Governments in Ontario are spending hundreds of millions of dollars more each year for the construction of infrastructure due to closed procurement practices, according to a Hamilton, Ont.-based think tank.
"The idea is very simple. Reducing competition, in any circumstance, drives the price up and reduces the pool of bidders," said Stephen Bauld, a procurement expert and president of Purchasing Consultants International Inc.
"If this trend continues, which only allows the very select few to bid on projects, it will be the beginning of the end for the small and medium-sized contractor."
Bauld co-authored a report recently released by Cardus, which concludes that changing the public procurement process could save between $188 million and $283 million on the construction of infrastructure.
The paper, Hiding in Plain Sight: The Need for Fairness and Fiscal Responsibility in Construction Procurement, examines restriction that are imposed on the public procurement process, by the Ontario Labour Relations Act. In particular, a section of the Ontario Labour Relations Act which requires large municipalities, including Toronto, Hamilton, Sault Ste. Marie, and the Region of Waterloo to be certified as "construction employers" was examined.
Bauld argues that this requirement prevents 70 per cent of local companies from competing for local construction projects. The report found that construction projects that are tendered this way could experience cost escalation of 20 to 30 per cent.
"The unions argue that they are better qualified and have a better safety record, but when you bare out all these things, it is not necessarily true," he said.
"This is not an issue of union and non-union. I just don’t believe in closed tendering for any reason."
According to the report, Ontario is faced with a huge deficit and a debt that will constrain the province’s long-term economic prospects.
The province’s 2014 budget, tabled on July 14, forecast that the 2013–14 deficit will be $11.3 billion. The government is projecting deficits of $12.5 billion in 2014–15, $8.9 billion in 2015–16 and $5.3 billion in 2016–17. The government stated it is committed to balance the budget by 2017–18.
Ontario’s deficits have caused a rapid increase in the net debt to $289.3 billion in 2014-2015, from $193.6 billion in 2009-2010. The budget predicts the net debt will increase to $322.8 billion by 2017-2018.
The debt is increasing faster than the deficit due to a surge in borrowing that is required to finance capital spending. Ontario will borrow an average of $35.2 billion over the next three years.
An important measure of this fiscal problem is the debt-to-provincial GDP ratio, which will hit 40.3 per cent in 2014-2015, according to experts.
In response, Ontario’s government is considering various options in order to find savings for the provincial budget.
The Cardus report said it is possible that the Ontario government may focus on the need to make spending cuts, in order to balance the budget.
However, opening up public construction procurement to competitive bidding represents another way to achieve significant savings in government spending.
"At a time when the province and municipalities are struggling to stretch infrastructure dollars, this report should be a must read," said Sean Reid, Progressive Contractors Association’s federal and Ontario vice-president in a press release.
"We hope the report kick starts those needed conversations about how the public can get better value from public infrastructure spending. The Cardus findings clearly point out the major savings possible by allowing municipalities and other owners to tender public construction projects in an open and fair manner."
Kitchener-Conestoga MPP Michael Harris tabled Bill 73, the Fair and Open Tendering Act, on May 16, 2013 at Queen’s Park.
The Bill proposed to amend the Labour Relations Act, 1995 where municipalities are deemed "construction employers".
Harris argued that this prohibits municipalities from openly tendering construction work, which limits local firms and other competitively priced firms from being considered for projects.
If passed, this Bill would have clarified that municipalities and school boards are not construction employers.
However, the Bill was defeated in the house on Sept. 19.