AUGUST 2014
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MEGAPROJECTS TRANSFORM TRANSIT
COHERENT TRANSIT POLICY DRIVES CONSTRUCTION BOOM Pg.16
RISK:
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VOLUME 58, NO.4 / AUGUST 2014
COVER STORY 16 Transit transformed by megaprojects
Bigger projects and long-term planning are slowly becoming the norm in mass-transit projects.
DEPARTMENTS 5 Comment
24
Discerning shoppers drive mall construction boom
8
News Industry news
14 Construction Stats The latest news in building permits and construction employment
38
36 Funny Photo Funny Photo contest
COLUMNS 34 Risk Risk and capital: A new paradigm for capital underwriting?
38 Contractors and the Law Canadaâ&#x20AC;&#x2122;s new anti-spam legislation
29
36
Index of Advertisers
features 24
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The Freightliner 114SD truck enables these guys to handle demanding paving jobs with greater efficiency. It offers a 114-inch BBC cab made of corrosion-resistant aluminum, reinforced with e-coated steel. It has a contoured hood slope for superior visibility and a 50-degree wheel cut for better maneuverability. Add key weight-saving components and our proprietary SmartPlex™ Electrical System, and you’ve definitely got the latest and greatest equipment for any construction job. To learn more, visit FreightlinerTrucks.com/WorkSmart. Competitive financing available through Daimler Truck Financial. For the Freightliner Trucks dealer nearest you, call 1-800-FTL-HELP. www.freightlinertrucks.com. FTL/MC-A-1168. Specifications are subject to change without notice. Copyright © 2013. Daimler Trucks North America LLC. All rights reserved. Freightliner Trucks is a division of Daimler Trucks North America LLC, a Daimler company.
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COMMENT
Discerning shoppers drive mall construction boom
S
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teel-toe boots and safety vests are about as deep as we typically delve into the wonderful world of fashion here at On-Site. However, since affluent Canadian shoppers are fueling a mall construction boom, it seems only prudent that we take a closer look at this demand for designer labels. While big box retailers like Target struggle to gain traction north of the border, demand for luxury retailers is stronger than ever— driving major expansion projects at shopping malls across the country, according to a recent study conducted by commercial real estate company CBRE Canada. Following the 2008 financial crisis, the recession led to a boom in retail development with foreign retailers—initially American ones that turned their sights to Canada. Construction simply has not kept up with demand since then. As a result, there is little to no vacancy in highly sought after shopping centres and neighbourhoods, says CBRE’s head researcher Ross Moore. The study, which measured the number and type of retailers that setup shop in 2013, discovered that luxury and high-end fashion brands constitute the majority of new arrivals in Canada. Newcomers in jewelry, designer fashion and accessories categories are driving demand for additional retail space. In Vancouver, the Pacific and Oakridge Centres are getting bigger (adding 578,000 sq. ft. and 373,000 sq. ft. respectively); Calgary’s Chinook Centre is expanding (140,000 sq. ft.) as well as Ottawa’s Rideau Centre (230,000 sq. ft.).
In Toronto, Yorkdale and Sherway Gardens are both undergoing multi-million-dollar expansions to accommodate a new anchor tenant, the upscale U.S. department store Nordstrom. For Yorkdale, it’s the second expansion in four years. In 2012, the mall underwent a $220-million renovation, adding 145,000 sq. ft. The new wing, set to open in 2016, will add an additional 298,000 sq. ft. Moore predicts that malls in major markets will keep seeking opportunities to expand, but construction will level off in coming years. He also points out that Canadian malls tend to be more productive than their U.S. counterparts, with sales per sq. ft. averaging $600 vs. $450 (Canadian) in the U.S. Talking designer shoes and handbags might be a bit unusual for contractors, but shopping habits that lead to big construction jobs and beating the U.S. in productivity—well that’s worth taking note of.
Corinne Lynds / Editor CLynds@on-sitemag.com
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CONTRIBUTORS
MEET OUR CONTRIBUTORS FOR THIS ISSUE
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JIM BARNES / Contributing Editor
EDITOR/EDITORIAL DIRECTOR | Corinne Lynds (416) 510-6821 CLynds@on-sitemag.com
On infrastructure in Canada: Transit proponents say investments in transit infrastructure offer a net benefit to the economy. According to data cited by FCM, every dollar spent on infrastructure garners about $1.20 in real GDP growth...
ASSISTANT EDITOR | Patrick Callan (416) 442-5600 x3524 PCallan@on-sitemag.com
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DAVID BOWCOTT / Senior vice-president, national director large/strategic accounts, construction and infrastructure services, Aon On contractors and risk: ‘We’ve always done it this way.’ That statement represents the death of many a good idea. When the person questioning the way things are done hears those words, they often shrug their shoulders, resign their position and go back to doing things the way they have ALWAYS been done.
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6 / AUGUST 2014
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INDUSTRY NEWS
Students showcase handiwork at Skills Canada national competition BY PATRICK CALLAN The 2014 Skills Canada national competition saw more than 500 promising skilled trades and technology students and apprentices vying for top spot in their respective fields and a chance to represent Canada at the WorldSkills competition in 2015. Skills Canada held its national competition from June 4 to 7 at The International Centre in Mississauga, Ont. The four-day event featured 42 competitions in six different sectors: construction, services, manufacturing, transportation, information technology and employability. The construction sector included competitions in heavy equipment servicing, brick masonry, carpentry, HVAC services and more. Busloads of students from across Ontario and thousands of others from across the country turned up every day to cheer on friends and family. Notable attendees included Jason Kenney, minister of employment and social development; HGTVâ&#x20AC;&#x2122;s Bryan Baeumler of House of Bryan and Disaster DIY; Paul Lafrance of Decked Out; and former MasterChef contestant Julie Miguel. All attendees had the opportunity to participate in more than 40 Try-A-Trade and Technology activities. There were also interactive demonstrations on the Essential Skills Stage, more than 70 exhibitors in the Career Zone and many networking opportunities with industry leaders. Under the new Skills Canada selection process, the highest-ranking age eligible medalist in each applicable contest area will compete in the WorldSkills Canadian Trials. From there, competitors reaching preestablished Canadian standards earn a spot on the WorldSkills Team Canada 2015 and will participate at the 43rd WorldSkills Competition in SĂŁo Paulo, Brazil from August 11 to 16, 2015.
