Audit of the Consolidation Project of the Canadian High Commission in the United Kingdom

Global Affairs Canada
Office of the Chief Audit Executive

July 2016

Executive Summary

The Audit of the Consolidation of the Canadian High Commission at Trafalgar Square, London, United Kingdom is part of the Global Affairs Canada‘s 2015-2018 Risk-Based Audit Plan.

The Canadian High Commission (CHC, High Commission) in London is one of Canada’s largest missions. In addition to Global Affairs Canada, representatives from seven government departments and the provinces of Ontario and Alberta are housed in the High Commission.

Prior to this project, the CHC was accommodated in two buildings: Canada House and Macdonald House. Macdonald House was well beyond its economic and functional life and was in need of replacement or renovation. Canada House had been partially renovated in preparation for the Queen’s Diamond Jubilee and the London 2012 Olympics. Over the past two decades, Global Affairs Canada (GAC, the Department) undertook studies to investigate options to either relocate the High Commission or to renovate Macdonald House. In January 2012, the Department took advantage of an opportunity to sub-lease the 2‑4 Cockspur Street property which is adjacent to Canada House on Trafalgar Square and moved ahead with major renovations.

The purchase of the leasehold interest in the building located at 2‑4 Cockspur Street was completed in November 2012 for $114.1 million. In November 2013, Canada sold the leasehold interest in Macdonald House for £306 million, approximately equivalent to $562 million ^{Footnote 1}. The project was funded by the sale of Macdonald House. The excess proceeds from the sale were returned to the Government of Canada Consolidated Revenue Fund.

As of June 2016, the total actual cost for the project was recorded at $235.1 million^{Footnote 2}. The department has forecasted an additional amount of $19.9 million to complete the project. The proceeds from the sale will contribute approximately $306.5 million to the Government of Canada’s Consolidated Revenue Fund. As well, the new building configuration allows for leasing of retail space, which will continue to generate revenues for the Crown.

Construction commenced in March 2014 on Canada House and 2‑4 Cockspur Street. The new High Commission opened for business on December 16, 2014 and was followed by an official opening by the Queen on February 19, 2015. The construction project consisted of the refurbishment and consolidation of two adjacent buildings, both located on a constrained and high profile site, including a heritage-listed building. Tenants continued to occupy 2‑4 Cockspur Street for the duration of the construction. The construction was achieved in these challenging circumstances and with a demanding completion date. The project included significant building enhancements and connected the 2‑4 Cockspur Street building with Canada House.

The objective of the audit was to determine if sound management practices were in place to deliver the project and achieve its objectives. Auditors examined the project management of the renovation and refurbishment of 2‑4 Cockspur Street and Canada House buildings; and their subsequent commissioning. The audit did not cover the sale of the leasehold interest for Macdonald House; nor the purchase of leasehold interest in 2‑4 Cockspur Street.

Results of the Audit

The audit team concludes that overall, project management practices were in place to achieve project requirements, to meet stakeholder needs, and to balance the competing demands of scope, time, cost, quality, resources and risks.

To manage this complex and high profile project, the Department created an innovative governance and management structure that enabled the project team to use effective risk mitigation strategies and deal with unique project challenges, including a tight timeframe, a constrained location, and the heritage status of the property. The construction was completed on time resulting in the consolidation of the activities of the CHC into a building in a prime location, showcasing Canada’s presence abroad.

Best practices included in this report highlight the project’s successes. A project Governance Board enabled timely decision making, oversight and client engagement. In addition, the project also benefited from an onsite project team. Its proximity allowed for real time direction, facilitated early resolution of issues and fostered productive relationships with contractors. A proactive approach was put in place to manage project risks and the general contractor. Quality management was performed throughout the design and construction phases. This project’s governance framework, organizational structure and delivery strategy should be considered for similar complex future real property projects.

The audit team noted some areas for improvement that will strengthen the management of future projects of a similar nature. This will help enhance compliance with applicable regulations and effective project management. Building on the practices identified in this project, International Platform Branch should ensure that a project governance framework is established early in the process. This framework should articulate roles and responsibilities and set out clear accountability between the International Platform Branch, the Head of Mission and other key stakeholders. Involving the appropriate stakeholders in a timely fashion is key in integrating the Department’s requirements early in the project which will, in turn, facilitate an effective project delivery process.

Effective mechanisms for planning, control, quality review, commissioning and close-out should be in place throughout the life cycle of the project to ensure best value for money and proper project hand off. This will help increase compliance with the Department’s specific requirements as well as Treasury Board policy applicable to real property and contracting.

