Statement to the Standing Committee on Transport, Infrastructure and Communities

May 21, 2013
Cardus

On May 21, 2013, Brian Dijkema made the following remarks to the Standing Committee on Transport, Infrastructure and Communities in Ottawa, ON. See the briefing notes here.

May 21, 2013

Good afternoon, ladies and gentlemen. It is an honour to be here, and I congratulate the committee for its work on the question of open tendering on federally funded infrastructure projects. I also wish to extend my gratitude for your work within the institutions of Canadian parliament and for your hard work representing Canadians across the country.

My name is Brian Dijkema and I am program director for the work and economics research program at Cardus. Cardus is a public policy think-tank which has a long history of researching the role of construction in the Canadian economy, with a particular focus on how various forms of organizing labour impact the construction sector.

I'd like to make two arguments today:

  1. First, "open tendering" and "closed tendering" are not equivalent to "non-union" and "union" construction. The sector is more complex than that.
  2. And second, the competitiveness and health of the construction industry now depend on an open and fair tendering process, not only for democratic reasons, but also for economic innovation in a sector Canada increasingly relies upon.

On the first point, Cardus has several research publications charting the construction industry in Canada's economy from the 1970s to the present. One of the most profound changes in the sector during this time is the changing face of the way in which construction worked with labour. The construction industry labour force is unique because large-scale projects create large, cyclical demands for a specialized skilled workforce. There was a time when only the traditional craft unions were able to provide this labour and manage those cycles. That is no longer true. Today, a variety of labour pools exist, and work effectively in the industry. Many Canadian jurisdictions now have a "competitive labour pool" on the ground, but public policy has not yet developed to recognize this reality.

A 2003 Cardus paper, Competitively Working in Tomorrow's Construction, noted the increasingly diverse character of construction workforce organization. Far from construction being neatly divided between just union and non-union shops, we noted that there were at least 7 different ways of organizing the workforce:

  1. traditional building trades craft unions,
  2. multiple crafts within one building trades union,
  3. craft unions which expand jurisdictions via multi-skilled tradespersons,
  4. the movement of maintenance unions into construction work,
  5. industrial unions such as the CEP taking on construction work,
  6. the development of alternative unions such as CLAC, and
  7. various unions organizing under project agreements.

The binary presumption that work is organized either on a craft-union basis or an open-non-union basis is not an accurate portrayal of what is happening on the ground in the construction industry.  This is an important shift, ladies and gentlemen: these different organizing models, and how they adapt to openness or restrictions across the spectrum, will define this industry in the medium term.

In 2005, Cardus organized a "Stepping Forward" conference in Calgary, which brought together the full range of employer and labour organizations involved in this sector. The conference was co-sponsored by the Building Trades, Merit, CLAC, CLRA, and PCAC, all of whom came together to discuss the challenges facing the industry. The conference and subsequent report addressed a range of issues including labour supply, apprenticeship training, and quality of life as it applied to working models in the sector.

Not only is there diversity within the organizing models present in construction, but the construction work force is increasingly national in its scope. We conducted two studies for the Construction Sector Council, Working Mobile (2005) and Working Local (2008) in which we surveyed construction workers regarding the motivations and obstacles that they faced in working in different jurisdictions. It became clear that there are a variety of barriers for workers that move across jurisdictions.

A 2008 Cardus presentation to the Economic Club of Canada by my colleague Ray Pennings highlighted some of the economic dimensions of the challenge posed by the gap between policy and realities on the ground. Entitled "Why is Construction So Expensive In Ontario?," this paper highlighted the fact that Ontario's labour relations regime has virtually ignored the development of new models of organizing labour which are more prevalent in western Canada.

This leads to my second argument. In Ontario especially, but also across the country, closed tendering practices are a key example of the outdated lag between policy and current realities.

Ladies and gentlemen, Canada's construction organizing laws need to catch up to the better options available today. This will greatly help our economy, as public procurement budgets rise and rise. And it will bolster our democracy, as Canadian workers are looking for the freedom of choice traditional organizing no longer provides.

Economically speaking, Cardus's Competitiveness Monitor has found that restrictive bidding adds up to a surcharge for public purchasers ranging from 2%—if you accept the model used by the city of Toronto and most frequently cited by representatives of those who tend to be the beneficiaries of a restrictive bidding model—to the City of Hamilton's estimate of 40%, which was provided to it by a consultant retained by the city when Hamilton was made subject to closed tendering.

