Construction Business | January, February, March 2020

January/February/March 2020 Vol. 17 No.2

VRCA 90th Anniversary

Infrastructure | Insurance, Bonding, Surety

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Inside 06 Connections The VRCA is the largest regional construction association in B.C. From its modest beginnings, the association has evolved over 90 years to become a respected and influential organization.

January/February/March 2020 | Volume 17 No 2

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Dan Gnocato dang@mediaedge.ca Cheryl Mah Rosalie Clark Carrie Fleming Chris Haag Mark Hentze Olugbenga Ibikunle Andrew Kolper Dirk Laudan Angela McKerlich Jeff McLellan Vanessa Reakes Alysha Visram Dan Gnocato Tel: 604.549.4521 ext. 223

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Cover Photo VRCA members have helped transform Vancouver from a small regional town into a dynamic metropolis that is recognized internationally today.

February 13 & 14, 2021 Construction Business is British Columbia and Alberta’s construction magazine. Each issue provides timely and pertinent information to contractors, architects, developers, consulting engineers, and municipal governments throughout both provinces. Complimentary copies are sent bi-monthly to all members of the Architectural Institute of B.C., B.C. Construction Association, B.C. Roadbuilders and Heavy Construction Association, Consulting Engineers of B.C., Construction Specifications Canada — B.C. Chapter, Greater Vancouver Home Builders’ Association, B.C. Ready-Mixed Concrete Association, Independent Contractors and Businesses Association of B.C., Urban Development Institute of B.C. and Vancouver Regional Construction Association.

November 4 & 5, 2020

Editor’s Note

Celebrating Anniversaries

I

t’s hard to believe that it’s been 10 years since the 2010 Winter Olympic Games were held in Vancouver. The city marked the anniversary on February 12th, 2020. For the construction industry, the event was important, providing much needed work during the global recession of 2009.

Major multi-million dollar projects such as the Canada Line, the Richmond Olympic Oval and the Sea-to-Sky Highway drove volume while allowing the industry to show its talent and ingenuity on an international stage. Facilities built for the event are valuable assets today for communities across the Lower Mainland.

Many of the projects for the games were delivered by members of the Vancouver Regional

Construction Association, which is celebrating its 90th anniversary. VRCA members have been building communities and landmarks since the association was founded in 1929. VRCA has a rich history of dedicated volunteers and board members who have ensured the ongoing success of the largest regional construction association in B.C. The anniversary milestone is a remarkable achievement given the highly risky, complex and cyclical nature of the business. Much has changed in the industry from building codes and methodologies to technology and procurement.

And through it all, VRCA has been there to support the needs of its members, growing in influence and size. After nine decades, the association

remains relevant and thriving with a clear focus to deliver value to members.

We take a look at VRCA’s past, present and future inside this issue along with some of the many amazing member built projects that have become synonymous with Vancouver.

Cheryl Mah Managing Editor

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January/February/March 2020

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VRCA 90th Anniversary

Serving Vancouver’s

Construction Industry The Vancouver Regional Construction Association celebrates 90 years

By Cheryl Mah

F

Founded as the Building and Construction Industries Exchange of B.C. in 1929, the Vancouver Regional Construction Association (VRCA) has grown and evolved into an established and well respected organization in British Columbia and beyond.

The association is thriving as it celebrates its 90th anniversary. Serving more than 760 members, it is the largest regional construction association in the province, representing small, medium and large union and non-union businesses in the Lower Mainland.

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The rich history of VRCA spans nine decades back to the early days when there was a need in the industry for contractors in the city to gather and exchange plans and specifications in order to get the most competitive bidding on projects.

From its beginnings, the association has undergone several name changes most notably the Amalgamated Construction Association of B.C. (ACA) in 1966 and finally the Vancouver Regional Construction Association in November 1999. The association has grown and matured from a small group of contractors to become a leading voice for the construction industry.

VRCA 90th Anniversary

Above: Fiona Famulak, VRCA president Top Left: Expo 86 was a key milestone, kicking off the boom of the late 1980s and 1990s to transform Vancouver into the modern city it is today.

Middle Left: The 2010 Olympic Winter Games included many large-scale projects such as the $162 million Olympic Village.

