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How a Public Tendering System Will Cut Down Waste and Corruption

09/16/2014 12:28 EDT | Updated 11/16/2014 05:59 EST

There seems to be little debate within Ontario that governments must address an increasingly aged and inadequate public infrastructure system. One need look no further than the municipal election campaigns across the Province to see that investment in infrastructure is a key concern for citizens and politicians alike. However, where the real debate starts is how to pay for it.

Higher taxes, user fees, special levies, unique capital financing schemes and cuts to other spending are all ideas that governments have wrestled with to address these infrastructure needs. What has been missing though is a discussion about how taxpayers can get improved infrastructure through the more efficient spending of current dollars by eliminating a tendering system that is greatly increasing the risk of waste and corruption.

A recent report by Cardus will hopefully stimulate such a debate. It found that a little known provision of the Ontario Labour Relations Act is resulting in some municipal construction projects costing 20-30% more than they should. The "construction employer provision" allows municipalities to engage in closed tendering, in which only companies whose employees are members of a specific union are eligible to bid on public construction projects.

This system already exists in municipalities like Toronto, Hamilton and Sault Ste. Marie, with the Region of Waterloo poised to join them, and there are countless examples of wasteful or inefficient spending resulting from closed tendering, like a simple brick public washroom in Kitchener, for which the lowest bid came in at $564,744. That was 40 per cent more than budgeted and 150 per cent more than the average cost to build a house in the City (and consider the public washroom would be built on free land).

Likewise, there is ample economic theory that shows less competition results in higher prices, yet in another case the City of Waterloo was forced to appeal to the Ontario Labour Board in its effort to open a public tender for a $140 million sewage treatment plant to 27 contractors rather than only two. No degree in economics is required to understand the implications for competition and the efficient spending of taxpayer money in this example.

Much of this has been covered before, with well-documented cases of waste and inefficiency. However, where the Cardus study breaks new ground is in questioning the policy basis of closed tendering. Public policy is supposed to serve the public good, and public infrastructure to serve the public interest.

The Cardus study takes direct aim at this and demonstrates that closed tendering actually reduces the key tenets of public procurement policy, namely openness, fairness and transparency. In addition, closed tendering has stark and readily apparent negatives, such as higher costs and the potential for collusion or corruption. In fact, on the latter point, Cardus suggests restrictions on competitive bidding "serve as a petri dish for corruption in public procurement." It is, in short, an inherently flawed system.

These are not trivial matters. According to an OECD report, public procurement is the government activity most vulnerable to fraud, waste and corruption. In Canada, testimony at the Charbonneau Commission has provided daily reminders of this danger, and it bears mentioning that much of that testimony deals with the City of Montreal's closed tendering system for construction.

Virtually all reports and commissions that have looked at corruption and public procurement, including a report from city staff in Montreal in 2004, the Office of Fair Trading in the UK, the OECD, and the Australian Competition and Consumer Commission, have recommended more open competition as a means of reducing corruption.

To sum up, there is a mountain of evidence showing closed tendering increases public infrastructure costs and heightens the potential for corruption. There is also no evidence to suggest closed tendering delivers better public infrastructure. Given all this, why are governments allowing it? What is the rationale -- either from a public policy or infrastructure perspective -- for a system that is so clearly flawed?

No objective observer -- and certainly no taxpayer -- could look at this system as an effective or efficient one. There is simply no public policy objective being served, which puts the burden of defending closed tendering on either the unions benefiting from the system or the politicians that allow it to continue. Taxpayers are owed an explanation.

With such massive infrastructure challenges facing Ontario, an end to closed tendering needs to be added to the list of solutions. It should certainly be higher on the priority list than new or increased taxes. Allowing for more competition in public procurement would free up millions that could be reinvested in badly needed infrastructure projects and greatly reduce the risk of corruption inherent in a process that restricts bidding to a privileged few. Let the debate start now.

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