June 23 2016
Imagine for a moment that you want to open a chocolate shop. Now, before you open for business, you have to invest in equipment and hire qualified chocolatiers, ensuring a quality product that is safe to consume. Before you even open your doors you’ve sunk a significant amount of money into your business, and to cover your costs you have to charge $5 a chocolate. Then one day, another chocolate shop opens up across the street. However, this chocolate shop doesn’t need to pay for its own equipment as it is subsidized by the government. The shop also employs people who aren’t qualified chocolatiers and pays them much less than you pay your employees. Given these advantages, the shop is able to sell chocolates for $2 each and effectively makes your business uncompetitive.
Sounds unfair and a little absurd, doesn’t it? In the world of chocolate, yes, but in the world of electrical contracting, maybe not so much. According to Jeff Koller, this is exactly the effect that the Strengthening Consumer Protection and Electricity System Oversight Act (Bill 112) is having on the electrical market, making it impossible for private contractors to fairly compete.
Jeff Koller was recently named the new Executive Director for the Electrical Contractor Association of Ontario (ECAO), and is tasked with advocating on behalf of his members for fair and above-board practices within the electrical industry. Electrical Industry News Week had the opportunity to speak with Koller about his role with the ECAO and issues he feels are pressing concerns for the industry.
Starting out in journalism, he worked for several newspapers in Canada as well as a daily, The Royal Gazette, in Bermuda, Koller later gravitated towards politics, working at Queen’s Park for an MPP in Brantford. He has also held sales positions with various mutual fund companies as well as a government relations role with the Interior Systems Contractors Association of Ontario (ISCA).
It was while working for the ISCA that he developed an industry trade relationship with the ECAO, an association that he respected and regarded as highly influential within the industry. He describes his current position as “the opportunity of a lifetime,” and enjoys “every single aspect of every single day.”
Making good use of his communications and political background, Koller is now an advocate for electrical contractors, representing their interests in the industry. Of particular concern are two pieces of legislation: Bill 112 and the Construction Lien Act.
The problem with Bill 112
While the act may be titled “Strengthening Consumer Protection and Electricity System Oversight,” Koller claims it does anything but protect the interests of consumers. In effect, what the act does is make it untenable for private contractors to compete against government-subsidized Local Distribution Companies (LDCs).
An LDC is a utility set up by a municipally-owned utility that is supposed to be an arm’s length affiliate in order to compete in non-regulated markets other than for the transmission and distribution of electricity.
To compete against private sector contractors, LDCs should have separate books and account for their assets at fair market value. However, Bill 112 awards LDCs the power to compete with private contractors for projects outside of their existing purview without such accounting.
At first glance, this may not seem like such a bad idea — more competition is good for ratepayers, right? If the playing field were level, yes, but Koller and the ECAO contend that it is not. Much like the chocolate example, many of these LDCs have had their equipment, such as bucket trucks, paid for by ratepayers. This means that the LDCs can come in at a lower price than the private contractors as their fixed costs are lower, but that doesn’t necessarily mean a better deal for ratepayers. In fact, if an LDC makes a mistake in pricing the cost of a bid, taxpayers are on the hook, and therein lies the danger. In effect, ratepayers are subsidizing the lower cost of hiring an LDC and are therefore not only paying full price, but effectively creating a monopoly that shuts out private contractors and actually decreases competition.
Koller cites an example involving the City of Hamilton as one of the more egregious casualties of this Bill. In this particular case, the City of Hamilton hired Mississauga-based Enersource to change approximately 10,000 streetlights to LED bulbs. Not only did the City of Hamilton receive almost $3.5 million from the province of Ontario for hiring Enersource, but also there were complaints to the municipality, the Ministry of Labour, and the Ontario College of Trades that some of the workers employed in this project were neither qualified nor properly trained. The ECAO has many members who could have effectively completed this project using properly trained and licensed electricians and powerline technicians, but were shut out as they couldn’t compete with the government-subsidized bid.
Another worrisome aspect of Bill 112 is how quickly it was passed, spending barely a week in parliament and giving affected stakeholders only two days to prepare their arguments. In an opinion piece for The Toronto Star, Brady Yauch, an economist and Executive Director of the Consumer Policy Institute (CPI), contends that the bill limits the ability for intervenors to participate in the regulation of publicly-owned utilities and effectively awards full regulatory autonomy to Queen’s Park over its own companies (source: The Toronto Star).
Prompt Payment Ontario
Another issue that Koller is focusing on is prompt payment legislation in Ontario, right now entangled within the Construction Lien Act. While this act does make some strides towards ensuring prompt payment for construction companies in Ontario, Koller contends that it doesn’t do nearly enough and the economy as a whole suffers as a result.
Unlike our hypothetical chocolate shop where customers pay immediately for goods, many construction firms have to wait anywhere from 90 to 120 days to receive payment for projects — projects that many times involve significant capital investment upfront. Imagine your paycheque coming four months late and you can empathize with the predicament faced by many small construction firms lacking the necessary capital to float their business while waiting for payment.
Late payment not only affects construction firms, but the economy as a whole. As late payment is rampant in the construction industry, costs are driven up and companies go out of business, creating a more expensive and less competitive environment, not to mention the lost jobs.
To combat this industry practice and bring substantive change to the industry, the ECAO and over 40 other construction employer associations, unions, and benefit plan administrators have joined together to create Prompt Payment Ontario (PPO), a coalition with the goal of pressuring the Ontario government to enact legislation targeting the problem of delinquent payments within the construction industry.
In February 2015, Bruce Reynolds, a construction law expert, was appointed to review the Construction Lien Act and examine its effectiveness in dealing with prompt payment and conflict resolution issues. The results of his analysis were presented to the Ontario government in April 2016, and are currently in review. Brendan Crawley, Senior Co-ordinator, Media Relations, for the Ministry of the Attorney General, commented that the report had been received and that “Our government is committed to modernizing the Construction Lien Act to reflect the reality of today’s construction industry and to address payment issues within the sector.”
The ECAO and the other members of PPO will have to wait until the government announces what changes, if any, will be made to the Construction Lien Act to see if their efforts made an impact. Regardless of the outcome, Koller contends he and the ECAO will continue to fight to ensure fair and competitive practices prevail within the construction industry.
Creating an equitable marketplace not only benefits electrical contractors, but the economy as a whole. We wish Jeff Koller all the best in his new position and thank him for his efforts in advocating for fair competition for all.