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1998 April Report of the Auditor General of Canada

Main Points

7.1 The new Federal Laboratories for Human and Animal Health in Winnipeg contain some of the most advanced diagnostic, research and training facilities of their kind in the world. The facility is the first in the world to combine laboratories concerned with both human and animal diseases, and the first in Canada capable of handling the most dangerous viruses known. The facility is to be used by Health Canada and the Canadian Food Inspection Agency.

7.2 International experts involved in reviewing the design and construction of the facility have noted that it is extremely secure with regard to containment of biohazardous materials.

7.3 Despite a lengthy history of project proposals by Agriculture and Agri-Food Canada and Health Canada to construct new laboratory facilities, the Winnipeg project was undertaken without adequate analyses of existing laboratory capacity. The Winnipeg facility currently has space that exceeds its planned program needs and the amount approved by Treasury Board, and that has added to a national inventory of surplus laboratory capacity.

7.4 Health Canada and the Canadian Food Inspection Agency have informed us that they recognize the importance of ensuring that the facility is fully used, including the need to explore potential cost-recovery opportunities. To date, however, a comprehensive business plan and strategy for achieving these aims has not been developed.

7.5 In our opinion, the project is approximately 12 months behind schedule and could have been delivered for at least $5 million to $10 million less. In addition, the approved project budget of $141.8 million does not accurately reflect the project's total cost to the taxpayer, currently estimated at $176 million. The proposed project budget did not identify all project costs, as required by Treasury Board policy.

7.6 We identified several areas where Public Works and Government Services Canada can improve its practices in selecting and managing consultants on future complex projects like this one. We also noted that shared authority and accountability require careful management to mitigate risks of project delays and added costs.

7.7 As we have noted in reviewing other government projects, the current "build [up] to budget" approach, the lack of systemic incentives for seeking cost savings within approved budgets, and the absence of a departmental culture that supports such aims do not encourage the parties to identify and realize potential cost savings.

7.8 The new facility is a potential source of pride for all Canadians as it contributes to the global effort to identify and combat human and animal infectious diseases. Due to the nature of its programs, the Winnipeg laboratories will be expensive to operate and maintain. The challenge for Health Canada and the Canadian Food Inspection Agency will be to ensure that the full potential of this new facility is achieved.


7.9 Health Canada and Agriculture and Agri-Food Canada (Agriculture), the two client departments, are jointly constructing world-class laboratories in downtown Winnipeg. Public Works and Government Services Canada (Public Works) is the contracting authority and is responsible for delivering the project. Effective 1 April 1997, Agriculture's portion of the Winnipeg facility was transferred to the Canadian Food Inspection Agency (CFIA), but Agriculture continues to provide project management services to CFIA .

7.10 The new building contains some of the most advanced diagnostic, research and training facilities of their kind in use, and has been described by international experts as a benchmark example for the world. The facility is the first in the world to combine laboratories concerned with both human and animal diseases, and the first in Canada to include laboratories at "biosafety level 4", capable of handling the most dangerous viruses known. Exhibit 7.1 describes the four levels of biosafety and laboratory containment. (see photograph)

Program roles for the Winnipeg laboratories
7.11 Health Program. The mission of Health Canada's Health Program is to help Canadians maintain and improve their health. The Laboratory Centre for Disease Control (LCDC) is part of the Department's Health Protection Branch, and, through well-established Canadian public health networks, carries out disease surveillance, risk assessment and control of diseases of national and international importance and concern.

7.12 The Bureau of Microbiology is the primary component of LCDC that is scheduled to move to the new Winnipeg laboratories. The Bureau focusses on a wide range of bacterial, viral and rickettsial pathogens, including hantaviruses, hepatitis, influenza viruses and others. In addition to its new Winnipeg laboratories, the Bureau operates six national centres across the country in collaboration with provincial laboratories, each dealing with a specialized area of microbiology.

7.13 The Winnipeg laboratories are intended to facilitate the Bureau's ongoing work and enhance its ability to manage emerging disease issues, through a network of national and international public health organizations as well as universities and industry partners.

7.14 The Canadian Food Inspection Agency. CFIA delivers inspection and related services that contribute to a safe and wholesome food supply in Canada. Its work also facilitates trade in food and in animal, plant and food products, both interprovincially and internationally.

7.15 The Canadian Food Inspection Agency's National Centre for Foreign Animal Disease (NCFAD) will be located at the Winnipeg laboratories. It focusses on diagnostic testing to identify devastating foreign diseases that could threaten Canadian livestock. NCFAD laboratory personnel are responsible for making initial diagnoses and for training field veterinarians in the early recognition of exotic diseases. NCFAD is also tasked with responding to any foreign disease outbreaks, and it provides analysis and advice for the development of policy on any one of 30 or more exotic diseases that may threaten human and animal health. A 1985 study conducted by Agriculture Canada calculated that an outbreak of foot-and-mouth disease in Canada resulting in an embargo period of 1.5 years would cost the producers an estimated $2.8 billion in losses.

7.16 In summary, the key program roles of both Health Canada and the Canadian Food Inspection Agency that are to be carried out in the new Winnipeg laboratories include:

  • diagnosing human and animal diseases;
  • developing new diagnostic methods;
  • responding to acute outbreaks of diseases across Canada;
  • training federal and provincial scientists and health officials; and
  • evaluating methods for controlling and eradicating diseases.

The Winnipeg project
7.17 The new Winnipeg facility comprises approximately 28,300 square metres, including laboratories with biosafety containment levels ranging from 2 to 4. The majority of Health Canada's laboratories require level 2 containment design standards, typical of many laboratories associated with universities, pharmaceutical companies and hospitals. The majority of CFIA's laboratory space is level 3. Exhibit 7.2 provides details of the facility's space allocations.

7.18 In addition to the laboratory and office space, the facility includes a 137-person-capacity auditorium for training purposes, common areas such as the cafeteria, the library, service and storage areas, and support infrastructure.

7.19 Approximately 180 staff members are expected to work in the facility when it becomes fully operational in late 1998. A further 45 Public Works staff will operate and maintain the building. At the completion of our field work, 70 positions had not yet been staffed. Senior program officials believe that staffing these positions with the right people is a challenge that must be met to ensure program delivery.

