8.11 The Osbaldeston Report recommended, "An immediate solution to the CSIS accommodation problem must be found, bringing all headquarters functions together in a building that can be adapted to meet the needs of CSIS, both human and technological."
8.12 In 1987, CSIS headquarters was occupying eight separate facilities at six locations scattered throughout the National Capital Region. In addition, its Ottawa Regional Office was located in two separate facilities.
8.13 Compounding the accommodation problem was the need for expanded computer facilities. The CSIS computer centre had been co-located with that of the RCMP. The CSIS electronic data processing requirements were growing and more space was needed, which was not available in that location. The RCMP also wanted to expand its computer operations and needed the space that CSIS was occupying.
8.14 The Treasury Board's approval of the project was based on the understanding that the site and building would be designed to provide sufficient flexibility to accommodate growth for the foreseeable future.
8.15 Cabinet approved the construction of a new headquarters complex for CSIS in September 1988. (See Exhibit 8.1 for the chronology of key project events.)
8.16 CSIS plans in 1989 called for building the national headquarters complex in two phases. Phase I comprised the computing centre and utilities building, targeted for completion in August 1991. Phase II comprised the balance of the complex, to be completed in July 1994.
8.17 In December 1989, the government-imposed construction freeze delayed the start of Phase II. However, as Phase I was already started and considered necessary to maintain essential services, the freeze did not affect it. Subsequent approval was given to start Phase II foundations in November 1991. As a result of the early start of Phase II (five months before the construction freeze expired), the Treasury Board pulled back $1.5 million of inflation allowance.
8.18 During construction of the national headquarters facility, CSIS was subject to the same budget cutbacks experienced by all government departments. The cutbacks resulted in a significant reduction in CSIS headquarters staffing levels, creating unforeseen surplus office space in the new facility. CSIS responded by relocating its Ottawa Regional Office operations into the facility, and adjusting the project scope for special regional needs.
8.19 The building was completed in February 1995, with a gross area of 64,293 square metres and a total project cost of approximately $153.5 million.
8.22 CSIS required that the concepts used in the design of the complex reflect the need for modularity, flexibility and expandability. Due to the restrictions imposed on the exterior of the building for such essential items as windows, CSIS stated that the complex could incorporate one or more internal courts or atria.
8.23 A requirement of the design was to build flexibility into all space to accommodate organizational changes. An important element in the flexibility requirement was the need to provide for secure data communication services at every work station in the office areas.
8.24 Although CSIS stated that the building should be of a quality similar to that of any national headquarters, security and functionality were its prime objectives for this project. Also specifically mentioned was the requirement to deliver the project on time and within scope and budget.
8.28 The unit costs for this building are higher than those for typical office buildings, because of the need for specialized facilities such as wet and dry labs, workshops, and special security requirements and considerations that created extra procedures and costs during the construction phase. In our opinion, however, the unit costs for this project were appropriate. (See Exhibit 8.3 for space allocation.)
8.30 The security design is integral to the building and has been part of the overall design from the beginning. This approach has minimized the cost of installing additional special security measures. The security system can operate at different levels. Should a situation develop where CSIS would require heightened security, overall or in any part of the building, the system can accommodate such changes. It has also been designed to incorporate new technology easily.
8.31 In our opinion, the nature of the isolated site on which this facility is situated is a key security factor in the design. The site uses physical space surrounding the building as a protective buffer. It is therefore imperative that CSIS ensure the integrity of this "island" site. Should adjacent lands be developed, some of the design precepts would be rendered invalid.
8.33 A project is initially defined in terms of its scope, including program space, schedule, and budget. Program space is a value based on the user's statement of requirements, and may be considered the minimum amount of space required for an organization to meet its operational needs. Once approved by the Treasury Board, program space becomes a control point against which performance is measured. For the completed national headquarters building, the program space is consistent with the 38,410 square metres approved by the Treasury Board.
8.35 We noted that the constructed gross area exceeds the originally estimated requirement by over 13,000 square metres. As early as February 1992, the progress reports to the Treasury Board Secretariat were showing a constructed gross area of 64,300 square metres, and we were advised that the final constructed gross area is 64,293 square metres. Part of the increase in the gross area can be accounted for by the unfinished fifth floor (for future expansion) and the Ottawa Region space, both of which were approved after the preliminary project approval. In addition, the original gross area was estimated before the design had been started. However, despite being made aware of this 26 percent increase in gross area, we saw no indication that Treasury Board officials communicated concern to the project leader.
8.36 It is also important to note that the increase of over 13,000 square metres in gross area was accomplished with no increase in the project budget. This major change in the gross area, with no corresponding change in the budget, raises concerns about how project budgets are calculated, since the amount of area built relates directly to the total cost. When such changes are proposed, the assumptions used in estimating the budget should be verified.
8.38 The Treasury Board Secretariat should review the assumptions used by departments in developing project budgets and the current mechanisms for controlling and monitoring the scope in proposed construction projects.