Statement of Conformance

In my professional judgment as Chief Audit Executive, the audit was conducted in conformity with the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing and the Internal Auditing Standards for the Government of Canada, as supported by the results of the quality assurance and improvement program.  Sufficient and appropriate audit procedures were conducted and evidence gathered to support the accuracy of the findings and conclusion contained in this report, and to provide an audit level of assurance.   The findings and conclusion are based on a comparison of the conditions, as they existed at the time of the audit, against pre-established audit criteria that were agreed upon with management.  The findings and conclusion are applicable only to the entity examined, for the scope and period covered by the audit.

________________________________

Chief Audit Executive

1. Background

The Audit of the Consolidation of the Canadian High Commission at Trafalgar Square, London, United Kingdom is part of the Global Affairs Canada‘s 2015-2018 Risk-Based Audit Plan.

Global Affairs Canada (the Department) manages Canada’s international presence through a global network of 174 missions in 107 countries that supports the international work of Global Affairs Canada and 35 partner departments, agencies and co-locators. Administrative and functional assistance for these missions is handled by the Department’s International Platform Branch. Its responsibilities encompass real property, diplomatic courier services, procurement and contracting, locally engaged staff, and the administration of Foreign Service Directives.

Within the International Platform Branch at Global Affairs Canada, the Physical Resources Bureau (ARD, the Bureau) provides services in the areas of real property management, accommodation planning and project delivery for the compounds, chanceries, official residences, and staff quarters located at missions around the world. ARD is responsible for the development and interpretation of real property policies; the coordination of real property program planning; the provision of a broad range of asset and life cycle maintenance, architecture, engineering, visual art and interior design services to missions, as well as the administrative services for accommodation. ARD delivers property projects, such as the London High Commission, under an ISO-certified project management governance and delivery process. This process covers the project delivery cycle from initiation through project planning, approval, implementation, commissioning and evaluation.

The Canadian High Commission Consolidation Project

The Canadian High Commission in London (CHC), United Kingdom, is one of Canada’s largest missions in the Global Affairs Canada network in terms of the number of positions, with 270 employees (74 Canada-based staff and 196 locally engaged staff). In addition to the Department, representatives from seven government departments and the provinces of Ontario and Alberta are represented in the High Commission.

Prior to the project, the CHC in London was located in two buildings: Canada House and Macdonald House both located in different areas of London. Over the past 20 years, several studies were undertaken to investigate options to either relocate the High Commission or renovate Macdonald House. Macdonald House was well beyond its economic and functional life and was in need of replacement or renovation. Canada House had been partially renovated in preparation for the Queen’s Diamond Jubilee and the London 2012 Olympics, but required remedial structural work and mechanical and electrical enhancements as a result of building inspections and assessments conducted during the project.

In January 2012, the Department was presented with an opportunity to sub-lease the 2‑4 Cockspur Street property, located immediately adjacent to the heritage-listed Canada House on Trafalgar Square. Responding to this market opportunity, the Department examined this option, and opted to acquire the leasehold interest in the building and undertake renovations. The relocation of the CHC from Macdonald House to Canada House and 2‑4 Cockspur Street was approved in October 2012.

The purchase of the leasehold interest in the building located at 2‑4 Cockspur Street was completed in November 2012 for $114.1 million. In March 2014, Canada completed the sale the leasehold interest in Macdonald House for £306 million approximately equivalent to $562 million ^{Footnote 3} . The project was funded by the sale of Macdonald House. The excess proceeds from the sale of Macdonald House contributed approximately $308.6 million to the Government of Canada Consolidated Revenue Fund.

Construction commenced in March 2014 on Canada House and 2‑4 Cockspur Street. The new High Commission opened for business on December 16, 2014 followed by an official opening by the Queen on February 19, 2015. The project consolidated the activities of the CHC into a modern High Commission, a restored building of historical significance to Canada, celebrating its heritage and Canada’s longstanding presence on Trafalgar Square. It showcases Canada in the 21st century, with Canadian materials, products and artists from all provinces and territories. In addition, the Official Residence was relocated and renovated to replace the existing one in Macdonald House. The project also generates rental revenues from third party tenants.

The construction at Canada House and 2‑4 Cockspur Street was the most important component of the project and presented a significant risk to the project. The construction project consisted of the refurbishment and consolidation of two adjacent buildings, both located on a constrained and high profile site, including a heritage-listed building. Tenants remained in occupation in the 2‑4 Cockspur Street building during the construction. The construction was achieved in challenging circumstances and with a demanding completion date. The project consisted of connecting the two buildings and included significant building enhancements and remedial work to deal with discoveries and issues in both buildings found during the renovation and construction.

