Transport Committee on April 30th, 2013

[The Chair, Conservative, Larry Miller]

I'll call our meeting to order.

First I'd like to welcome our guests: Mr. Oakey, Mr. Pamic, Mr. Dumais, thank you very much for coming.

With that, if you could keep your presentations to 10 minutes or less, I would appreciate it. Then we'll go to questioning.

Mr. Oakey from Merit Canada, we'll start with you.

[Terrance Oakey, President, Merit Canada]

Good afternoon. Thank you to the committee for the invitation to participate in this study.

Today I'll focus on the need for open tendering of all contracts that involve federal funds. Only through a system of open tendering can you ensure competition and respect for taxpayer dollars.

I will return to that point shortly, but first, it is important to understand more about Merit Canada and the role our members play in the construction industry.

Merit Canada is the national voice of eight provincial open shop construction associations. Open shop companies and workers build more than 70% of the industrial, commercial, institutional, and residential construction projects across Canada. Of the 1.26 million Canadians working in construction, 900,000 are in the open shop sector.

Despite mischaracterizations by some, the term “open shop” simply describes a workplace where membership or non-membership in a union is not a condition of employment. In the construction sector, it specifically refers to a situation where owners, developers, or general contractors do not consider the union status of a contractor's employees when awarding a project. For our members, the term means freedom of choice and fairness in the workplace.

The fact that 70% of construction in Canada is carried out by open shop companies demonstrates the importance of our sector. It also demonstrates the need for those companies to be involved in bidding on public sector contracts, since they form such a large part of the competitive pool in construction.

Instead, far too many jurisdictions across Canada continue to practise closed tendering. There, bidding on public sector contracts is restricted to specific unionized contractors as detailed in collective bargaining agreements.

Our message is very simple: when government funds infrastructure, all qualified contractors should be allowed to bid on those projects.

A degree in economics is not needed to understand what happens when you shut out 70% of the construction industry from competing on public infrastructure. Costs go up and quality goes down. Some U.S. studies suggest that closed tendering rules increase the cost of construction by between 12% and 18%.

Federal procurement rules would never allow union-only schemes for projects that it exclusively funds, yet far too many jurisdictions have rules that limit competition.

For example, the federal government recently contributed $28 million in stimulus funding to a project in the city of Hamilton. Of the approximately 260 qualified contractors, only 17 had workers registered with the union that the city rules require. The other 243 contractors, or 94% of the available workforce—some of your constituents—were not even allowed to bid or work on this project.

We believe this is unfair, and it only serves to increase the costs and keep some of your very constituents from working on public infrastructure projects.

Federal funds are collected from all taxpayers. It is unjust that companies that pay federal taxes and workers who pay federal taxes are precluded from bidding on contracts paid for with their own tax dollars simply because they are not part of the right union. Everyone should have the same opportunity to work.

At a time of massive fiscal deficits across all levels of government, continued support for closed tendering is untenable. Open tendering is about fairness for taxpayers and workers.

I'll give you a couple of other examples.

The closed tendering provisions in Montreal, according to a 2004 City of Montreal report, inflated the initial price tag of projects 30% to 40%. Sewer and aqueduct projects in that city were 85.5% more expensive. When the federal government agrees to cost share a $300-million project, you are potentially spending $85 million more than required just because of union-only contracting.

This is partly to blame for the crumbling infrastructure across our country. Our money is just being wasted. There are a lot of new roads, bridges, and public transit that are simply not being built.

There are a couple of other things that happen, which you may not be aware of, when the federal government funds these types of projects. They are not actually funding infrastructure, but in some cases, political causes.

For example, the building and construction trades collective agreements require employers—the same ones who had the exclusive right to bid on the project—to fund their Canadian political action fund.

IBEW collective agreements allow for workers to be taken off the job site to engage in “other organizational activities”.

PSAC, the federal public sector union, has in their collective agreement, for work that involves construction, a requirement that employers pay into the “social justice fund”.

Others require payment into a sports and entertainment fund, and some others a “promotion fund”.

Is this really a good use of scarce infrastructure dollars? Can cities really claim poverty when signing contracts that require them to divert money that should be going to build schools to pay for a sports and entertainment fund of a union?

To sum up, open tendering is a partial solution for the massive fiscal problems facing every level of government offering a more competitive bidding process that will lower project costs. Closed tendering is anti-competitive, is inefficient, and is indefensible from a public policy point of view. It is time to end this practice for any project receiving federal funds.

