Before Christmas I wrote a blog titled, Top 10 Reasons to Amend the Alberta Labour Code, where I broadly laid out 10 public policy recommendations that are needed to make Alberta’s labour relations environment more competitive and fair. The purpose of that blog was to introduce the topics. Over the coming weeks, I will be writing specific blogs about each idea. I look forward to your comments – Alberta can be better; here are some ideas on how to get there.
I will start this series with recommendation 9, which reads:
Recommendation 9: Improve Alberta Labour Code provisions that address market enhancement recovery fund (“MERFs”), which are illegal bid subsidy schemes.
A practice occurs in Alberta whereby union construction companies in industrial markets (ie. Alberta’s oilsands) unfairly subsidize construction projects in commercial markets (A Calgary 7-11 store). Under this complicated scheme, Alberta’s construction prices become inflated and less competitive, and Albertans receive less royalty revenue from its heavy industrial projects. It’s a bad deal all around, especially since the only reason for this practice is to increase the market share of less competitive unionized construction companies.
In Alberta these bid subsidy schemes have been labelled “Market Enhancement Recovery Funds” (MERF). They have also been called “Job Targeting Funds” (JTF) or “Stabilization Funds” (STAB). Regardless of what you call them, they are all, in the words of the International Brotherhood of Electrical Workers (IBEW), “part of a strong organizing program aimed at securing monopoly of local labour markets.”
These schemes developed in Alberta because of high energy prices and our province’s rapidly expanding economy. As the economy expanded, building trade unions such as the IBEW and the Plumbers and Pipefitters Union (UA) convinced some major oilsands project developers to grant them labour supply monopolies to build the projects. The projects provided the financial means for exploiting faults in Alberta’s Labour Relations Code.
Here is how the schemes work:
In Alberta the schemes were initially created through collective agreements between unions and unionized employers. Unionized contractors were required to remit part of their negotiated wages (up to $2.32/hr) to a union controlled fund. This fund was then available to other unionized contractors, which could apply for a subsidy on a project-by-project basis. In some cases, the hour rate subsidy was estimated to be as high as $15 per hour multiplied by the total estimated hours of labour required for the projects.
The lion’s share of the financing came from large energy projects whereby unions were given labour supply monopolies. So why would oilsands companies agree to pay higher labour costs?
Part of the answer lies in Alberta’s royalty regime. Alberta’s royalty structure allows for industrial project developers to pay lower royalties to the Alberta government until the capital cost of the project are recovered. Essentially, this occurred because some large oilsands developers willingly paid a premium on their multibillion-dollar construction projects in a very hot economy to gain access to pools of unionized tradespeople.
The Government of Alberta recognized that this unfair scheme is a bad deal for Alberta taxpayers and in 2008 legislators introduced Bill 26 to end the practice. Alberta’s new law sought to restrict how MERFs were collected and distributed. Direct payments from employers to unions and unions to contractors to undercut the bids of more competitive contractors were prohibited.
Despite this legislation, the respective Building Trade Unions (BTU) immediately developed new schemes to circumvent the law. In fact, within 6 weeks from when the Act became the law, one BTU Business Manager reported to members that it was “business as usual” and that the union would “have in place an alternative way of ensuring that (unionized) contractors will be competitive for this work.” Some unionized contractors also mentioned anecdotally that relief was being provided under “something we don’t call a MERF anymore.”
In time, the various collective agreements were amended and the picture became clearer. While the names of the MERF’s were changed, the amount of monies that contractors were required to pay into newly created funds remained the same. As an example, the collective agreement between the Electrical Contractors Association of Alberta and the International Brotherhood of Electrical Workers Local 424 prior to the 2008 legislation was referred to as the Market Target Recovery Trust Funds (MTRF) and the amount contractors were required to contribute to the fund was $.93 per straight time hour worked by each journeymen. In the subsequent collective agreement, the formerly referenced MTRF became the “Membership Development Fund” and the amount contractors remained obligated to remit continued to be $.93 per straight time hour worked by each journeyman.
Unions also got creative in how they distributed the money. In one collective agreement, the previously named MERF was renamed, the Promotion of the Insulation Trade Trust or PITT. The hourly contribution rate remained unchanged at $.50 per straight time hour worked.
What did change can be found in a “Letter of Understanding” attached to and forming part of the revised collective agreement. After agreeing that, “non-signatory contractors operating in the commercial/institutional sector do not offer Health and Welfare and Pension packages to their workforce equivalent to those contained in the collective agreement” the parties acknowledged that “the added cost of maintaining the agreement, ha[d] a negative impact on the ability of signatory contractors to compete, secure work and offer gainful employment opportunities to members of the union”. This problem is then dealt with in the final paragraph stating, “all current and future commercial work may, at the Employer’s discretion be enabled by waiving the Employer’s obligation to contribute on behalf of its employees to the Health and Welfare and the Pension Plan.” In other words the MERF no longer directly subsidizes wages; the subsidy is used to pay for health, welfare and pension plan benefits.
In the case of the Insulators, the value of this relief is equivalent to $6.50 per hour worked. This is concerning since charges for vacations, pensions and other funds are approximately 30% to 33% of the basic negotiated hourly “wage rate”. Under normal bidding conditions, these costs are added to the hourly charge a contractor would include in a bid estimate.
The legislation passed in 2008 was clearly intended to end “subsidizing the bids, tenders, fees or prices of” unionized construction contractors. A subsidy is a subsidy is a subsidy.
This unfair bid subsidy scheme is both increasing the cost of construction in Alberta and reducing the amount of royalty revenue being collected by the government. The only purpose of these schemes is to increase the market share of less competitive union contractors. Alberta needs to amend its labour code to end this unsavory practice once and for all.