To help ensure an on-time and on-budget project delivery and to manage risks associated with this complex and unique project, the Department opted for a governance framework, an organizational structure and a delivery strategy that transferred project management and oversight functions to a London-based project team of departmental employees and external resources (see Appendix B). In addition, a modified bid-build approach was selected whereby the contract had a fixed price for the general contractor services, including overhead costs and a package of early construction work, and provided for a cost reimbursement for sub-contracted work packages. Furthermore, to manage the uncertainty associated with the refurbishment of historical and existing buildings, the construction was completed in two phases; 2‑4 Cockspur Street was delivered first, followed by the completion of Canada House.

Project Management

Sound project management practices improve the likelihood of success for projects. These practices include establishing clear accountabilities, defining objectives, establishing the scope, and the planning, monitoring, and reporting of controls for project activities^{Footnote 4} . There are three key concepts that factor into any project: scope, budget and schedule. A change in any one of these may have an impact on the other two and the final project results.

The audit team examined the project management practices that were in place to deliver the High Commission Consolidation project and compared them to the principles and good practices of project management that are followed by industry. The audit team identified a number of steps that are critical to the success of any project. Some of the project management processes that the audit team expected to see are summarized in the chart at Appendix C. Each portion of section 2 of the report is based on these good project management practices.

2. Observations and Recommendations

2.1 Project Initiation and Planning

As described earlier, the audit team examined the project management processes applied by the project team throughout the initiation and planning phases.

Project Governance and Structure

Successful delivery of complex real property projects requires the establishment of a framework for decision-making, as well as the clear definition and communication of the roles, responsibilities, reporting relationships and authorities of key stakeholders. In particular, there should be a clear separation between the project management role and that of the client.

To deliver on this complex and challenging project, the Department opted for an innovative management approach. It included a governance framework, organizational structure and delivery strategy that differ from the existing ARD governance structure, project authorities, accountabilities and Major Project Delivery process. A Project Governance Board (the Board) and an onsite project management team were established to support the High Commissioner in providing strategic project direction. The Board consisted of the High Commissioner, the Deputy High Commissioner, the Assistant Deputy Minister (ADM) of International Platform Branch, the Department’s Chief Financial Officer (CFO), the Project Director, the Director General of ARD, and the mission’s Management Consular Officer (MCO). The Board met on a bi-weekly basis and provided timely decisions on scope and financial issues, such as building enhancements, applicable building codes, concept design, accelerated construction program, and use of the contingency fund. Decisions made by the Board were based on on-going reports and project status updates. Minutes of meetings and decisions were documented. This new management approach created cohesive and integrated governance by involving and engaging key stakeholders.

A Canadian project director was hired under the Interchange Canada program ^{Footnote 5} and was based in London. The project director was given a delegated financial signing authority equivalent to that of the ARD Director General that was limited to the project. The project director provided direction and oversight during the project’s implementation. Fully dedicated to the project, the project director was supported by a project team based on- site and by consultants with knowledge and expertise in the local construction industry. This unique structure allowed for timely decisions and the resolution of issues that helped mitigate scheduling and financial risks.

While a Project Organizational Chart was written to define the project governance described above, the audit noted that the roles, responsibilities and reporting relationships of parties involved (in particular ARD, the mission, and external resources) should have been clearly established and communicated at the outset of the project. In fact, they were articulated later in the Project Charter approved by the Board in November 2013, 13 months after approval was granted to proceed with the project. Even though roles and responsibilities were established to fit the Project Charter approved by the Board, those of ARD required further clarification. The roles attributed to the ARD technical team were subsequently confirmed and communicated by the Board which decided to involve the ARD technical team on an “as required” basis to provide quality assurance and audit functions. This late delineation and communication of roles and responsibilities led to confusion in the ARD project management, quality assurance and commissioning functions, as well as with accountability for achieving the project objectives, meeting the requirements and complying with applicable regulation and policies. In addition, interviews reported that this led to issues with respect to the flow of information from the Board to the Ottawa-based team.

In summary, a Project Governance Board and an onsite project team were key to the project success by enabling timely direction, decision making and oversight. Clarifying and communicating roles and responsibilities of key stakeholders at an early stage is critical to reinforce accountability, to ensure full compliance and to enable an efficient decision-making process.