If you would like more information, I invite you to visit our website, opportunitytowork.ca. Thank you again for the invitation to appear.

I'll turn it over to my colleague, Walter Pamic, who has some other comments.

[Walter Pamic, Representative, Power-Tek Electrical Services Inc., Merit Canada]

Good afternoon, and thank you for inviting me to be here today.

It's my pleasure to have the opportunity to speak to you. I'm a local Ottawa electrical contractor and small business owner. There are many schemes that we have to contend with in the construction industry. Free and open tendering is a very important one that shuts us out of being able to bid on projects.

Just this weekend I was reading The Ottawa Citizen and I saw that there was a tender for the Ottawa International Airport. If you read the fine print it says, “subject to local union affiliations”.

I find it rather disgusting that my tax dollars go into projects that I cannot bid on for no other reason than my employees choose to be union-free. About 70% of the construction workforce in the entire country of Canada is union-free, so it really shuts out a tremendous amount of companies very similar to mine.

The Ottawa Conference Centre is another classic example. It was a union-only project and shut us out. Perhaps there was no other reason than the fact that again my employees refuse to belong to a union. I shouldn't say they refuse to. They have the option to do so, if they so wish; they just choose not to.

We have stabilization funds that are utilized against us. These are funds that unions collect from their employees in order to use those funds to bid against us.

We have ratios. I'm not sure if you're aware that my company employs approximately 30 electricians and 10 apprentices. We are required to have three electricians for every apprentice that we wish to hire.

As an example, if my company was in Manitoba, where they have a 2:1 ratio, I could actually have 60 apprentices for my 30 electricians. We bring into the mix the Working Families coalition, an organization which I would say has been very strongly opposed to free and open tendering, and which likes to have many of these restrictions put in place. We realize this is more of a provincial issue than a federal one, but it's just one more issue that makes it very difficult for organizations and/or companies like mine to bid on these types of projects.

Thank you.

[The Vice-Chair, NDP, Olivia Chow]

Thank you.

Monsieur Dumais.

[Jocelyn Dumais, President, Linden Concrete Forming]

My name is Jocelyn Dumais, and I am a construction contractor in the Ottawa area. I live in Quebec.

October 19, 2001 is a little-known date on which the Supreme Court of Canada ruled in the Advance Cutting & Coring case, stating that the freedom to belong to a union also meant the freedom not to belong to one.

I am familiar with the case because I am the one who led the charge from start to finish. And oddly enough, today my company cannot bid on certain federal government contracts. It would seem that the federal government either does not respect or does not understand the decision issued by 8 out of the 9 justices on the Supreme Court of Canada: no one can be forced to associate.

In 2013, I am still excluded from certain construction projects because the federal government does not respect that decision. Something is wrong. It is important to note that we challenged the constitutionality of Quebec's act respecting labour relations in the construction industry. Pursuant to that act, all workers in Quebec must belong to a union.

As I said, the decision was rendered on October 19, 2001, but still today, between 20 and 40 people a week are brought up on charges before the Gatineau courts. Why? Because they worked or dared to work without the necessary papers—and this document proves it. I have been documenting the phenomenon for a year. It happens every week.

Mr. Coderre might notice that the number of people appearing at the Montreal courthouse exceeds 20 or 40. The cost of the justice system might be more reasonable if time wasn't wasted on convicting people because they dared to work. We talk about bringing foreigners here to work, but we're imposing $200, $500 and $800 fines on people who are already working here, simply because they are not unionized. That's a common occurrence.

Last week, I believe, Mr. Coulombe was defending Quebec's system, saying that everything was fine. I have no choice but to object. There are too many injustices in this industry. I say yes to freedom of association, yes to the freedom to organize, but that should also mean I have the right to bid on the contracts of my federal government without being forced to belong to a union.

Some large companies have reached agreements with unions. They have no choice: the agreements are signed. Take the company PCL for example. It signed an agreement with a number of central labour bodies and is under obligation to hire unionized contractors. The federal government should object to that and award contracts to non-unionized shops or ones that do not force their members to belong to a union.

There's a cost attached to this. Workers receive benefits that could be provided in other ways. The cost for each employee is about 20%. We sent our armed forces overseas to fight for freedom, but what about here, in Canada? We are forcing people to unionize, and when they don't want to, it's off to court with them and, in some cases, jail.

