3.11 Real Estate Services

Chapter 3 Ministry of Infrastructure Section 3.11 Real Estate Services About 9% of government properties, based on 1.0 Summary rentable square feet as of March 31, 2017, were procured through the Alternative Financing and Procurement (AFP) model developed by Infrastruc- The Ontario Infrastructure and Lands Corporation ture Ontario about 10 years ago. Under the AFP (Infrastructure Ontario) is a Crown agency under model, construction of a project is financed and car- the Ministry of Infrastructure (Ministry). One ried out by the private sector, and, in some cases, of Infrastructure Ontario’s responsibilities is to the private-sector company is also responsible for manage a large and diverse portfolio of real estate maintaining the asset over a 30-year contract. A owned and leased by Ontario Government minis- number of hospitals are maintained through AFP tries and some agencies (government properties). agreements, and, while Infrastructure Ontario is Infrastructure Ontario is responsible for help- not directly involved in managing hospitals’ AFP Chapter 3 • VFM Section 3.11 ing its client ministries and agencies find space agreements, it offers guidance to the hospitals by either matching their needs to available space when requested. in government properties or leasing other space Our audit determined that Infrastructure within the private sector. It is also responsible for Ontario’s management of government proper- managing these properties, including the costs of ties was impacted in part by weaknesses in the cleaning, repairs and maintenance, security, util- Enterprise Realty Service Agreement (Agreement) ities, property taxes, and, for government-owned between Infrastructure Ontario and the Ministry land and buildings, their sale or demolition. Infra- of Infrastructure. The Agreement does not set out structure Ontario has an external property and land any mandatory, minimum standard of perform- manager, which is a real estate services company, ance for managing the costs of capital projects. that provides all the operating and maintenance It also does not set out timelines for meeting the work for Infrastructure Ontario’s client ministries accommodation standard for office space designed and agencies. Further, Infrastructure Ontario is to ensure that existing government properties are responsible for overseeing capital projects, namely used efficiently, and timelines for maintaining the construction, rehabilitation and renovation of the state of government-owned properties to the government properties. In 2014, it contracted with Agreement’s standard. two external project managers to oversee its capital These areas are interdependent because not projects, which includes overseeing general con- ensuring that costs are reasonable has led to fewer tractors selected through competitive processes. 570 Real Estate Services 571 resources being available to maintain aging govern- does not obtain enough information from its ment properties. Deferred maintenance of build- external project managers to assess whether ings has more than doubled from $420 million as procurements are done in a competitive of March 31, 2012, to $862 million as of March 31, and fair manner. Specifically, Infrastructure 2017. Over the last six years, the condition of gov- Ontario does not track how many vendors ernment properties has deteriorated from excellent bid on capital projects and which vendors to almost a poor level of condition as measured by are winning the bids. Vendors are normally the industry standard. selected through a vendor-rotation process Our audit found significant opportunities for operated by an electronic bidding service that savings, for example by: invites vendors of record to bid on projects • reducing the square footage in government in a fair manner. However, since 2013/14, office space to meet the 2012 Office Accom- Infrastructure Ontario has allowed its exter- modation Standard of 180 rentable square nal project managers to select vendors from feet per person; its vendor-of-record list and manually add • more effectively disposing of vacant buildings them to the list of bidders. We identified 321 that were incurring carrying costs; and projects worth nearly $49 million between • revising future AFP agreements to better 2013/14 and 2016/17 awarded to companies support hospitals in obtaining cost-effective that were manually added to the list of bid- maintenance agreements. ders by the external project managers. Pertaining to capital projects, our audit found: • Infrastructure Ontario is using preliminary • The design of a Request for Proposals estimates to prioritize which capital pro- (RFP) approach attracted few bids for the jects to do. Infrastructure Ontario informed management of 7,500 capital projects—In us that the initial cost estimates derived from 2014, the structure of Infrastructure Ontario’s its asset management system are limited as public RFP to select external project man- they do not factor in the additional costs that Chapter 3 • Section 3.11 agers for the management services of capital might be incurred to address actual site condi- projects worth $900 million over five years tions. The engineering firm that we contracted did not attract the interest of a broad range with to advise us also agreed with this assess- of companies. Due to the structure of the ment. Infrastructure Ontario uses these initial RFP—which divided the province into two cost estimates for prioritizing which projects areas—only three bids were received, all to do for the current year and the next two from large companies. Of the two companies years based on the estimated cost of the pro- Infrastructure Ontario chose to procure servi- jects and the funding that is available. Since ces from, one project management company subsequent estimates and the actual cost of had performed poorly in its previous con- the projects tend to be significantly higher tract between 2011 and 2014. For example, than the initial cost estimates, Infrastructure it received low scores on Infrastructure Ontario is not prioritizing projects based on Ontario’s client satisfaction survey over those complete cost estimates. This could increase years, and failed to meet key performance the risk of selecting projects that do not yield measures for staying on budget and complet- the highest cost-benefit. ing projects on time. • Minimal incentive exists for external • Better oversight of external project man- project managers to manage costs—Total agers’ procurement methods for capital management fees of $56.5 million were projects is needed—Infrastructure Ontario paid between 2011/12 and 2015/16 to three 572 external project managers; of that, only Ministry, it has led to a further deterioration 0.5% was for delivering projects on budget. of government-owned buildings. Moreover, external project managers receive Pertaining to operating and maintenance ser- a smaller amount of performance pay (and vices, our concerns are as follows: therefore are financially penalized) if they • Infrastructure Ontario provides insufficient underspend by more than 5% of the total information on operating and maintenance amount Infrastructure Ontario allocates for services to its client ministries and agen- projects to be spent by March 31, the end of cies—Infrastructure Ontario’s external prop- the fiscal year, because funding cannot be erty and land manager is required to arrange carried forward to the next fiscal year. operating and maintenance services for Infra- • External project managers do not have structure Ontario’s client ministries and agen- an incentive to complete projects on cies, which then pay Infrastructure Ontario time—External project managers are not held for the services. However, invoices received accountable for meeting the original comple- by client ministries did not provide sufficient tion dates, and Infrastructure Ontario does information on the volume and types of servi- not track these dates. Our review of a sample ces they were paying for. Ministries informed of capital projects completed between April us that they could not determine whether they 2013 and March 2017 indicated that these were receiving the services paid for because capital projects, which cost $76 million, were they were not provided with building-specific completed on average about 330 days later information on what services they were sup- than originally scheduled. For example, one of posed to be receiving. the client ministries informed us that its cap- • Office space per person exceeds the Min- ital project had been delayed due to the exter- istry standard—Over $170 million in office nal project manager not having sufficient staff accommodation costs could be saved annually to oversee projects. External project managers if effective steps are taken to reduce the space Chapter 3 • VFM Section 3.11 can revise project completion dates while the occupied per government staff person to project is ongoing, and Infrastructure Ontario comply with the 2012 Office Accommodation does not always ensure the change is for Standard of 180 rental square feet per person valid reasons. set by the Ministry of Infrastructure. Neither • Capital repair funds used to fund operating the Ministry nor Infrastructure Ontario has set costs for managing government proper- a goal for when this standard should be met. ties—Infrastructure Ontario collects base • Almost $19 million spent in one year on rent from client ministries and their agen- operating and maintaining 812 vacant cies that, according to its guidelines,

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