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We warned you, Toronto

April 12, 2017

Back in 2014, Cardus published a paper on the tendering situation in Toronto and noted that "the structural framework for bidding on major municipal projects in is analogous to those which were present in Quebec that all parties suggest led to the culture of corruption traced in the Charbonneau report."

Back in 2014, Cardus published a paper on the tendering situation in Toronto and noted that "the structural framework for bidding on major municipal projects in is analogous to those which were present in Quebec that all parties suggest led to the culture of corruption traced in the Charbonneau report."

Last week, lo and behold, Toronto learned from Auditor General Beverly Romeo-Beehler that "there were telltale signs of bid-rigging and inflated pricing” on construction contracts in the city, and that many “contracts were consistently dominated by a small group of contractors over the past five years."

While the Mayor’s office notes that it’s “extremely troubled” by the findings, there is absolutely no reason why his office, or any of us, should be the least bit surprised. In fact, City officials know that the problems and the costs were hiding in plain sight (which, incidentally, is the title of our 2014 paper).

Anyone with even an inkling of knowledge of doing construction in Toronto knows that severely limited bidders—the very thing that leads to collusion—is the norm. In fact, it’s the legally enforced norm. Toronto, along with municipalities representing almost 30% of Ontario’s population, and other public entities like Ontario Power Generation, and the Toronto District School Board, are forced to work within labour laws which artificially limit the pool of companies that can bid on its work to a select few.

The bid rigging and inflated pricing uncovered by the auditor general are merely the tip of the ice-berg in a city where inflated pricing and cozy relationships have been commonplace for decades. In a paper published earlier this year “Restricted Tendering: Protection for Whom?” Dr. Morley Gunderson and I noted that the preponderance of economic literature on the subject suggests increased costs ranging from 8-25%, and also pointed to the overwhelming consensus that restricting tendering leads to increase collusion, which increases costs, and undermines confidence in public officials.

The culture of corruption might have migrated east from Montreal to Toronto, but the symptoms are the same: a general acquiescence to everyone keeping their heads down, so as to maintain any remaining degree of competition which still exists. In fact, as a private letter, written in 1998, from the Toronto Construction Association to then Mayor Mel Lastman notes that the limited capacity Toronto has to allow any competition exists only because of the good will of a few unions which use the threat of even greater restrictions to maintain their grip on Ontario’s most lucrative construction market. The threat of what could happen was right down the road in Hamilton, where restrictions are even more severe.

If Toronto—and Ontario—wants to bring its procurement practices, and its labour laws, into the 21st century, it would do well to follow the advice of the OECD. They say that the best medicine for corruption is promotion of “competition by maximising participation of potential bidders by . . . establishing participation requirements that are transparent, non-discriminatory, and that do not unreasonably limit competition.”

Thus, while the auditor general’s recommendations are helpful, they are the equivalent of giving an aspirin to a patient who’s bleeding out. If Mayor Tory is serious about "transforming and modernizing" the city’s bid process to ensure things are fair, he would be greatly assisted by attending to what’s causing Toronto to bleed money and credibility: a procurement regime that follows what economists, and indeed our own governments, have already outlined as the ideal: more competition.

Topics: Markets, Work