...NEWS CONTINUED 8 / AUGUST 2014
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INDUSTRY NEWS
Port-Daniel cement plant highlights: • Up to 40 per cent less fuel per ton of cement than traditional cement plants due to higher use of hydroelectric power. • Only cement plant in Canada to comply with U.S. standards set out in the National Emission Standards for Hazardous Air Pollutants (NESHAP 2015). • Equipped with all the latest technology for improved environmental performance, including the latest generation bag filters throughout the plant. • Will use maritime transportation and petroleum coke for fuel.
Port-Daniel cement plant secures $360M loan McInnis Cement announced that the financial structure of the Port-Daniel cement plant under construction in Quebec’s Gaspé region is now in place. The National Bank of Canada has confirmed the availability of a $360-million loan for the project, which is in addition to the $500-million in equity from private and public investors.
Construction auction raises $1M for Saskatchewan charities Ritchie Bros. Auctioneers recently teamed up with the Brandt Group of Companies and other sponsors to raise more than $1 million for Saskatchewan charities. “A Night to Remember” on July 18 consisted of an auction, dinner and musical performances by Blue Rodeo and George Canyon. From the $1-million raised, the Alzheimer Society of Saskatchewan received more than $962,000 and $100,000 went to Football Saskatchewan. Ritchie Bros. organized the auction portion of the event, which included a luxury fishing trip vacation to Warm Springs Resort at Stuart Island, B.C. donated by DER Resorts. The eight-person fishing trip sold for a $100,000.
SNC-Lavalin inks $30.5M hydro project in BC Plutonic Upper Toba Holdings Inc., a subsidiary of Alterra Power Corp., awarded SNC-Lavalin with a $30.5-million engineering, procurement and construction management (EPCM) contract for the Jimmie Creek hydro project in British Columbia. The project consists of a run-of-river hydro generation facility on Jimmie Creek in the Toba Valley near Powell River, B.C. SNC-Lavalin will install a rubber dam across the creek to divert flow into a three-kilometre-long buried penstock and surface powerhouse with two 32.5-MW units. SNC-Lavalin will undertake the EPCM services for this part of the project, while also providing environmental supervision and transmission line design services. Work on Jimmie Creek began in 2012 with the initial project definition phase, and proceeded into implementation with the signing of the EPCM contract in June 2014. On-site activities began on March 1, 2014 and the targeted in-service date for the project is July 2016.
10 / AUGUST 2014
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INDUSTRY NEWS
Vancouver’s nonresidential construction sector decreases in second quarter
VIA Rail begins renovations at Brockville station
an automatic door and other accessibility improvements; and doors and window will be replaced. The building beside the station will be demolished and a passenger shelter will be built in its place. The work will be completed by November 2014.
VIA Rail Canada has launched a renovation project to transform its station in Brockville, about 115 km south of Ottawa. Originally built in 1872, the station will get many new features such as roof, building envelope, lighting and finishes;
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Non-residential construction investment spending in Metro Vancouver declined by 4.4 per cent in the second quarter of 2014, according to the Vancouver Regional Construction Association (VRCA). Non-residential spending in the second quarter of 2014 was $789 million compared to $825 million in the first quarter. While commercial building construction only saw a small drop of 1.7 per cent in that same time period ($577.7 million to $568 million), institutionalgovernment decreased 10.4 per cent ($208.1 million to $186.4 million) and industrial building construction investment fell 11.7 per cent ($39.3 million from $34.7 million). The current trend is consistent with the previous four quarters, said Fiona Famulak, VRCA’s president. Small declines in the largest sector of commercial spending have mitigated moderate declines in the smaller sectors of industrial and public spending. “Commercial building investment continues to hold up well, as it has since the beginning of 2013,” she said. “While commercial market conditions are project dependent, projects in the early construction phase, such as the 31-storey Exchange office tower and the Tsawwassen Mills and YVR retail outlet projects, will add positively to future spending.” VRCA projects a mixed outlook for the second half of 2014, with a likely gain in commercial construction spending offset by less spending on industrial and public buildings.
12 / AUGUST 2014
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CONSTRUCTION STATS A selection of data reflecting trends in the Canadian construction industry
Total value of permits $ billions 8.5 8.0 7.5 7.0
Building permits up in May
6.5
Municipalities issued building permits worth $6.9 billion in May, up 13.8 per cent from April. This followed a 2.2 per cent rise in the previous month. The increase in May resulted primarily from higher construction intentions for commercial buildings in Ontario and Manitoba, as well as multi-family dwellings in British Columbia. The total value of permits has been on a slight upward trend since the beginning of 2014.
6.0 5.5 5.0 4.5
M 2009
J
2010
J
2011
J
Seasonally adjusted
2012
J
J
2013
M 2014
Trend
Note(s): The higher variability associated with the trend-cycle estimates is indicated with a dotted line on the current reference month and the three previous months.
Employment
Investment in non-residential building construction down in second quarter
thousands 18,000 17,800 17,600
Investment in non-residential building construction amounted to $12.8 billion in the second quarter, down 0.5 per cent from the previous quarter. It was the second consecutive quarterly decline and resulted from lower spending on industrial and institutional buildings.