8.40 During February 1989, the initial user program space requirements were subjected to a rigorous analysis by the CSIS project team, using a challenge-review process. This resulted in significantly reduced program space. CSIS stated to the Treasury Board that, as a result of this analysis, the user program space incorporates only those needs that are the minimum acceptable for operational purposes while still adhering to the project objectives.
8.41 The analysis also determined that the reception/dining room, located next to the corporate boardroom, could be eliminated. Despite this recommendation, the reception/dining room space was constructed. Although we did not see a justification of the need for this space as part of the analysis, CSIS has stated that it needed the reception/dining room for entertaining visitors privately.
8.42 The building's design incorporates flexibility for future change. For example, the infrastructure for data and electrical services in each workspace has been designed to allow for future growth. Furthermore, the building's systems have been constructed to be adaptable in a changing technological environment.
8.43 Our audit also assessed whether the facility exceeds user requirements. We concluded that in most cases it does not. We noted that the project team reviewed all requirements for reasonableness and functionality. The design was frozen and changes to user requirements were not allowed after a specified time (an exception is the redesign of the executive suite, which is discussed under "Contracting Process").
8.44 Since the start of construction, CSIS has been subject to government budget cuts and staff reductions. Despite the subsequent relocation of the Ottawa Regional Office activities into the national headquarters facility to utilize some of the excess space created by staff reductions, there remains some underutilized office space. CSIS has advised other agencies that it might have space available. We encourage this action.
8.45 CSIS should conduct a space utilization study to determine how much surplus space is available, and continue to examine alternatives for its efficient use without compromising its security requirements.
8.47 We determined that the contracts and change orders were administered in compliance with the government contracting regulations, and with policies and procedures set out for the project. The changes were justified, based on functional requirements, and generally represented due regard to economy.
CSIS comments: In reference to item 8.48, CSIS remains convinced that the revisions to the sixth floor represent good value. The executive offices are much more accessible in the current arrangement and additional functions were introduced.
8.50 The consultant's contract was between Public Works and the architectural firm. Public Works selected the architects using its established evaluation method. Because of the selection method (carried out by a committee) and the lack of documents on file, we are unable to comment on the suitability or fairness of the process. However, we did note the project team's high degree of satisfaction with the architects' work. Proposed base fees were only a minor factor in the selection process and were not negotiated. Public Works informed us that professional fees are now negotiated.
8.51 The preliminary project approval submission estimated that fees and expenses paid to Public Works would be approximately $3.18 million; instead, they were $8.07 million. The increase was explained as being due to the inclusion of seconded staff, the delay caused by the construction freeze, and greater than anticipated project complexity.
8.52 Despite our extensive discussions with officials, it remains unclear to us why the fees were so much higher than original estimates, particularly when other costs were lower than expected. In our opinion, insufficient control was exercised in the management of fees. Had the construction contracts come in at the anticipated amounts, the project could not have incurred these additional expenses without exceeding its budget.
8.55 Site supervision is classified as an additional service and is extra to the basic fee. The contract wording is vague and provides no basis for estimating actual site supervision requirements, especially since "adequate sampling basis" and "general conformity" are not defined. As a result, inadequate provision was made for this function and site supervision costs had to be increased from $1.35 million to $2.32 million.
8.56 We also noted that the Request for Proposal, sent to the architects for the selection process and containing the terms and conditions of engagement, is not referenced in the contract and does not form part of the contract. As an example, clauses for travel expenses shown in the Request for Proposal had limitations and restrictions that were not reflected in the signed contract. Furthermore, we noted that relocation expenses for the consultant were paid. Such payment was not authorized in the contract.
8.57 Public Works and Government Services Canada should ensure that consultant contracts are tailored to the specific project.
8.58 Public Works and Government Services Canada should review all fee payments to determine that they were authorized and appropriate.
8.61 The site was acquired in two stages. The original 12.15 hectare (30 acre) site was given to CSIS by another government agency. In return, CSIS paid $300,000 to cover the costs of relocating a microwave tower. Original estimates for this work were $150,000. We were not able to determine if the increase in costs was justified, particularly since the new tower has yet to be constructed.
8.62 Land adjacent to and surrounding the original site was subsequently declared surplus by the other government agency and acquired by CSIS. CSIS was interested in the land to add to and protect the security perimeter around the national headquarters building. Although the Treasury Board submission stated that there would be no financial consideration involved in the land transfer, we noted that CSIS was required to pay an additional $250,000 toward the removal of the tower.
8.64 CSIS argued that, at the time of the transfer of the original parcel of land, the second parcel was under the control of the government. However, once the second parcel was declared surplus, it could be sold. This raised the possibility of construction adjacent to the national headquarters and thus a compromise of the security afforded by the island site. The Treasury Board agreed with CSIS and the transfer of the second land parcel took place. It is not clear why the transfer took so long or what benefit the taxpayer derived from this process.
8.65 The Treasury Board Secretariat should review the transactions relating to the acquisition of the land required for the CSIS headquarters project to determine if they are in compliance with the granted approvals and if there are means to streamline such transactions.
8.67 Public Works defines its role as conducting a peer review of the design. This review is carried out as part of its responsibility as contracting authority with the design consultant.
