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When it comes to mass transit, no free ride for taxpayers
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Globe and Mail- It’s mass-transit hardball, and Bombardier Inc. plays the game as well as any company in the world.
When it worried that it might lose a $1.2-billion contract for Montreal’s new Métro subway cars, for example, Bombardier went to court and lobbied fiercely in Quebec City. The result: a 2010 Quebec law that arbitrarily divided the spoils between Bombardier and France’s Alstom SA.
A similar tale is now playing out in Britain, where Bombardier recently lost a $2.3-billion contract to supply 1,200 cars for London’s Thameslink rail system to Siemens AG of Germany. Bombardier responded by axing 1,400 jobs at the historic train yards it owns in the British midlands city of Derby.
Bombardier officials insist the Battle of Britain isn’t over. The company is fighting to reverse the Thameslink decision, warning ominously that it could kill the last train factory in the country that gave birth to the steam engine. Its unionized workers are threatening legal action.
And so it goes with publicly financed rail contracts the world over. There are a half-dozen major train manufacturers and too many factories, often located in places solely to provide local content rather than production efficiency. The bottom line is that there isn’t enough work to keep them all running.
Shipbuilding is an even bigger quagmire of politically driven manufacturing. Last week, a consortium of companies rescued the bankrupt shell of the Lévis, Que., Davie shipyard – which has been a sponge on governments for decades – just so the consortium can vie for $35-billion worth of pending federal ship contracts. The purchase is cleverly structured to create the only joint Ontario-Quebec bidding group in the competition.
In the mass-transit business, purchasers want to buy the best equipment at the best price. But they face intense political pressure from the governments that finance these megaprojects to steer contracts to local companies, and workers.
Bombardier – like its German, French, Spanish and Japanese rivals in the rail business – knows how to play the national card. That’s why Bombardier engineered a series of European and U.S. acquisitions in the 1980s and 1990s. And that’s why it assembles rail cars in the tiny border town of Plattsburgh, N.Y.
Within Canada, Bombardier splits rail work between its main plant in La Pocatière, Que., and a second plant nearly 2,000 kilometres away in Thunder Bay, to help secure contracts in Canada’s largest province. Alstom is building its own plant in Sorel, Que., to do the Montreal Métro work.
It is the taxpayers who are paying for this needless production redundancy. If Bombardier didn’t have to operate three North American rail plants, it might have won the Montreal subway contract without political interference.
It’s also a tricky public policy issue for the federal government. On one hand, there’s a desire to use procurement as an incubator for homegrown technology and job creation.
But a generation of bureaucrats elsewhere in the federal government has toiled for decades to break down trade barriers to create opportunities for Canadian companies. One of the keys to a free-trade deal now being negotiated with Europe is opening provincial and local government contracts to European companies, and vice versa.
In theory, the deal would level the playing field. And taxpayers would get access to the best technology at the best price.
Ottawa also reacts angrily when other countries unfairly discriminate against Canadian suppliers. There was a political outcry in Canada when the U.S. Congress put strict Buy America rules on billions of dollars’ worth of stimulus projects during the recent recession.
But there is no free trade when it comes to mass transit. Ontario, for example, requires 25 per cent Canadian content on all provincially financed transit infrastructure. That’s likely to put Bombardier on the inside track as the City of Ottawa prepares to spend billions on a new light-rail system.
Even Quebec, a staunch supporter of free trade with Europe, couldn’t resist Bombardier’s pressure tactics on the Montreal subway deal.
Ultimately, Canadian governments will have to make some tough choices.
Even Bombardier is caught in a bit of an internal corporate contradiction. It’s all for local content in rail systems, but it depends on free trade in much of the rest of its business, including aircraft.
Most Canadians want Bombardier and other flagship Canadian companies to succeed. But that success should come on the strength of their technology, the quality of their engineering and their ability to manage big contracts efficiently.
In an age of government restraint, taxpayers need to know they’re getting the best equipment money can buy, not simply the most local content at the expense of some other city’s jobs.
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