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E-BLAST: The Pitfalls of Open Tendering

A couple weeks ago, I was at a community event where I fielded a number of questions about a recent opinion piece that ran in the Globe and Mail. A Canadian think tank called Cardus, best known for championing the concept of Christian independent schools, submitted a piece arguing that the City of Toronto could save millions by moving to a practice called open tendering for all of its capital work. I'd like to unpack this claim a little, because I firmly believe that any modest savings that could be found through open tendering aren't worth the larger costs of the practice.  



In Toronto, we use our own in-house workers for most of our day-to-day operations. When it comes to larger capital projects, which is the major repair, renewal, or creation of infrastructure and buildings, we use a closed tendering process to send the work to outside contractors. Whereas open tendering allows any qualified contractor to bid on construction projects, closed tendering only allows contractors whose workers are part of specific collective bargaining agreements or who abide by our Fair Wage Policy to bid. Let's dive into this a bit more. 


The City of Toronto is part of a number of Province-wide collective bargaining agreements for specific skilled trades. Where the work being tendered is not covered by one of these Province-wide agreements, Toronto uses a Fair Wage Policy to ensure fair and market-competitive wages for skilled work. This policy has been in place in Toronto for more than 100 years. 


While open tendering may seem like a pathway to savings, and has been the subject of debate in Toronto's construction industry for some time, there are compelling reasons why it's not the wisest choice for Toronto. For a city like Toronto, the consequences of this procurement method could put some of the largest capital projects in the country at risk.



Reduced Quality, Unpredictable Costs, and Delays 


One of the main concerns with open tendering is the impact it can have on the quality and execution of construction projects. When any contractor can bid on a project, it often becomes a race to the bottom. The fastest route to the bottom is undercutting the going rate for labour. Contractors can employ subpar workmanship and use low-quality materials in an attempt to keep their costs down. In a city like Toronto, known for our ambitious projects, sacrificing quality leads to a lot of resident complaints, demands for do-overs, and higher maintenance costs down the road. 


Open tendering can also compromise safety on the job site. Safety is paramount in the construction industry, and much of the training that organized or apprenticed workers receive is safety training. Contractors who prioritize cost-cutting and don’t invest in safety measures compound this risk when they hire workers with inadequate safety training. This can potentially lead to an increase in workplace accidents, putting both workers and the public at risk, not to mention putting the City at risk of litigation. 


Open tendering can also lead to unpredictable costs and projects delays. Contractors are fighting to submit the lowest bid, so they may underestimate the true costs of a project to win the contract. As a result, unexpected expenses can arise during construction, causing delays and budget overruns. I know what you're probably thinking: many large, high-profile projects in Toronto often go over schedule and over budget under our closed tendering model. While this is true, hundreds more small and medium sized state-of-good-repair projects get completed each year on time and under budget, and we can rely on the quality of work. The actual execution of construction projects isn't the only concern. Let’s take a look at the broader economic impacts of open tendering.



Economic Impacts: Loss of Local Economic Benefits & the High Cost of Poverty


The true cost of open tendering comes from its broader economic impacts, both on individual workers and their families, and our city as a whole. When open contractors are chosen solely based on the lowest bid, they cut labour costs by hiring less experienced workers or subcontractors with even worse quality control. This negatively impacts the livelihoods of skilled laborers in Toronto. It leaves them with little choice but to relocate to other communities or countries where their skills are properly compensated.


Toronto and our skilled trade organizations spend a lot of time and money on skilled workforce development because these jobs are always in demand. When we don’t provide fair wages for quality work, those workers leave and that workforce investment is wasted. At the end of the day, the construction industry relies on a skilled workforce, and open tendering can disrupt the stability of the labour market.


Open tendering can also result in a loss of local economic benefits. Contractors from outside the city may win contracts with lower bids, but they do so by bringing in their own workforce, materials, and equipment, reducing the economic benefits that could have gone to local businesses and workers. This deprives Toronto of the healthy consumer economy that comes from a properly compensated local workforce.



In my view, however, the most compelling argument against open contracting is the high social cost of poverty, which increases when folks aren't properly compensated for their work. There is plenty of research to back this up. In a recent peer-reviewed study, researchers found that when the state-wide participation in labour unions goes down, poverty rises. The reason this matters in the municipal government context is that the fastest-growing cost in many cities is the cost of addressing poverty. 


Here in Toronto, we find ourselves struggling to address affordable housing shortages and food insecurity for full-time working families. These challenges are growing just as fast as the rapidly rising need for shelter to address homelessness. At a time when poverty is on the rise, we cannot be reducing people's ability to earn a living wage. Our closed tendering process and our Fair Wage Policy ensure that Toronto's skilled workers are properly compensated so that they can support themselves and their families.



In Conclusion 


While open tendering may appear to promote competition in the construction industry, it comes with significant drawbacks. Back in 2019, the Province recommended that cities re-examine their tendering process based on a research paper from, you guessed it, Cardus. Our City Manager did a deep dive on comparative research and found that the potential savings were much lower than Cardus estimated. While Cardus claimed that the savings from open tendering range from 8 – 40%, studies from Europe where the change had actually taken place saw most savings range from 2 – 8%. As we discussed above, the broader economic and social costs can quickly outstrip those savings. 


Toronto's construction industry needs to use procurement methods that prioritize the quality, expertise, and well-being of the local community to ensure our city's continued growth and success. Of course, there are ways to save money in contracted work. The City does have a lowest bidder policy, but with the caveat of following our Fair Wage Policy and honouring our participation in province-wide construction agreements. 


I'll leave you with the stated objectives of the aptly-named Fair Wage Policy, which has been in force in Toronto since 1893:


  1. Produce stable labour relations with minimal disruption

  2. Compromise between wage differentials of organized and unorganized labour

  3. Create a level playing field in competition for City work

  4. Set standards in the workplace that contractors must meet

  5. Protect the public and guard workers from exploitation

  6. Enhance the reputation of the City for fair and ethical business dealing

 


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