Quarterly Financial Report for the quarter ended December 31, 2023

1.1 Raison d'être

Public Works and Government Services Canada (PWGSC) was established effective June 20, 1996, under the department of Public Works and Government Services Act. As of November 4, 2015, PWGSC started operating as Public Services and Procurement Canada (PSPC). PSPC plays an important role in the daily operations of the Government of Canada (GC). It supports federal departments and agencies in the achievement of their mandated objectives as their central purchasing agent, real property manager, linguistic authority, treasurer, accountant, pay and pension administrator, and common service provider. The department's vision is to excel in government operations. Our mission is to deliver high-quality, central programs and services that ensure sound stewardship on behalf of Canadians and meet the program needs of federal institutions.

Further details on the department's authority, mandate and core responsibilities can be found in the Main Estimates (part II) and Departmental Plan for the fiscal year ending March 31, 2024.

1.2 Basis of presentation

This quarterly report has been prepared by management using an expenditure basis of accounting and a special-purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities. The accompanying Table 3: Statement of authorities (unaudited)—For the quarter ended December 31, 2023 (in thousands of dollars) includes the department's spending authorities granted by Parliament, and those used by the department and are consistent with the Main Estimates and Supplementary Estimates for the current fiscal year.

The authority of Parliament is required before money can be spent by the government. Approvals are given in the form of annually approved limits through appropriation acts, or through legislation in the form of statutory spending authority for specific purposes.

When Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the government to withdraw funds from the Consolidated Revenue Fund. A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.

The Department uses the full accrual method of accounting to prepare and present its annual departmental financial statements that are part of the departmental results reporting process. However, the spending authorities voted by Parliament remain on an expenditure basis.

1.3 Public Services and Procurement Canada's financial structure

PSPC provides services to many government departments, agencies and Crown corporations through a variety of funding mechanisms. This includes budgetary authorities that are comprised of voted and statutory authorities, as well as non-budgetary authorities. The voted budgetary authorities include operating expenditures, vote-netted revenues and capital expenditures, while the statutory authorities are mainly composed of revolving funds, employee benefit plans and payments in lieu of taxes (PILT). The non-budgetary authorities consist primarily of the Seized property working capital account (the description can be found in paragraph 1.3.4).

PSPC's complex financial structure may result in significant fluctuations in authorities on a quarterly basis, which are due to timing differences that are resolved by year-end. These are summarized in the next 4 paragraphs:

1.4 COVID-19 pandemic

One of the Government’s top priorities remains the health and safety of Canadians as the COVID-19 pandemic evolves. Throughout the pandemic, PSPC has been actively engaged in supporting the Government of Canada's response, through the procurement of an unprecedented and urgent demand for

• personal protective equipment
• COVID-19 testing kits and supplies
• vaccines and vaccination supplies
• other medical equipment such as ventilators and emergency mobile health units and beds

Now, as the Government of Canada turns its attention to the post-pandemic reality, PSPC will be winding down COVID-19 procurement operations while continuing to maintain a portfolio of COVID-19 vaccines and plans to transition to sustainable management of COVID-19 vaccines. In the longer term, establishing domestic production capacity will further diversify Canada’s vaccine options and capabilities.

The COVID-19 pandemic has changed how Government of Canada employees work and the types of workplace accommodations that best support managers and employees providing critical services to Canadians. The department will collaborate with its government partners to help define the post-pandemic work environment by supporting the Government of Canada’s future of work, which includes transitioning to a hybrid work model.

2.1 Significant changes to authorities

When compared to the same quarter of the previous year, year-to-date PSPC authorities available for use increased by $293.9 million ($5,198.1 million at the third quarter of the fiscal year ending March 31, 2024 compared to $4,904.2 million at the third quarter of the fiscal year ending March 31, 2023) as reflected in Table 3: Statement of authorities (unaudited)—For the quarter ended December 31, 2023 (in thousands of dollars). The items responsible for the overall increase are outlined in the table below, followed by a description for each variance:

Groupings can change between quarters due to materiality of initiatives.

Amounts may not balance with other public documents due to rounding.

Government of Canada’s pay system—increase of $178.6 million

The increase is mainly due to additional funding announced in Budget 2023 to offset funding that sunset in fiscal year 2022 to 2023. Funding will enable PSPC to continue fulfilling its mandate as the Government of Canada’s pay administrator by maintaining overall stability, eliminating the backlog of cases older than one year, ensuring continuous improvement of its pay operations and making progress towards stabilizing queue management.