Is that what passes for justice in Canada? Is that why I spent 10 years fighting? In 2001, the justices on the Supreme Court of Canada sided with me, but in 2013, a decision was apparently made to disregard that ruling and to keep doing the same thing. That's not justice. What I want is the right, like any other unionized contractor, to work on federal construction projects, because those are Canadians' and my tax dollars at work. I want all of my employees to be able to benefit from them. And that isn't the case now.

Thank you.

[The Vice-Chair, NDP, Olivia Chow]

Thank you.

Mr. Aubin, you have seven minutes. Go ahead.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you, Madam Chair.

Thank you to our witnesses for being with us this afternoon.

I want to point out, for everyone's benefit, including my own, that our study pertains to how competition can make infrastructure dollars go further, in other words, how the federal government can get more bang for its infrastructure buck.

My first question is for Mr. Oakey.

In your presentation, you talked about cases in which contracts were awarded as part of closed tendering processes. You said the practice resulted in increased costs and lower quality work. I can appreciate wanting to benefit from a bidding process that is open to everyone. I am not sure whether there was a direct relationship between the two events, but you cited cases where the cost of infrastructure work had risen considerably, if not astronomically, such as in Montreal.

Are we really establishing a link between the tendering process and the financial goal of projects? Have we not ruled out the possibility that misappropriation might have something to do with the topic we're discussing this afternoon, that being competition?

[Terrance Oakey]

I think, absolutely, in the city of Montreal it's a matter of public record now that there's been misappropriation, but if you take a city like Hamilton, where there's closed tendering for all city work, there was a recent waste-water project that was being tendered, and they hired outside consultants to develop a budget for the project. The outside consultants, engineers, and others in the industry decided they should budget around $29 million for the project. Then, of course, closed tendering happened, where only unionized contractors were able to bid, and the low bid on that project was $53 million. It was about 83% over budget for no other reason. No one else could describe it. It was just that there was only one union that could do the work and that's what they were charging.

They could have charged $104 million. I don't know why they only charged $53 million. There was no competition from outside to even make it $53 million. Given that it was an 83% increase, I think that this was probably what they felt maybe was reasonable—I don't know—but there are many, many projects. In the City of Hamilton alone, their staff report has suggested that their closed-tendering rules over the next 10 years would cost the city an additional $1.1 billion.

So there's a clear link, and that's why the City of Hamilton, Kitchener-Waterloo, some other cities, are fighting certification, because once that happens and once the city's certified, they have to use that union for all their work. They know there are huge cost implications, and it means one of two things: either you cut policing, cut the amount of roads you build, cut the amount of hospitals you build, or you raise taxes.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you.

Does your position on open tendering processes, as it relates to competition, apply to all sectors? Knowing that you would be appearing this afternoon, I did a bit of research and found a sectoral analysis in OECD countries examining whether competition promotes productivity gains. It was authored by Romain Bouis and Caroline Klein. Perhaps you're familiar with the study. I'd like to hear your view on one of the first findings, which translates as follows:

[...] unlike studies showing that competition always has a positive effect on productivity gains, a non-linear relationship seems to exist between markups and productivity gains. In sectors averaging high margins, the productivity gains are greater in countries characterized by relatively strong competition.

So it would seem that the competition game is not as important as you suggest across all sectors of the economy, just in the manufacturing sector.

Do you think all sectors would benefit from taking part in open processes for infrastructure projects, or do you think there are differences depending on the sector?

[Terrance Oakey]

There may be differences in sectors. I can only speak to construction.

In construction, most reputable studies that have been done on the issue show a premium of between 12% and 18%. That's overall. When you look at specific regions where there's further shrinkage of competition, it can be as high as 30% to 40%.

Really, the question that governments have to ask is, why would they want to pay 30% to 40% more for public infrastructure simply to restrict bidding? There's no reason to do it for quality or safety. There's no reason to do it. By allowing it to happen, and by other levels of government funding projects that are under closed-tendering provisions, you're paying up to, in the City of Montreal report on aqueduct projects, 85% more. I know that as a citizen, if I'm funding a $100-million or a $1-billion subway expansion or hospital expansion, I'd rather have two hospitals than throw $85 million down the drain, because there's no reason for it to happen.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you.