Bottom Left: Construction of Honour House in 2011 was a unique project where VRCA members came together to donate time, expertise and money. Supporting the community at large is a key role for the association.

While much has changed over the years, the association’s unwavering focus on providing members with programs and services that meet their needs has not. Whether it’s regulations, industry standards, professional development or business opportunities, VRCA has supported members with the resources to navigate the increasingly complex building environment.

The association’s 90th anniversary is an outstanding achievement, according to VRCA president Fiona Famulak.

“Our 90th milestone is a testament to the association – that it’s remained relevant and of value to the industry for almost 100 years when in that same period the types and methods of construction have changed and evolved significantly,” says Famulak, who has served as president since 2013. “The association is highly regarded in the industry and not just in Vancouver but across the country. We’re thriving in our 90th year and very optimistic for the future.”

VRCA brings together general and trade contractors, manufacturers and suppliers and professional service providers who operate in

the ICI and high-rise residential markets across the Lower Mainland and beyond. Members have built many of Vancouver’s landmarks from stateof-the-art buildings to key public infrastructure including the Burrard Bridge, the Lions Gate Bridge, Marine Building, Hotel Vancouver and the Vancouver Convention Centre.

VRCA members have helped to transform Vancouver from a small regional town to a dynamic metropolis that is recognized internationally today. Some of VRCA’s oldest members date back more than 50 years including Smith Bros. & Wilson Ltd., Mott Electric GP and Stuart Olson Construction.

VRCA life member Dolphe Hoffman has been involved with the association since 1960.

He is proud to see how VRCA has developed into a leading association.

“It is necessary that we have a strong construction industry and an association that represents the industry to various governments, and VRCA has done that,” he says. “It is interesting to see the progress VRCA has made over the years, with the U40 group and playing a more active role

in getting young people to know about the construction industry.”

Another VRCA life member, Pat Dennett, has held positions on a number of committees since the early 1980s. He served most recently as chair of the Life Members committee from 2015 to 2019.

“The association has tackled many issues during my involvement such as prompt payment, quality of contract drawings and documents, shortage of skilled labour, education, government relations, to name a few,” he says. “The strength of the association is the dedication of industry leaders serving as volunteers on committees and boards over the many years as well as the expertise of the VRCA staff.”

SUCCESS Famulak credits the extraordinary involvement of its life members and volunteers on its boards and committees for the association’s success and longevity.

VRCA’S CONTINUED GROWTH Since 2016, membership has grown by 27 per cent; the number of attendees at education programs by 32 percent; and attendance at networking events by 13 per cent to more than 4,000 industry professionals per year.

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VRCA 90th Anniversary

“Under the leadership of one of VRCA’s life members, Don Vandervoort and many others, the members of VRCA came together to donate hundreds of thousands of dollars and provide technical expertise for this outstanding project,” says Sashaw.

EDUCATION

The Awards of Excellence celebrated its 31st anniversary in 2019.

The Construction Leadership Forum is one of the many educational initiatives VRCA offers to ensure members’ needs are being met.

“We’re very fortunate to have a very engaged and generous membership,” she says. “We wouldn’t be as strong today if we didn’t have a very active group of volunteers who contribute at all different levels to help move the association and the industry at large forward.”

The VRCA team is equally instrumental in making sure value is delivered to members every day.

“It’s an enormous team effort and our goal is to ensure members feel the association is theirs and that the association is working on their be-

AWARDS OF EXCELLENCE Founded in 1988, the awards have grown tremendously with new awards added, projects categorized by dollar value and sponsors coming forward to ensure the growth of the program. Some of the early general contractor winners over $4 million: 1989 The Dominion Company, MacDonald Dettwiler building, Richmond 1990 Stuart Olson Construction Inc., Kwantlen College Surrey Campus 1991 Farmer Construction Ltd., Forintek Western Research Facility, UBC 1992 RMT Contracting Ltd., Coquitlam Town Centre Park

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half, listening to them and using their feedback to be better,” says Famulak.

Keith Sashaw, who served as president from 2001 to 2013, recalls fond memories and also credits the many dedicated individuals for the association’s success and making his tenure a “rewarding” one.

