Transport Committee on May 21st, 2013

[Brian Dijkema]

We are not suggesting the rules for procurement need to be reduced per se, although I'd like to see rules that are efficient and provide the best value for tax dollars. Our concern is that closing tendering to one particular party, or one particular organization, is a recipe for collusion. Economic analysis suggests that as you restrict bidding, the chances of collusion rise. The OECD has put out a number of papers on that. It's a fairly well-established economic reality that as you reduce the pool of competitive bidders, the chances of collusion increase.

In the situation in Quebec, it's very unique in the sense that they do have choice among unions—

[Lise St-Denis, Liberal, Saint-Maurice—Champlain, QC]

I am not certain about that.

[Brian Dijkema]

Yes, it is true.

There are six choices and that's it. It's very easy for those groups to collude. You don't actually have a non-union choice in Quebec. Not that I'm particularly in favour of that over the others, but I would encourage a wide variety, a wide spectrum. That full spectrum should be able to bid.

As I said, I've not yet heard a good argument that would suggest that certain Canadians, because of choices they make as private citizens, should be barred from working on projects that their tax dollars pay for. We think that competition, especially amongst labour pools, and therefore companies, is a good tool for reducing costs but also for reducing collusion.

[The Chair, Conservative, Larry Miller]

Ms. Chow

[Olivia Chow, NDP, Trinity—Spadina, ON]

I have a point of order, Mr. Chair.

I would like to read into the record a quick motion:

That the Committee invite the Minister of Transport, Infrastructure and Communities to defend the Supplementary Estimates (A) and the Committee study this estimate prior to three sitting days before June 18, 2013.

[The Chair, Conservative, Larry Miller]

That was to be at the next meeting with 48-hour notice.

[Olivia Chow, NDP, Trinity—Spadina, ON]

I'm not moving anything. It is just a point of order.

[The Chair, Conservative, Larry Miller]

Mr. Poilievre.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Thank you to our witnesses for being here.

Mr. Buda, municipalities have been very successful in augmenting their revenues over the last two decades and the last decade in particular. Between 2001 and 2011, municipal revenues grew by 71%, while inflation and population growth totalled 30%. In other words, revenues to municipalities have been growing at twice the pace of the need.

I think it's fair to say that taxpayers are funding municipalities adequately and that the revenue issue is now completely resolved. The question becomes why there is still a shortfall in the municipalities' ability to keep infrastructure up to speed. That question prompted this study.

We have found that one of the reasons could be an absence of competition for projects. Does your organization have a position on the issue of closed tendering, that is to say policies that ban union-free workers from participating in infrastructure projects in certain jurisdictions?

[Michael Buda]

We certainly don't have a position specific to that question. When we looked at the question that this committee had forwarded on how to improve competition within the infrastructure sector, we had identified other areas that would in fact increase competition and improve the outcomes of those investments.

But just a note on your revenue data, I think we'll have to put our heads together and look at the discrepancies. Data that comes from Statistics Canada shows that between 1988 and 2008 municipal own-source revenues, which mainly are the property taxes, have only increased 1.5%, while at the same time, transfers from other governments have decreased 22%.

The notion that municipal revenues are galloping ahead doesn't seem to be supported by the data we have, but we're certainly open to seeing other data.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Well, I do have the data here and it is the total revenues, which is really the only number that matters. It does come from Stats Canada, and it does show that between 2001 and 2011 municipal revenues have grown by more than twice the rate of inflation and population growth combined. I'd be very pleased to share this data with you as well.

On the issue of closed tendering, though, we have a case in Hamilton, for example. I quote Peter Shawn Taylor, who is an editor-at-large at Maclean's magazine.

...eligible bidders for construction contracts in Hamilton [were] reduced by over 90 per cent. Of the 260 firms that had previously bid on city jobs, city staff calculated that only 17 were affiliated with the carpenters union.

The article goes on to point out estimates of increases between 20% and 40% for projects in Hamilton as a result. A similar problem is now emerging in Kitchener—Waterloo.

The FCM has been concerned about the difficulty municipalities have in funding their infrastructure. Why has the FCM not spoken out against this unnecessary price inflation that provincial policies are imposing on municipal governments?

[Michael Buda]

Certainly if you were to ask us if this committee or Infrastructure Canada should carry out more thorough research related to how closed tendering is driving infrastructure costs, we'd absolutely support that.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

That's what we're doing right now.

[Michael Buda]

The research that we've undertaken has only uncovered very anecdotal evidence. Certainly the cases in Hamilton and Kitchener do appear to require further research. Having said that, it does appear that these are the result of provincial regulations that have been in place for almost 20 years now.

I think when it comes to defining the federal role in solving this, it goes back to my earlier point that we need to look at ensuring that these new programs are designed to be as streamlined as possible, and at attacking the areas where the federal government has the greatest impact. I'd be concerned that adding federal regulations to address an area that perhaps might be an issue in only one province is going to be a bit of overkill and will end up having all sorts of unintended consequences elsewhere.

For example, the City of Montreal has a closed tendering rule in place right now, and it's specific to preventing construction companies named in the Charbonneau commission from bidding on their projects. I would be worried that federal rules that usually come with a one-size-fits-all approach, which can be quite cumbersome and time-consuming, are going to end up having these kinds of unintended consequences of preventing a very common-sense application of closed tendering.

But as I said, there doesn't appear to be a lot of thorough data on this question. Indeed, if with more thorough research it's proven to be widespread, it does make sense for the federal government to ensure that value for money is being maximized. But thus far, we've seen no evidence of that.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Well, there is evidence that the municipality of Hamilton has actually issued a report indicating the costs are between 20% and 40%. There are similar instruments for Waterloo. But presumably the FCM, if it were interested in keeping costs down for its members, would oppose this kind of practice and its imposition by another level of government.

The FCM does comment on the policies of higher orders of government all the time, so it would not be unusual for it to do so in a case like this one.

I'd like to ask Mr. Dijkema. Are you aware of any data on the cost inflation related to closed tendering?

[Brian Dijkema]

Yes. In fact, our work has done a survey of the various estimates that are out there. Those estimates range, as I said, from 2% to 40%. If you look at the City of Hamilton report, on the estimate of increase on one particular project, the low bid for this project was 83% higher than the city's budget. So the facts are actually quite clear. Economists suggest that reducing competition increases prices. In all of the evidence presented to us by cities and staffers, whom I presume are quite competent otherwise they wouldn't be there, nobody suggests that costs decrease because of closed bidding. In fact even the beneficiaries of closed tendering suggest that costs increase.

I've yet to hear why this is of benefit to taxpayers, why this is of benefit to governments, why this is a benefit to Canadians at all. The data shows otherwise.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Do you have specific data linking reduced competition to increased collusion?

[Brian Dijkema]

Yes, there are a number of papers. The OECD has a number of papers on that.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Could you share those with us?

[Brian Dijkema]

Yes, I can certainly find those and pass those along to you.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Can we get those to the analysts for their report?

[The Chair, Conservative, Larry Miller]

Yes.

You'll get them...?

[Brian Dijkema]

I'll have to go through my files, but I can pass them on.

[The Chair, Conservative, Larry Miller]

That's fair enough. Thank you.

Mr. Adler, you have seven minutes.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair. I want to thank the witnesses for being here today.

I do have some questions for Mr. Buda initially.

In an ideal world, what is your solution to what you perceive as the underfunding of Canadian municipalities?