Project Management Plan

A best practice in project management is the development of a formal written document on how the project is to be executed, monitored and closed, including all subsidiary (supporting) plans. The audit team found that information on scope, requirements, change, schedule, cost, quality, process improvement, human resources, communication, risk and procurement were included in different documents. A formal project management plan serves as a planning and decisions document and, and it would have facilitated the communication among stakeholders by providing them with a consolidated source of information. In the future, the Department should consider integrating this information and supporting plans in a formal project management plan.

Project Scope

A key challenge with respect to the refurbishment of heritage and existing buildings that have been occupied and operated for decades is the uncertainty associated with the discovery of issues that require changes to the project scope. In 2012, consultants were retained at the project initiation stage to perform a general due diligence evaluation of 2‑4 Cockspur Street related to the proposed relocation of the Canadian High Commission (CHC) in 2‑4 Cockspur Street and Canada House. The architectural and engineering (A&E) team undertook another validation of the building infrastructure in June 2013 and proposed scope options that included additional work and additional cost estimates, derived from the validation of building infrastructure. The Board approved a revised project scope to take into consideration the significant mechanical and electrical enhancement work in the fall of 2013. This in turn increased pressure on the implementation phase as the completion date remained unchanged. To mitigate any risks arising from relying on an incomplete project brief and from conducting validation assessments and intrusive surveys during implementation, the project team developed a robust project budget, schedule and risk management plan as well as a procurement strategy for the construction contract.

The project brief (for definitions, refer to Appendix D) required further development by the A&E team before design could take place as the one included in the request for proposal to award the A&E services contract was incomplete. Furthermore, maintaining the completion date unchanged despite the significant changes to the scope caused a compressed pre-tender schedule for the A&E team which resulted in an invitation to tender with partially completed designs for the construction contract.

The project scope continued to be refined past the project planning phase. Since the conditions of the existing building structure and the mechanical and electrical systems were confirmed during the design phase and intrusive surveys were carried out later on during implementation phase, some requirements and technical specifications were provided later during the design phase. These scope changes required subsequent design development by the A&E team. Additionally, changes in the project scope related to construction designs, statutory requirements, and discovery of issues in the building resulted in an accelerated construction program and an increase in design and construction costs.

Defining the scope of a project is essential to plan the course of action. It also helps ensure that the final product meets stakeholder expectations and is developed in accordance with applicable codes, regulations, standards and technical requirements. Therefore, for future complex real property projects and in heritage-type buildings, it is critical to make a concerted effort to allow sufficient time for the project definition and the preparation of the project brief as well as to complete building assessments and intrusive surveys prior the implementation phase.

Project Budget and Cost Estimates

A key step in project management is the preparation of a robust initial cost estimate. The audit found that the project budget was based on detailed cost estimates; the project team developed an initial cost estimate for approval to proceed with the project. The initial construction budget was based on cost estimates prepared by an independent expert. Following the decision by the Board to move forward with the mechanical and electrical work, the construction cost estimates were updated to reflect these changes. The audit team noted good practices to contain the construction costs within an acceptable level and to optimize quality: the revised cost estimates were developed by a London-based quantity surveyor, the project team undertook value engineering, and the final costs were reviewed by an independent consultant and the project team.

The changes in scope resulted in an increase in the project budget and the reallocation of costs from scoped out components of the initial project scope approved for the construction. The budget included a contingency fund and reserve provisions to cover costs resulting from incomplete designs, unforeseen and unpredictable conditions, uncertainties within the defined project scope, and currency fluctuations. Since the most important project components were located in London, the A&E, construction and project management services were procured in pounds sterling. It may have been more economical if a portion of the proceeds of the sale of Macdonald House in London had been retained in the local currency rather than converting the funds to Canadian dollars and then back to pounds sterling.

Project Schedule

The challenging schedule was a key risk to the success of the project. To address this, the project team developed a master schedule with milestones, which was regularly updated to give consideration to scope changes resulting from an increased knowledge of building conditions and infrastructure. The master schedule integrated elements delivered by Headquarters (information technology, physical security, interior design, furniture, and art) with the construction schedule provided by the general contractor. This system helped manage the schedule risk and schedule constraints, as well as planning activities sequences and duration of work.

Procurement Plan

A procurement plan is an important element and can significantly influence the project schedule. The project completion date can also impact planning of purchase and acquisition processes. The project team developed a procurement strategy taking into consideration relevant factors and risks with respect to the A&E and general contractor services. The initial design-bid-build procurement strategy was later changed to a modified bid-build approach to allow for the conditions of the building, the capacities of the general contractor, the challenging schedule, the desire to have a general contractor on site as early as possible, and the late project definition and completion of the designs.