17,400 17,200 17,000
“
16,800 16,600
J
J
2009
J 2010
J 2011
J 2012
J 2013
J 2014
Investment in non-residential building construction billions of dollars 14
Construction employment up in June Employment was little changed in June and the unemployment rate rose by 0.1 percentage points to 7.1 per cent as more people were searching for work. Following five months of little change, the number of construction workers increased by 32,000 in June, bringing employment in this industry up to a level similar to that of 12 months earlier.
13
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12 11 10
9
II III IV I
II III IV I
II III IV I
II III IV I
II III IV I
2009
2010
2011
2012
2013
II
2014
Source: Statistics Canada
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INFRASTRUCTURE
MEGAPROJECTS TRANSFORM TRANSIT BY JIM BARNES
C
anada’s hit or miss history of mass-transit projects is being transformed. In contrast to the boom-and-bust cycle of the past, longer-term planning and financing as well as bigger projects are slowly becoming the norm in Canada’s major urban centres. Canada’s biggest cities are dealing with a transit deficit. “Long daily commutes—more than 75 minutes on average in Canada’s biggest cities—are hurting our economic competiveness. Fast, efficient, and convenient public transit is essential to reducing traffic gridlock and putting a stop to runaway commute times,” says Brad Woodside, president of the Federation of Canadian Municipalities (FCM), Ottawa, and mayor of Fredericton, N.B. Transit proponents say investments in transit infrastructure offers a net benefit to the economy. According to data cited by FCM, every dollar spent on infrastructure garners about $1.20 in real GDP growth. According to the federal government, every billion dollars invested in infrastructure creates about 11,000 direct jobs. Some projects are being executed on a scale unthinkable a decade ago. Nearly a dozen projects in Canada, under construction or in the works, are worth a billion dollars or more. “Never before in my career have I seen so much activity across the country,” says Michael Roschlau, president and CEO, Canadian Urban Transit Association, Toronto.
COHERENT TRANSIT POLICY DRIVES CONSTRUCTION BOOM
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Vancouver’s Skytrain.
FEAST AND FAMINE
Canada has had a feast-and-famine cycle of infrastructure investment in the past, catering to political realities and economics. That is an issue for transit projects, which are inherently bigger and require a lot more time to develop and plan than other kinds of infrastructure. Municipalities need to think 10 or 20 years into the future—the life cycle for most infrastructure. The key element is predictability, which enables municipalities to allocate funds and enables the private sector to work efficiently. "All levels of government are starting to realize that you can't let the governments in power re-evaluate projects,” says James Haldenby, a director in EllisDon's civil division, Toronto. “In Toronto over the past 20 years, the responsibility for expanding the public transit infrastructure has been given to the municipal government. Often, when that government is replaced, the plan is reconsidered,” he says. As an example, he cites the Scarborough RT—Toronto’s current mayoral candidates strongly disagree on whether to replace it with an LRT or a subway. The election is in October. "It is helpful to get guidance at the federal, provincial and regional levels to make these decisions and get going with these highly beneficial projects," says Haldenby. “There's nothing worse for contractors and construction and engineering companies than to have an on-again, off-again business environment. Promises get broken and there are changes in direction. It does not inspire confidence, nor does it serve the public's interest,” says Roschlau.
FEDERAL FUNDING
The federal government has made infrastructure investment a linchpin of its 10-year Economic Action Plan (EAP). The $53-billion Building Canada Plan (BCP) calls for massive investments in collaboration with the provinces and municipalities over a decade and transit projects are eligible for all components of the plan. “We are really pleased to have a 10-year program in place—I think that's the longest we've ever seen,” says Roschlau. One component of EAP is the Community Improvement Fund—$32.2 billion, consisting of an indexed Gas Tax Fund and the incremental Goods and Services Tax (GST) Rebate for Municipalities for public transit, roads and other community infrastructure across Canada. Second comes the New Building Canada Fund (BCF), with $14 billion in support of major economic infrastructure projects. It has two components. • A $4-billion National Infrastructure Fund, for projects like public transit, highways and gateway and trade corridor-related infrastructure. • A $10-billion Provincial-Territorial Infrastructure Fund that supports national, regional and local projects including public transit, highways and waste water systems, among others. Many in the industry suggest that the New BCF is off to a slow start. The previous incarnation of BCF involved framework agreements with the provinces and territories. These agreements enabled the federal government to negotiate with each province on total investment, eligible categories and how to apply to the fund, among other issues. Those framework agreements are gone. Now, each province has to administer the programs itself, leading to some confusion and uncertainty at all levels of government. Most elements of the new plan were not communicated until just before the launch in March. The result has been difficulty in establishing an application process, according to FCM. “Municipalities want to work with the federal government and provinces and territories to cut through the confusion and delays surrounding the New BCF program, and get the work started. Canadians expect all levels of government to work together to get the job done,” says Woodside. The P3 Canada Fund also supports transit projects. This fund allocates $1.25 billion to support innovation in using public-private partnerships to build infrastructure projects.
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INFRASTRUCTURE
For some municipalities, though, there is a roadblock. P3 screening is mandatory for any project worth more than $100 million that is put forward for BCF consideration. Screening is not a rapid process. According to FCM, every proposal must include a preliminary assessment. If it looks promising in terms of P3, then a more substantial business case must be made. The federal government suggests it will take between six and 18 months to run through the process, which puts a damper on this construction season. Other infrastructure programs will provide about $6 billion to provinces, territories and municipalities. Provincially, the situation is varied.
