September 10, 2012

Column | Terrance Oakey

Open tendering will result in best value

As governments across the country face financial pressures, there is a renewed need to take action on outdated regulations and red tape that are increasing costs.

While the federal government requires open and competitive bidding for its own infrastructure projects, the same is not true for all jurisdictions across the country. Instead of allowing open tendering, many jurisdictions have rules that allow only certain companies, with agreements with pre-selected unions, to get all of the contracts. Non-union construction companies or companies with members of the wrong union, aren’t even allowed to bid.

In Hamilton, Ont., of the approximately 260 contractors, only 17 contractors had workers registered with the proper union that city rules require. Ninety-four per cent of the available companies aren’t even allowed to bid on projects. In one case the city disqualified four out of seven bids for a multimillion-dollar construction contract because bidders weren’t affiliated with the proper union.

This also creates problems for workers. If the companies they work for aren’t even allowed to bid on construction projects their tax dollars pay for, how can their company compete and they stay employed?

As Penny Allen, the Greater Essex County District School Board’s superintendent of business argues: “It’s not fair. All contractors pay taxes, but we, as a publicly funded body, can only put our tenders out to certain contractors that are unionized.”

It is surprising that in 2012, so many Canadian cities still have rules on the books that allow contracts to only be bid on by those affiliated with certain unions and exclude all others. Cities like Toronto, Hamilton, London, Oshawa, Thunder Bay, New Westminster and Burnaby, and provincial agencies, like Ontario Power Generation and Hydro One, and even school board have rules in place that restrict open bidding.

Recent media reports on the Toronto District School Board’s problems with repair work show all too well the consequences of such restrictive bidding processes. Costs are inflated ($143 to install a pencil sharpener), productivity is reduced (bills were inflated to cover workers who did not show up), and taxpayers are the ones left paying the price.

Canadians know that allowing only one pre-selected bidder on every single construction contract is not the best way to go.

No Canadian family would operate that way with their own home renovation projects. Opening up bidding allows for competition, leading to lower costs and higher productivity, benefiting taxpayers, who are the ones actually paying the bills.

For example, under the Provincial-Territorial Base Fund, the Canadian Government is investing $2.275 billion. Considering that labour costs amount to as much as 40 per cent of a construction project, and that open-shop contractors offer the same services at up to 10 per cent lower costs, savings to Canadian taxpayers from this policy could amount to up to $91 million - and that’s just one infrastructure agreement.

U.S. studies suggest that closed tendering rules increase the cost of construction between 12 and 18 per cent. The City of Hamilton estimates that restrictive clauses inflate the prices of its construction projects by up to 40 per cent.

By allowing provinces and municipalities to spend federal funds through their closed tendering processes, the costs of projects increase, fewer projects get funded and fewer jobs are created

In a time of limited government funds, we have a responsibility to hardworking Canadian taxpayers to ensure that every dollar the government spends goes as far as possible. Higher costs mean lost opportunities and wasted tax dollars.

Providing equal opportunity for all contractors to submit their best bids will increase competition and ensure that Canadian taxpayers receive the best value for their money. That is why federal rules need to be put in place to ensure that local governments respect federal rules when spending federal tax dollars.

Terrence Oakey is the president of Merit Canada. Send comments to terrence.oakey@meritcanada.ca or editor@dailycommercialnews.com

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