Under the modified bid-build approach, the contract had a fixed price for the general contractor services, included overhead costs and a work package for early construction work, and provided for a cost reimbursable portion related to the value of sub-contracted work packages paid by the general contractor. The change in the general contractor procurement strategy necessitated revisions to the A&E scope of services as construction designs were completed when sub-contractor packages were issued. Oversight measures were in place over the sub-contracting processes, including value engineering sessions for the work packages and the development of a change order process to enable appropriate contingency management.

Risk Management Plan

It is important to identify and assess risks associated with meeting project goals at an early stage. For the project, a risk management plan was initially prepared for project approval and was updated to reflect project progress and new risks, including the risks associated with the new contracting approach, the risks of cost overruns and currency fluctuations. The project risk management plan was based on qualitative and quantitative risk analysis, and contained risk responses. To manage the risk associated with currency fluctuations, which had been identified as a key financial risk, the project team forecasted an amount to compensate for this risk and presented it as a separate line in the project budget.

In summary, the audit team found that due diligence and sound management practices were demonstrated in the planning required to attain the objective and scope and managing risks. At the planning stage, the project team developed tools to be used during project implementation, prepared a project budget and schedule, and developed a procurement strategy and a risk framework. In addition, to respect the completion date the project team decided to conduct a validation assessment and to conduct intrusive surveys during the implementation phase of the project, accompanied by measures to mitigate associated risks, albeit at an extra cost.

Recommendation #1

For complex, strategic projects, the Assistant Deputy Minister of the International Platform Branch should enhance the project governance framework by defining and engaging the client, clarifying and communicating roles and responsibilities of key stakeholders at the earliest stage of the project, including on-site authority, real property procedures and guidelines to ensure effective project management and compliance with applicable regulations.

2.2 Project Execution

As described earlier, the audit team examined the project management processes applied by the project team throughout the implementation and closure phases of the project.

Risk Monitoring

For successful project completion, a project team should have a continuous process to identify, analyse and respond to risks. The audit noted on-going review and monitoring of project key risks by the project team that facilitated risk containment. Key stakeholders provided input during construction to identify the impact and the associated mitigation strategies. The project team implemented specific measures to monitor budget and schedule risks.

Scope Control

Controlling changes to the project scope is necessary to ensure that the project is completed as planned. It involves determining if scope changes are beneficial, aligned with the project objective and properly approved. For this project, a formal process was established to manage changes to the scope and provisions set out in the contract, and to ensure that requested changes were agreed upon.

Schedule Monitoring

On-going monitoring of project work and schedule allows for a timely identification of delays and remedial measures to remain on schedule. The project master schedule was closely monitored and regularly updated by the project team. It integrated elements delivered by Headquarters (information technology, physical security, interior design, furniture and art) and it took scope changes into consideration and the construction schedule submitted by the general contractor.

The on-site project team, general contractor and consultants monitored the project schedule. Bi-weekly construction progress meetings, site visits and monthly reporting helped mitigate schedule risks. For example, in the summer of 2014, the general contractor reported a delay. In response, the project team reviewed the construction schedule and put an accelerated work program in place to maintain the original completion date. This resulted in the key milestones being achieved on schedule albeit at an extra cost.

Cost Control

Project cost control is an important project management activity that is needed to help ensure a project is delivered within budget. For this project, to help ensure that costs remained within the overall estimated project budget, budget and variances were monitored by the Board and the project team. In addition, to manage and approve changes to the scope, a proactive and formal approach was put in place, whereby a contract administrator instruction (CAI) log was maintained by the quantity surveyor with a description and potential cost of scope changes. In the cases where costs for changes had to be agreed upon, a cost estimate was assigned and reported to the Board. The monthly review of the project contingency fund, the reserves and the CAI information by the Board and project team helped mitigate financial risks. The contingency fund and reserves allowed for the funding of currency fluctuation, scope changes, remedial work required due to building discoveries, and costs resulting from an accelerated construction program.

Project Progress Information and Reports

Performance reporting is an important activity for monitoring project progress, to measure project performance, and to communicate performance information to project stakeholders. For the project, monthly reports and dashboard reports were prepared by the project team and presented to the Board. The monthly reports included a project budget report and an update on scope, schedule and key risks. The monthly dashboard reports submitted to the Board during project construction highlighted the top five risks and subsequent mitigation actions. This enabled informed decision-making and oversight by the Board.

