Public Works resists comparisons with private-sector real estate: report - Metro US

Public Works resists comparisons with private-sector real estate: report

OTTAWA – The cost-effectiveness of Public Works projects can’t be directly compared with the private sector partly because construction firms jack up their prices when dealing with the federal government, says a new report.

“Private sector companies, who build our projects, are intimidated by our processes and controls and account for their perceived extra efforts in dealing with these through increased construction and management fees,” says an internal document.

“They also understand that during design and construction phases we will not go bankrupt and that while payments may be slow, they are essentially guaranteed, regardless of cost overruns to the initial budget.”

The disclaimer is made in a Public Works annual report card that gauges how effectively the department has managed its $7.6-billion portfolio of properties across country, mostly office space.

Since a 2007 restructuring, Public Works has tried to emulate private-sector real-estate practices to give taxpayers more value for their money.

But senior officials, who have missed some of their targets, point to a host of factors they say makes direct comparisons with private business unfair and misleading.

Officials drew up a list of at least 26 reasons why they can’t be strictly held to private-sector standards, including the requirement to adhere to federal green policies.

“Such an extensive list can reasonably be expected to have a negative cost impact when comparing the cost of public and private sector projects,” says the April 2009 document, obtained by The Canadian Press under the Access to Information Act.

The department nevertheless measured itself against a set of benchmarks established by the Building Owners and Managers Association of Canada, which represents the commercial real-estate industry.

The association carries out its own annual survey of costs, and in 2008 included 48 private-sector buildings across Canada.

The Public Works report card found that its repair-and-maintenance costs were much higher, at about $42 annually for each square metre of rental space, compared with $27 in the association survey.

And the vacancy rate of Public Works buildings hit 5.1 per cent, compared with 4.2 per cent in the association survey. The federal government has set a vacancy target of just 3.5 per cent or less.

On the other hand, overall 2008 operating expenses in the private sector shot up by about 40 per cent from the 2007 survey, mostly because of higher security, administration and leasing costs.

Operating expenses decreased slightly at Public Works, for reasons that are unclear, which meant that for the first time in three years they were lower than in the private sector.

The Public Works inventory, which includes some 231 office buildings, has an average age of about 47 years – far older than in the private sector. Many have been declared heritage properties which can make repairs and renovations more costly.

The age profile worsened in October 2007 when the federal government sold seven prime office buildings to Larco Investments Ltd. The seven properties had an average age of about 25 years.

“It should be noted that the buildings that were sold were some of the larger, younger, better-performing assets in the portfolio,” the report card notes to help explain some deterioration for the rest of the portfolio.

The government leased back the Larco buildings for 25 years, saying the savings in repair and maintenance costs made it a good deal for taxpayers.

A Public Works spokeswoman said department officials were unable to respond immediately to a request for comment. The head of the building owners association was also not available for comment.

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