The building's history starts in 1880, when the Marquis of Lorne, Governor General John Douglas Sutherland Campbell, initiated the National Gallery of Canada movement (source). The Gallery opened to the public on 27 May 1882 (source). It was not on this site, but shared a building with the Supreme Court on Bank North of Wellington (that's the West Block tower in the background - see the same angle in Google Street View).
The building had been constructed in 1873 to house government workshops, and was converted for the use of the Supreme Court in 1881. To the chagrin of the Court's denizens, two rooms of the building housed the Gallery. The building was demolished in 1956, but is commemorated by a plaque on a wall built of stone from the building in the Supreme Court's parking lot):
In 1888, the Gallery moved to Victoria Hall on O'Connor Street (source):
This new location, above the Government Fish Hatcheries Exhibit, allowed the Gallery's entire collection to be exhibited in one room: (image source)
In 1911, the Gallery moved to the East wing of the Victoria Memorial Museum Building (source).
In 1916, the Gallery would be forced to vacate the premises to accommodate Parliament following the fire on Parliament Hill. (source)
"The Gallery was given thirty-six hours to vacate the whole of its available exhibition galleries - located in the east wing of the Victoria Memorial Museum - to provide Parliamentarians with meeting rooms. Gallery staff worked long hours to dismantle paintings, casts, prints, and sculptures, placing them in hastily constructed storage rooms in the Museum's basement. The Gallery would remain closed to the public until completion of the construction of the Parliament Buildings in 1921." (source)
Returning the focus to Elgin Street, the site for what would become the Lorne building had long been conceived as a centrepiece for the approach into Centretown over what would eventually become the Mackenzie-King bridge. You can see what used to be on the site, to the left of the Lord Elgin Hotel at the far right in this aerial view from around 1950 (image cropped from here):
Gréber's 1938 model of Ottawa, which predates the 1941 Lord Elgin Hotel, envisioned the site built as a centrepiece with two flanking rows on the neighbouring blocks to the North and South. (Image cropped from here)
Gréber's infamous 1950 report amended his previous design to incorporate the Lord Elgin. He called for the vacant site to be used for a National Theatre (source) with the National Art Gallery at Cartier Square (where the Ontario courthouse and City Hall are now situated).
Parking should be provided with new public buildings, Gréber wrote, and "the site reserved for a future public building on Elgin Street between Albert and Slater offers similar possibilities for an underground garage, with direct entrances on the lower level on Slater Street." (source)
The Lorne building was eventually built to Gréber's specfications for buildings on Elgin between Slater and Sparks. Namely, that "their alignment should correspond with that of the middle facade of the Lord Elgin Hotel, and their heights should follow as closely as possible the cornice line already imposed by the Langevin Block, the Post Office and the wings of the Lord Elgin Hotel. Again, there is no question of enforcing similar architectural treatment, but, in volume and design, the facades of future buildings should maintain the unity of this important street." (source)
However, because of the site's location on the axis of what would eventually become the Mackenzie-King bridge, "the building in front could appropriately break the line of the general composition on this side of Elgin." (ibid.) Here's a rendering from the Gréber report, of how the theatre might look opposite a theoretical City Hall across the canal near the University of Ottawa's Tabaret Hall: (source)
In 1952, a Canadian architecture competition is held to design the Cartier Square building, but the competition is suspended in 1954, and the building at Elgin between Slater and Albert, designed as an office building by Winnipeg architectural firm Green, Blankstein, Russell and Associates, is chosen to be adapted for use by the Gallery (later to be named for the Gallery's founder, the Marquis of Lorne). (source).
The seven-storey building cost $6 million to build, and the Gallery moved in in December 1959. "The Lorne Building boasts 33 gallery areas, as well as offices, conservation laboratories, a library, a 450-seat auditorium, workshops, and storage rooms." (ibid) It contains 195,000 square feet of indoor space, plus a 32,000 square foot surface parking lot behind it. (source)
Innovative temperature and humidity controls led to "cladding displacement and deterioration" in 1961, becoming a recurring case study in building envelopes for Public Works' Division of Building Research, as documented in the Canadian Building Digest (summarized here).
The Gallery began another design competition in 1976, and construction on Moshe Safdie's new building (he also designed the expansion to 111 Sussex) began in 1983. The Lorne building closed in 1987 and the current National Gallery of Canada building opened the following year. (source)
The Lorne building would then revert to its originally-intended function--a federal office building.
Last December, an Environental Assessment was initiated by Public Works, and notice of the EA's commencement was posted to the Canadian Environmental Assessment Agency's website on February 9, 2009.
The project hit the papers early last week, with details trickling out. On October 5, the Ottawa Business Journal calculated that a 12-storey building on the site would fit the zoning and "is keeping with the rest of the buildings on the block," but neglects the Elgin Street elevation's seven-storeys, which is right in line with the Lord Elgin and the British High Commission, as shown in this photo.
The higher height is justified in that article and in a subsequent OBJ article by the taller Sixty-Six Slater behind the Lord Elgin. But from many angles, it's clear that the Lorne building's height is just enough to keep it from sticking out like a concrete sore thumb, as the Slater building does. A much taller Lorne building on Elgin would certainly overwhelm the historic Lord Elgin hotel.
On October 6, the Ottawa Sun reported that the building will be be redeveloped with a "lease-purchase" type of P3 agreement. “This new building will be designed and constructed to meet LEED Gold certification as well as the National Capital Commission-approved urban design guidelines,” the Sun quotes Public Works Minister Christian Paradis.
In another article, the Ottawa Business Journal reported that the new building will house the Department of Finance and the Treasury Board Secretariat, as well as some timelines: a request for qualifications is ongoing until 27 November 2009, demolition and construction would begin October 2010, with occupancy by March 2014. (source)
Whatever is built on the Lorne site, Gréber's advice still holds true: at least on the Elgin elevation, the new building should reflect the scale of its neighbours, and it should present an architectural landmark to those coming across the Mackenzie-King bridge. There is an opportunity for a spectacular view here, and it can't be spoiled by yet another square ugly office building.
Edit June 2011: URBSite has just posted even more historical information about the Lorne building