Staunching the Loss

A construction market of almost $2.5 billion is about to get a whole lot more competitive. Bill 66, also known as the Restoring Ontario’s Competiveness Act, would restore competition on bidding for construction work in Toronto, Hamilton, the Region of Waterloo, Sault Ste. Marie, and a host of other public bodies including the Toronto District School, the University of Toronto, and others.

In doing so, these communities will be able to experience the benefits of competition that have been denied to them for, in some cases, over 30 years. In Ontario, a little known clause of the Ontario Labour Relations Act treats public entities like the City of Toronto, the Toronto District School Board and Ontario Power Generation, as if they are private companies, and forces them to open bids to a select group of companies that are affiliated with a particular union.

The result is that these public entities are not able to take advantage of having a deep and diverse pool of bidders, each bringing their competitive advantage to the service of the public. Cardus conducted research in one of those closed municipalities — the Region of Waterloo — that showed that their bidding pool went from a deep and healthy pool of about eight bidders per project to a shallow and significantly less competitive pool with an average of 3.5 bidders per project.

Why does this matter? Because, as another research paper written by Drs. Morley Gunderson, Tingting Zhang, and myself showed, less competitive environments put upward pressure on prices in closed environments. In our comparison of open municipalities, and closed municipalities, the gap between bids on public works (an indicator of how close the prices came to the competitive price) increased by over 100 per cent. This suggests that prices were moving in the same direction as a hot-air balloon with the fire on: up, up, and away.

These studies are in line with the vast preponderance of data that shows that restricting bidding can raise prices. Surveys suggest that these increases range from approximately eight to 25 per cent. Money for infrastructure in Ontario doesn’t exactly grow on trees. The provincial government is highly indebted, and is severely constrained in the amount of infrastructure money that it can offer to municipalities for water treatment plants, roads, sewage systems, bridges, and transit.

And municipal tax bases are themselves tapped out. As a result, restricting tendering to a small group of companies results in an unholy trinity of policy choices for municipal and other public leaders: they must either take money for infrastructure from other programs (like affordable housing, transit, or social programs), build less infrastructure, or raise taxes.

Bill 66 would change public entities back to non-construction employers, and thus bring them back into a world where all qualified companies can bid, regardless of their workers’ union choices. Simply put, introducing greater competition means real money for Ontario’s municipalities especially.

Our research shows that $2.3 billion worth of city construction work is subject to closed tendering right now. Here’s how that money breaks down by municipality (and these numbers do not include some major projects like Hamilton’s LRT, the price tag for which runs into the hundreds of millions of dollars’ worth of construction):

City of Toronto$1,697,580,770
Region of Waterloo$317,227,933
City of Hamilton$235,628,000
City of Sault Ste. Marie$45,429,750
TOTAL MUNICIPALITIES$2,295,866,453

Municipalities stand to gain significant room in their budgets as a result of this competition, reaching as much as $600 million annually. The City of Toronto alone stands to gain almost a quarter billion dollars per year. For a city that is screaming for increased provincial funding on everything from transit to affordable housing, the policy change would be a boon.

What is interesting about this particular issue is that, while the economic benefit of opening competition is significant, the basic question of public justice might be even more important. Currently workers who exercise their freedom to associate with different unions than the favoured ones, or workers who choose to join no other union at all, are prevented from working in their own cities simply because of that choice.

And therein lies the key question that legislators have to ask as they consider this bill: Is there a compelling public interest in restricting bidding because of union affiliation? There isn’t. Concerns about safety, quality of work, on-time delivery, and so on are most effectively dealt with by the purchaser of construction through the prequalification process. The fact that many Ontario municipalities benefit from bids from a diverse array of companies — union, alternative union, and non-union alike — suggests that the only groups that benefit from the restrictions are the companies who are given a free pass on competing with the full range of players in Ontario’s construction industry.

But let’s not make the mistake of raising the lack of competitive bidding to the status of being the only problem facing Ontario’s infrastructure needs. Certainly, it is a critical and important first step. But here are other steps the province must take too:

  • Instituting apprenticeship and training programs need to allow creative arrangements for hiring workers;
  • Updating the construction industry safety regime to allow more flexibility and innovation;
  • Introducing modern labour relations rules would allow workers to meaningfully choose to join, leave, or change unions, and let new contractors into the market;
  • Improving construction industry data collection in order to reflect the true diversity of the workforce by not focusing solely on a binary union/non-union environment.

“The infrastructure governing construction labour in Ontario remains centralized, organized to control rather than respond to market drivers or new modes of worker organizing,” said Ray Pennings, Cardus executive vice-president, while speaking to the Economic Club of Canada. “Add to that the fact that our skilled construction labour force faces demographic pressures and the outlook for Ontario construction industry is not as rosy as we’d wish.”

But the move toward open and competitive bidding for construction projects province-wide contained in Bill 66 would help immensely. And if the province follows up with further action on reform in the construction industry, the province will be on a much more solid footing for the coming decades.


Brian Dijkema is Program Director, Work and Economics, at Cardus, a Hamilton, Ont.-based think tank dedicated to the renewal of North American social architecture.

 

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