My next question is for Mr. Pamic.

I believe you said in your presentation that there was a difference in the licensed electrician to apprentice ratios. Where you are, it's 2 to 1, but in the private sector, it's 3 to 1, or the reverse.

Despite that difference, can you confirm that the quality and training of workers are exactly the same or comparable in both cases?

[Walter Pamic]

I can only speak to the construction sector, sir.

I can tell you that the formalized training that electricians and apprentices go through in the province of Ontario is exactly the same, regardless of whether you are an open-shop tradesperson or a closed-shop tradesperson.

I believe this is also true for virtually every other province in Canada.

[Robert Aubin, NDP, Trois-Rivières, QC]

Does a licensed electrician's having to supervise a higher number of apprentices affect the quality of the work or training?

[The Vice-Chair, NDP, Olivia Chow]

You have one minute to answer.

[Walter Pamic]

We've never seen any studies that show that whatsoever. If I look at Manitoba, as I mentioned before, they have a 2:1 ratio, so two apprentices to one electrician. British Columbia has no ratios whatsoever. Alberta has other schemes where senior apprentices don't factor into the equation.

The reality is that work today is inspected by electrical safety authorities. It's inspected by building inspectors, by engineers. Companies wouldn't be in business if they didn't produce good quality work and good quality people.

[The Vice-Chair, NDP, Olivia Chow]

Monsieur Coderre.

[Denis Coderre, Liberal, Bourassa, QC]

Thank you, Madam Chair.

Good afternoon, gentlemen.

Mr. Oakey, I have a little problem. I'm from Montreal, and the way you're talking is like you're making a link between unions and collusion. I have a problem with that.

I'm a radical centrist, so I'm not biased.

I'm trying to understand here, if you have collusion with five companies which among themselves say, “Okay, this is your time and this is your time”, that there will be a hike, because at the end of the day it's not only based on the bid, it's also based on the future extras.

Explain to me, or correct me if I'm wrong, why you say that because it's a closed bid—and I'll come back to that—and you need to have the unions, that it will have a direct impact on the price itself.

[Terrance Oakey]

I think every other jurisdiction that has union-only contracting has shown that it increases costs. I do think there is another premium being paid, and that's a matter of public record. I don't think anything is there in terms of the union-only dynamic. There is alleged collusion going on among contractors. If you want, we can talk about the closed shop versus open shop in terms of productivity. If you look at cities that don't have that other element that is being highlighted for Montreal, you still have a price premium.

Wherever you shrink supply and you have the same demand, the prices are going to go up. You limit the amount of people who can work because those who don't want to join a union aren't going to work. You have five or six large contractors who get all the bids, so that increases costs as well.

It's not just union-only contracting; it's one part of it. But it definitely has an impact.

[Denis Coderre, Liberal, Bourassa, QC]

Basically you're anti-union, period.

[Terrance Oakey]

No, not at all.

I think employees who choose to belong to a union have every right to do so as they exercise their free choice. I also don't think that employees who vote on a Monday not to have a union should be required to join a union by the government simply to work in construction on projects.

I think that goes against a fundamental charter right against forced association.

[Denis Coderre, Liberal, Bourassa, QC]

Personally I believe that if you impose the lower bidder all the time, it will have an impact at the end, and that promotes collusion. I might be wrong, but maybe that is the situation.

That's point number one.

[Terrance Oakey]

I don't—

[Denis Coderre, Liberal, Bourassa, QC]

Every time you say to take the low bidder, you don't necessarily have the quality and it will have an impact in the end.

[Terrance Oakey]

I want to clarify our organization's position. Obviously we're not proposing that it be the lowest bid that doesn't meet all relevant safety requirements and other things. Price is only one element.

I just don't think that if on Monday you're not a unionized contractor and on Tuesday you are, you suddenly have the right to bid.

[Denis Coderre, Liberal, Bourassa, QC]

The other situation is that usually the federal government is a financial partner. If you have an infrastructure program that is split equally among the three levels of government, the province accepts what the municipalities say, and the federal government just sends the money.

We have the Pont Champlain, which will be a federal project, as well as the one with Detroit. Do you have some specific examples of—because I understand what Mr. Dumais did in the past, and I'll come back to Jocelyn afterwards—the department's reaction when you have talked to officials regarding what you're pointing out, that you want an open bid instead of a closed bid?