“The highlight during my time at VRCA was the delivery of the 2010 Winter Olympics. VRCA’s members were involved extensively in the many exciting and innovative projects that led to the games’ success. The access to project information and the information provided by the association benefitted everyone tremendously,” he says.

The Winter Olympic Games also led to VRCA playing a leading role in the development and delivery of training programs for indigenous workers through VanASEP. The federal program partnered industry with First Nation leaders to develop an innovative training program that gave hundreds of individuals opportunities to gain skills and employment in the construction industry.

Supporting the community at large is another role VRCA takes pride in and the construction of the Honour House in 2011 was a unique project that stands out. Honour House, located in New Westminster, is a free “home away from home” for members of the Canadian Armed Forces, veterans, first responders and their families to stay, while they receive medical care and treatment in the Metro Vancouver area.

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While VRCA has achieved many accomplishments over its history, top among them has been the evolution of its education programs. Education and training offerings have grown significantly and include important initiatives today such as the school outreach program and the Construction Leadership Forum.

The Construction Leadership Forum, held annually in Whistler, was developed specifically to address the education needs of middle management across the industry.

“The majority of the programs at the Construction Leadership Forum provide soft skills training,” says Famulak, noting VRCA recently conducted an industry wide education needs assessment to better understand members’ current and future education needs. “As a result of that research, we were able to revamp our education program that includes the Construction Leadership Forum so that it’s providing courses on specific topics identified by members.”

The school outreach program led by VRCA’s education committee is focused on educating high school students about the broad range of careers in the industry. Since 2015, VRCA has engaged close to 6,000 students across the Lower Mainland.

“We’re preparing to take the program to the next level in 2020,” says Famulak. “We need to correct the long-held perception that working in the construction industry is a second best choice compared to pursuing a university degree. Construction provides a great career opportunity and pays well. We want to engage younger student as well as parents with the facts about a career in construction.”

Famulak, who is the first female president in VRCA’s long history, is passionate about encouraging diversity and inclusivity in the industry. “We would like to see more diversity in the industry and at our board table. We need to do a better job at attracting women, First Nations and new Canadians and helping employers see their potential.”

NETWORKING The engagement of members through VRCA’s committees ensures relevant programs are developed.

One such committee is the U40 Network, which was launched in 2008. This group provides education and networking opportunities for young professionals who are starting their construction careers.

Networking has always been a key focus for any association. VRCA hosts numerous business and networking events throughout the year, including the annual golf tournament, Christmas luncheon and the Awards of Excellence.

The Awards of Excellence has become an annual industry highlight where outstanding projects and individual contributions are recognized.

VRCA 90th Anniversary

Upon completion in November 1938, the Lions Gate Bridge was recognized as the longest suspension bridge in the British Empire and one of the biggest construction projects undertaken in Canada during the 1930s.

The awards have come a long way since the original awards were founded in 1988 and first presented in 1989. In the first year, a single award was presented to general contractor Dominion Construction for the MacDonald Dettwiler building in Richmond.

Since then, the event has grown in size, visibility and prestige, reflecting the growth of the province’s construction industry. It is a coveted award with the event attracting more than 700 industry professionals.

“We’re especially proud of our Awards program and indebted to our life members, many of whom are judges on the awards committee,” says Famulak. “We feel it’s a great way to recognize the good work of our industry and it also allows our members to stand out from their competitors.”

GREEN BUILDING Last year, VRCA introduced the Zero Emissions Building Leadership Award to recognize green building leaders in B.C. The focus on sustainability has been a major change in the built environment with increasing demand for improved building practice standards to address climate change and greenhouse gas emissions.

Both the City of Vancouver and the B.C. government have set targets to drive zero emissions building.

By 2025, most new buildings in Vancouver will need to be built to zero emission building standards while B.C.’s Energy Step Code aims to have all residential and commercial construction built net zero ready by 2032. “Building an energy efficient building requires different 10

construction business

construction methods and products,” says Famulak. “As host of ZEBx, our role is to ensure that our members have access to the education, best practices, dialogues and demos that will help them climb a steep learning curve.”