7.20 Project management framework. The departments entered into a Memorandum of Understanding in March 1990 (subsequently revised July 1994 and January 1997), which established an independent project management framework. The framework reflects a two-tier committee structure comprising a Project Steering Committee and several operational committees.

7.21 The Project Steering Committee is responsible for the overall direction and conduct of the project. It currently comprises five assistant deputy ministers - two from Health Canada, and one each from Agriculture, the Canadian Food Inspection Agency and Public Works. The Chair alternates between the two client departments. Day-to-day management of the project is carried out through the Client Management Committee and the Project Management Committee. The Client Management Committee comprises senior officials from the program areas of the two client departments and their facilities management officials. The Project Management Committee consists mainly of the project managers and other project staff of the two client departments and is chaired by the Public Works project manager.

7.22 Project budget and schedule. The approved project budget for the Winnipeg facility is $141.8 million, funded about equally by Health Canada and Agriculture. Annual operating and maintenance costs are estimated at $9.0 million, funded on a 70 percent/30 percent split between Health Canada and Agriculture. The identified project schedule when Treasury Board granted effective project approval in August 1992 is shown in Exhibit 7.3 . Actual and projected dates are also shown. Exhibit 7.4 presents a chronology of key events leading to the approval of the Winnipeg facility project.

Focus of our audit
7.23 We examined the major aspects of the design and construction of this major Crown project from the perspective of the generally accepted phases of good project planning and implementation. Because of the nature of the work that will be carried out in the facility, we were particularly interested in assessing whether appropriate measures were taken to ensure employee and community safety. Our interest in Health Canada, Agriculture and Canadian Food Inspection Agency program issues was limited to obtaining a general understanding of the program requirements that the new laboratories were designed to meet.

7.24 Health Canada has also recently constructed new laboratory facilities at its Tunney's Pasture campus in Ottawa. The Winnipeg and Ottawa projects were initially planned and managed as one, but were subsequently separated and treated as two distinct projects. Our audit focussed on the Winnipeg project. Further details on audit objectives, criteria, scope and approach can be found at the end of the chapter in the section About the Audit.

Observations and Recommendations

7.25 While we consider all aspects of delivering a major Crown project to be important, we believe that meeting the functional and safety requirements for the Winnipeg laboratories is the most critical aspect of this project for the general public, the scientists and staff employed in the new facility and residents of the surrounding community in Winnipeg.


Appropriate measures taken to ensure employee and community safety
7.26 Biosafety is an abbreviation of "biological safety" and is concerned with the maintenance, safe handling and containment of micro-organisms that are infectious to either humans or animals or both.

7.27 We are satisfied that issues affecting employee and community safety have been of primary concern throughout the project. An extensive commissioning process has been used to ensure that all biosafety requirements are met. International experts involved in reviewing the design and construction of the facility have noted that it is extremely secure with regard to containment of biohazardous materials. In January 1996, the appropriate program and project officials prepared a document that demonstrated that the facility met, and in some cases exceeded, the laboratory biosafety guidelines issued by Health Canada and the Medical Research Council of Canada. Officials are planning to update that study, and they advise us that biosafety experts will sign off the results of all relevant commissioning tests to ensure that the constructed facility meets the appropriate standards.

7.28 Since the inception of the project, the project team has been committed to ensuring that the public has had the opportunity to comment at each major step of the project's development. A September 1997 public consultation report, commissioned by the project team, concluded that the public consultation process has resulted in a positive relationship with the community, which generally continues to be supportive of the facility.

Roles and reporting relationships need to be strengthened
7.29 Health Canada's Office of Biosafety was formed in 1980 to collect, review, store, and disseminate up-to-date information on the safe design, construction and operation of laboratories in Canada. The Office's main functions are to provide consultative services on request to microbiology laboratories in hospitals, universities, public health laboratories and research facilities. This includes assistance with problems in safety operations as well as total-facility evaluations. The Office was instrumental in developing and updating the laboratory biosafety guidelines. The Director of the Office of Biosafety now reports to the Director of the Bureau of Microbiology and, we are advised, will soon report to the Director General, LCDC.

7.30 In 1992, the Treasury Board Guide on Occupational Safety and Health was revised to encourage all microbiological laboratories of the federal government to conform to Health Canada's Laboratory Biosafety Guidelines. We note, however, that the Treasury Board guidelines do not contain any provision for monitoring compliance with the guidelines. The decision to involve the Office of Biosafety during the design, construction or operation of a laboratory facility is at the discretion of departmental managers.

7.31 The Biohazard Containment and Safety Unit of Agriculture and Agri-Food Canada was originally formed in 1993 to provide containment and biosafety services to the Animal and Plant Health Directorate. In 1997, this unit joined the Science Advisory and Management Division of the Canadian Food Inspection Agency. The Director of the Division reports to the Director General, Animal and Plant Health, who in turn reports to CFIA's Vice-President of Programs.

7.32 The Unit provides direction to CFIA staff on containment of animal pathogens and biosafety practices. It establishes standards for containment facilities handling animal pathogens and determines the appropriate containment level for each animal pathogen under CFIA control. Under an internal certification program, the Unit ensures that the CFIA facilities meet the physical requirements and operational practices outlined in the Containment Standards for Veterinary Facilities. The Unit also supports the Animal Health Division's import program by certifying all facilities in Canada wishing to import or transfer an animal pathogen.

7.33 We noted that the roles and responsibilities of the Biosafety Branch of the U.S. Centers for Disease Control and Prevention (CDC) are more formalized and that the Biosafety Branch enjoys greater independence than its Canadian counterpart, reporting to the Deputy Director of CDC. The Branch is involved at all stages of design, construction, renovation, maintenance and repair of CDC laboratories at biosafety levels 2, 3, and 4, and it formally certifies laboratories before they begin to operate. On a request basis, the Branch is also consulted concerning the safe design and operation of similar laboratories in the public and non-profit domains within and outside the U.S. A recent U.S. federal regulation requires government, university and industry laboratories working with certain infectious agents to register with CDC. We were advised that registered laboratories are periodically inspected by CDC and that the responsibility for managing the regulation rests with the Biosafety Branch.

