From Pools to Puddles
How restricted bidding environments harm a city’s ability to achieve the best value for tax dollars.
Whether it’s “Steeltown” (Hamilton), “Cowtown” (Calgary), “Haligonia” (Halifax), or the Slurpee Capital of Canada (Winnipeg), Canadian cities are each unique. If you see a Mennonite horse and buggy beside shiny new tech buildings, you just know you are in Waterloo, Ont. A city’s identity and character are distinct. But beneath that uniqueness lays a common need: infrastructure. This includes things like wastewater treatment plants, bus shelters, roads, libraries, and pedestrian malls.
Public infrastructure is supposed to serve everyone in the city. Just as you do not get to choose whether you pay taxes, so the city does not get to choose whether your tap will spill clean, fresh water. Then why is it that the bidding for construction of new public infrastructure is not open to the public? Why is it blocked from the folks who pay for it? In too many Canadian communities, the construction of municipal projects is limited to a privileged few, which is patently unjust and undemocratic, hurts the public purse, and harms the construction industry.
While the water works are not allowed to limit clean water to a select group of residents, public construction projects are limited to a select group of bidders. Increasingly Ontario’s cities, and other jurisdictions like Manitoba and potentially British Columbia, are restricting which contractors and companies can bid on infrastructure construction projects. But the restrictions aren’t based on contractors’ qualifications. Rather, they are based on which labour union a contractors’ employees belong to. Cities cannot choose to stop sending you fresh water because you joined one union over another, but they are now being forced (or, arguably worse, voluntarily choosing) to stop you from building the plants that supply that water.
In Ontario, for instance, a bit of labour law that was intended to ensure that private companies couldn’t shirk their union obligations is now being used to shut vast swathes of the construction industry out of doing public work. Workplaces that are organized by specified unions in the industrial, commercial, and institutional (ICI) sector of the province’s construction industry must automatically abide by collective agreements that apply province-wide. Moreover, those agreements contain clauses that forbid employers from contracting or subcontracting work to firms who are not affiliated with that particular union. To take a real-life example of this injustice, two workers in the Region of Waterloo signed membership cards with the Carpenters’ Union and certified the region in July 2014. As a result, the Region can now only accept bids from firms affiliated with that union. Workers that exercise their right to choose to affiliate with different unions, or no union, are legally denied the ability to build up their own cities.
Manitoba’s situation is similar: for many years the province has built its hydroelectric projects under project labour agreements (PLAs) that require workers and firms working on these public projects to operate under the collective agreements of particular unions. Contractors who will not are simply out of luck. In British Columbia, while bidding remains open for the moment, the provincial government has hinted at adopting PLAs for its public projects. That would, again, shut out legitimate, hard-working construction contractors for no reason other than union affiliation. That would place union affiliation over and above other factors, such as the price of a company’s bid and its track record on delivering quality results.
The Hamilton, Ont.-based think tank Cardus has argued for a long time that these arrangements with specific unions are fundamentally unjust. They end up causing governments to penalize workers who have exercised their Charter right to freely associate with one union over another, or no union at all. Therefore, employers and contractors—who are legally forbidden by law from influencing their workers to join or not join any union—are held hostage. They might want their firm to work in Waterloo, for example, but to do so their workers have to join the Carpenter’s union. Not affiliated with that union? Then you cannot bid on the city’s work.
Effect on Cities
While such arrangements are unjust for employers and workers not affiliated with the favoured union, they are also harmful for cities and the construction industry. Restricted bidding environments harm a city’s ability to achieve the best value for tax dollars. Cardus recently published a study of the effects of closed tendering on the Region of Waterloo. In the paper, No Longer the Best, the data tell a story of a once highly competitive public construction market—where contractors fought tooth and nail to win public jobs—that is now drifting toward limited competition and mediocrity.
One of the starkest findings was the decline in the number of firms bidding in the closed regime. In the period from 2009-2014 the Region received, on average, about eight bids per project tendered. When competition was shut down in 2014, the Region received an average of less than four bids per project. Anyone working in the industry knows what this means: less competition for city contracts means more opportunity to pad bids and inflate prices. An earlier Cardus study on this issue noted that construction prices with eight bidders were predicted to be 25 per cent lower than if there were just two bidders. Moreover, studies within Canada, the U.K., and the OECD have shown that fair and open competitive bidding for municipal projects leads to cost savings of 20 to 30 per cent. This should worry municipal leaders and civil servants who are obligated to ensure that they get best value for taxpayers’ dollars.
Canadian municipal, provincial, and federal governments have all committed to building infrastructure necessary to facilitate economic growth, and improve the lives of citizens. The public interest lies in finding ways to get more infrastructure for fewer dollars. Yet, the restricted tendering of projects in Manitoba, parts of Ontario, and potentially in B.C. is one of the best ways to get less infrastructure for more dollars.
But there’s more than just infrastructure at play here. What often goes missing in these conversations is the way that our public infrastructure helps those who need it most. Increasing the costs of building libraries, pools, arenas, hydro projects, or water treatment plants means that you get less infrastructure, which disproportionately hurts the poor. Take the City of Toronto, for example, which does not have free and open competitive bidding for its construction projects. Toronto’s community housing stock is facing capital repair backlogs worth billions of dollars. The increased costs the city pays for that work mean it can afford fewer repairs, a clearly negative impact on those who live in social housing. Likewise for libraries and pools. If Toronto is spending more on one thing, it has less to spend on another.
Effect on Industry
While the harm to the public purse from restricted tendering is quite clear, why should the industry as a whole care? Simply put, restricted tendering undermines the health of the construction industry.
Possibly one of the best case studies, again, is the Region of Waterloo. Cardus data show that when the Region had free and open competitive bidding on its construction projects between 2009 and 2014, it received bids from 91 unique firms. This indicates an industry where competition is alive and well. And it also signifies an environment conducive to innovation and the development of specialties in certain types of construction, which allows firms to differentiate themselves from their competitors. If the open period was marked by significant diversity of firms—a thriving construction ecosystem—the closed regime is virtually drained of competition. In the period between 2014 and 2017, with the Region restricting bids to contractors whose workers were affiliated with one specific union, there were bids from only 15 unique firms. In other words, the bidding pool was drained of 84 per cent of its competitors, leaving Waterloo Region with a bidding environment that resembles a puddle more than a pool.
There is no compelling public-interest case for closed tendering.
There are labour force considerations too. The construction industry in Canada is facing major challenges in attracting a new generation of workers. BuildForce, an industry council that gathers labour market information, noted that the construction industry in Canada will see 21 per cent of its workforce retiring this decade. A healthier, more competitive construction industry is more attractive to young people thinking about making their living in the trades. This, along with continual challenges in productivity, should have the industry seeking to diversify in ways that encourage innovation and growth, both things the industry has lacked. It is hard to see why we should be content with allowing governments in Ontario, Manitoba, and B.C.—all of which are major purchasers of construction who shape the industry as a whole—to perpetuate a system which stifles diversity and innovation.
When we think of our cities and our provinces, we all imagine places that are vibrant, diverse, and full of life and vigour. Living in the background of these scenes of business, culture, and city life are the streets we walk on, the lights in the offices, and all the other bits of infrastructure that enable our shared lives together. Our pursuit of vibrant cities should start from the ground up, with a vibrant and competitive construction industry. It is more just. It is better for the public purse. And it is better for the construction industry as a whole.
Brian Dijkema leads the Work & Economics Program at Cardus. Prior to joining Cardus, Brian worked in labour relations in Canada, and has also done work on international human rights, with a focus on labour, economic, and social rights in Latin America and China. www.cardus.ca