QUEBEC
Quebec has entered austerity mode with the election of the Liberals in April. Despite campaign promises to spend some $15 billion on infrastructure over the next 10 years, Finance Minister Carlos Leitao said a look at the books convinced the government to “rethink that particular promise, because the increase in debt will be too fast.” The existing Quebec Infrastructures Plan calls for spending of about $7.6 billion over the next 10 years on public transit. One high-priority project is improvement to West Island transit, between the western suburbs and the city. Buses, trains and light-rail transit are being considered as alternatives, with costs that range from $1.8 billion to $4 billion. Studies are still underway. Current projects will be maintained (for example, new subway cars in Montreal and the Train de l’Est). In real terms, eight per cent of total infrastructure investment will go to public transit, according to an analysis by CAA Quebec.
ALBERTA
Alberta’s $2-billion GreenTRIP program was launched in 2008 to support sustainable public transit alternatives. The March budget allocated $162 million to the program for 2016-17, bringing funding commitments to $667 million over the next three years—basically, meeting industry expectations. To date, Alberta has approved $1 billion for transit projects in 15 municipalities. A second round of funding has a Nov. 3 deadline.
Metro in Montreal.
A centrepiece of transit construction will be Edmonton’s $1.8-billion Valley Line LRT project, which will be funded by $800 million from the City of Edmonton, $600 million from the province (including $300 million from GreenTRIP), and $400 million from the federal government—$250 million from PPP Canada funding and $150 million from the New BCF. Stage 1 of the 27-km line will include 11 street level stops and one station. Another 14 street-level stops and two stations are planned for later stages. Alberta transit projects are also eligible for its Municipal Sustainability Initiative (MSI), which will invest $3.7 billion in municipal infrastructure projects, $1.24 billion of it in 2014-15.
B.C.
The provincial government is committed to supporting the South Coast British Columbia Transportation Authority, commonly known as TransLink. Created in 1999 to manage the region’s transportation system as a whole, it delivers services through operating companies and subsidiary transit agencies as well as contractors. The organization has a 30-year regional transportation strategy and a fully funded, 10-year investment plan. One standout megaproject is the $1.4-billion Evergreen Line, a 10.9-km SkyTrain service that will connect Coquitlam to Vancouver via Port Moody and Burnaby. The Mayors’ Council approved it in 2011 as part of the Moving Forward 2012 Supplemental Plan. Funding will come from the province ($583 million), the federal government ($417 million) and TransLink ($400 million). Six SkyTrain stations will be built and two existing stations upgraded. Construction is well underway and the line is expected to be open for business in the summer of 2016.
18 / AUGUST 2014
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INFRASTRUCTURE
ONTARIO Ontario is a transit construction juggernaut,
the project is planned for completion by
with several, billion-dollar projects in the
early 2015.
works. The Ontario budget, introduced in July, is strongly transit-oriented. The Moving Ontario Forward plan will commit nearly $29 billion over the next 10 years to public transit, transportation infrastructure
Metrolinx, an agency of the Ontario government, is responsible for a mind-boggling array of transit infrastructure in the Greater Toronto and Hamilton Area. “The average person in Toronto now spends
and other infrastructure projects. It comprises
82 minutes commuting into the downtown
two funds: a GTHA fund of up to $15 billion for
area. It is one of the longest commutes in North
investment in transit and a $14-billion fund for
America. It costs the local economy about $6
roads, bridges, transit and other critical infra-
billion a year, just in lost productivity,” Jack
structure in the rest of the province.
Collins, executive vice-president, Rapid Transit
The Ontario Northland Transportation Com-
Implementation at Metrolinx, Toronto told an
mission will see investment in rail refurbish-
Ontario Construction Secretariat conference
ment infrastructure.
in Toronto in March.
One prominent project is Stage Two of the
The organization was founded in 2006 to de-
$2-billion Ottawa LRT, which is scheduled for
velop and implement integrated transportation.
substantial completion by 2017. The 12.5-km
It launched The Big Move, a 25-year, $50-billion
Confederation Line will get a provincial invest-
Regional Transportation Plan, in 2008. The Gov-
ment of up to $600 million from the Moving
ernment of Ontario has committed $8.4 billion in
Ontario Forward program.
support of new transit for Toronto.
Another is an $818-million expansion of the
Brand New Bombardier Streetcars for Toronto.
The overall value of currently funded projects
36-km Kitchener-Waterloo LRT to Cambridge.
is $16 billion. Toronto transit projects account
It will also be eligible for a $300-million in-
for about $8.7 billion of that. Some 60 transit
vestment under Moving Ontario Forward. The
projects—short-, medium- and long-term—have
adapted bus rapid transit (aBRT) component of
been identified.
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INFRASTRUCTURE
Among the major transit projects underway:
upgrade and extend the Scarborough RT.
The $1.2-billion Georgetown South Project
Construction should be complete by 2020.
will provide GO Transit infrastructure
The Toronto-York Spadina Subway extension is
improvements as well as accommodate VIA
an 8.6-km extension of the Yonge-Spadina sub-
Rail service, CN freight train service and the
way line. Total capital cost is approximately $2.6
new Union Pearson Express. Completion is
billion and the line should open in late 2016.
scheduled for 2015. The Union Station Revitalization project,
More than 34 km of dedicated bus lanes are planned for the $1.4 billion York Region
estimated at more than $715 million, is a
vivaNext Rapidways program. About three km
massive endeavour to expand and upgrade
is already in operation and the project will be
Toronto’s major downtown transportation hub.
complete by 2018.
“We expect substantial completion by 2015 and
The $259-million Mississauga Bus Rapid
full completion by 2016,” Collins said in March.
Transit project involves 18 km of two-lane,
The $456-million Union Pearson Express service will connect Union Station with Terminal 1 at Pearson International Airport.
grade-separated road and 12 new stations. The next wave of projects will see another $34 billion in spending. These projects include:
The 25-km rail line includes a new three-km rail
> Expansions to GO service
spur. Trains will be running in the early part of
> Brampton Queen St. RT
2015, in time for the Pan Am games in Toronto.