7.34 We believe that the roles and responsibilities of the Office of Biosafety and the Biohazard Containment and Safety Unit need to be strengthened. In our view, there is a need for these specialists to systematically review all laboratories dealing with infectious agents and to formally attest that the relevant biosafety guidelines are being followed. We believe this is particularly appropriate at a time when Canada is embarking on working with the most dangerous viruses known, and has the potential for future program expansions. We also believe that the reporting relationship of the biosafety offices needs to be independent of program managers in order to minimize any real or perceived conflict of interest.

7.35 Health Canada and the Canadian Food Inspection Agency should review the roles and reporting relationships of the Office of Biosafety and the Biohazard Containment and Safety Unit respectively with a view to strengthening them and to minimizing any real or perceived conflict of interest.

Health Canada and Canadian Food Inspection Agency response: Agreed. Health Canada and the Canadian Food Inspection Agency will be reviewing the role and reporting relationship of the Office of Biosafety and the Biohazard Containment and Safety Unit, respectively, to examine the most effective way to deliver their services. Health Canada, subject to the will of Parliament and in the context of the Health Protection legislative renewal exercise, will examine the issue of the manipulation of human pathogens to determine whether additional legislative controls should be in place at the federal level.

Needs Definition and Options Analysis

Decision to construct new facilities was taken without analyzing existing capacity
7.36 Documentation of the need for new laboratory facilities for Agriculture and Agri-Food Canada dates back to 1975 (see Exhibit 7.4 ) and earlier, and for Health Canada to 1982. Various plans and projects to replace and augment existing facilities were established and then deferred or abandoned, sometimes at a significant cost to the taxpayer. The most recent example was the October 1986 cancellation of a new Animal Virus Laboratory slated to be built in Nepean, Ontario. That project was cancelled because the estimated cost had increased from around $52 million to about $93 million. By the time the project was cancelled, however, approximately $5.5 million had already been spent on plans and specifications.

7.37 The Winnipeg project was formally initiated in September 1987. The justification presented to the Treasury Board by the two client departments for new facilities, including the requirement for high-containment level 4 facilities, was based on the following rationale:

  • existing facilities were inadequate;
  • programs undertaken were limited because existing facilities could not provide the necessary containment control;
  • an outbreak of a major exotic animal disease could have major economic ramifications in terms of lost trade;
  • there had been an increase in and re-emergence of global infectious diseases; and
  • the possibility of contracting out the departmental requirements would not be a viable option.
7.38 Our audit confirmed that both departments needed to upgrade and augment existing facilities in order to carry out their mandated programs efficiently and effectively. Part of the new facilities in Winnipeg addressed a capacity and program need that could not be met in any laboratories in Canada. However, at the time the decision was made to construct the new facilities in Winnipeg, an in-depth analysis of each department's overall laboratory profile and capacity to meet current and future needs had not been conducted. It was not until April 1996 that Health Canada commissioned a study to assess the Department's current and future needs for laboratory services and facilities. The new federal laboratories in Winnipeg are considered a keystone of Health Canada's microbiological laboratory services and capacity and were not included in the study analysis.

7.39 The Health Canada study concluded, in part, that the Department was spending significant amounts of maintenance dollars on what appeared to excess laboratory capacity, and recommended that a laboratory space optimization study be carried out. Health Canada officials acknowledge that there was a tendency in the past to intentionally overbuild capacity in anticipation of future growth to manage unexpected contingencies, which often did not materialize.

7.40 Health Canada has another laboratory facility in Winnipeg. The two-storey building, completed in October 1987 at a cost of approximately $12 million, comprises a total gross area of over 5,900 square metres. We observed that the facility was being underused, and were advised by Health Canada that the excess space is due to planned overcapacity for future growth that did not materialize because of government downsizing and consolidation of programs. We also noted that the facility includes a containment laboratory that has never been commissioned or operated, or evaluated for its potential to meet part of the program needs being transferred to Winnipeg.

7.41 In July 1997, the Canadian Food Inspection Agency established a task force to assess the future level of laboratory and quarantine support service it requires. The objective is to develop options for reducing the cost of laboratories and quarantine inspection with minimal impact on service. CFIA informed us that the study had not been completed by the end of our field work, and that the scope had been enlarged to include a broader consideration of options. It is not yet clear when the study will be completed.

7.42 Health Canada and the Canadian Food Inspection Agency should include the capacity of the Winnipeg laboratories in their ongoing assessments of their national laboratory requirements.

Health Canada and Canadian Food Inspection Agency response: Agreed.

Constructed space exceeds approval and requirement, with no strategy to optimize use
7.43 In our opinion, the new Winnipeg facility can accommodate significantly more than the number of scientists and support staff planned for occupancy. We noted several facts that would indicate that the constructed net space has increased and that surplus capacity now exists.

7.44 In seeking additional project funding in May 1991, the client departments assured Treasury Board that they had reviewed their programs and eliminated all unnecessary redundancies. The total space requirements at that time were stated as 10,900 net square metres. When seeking effective project approval in August 1992, the total space requirement had grown to 12,200 net square metres, without a corresponding increase in program requirements. The constructed net space, as listed by the prime consultant in May 1996 in a marketing brochure, totalled 13,000 net square metres, representing increases of approximately 20 percent over the initial requirement and 7 percent over the revised requirement.

7.45 The project brief, dated June 1991, states that the total net area of 3,600 square metres of existing Agriculture laboratories and cubicles in Hull, Quebec would be accommodated in 2,568 square metres net space assigned to the Department in the Winnipeg facility. However, the brief notes that Health Canada's Bureau of Microbiology, currently occupying 2,500 square metres in four buildings at Tunney's Pasture in Ottawa, will be replaced by 5,610 square metres of net area in the Winnipeg facility, more than double the space. A consultant's review of the brief, commissioned by Health Canada, noted that the Winnipeg facility would provide Health Canada staff with about double the amount of space provided to their American counterparts at CDC.

7.46 In a letter to Health Canada dated October 1996, an expert from the World Health Organization serving on the Winnipeg project's Blue Ribbon Review Committee noted that the facility could probably hold two to three times the number of scientists and support staff now planned for occupancy. Furthermore, a senior CFIA program manager noted that under certain scenarios its portion of the facility could accommodate more people than currently planned for occupancy .

