Tariff uncertainty posing a challenge for Ontario municipalities

The ongoing Canada-U.S. trade war is forcing Ontario municipalities to "be incredibly nimble" when planning infrastructure projects, Thunder Bay's city manager said.

While the tariffs associated with the trade war are leading to increased costs for Canadian companies, the uncertainty about when — or if — tariffs will be imposed or removed, is posing a major challenge for cities like Thunder Bay, City Manager John Collin said.

"We just don't know what's going to happen next, and that uncertainty dramatically affects, I would suggest, all cities," he said.

One example is the demolition project of Victoriaville Centre in Thunder Bay's south end. 

The demolition of the mall was initially expected to begin in April. However, in March, the city said it had extended the tender period until April 10, meaning it wouldn't begin before May.  

Part of the delay came as a result of the complicated nature of the project, city engineering manager Aaron Ward said at the time, because the project also involves renovations and road construction in the contract. 

But the trade war also played a role in the delay, Ward said, with tenders needing to be reworded to accommodate potential on-again, off-again tariffs, especially since the entire Victoriaville project won't be completed until fall 2026.

Ward said procurement also needs to change. "We need to give some sort of comfort to the contractors," he said, "because otherwise all the contractors will do is they will escalate their prices to establish a contingency to protect themselves to a degree." 

The city might also have to put off future projects including capital projects.

In a statement to CBC News, Allen Hensel, the city's manager of supply management, said the "ever-changing tariff threats, changing implementation dates, changing lists of products to be included or omitted, along with changing tariff percentages to be charged" are leaving the city in a "position of heightened risk."

Hensel stated that simply asking contractors to pay a fixed lump sum up-front, which would cover potential tariff costs associated with a project isn't the answer, as that would result in contractors either increasing their bid prices, or not bidding at all.

"The City also recognizes that shifting all risk to the contractor could result in additional costs being built into their bid price that may never actually materialize, thereby leaving the City paying more than otherwise necessary," the statement reads.

Harold Lindstrom, manager of the Thunder Bay construction association, said allowances for potential tariffs need to be made when tenders are issued.

"What I would recommend to any owner that's purchasing construction services is to allow rules to adjust the the costs after, according to duties, and make allowances in there when they award a contract," he said.

"We put what we call a contingency allowance of X number of dollars, so in their budget, they know that they've got this X number of dollars that, if should something happen with duties and that, they can increase the cost."

And that extra cost would come out of the project's budget, Lindstrom said.

"We're not talking about minimal change here. We're talking about, you bid a $1,000,000 job ... it could be 15 or 20 per cent. That's huge dollars for owners to turn around and accommodate for."

Lindsay Jones, director of policy and government relations with the Association of Municipalities of Ontario (AMO), said the trade war is manifesting in a variety of ways for municipalities.

"From the perspective of the actual governments, there are huge implications when it comes to, in particular, infrastructure projects," she said. "There's also considerations when it comes to procurement policies, and how municipalities are able to employ a kind of buy local, or buy Canadian, approach."

"But then there's also significant implications from the community perspective," Jones said. "So understanding how this is going to impact the local economies and then trying to find ways to support businesses as much as they can through different local economic development initiatives."

Jones said Ontario municipalities spend about $22 billion each year on procurement of goods and services. However, simply buying Canadian can be complicated.

"Is it somebody who has a headquarters in Canada? Is it a company that employs a large population in Canada?"

Jones said municipalities have to also consider any requirements for other trade agreements such as inter-provincial trade or the Canada-EU trade agreement.

"There's also just the reality that some of the goods that municipalities rely on to do their jobs are not available from Canadian companies."

U.S. supply chains still critical

Cutting out the United States completely when it comes to procurements is not an option, said Collin. 

"We might get to that after many, many years, but the reality is some of the product that is required simply does not exist in Canada, may not even exist in Europe or Asia," he said. 

Collin said the provincial and federal governments need to decide a strategic direction and then they need to offer municipalities clear direction.

Jones said AMO members are expressing a "really strong desire to support the federal and provincial governments" in their efforts to mitigate the effects of any tariffs.

"While I think that there's a lot of uncertainty, I think that there's also a lot of creativity and innovation that is potentially emerging through the municipal sector at this point."

The major federal parties have outlined what they'd do to address the trade war if they form the next government. A full rundown of their positions is avialable here.