The City of Toronto is facing a severe budget crunch.1 At the same time, Torontonians are understandably demanding more action on issues such as safety on the TTC subway and the growing mental health crisis. With increasing stresses on municipal services, Toronto City Council will need to find creative ways and make better choices to address these concerns in the future.
One of these choices should be to implement a fair, open, and competitive tendering process for Toronto’s infrastructure construction.
Prior to 2019, municipal infrastructure procurement in some Ontario cities was restricted to firms whose workers belonged to certain building trade unions, functioning effectively as an oligopoly on procurement in these municipalities. Previous Cardus research has demonstrated that these restrictions led to significant decreases in competition for taxpayer-funded infrastructure projects and resulted in significantly higher costs for taxpayers in these cities.2
In 2019, the Ontario government passed Bill 66, known as the Restoring Ontario’s Competitiveness Act. 3This bill amended the Labour Relations Act, 1995, to change the designation of municipalities, releasing them from the restrictive bargaining arrangements described above. At the same time, Bill 66 included a provision that gave municipal governments the option to choose to remain under the previous restrictive bargaining arrangements. In the wake of Bill 66, three municipalities, the City of Hamilton, the Region of Waterloo, and the City of Sault Ste. Marie, exercised their new rights to open-tendering practices to obtain significant savings in their procurement programs.4 An analysis of five specific cases by the City of Hamilton, for example, found that the potential savings arising from the change in law to open-tendering practices could amount to a 21 percent reduction, on average, in the cost of infrastructure projects.5
The City of Toronto chose to adhere to the previous bargaining arrangements, and as such, city construction in the industrial, commercial, and institutional (ICI) sector remains under closed-tendering rules. This choice meant that the city forwent the possibility of increased competition among construction firms for its infrastructure projects, which could have led to reductions in the price of these projects. These savings could then have been returned to taxpayers through tax reductions or reinvested in city services that need more money. The decision to retain the previous arrangements has therefore resulted in a loss of potential benefits to the taxpayer.6
The purpose of this brief is to estimate the potential amount of taxpayer money that the City of Toronto could save by opening up infrastructure-tendering practices in the same way other Ontario cities have done. This brief provides an update to the 2018 Cardus study, “Shortchanging Ontario’s Cities,” using the most recent budget information from the City of Toronto and the City of Hamilton’s analysis on potential savings from opening its tendering practices. As in the 2018 study, we include the Toronto Community Housing Corporation which has similar closed-tendering rules for construction in the electrical, mechanical, and carpentry trades.7 This brief also considers alternative ways that the City of Toronto could use these funds for the benefit of taxpayers by addressing other critical municipal issues such as public safety on the city’s public-transit system.
How Much Construction Work is Subject to Closed Tendering?
We estimate that about $1.65 billion worth of infrastructure construction in Toronto is subject to closed-tendering provisions (table 1).
These figures were calculated from publicly available documents from the City of Toronto’s 2023 budget process. Each city department submits a budget note detailing its operating budget for the upcoming year and its ten-year capital plan.8 The budget notes include both tax-supported services— such as parks, homelessness supports, libraries, municipal child care centres, and emergency services— and the city’s three rate-supported services: water, solid waste, and parking. 9 The budget was approved by City Council on February 15, 2023. From these operating and capital plans, we compiled a list of infrastructure construction projects likely subjected to closed tendering, and their budgeted costs for 2023, taking into account any amendments made later in the budget process.10
Although it is difficult to estimate the full extent of projects subject to closed-tendering provisions based on limited information, we maintain that the numbers presented here are reasonable estimates of the data available to us. That said, it is worth noting that the City of Toronto estimated that it had spent $616 million in ICI construction in 2018.11 At the time, the city’s capital budget was $4.01 billion.12 It grew to $4.45 billion in 2023, representing an increase of 11 percent over the last five years.13 Applying an 11 percent increase on the 2018 estimate for the city’s ICI construction would yield an estimate for 2023 of $684 million. Adding the 2023 capital budget for the Toronto Community Housing Commission, which is $350 million,14 brings the approximation for the total amount subject to closed tendering to $1.03 billion.15 While this number is lower than our estimate above, we believe that our methodology used to calculate the earlier estimate is more precise than simply increasing the city’s 2018 estimate according to the growth of capital budgets. Regardless of which method is used, it is clear that the scope of construction work subject to closed tendering is almost certainly more than $1 billion.