Toward Higher Costs and Less Competition in Public Sector Procurement

The provincial government is establishing a new framework for developing and sourcing labour to build public-sector infrastructure projects. Earlier this week, Premier John Horgan and Transportation and Infrastructure Minister Claire Trevena released an umbrella “Community Benefits Agreement” (CBA), intended to achieve several objectives:

• To increase the use of apprentices on major public-sector infrastructure projects;
• To increase hiring and training of Indigenous persons and women in construction and related allied trades;
• To address existing and future “skills gaps”;
• To encourage “priority hiring” of individuals living in proximity to projects being built or developed with government funding;
• To achieve “wage alignment” with prevailing industry rates for all employees.

A key vehicle for implementing the policy is a new Crown Corporation, the oddly named B.C. Benefits Infrastructure Inc. (BCIB), which will act as the “signatory and employer entity” under the CBA. Its mandate is “to provide the labour workforce for the construction of select public-sector infrastructure, delivered in accordance with the terms and conditions of the Community Benefits Agreement.” Apparently, BCIB will act as a “hiring hall” for workers involved in provincially-funded projects undertaken through the CBA.

What are we to make of the government’s announcement?

The Business Council sees value in promoting apprenticeship training, in expanding apprenticeship opportunities for Indigenous persons and women, and in tackling any “skills gaps” that exist in the construction and other sectors. Encouraging “priority hiring” of workers who live in proximity to publicly-funded projects may have benefits -- if the individuals hired possess the appropriate qualifications and skills.

We are deeply troubled, however, by other features of the government’s announcement – notably, the decision to force employers bidding on projects to recruit their workforce through a central agency, the BCIB, which will be jointly run by the government and the building trades unions. Looking ahead, non-union contractors, and contractors with unionized employees who aren’t part of the building trades, will be put at a disadvantage in competing for public sector procurement projects worth tens of billions of dollars.

There are at least two big problems with the government’s plan.

First, it is manifestly unfair to the construction companies and workers who aren’t affiliated with or linked to the building trades unions – amounting to more than 80% of the entire sector. We can think of no credible public policy justification for what the government is intending to do here.

Second, by sharply curtailing the degree of competition in public-sector contracting, the new CBA regime is almost guaranteed to drive up costs for taxpayers (and infrastructure users) over time. Consider that under the government’s proposed regime, many of British Columbia’s most respected and best managed construction companies effectively will be frozen out of the market for major government-funded projects. How can that possibly be good for taxpayers?

A basic insight of economics is that consumers benefit from competition and choice. That applies when consumers shop for a new vehicle, when they buy food or clothing, and when they are in the market for all manner of other products and services. Exactly the same logic also applies in the domains of government procurement and public-sector infrastructure development. Competition and choice are always and everywhere the friends of consumers and taxpayers alike. Government policies that inhibit market entry and distort or restrict competition are not. In the final analysis, it’s that simple.