Health and Safety Protocols during Construction

Safety of occupants and construction workers was a key priority for the project as the construction took place in an occupied facility. To address health and safety risks, the project team put a number of measures in place to foster a safe environment: health and safety protocols designed by the general contractor’s safety officer; weekly meetings and daily interaction with the tenant; tenant and general contractor’s fire evacuation strategies; facility management and training; site visit and bi-weekly reports by the clerk of works, and the appointment of an independent monitor. The audit found that no major safety incidents were reported during the construction period.

Communication and Coordination

Effective communication and coordination is necessary to identify and resolve issues on a timely basis to help ensure successful project completion. The project team met on a regular basis, which contributed to good communication of issues and their resolution. Furthermore, weekly meetings allowed for timely decisions to meet project schedules and deadlines, and the Headquarters-based project manager facilitated the coordination of project elements delivered by Headquarters (information technology, physical security, interior design, furniture, and art). However, due to schedule constraints, some difficulties were encountered with the integration of some project elements. Two examples that had particular impact are scheduling and coordinating the work of the Canadian contractor with the work of the general contractor, and the integration of Department initiatives. This led to coordination delays that impacted the project schedule and prevented possible cost savings.

Contract Management

Due diligence over the procurement process is critical for managing the contracting and amendment processes in accordance with international trade agreements, Government Contracts Regulations and the Treasury Board Contracting Policy. To examine the project’s contracting processes, the audit team selected a judgmental sample of 15 procurement contracts representing $94.6 million ^{Footnote 6} (eight competitive contracts and seven non-competitive contracts). The sample was based on: high risk areas in the contracting process and the project phase; the value of the contract; and, the nature of services of goods procured. Specific issues regarding the procurement of A&E services, commissioning, and installation services contracts have been shared with senior management. They include exceeding contracting threshold, overlapping statements of work and work commencing before approvals were attained or contracts or amendments were put in place.

Given the high profile and complexity of the project, tight timeframe, and construction in a heritage building, it was difficult to entirely avoid contract amendments and to use optimal competitive process for all contracts. While contracting decisions were documented, time pressure precluded good planning and an effective procurement strategy. In the future, the project team should plan and adequately define the scope, deliverables, timelines and the costs to complete the work before entering into contracts.

Quality Management

Quality management encompasses a number of activities to facilitate successful project completion. The audit determined that various measures to manage and monitor quality were in place throughout design, construction and closure. They included: architectural and mechanical engineering reviews by third party, site inspections and reporting by the clerk of works, frequent construction progress meetings and reports, payment certification by an independent firm, and commissioning activities.

The audit team was advised of some challenges in communicating the requirements of the Treasury Board policy suite applicable to real property. For the Department’s real property projects, ARD is normally responsible for the quality management and has a Quality Management System that provides a common approach to project delivery and quality assurance, including Treasury Board compliance requirements. However this project’s, quality management work was mostly fulfilled by the London-based project team and external resources. ARD’s involvement was limited to performing quality assurance reviews in the early stages of the design phase and providing advice and assistance, as required. If the project team had relied on the expertise from the ARD technical team there may well have been improved, faster communication of requirements from the Treasury Board policy suite applicable to real property and technical specifications, and ensure project compliance with regulations and Treasury Board policies applicable to real property. In the context of outsourcing project and quality management services for future real property projects, the project team should anticipate, plan and implement mechanisms appropriate to the project to help ensure that these services are completed to the satisfaction of the Department in a timely manner.

Project Close Out and Handover to the Mission

The close out phase of a project is the process associated with the administrative closing of all activities on the project, reporting on the construction aspect and evaluating the product delivered. It consists of work activities that address taking over and operating the completed facility, including the correction of any outstanding building system deficiencies.

For its real property projects, the ARD technical team is usually responsible for managing the commissioning process and ensuring that all project phases are completed. However, ARD’s role was limited to conducting commissioning activities related to the mechanical, electrical and life safety aspects of the 2‑4 Cockspur Street building. For this project, commissioning and verification activities were outsourced to local, external resources.

The Department also conducted a mission inspection to assess the safety and security of employees, information and assets. With regard to decisions concerning safety and security at the property, the Project Governance Board and senior management of the Department met regularly and consulted with experts in the field throughout the project. Decisions were based on this advice and on an understanding of the risks specific to the location, heritage status of the building and project timeframe. These decisions were documented. As well, a building occupancy certificate was issued that confirms the buildings meet the United Kingdom building regulations and codes. The Department is obligated to take reasonable and practical efforts to ensure that its buildings meet Canadian code and this process was ongoing at the time of the writing of this report. With the departure of the project team in April 2015, the responsibility for closing the project was transferred from the project team to the mission, rather than to ARD. There were some difficulties in closing out the project, and ensuring that residual deficiencies were addressed. Planning and clarifying roles and responsibilities for the close out and handover of the property to the mission would ensure continuity in project management and effective close out.