Collective agreements—increase of $96.7 million

Funding received from the Treasury Board Central Vote for Collective Bargaining as a result of the various collective agreements that were renewed, signed, and implemented following the 2023 to 2024 Main Estimates.

Price and volume protection—increase of $54.2 million

The increase is a result of funding received for the protection from inflation and price variations relating to space requirements for real property elements over which PSPC has very little or no control such as rent, cost of utilities and accommodation costs.

Planning and investment in PSPC's assets portfolio —increase of $51.1 million

The increase reflects the Department’s current funding approval to plan and deliver on its capital plan to maintain the quality of its infrastructure for the benefit of all Canadians.

Employee Benefit Plan (EBP) adjustment—increase of $24.8 million

The increase relates to the EBP rate adjustments as per the Treasury Board of Canada Secretariat (TBS) instructions which is applied on the year-over-year change in funding received.

Laboratories Canada—increase of $18.6 million

The increase is mainly due to Budget 2023 funding received to continue supporting the renewal of key science and technology infrastructure. The Laboratories Canada strategy (previously referred to as the Federal Science and Technology Infrastructure Initiative) was established in 2018 as a 25-year initiative to be delivered in phases, to renew federal laboratories and support a collaborative approach to conducting science and technology.

Payments to provide supplies for the health system—decrease of $128.6 million

The decrease is mainly due to lapsed funding from 2021 to 2022 carried into 2022 to 2023. This funding was mainly for storing, deploying, operating and maintaining 4 mobile health units, logistics services, and staffing to continue delivering timely and effective procurement services in support of the Government of Canada’s response to the pandemic.

Other—decrease of $1.5 million

The decrease is the result of funding variances in miscellaneous projects and activities.

2.2 Significant changes to year-to-date net expenditures

As presented in Table 4: Departmental budgetary expenditures by standard object (unaudited)—For the quarter ended December 31, 2023 (in thousands of dollars), year-to-date total net budgetary expenditures have increased by $469.4 million as compared to the same quarter of the previous year ($3,829.0 million in the current fiscal year compared to $3,359.6 million in the previous fiscal year).

Overall, total spending at the end of the third quarter represents 74% of annual planned expenditures for the current fiscal year compared to 69% for the third quarter of the previous year.

Comparative figures have been reclassified to conform to the current year's presentation.

Amounts may not balance with other public documents due to rounding.

The year-over-year net increase of $469.4 million is mainly attributable to:

• personnel—increase of $204.8 million
  • the increase is mainly due to:
    • increase in salaries as a result of the ratification of various collective agreements
    • workforce dedicated to reducing the backlog of pay transactions and to stabilize pay operations as well as workforce required to meet business needs mainly in Real Property Services Revolving Fund activities
• professional and special services—increase of $227.1 million
  • the increase is mainly due to:
    • Real Property Services Revolving Fund as a result of higher business volume related to other government departments, mostly in remediation projects such as Giant Mine and Faro Mine as well as modernization of laboratory facilities such as the Sidney Centre for Plant Health
    • Parliamentary Precinct portfolio for the Centre Block building which was impacted by a construction trades strike last fiscal year and additional work on the Centre Block basement commenced this fiscal year
• repair and maintenance—increase of $57.3 million
  • the increase is mainly due to more work done in several buildings mostly in the National Capital Region such as Carling Campus and Tunney’s Pasture.
• utilities, materials and supplies—decrease of $191.8 million
  • the decrease is mainly due to a change in presentation of vaccines-related transactions following the implementation of the new public sector accounting standard on revenue, which impacted the Optional Services Revolving Fund. The transactions are related to the procurement of vaccines on behalf of provincial and territorial governments, federal departments and agencies. In prior years, vaccines revenues collected and the related expenses were recorded separately. Starting this fiscal year, the cost of vaccines will be reduced by the vaccine revenues (net basis presentation)
• acquisition of land, buildings and works—increase of $102.2 million
  • the increase is mainly due to:
    • renewal projects at Place du Portage, Les Terrasses de la Chaudière and the Lester B. Pearson Building in the National Capital Region
    • projects in Western region for other government departments such as a new hangar at Iqaluit airport, construction of Clyde River small craft harbour and the Bowden Wastewater Lagoon rehabilitation
    • projects in Atlantic region such as Bedford Institute of Oceanography (BIO) Jetty Wharf Replacement
  • the increase was partially offset by a decrease as a result of projects mostly completed in Pacific region such as east end dock extension at Esquimalt Graving Dock and top-lift asphalt installation and road surface conversion in sections of the Alaska Highway
• transfer payments—increase of $97.4 million
  • the increase is due to a timing difference between when a payment in lieu of taxes is issued to municipalities and when the cost is recovered from other government departments
• other standard objects—increase of $10.3 million
  • the increase is attributable to changes in expenditures related to day-to-day operations
• revenues netted against expenditures—increase of $37.9 million
  • the increase is mainly due to:
    • Real Property Services Revolving Fund as a result of higher business volume related to other government departments, mostly in remediation projects such as Giant Mine and Faro Mine as well as other projects in different regions such as the new hangar at Iqaluit airport and the Sidney Centre for Plant Health
    • timing difference of billing for information technology (IT) and contract security services occurring earlier this fiscal year compared to previous fiscal year
    • higher revenues for pension services under Receiver General and Pension Branch due to rising salary costs as a result of the ratification of collective agreements
  • the increase was partially offset by a decrease due to the change in presentation of vaccines-related transactions following the implementation of the new public sector accounting standard on revenue, which impacted the Optional Services Revolving Fund. The transactions are related to the procurement of vaccines on behalf of provincial and territorial governments, federal departments and agencies. In prior years, vaccines revenues collected and the related expenses were recorded separately. Starting this fiscal year, the vaccine revenues will be recorded against the cost of vaccines under "Utilities, materials and supplies", and no longer as revenues (net basis presentation)

