Canadian COMPETITION LAW

September 10, 2014

An interesting new Cardus report released yesterday (authored by Stephen W. Bauld and Brian Dijkema), entitled Hiding in Plain Sight: Evaluating Closed Tendering in Construction Markets, argues against closed tendering in public construction procurement. The report also includes discussions of recent Charbonneau Commission developments, construction unions and purported arguments for closed tendering in public procurement (such as for “safety” or “qualification” reasons). One of the central conclusions of the report is that local rules that limit competitive tendering are diametrically opposed to the key principles of public procurement: openness, fairness and transparency. Well worth a read (abstract below with a link to the complete report).

Abstract:

“Ontario is faced with huge deficits and a debt that will hamper the province’s long-term economic prospects. In the face of this dire situation, Ontario’s government is turning over stones to find savings for the provincial budget. While many will focus on the need to make cuts in order to achieve this goal, there is a way to achieve significant savings in Ontario hiding in plain sight: opening up public construction procurement to competitive bidding.

In 2012 Cardus released its Construction Competitiveness Monitor. That paper notes that the pool of eligible bidders on construction projects in three major Ontario municipalities (Toronto, Hamilton, Sault Ste. Marie) was shrunk sig­nificantly by a little known piece of Ontario labour law: the “construction employer” provision of the Ontario Labour Relations Act. We noted that these restrictions affected almost three quarters of a billion dollars of work per year. Since that paper was written, another major municipality (the Region of Waterloo) is in danger—indeed is all but assured—of having its pool of bidders shrunk. The combined effect of this has left Ontario’s citizens with an environment where over three quarters of potential bidders are simply forbidden from bidding on public works worth just under a billion dollars per year.

At the time the monitor was confined to surveying the estimates of the cost-impact of these restrictions. These estimates ranged from 2% to 40%.

This iteration of the Cardus Construction Competitiveness Monitor offers an analysis of the restrictions from the perspec­tive of one of Canada’s leading procurement experts. It asks the following questions: Does union affiliation serve as an objective basis for shrinking the pool of bidders in public procurement? Does it serve the public interest? What are the implications of shrinking the pool of bidders on public construction projects?

A survey of the legislative framework and theory behind public procurement, as well as an analysis of empirical stud­ies, show that limiting public procurement by union affiliation does not promote the public interest. In fact, the vast preponderance of evidence and practice suggests that restricting public bidding in this way is not only far outside of the norm, but can have significant and deleterious consequences for the public interest. Studies show that likely cost increases are on the higher end of the estimates offered by Cardus in our original publication in 2012 (most studies suggest the increases are in the 20-30% range). Perhaps more importantly, such restrictions serve as a petri dish for cor­ruption in public procurement.

The results of this paper should cause politicians, regardless of their partisan affiliation, to find cause to remove the “construction employer status” obstacle from public bodies’ bidding practices. The result will be a more open, fair, and transparent bidding environment in Ontario—and one which will help the government achieve its difficult objective of balancing the budget.”

For a copy of the complete report see:

Hiding in Plain Sight: Evaluating Closed Tendering in Construction Markets

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