As 2012 begins, the construction industry in B.C. sits at an interesting crossroads. “Cautious optimism” is the catch phrase for an industry experiencing both sides of the economic coin – the numbers show growth in employment and key sectors, but the housing sector is still unsteady and U.S. and global upsets are rippling onto Canadian soil.
Canada experienced 2.3 per cent growth in 2011 and retained its status as the most stable of the G7 countries over the past three years, according to an economic update from federal finance minister Jim Flaherty.
B.C. faired out well comparatively with a 2.4 per cent overall growth rate and a characteristic “soft landing” after the 2009- 2010 recession. In fact, a recent BMO Capital Markets report says the western provinces carried the country through 2011 and will be the forerunners in growth throughout 2012.
SMACNA-BC tracks the number of unionized person hours worked in the B.C. sheet metal industry, representing the lion’s share of sheet metal work in the ICI sector. Hours worked in 2011 were up six per cent over 2010, and are expected to further increase to six to eight per cent in 2012.
Contractor profits are down, however because there are too many bidders for too few projects, says executive director for SMACNA-BC Bruce Sychuk. “Contractors want to keep their doors open and their guys working. It is currently a buyers’ market and will remain so in 2012.”
Besides the obvious short-term repercussions, Sychuk says low bidding results in low profits, and a history or low profits affects the ability to get bonding.
The trend is apparent in all trades, causing some turmoil in the industry around the breakdown of silos, says Keith Sashaw, president of the Vancouver Regional Construction Association.
“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, mining developments, 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 last four months [of 2011].”
The Major Projects Inventory, which tracks projects worth $20 million or more in the Lower Mainland, and $15 million and up in regions beyond 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 Manley McLachlan, president of the BC Construction Association. “Following October 2008, the project list has continued to go up.”
The majority of growth for the sheet metal industry is expected in the industrial sector with mining leading the way— there is $90 billion in projects underway in northern B.C. at present, meaning 45% of the work is in a region where seven percent of the population lives.
Moneys have also been released for shut down maintenance work in the pulp and paper sector, and federal ship building contracts have also got the industry a-buzz. But prosperity could bring problems.
“A challenge will be keeping apprentices and journeymen in the industry as the ship building sector and large mining companies like Rio Tinto begin head-hunting for tradespeople,” says Sychuk. “The shipyard contracts will be for a duration of 10 years and by the 2015 they will require approximately 2,000 trades people to perform the work.”
These large developments could also result in more work for SMACNA-BC contractors, who are expected to receive portions of the work over the next five years.
Another key challenge moving forward will be maintaining SMACNA-BC’s portion of government funding allocated for subsidizing apprenticeship training at the Sheet Metal Workers Training Centre. The SMWTC receives a subsidy that may be moved, reduced, or eliminated as demand for training in the mining sector increases.
Sychuk says tax incentives for developers are an obvious step the government can take to fuel growth in the BC construction economy.
“Then make sure it is a safe, reputable, professional, tax paying contractor doing the work,” he says, urging the government to work harder at addressing the underground economy.
“There are too many people still working for cash, and not paying their WorkSafeBC premiums or taxes and putting the burden on all of the contractors who do the work above board.”
Compulsory Trade Certification to Red Seal standards and contractor licensing would be steps in the right direction, says Sychuk. “It creates an even playing field and makes sure all contractors are sending their guys to school to be trained,” he says. “It creates better, more well-rounded tradespeople—not just a bunch of helpers.”
A fair bidding process using a bid depository and prompt payment legislation would also help contractors remain productive and profitable.
“Governments should also utilize trade associations as sounding boards to know what the actual issues are in the specific facets of the industry,” he says. “Consulting a trade association is at no cost and the expertise, the experience, and the information is not derived by so-called ‘experts’—people who have never worked an hour in the industry and yet claim to know what the industry wants and needs.
“When dealing with a trade association the information and action is from the ground level. General contractors and construction managers will usually have an opinion different from that of a trade contractor,” says Sychuk.
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.”
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.”
McLachlan says, “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.”
“We’ve been saying for five years that 25,000 BC workers are retiring, and it is happening now,” he adds. “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 [people]; it’s having enough management to pursue the work in a profitable manner.”
This article was written by Jessica Kirby and was originally published in the Winter 2012 issue of Sheet Metal Journal.
