 percent of space leased during the year.

17.71 Since 1985, DPW has introduced various "transparency" features in the bidding process for leased space. Bids are opened publicly, and bidders have access to the offers received by DPW; key elements of the competing bids are available to the public.

17.72 Sometimes the lowest bid resulting from a public tender may be unacceptable to the tenant department; this could result in cancellation of the tender. DPW's policy is to exclude the tenant department from the selection and evaluation process on the grounds that this ensures a competitive process. When a large public tender is cancelled by DPW, as was the case in one of our sample items, everyone loses -- the tenant department, the real estate industry and DPW -- because of the time and cost required to conduct and participate in the tender process. Specifications for accommodation are much different from specifications for a standard purchased good. Usually the space already exists, and a compromise must be reached between tenant requirements and what has been offered in the bids.

17.73 Private sector firms and some public works departments in the provinces and other countries are able to acquire premises that more closely match tenant program needs by following a two-stage process. In the first stage, developers submit brief proposals to meet the accommodation request. The proposals are evaluated and narrowed down to four or five properties that are reasonable in terms of cost and acceptable to the tenant department. In the second stage, the four or five finalists submit detailed proposals, which are again evaluated. Because location and quality have already been taken into account, the firm or department then negotiates the best contract with the finalists. Price is the critical factor in these final negotiations. This alternative approach emphasizes flexibility and the importance of meeting the tenant's requirements in a cost-effective way.

17.74 DPW, on occasion, uses a variation of the two-stage process. The first stage is the same as the one previously described, that is, proposals are requested from interested parties. However, in the second stage, qualified developers or landlords are invited to respond to a formal tender call. The lowest bid is usually chosen.

17.75 The principal implication of encouraging greater use of this two-stage approach is that it would likely require fundamental changes in the government's principles and practices of acquiring leased accommodation.

Meeting Small Space Requirements

17.77 Current DPW leasing procedures (outlined in the Realty Services Leasing Manual) are designed for the acquisition of medium to large quantities of space. Although the Realty Services Leasing Manual does have a contingency plan for urgent requirements referred to as "Fast-Track Approaches", DPW uses the same onerous procedures regardless of the size of space required. In our opinion, these procedures are too complex and involve too many players for most of the many small accommodation/leasing projects. (See examples in our leasing sample under Delivery times, 17.63 to 17.65.)

17.78 We believe DPW needs to simplify its leasing process and related documentation for obtaining small blocks of space. DPW has introduced a short version of its lease tender document; however, according to departmental officials, implementation has been slow.

Market Surveys and Rental Costs

17.80 Market surveys are conducted by either DPW's own evaluators or private sector firms to provide information on current market conditions for determining the probable costs of leased accommodation. Market surveys are generally required for all major urban centres where there is a continuing need for office accommodation.

17.81 DPW usually conducts these surveys prior to the effective date of the lease. The estimated market rental ranges shown in these reports are generally limited primarily to asking rents, which are obtained, for example, through telephone surveys of eligible office building owners.

17.82 We contracted with real estate appraisers to compare the rental costs of our sample of DPW leases with costs to private sector renters in similar spaces. These appraisals were performed after the lease agreements had been concluded. The appraisers researched existing lease agreements for similar time periods in the same or in comparable buildings. They considered inducements such as free rent, fit-up allowances, free parking and other incentives. In short, the objective was to make realistic comparisons between rents paid by the government and market rentals based on actual lease agreements.

17.83 The market surveys used by DPW and the detailed appraisals we prepared have different objectives. A market survey provides broad market trends, usually based on asking rents; a detailed appraisal provides an assessment of the market rents paid for specific premises based on actual lease agreements for comparable and competitive buildings.

17.84 In our opinion, DPW needs, on a selective basis, to undertake the more detailed appraisals for high-risk lease acquisitions and renewals; "high-risk" would include, for example, large or special purpose space acquisitions. The appraisals should include evidence on actual lease agreements for comparable and competitive buildings.

17.85 Given the government's excellent credit rating, we expected that rents paid by DPW would compare favourably with independently determined market rentals. We found that, for leases in the sample, the rents paid by the government were generally reasonable in comparison with market rentals. The results of the lease comparisons were reported to the Department.

17.86 We noted that, for three leases in our sample, rents were significantly higher than the market rental range. Departmental officials explained that higher rents were generally the result of the following factors that weakened the government's bargaining position:

• poorly defined specifications and last-minute changes in space requirements by the tenant departments; disputes between tenant departments and DPW over proposed accommodation solutions;
• being in a "captive tenant" position when negotiating a lease renewal with an incumbent landlord, a position that can stem from factors such as extensive past fit-up investments or insufficient lead time to seek alternative accommodation;
• continued renewal of short-term leases arranged in anticipation of moving into proposed Crown-construction projects that do not materialize;
• possible extra costs charged by landlords for having to deal with a prolonged government approval process, complex leasing procedures and the use of lease forms that generally are longer and more complicated than the standard industry lease; and
• intangible factors, such as landlords' perceptions of difficulties associated with government tenants' activities.

