The cancellation of three tenders for road resurfacing work by the City of Toronto this summer not only represents a loss of significant work for contractors but it’s also symptomatic of widespread problems in municipal procurement across the province, stakeholders say.
The broader issues include rising costs, leading to bid rejections, and the refusal of some municipalities to accept cost-containment mechanisms such as fuel and material price indexes. There is also a disconnect between municipalities and bidders on COVID-era efforts by bidders to deal with risk, said one stakeholder.
The three requests for tenders (RFTs) was for work on local and residential roads in Toronto. While some work was slated to begin in 2022, the majority of the work covered by the tenders was due to start and be completed in 2023, stated the City of Toronto’s chief communications officer Brad Ross.
The cancelled tenders equate to a deferral of 20 per cent of the city’s local road rehabilitation budget for this year, amounting to $41 million.
“This is 20 per cent of the city’s (local road) resurfacing budget for this year, so that is a really big chunk,” said Andy Manahan, executive director of the Toronto and Area Road Builders Association. “And the way I look at it is, $41 million worth of work with an inflation rate of seven per cent, if we continue on that track, that means the price for 2023 is roughly $44 million, so it will cost the city more.”
Ross said city staff withdrew the tenders because of “concerns with some of the bids” but would not elaborate on whether the primary concern was high bids or other language issues.
Both Manahan and Ontario Sewer and Watermain Construction Association executive director Patrick McManus said the withdrawal of tenders is a provincewide phenomenon related to spiking costs.
“We did hear in the summer that the City of Toronto had an $857 million operating deficit, and I think that’s of concern to them,” explained Manahan.
“I’m of the opinion that this is more of a cost-cutting exercise for the current year of 2022.”
Manahan pointed to a recent project cancellation in York Region due to bids that were deemed too high.
McManus said the project tendering slowdown across the province is “very real.”
“Some of it has to do with project budgets at municipalities not being in line with the new reality of pricing, so bids are coming in way over estimate.
“In our view, it’s because municipal estimates are not fluid enough. Even a price from four months ago is no longer valid given the rapidly changing circumstances in the market.”
Former Ontario General Contractors Association president Clive Thurston, now a consultant on contracts and bidding, said he has heard the cancellation of projects is becoming a major concern in all sectors. The primary issue is the high cost of the bids.
Reasons he cited for the impasse on bids included a COVID impact resulting in delays in the supply chain, shortage of labour, poor public procurement systems, failure of municipalities to collaborate with bidders in a new era of more complex contracts and rising costs, and failure of municipalities to adjust their budgets to reflect the new cost reality.
The question of accepting fuel and material price indexes in bids by the City of Toronto was high on the agenda of the Broader Construction Associations Consultation Group meeting convened by the city Aug. 18.
McManus explained a few municipalities have adopted fuel indexes, or are close to adopting them, including Ottawa, Seguin County, Perth County, Peel Region and Guelph, but most have not.
Manahan said the municipalities’ reluctance to broaden the language of contracts to incorporate cost indexes — unlike the province, on MTO contracts for example, and Infrastructure Ontario as well — is understandable, given that cities are not allowed to run deficits and they have been cash-strapped since the start of the pandemic with revenues from such sources as transit having dropped precipitously.
“Municipalities and other government agencies are well aware that if the risk is too high for the contractors, they’re either going to do one of two things,” said Manahan. “One is put a premium in their bid, which may mean that the public pays too much, or secondly, they won’t bid on it at all. Those are two pretty stark options.
“I think there’s a third way of sharing the risks.”
Construction stakeholders were to hold a province-wide conference call the afternoon of Sept. 9 to deal with the municipal tendering issue among others.
Meanwhile, the City of Toronto is seeking to “clarify” the RFTs for the three cancelled resurfacing projects, changes will be made to the bid requirements and the city will reissue the tenders sometime this year.
Commented Manahan, “We’re certainly hopeful that there will be some new language that will recognize that we’re in a very uncertain time with respect to material and related prices.”
As for the postponed resurfacing work, he added, “There’s an old adage in the asset management planning regime that it’s better to do work before potholes and other degradation to the road surface happens. It’s cheaper to do it now than to postpone it.”
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