In 2012, Cardus released its first report on closed tendering in Ontario. The report, “Cardus Construction Competitiveness Monitor: Ontario Municipal Construction Markets,” surveyed the number of Ontarians affected by oligopolies that gave a select group of construction companies in major markets in Ontario exclusive access to publicly funded construction and infrastructure projects. It also provided estimates of the financial scope of the issue for Ontarians by reviewing the capital budgets of affected municipalities, and surveyed the estimates of costs savings that might be achieved if public construction projects were tendered competitively.
Since that time, the issue has grown to include another major municipality—the Region of Waterloo— and has surfaced as a key issue for municipal associations,1 municipalities themselves,2 was put forward as a private members bill,3 and was alluded to in the most recent speech from the Throne.4
This paper provides an update on our initial paper and provides relevant background and data for citizens and policy makers to consider this issue. A review of the municipal budgets of the affected cities in Ontario shows that over $2 billion worth of public construction work in Ontario is subject to oligopolies annually. And a survey of estimated costs that come as a result of these municipalities being forced to work outside of procurement best practice shows that these restrictions are costing Ontarians on average $370 million per year.
Our research shows that closed tendering remains an ongoing challenge for Ontario municipalities that are struggling to build and maintain the infrastructure that serves its citizens in their daily lives, and that is necessary for sustainable economic growth in the province.
Estimates and Budgeted Costs
for projects subject to closed tendering in Ontario
THE ABOVE TABLE CONTAINS ESTIMATES of the total amount of work that is subject to closed-tendering provisions that are the result of an unintended application of Section 126 of the Ontario Labour Relations Act. 5
We compiled this data from publicly available budget documents (the sources for which are noted below), and have attempted to be as careful and comprehensive as possible. You will note that the estimated total cost for municipalities alone is approximately $2.3 billion, up considerably from the $750 million estimated when we first compiled the numbers in 2012. There a number of reasons for this, including the closing of a significant market that was previously open—the Region of Waterloo—in 2014, but also increased infrastructure expenditures in each municipality. (For instance, the Woodward Wastewater Treatment plant in Hamilton, among the top one hundred largest projects in Canada, was not begun when we compiled our original research in 2012.) If one includes the numbers from one other closed regime, the Toronto District School Board (TDSB), the total cost grows to almost $2.5 billion. We believe these numbers give a reasonable estimate of the scope of the issue.
Below you will find a range of estimated cost savings that could be achieved by a return to a bidding regime that is in line with Ontario’s procurement directives, OECD recommended best practices, and that recommended by procurement experts to achieve best value for public expenditures.6 These estimates provide the full range of estimated savings that could be achieved by returning to a competitive public construction tendering regime. Note that we have included the full range of estimates, including those that we have shown to be implausible due to faulty methodologies. The median estimate suggests that savings of approximately 15 percent, or $371 million, could be achieved if public construction tendering in these markets were made open to competitive bidding.
In all cases, there are significant cost savings to be gained if public construction tenders were to be opened to competitive bidding. Even the lower bound estimate, which is unreliable due to a faulty methodology in its derivation, suggests that savings equivalent to costs of 255 splash pads could be gained for Ontario.7 The savings on the upper limit of the estimates would pay for the equivalent of almost three Woodward Wastewater Treatment Plants.8 The likely range of 8–25 percent represents significant funds that could be allocated in multiple ways, depending on the priorities of the government. $197–618 million could be used to build more infrastructure, to be reallocated to social programs, or to lower the tax burden of citizens.
A few important notes regarding these numbers:
1. Estimating the exact dollar amount affected in each municipality is not an exact science. The certification regime in each municipality differs slightly, and, they are applied unevenly in the different jurisdictions. And tenders for individual projects may be partially or totally subject to closed tendering rules. As such, informed judgment is required, and we recommend reading the notes in their entirety.
2. As noted in the “Cardus Construction Competitiveness Monitor,” there are a variety of factors that might cause procurement officers in various jurisdictions to close tenders. Among these are:
a. Sectoral ambiguity: As noted in our papers (all of which are listed below), construction labour law and OLRB decisions can be complex. Union coverage in the ICI sector is often extended to projects that, de jure, need not be subject to closed tendering. By way of example, a paving project in the Region of Waterloo that would typically fall outside of the ICI sector, and thus outside of the requirement for close tendering, was deemed closed by the region.9 There is no way, apart from a detailed review of tender documents, to determine the number of projects that might, de jure, be open but are de facto closed. Thus, while we have excluded roadbuilding work in our estimates for, say, the Region of Waterloo, there is evidence to suggest that some of these projects are closed. They are not, however, included in our numbers.
b. Jurisdictional ambiguity: Different municipalities are obligated by trade unions of different trades.10 For instance, the city of Toronto has obligations to various trades, including carpentry, electrical, and so on; the city of Hamilton is obligated to carpenters; Sault Ste. Marie, to both labourers and carpenters; and the TDSB, to a variety of trades. In cases where municipalities are subject to, say, carpenters, they may still opt to tender a project as closed because it contains components of carpentry work. Thus it is possible that some projects that are deemed to be, say, “electrical” still contain work that is deemed to be within the jurisdiction of a given union. Municipal procurement officials, wishing to avoid jurisdictional grievances, may err on the side of simply closing these bids to avoid the risk of jurisdictional grievances from signatory unions and the legal costs associated with dealing with them.