Canada’s first and only Zero Emissions Building Exchange (ZEBx) was launched in 2018 to address the industry’s capacity challenge. ZEBx supports the local industry by identifying opportunities and barriers to advance design and construction practices for a low-carbon future.

“Our job is to make sure that we’re aware of the challenges to zero emission building, get in front of those challenges and work effectively to support our members,” says Famulak.

CHALLENGES One of the biggest and ongoing challenges that the industry faces is the lack of skilled labour.

With retirements expected to peak in the next decade, the need to recruit new people will be even more critical.

“The industry is extremely busy and will be for a number of years,” says Famulak. “The skilled labour shortage in B.C. and particularly in the Lower Mainland is an issue that keeps our members up at night and we are working at a variety of levels to provide them with information and tools to help them recruit and retain the right people.”

Several large construction projects will drive construction volume in B.C. over the next few years including the Pattullo Bridge replacement, the Vancouver airport expansion, the Broadway subway project, St. Paul’s Hospital, and various pipeline projects.

January/February/March 2020

Construction is key to the B.C. economy. It is a $16-billion-dollar industry that provides 8.6 per cent of B.C.’s wealth and employs more than 225,000 men and women, making it the largest employer in the province’s goods sector.

“B.C. is the crown jewel in Canada’s construction landscape,” says Famulak. “We expect demand to peak over the course of 2020-21 and so we need tradesmen and women to be tooled up and ready to go now. For that reason, we are working with our local, provincial and national partners to determine what steps can be taken to get skilled workers in B.C. more quickly.”

KEY BC CONSTRUCTION INDUSTRY STATS • Construction is the No. 1 employer in B.C.’s goods sector.

• Value of proposed construction projects in British Columbia: $206 billion • Value of current construction projects underway in B.C.: $115 billion • BC’s construction industry accounts for 8.6 per cent of the province’s GDP. • More than 236,000 people rely directly on B.C.’s construction industry for a paycheque. That’s 9.2 per cent of the workforce. (More than any other sector, and more than forestry, mining, agriculture, fishing, and manufacturing combined) (5-year trend: Up 17 per cent ) Source: www.bccassn.com

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VRCA 90th Anniversary

As the association moves into another decade, it will continue to expand its services with emphasis on delivering value to members...

When the Main Post Office opened in 1958, it was the largest single building in Vancouver and was the world’s largest welded steel structure.

FUTURE To ensure VRCA remains on track supporting members and building for the future, the association has been “laser focused” on its 20172020 strategic plan that is built around three core pillars: educate, advocate and facilitate.

The next strategic plan will be developed in 2020.

“We like to think big. We’re ambitious, innovative and need to anticipate our members’

needs well into the future so that we can provide them with the necessary support,” she says.

The planning session will also involve discussions about the building where the association’s office is located on East 4th Avenue. VRCA moved to its current location in 1993 and owns the building.

“In the coming months, we will make a decision on how to leverage the building — not only to drive value to our members but also to benefit the industry at large and potentially the broader

community,” says Famulak, explaining options could involve a renovation, redevelopment or sale.

As the association moves into another decade, it will continue to expand its services with emphasis on delivering value to members through education, advocacy and networking opportunities. VRCA is a strong industry voice that will continue to shape the construction market well into the future.

The association will commemorate its 90th anniversary with a soiree held this March 5th at the Fairmont Hotel Vancouver. The evening will be an opportunity to celebrate the past, present and the future.

“The association has accomplished a great deal in its 90 years,” says Famulak. “March 5 will be an opportunity to celebrate our members and their achievements, thank them for their years of support of VRCA and toast our future.”

SMITH BROS. & WILSON (B.C.) LTD. General Contractor/Construction Management/Design Build

Commercial • Industrial • Civil Congratulating VRCA on 90 Years of Service Excellence

Smith Bros. & Wilson (B.C.) Ltd. 8729 Aisne Street, Vancouver, BC V6P 3P1 T. 604.324.1155 / E. sbw@sbw.ca / www.sbw.ca 12

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January/February/March 2020

Congratulations VRCA on your 90th Anniversary.

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VRCA 90th Anniversary

The Beginning:

Building an Association

Burrard Bridge, 1930-1932 The Burrard Bridge is one of Vancouver’s most iconic structures and one of the only pure Art Deco bridges in the world.

