As 2011 comes to an end, the construction industry in B.C. sits at an interesting crossroads where the words “cautious optimism” try out their new status as buzzwords among construction professionals who have one eye on shaky global economics.
Statistically B.C. faired out well compared to the rest of the country with a 2.4 per cent overall growth rate and a characteristic “soft landing” after the 2009-2010 recession. In fact, and a recent BMO Capital Markets report says the western provinces carried the country through 2011 and will be the forerunners in growth throughout 2012.
Canada experienced 2.3 percent growth in 2011 and retained its status as the most stable of the G7 countries over the past three years, according to a an economic update from federal finance minister Jim Flaherty. But just because the numbers add up, doesn’t mean the construction industry is on firm ground.
Murray Corey, executive director of the BC Wall and Ceiling Association, says although the industry experienced modest growth in 2011, underbidding and price wars have dragged down the profitability of major projects.
“Although there was a modest improvement in business activity within the wall and ceiling industry this year, it was dampened by the low prices being paid—companies operating on the slimmest of margins looking for every possible way to reduce costs,” says Corey.
Companies that responded to funds drying up in 2009 by branching out into other sectors have diluted the bidding pool so that 20 companies are now bidding on projects that used to have three contenders. The competition drives the prices downward until people are only working for enough to keep their crews employed.
Contributing to the price wars is the lack of a mutually serving buying mechanism, which allows for and may even facilitate general contractors shopping around for lower bid prices long after bids have been tendered, says Corey.
“It’s like second and third rounds of bidding on many projects, and incredibly there is always someone willing to take the price on a job lower than the reasonable price,” he says. “This practice used to be considered unethical and still is in some sectors, but in our business it has become the norm.”
Keith Sashaw, president of the Vancouver Regional Construction Association, agrees there has been some turmoil in the industry around the breakdown of silos.
“Companies that used to be specialized are now playing in all sectors,” he says. “I suspect it will continue, especially as companies begin to branch out to other geographical parts of the province and elsewhere.”
He expects the industry will self-correct, but maybe not in 2012. Although VRCA reports a decline in the number of companies bidding on jobs already, high competition and tight margins still exist.
Overall, says Sashaw, there seems to be some improvement with new projects on their way down the pipeline—a number of office towers in the downtown core, mines, and power projects are coming out to tender, and a resurgence of multi-family buildings in the Lower Mainland-Southwest region is also on the horizon. Institutional projects will likely cool down as stimulus money dries up.
“There has been a resurgence of building permits in the lower mainland,” says Sashaw. “There was $850 million per month in 2008, and it dropped to $300 million in 2009. It is back to $600 million in the past four months.”
The province’s largest expansion is in resource development to the north. Manley McLachlan, president of the BC Construction Association, says while the construction industry was doing handstands over the federal government’s announcement of its $8 billion shipyard contract, B.C. has its own shining light.
“There is $90 billion in projects in northern B.C. meaning 45% of the work is in a region where there is seven percent of the population,” he says. “The resource sector projects are starting to come alive and by all accounts we have they are back in the skill shortage situation from 2005 to 2007.”
The Major Projects Inventory, which tracks projects worth $15 million and up in regions beyond the Lower Mainland and worth $20 million or more in the Lower Mainland, has between $210 and $215 billion currently on the books.
“The status of projects on the Major Projects Inventory is the true barometer of investor confidence,” says McLachlan. “Following October 2008, the project list has continued to go up.”
Canada’s recognizably stable economy and solid government has made an impression on the global front, attracting large multinational contractors who are setting up shop in B.C., says McLachlan.
“That will change our landscape when the big international companies roll in and pursue P3 opportunities,” he says. “Some smaller general contracting, civil, and commercial companies will find themselves in the position of subcontractor, and we will be looking at fewer players because of mergers and acquisitions.”
An interesting an encouraging labour statistic has got the industry on its toes as well—in October 2008 there were a record 130,000 people working in construction in the Lower Mainland-Southwest region. That dropped to 100,000 in six months during the recession, but that number shot up to 136,000 in the last four months of 2011. Sashaw points to the labour crunch looming over the industry and suggests the time is right for government initiatives focused on the immigration of skilled workers and programs that encourage innovation.
“I don’t believe throwing more people at it will solve the problem,” says Sashaw. “The industry has to be more innovative and look at labour saving devices aimed at expediting the construction process and the government can help with tax incentives and other programs that encourage innovations and equipment.”
Government incentives may help the wall and ceiling industry out of an ironic situation where countless opportunities for the implementation of technological innovations and environmental improvements are hindered by price trench wars that leave no appetite for even the slightest extra costs.
New specialty drywall products on the market like lightweight gypsum board and gypsum board products with superior mould and moisture prohibitive properties have great potential but come with price tag. New technology also comes with risk and cost—a much harder sell in this economy.
And then there’s the labour issue.
“We’ve been saying for five years that 25,000 BC workers are retiring, and it is happening now,” says McLachlan. “People in construction don’t retire at 25; they retire at 55 with 20-plus years experience. Productivity and training ability come into play so it’s not just having enough drywallers; it’s having enough management to pursue the work in a profitable manner.
Corey agrees, citing a shortage of qualified trades that is getting tighter by the day. “Our classes are running at half capacity—back to the chicken egg situation: no good paying job to motivate apprentices to get into the trade.
“We need better incentive to get this part of the industry moving as we still see the labour shortage looming heavy over the construction industry and getting worse in 2012. It would be nice to see a more level recovery and future rather than the usual boom bust cycle.”
Article by / Jessica Kirby