> Dundas St. BRT
The Eglinton Crosstown LRT will add 19 km
> Durham-Scarborough BRT
of new transit at an estimated cost of $4.9 billion.
> Hamilton RT
Completion is expected by 2020.
> Hurontario-Main LRT
The 11-km Finch West LRT should be completed in 2020 at a cost of a billion dollars. The billion-dollar, 13-km Sheppard East LRT should be complete by 2021. That will be the last
Extending the subway line in Toronto’s northwest end is one of a handful of ongoing projects to reduce commuter times across the Greater Toronto Area.
> East Bayfront LRT > TTC Relief line > Yonge North Subway expansion to York Region
piece in the current wave of projects. A $1.4-billion investment is on the books to
Jim Barnes is a contributing editor to On-Site.
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FINANCE
Decision time: Should w BY DAVID GODKIN
i
remember it like it was yesterday. Standing at the front of the room were senior executives from one of the largest corporations in British Columbia. Seated facing them were managers from the smaller organization waiting anxiously for answers to their questions: Why are we merging? How am I protected in my job? Tell us the truth: Who benefits from this, really? No, these weren’t construction companies, but they came darn close. ICBC and the Motor Vehicle Branch oversaw licensing and insurance for British Columbia’s construction fleets. I was the communications manager for both. Why they decided to merge in 1997 was a mystery then and remains one now.
SO, WHY MERGE OUR TWO COMPANIES? It doesn’t have to be that way. Instead, one company can simply buy the other. Caterpillar did it when it purchased Lovat TBM in April 2008, only to close its tunneling division five years later. Martin Marietta did it a year ago when a stubborn slump in building materials presented it with an opportunity to purchase Texas Industries. Sometimes companies simply fall over like dominoes, as in 2010 when the Churchill Corp. (which owned Stuart Olson, which owned Seacliff Construction) acquired Dominion Construction. Whether you decide to merge your fortunes with another firm, or buy it outright, much depends on the cyclical nature of the economy. When things are going well, as they were in 2007, construction companies snap up other firms like out-of-towners bellying up toa Las Vegas gaming table. However, construction consultant Colin Sutherland likens it more to a stockbroker anxious to make a killing on Bay Street. “Sometimes they don’t see the trouble on the horizon as a number of companies in the U.S. did with the terrible downturn and financial crisis in 2008. People made acquisitions literally on the eve of things just crashing.” A case in point is Lafarge. For all the ballyhoo around its proposed merger with global cement giant Holcim, some forget Lafarge paid nearly $13 billion for Egyptian-based Orascom Cement just before the 2008 recession. Lafarge has been struggling to get out from under the debt that resulted from that deal ever since. “They’ve sold off a number of businesses,” says Sutherland, “including some businesses that
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d we merge or buy? strangely enough were competitive with Holcim.” Asset sales quickly followed in the U.S., Chile and elsewhere, “which made for an even larger and more troubled combination of the two enterprises.” Okay, so you’re not Lafarge. And maybe you have no plans to merge with anyone, but even buying that smaller construction firm on the other side of town or province poses challenges. How to decide? Well, obviously the future strength of the economy is one factor. Another is geographical proximity. If you and the other company service the same clientele—but you think you can do it better— then buying the other company increases your customer base and potentially your bottom line. Or it might make equal sense to acquire a company with particular expertise in areas you’re not familiar with. Spent too many years in highway construction? How about expanding into the booming oil and gas industry? There are other possible synergies, too, says Sutherland. “If all of a sudden you’ve got a fleet that’s twice as big, you can maybe get a better price buying diesel. A big company will understand the math and be opportunistic when it sees a smaller company that can fit in and result in improved performance.”
MERGER, SCHMERGER Whether it’s a merger or acquisition, it’s all optics, says Sutherland. And Stuart Phoenix, agrees with him. A merger may sound like a happy marriage of two equal partners, says the chair of FMI Corp. in Raleigh, N.C., an advisor to general contractors on mergers and acquisitions, but as in most marriages there’s always one who dominates. “Two firms merge and say we’ll do business together. But it rarely happens that way. It’s usually ‘I’m big and you’re small.’” Eventually, the one who controls the purse strings runs the household, Phoenix adds. One thing we can say for sure is that mergers occur far less frequently than acquisitions, and that part of this may be due to their track record. Citing the Harvard Business Review, Sutherland says between 75 and 80 per cent of mergers fail to deliver value for the money and effort invested. The key to a merger or acquisition is not just the strategic goals that precede a deal, but the tactical plan for allocating resources once the deal is done.
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FINANCE
The most important of these are human resources. Human beings are emotional. They see change as a threat and react defensively the moment significant change is proposed. Add to this the near certainty that someone is going to get hurt by this kind of change, i.e. job loss, then the problem of managing a merger or acquisition becomes tougher. And how you do that will largely determine not just how staff fare, but whether your enterprise succeeds or fails. “If you do it in such a way that you’re going to lose a lot of people or they’re going to quit because they think you’re going to let a lot of people go, then that’s not a very good acquisition,” says Phoenix. “You want to preserve the people; you want to preserve the culture, because that and their expertise are really what you’re buying.” At the same time, it’s generally agreed that no single organization requires two CEOs. Often you have to choose between two managers or executives, forcing one to leave. Or sometimes you can re-position him or her elsewhere in the new organization. Two more scenarios present themselves, says Sal Bianco, a partner in the auditing group of PricewaterhouseCoopers LLP in Toronto. One occurs in family-owned construction companies when the second or third generation has no interest in taking over this “grand nest egg asset” of a family-run business. “You don’t want it to go from whatever it’s worth to zero and wind it down. You want to get value for the family. So you look at it as an opportunity to sell to an existing Canadian company.” Conversely, you may want to take advantage of a recent trend and sell your construction firm to a company from the U.K., Spain, Germany or Italy anxious to expand its international footprint. Is this a good thing? You bet, says Bianco. The new rule of the game—consolidation—demands it. “There are too many players creating too much competition, which in the end drives prices down. Which means companies are going to perish because they can’t economically deliver the work.”