7.47 On a national basis and excluding the Winnipeg facility, Health Canada's total functional laboratory space utilization ranges from 27 to 86 square metres per professional scientific staff member, with a program average of 54 square metres. The Winnipeg facility has about 100 square metres per professional scientific staff member, or about double the size. It also has more than double the amount of space per staff member in the recently constructed wing of the LCDC facility in Ottawa.

7.48 Both departments have informed us that they recognize the importance of ensuring the full use of the Winnipeg facility's capacity, including the need to explore potential cost-recovery opportunities. At the end of our field work, however, a comprehensive business plan and strategy for achieving these aims had not yet been developed.

7.49 Health Canada and the Canadian Food Inspection Agency should conduct a space utilization study of the new Winnipeg facility to determine how much surplus space is available. A comprehensive business plan and strategy should be developed for the facility to ensure that its capacity is fully utilized and to explore potential cost-recovery opportunities.

Health Canada and Canadian Food Inspection Agency response: Agreed.

Inadequate analysis and implementation of options results in unproductive payment and higher costs
7.50 We noted several options for cost savings that were not implemented in a timely manner or were not adequately explored by the project team. For example, when it became apparent in 1991 that the cost of the combined Ottawa and Winnipeg projects would significantly exceed the approved budget, the project team decided to retrofit and expand an existing facility in Ottawa rather than constructing a new stand-alone facility as then proposed. It was estimated that this retrofit option would save approximately $10 million without affecting program delivery. In our opinion, the viable retrofit option should have been considered earlier in the planning process, even in the absence of a budget limitation. If this had been done, the project would have benefited from the estimated $10 million saving at the outset, and would also have avoided approximately $2 million paid in fees and expenses for abandoned work on the stand-alone option.

7.51 In 1993, one member of the project team became concerned that the project risked going over budget by approximately $15 million. He identified, and reported to a senior departmental official, several cost-saving options that he believed would not impact program delivery. The proposed cost-saving measures consisted of reducing the amount of Health Canada laboratory space, modifying some architectural features and eliminating the auditorium. The rest of the project team, however, did not share the view that the project was over budget and did not support the proposed cost-saving measures. In our view, these potential cost savings were of a nature and significance to warrant a formal review and consideration by the Project Steering Committee.

Financial Management and Control

7.52 Realistic budgets, sound cost control measures and accurate and timely reporting underpin a good financial management and control framework. For the system to work properly, budget estimates need to be reviewed rigorously and challenged by senior managers and Treasury Board officials when approving projects, to ensure that the project is sufficiently funded and to safeguard against approving funds in excess of need. The approved budget provides a yardstick against which the project's financial progress can be measured. Accurate and timely reporting of actual compared with budgeted costs allows decision makers to address any significant variance or exception. In our opinion, stronger financial management and control were needed on the Winnipeg project.

Preliminary project budget was incomplete and subsequent increases not well supported
7.53 In January 1989, Health Canada and Agriculture prepared a joint submission to Treasury Board requesting preliminary project approval to develop a project for $145 million, of which $93.9 million related to the joint Health Canada and Agriculture project in Winnipeg and $51.1 million to Health Canada's Disease Control Centre in Ottawa. The departments advised Treasury Board that the $145 million budget included resources to completely fit up both centres to provide turn-key operations. We noted, however, that Public Works believed a more realistic budget of approximately $173 million was required to deliver the project and, accordingly, did not endorse the Treasury Board submission. Public Works officials informed Treasury Board Secretariat officials of the higher cost estimate, but this information was not reported in the Treasury Board submission.

7.54 In June 1989, Treasury Board granted preliminary project approval on the condition that preparation of final design documents was not to proceed until it could be assured that projected costs would not exceed $145 million. In May 1991, after it became apparent that the project could not be delivered within the approved budget, a revised budget of $183.5 million was requested, of which $141.8 million would be for the Winnipeg facility. The departments explained that the increased costs were due to inflation, GST, contingencies, site development costs and project management and consultant costs, and attributed 50 percent of the cost increase directly to inflation and the GST .

7.55 We did an analysis of the impact on the project budget of inflation and the introduction of the GST. According to Statistics Canada data, there was actually a slight decrease in inflation (in the non-residential building construction price indexes) between 1989 and 1991. With respect to the GST, we calculated the impact (net of the Manufacturing Sales Tax) to be less than 10 percent of the cost increase. Therefore, we conclude that the combined impact of these two factors accounted for less than 10 percent of the increase and that Treasury Board was not provided with an accurate explanation for the project cost increases.

Approved project budget does not accurately reflect total project costs
7.56 In August 1992, Treasury Board approved the $141.8 million budget requested for the Winnipeg facility. We found that the precise nature and extent of activities intended to be financed by the budget were not made clear.

7.57 We were informed that the two departments adopted different philosophies in preparing their respective budgets. For example, the project budget included a total of about $10.5 million for staff relocation costs, client disbursements and equipment. Agriculture's budget included $5.8 million for equipment purchases, whereas Health Canada identified only $650,000 within the project budget and is now funding about $9.3 million internally for its equipment. Health Canada is also funding an additional $9.6 million from non-budget resources to relocate affected personnel, whereas Agriculture is funding these costs from its share of the $141.8 million project budget. We also found that the departments spent an additional $9 million from non-project funds to administer the project. Exhibit 7.5 provides a more realistic total cost to construct and operate the facility.

7.58 In our opinion, at the effective project approval stage, Treasury Board was not provided with a clear and comprehensive estimate of the project's total cost, which is currently approximately $34 million in excess of the approved budget of $141.8 million. As a result, ministers approved the project without having a realistic and complete picture of how much the facility would cost the Canadian taxpayer.

Project team philosophy of "build [up] to budget" provided no incentives for cost savings
7.59 Similar to most other major Crown projects we have examined, the project team followed a "build [up] to budget" philosophy for project development purposes. While this approach aims to ensure that the overall budget is not exceeded, it provides no incentives to pursue potential cost savings and deliver a project below budget where possible. The project team is ultimately accountable only for staying within the total Treasury Board-approved budget, regardless of whether the budget eventually proves to be in excess of need. For instance, there are many estimates for contingencies built into the approved budget that may not be required, but they are not accounted for and reported separately to ensure their cost-effective use. Design reserves, contract contingencies, inflation and risk allowances represent large pools of funds that we believe need to be approved, tracked and accounted for separately from the base budget.