Stephen Bauld, who has authored legal texts on public procurement produced by Lexis Nexis, suggests that not only is the matter relevant in terms of who is eligible to bid and the cost strictures under which they operate, but that the number of bidders has an impact on the price. Bauld's research suggests that cost decreases range from 20-25% as the number of bidders rises from 2-15.  Bauld suggests three reasons for greater competition in bidding. I quote:

  1. as the number of bidders increases, each participant in the process has an incentive to offer a better price, because it becomes harder for the bidders participating in the process to anticipate each other's behaviour.
  2. Second, a higher number of bids can increase the chance of receiving a bid from a party who will place a high value on securing the contract. Such a party is likely to offer the most competitive price.
  3. Third, an increase in the number of bids makes it more difficult for the bidders to organize on a collusive basis.1

Closed bidding costs our public budgets immensely.

And democratically speaking, there is a more fundamental argument. Disqualifying potential bidders from public works because of choices they make as private citizens runs contrary to Canadian principles. Closed tendering not only costs taxpayers more money, but it embeds one particular labour model to the detriment of other worker organizations. In short, it squelches the tremendous innovation and diversity taking place within the sector.  Workers should be free to choose between these competing models of labour organizations without being arbitrarily disqualified from public works because of their choice.  The public should also be able to benefit from the innovations that are taking place by seeing the full competitive range of qualified labour models competing for public work.

There is an ancient principle on limiting sovereignty which says this: "That which touches all must be approved by all" (Guilielmus Durantis the Younger c. 1266-1330). I would suggest to this committee, and to the government, that a similar principle should be applied to tendering of publicly funded infrastructure projects. That which is funded by all, should be accessible by all.

In other words, open tendering is about fairness. In a free and democratic society, there should be no restrictions which limit otherwise qualified companies from bidding on publicly funded work because of the private affiliations of their employees.

I submit to this committee that the onus should not be placed on those asking for public tenders to be open to all Canadians, but on those who wish to close public tenders to a select group, whatever that group might be. What public policy goal is served when bidding is restricted?

And this is not simply a municipal, or even provincial issue. It is a national issue. Significant amounts of federal funding are subject to closed bidding, including $263 million in Ontario alone according to our review of federal infrastructure expenditures. Union Station in Toronto, and the Pan Am Games Stadium in Hamilton, are two of the more high profile examples of this.

In Manitoba, The Red River Floodway Expansion Project and the East Side Road Project are subject to project labour agreements with certain unions which effectively bar companies affiliated with other unions and non-union companies from bidding on public infrastructure projects under the labour relations model chosen by their employees. These projects have received over $324 million dollars of federal funding, and a significant portion of this work has been subject to restrictive project agreements.

British Columbia too is structured in a manner that allows restricted worker choice and reduced competition. Unions there may "apply to the minister for the right to bargain collectively and enter into a project collective agreement for the duration of [major construction projects]." This effectively allows a given union to petition the minister for exclusive rights on major projects, politicizing public works in unhelpful ways.

We recognize that there are significant interests at play in this discussion. My colleague, Ray Pennings, noted our 2003 Competitively Working paper that

Given the significant dollars, organizational reputations, and market shares at stake for the various companies, unions, and associations involved in Canadian industrial construction, sorting through the spin is an inevitable necessity for any publicly held discussion about labour relations.

Governments, including the federal government, have a significant task to sort through the spin and recognize that open tendering is a strategic concern for the country. It is connected to the heart of the country's jobs and training program. It will help engage diverse communities such as aboriginals. Open tendering will assist responsible resource extraction, and it will ensure that Canada's infrastructure deficit is brought back to surplus in an affordable and fair manner.

This is a question of whether we'll live up to our reputation as a country which recognizes diversity, encourages innovation, and promotes excellence.

As such, we have three recommendations:

  1. That the Minister of Industry commission a study to examine the cost savings which the federal government stands to gain from open tendering.
  2. That the government make reception of federal infrastructure funds conditional on opening public tenders to all qualified bidders, regardless of the labour affiliation of their employees, except in jurisdictions which are prevented by provincial law from doing so.
  3. That the government initiate meetings with its provincial counterparts to determine ways to ensure fair, open, and transparent bidding on projects receiving federal funds, with a particular emphasis on removing barriers to multiple labour pools.

I thank you for your attention and welcome your questions.

Brian Dijkema

Program Director, Work & Economics
bdijkema@cardus.ca  |  905.528.8866 x23

NOTE:

1. McGuinness, Kevin, & Bauld, Stephen; The Price Implications of Government Contracting Practices in the GTHA (Burlington, Ont.: Purchasing Consultants International, 2010).

ABOUT CARDUS

Cardus is a non-partisan, not-for-profit public policy think tank focused on the following areas: education, family, work & economics, social cities, end-of-life care, and religious freedom. It conducts independent and original research, produces several periodicals, and regularly stages events with Senior Fellows and interested constituents across Canada and the U.S.