Government procurement is where public and private interests should meet.
The government, with its duty to act in the interests of all citizens, enters into a contract with a private corporation to pay for work that serves all. And since they must act in the interest of all, they should provide an equal opportunity for all qualified bidders able to do the work. That’s how it’s supposed to happen.
Unfortunately, this doesn’t always happen. In Ontario, it’s become increasingly rare.
In several Ontario cities — Toronto, Hamilton, Sault Ste. Marie and Waterloo Region — bidding on municipal construction is not open to all. These contracts are restricted to companies whose employees belong to a handful of favoured unions.
This closed tendering process also happens in Manitoba, and the Vancouver Sun reports the B.C. government will “guarantee (Building Trades Unions) a piece of the action on billions of dollars-worth of publicly funded construction under the NDP government.”
This is a seriously worrying trend that is not only unjust, but is costing us much more for public construction projects and, thus, adversely affecting some of the poorest members in our cities.
In recent months, Cardus has conducted multiple independent research papers with industry leaders and economists on this particular issue. The research can and should inform an evidence-based approach to an issue that deeply influences the fortunes of cities and the vitality of the construction industry.
Restricting tendering comes with real economic and social costs. Officials at unions that benefit from blocking competition might consider such statements “inflammatory and offensive,” but they cannot say they are untrue.
Competitive tendering (even with prequalification criteria) and increasing qualified bidders is universally accepted as best procurement practice by the Organisation for Economic Co-operation and Development (OECD) and by developed countries around the world. Simply put, the OECD considers competitive tendering one of the best methods to prevent bid rigging and corruption in public procurement. It’s not surprising that competitive tendering is the norm (and the law) in most of Canada and around the world.
The data supports competition as the default norm. Cardus recently released No Longer the Best, a case study of the Region of Waterloo, a municipality that was forced in 2014 to restrict competition for construction contracts to companies whose workers had joined the Carpenters’ Union. This study is a follow-up to a broader study done with University of Toronto economists Dr. Morley Gunderson and Dr. Tingting Zhang.
We drew data from a variety of sources, including public bidding websites, the records of contractors who agreed to share historical bidding data and the public records of the Region of Waterloo. In all, we looked at 52 of the Region’s tenders from 2009 to 2017.
As with all research, we understand the limits of our data and our methods; therefore, we have approached this issue from a variety of angles.
Yet some things are indisputable, including the observation that restricting competition blocked 84 per cent of contractors from doing regional work.
Of the 103 firms who bid on the 52 projects we studied, 86 are legally ineligible to bid now because their workers chose not to join the Carpenters’ Union. This is simply a fact.
The lack of competition means we cannot know whether the region and its residents received best value for contracted work after 2014 because the vast majority of firms can no longer bid for it.
We do know, unfortunately, that firms that used to be middling performers in a competitive bidding environment are now winning contracts. And we know that the Region has gone from having an average of eight bidders per project to fewer than four.
Our statistical analysis also found evidence of upward pressure on prices, confirming the previous research done with Gunderson and Zhang. None of this is controversial or surprising. In fact, it confirms other studies conducted by the City of Montreal, the U.K. office of Fair Trading and many others on the benefits of competitive, open tendering.
As noted in the Journal of Antitrust Enforcement, “Although the economic crisis has prompted some policy-makers to reconsider basic assumptions, the virtues of competition are not among them.”
But the biggest cost is democratic. Governments spend money collected from all citizens and they are obligated not to discriminate against them on the basis of how workers exercise their freedom to join one union rather than another (or none). Sadly, this is just what happens in some Ontario jurisdictions, and what B.C. Premier John Horgan is contemplating in his province. Such policies are out of step with fundamental principles of democracy.
The onus is on those who very clearly benefit from a lack of competition to make the case for why restrictions are democratic, serve the public good and give taxpayers the best value. We don’t expect them to make such a case. While it may hurt to read it, No Longer the Best remains an accurate description of the Region of Waterloo and other restricted jurisdictions.
Brian Dijkema is the work and economics program director at think-tank Cardus. Send comments and Industry Perspectives column ideas to email@example.com.