7.60 Public Works officials acknowledged the reality that many projects are designed to budget. They believe that this approach should be changed, but that this will require a change in culture. Public Works is currently looking at how fees are identified and paid, and at what stages in the contract they are paid. It believes that contracts must be structured in a way that provides incentives for cost savings. The contracts for this project do not provide incentives to the consultants to reduce costs, as their fees were based on a percentage of the construction costs. We support Public Works' efforts to reform its contracting practices with a view to providing incentives for identifying potential cost savings and delivering projects below budget where possible. However, Public Works officials acknowledge that appropriate controls need to be in place to ensure that cost savings are not achieved at the expense of program delivery and do not result in increasing the total life cycle cost of the project.

7.61 The Treasury Board Secretariat should clarify the precise nature and extent of activities that approved project budgets are intended to finance. The Secretariat and departments should also stress the achievement of best value in procurement decisions and develop incentives to encourage underspending of budgets where possible.

Treasury Board Secretariat response: The Treasury Board policy regarding project approvals includes a cost objective, an estimate of the total resources to be approved by the Treasury Board and needed to implement the project. It has been and will continue to be an objective of the Treasury Board review of departmental submissions to ensure that departments have included all costs to implement the project in the budget approval sought.

The objective of the Treasury Board policy on contracting is ``to acquire goods and services and to carry out construction in a manner that enhances access, competition and fairness and results in best value, or, if appropriate, the optimal balance of overall benefits to the Crown and the Canadian people."

The Treasury Board Secretariat shall focus more on options to achieve cost savings within the overall budget when reviewing departmental submissions. For departments and agencies with capital budgets, affordability should drive their investment strategies and value for money should be ingrained into their management philosophy.

The Secretariat does not believe that an incentive regime at the project level to encourage underspending of budgets would be an effective way to achieve savings. It would be difficult to envision an incentive regime that would not have a potential downside in the absence of a much more rigorous Treasury Board approval process than presently exists. For example, the Secretariat would be concerned that an incentive to share savings would lead to increased pressure to pad cost estimates and upscale design requirements, thereby increasing the potential to come in under budget by seeming to cut costs and generate design savings.

7.62 Public Works and Government Services Canada should revise its contracting practices to provide incentives for cost savings within approved budgets but without compromising project objectives. The Department should also ensure that the design reserves, contract contingencies, and inflation and risk allowances are approved, tracked and accounted for separately from the base budget.

Public Works and Government Services Canada response: Agreed. Public Works and Government Services Canada is currently identifying ways to introduce into the overall contracting process viable and meaningful incentives for reducing costs where feasible. Public Works will develop best practices and consider the workability of formalizing the reporting of changes in design reserves and contract contingencies.

Improved reporting of budget variances is required
7.63 An internal audit of the Winnipeg facility found, and our own work confirmed, that the budget components and amounts were often reallocated within the approved budget. Moreover, we noted that actual costs were not reported in the same format as the project budget. While we recognize that budget funds need to be reallocated as more information becomes available, we believe that the source, justification and approval of these changes should be clear and well documented. For example, we noted that consultant cost increases totalling $10.2 million were financed from within the approved budget, but it is not clear which budget elements generated the savings to finance those increases.

7.64 We noted that the project management team did not use a formal forecasting methodology to estimate potential future cost increases. It believed that because of the project's unique and complex nature, formal forecasting could not be implemented as a cost-effective and reliable management tool. In our opinion, the forecasting technique used by the project team was not adequate to address variances in budget and schedule. We noted that as early as 1996, the project team was reporting to deputy ministers and ministers that the project was ahead of schedule and on budget, while in our opinion it was at serious risk of being behind schedule and going over budget.

Non-compliance with Treasury Board policies
7.65 We noted several instances where Public Works had exceeded its spending authority and Treasury Board approval was granted retroactively. In one instance, we found that in June 1996 Public Works had exceeded Treasury Board payment authority by approximately $500,000 before it realized its mistake. However, when seeking additional payment authority, the Department did not inform the Board that payments had already been made against the additional spending authority it was seeking.

7.66 We also noted a lack of project progress reporting and inadequate reporting of project costs to Treasury Board. We are concerned with the lack of semi-annual reporting on the progress of a major Crown project, as required under Treasury Board policies. Our main concern, however, is the accuracy and completeness of statements in various Treasury Board submissions, such as those justifying project cost increases; they appear to be inconsistent with our audit evidence.

7.67 The Treasury Board Secretariat should ensure that departments submit project progress reports as required by Treasury Board policies on the management of major Crown projects.

Treasury Board Secretariat response: The Treasury Board Secretariat supports this recommendation. While an earlier policy required semi-annual progress reporting, it has since been revised to require reporting at pre-defined key milestones of a project. This would result in better reporting. Ultimately, responsible departments and ministers are accountable for the work to be performed and the expected results to be achieved in a manner consistent with the policy and the Treasury Board approval. Corrections and adjustments to plans may be necessary along the way. In situations where authorities need to be adjusted, departments are responsible for pursuing corrective action and seeking necessary Treasury Board approvals.

Project Management and Control Framework

Two internal audits identified concerns about early project management practices
7.68 A private sector firm, commissioned by the two client departments, completed two internal audits of the Winnipeg project and issued reports in November 1992 and June 1996. Both reports focussed on the appropriateness of the project's management and control framework.

7.69 The first report recommended, among other things, improving budgeting practices, defining and controlling contingency reserves, and strengthening the design review process. The report also noted the lack of incentives to reduce costs below the Treasury Board-approved budget.

7.70 The second report followed up on the status of recommendations raised in the first report and noted that the majority of them had been addressed only partially or not at all. It recommended that the project team demonstrate that Health Canada's Laboratory Biosafety Guidelines had been incorporated into the design of the new facility and that the presence of the client departments' expertise on site be consistent with the importance of the construction activities to follow. The report also noted that there were no agreed, realistic construction schedule and commissioning monitoring plan, and that the construction monitoring and verification agreement was based on an unapproved construction schedule. The report reiterated the recommendation to improve budgeting, forecasting and reporting practices.

