The Sixth Estate

Insufficient attention in Canada is being given to the expansion of the country’s intelligence services. The Canadian Security Intelligence Service (CSIS) more than doubled in the past decade, from $180 million in 2000 to $480 million in 2009. It is also expanding its foreign intelligence activities, in clear violation of the CSIS Act. The most obvious current example of intelligence largesse, though, is the new building being constructed for CSIS’s “partner” agency, the Communications Security Establishment. CSE’s new “Taj Mahal,” interestingly, also intersects with another critical problem: the hollowing out of government and increasing dependence on shady networks of secret contractors.

CSE doesn’t get a lot of attention in the news and has avoided scandals, unlike CSIS or its predecessor, the RCMP Security Service. This does not make it small or unproblematic, though. The organization has spent most of its history since 1945 essentially as a branch plant of American signals intelligence (the National Security Agency). The government did not acknowledge its existence until the 1970s, and it operated wholly outside Parliamentary law until an enabling act was finally passed in 2001. Befitting its low profile, its offices in Ottawa were until recently crammed into some nondescript buildings on the campus of Canada Post. That’s changed, and the new plans are for a massive new campus referred to (in public) as the Long Term Accommodation Project, or LTAP.

Coverage at Lux Ex Umbra, and in the media, indicates the scope of this project, which will result in a building as large as today’s Department of National Defence headquarters. In addition to an ice hockey rink (complete with Zamboni), CSE employees will now have access to

basketball and volleyball courts, hiking trails, as well as a hobby garden, a Royal Bank, a coffee bar, cafeteria, kitchenettes and showers. There will be storage facilities for 250 bikes, 800 parking spots for employee vehicles, a courtyard, a large fireplace in the foyer of one of the buildings and a daycare centre for 55 children.

The campus will consist of seven main pods — low-rise buildings housing various offices. There will be a data centre, a conference centre that seats 400, classrooms that seat 40, formal meeting rooms for 25 people at a time, a library and an encryption building.

In the past, the government would build and operate such a structure itself. Given that CSE bills itself as the ultra-top-secret agency, doing mysterious things that cannot under any circumstances be shared with the public (unlike CSIS, it doesn’t even publish a public annual report), you would think it would be absolutely necessary to do so. You would be wrong. In fact, both the construction and the management, maintenance, etc. of the building are being handed over to the private sector. Needless to say this has left the Union of National Defence Employees a little bit unhappy, as they explain at their “Security for Sale” website and in a public briefing note:

CSE leadership suggested to officials from UNDE that… 91 positions [were] slated for transfer. CSE leadership has been quite about which specific positions are to “transferred,” but indications have made it clear to union leadership likely position cuts are 50% IT infrastructure positions with the remainder being in administrative and accommodations positions… The total affected positions as a portion of the overall project is $30M of $5B. Less than 1%.

That $5 billion figure is a reference to how much the government is going to hand over to the private sector for delivery and management of the building over the next 30 years. Unfortunately, it’s been stunning difficult to figure out exactly who is going to provide what, and at what cost:

MacLennan said it it is unclear what role private firms will play. Plenary [the lead contractor] did not respond to a request for comment. [Defence minister Peter] MacKay’s office referred questions to CSE, which did not respond.

Still, I’ve been able to piece together here, for the first time, at least a small amount of information about the process and about what this bonanza for the defence contractors is going to mean for the taxpayers of Canada. In theory, a public-private partnership allows the government to lower costs (mostly administrative and labour costs) by shifting activity to the private sector. In practice, poorly overseen contracts often balloon out of control, easily exceeding initial estimates. This is a particular problem in the intelligence and security arena, where there is virtually no real public accountability.

The CSE campus is going to be constructed at a cost of $880 million. In addition, Ottawa has committed to paying $5 billion over 34 years to the winner of the contract. These are solely construction and management costs; the land already belongs to the government. Thus, when the CSE chief tells the Globe and Mail that it is like a homeowner paying off a mortgage, that’s actually very misleading.

Responsibility for the project formally lies with Defence Construction Canada, a Crown corporation that handles the building requirements of DND. They picked out a select group of contractors, according to the union, and paid each $1 million to come up with a bid. The winner was Plenary Properties, an Australian-based company. This means that, for the sake of saving a few dollars on labour costs, we’re now sending the bulk of the money to a foreign corporation, outside the Canadian economy and outside of the Canadian tax base.

Plenary won’t be handling most of the work itself, of course. Construction has been handed over to a special subsidiary called Plenary Properties LTAP. The nature of this company is very unclear. It doesn’t have its own website. The Wall Street Journal recently described it as “a special purpose entity set up under a public-private partnership.” Plenary LTAP just went public with a sale of $167 million in short-term 3-year bonds, and $840 million in long-term 33-year bonds. DND says that Plenary itself will invest just $570 million in the project. They’re also cashing in on the government connection, which prompted DBRS to hand the new company an “A” investment rating:

A fixed-price date-certain contract. The land is already owned by the Crown and the project’s permitting process benefits from the fact that it is a federal project, adding certainty to the schedule.

I have no idea how much money the actual cost will be to Plenary, but it’s apparent that they are only attempting to borrow up-front a fraction of what they are going to charge the government. And they’re doing it at a promised premium of 2% over Canadian government interest rates, meaning that it would have been cheaper for the government to borrow the money itself. Moreover, DND says that taxpayers can expect to save just $176 million on the project, or 3% of overall costs. That’s a pretty paltry sum if you ask me. Especially if you believe UNDE’s complaints about opening up secret installations to private employees have any validity at all.

Once the building is completed, according to DBRS, Plenary will hand over the management and maintenance functions to a set of American contractors. IT support will be provided by Hewlett-Packard (HP). The remainder goes to Honeywell.

There are a couple of other important questions about the new project which are not totally related to cost. First, it’s worth asking what CSE plans to put in this building. They’ve pointed out that their current space is too small, but, as Bill Robinson of Lux Ex Umbra points out, the LTAP building will provide twice the square footage per expected employee, which is more that a modest increase. He suspects that CSE plans to build a new supercomputer, similar to but smaller than the National Security Agency is now building in Utah. The NSA will use its new facility to ramp up its already massive surveillance of telephone, email, and other Internet communications; presumably, CSE will be allocated a small chunk of that work. Already, the head of CSE claims his employees sift through hundreds of thousands of communications per day.

Second, it’s more than symbolic that the new CSE building will be constructed next to the new CSIS building, which has already been under construction for several years at a cost of several hundred millions dollars. The plans call for a “glass bridge” between the two headquarters. The CSIS Act allows CSIS to collect intelligence within Canada, or security threat-related intelligence anywhere, but since 2001 CSIS has unilaterally “reinterpreted” the law to effectively mean it can collect any intelligence anywhere. CSE is theoretically prohibited from spying in Canada or on Canadians, although regulations under the Anti-Terrorism Act allowed them to “risk acquiring private communications [between Canadians] as well,” which to any modestly imaginative bureaucrat is probably as good as a blank check. The possibility that these organizations are wandering even further outside the bounds of the law by combining their efforts (i.e. each organization shares data the other is legally barred from collecting) obviously raises some disturbing problems.