3.1 Funding mechanism and coordination

PSPC may be unable to achieve its departmental investment objectives and targets, due to the variety of funding mechanisms employed by the department and the need to have better tools to effectively implement the OnePSPC concept, which may impede on-going relationships with clients and the efficiency and effectiveness of the department’s programs and services. To mitigate this risk, PSPC is taking the following measures, among others:

• improve PSPC’s Investment Management Framework and associated governance, further refine an enterprise-wide prioritization model for all of PSPC’s asset portfolios and align resources to priorities
• implement Project Costing Model Modernization initiative, with focus on 4 key deliverables:
  • PSPC Integrated Project Costing Framework
  • Monte Carlo simulation model
  • costing guides and tools
  • project gating amendments

3.2 Public Services and Procurement Canada's ability to deliver on large-scale and complex initiatives

The effective and efficient delivery of major PSPC initiatives may be impeded due to the nature of large-scale and complex work (project scale, complexities, partner dependencies, evolving security requirements) along with current global events (inflation, supply delays and industry capacity limitations) which may affect the department’s credibility with stakeholders. To mitigate this risk, PSPC is taking the following measures, among others:

• structuring, financing and accelerating the modernization of fit-up programs to deliver on the GCworkplace vision
• developing security, scientific equipment, information management and IT and real property strategies, solutions, costings, and requirements to advance projects and support the federal science community
• refreshing the National Project Management System and creating an Enterprise Governance Framework model for project management to reduce or lessen the impact should the risk materialize

3.3 Real property asset integrity, safety and accessibility

The integrity, safety and accessibility of PSPC real property and infrastructure assets could be compromised by climate change, natural disasters, infrastructure deterioration and original design insufficiencies, as well as human related actions, which may impede the continuity of government operations and the well-being of Canadians. Without sufficient funding levels, PSPC will have difficulty successfully delivering programs, which could lead to additional costs, missed opportunities, and could potentially put the integrity of certain assets at risk. To mitigate this risk, PSPC is taking the following measures, among others:

• undertaking extensive infrastructure renewal activities
• continue delivering various projects to preserve buildings:
  • stop or reduce ongoing deterioration
  • respond to urgent building repair requirements
  • address health and safety issues
  • reduce the cost and complexity of future work
• continue identifying and prioritizing projects according to a rigorous and cyclical portfolio planning process, as well as demonstration of cost savings

3.4 Human resources-to-Pay stabilization

PSPC may encounter delays to achieving full stabilization of pay administration for the Government of Canada (including pay processing and transfer of information to the pension administrator), as a result of the sustained increases in the volume of work received at the Pay Centre from client departments while facing capacity constraints, which could further impede efforts to increase stakeholder trust and lessen liabilities to the Government of Canada. To mitigate this risk, PSPC is taking the following measures, among others:

• providing business intelligence and reports on HR-to-Pay stabilization and delivering monthly timeliness reports to departments and agencies to assist with the identification of upstream issues that affect pay
• prioritizing cases with high financial impact to employees that are more than a year old once intake management is stabilized and additional resources start working on the Pay Centre queue