The sky-high costs of public construction projects in Ontario

The rising price of construction materials combined with supply chain interruptions over the past two years has contributed to a jaw-dropping increase in the cost of public construction projects.

Torontonians, for instance, have seen a 17.6% increase in the cost of erecting institutional buildings such as schools since the start of 2019.

As if that wasn’t bad enough, there are particularities in Ontario’s legal framework governing public construction projects that add even more fuel to the fire, hitting the province’s taxpayers especially hard. Specifically, it is the blind spots in Bill 66 that are contributing to the unnecessary increase in the overall cost of public construction projects.

A ground-breaking piece of legislation, Bill 66 permitted municipalities, among other public entities, to expand competition in the public tendering process by allowing all qualified contractors to bid on public projects, regardless of their union affiliation.

This made a significant difference in the region of Waterloo and the City of Hamilton, for example, where bidding was previously restricted. Within the first year or two of adopting Bill 66, both regions reported a significant drop in the cost of public projects, saving millions of dollars. What a relief for Ontario taxpayers!

Yet, while Bill 66 was a step in the right direction, important challenges remain that are preventing the realization of the full potential of this legislation and uselessly increasing project costs. Contractors and workers across the province are still being denied the opportunity to build public projects, for two reasons.

First, there is the use of restrictive Project Labour Agreements (PLA). A case in point is the construction of the new civic campus at the Ottawa Hospital, which will end up costing taxpayers between $168 million and $525 million more by 2028 due to the PLA, according to our calculations.

Indeed, when public institutions choose to contract a restrictive PLA, they can offer exclusivity to a single union and their affiliated contractors to bid on the project in question, restricting the number of potential bids — exactly the practice that Bill 66 was meant to prohibit.

Second, public entities subject to Bill 66 were free to permanently withdraw within three months of its adoption, which the City of Toronto did, thus maintaining restrictive bidding despite the well-known benefits of competition in construction, to which Waterloo and Hamilton can attest.

In doing so, Toronto gave up savings of up to $381 million in 2019 — a hefty bill for Ontario families.

To top it all off, there is a severe labour shortage that could seriously affect the economic recovery of Ontario’s construction sector. All hope is not lost, but policy-makers need to make changes to the current blueprint if they want to flatten the rising trend in public construction costs.

Concretely, three courses of action should be taken:

— Infrastructure Ontario, the government agency responsible for supporting public infrastructure activities, must establish a clear regulatory framework that prohibits public entities from entering into restrictive PLAs.

— The City of Toronto must adopt its own legislation allowing all qualified contractors to bid on public projects, regardless of their union affiliation.

— To increase the number of qualified workers in response to rising demand, it is essential that the certification process for skilled trade programs become modulated and more flexible by recognizing the skills apprentices acquire at every stage of their development, rather than according to a fixed number of hours of training.

While not every factor falls within their control, politicians should follow these recommendations in order to do what they can to rein in unnecessarily high public construction project costs, and give hardworking Ontario taxpayers a break.

Maria Lily Shaw is Economist at the MEI and the co-author of “How to Reduce Construction Costs in Ontario – Modernizing the Construction Industry.” The views reflected in this opinion piece are her own.