Toronto may be about to launch its construction industry into uncharted waters. This is largely because of an recent report published by Toronto city staff on May 29.
The report makes a debatable recommendation to turn the city into a non-construction employer by opting-in to Schedule 9 of Bill 66. City council now needs to evaluate this report and its recommendation and vote in favour of either remaining a construction employer, or opt for a completely open tendering process.
This exact situation arose in 2008 when Toronto’s city manager published Labour and Training Costs in Construction Procurement.
That report concludes “the savings to the City if it were deemed a non-construction employer appeared to be a maximum of 1.7 per cent…or a total of $3.74 million. This is assuming that all the savings are passed onto the City in the form of lower bid prices.”
It ultimately concluded that the “City is currently in a situation where there exists healthy competitions for construction contracts.”
It was also recommended that the city not proceed with an application to the Ontario Labour Relations Board to be deemed a non-construction employer.
What suddenly changed to balloon $3.74 million in potential savings to more than $400 million as recently reported in some Toronto media? The impact of Schedule 9 is exactly what was considered 10 years ago. The assumptions that prohibited the City from adopting open tendering in 2008 are the same as today. Since the 2008 report, the average labour rate increases of the trades have mirrored the cost of living increases.
The answer is nothing has meaningfully changed to warrant departing from the recommendations contained in the 2008 staff report.
However, a series of publications from Cardus, a self-described “non-partisan, faith-based think tank” has only served to politicize the procurement process.
One of the reports, titled Shortchanging Ontario’s Cities, estimates a potential range of savings from anywhere between eight per cent to 40 per cent by adopting an open tendering procurement model. It is the foundational basis relied upon in Toronto’s May 29 staff report.
However, to put it simply, Shortchanging Ontario’s Cities is not based on impartial research and would never pass a peer review if submitted to a respected industry journal. The study cherry-picks examples and cites theoretical “academic estimates.”
It is inconceivable that this same report would be used to disrupt the city’s municipal construction industry.
In fact, all municipalities set an estimated budget for large construction projects. As these projects progress, change orders are often issued for various reasons.
These price escalations are usually attributed to items unrelated to labour: engineering changes, drawings, change in scope, upgrades in technology and other unforeseen events.
These are the primary reasons why municipal projects see price increases. Such escalations are unpopular, and for good reason — but they have nothing to do with unions or labour.
This issue will definitely not be solved by open tendering. What open tendering has the potential to do is increase project cost at an even greater price to the taxpayer. One project awarded to a small contractor bidding above their comfort level will eliminate all the savings open tendering is purported to generate.
The misinformation campaign that claims hundreds of millions of dollars in savings for taxpayers is completely false.
Government procurement is about rules, regulations, policy and procedure. Most important: it is about risk mitigation.
Voting for open tendering places Toronto, the economy and taxpayers at unjustifiable risk. These are the unintended consequences that every municipality should be trying to avoid rather than helping to create.
Bill 66 fails the public sector, the private sector and Toronto’s taxpayers.
Stephen Bauld is a government procurement expert and can be reached at email@example.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.