An analysis done by The Gazette has determined the number of companies scoring provincial government contracts for asphalt is even more concentrated than is warned in the report prepared by Jacques Duchesneau's anticollusion unit.
A section of the report, based on an investigation of how Transport Quebec awards contracts, contains a section singling out the asphalt industry and warns "the primary materials required for road projects do not escape the attraction of a cartel.
"Certain entrepreneurs dominate this industry and can seriously hinder the free market."
The report describes two companies, which are not identified, that are "clearly in a position of strength" in part because they control many small divisions or companies that produce asphalt in various parts of the province.
"They alone, in 2009, grabbed 42 per cent of the total amount of contracts, nearly $160 million."
An analysis done by The Gazette of all contracts awarded by Transport Quebec from Oct. 26, 2009, to July 15, 2011, indicates the industry is dominated by three distinct groups whose companies received more than 69 per cent of the contracts awarded for asphalt.
For the study, The Gazette singled out contracts that involved either the purchase of asphalt in bulk by Transport Quebec or contracts for roadwork that included the fabrication of asphalt.
More than 330 contracts, worth more than $123 million, fell under those criteria.
The leading company, at more than $21 million, was Construction BML, a division of Sintra Inc., whose history in Quebec dates back 80 years. In all, companies affiliated with Sintra were awarded $49 million in contracts.
Marcel Pelletier, director of communications with Sintra Inc., said the company won't comment on Duchesneau's report.
"However, we can affirm that we are one of the major players in asphalt in Quebec. It's not a secret and we are proud of it. When it comes to the awarding of contracts, the rules of the game are respected, be it contracts through public tenders or contracts with rates that are non-negotiable with the minister of transport," Pelletier said.
He added Sintra's companies are based far from major cities and where Transport Quebec needs work done on highways.
"We have our strategies and we are in places where it is pertinent to be."
In second place, among individual companies, is Pavage Beau Bassin Inc., which was awarded more than $18.7 million in contracts for roadwork in the Gaspé-Lower St. Lawrence region. The company's majority shareholder, Construction DJL Inc., won an additional $3.2 million in government contracts.
The third-largest group, at 12 per cent and $16 million, has three companies, based in different regions of Quebec, that share the same president, Quebec City businessman André Belanger, and are linked through a Matane-based company named Béton Provincial Finance Ltée.
Each of the three groups has a company, or companies, based in remote parts of the province where Transport Quebec deals directly with them after agreeing on a price for asphalt.
Critics who emerged after Duchesneau's report was released, in particular municipal leaders, say this scenario has created monopolies in some part of the province.
McGill University professor Richard Janda, who teaches economic regulation and competition law, said the figures mentioned in Duchesneau's report and The Gazette's study are cause for concern.
"I think with territorial divisions you have a double problem because, in effect, what you end up with is an aggregate, a very small number of companies controlling the bulk of business - but also then, among themselves, giving each other a monopoly position," Janda said.
"One often says that there is no more toxic mixture than a few players dividing the market.
"Now, is there a clear test about it being 69 per cent or 54 per cent or 33 per cent? There isn't such a clear test. But if you look at the merger guidelines of the (federal) Competition Bureau you'll discover the kind of numbers you're describing would be numbers that, if companies entertained mergers in that kind of market, it would certainly raise red flags."
When he was called before a National Assembly committee on Sept. 27 to elaborate on his report, Duchesneau said:
"It is not normal that there is a domination of suppliers in the asphalt industry. According to our analysis, only a few companies have controlled an important part of asphalt in Quebec for years which leaves very little open to players who want to infuse a bit of competition. In certain regions we're even talking about monopolies."
Pavage Beau Bassin Inc. is the only company in the region that can produce asphalt locally. Chances are, if you've travelled along scenic Highway 132 in the Gaspé it was on a section paved by that company.
Transport Quebec buys asphalt in remote regions through direct negotiations, as opposed to the competitive tender process, because it can save money through bulk purchases and by providing its remote suppliers with bitumen, a petroleum-based ingredient in asphalt.
"For one it assures that there is a factory in a specific location. At the same time, in those locations, there is little competition. So instead of going to public tenders and getting exorbitant prices, the transport minister proposes to the entrepreneur who owns the factory in an area to have a contract where the prices are determined in advance," Pelletier said.
After Duchesneau's report was leaked, municipal leaders in the Gaspé complained that while Transport Quebec might be saving money, municipalities are stuck dealing with monopolies and pay 30 to 50 per cent more than other cities and towns to pave their roads.
Michel Rochefort, head of Pavage Beau Bassin Inc., did not return a request for an interview with The Gazette. But in a recent interview with Le Devoir, he said he resented the use of the term monopoly to describe his firm. He said other companies have tried to set up shop to compete in his market and failed.
Rochefort said the market for asphalt in the Gaspé region is limited and the higher prices municipalities pay is due to the cost of transporting material to the easternmost part of the province.
As is the case with Pavage Beau Bassin Inc., most of the contracts awarded to the three companies linked through Béton Provincial Finance Ltd. do not go through public tender but are negotiated directly with Transport Quebec.
Les Entreprises Mont Sterling, for example, is the only supplier of asphalt in the northern part of the Gaspé Peninsula. Similarly, P&B Entreprises Ltée is alone in the Îles de la Madeleine.
Duchesneau's report notes that in regions like the Lower Saint Lawrence, Gaspé and Îles de la Madeleine, competition is limited because it is difficult for companies to supply themselves with gravel, the key ingredient in asphalt.
The report states that while this might explain the lack of competition in those regions, "it is not impossible to reverse." The report recommends the provincial government become involved in prospecting for raw materials used in asphalt and make the products more available to other companies to open up competition.
Janda's recommendation touches on the sacred cow in Quebec's construction industry, which is regulated toward keeping purchases within the province.
"One issue that I've raised with people that I think is worth exploring is that Quebec has traditionally been quite restrictive in its approach to entry into construction of suppliers from outside of Quebec. I understand that obviously in the asphalt business there is a dimension of having access to a local supply of gravel. But it's not as if access to gravel is such a specialized thing that one couldn't envisage entry from businesses outside of Quebec into that business.
"That might sound like a radical solution but I think the time has come to look at whether there should be an opening up of the market to entry by firms outside of Quebec and maybe go even further by offering incentives to such companies to enter the business."
This story was originally published Oct. 11, 2011.