8.68 The National Capital Commission's role, as defined by its Act, requires the Commission to approve all federal construction in the National Capital region, in terms of the exterior and landscaping elements. In this project, the Commission feels strongly that the approval process positively influenced the design to ensure that it made an appropriate contribution to the Capital. Furthermore, the Commission informs us that it has learned from the experience with the CSIS building and has increased co-ordination and co-operation on many subsequent projects. The Commission also states that since 1990 it has further streamlined its design review process.
8.69 We noted the frustrations experienced by the project team with this review process. There was a general feeling that the process was onerous, and could potentially have resulted in extensive delays with marginal benefits to the project.
8.70 Based on our examination, we noted a significant variance of opinion on the efficiency of the review process. As a result, we will examine the review process in our future audits of major Crown projects.
8.72 Although value management studies are a form of life-cycle costing analysis, full life-cycle costing analyses, as stipulated in the Treasury Board policy for major Crown projects, were not done. Furthermore, in the post-mortem of the value management studies, it was noted that the exercise would have been more effective if life-cycle cost data had been available. The project team stated that, in its opinion, life-cycle costing is not as useful as value management.
8.73 In our experience, life-cycle costing (with the exception of the Department of National Defence) is not done in major capital construction projects . We believe that some form of analysis of the design and major systems should be carried out to ensure best value.
8.74 While we support the concept of project and design review, the Treasury Board Secretariat should examine the use of value management studies versus life-cycle costing studies.
8.76 For this project, CSIS was operating under the approval of a total budget and felt that what it did was within the authority granted. We concur; however, we believe this situation exemplifies the need to clarify what the approval limits really mean. Our audit identified examples of opportunities where, although no authorities or budgets were exceeded, additional funds could have been saved on this project (see paragraph 8.27).
8.78 The actual rate of inflation over the life of the project was much lower than that assumed in preparing the initial project budget. Consequently, the $23 million inflation allowance provided for in the budget was higher than needed. Based on the actual rate of inflation for the period 1989 to 1995, we estimate that the inflation allowance was approximately $10 million to $12 million higher than needed.
8.79 The Treasury Board effectively signalled the notion that the inflation allowance is an "as required" cost element in the project budget, when it recovered $1.5 million from the budget in 1991 because the project was able to begin sooner than anticipated.
8.80 The inflation allowance provided a "cushion" in the budget, and this cushion, in addition to the standard contingency allowances of approximately 10 percent, gave managers an extra degree of flexibility. However, certain elements of the project, particularly consultant fees, were significantly higher than budgeted, and consumed most of the unspent inflation allowance. In some cases, this financial flexibility was used to enhance the functionality of the building, such as the addition of the unfinished fifth floor south and the addition of a conference centre.
8.81 We are not implying that there was no budgetary discipline. For the most part, the project budget was strictly controlled. Attempts to adhere to functional requirements were successful and original budget estimates for the different elements were respected. Additions or changes made were generally based on sound judgment and resulted in good value.
8.82 There are always pressures to enhance the quality of systems and finishes on projects. We noted that, in many cases, design decisions were based on their relative value and how they would affect the budget. The rigorous analysis of all space requirements is a good example. However, the reduced pressure on the budget also led to a "build-to-budget " philosophy. For example, the architects favoured granite panels for the building's exterior cladding. The project team, concerned about the budget, also examined the costs for a brick and precast concrete cladding. When it was determined that granite could be used within the budget, it was decided to proceed without additional study of less expensive alternatives. Without commenting on the aesthetics of either choice, this was a potential opportunity for a cost saving to the taxpayer that was not fully explored.
8.83 The Treasury Board Secretariat should clarify what the project approval means, stress lowest cost and consider incentives to encourage underspending budgets. Departments should be encouraged to identify and implement cost-saving opportunities in their approved projects.
- when it became apparent that the completion of drawings for the main construction contract would be delayed, extra work was added to the foundation contract in the form of a change order. Failure to act could have resulted in a work stoppage on site and a loss of momentum.
The Treasury Board Secretariat's comments: The Treasury Board Secretariat concurs with the conclusion in this chapter that this was a well-managed project overall, with a strong project leader and team, in which leadership by the building user was a key success factor. We concur with the recommendation for greater emphasis on cost savings within the overall approved budget. This being said, we note that the approach followed in this project contributed significantly to the strict control of the project budget and, ultimately, to the success of the project itself.
Our audit commenced in November 1995 and was completed in March 1996. Given the size and complexity of this project and the limited time available, we did not audit detailed financial records. The post-project evaluation, a requirement for a major Crown project, was in progress but not completed by CSIS at the time of the audit.
The audit did not address the CSIS mandate. However, in acquiring an understanding of the requirements for the facility, we confirmed that they were based on the existing mandate and were appropriate.
We received a high level of co-operation from the project management team, which included people from CSIS and Public Works and the architects. Members of the general CSIS staff were also very helpful. The level of co-operation is particularly noteworthy given the security considerations relative to CSIS operations and the facility itself.
For information, please contact Reno Cyr, the responsible auditor.