7.71 We found that management had fully addressed the recommendation to demonstrate the linkage of the design to the biosafety guidelines, and had addressed to various degrees many of the other recommendations. Some recommendations were deemed retrospective and not useful to completing the project.

Consultant selection and management practices require improvement to mitigate risks of increased costs
7.72 In December 1986, the Minister of Public Works approved a list of seven firms to submit proposals to program and design a new high-containment laboratory and office building for Health Canada in the National Capital Region. The facility would accommodate the LCDC and the Bureau of Biologics. In May 1987, proposals from all seven firms were formally evaluated by a Public Works committee and a winning proposal was selected. We were not able to review the evaluation committee's ranking of the proposals because the documentation was no longer available.

7.73 In September 1987, before the contract was formally awarded, a decision was made to move part of Health Canada's project to Winnipeg, Manitoba. It was also decided that Agriculture's requirement for a new virus laboratory, originally planned for Nepean, Ontario, would be included in the new Winnipeg facility. Some project officials believed that these decisions had significantly changed the scope of the project. They were concerned that the appointment of the original contractor, selected for a fundamentally different project, could be seen as undermining the fairness of the consultant selection process. Other officials believed that despite the change in project scope and cost, the overall intent of the new project was similar to the original project; any recall of proposals would be time-consuming and would increase costs to both the Crown and the consultants involved.

7.74 Given the nature and magnitude of the scope change, and the high risk that awarding the contract on the basis of a fundamentally different project could be seen as compromising the fairness of the consultant selection process, we believe the Project Steering Committee did not sufficiently justify the decision not to retender the commission.

7.75 For large and complex projects such as the Winnipeg project, we would have expected the consultant agreements to be tailored to take into account contractual issues specific to the project. Instead we found that, consistent with its policy at that time, Public Works used its standard departmental consultant agreement, developed for the "normal" situation of a smaller project managed by a consultant from one office with subconsultants of its choice, usually in close proximity to the prime consultants. Throughout the project there were contract disputes between Public Works and the prime consultants, and at times with subconsultants, over issues that had not been set out clearly in the consultant agreement and that resulted in additional costs. Examples included:

  • lack of definition of what constituted the approved construction cost estimate on which the consultant fees were based;
  • unclear methodology to calculate consulting fees on contingency fund items;
  • lack of definition of what constituted design errors and omissions;
  • interpretation of the clauses on travel time and consultant location; and
  • interpretation of whether certain fees were based on the contractor's unapproved shorter schedule or on the schedule set out in the contract.
7.76 Exhibit 7.5 details the estimated project costs. The cost of consulting services, including Public Works fees and departments' administration costs, totalled $38.8 million. We believe that these costs are high, as they represent about 38 percent of construction costs or 31 percent of the combined construction and equipment costs. Project officials agree that the costs are higher than expected and attribute the increase to several factors. Programming and construction delays required more on-site personnel for longer periods than planned. Extensive travel was required by a great many consultants and project staff, from offices in six cities across the country. The decision by Health Canada to hire separate consultants to review the work of the prime consultants also added significantly to the costs of consulting services.

7.77 In our view, several million dollars could have been saved by:

  • locating full-time project staff in Winnipeg;
  • eliminating the need to hire additional consultants to review the work of the prime consultants; and
  • strengthening contractual agreements to take into account contractual issues specific to the project.
7.78 Public Works and Government Services Canada should ensure that consultant contracts are tailored to the specific project, and should improve its monitoring of contractor performance.

Public Works and Government Services Canada response: Since 1993, PWGSC has adopted a new standard by substantially revising the consultant's contract form in consultation and co-operation with professional associations. These contracts are tailored to different types of work, consistent with professional standards, while allowing the flexibility to individualize the scope of the work to adapt to the specifics of the project. PWGSC continues to review the standard consultant agreement to allow further tailoring to specific project circumstances.

Project governance, team "chemistry" and turnover rates adversely affected project delivery
7.79 A key ingredient for success is the establishment of a focal point for leadership with appropriate authority and accountability, at the beginning and throughout a project. Multi-department projects require participants to accept that they are a team working for the achievement of overall government objectives. Trust and respect for individual roles and responsibilities are necessary for team building.

7.80 We found that the management and control framework and practices contributed, in part, to the project team's inability to prevent or to resolve more effectively some of the problems experienced on the project, including cost overruns and construction delays. The decision-making process was made more difficult and complex on this project because there were two client departments whose program requirements and preferred options frequently did not coincide. This often led to negotiation and debate before agreement to proceed was reached.

7.81 We noted several instances where the client departments had difficulty agreeing on how best to resolve problems; in the early stages, lack of teamwork among project staff was the pervasive working environment. Exhibit 7.6 provides one example of difficulties encountered in reaching consensus, in this case deciding on the most appropriate autoclave (sterilizer) unit. We also noted, however, that teamwork and co-operation improved significantly from mid-1995, when Health Canada reorganized its project management staff and approach.

7.82 The prime consultants noted that there were divergent viewpoints among the client departments and Public Works on matters of project scope, design and operations. In our view, the project began without a sense of commitment by all parties, which often manifested itself in disagreements and lack of teamwork.

7.83 Although Public Works is the contracting authority responsible for delivering the project, Health Canada felt the need to spend $1.6 million on a separate consultant to review the project brief, design documents and contemplated change notices. The situation frustrated Agriculture, Public Works and the prime consultants because it slowed progress and created an atmosphere of second-guessing matters for which the separate consultant was not ultimately responsible. We were informed that very few of the recommendations from the separate consultant had been implemented in the project.

7.84 The Project Steering Committee was responsible for the overall direction and conduct of the project. At the outset, it comprised three assistant deputy ministers, one from each of Health Canada, Agriculture and Public Works. In July 1995, the Committee was enlarged to five assistant deputy ministers, two from Health Canada and one each from Agriculture, the Canadian Food Inspection Agency and Public Works, to better reflect facility management issues. We noted that, over the life of the project, 13 different members have served on the Committee for terms of two to three years each. In our view, the high turnover rate and the need to make decisions by consensus diffused project accountability. We believe that this lack of continuity and accountability in the management and control framework contributed at least in part to the inadequate defining of project cost and construction schedule, and to the number and large dollar values of claims on this project.

