Increased competition critical to counter rising construction prices, report finds

A new report by the Montreal Economic Institute (MEI) finds construction costs in Ontario are too high and maintaining the status quo will have major repercussions for the industry and taxpayers.

“The first thing that motivated us to look into this is the fact that we saw that the cost of construction was going up whether it was for materials, lumber, even labour,” said Maria Lily Shaw, economist at the MEI. “We saw the increase was particularly high in Ontario. We asked ourselves: ‘Why would Ontario be so different to the other provinces?’ ”

According to the report, the regulatory framework governing the construction industry in Ontario is posing additional challenges that further drives up costs.

“We saw that there was Bill 66 that was introduced a couple years back that was actually beneficial to the construction industry in the sense that it reduced costs. It is beneficial to taxpayers at the same time because for public infrastructure it’s the taxpayers that are fronting the cost,” said Shaw.

“Bill 66 is certainly a step in the right direction, but it could be improved. It is these types of barriers to competition in Ontario’s construction industry that must be removed in order to reduce the construction costs of public projects and fully realize the potential for savings in the sector.”

The publication, How to Reduce Construction Costs in Ontario – Modernizing the Construction Industry, talks about the adoption of Bill 66, Restoring Ontario’s Competitiveness Act, which came into effect in 2019. The bill allows different public entities such as school boards, universities and hospitals to consider all qualified companies when accepting tenders for public construction projects, regardless of union affiliation or lack thereof. Before the adoption of the bill, some Ontario municipalities planning to build or renovate public infrastructure could only consider tenders from construction companies affiliated with a certain union.

Researchers at MEI, an independent public policy think-tank, analyzed information from municipalities like Waterloo and Hamilton, which opted into the bill, and the City of Toronto and the Toronto District School Board which decided to opt out of the bill and remain signatory to certain affiliations.

We saw that in Toronto the cost of erecting an institutional building like a school or hospital increased by 17.6 per cent since the start of 2019,

— Maria Lily Shaw

Montreal Economic Institute

MEI concluded the bill has some “blind spots” that prevent its uniform adoption across the province. These include restrictive project labour agreements (PLAs) and the option of opting out of the law when it was passed.

Researchers also looked at how much money cities who opted into the bill have saved over the years compared to those who didn’t.

“The City of Waterloo, for example, saved $24 million in the first two years following the adoption of the new legislation due to a 14 per cent drop in the average price of the winning bid,” Shaw said. “In the City of Hamilton, the municipal government saved an estimated $7 million in a year.”

Shaw said the City of Toronto spent over $1.5 billion in public infrastructure in 2019 but because it withdrew from Bill 66 when it was adopted, the report claims the municipality missed out on savings of between $122 and $381 million.

“We saw that in Toronto the cost of erecting an institutional building like a school or hospital increased by 17.6 per cent since the start of 2019,” Shaw said.

The Daily Commercial News reached out to the City of Toronto for comment.

“The city has not seen an overall change in competition from what the city has historically experienced,” a spokesperson wrote in an email. “The staff report explained that the decision was irrevocable.”

On the Ottawa Civic Hospital project, which uses PLAs, preliminary estimates indicate the project could cost taxpayers between $168 and $525 million more by 2028, states the publication.

“By opting out of Bill 66 they are limiting the amount of bidders that can bid on a public construction project so this increases the cost,” Shaw noted.

Another factor contributing to high construction costs in Ontario is “the rigidity of the skilled trades training programs, which limits the number of available workers in the labour pool” and the predicted shortfall of 100,000 employees over the next few years.

One of three recommendations was that the current certification procedure needs to be replaced with a modular certification system that recognizes the skills acquired at every stage of training so the construction industry would be equipped with a certification structure allowing it to certify more qualified workers.

They also recommended Infrastructure Ontario establish a clear regulatory framework that prohibits public entities from entering into PLAs so that no call for tenders can prevent a company in good standing, or a qualified worker, regardless of union affiliation, from bidding. It would also allow the City of Toronto to open up calls for tenders to competition, regardless of whether companies are affiliated with a union.

The Progressive Contractors Association of Canada (PCA) agrees with the report and said regulatory, legislative and policy changes are needed.

“I think there is further opportunity to box in the ability for any type of public contract coming out of the province to be fairly and competitively bid,” said Karen Renkema, vice-president, Ontario for the PCA. “It could just be the broader public procurement directive, put more teeth into that.

“Let’s think broadly,” she added. “How do we ensure that post-pandemic we are getting the best value for every single dollar that is spent?”

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