LAFARGE AND HOLCIM: TWO GIANTS CONVERGE When it comes to acquisitions as a strategy for securing growth, few have been as aggressive about it recently as Bird Construction. In 2008 the Mississauga-based company acquired Rideau Construction Inc., a general contractor in Nova Scotia and New Brunswick, giving Bird direct access to construction opportunities in the Maritime’s mining, oil and gas sectors. Then last year it purchased Quebec–based H.J. O’Connell Ltd., a player in heavy construction, civil construction and contract surface mining. Bird’s Vancouver-based director of business development Frank De Luca says providing staff with some comfort early on is key, but talking to preferred suppliers “is a worthwhile conversation, too.” By comparison, talking to clients in advance of a deal when you’re a public company is somewhat restricted given insider trading rules. “If you’re talking about two private companies, yes I would think that clients and vendors might be involved
in the conversation. Otherwise I would say that most of those conversations happen after the act.” Hardly any conversation about mergers or acquisitions these days gets far before the proposed merger between Lafarge Canada and Holcim is raised. Lafarge insists it will be business as usual in Canada after the merger, but will the blockbuster deal really escape a demand from the federal Competition Bureau that it divest some of its Canadian assets? Many think not. In the meantime, one of those waiting in the wings to see how it all falls out is Jim Dick of James Dick Construction in Bolton, Ont. Dick is salivating at the chance to expand his aggregates business
by buying what Lafarge and Holcim are forced to leave behind. The problem, says Sutherland, is that Lafarge and Holcim might prevent this by block-selling their assets. And Sutherland should know; he’s worked for both companies and figures there may be no crumbs for Dick to pick up from the bigger table. “It would surprise me if they’re not sold as a package. That’s the way the company has operated for 40 years with its integrated group of businesses. Dick’s argument would only hold true if [Lafarge] broke up that Canadian business and sold its constituent parts.” Bianco and Sutherland agree such a scenario is unlikely. “It will be difficult to make economies of scale out of it,” Bianco says, “unless you have similar business and you’re filling in your regions with leftovers that they have to get rid of.” Outside of reporting to a global entity in Zurich instead of Paris, another change for Lafarge may be one of philosophy over asset development. Holcim, says Sutherland, has placed enormous emphasis on reinvesting in its assets, i.e. building modern, energy efficient plants. Lafarge, by contrast, “has had more of a tendency across the globe to stay with older plants and older technology to keep them going.” Its Richmond, B.C. and Exshaw, A.B. plants notwithstanding, Sutherland believes Lafarge has much to do to upgrade its facilities in Eastern Canada. “In Ontario and Quebec their assets are 45 to 50 years old, not state-of-the-art, not as environmentally efficient as they could be, and I would expect that eventually that they will make some investments in Eastern Canada.”
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B2Wsoftware Untitled-1 1
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Come to World of Concrete, roll up your sleeves and try your hand at the year’s newest products, equipment and services. Technology, training, resources and ideas—zoom in at the industry’s only annual international event designed specifically for commercial concrete and masonry professionals.
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www.worldofconcrete.com Source Code: OS
14-08-11 12:17 PM
SITE PREP
On solid
ground Volvoâ&#x20AC;&#x2122;s SD115 soil compactors are designed for a range of soil types from granular to cohesive. These machines can be used for large industrial jobs, commercial and residential site preparation, highway projects, water retention embankments and for utility work.
BY PATRICK CALLAN
Manufacturers roll out new soil compaction technology
S
oil compaction is a crucial part of the site preparation process. Most construction sites across Canada incorporate some form of soil compaction into a project to increase load-bearing capacity, prevent soil settlement and frost, and reduce water seepage, swelling and contraction. If done incorrectly the soil may not settle properly, leading to extra maintenance costs or even worse: structural failure.
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SITE PREP
Bomag’s BW 177 DH-5 single drum vibratory roller is best suited for medium-sized vibratory compaction applications, such as city and municipal jobsites, as well as utility and secondary roadway projects. It can also be used for railway development and work on commercial jobsites.
When choosing soil compaction equipment for your project, many readers will be familiar with the different options available, such as vibration, impact, kneading and pressure, depending on what type of soil you are working with. Looking to meet all your on-site needs, equipment manufacturers rigorously test new technology and apply industry insight into improving their soil compacting equipment. To find out how recent upgrades in compacting equipment will help make your life easier on your site prep jobs, we reached out to product experts from Bomag, Caterpillar, Case, Volvo and Wirtgen America. Here’s what they had to say:
FRESHLY PRESSED Bomag’s latest soil compactor is the BW 177 DH-5 single drum vibratory roller. A new feature is the Terrameter, which is a quality control tool that displays Evib soil stiffness value (Higher Evib values signify higher soil stiffness and a better state of compaction). This tool reduces unnecessary rolling passes, quickly identifies weak material areas through proof rolling, and allows operators to evaluate 100 per cent of the rolled surface. In addition, an eco-mode feature lowers fuel consumption and an optional eco-stop function reduces emissions and operating costs. Cat recently introduced its CS74B vibratory soil compactor featuring Machine Drive Power (MDP). MDP provides operators with indicators of soil stiffness by measuring the energy required for the machine to overcome rolling resistance. The stiffer the material, the less energy needed to propel over it. MDP technology also fills in the gaps of accelerometer-based systems and provides a compaction measurement
Machine Drive Power “provides operators with indicators of soil stiffness by measuring the energy required for the machine to overcome rolling resistance.