7.85 In future projects with more than one client department, the Treasury Board Secretariat should ensure that a single authority is established as the lead authority to represent the interests of all client departments and to be held accountable for the project results, as intended in the Treasury Board policies for managing capital projects.

Treasury Board Secretariat response: The Treasury Board policy intends that a single authority be established for management and accountability purposes. Complex organization structures and joint ventures may require steering committees to ensure that the interest of multiple parties are considered during the conduct of large projects. In these situations, dispute mechanisms may be put in place to assist in the resolution of disputes and facilitate the efficient and effective conduct of the project by the lead authority.

Health Canada, Agriculture and Agri-Food Canada, Public Works and Government Services Canada and Canadian Food Inspection Agency response: It is the view of the three departments and Agency that Canadians can be proud of this world-class facility, which reinforces Canada's established reputation as a leader in science and will put Canada at the forefront of human and animal health. The project management team successfully responded to the significant challenges of managing a highly complex and unique project over a ten-year period that included the planning and solution required to accommodate three building code upgrades; the need to satisfy all levels of government approvals; adapting to not only staff turnover but significant organizational changes at the departmental level; evolving programs; and rapid advances in technology.

Better management of change orders would have reduced costs to the Crown
7.86 As with any complex project, adjustments were made to the plans, specifications and contracts in place. These changes were implemented through the mechanism of contemplated change notices and change orders; an approved change notice becomes a change order. Work carried out through change orders is usually more expensive because it is not subject to competitive bidding, and it generates significant administrative markups when multiple suppliers are involved. Contract changes also increase the risk that additional costs will be incurred in the form of delay claims.

7.87 We noted that change orders were funded from two sources, a contingency fund of $7.2 million and a cash allowance of $12.2 million. The cash allowance formed part of the general contractor's contract and was intended to purchase certain items that were known to be required but for which actual detailed requirements could not be determined prior to the contract award, such as laboratory casework and equipment and controls. Thirty-one change orders totalling $10.5 million were issued against the cash allowance. For contract changes financed from the contingency fund, 926 change notices were raised, of which 677 were issued as change orders, costing $7.6 million; 179 were cancelled and 70 remain to be resolved.

7.88 We found that change orders were generally well administered; they were well documented, logged and controlled and the performance of the work was verified prior to payment. However, many of the change orders were poorly managed. Many of the contemplated change notices took a long time to be approved as change orders; several took over 10 months and two took 22 months to resolve. In some instances, we noted that changes in the specifications contributed to the delay in approving the contract changes and resulted in added costs. In many other cases, delays were due to the large difference between the price estimated by the prime consultants and the price quoted by the general contractor, differences that in our sample averaged 330 percent with two cases over 2300 percent.

7.89 Delays and changes also led to unproductive payments. In one case, delays in obtaining client approvals resulted in "bioseal" doors costing $148,000 more than originally quoted. In another case, disagreements between the clients over whether some autoclave units needed to be modified resulted in $71,000 in additional costs to store and modify units already in production.

7.90 The classification of changes as "errors and omissions" has been problematic for Public Works on many projects. The standard Public Works consultant agreement states that "the Consultant shall not be entitled to payment in respect of costs incurred by the Consultant in remedying errors and omissions in the services that are attributable to the Consultant, the Consultant's servants or agents, or persons for whom the Consultant had assumed responsibility in performing the Services." The agreement, however, does not provide a definition of "errors and omissions". Public Works has taken the approach that errors and omissions apply to any change notice or change order issued to correct a problem that stems from the lack of co-ordination between the architectural and engineering disciplines during the development of the plans and specifications; or to incomplete details or unworkable details. In such cases, no fees are paid.

7.91 The prime consultants claim that they have never accepted Public Works' designation of "errors and omissions" and believe that a fairer designation would be "design continuation"; they are claiming approximately $400,000 in additional compensation. They argue that no sets of plans and specifications are perfect and it is unreasonable to expect them to produce error-free documentation for any project, particularly large projects on the scale of the Winnipeg laboratories.

7.92 In our opinion, there was a need to resolve major disagreements over what constitutes an error or omission instead of allowing them to continue throughout the project, since the Crown's leverage with the consultants normally diminishes as the project progresses.

7.93 In consultation with architectural and engineering associations, Public Works and Government Services Canada should clearly define what constitutes design errors and omissions, assign responsibilities for each, and incorporate the definition and responsibilities in project contracts.

Public Works and Government Services Canada response: Agreed.

Equipment requirements and costs poorly supported and purchases made in advance and in excess of need
7.94 Capital equipment is an integral part of the operations that will be carried out in the new Winnipeg laboratories. In the project approval documents, the departments estimated the cost of equipment purchases at approximately $23 million, but the project budget identified only $18.5 million. The remaining $4.5 million was identified by Health Canada as money that will be required when operations begin in Winnipeg and existing equipment has reached the end of its economic life. At the end of our field work, the departments had acquired equipment for the Winnipeg facility costing approximately $25.2 million.

7.95 We were informed that all requests for equipment were reviewed and challenged to ensure that only needed equipment was purchased. However, the departments were unable to provide us with documentation or analysis to support their initial estimates of equipment requirements. We found that Agriculture had overestimated its equipment budget by about $1.7 million, intending to use the excess as a project contingency. It is not clear why Health Canada did not include its total equipment requirements in the project budget. We noted, however, that the total value of equipment purchased by Health Canada is now over double the amount planned. We therefore conclude that the Department did not adequately plan and budget its equipment requirements.

7.96 We noted several instances of purchases made in excess of need and in advance of need, totalling over $2 million. Exhibit 7.7 provides an example of equipment purchased in excess of need. We also noted that between January 1996 and March 1997, Health Canada purchased equipment totalling $1.9 million that is currently being stored in Ottawa and Winnipeg.