In summary, the audit team found that project management measures were in place to monitor and control the scope, schedule and budget during the construction. Health and safety protocols were implemented to address risks and a proactive approach was in place to manage risks and administer the general contractor’s contract. Finally, quality management measures were in place throughout design, construction and closure phases. Going forward, attention to the procurement planning process needs to be improved as does planning for close out, commissioning and handover. As well, to improve the delivery process in future projects, outsourcing project and quality management, the roles and responsibilities for the closeout and hand off of property should be clearly delineated, especially with the role of ARD, to ensure that the project is completed to the satisfaction of the Department.

Recommendation #2

The Assistant Deputy Minister of the International Platform Branch should adjust current ARD real property processes to look for flexibilities commensurate with the complexity, nature and project delivery strategy of similar real property project while maintaining sound controls and oversight.

3. Lessons Learned

For the future, in addition to the recommendations presented in this report for similar real property projects, the Department should take the following lessons learned and successes of this project into consideration.

Project Governance and Structure

• A project governance board and organizational structure that involves key stakeholders and engage clients will create a more cohesive and integrated project governance framework.
• An on-site project director with delegated authorities and supported by an on-site project team with knowledge and expertise will allow for real time direction and the immediate management of project risks.

Project Initiation and Planning

• In order to proactively manage the foreign currency exchange rate for projects of a similar nature, it may be useful to maintain a portion of the proceeds from the sale in the local currency to pay for expenditures incurred in the same currency.
• Integration and coordination of planning information into the project management plan will be helpful in ensuring a timely coordination and an effective project delivery process.
• Allowing sufficient time for project definition and preparation of the project brief will help ensure meeting stakeholders’ expectations and compliance with applicable regulations and policies. This includes complete building assessments and the conduct of intrusive surveys prior the implementation phase.

Project Execution

• Defining roles and responsibilities, and planning a comprehensive approach for commissioning and closeout of the project will enhance and facilitate the process to ensure projects are completed to the satisfaction of departmental requirements. 

4. Conclusion

Overall, the audit team concludes that project management practices were in place to achieve project requirements and to meet stakeholder needs. The project team balanced the competing demands of scope, time, cost, quality, resources and risks. Considering the complexity of the project and its high profile, the Department put risk mitigation strategies in place that helped the project team overcome project challenges, constraints and address significant risks.

To help ensure an on-time and on-budget project delivery and to manage risks associated with this complex and unique project, the Department established an innovative governance framework, organizational structure and delivery strategy. This created a cohesive and integrated project governance and framework that engaged the client as well as transferred the project management function to an on-site team which allowed timely project direction, oversight and management of project risks. In addition, the audit team noted good management practices and areas for improvement that should be considered by the Department to reinforce the governance and delivery process of future similar projects.

Appendix A: About the Audit

Audit Objective

The objective of this audit was to determine if sound management practices were in place to deliver the project and achieve its objectives.

Audit Scope

The audit focused on the renovation and fit-up of 2‑4 Cockspur Street and Canada House buildings, for the period between September 1, 2011 and July 31, 2015.

Audit Criteria

The criteria were developed following the completion of a detailed risk assessment. They took into consideration the core management controls from the Audit Criteria Related to the Management Accountability Framework, developed by the Office of the Comptroller General, Treasury Board Secretariat. The audit criteria were discussed and agreed upon with the auditees. They are presented as follows:

1. A rigorous planning process was in place to establish the project scope, budget, and schedule.
2. A project framework was established to enable effective governance, oversight and project management.
   1. 2.1 The project Governance Board provided effective oversight and made timely decisions in alignment with applicable regulations and policies and with Government of Canada’s direction.
   2. 2.2 The project organizational structure, roles and responsibilities and delegated authorities of the team members, consultants and contractors with respect to the project process were properly defined, communicated and understood.
   3. 2.3 Project management plans were developed to clarify how the project was executed, monitored and controlled, while complying with regulations and policy requirements.
3. An adequate procurement strategy was developed and the contracting process was compliant with regulations and policy requirements.
   1. 3.1 Relevant factors and risks were considered to develop the procurement strategy with respect to the Architectural & Engineering firm and general contractors’ services.
   2. 3.2 Expenditure initiation, commitment, contracting and performance certification were in accordance with regulations and policy requirements.
4. Effective project management practices were applied throughout project implementation and closure.
   1. 4.1 An integrated approach was used to manage risks where impact analysis of changes and issues was performed and properly reflected in the risk management framework.
   2. 4.2 Measures were in place to effectively coordinate and manage the project scope, schedule, budget, and contingency during implementation, while complying with applicable regulations.
   3. 4.3 A health and safety program was in place to safeguard against accidents and injuries.
   4. 4.4 Quality management was performed throughout project implementation and closure.
   5. 4.5 A plan was established to help ensure that issues identified in the commissioning report were resolved in a timely fashion.

