A new study claims over $2 billion worth of public construction work in Ontario is subject to oligopolies annually and restrictions are costing Ontarians on average $370 million per year.
Currently four Ontario municipalities — Toronto, Hamilton, Sault Ste. Marie and the Region of Waterloo — are certified as construction employers which means only a select group of unions are allowed to compete for many municipal construction projects.
“It’s an update of a report we did about six years ago in 2012, one of our initial forays into looking at this issue,” explained Brian Dijkema, program director, work and economics at Cardus, the public policy think-tank that issued the report.
“There were a large number of Ontarians who lived in municipalities that fell under those clauses, so in terms of the number of citizens it affects it’s quite a few and the number has only grown since then.”
Research for the update, Shortchanging Ontario’s Cities, involved going through the capital budgets of the affected municipalities and getting a line-by-line, project-by-project estimate, he explained.
“What we tried to do was identify those projects which were closed and to come up with a total tally of what that number would be and that number is pretty significant,” said Dijkema.
“It was about $750 million in 2012 and six years later, it comes in at just over $2 billion.”
Even if you want to be extremely conservative and say only half of that would fall under (closed tendering) we’re still talking about a billion-dollar issue
— Brian Dijkema
There are a number of reasons for the increase, he said, and some things have changed since the initial report was released such as the closing of the Region of Waterloo market in 2014, which was previously open, and increased infrastructure expenditures such as the Woodward Wastewater Treatment Plant in Hamilton.
Dijkema said the numbers give a reasonable estimate of the scope of the issue.
“It isn’t an exact science. We are to some extent estimating whether a project would be in or out. I would actually prefer to have the numbers directly from the cities but you would have to go through each procurement document to find that out and that’s not always available to the public,” said Dijkema.
“In any case, we’re talking $2 billion dollars. Even if you want to be extremely conservative and say only half of that would fall under (closed tendering) we’re still talking about a billion-dollar issue.”
He said the issue sometimes gets lost in the debate over union versus non-union, however, the bigger issue is there are significant cost savings to be gained if public construction tenders were to be opened to competitive bidding, a regime that is in line with Ontario’s procurement directives, Dijkema explained.
According to the report, the median estimate suggests a savings of approximately 15 per cent or $371 million could be achieved if public construction tendering in these markets were made open to competitive bidding.
“The key question is how does the government purchase the infrastructure that everybody needs and are we getting the best value for taxpayer dollars,” said Dijkema.
“There is widespread consensus on the fact that a fair, open, competitive and transparent process is the ideal and this simply doesn’t meet that test.”
One of the challenges in writing the report was getting the exact numbers, Dijkema said, but he believes the estimates to be “reasonable” because of the ambiguity in the sector.
“There have been many cases in the Region of Waterloo and Hamilton where work that was not technically under the ICI sector was still considered closed,” Dijkema said.
“In cases where it is ambiguous there is a fair amount of evidence to suggest the procurement officers would prefer to keep things simple and to avoid the potential litigation of a grievance.”
The ambiguity prevents some companies from bidding on work, he added.
The Toronto Transit Commission is not subject to closed tendering but they will often act as if they are, he claimed.
Those numbers are not included in the study, which also excludes Ontario Power Generation, which is also closed and has some of the biggest projects in Canada.
The Toronto District School Board (TDSB) is subject to closed tendering for most of its construction work and the cost is included as a separate line in the study.
According to the report, if the numbers from one other closed regime and the TDSB are factored in, the total cost grows from $2 billion to almost $2.5 billion.
“To some extent those numbers may be larger but nobody knows,” said Dijkema.
Sean Reid, vice-president and regional director, Ontario, for the Progressive Contractors Association of Canada, said the study shows construction labour monopolies are growing at an alarming rate and taxpayers are paying the price. The report should be a real wake up call, he noted.
“It reinforces what we’ve been saying for a long time, which is closed tendering is a multi-billion-dollar problem that is only getting worse,” said Reid. “The most jarring statistic is 300 per cent growth of this problem over the last six years.”
The PCA has brought the report to the attention of the Doug Ford government.
“The power is entirely in their hands to fix this once and for all by changing and closing a loophole in the Labour Relations Act,” said Reid.
“We’ve certainly brought this new data to their attention and we are hoping that they agree with us that this is a problem that needs fixing and will take action soon.”
The Daily Commercial News will have more industry reaction in an upcoming article.