Governments around the world are struggling with growing debt, infrastructure deficits and a general decline in revenue. In July, Detroit filed for Chapter 9 bankruptcy protection – the largest U.S. city to ever do so.

While Canada has performed well since rebounding from the 2008 global financial crisis, the country is not immune to the fiscal pressures of infrastructure deficits in the face of debt and declining revenues.

In B.C., the government commissioned a report to “identify opportunities to reduce costs and enhance service delivery” in the capital ministries. Published in 2012, more than two dozen key transformational opportunities were identified in one ministry alone. The largest opportunity involved procurement and the strategy to “bundle projects into large tranches to reduce costs and create a more competitive procurement process.” Savings of five to 15 per cent were stated in the report with a quantitative benefit of $50 million to $150 million claimed, at the qualitative cost of “reduced local participation by contractors.” One of the conclusions was “significant savings can be realized by using a different approach to capital management and deployment through bundling projects.”

The Vancouver Island Construction Association (VICA) disputes this conclusion on the basis it is not supported by facts. VICA maintains the bundling of construction projects into large tranches will reduce competition by eliminating the small to medium-sized contracting firms from the competition.

VICA commissioned a fact-based report to dispel the myths and growing controversy about the alleged benefits and effects of bundling construction contracts. Published in July 2013, the report cites three fundamental problems with the forecasts advanced by the advocates of construction project bundling:

• The negative socio-economic impact and resulting consequences of bundling on the construction industry across the entire country.
• Despite the bold predictions made of staggering savings, there are simply no facts to support those assertions. In fact, the vast majority of bundled projects are more expensive than unbundled projects.
• The assertion that bundling projects into one large contract increases competition is flawed. Contrary to what the proponents of bundling assert, the research points to exactly the opposite.

The VICA report looks at the empirical evidence and economic policies in Canada and across the world on the issue of project bundling. The research reveals authorities such as the World Bank, European Union, U.S., Canadian Federation of Independent Business and a growing list of industry associations across Canada share the central concern that bundling of capital projects lessens competition.

The authors of a World Bank report state, “Competition is the single most important factor to contain public procurement costs and discourage collusive bidding behaviour and corrupt practices.”

In the U.S., concern and experience has led to the passage of anti-bundling legislation in some states and federal legislation requiring agencies to conduct independent market research studies to justify the bundling of contracts.

In Canada, however, governments still pursue the illusion of promised savings.

The overarching conclusion of the VICA report is “the potential devastating economic and social costs of project bundling on the small and medium-sized industry participants, together with the evaporation of the multiplier effect on the rest of the economy, has been ignored by the promoters of bundling.” This unintended outcome does not support the provincial government’s objective of a strong economy, a secure tomorrow and a debt-free B.C.

Greg Baynton is CEO of the Vancouver Island Construction Association. He can be reached at 250.388.6471 or gregbaynton@vicabc.ca.