Audit Approach and Methodology

In order to conclude on the above criteria, and based on identified and assessed key risks and internal controls associated with the related business processes, the audit methodology included the following:

• identifying and reviewing relevant policies, directives, and guidelines;
• conducting walkthroughs of the project processes and systems and identifying key controls;
• selecting samples of contracts for conducting detailed testing;
• reviewing and analyzing documents related to the project;
• analyzing financial and non-financial information;
• conducting interviews with key stakeholders; and
• visited the High Commission in London to conduct interviews with High Commission employees (Canada-based staff and locally engaged staff) and consultant firms, and analyze documentation.

Appendix B: Project Organizational Chart

The following is the Organizational Chart approved by the project Governance Board.

Appendix C: Project Management Processes Chart

Appendix D: Definitions^{Footnote 7}

Clerk of Works: person responsible of monitoring the construction works on site checking compliance against the contract specifications and drawings, in terms of materials used workmanship, installation, quality and progress.

Contract Administrator Instructions: a formal process to instruct variations to the contract documentation.

Design-Bid-Build Approach: Method of procurement and delivery process used in construction projects to obtain design and construction services by which the Department contracts with separate entities for the design and construction of a project. A design consultant is initially retained through a competitive proposal process, to design the project and prepare design and construction tender documents. Contractors subsequently submit competitive tenders (bids) based on the scope of work outlined in those bid documents and the successful contractor is awarded a contract to construct the project. The Department maintains maximum control of the final product (design, selection of materials) through the design process.

Intrusive surveys: investigation works that usually include desk study; visual inspection; sampling and testing of the structure, materials, masonry, and subsurface, etc.

Modified bid-build approach: a procurement strategy that involves awarding a contract that fixes the price for general contractor services including overhead, and a package of early construction work. A serial of separate work packages with a cost estimate for each package will be competitively tendered by the general contractor.

Project Brief (for design and construction): is the final stage in the process of defining the client's requirements for the development of a built asset.

Project Charter: document issued by the project initiator or sponsor that formally authorizes the existence of a project, and provides the project manager with the authority to apply organizational resources to project activities.

Project Definition: to analyse and define real property need, problem or opportunity, to evaluate and identify a specific site suitable to meet the needs identified; and to develop site specific technical and cost criteria that support the chosen solution.

Project Execution Plan: a document that outlines the approach to delivering the project. It sets out the strategy and management systems to be implemented to meet the objectives and targets of the Project; it describes who does what and how, defining the policies, procedures and priorities that will be adopted.

Project Management Plan: A formal, approved document that defines how the project is executed, monitored and controlled. It may be summary or detailed and may be compressed of one or more subsidiary management plans and other planning documents.

Project Organizational Chart: a document that graphically depicts the project team members and their interrelationships for a specific project.

Project Schedule: the planned dates for performing schedules activities and the planned date for meeting schedule milestones.

Project Scope: the work that must be performed to deliver a product, a service, or result with the specified futures and functions.

Quantity surveyor: is a professional that provides services that cover all aspects of procurement, contractual and project cost management. As part of his role, he manages all costs relating to building and civil engineering projects, from the initial calculations to the final figures.

Value Engineering: Value engineering is an exercise that involves most of the project team as the project develops, by selecting the most cost-effective solution. However it is about taking a wider view and looking at the selection of materials, plant, equipment and processes to see if a more cost-effective solution exists that will achieve the same project objectives. The aim is to increase the value of products, satisfying the product’s performance requirements at the lowest possible cost. In construction this involves considering the availability of materials, construction methods, transportation issues, site limitations or restrictions, planning and organization, costs, profits and so on.

Work package: A deliverable or project work component at the lowest level of each branch of the work breakdown structure. The work package includes the schedule activities and schedule milestones required to complete the work package deliverable or project work component.

Appendix E: Management Action Plan