”
technology for all soil types and a range of applications. Case’s SV212 vibratory compaction rollers equipped with compaction indicators let operators see travel speeds, compaction levels, how many passes they made, and if there was an area within the jobsite that did not compact. The indicator tells the operator if they were 80, 90 or 100 per cent compacted and it helps them understand which areas have met compaction levels, which ones have not, and where they need to focus.
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SITE PREP
Cat’s CS74B vibratory soil compactors are designed for base and embankment construction, earth dams and haul roads. They are also suitable for use on all soil types (granular, cohesive and semi cohesive materials) and work best on compactors configured with smooth or padfoot drums.
Another important component of all compaction machines is what’s under the hood. That’s why Volvo Construction Equipment offers the SD115 soil compactor in two Tier 4i engine configurations: Volvo D4 or Volvo D6. Both incorporate a new engine power management system designed to reduce engine revolutions per minute while in working mode. For extra operator comfort, an optional redesigned enclosed cabin features improved visibility and an upgraded heating and cooling system. Aiming to meet contractors’ needs for projects of any size, Wirtgen America has added a range of machines to its Hamm H i-series soil compactors to include 11-, 13-, 16-, 18-, 20- and 25-ton models. Deutz tier IVi engine technology reduces emissions and noise. A Hammtronic drive monitors all engine and drive functions for improved fuel savings. These machines also include automatic traction control drive (no manual input required) and high gradeability through automatic, self-locking differential.
EYE TO THE FUTURE When it comes to evolving their soil compactors, Bomag implements continuous improvements and innovations—such as the Terrameter
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SITE PREP
Wirtgen America’s Hamm H i-series soil compactors are ideal for all cohesive soils and granular materials for compaction of base materials, landfills, highways and more.
As contractors become more comfortable with soil “ compaction measurement technology, Cat is providing them with more options to access the level of technology they are comfortable with, such as MDP and other GPS positioning and mapping functions.
”
and eco-mode on the BW 177 DH-5—in its product range. For Bomag, key ingredients to success are strong partnerships with its dealer network and customers in order to deliver cost effective and productive solutions. A perennial leader in innovation, many of the new features on Cat’s CS74B enhance performance, durability and ease of use. There is also a big push to include sustainability options in their newer models. As contractors become more comfortable with soil compaction measurement technology, Cat is providing them with more options to access the level of technology they are comfortable with, such as MDP and other GPS positioning and mapping functions. Case prides itself on offering machines that meet customer needs. When looking at incorporating new features, the electronics and the intelligence behind them are the biggest driving forces. In terms of compaction meters, Case’s compactors have evolved and are more than a rebound metric. The SV212 now tells operators information about optimum travel speed, ideal operating frequency and their location on a jobsite.
As for Volvo, it plans to continue adding to the many popular innovations found on its SD115, such as multiple frequency drum technology, automatic vibration control and enhanced traction systems. Building on the success of introducing a three-point articulation joint (which offers a smoother ride for safer operation and reduced maintenance) on its former 3000 series, Wirtgen America has added the feature to all its Hamm soil and asphalt compactors. All recent upgrades offer operators improved visibility and a swiveling seat for access on both sides of the machine. In addition to the recent additions to the Hamm H i-series, Wirtgen America plans to launch five- and seven-ton soil compactors in the fourth quarter of 2014.
PREPARATION IS KEY Choosing the appropriate soil compaction equipment depends on a number of factors. First, you will need to identify the type of soil you
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SITE PREP
Case’s SV212 vibratory compaction rollers are ideal for roadway repair or a completely new roadway starting from the base layer all the way up. They offer improved centrifugal forces allowing for faster compaction with fewer passes or higher compaction lifts.
are working with—such as cohesive, granular or organic—since different soil types have different densities and moisture levels. While cohesive soil (clay) has particles that will stick together, granular soil (sand) will easily crumble and organic soil will not compact. Second, you will need to figure out the soil’s moisture content beforehand: too little moisture results in poor compaction and too much will weaken stability. There is no one size fits all answer for soil compaction equipment, but as a general guideline experts agree that pad-foot rollers work well for cohesive soil and vibratory rollers are best suited for granular soil. As you begin site preparation, knowing the terrain beforehand will help you make an informed decision about what kind of equipment the jobsite calls for.
Send comments to editor@on-sitemag.com
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RISK By David Bowcott
Risk and Capital: A paradigm shift for capital underwriting?