Commissioning was generally well managed, but scheduling created problems and added costs to the Crown
7.97 Commissioning is a sequential method of testing and validating results against expected performance criteria for all building components and equipment, systems and integrated systems. The commissioning process involved a three-tiered review by on-site personnel (Tier 1), independent technical and regulatory experts (Tier 2), and a committee of international experts in human and animal health (Tier 3).

7.98 The budget for the construction monitoring and verification program was $5.3 million. It was based on the general contractor's May 1994 proposed construction schedule that identified 30 June 1996 as the interim acceptance date. The actual total cost of the program to date is not known, because separate accounts were not established to capture and report these costs in the same way as they were budgeted.

7.99 At the end of our field work, integrated systems tests had been completed for the majority of the Canadian Food Inspection Agency's portion of the facility, with satisfactory results . Management has informed us that subsequent to our field work it expects to complete all commissioning by April 1998.

7.100 We noted that the Public Works commissioning team has been involved in all aspects of test validation and system acceptance. The team has gained first-hand experience working with the systems and received technical support and training from the prime consultants and the general contractor. Many of the team members are now responsible for operating and maintaining the facility.

7.101 Management has informed us that all staff will be trained in laboratory procedures and the safe handling of organisms and equipment before work begins in the laboratories. Once the laboratories are operating, the facility's safety and environmental services office will be responsible for monitoring programs, staff procedures and laboratory maintenance to ensure that all safety requirements continue to be met.

7.102 Overall, we found that the commissioning program was generally well managed. We noted, however, that the decision to schedule the commissioning program on the basis of an unapproved construction schedule created inefficiencies, as tests had to be postponed and rescheduled, and resulted in the transfer of contractor responsibilities and costs to the Crown.


A successful, complex project, but stronger management practices would have reduced costs to the Crown
7.103 We conclude that this unique laboratory facility meets, and in some cases exceeds, the client departments' stated requirements. Health Canada and Canadian Food Inspection Agency officials have expressed a high level of satisfaction with the facility. They believe that once fully staffed, the facility will enable them to carry out their mandated programs safely and to be at the forefront of human and animal disease research.

7.104 Capital projects commit the Crown to large one-time capital expenditures and often to even greater ongoing operating and maintenance costs over the life of the asset. It is crucial that departments provide Treasury Board with the best possible estimate of total project costs before a project becomes irrevocably committed. It is equally important that the Treasury Board approval of projects indicate what is being approved clearly enough that senior management can be held accountable for project results. In this project, we noted weaknesses in both these areas.

7.105 We noted a number of instances in which Treasury Board policies and approvals were not respected, and in which the project was not implemented with due regard to economy and efficiency. Information provided to Treasury Board for approving and monitoring this major Crown project fell short of that required in Treasury Board policies. The project was initiated without a proper needs and options analysis. The organizational framework and decision-making processes to manage this complex project contributed to costly delays and a turbulent project management environment. In our opinion, these factors led to diseconomies totalling from at least $5 million to $10 million.

Achieving full potential from this expensive world-class facility remains a challenge
7.106 At the end of our field work, many key scientific staff positions had yet to be filled. In addition, the client departments will be operating in a new area as they begin training their professional staff in level 4 laboratory procedures, a first-time experience in Canada. Furthermore, the testing of all systems and integrated systems must be completed successfully as part of the commissioning phase before the laboratories can be made operational, or "go hot". Any serious delays in achieving these milestone events would constitute a major setback for the departments, requiring the continued operation of parallel facilities in the National Capital Region to ensure program response capability.

7.107 The client departments will also need to address the issue of optimizing the use of the facility's laboratory space, which currently exceeds planned occupancy, including considering cost-recovery opportunities.

7.108 This is the first facility in the world to combine laboratories concerned with both human and animal diseases. The facility should provide increased potential for scientific solutions by having health and animal specialists working in partnership in a single facility. The co-location of the two functions has probably also resulted in cost savings over the construction of two separate facilities.

7.109 Once the laboratories are fully functioning, however, potential program issues may present a challenge. While there should be opportunities for synergy and co-operation between the departments, the competing functional priorities that gave rise to difficulties during the design and construction of the facility may serve to limit the achievement of these benefits. We will continue to monitor the efforts of senior management to ensure that in operation, these new facilities achieve their full potential.

About the Audit


The objectives of the audit were to determine whether the constructed laboratory facility meets the client departments' stated requirements and the Treasury Board policies and approvals for the project, and whether the project was implemented with due regard to economy and efficiency.


We examined the major aspects of the design and construction of this major Crown project from the perspective of the generally accepted phases of good project planning and implementation. Specifically, we reviewed the needs definition and statement of requirements, options analysis, project definition and approval, design and contracting, construction and commissioning phases. The commissioning phase had not been completed by the end of our field work.

Our audit was not designed to conclude on whether the Winnipeg laboratories are safe but rather on the extent to which the project team could demonstrate that they are, and that the Health Canada Laboratory Biosafety Guidelines were fully addressed in the design and construction of the facility. This includes the establishment of a formalized process for the review and sign-off of biosafety issues by the appropriate competent authorities. We also reviewed the roles and responsibilities of Health Canada's Office of Biosafety and Agriculture and Agri-Food's Biohazard Containment and Safety Unit.


Our audit criteria were derived from the established methodologies of this Office for auditing capital asset projects and from the Treasury Board policies for managing major Crown projects. Health Canada's Laboratory Biosafety Guidelines and Agriculture and Agri-Food Canada's Containment Standards for Veterinary Facilities provided the criteria for assessing biosafety issues.


We interviewed most of the key departmental program and project officials and reviewed relevant project files and documents. Our field work included site visits to the new Winnipeg laboratories, Health Canada's existing facilities in Ottawa and Winnipeg, Agriculture's/the Canadian Food Inspection Agency's existing laboratories in the National Capital Region, and visits to the U.S. Centres for Disease Control and Prevention in Atlanta, Georgia and the U.S. Department of Agriculture Foreign Animal Disease Diagnostic Laboratory at Plum Island, New York.

Audit Team

Assistant Auditor General: Shahid Minto
Principal: Reno Cyr
Director: Joe Martire

Bernard Battistin
Rosemary Marenger

For information, please contact Reno Cyr.