Ignoring competitive bidding on public tenders puts taxpayers at a disadvantage
Canadians like to think of themselves as pretty smart shoppers. We’re always hunting up bargains, driving across town for sales and using the internet to comparison shop everything from cars to pants.
And, of course, what makes sense at home makes sense in government as well.
When pouring sidewalks or building schools, the more competition and comparison shopping involved, the better the deal will be for taxpayers. A robust pool of bidders on major infrastructure projects ensures the final price provides the best possible value. It also encourages innovation and keeps corruption at bay.
Yet despite all the obvious benefits of shopping around for items large and small, some governments are deliberately ignoring the tremendous benefits of competitive bidding when tendering the biggest and most expensive public projects in the country.
It’s the exact opposite of smart shopping.
The most recent evidence of this worrisome lack of interest in competition in government tendering comes from British Columbia. This summer, NDP Premier John Horgan announced a new Community Benefits Agreement requirement covering all major public infrastructure projects in the province.
Any firm can bid on any project, but a crown corporation has been put in charge of hiring all necessary workers, who are then forced to join a government-approved building trades union within 30 days. This has the effect of restricting bidding by privileging one particular labour model and one group of companies over all others.
The change is already having a big impact on costs. Because of the new rules, the price of the planned $1.4 billion Pattullo Bridge will rise by an estimated $100 million. And future projects are likely to see substantially reduced competition.
Chris Gardner, president of the Independent Contractors and Businesses Association which represents about 2,000 union and non-union construction firms unaligned with the building trades, says many of his members are choosing to forgo new government work because of the restrictive labour rules.
“With the construction industry booming in the province, a lot of companies are just not going to bother participating,” he says. “It’s too risky.” Firms are justifiably worried about losing control of their valuable workers to this new government entity.
As for frequent claims that union-only work results in a higher-quality product, Gardner points out the province has two decades of experience building critical infrastructure projects like the Port Mann Bridge with union and non-union firms, working side-by-side.
“Quality deteriorates when you hand out monopolies,” he snaps.
And having set itself up as the sole employer for construction labour on public projects, the B.C. government is now free to pursue policy objectives that have nothing to do with keeping costs down for taxpayers. The province’s new benefits agreement serves up reams of red tape on everything from enforced diversity to specifying the number of pies and cakes that must be served in work camp dining halls (one of each, plus two kinds of pastries, two kinds of cookies, pudding, canned fruit and ice cream).
The B.C. government seems to think managing the dessert trolley is more important that shopping around for the best possible price.
It’s a bizarre state of affairs.
Ontario has long suffered from a similar lack of competition, but for different reasons. Due to a quirk in the province’s labour laws that’s been exploited by certain unions, several big municipalities have been declared ‘closed shop’ employers and are permanently prevented from taking advantage of robust competitive bidding.
This includes the cities of Toronto, Hamilton, Sault Ste. Marie and Waterloo Region, as well as the Toronto District School Board. Only firms with agreements with certain unions – in particular the United Brotherhood of Carpenters and Joiners of America – are allowed to bid on municipal construction jobs in these jurisdictions, which dramatically reduces competition.
According to research by Cardus, a small Hamilton-based public policy think tank with a keen interest in the topic, when Waterloo Region was certified as a closed shop in 2014, the pool of active bidders on major local infrastructure projects fell from 91 to 15 – a drop of 84 percent.
When just a few lucky firms are allowed to compete on large public contracts, the result is always bad news for taxpayers. Morley Gunderson, a widely-cited University of Toronto economist and co-author of several Cardus studies, observes that “economic theory is fairly straight-forward when it comes to restricting the bidding process and reducing competition for public tenders.”
Among the expected outcomes he cites are higher prices, less money for other municipal services, reduced innovation in construction techniques and a greater risk of collusion and turf-protection among the privileged few bidders that remain.
And there’s no shortage of real world proof of the theoretical problems Gunderson highlights. The gap between the winning and next-closest bids for public tenders doubled once Hamilton was certified as a construction employer in 2005. Overall, Cardus finds closed shop rules push up project costs between eight percent and 25 percent.
When Montreal investigated the impact of corruption on publicly tendered construction projects, it found a similar result. Collusion among a few firms that effectively shut out other bidders inflated costs on Montreal’s public projects by an estimated 20 percent to 30 percent.
Sometimes the tiniest examples provide the starkest evidence. Waterloo Region recently sought bids to pave a parking lot at its small international airport; it received just two submissions. The winning bid was for $658,000. The other, rejected because it fell afoul of union rules, offered to do the same job for $524,000.
That’s an extra $134,000 straight out of local taxpayers’ pockets. Scale that up to waste water treatment plants worth hundreds of millions of dollars, and the implications of an uncompetitive bidding process quickly become enormous.
Overall, Cardus calculates nearly $2.5 billion worth of public tenders have been sheltered from competitive bids in Ontario due to its Byzantine labour laws. At a conservative estimate of 15 percent in inflated costs due to closed shop rules, this means the province’s taxpayers have shelled out a cumulative $371 million in extra costs due to the absence of competitive bidding.
To fix this situation, Ontario’s new Progressive Conservative government could simply pass legislation exempting municipalities from construction industry labour rules. Since Premier Doug Ford’s recent Throne Speech promised to ensure “everyone gets a fair opportunity to compete” in the labour market, many in the construction industry are hopeful this necessary change could be coming soon.
In the meantime, Manitoba is taking steps to permanently inoculate itself against what ails Ontario and B.C. Pending legislation states the province, local universities, health authorities or school boards “must not use, as evaluation criteria, whether the bidder employs unionized employees.” This will keep the focus on cost.
“Manitobans are some of the smartest shoppers in the country,” says provincial Infrastructure Minister Ron Schuler in an interview. “And that should apply to government as well. We want to get the best product at the best price, and that means any company should be able to bid on any project.” Manitoba’s new legislation is a model for the rest of the country.
Fair. Open. Transparent. These are the essential elements of a proper and competitive public bidding process.
Anything else is simply a bad deal for taxpayers.
Peter Shawn Taylor is a contributing editor of Maclean’s magazine. He lives in Waterloo, Ontario.