“
W
e’ve always done it this way.” That statement represents the death of many a good idea. When the person questioning the way things are done hears those words, they often shrug their shoulders and simply go back to doing things the way they have ALWAYS been done. I’ve heard that statement many times from a particular segment of the economy—and that segment represents the money, both equity and debt. Money, or capital, fuels the development of everything around us that serves the needs of humanity (railways, skyscrapers, condominiums, chromium ferris mines, schools, oil refineries, pipelines, cellular phones, automobiles, etc.). The agreements that govern their deployment into projects that develop the assets that surround us tend to follow a similar framework. All capital is risk adverse, senior debt being the most risk adverse and equity being the least. To illustrate my point, let’s look at the most risk adverse component of any financing: the senior most debt on a deal. The common credit underwriting protocols look to find ways to secure themselves through corporate guarantees, letters of credit, cash reserves and other so-called reliable security. Basically, the credit-underwriting framework for the debt primarily ensures the money behind the debt is secured if things go to hell in a hand basket. As long as there is a more than sufficient amount of capital backing the project to which the debt is acting as fuel, the debt feels comfortable being deployed. I’m not saying this isn’t a sound
approach to credit underwriting; I am questioning if it is the only approach. Now, let’s consider how credit underwrites a construction project and, in particular, how they underwrite the asset completion risks. They often require the drivers of the asset development to drop as much of the asset’s completion risk to a contractor (this is the case with both design-bid-build and design build). They do perform a cursory
“We’ve always done it this way, so don’t expect it will change anytime soon!” underwriting of the contractor’s ability to complete the job, however, a majority of their underwriting is focused on the financial strength of the contractor and the performance security being put up to secure the event of a default in the contractor’s performance. The thinking is: “We believe the contractor can perform this contract. However, if they cannot, we need not worry as we have sufficient security from the contractor to cover the risk of our capital not being repaid.” It has almost become an “easy way” to underwrite credit. I question how much effort is being put forward by the capital community to truly understand the construction industry, the risks associated with the construction of specific assets, and most importantly the solutions available to ensure those risks do not manifest. It’s relatively easy to find a big balance sheet, get a big corporate guarantee, letter
of credit, and avoid all the hard work of determining if the contractor is fully capable to complete the job successfully. When this question was raised in the past, the capital community said: “We’ve always done it this way, so don’t expect it will change anytime soon!” Well, some are beginning to question what the ideal paradigm is for the rules that govern whether capital is deployed or whether it remains on the sidelines. They believe the traditional approach might not have done enough to delve into the contractor’s ability to deliver the job successfully. In today’s world some believe a focus on probability of failure is much more sustainable for their capital than one that ensures recovery of funds when things go wrong. Everyone associated with a project would rather the project be successful than have the comfort of knowing they won’t lose money if it fails. Some in the capital community are beginning to turn to data on past failure (or data on near past failure) and solutions to prevent and mitigate risks associated with failure. The data and solutions when applied optimally are providing greater certainty of success, and at the same time are beginning to reduce the often-excessive security requirements on folks delivering the asset (design firms and contractors). To that end, the role of the construction and insurance industries is growing within the capital community as they use the data and solutions available from these to improve probability of success. Pay attention to this trend as it could lead to a more efficient framework for delivery assets with greater certainty of success. Just because it has always been done the same way, doesn’t mean it is the right way! David Bowcott is senior vice-president, national director of large/strategic accounts at AON Reed Stenhouse Inc. Send comments to editor@on-sitemag.com
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CONTRACTORS & THE LAW Sepideh Alavi, with assistance from Kalie McCrystal
O
Understanding Canada’s new anti-spam legislation
n July 1, Canada’s anti-spam legislation (CASL) came into effect. CASL regulates more than just traditional “spam.” The new law prohibits the sending of electronic messages, such as emails or text messages that contain a commercial element (known as Commercial Electronic Messages or “CEMs”), unless specific requirements are met under CASL. Understanding the new law is crucial for Canadian organizations, as failing to meet CASL rules for CEMs can result in administrative penalties of up to $1 million for individuals and up to $10 million for organizations.
WHAT CASL COVERS Any CEM that is distributed to encourage participation in a “commercial activity” (as defined in CASL) is subject to the new rules. CEMs that contain sales offers, product or business reviews, hyperlinks to online stores, or other advertisements may be subject to CASL’s requirements. For communications that meet CASL’s definition of CEM, senders must have express or implied consent from the intended recipient before the message is sent. The message itself must also contain certain prescribed formalities, including the sender’s contact information and an unsubscribe mechanism. There are a few important exceptions. Messages sent within an organization (to franchisees, representatives or employees) are not subject to CASL as long as they concern the business of the organization. CEMs sent in response to inquiries or requests are also exempt. In addition, consent does not need to be obtained for the first CEM sent to a prospective customer
if the message follows a referral by someone who has an existing business, non-business, personal or family relationship with both the referred recipient and the sender.
GETTING CONSENT CASL’s main purpose is to discourage organizations from using electronic means to distribute unsolicited offers and commercial messages. CASL’s consent requirements are the cornerstone of this objective, ensuring recipients pick and choose the communications they want to receive. In most cases, senders need to obtain “express consent” before sending any CEM. In addition to including the prescribed formalities, requests for consent must specify the class of communications to which consent will apply (eg. a daily newsletter or sales offers). Intended recipients must give permission to receive CEMs through a positive action, such as entering an email address or clicking on a hyperlink. Express consent is not required if the CEM is sent to a person or business that the sender has a designated “pre-existing business relationship” with. Instead, consent to receive the communication is implied from the relationship. This exception allows companies to send promotional messages to customers or vendors from the past two years, as long as the message includes the prescribed formalities. Consent is also implied if a CEM is sent to a person that conspicuously publishes their electronic address, the message is relevant to the recipient’s business activities, and the published address is not accompanied by a statement that the person does not wish to receive CEMs.
ENSURING COMPLIANCE Employees should be educated about CASL’s requirements and familiarized with compliance measures to reduce the risk of inadvertent contraventions. Procedures should be put in place to monitor compliance and promptly respond to unsubscribe requests, complaints and investigations. Contact lists should be reviewed to identify recipients for whom consent is implied and those for whom express consent is required. Systems should also be put in place to maintain an accessible and accurate list of consenting recipients for each class of CEM and for every CEM sender. In addition, all communications that contain a commercial element should be revised to comply with the prescribed formalities: identifying the sender, providing contact information and including a clear unsubscribe mechanism. Record keeping and documentation is an essential component of CASL compliance. Organizations have the burden of demonstrating when and how consent was obtained from each CEM recipient. If relying on implied consent, information should be readily available that proves the existence of an existing business relationship within the last two years.
Sepideh Alavi is an associate lawyer at Borden Ladner Gervais LLP. She acknowledges the assistance of Kalie McCrystal, articled student at Borden Ladner Gervais LLP. This article is provided for general information only and may not be relied upon as legal advice. Send comments to editor@on-sitemag.com
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