Conclusion

17.89 DPW's leasing practices are slow and cumbersome, its leasing documents are overly detailed and complex. Space acquisition is often delayed, and competition can be reduced, especially in tight market conditions when lessors can rent their buildings much more readily to the private sector in much less time and with less demanding lease requirements. As a result, DPW may end up paying higher prices to obtain leased space.

17.90 Many of the reforms introduced by the government since 1985 have been designed to meet the need for competitiveness and transparency in government leasing practices. However, abiding by the existing rules and DPW's internal procedures can be costly and time-consuming (for the real estate industry, tenant departments and DPW) and may not always yield an optimal result for the government. We are not recommending the wholesale adoption of direct negotiations or a two-stage tendering process for all lease transactions. On the contrary, we recognize and support the need for competitiveness and transparency in government leasing practices, especially in high-risk situations. To reform its leasing process, DPW will have to be innovative in adopting what is useful and appropriate from established commercial leasing practices.

17.91 DPW has introduced initiatives such as its Task Force on the Leasing Process to try to improve the delivery of leased office space to tenant departments. The Department recognizes, and our work confirms, that more can and should be done to make DPW more responsive to the accommodation requirements of its tenant departments and to streamline its leasing operations.

17.92 Given the government's objective to simplify administrative practices through initiatives such as PS 2000, this is an opportune time for DPW to address persistent, systemic problems in office accommodation planning and leasing.

17.93 For more than two decades, DPW has had to react to wide-ranging and usually critical external studies dealing with the provision of government accommodation. Indeed, the Department has evolved into a more commercial organization, in part, through a series of responses to such external pressures. Our examination led us to the conclusion that DPW needs to take a more proactive position in mapping its future in the accommodation of tenant departments.

17.94 We recommend that DPW take action to improve the planning and acquisition of leased accommodation. Among other things, the Department should address the following elements:

• the need to clarify and communicate DPW's service and control roles for the benefit of tenant departments;
• the need to complete the development of appropriate accommodation standards based on tenants' functional requirements within a reasonable time frame;
• the need to seek government resolution of the question of charging tenant departments for office accommodation;
• the need to obtain, with the co-operation of tenant departments, appropriate information about current and future requirements for office space;
• the need to prepare a long-term accommodation plan and investment strategies including, in particular, realistic property options (Crown-owned, lease-purchase, short- and long-term leases) for housing tenants departments;
• the need to develop leasing strategies for major metropolitan areas; and
• the need to improve the planning and acquisition of leased office space, including such matters as defining tenant departments' office space requirements, delivery times, tendering, meeting small space requirements, and market surveys and rental costs.

The Department is planning to introduce a number of changes to improve client relations. The Department is developing an Accommodation Control Strategy and negotiating Master Occupancy Instruments (five will be completed in 1991-92). These instruments will be used to clarify the roles and responsibilities and to formalize the accountabilities of both DPW and tenants.

For some time now, DPW has been working in close co-operation with the Bureau of Real Property Management in the Treasury Board Secretariat to update government accommodation standards. The Department is now preparing a Treasury Board submission requesting a transfer of complete authority for Chapter 120 to DPW including revisions to current salary-based accommodation standards.

We would strongly suggest that the issue of charging for accommodation has been clearly decided by both the government and DPW for the time being. It may be tempting to re-consider this decision on the sole basis of the merits of revenue dependency, but to be fair, the arguments against the proposal need to be brought forward as well, to balance these discussions.

It is quite likely that we will be revisiting this issue with the Treasury Board Secretariat in the course of continuing efforts to establish a stable basis for the financing of the real property program. Our current concern is that the major efforts under way regarding Chapter 120 could be deflected by a reconcentration of energy on revenue dependency at this time.

A two-way communication between DPW and its clients is essential to identify tenants' requirements early in the process. This process is paramount to the successful delivery of required space. Several initiatives are currently under way to help identify user requirements in sufficient detail early in the space procurement process. These initiatives include the revision of the lease tender documentation and the revision of the Standards for Leased Accommodation. The review of the lease tender document is being pursued in collaboration with the Department of Justice; the revised documentation will also ensure that global environmental issues and accessibility are integrated into the leasing process.

DPW has recently undertaken numerous initiatives to compile valid information on the long-term space requirements and strategic plans of tenant departments. The Accommodation Branch is responsible for the development of a National Investment Strategy to illustrate that real estate is an investment that can earn dividends and to develop a business plan to demonstrate the need for scarce government resources. The strategy includes acquisition by leasing for the major metropolitan areas; it will address external and internal factors affecting the Department's ability to deliver its services and identify off-budget solutions for capital requirements.

The department-wide implementation of the short-form lease tender document will be accelerated by Real Estate Services to improve delivery time for leasing small space.