Opened in 1932, it represents the city’s dramatic growth and development during the 1920s-30s.

Hodgson, King & Marble Ltd.

T

he Vancouver Regional Construction Association (VRCA) is the largest regional construction association in British Columbia today with a rich history that spans 90 years.

VRCA formally began in 1929 as the Building and Construction Industries Exchange of B.C. when Vancouver was little more than a large logging town. Prior to that, it existed as an informal gathering of businesses and tradespeople that folded during the First World War. Early in its history and fundamental to the association was the establishment of a plan room for the exchange of plans and soliciting of tenders on jobs. Plans and specifications, tender documents and bid-peddling were among early industry concerns.

The association then underwent a series of name changes before becoming the Amalgamated Construction Association of B.C. in 1966.

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Life Members Recipients of the first Life Membership Awards in 1966: back row (l-r), Tom Clark, Albert Armstrong and Bill Terry. Front row (lr): Jack Sigurdson and Charles Bentall.

ACA brought together the Victoria Building Industry’s Exchange, the Vancouver General Contractors Association, The Heavy Construction Association of B.C. and the Vancouver Construction Association, with the idea of creating a mixed association of trade contractors and suppliers. When the B.C. Construction Association was incorporated in 1970, ACA turned its focus to Vancouver and the Lower Mainland.

January/February/March 2020

VANCOUVER BUILDING PERMIT VALUES 1929: $21 million.

1929: was the start of the great depression, and the value of building permits dropped year after year until it hit bottom in 1934 at a mere $1.4 million.

2019: $4 Billion

VRCA 90th Anniversary

In November 1999, the association formally adopted a name change to the Vancouver Regional Construction Association. VRCA continued to expand its programs and services, enhancing the value of membership and raising its profile.

Over its long history, the association has grown in membership and influence, helping to shape the modern landscape. Member companies have built many of Vancouver’s landmarks from stateof-the-art buildings to key infrastructure including the Burrard Bridge, the Lions Gate Bridge, Marine Building, Hotel Vancouver and the Vancouver Convention Centre.

Through strong leadership, the association has built collaborative relationships over the years with governments, stakeholders and industry members to tackle issues and spearhead initiatives that are critical for the economic and social well being of the province. Representing the interests of its members on all issues relevant to the industry has been at the core of the association.

Marine Building, 1929-1930 Construction began on 13 March 1929 and the building opened on 8 October 1930. It was the tallest building in the city until 1967.

E.J. Ryan Construction Co.

Over its long history, the association has grown in membership and influence...

Today, VRCA serves more than 750 members including union and non-union, representing general and trade contractors, manufacturers, suppliers and professional service providers in the industrial, commercial, institutional and multi-residential sectors.

“We’re very fortunate to have a very engaged and generous membership,” says VRCA president Fiona Famulak. “We wouldn’t be as strong today if we didn’t have a very active group of volunteers who contribute at all different levels to help move the association and the industry at large forward.”

The association commemorated its 90th anniversary throughout 2019, celebrating milestones and member achievements at a number of key events such as the golf tournament, Awards of Excellence and Christmas luncheon.

Hotel Vancouver, 1928-1939 Ground was broken in 1928 on the third and present Hotel Vancouver.

Construction stopped for five years during the Great Depression.

E.J. Ryan Construction Co.

OLDEST VRCA MEMBERS Some of VRCA’s oldest members date back to the days of the Building Exchange and Vancouver General Contractors Association, including: * * * * *

Smith Bros. & Wilson Ltd. Stuart Olson Construction Fred Welsh Ltd. B.C. Hardwood Floor Co. Ltd. Mott Electric GP

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VRCA 90th Anniversary

Changing the Landscape Vancouver has grown from a small town in 1929 into a dynamic metropolis today.

Over that time, VRCA members have built many of the landmarks that have become synonymous with the city along with countless communities and key infrastructure.

As VRCA celebrates its 90th anniversary, we highlight some of the amazing projects that have shaped the local landscape as well as those that will shape the future.

City Hall The Vancouver City Hall was built in 1936 and designated a heritage building in 1976.

Bentall Centre The first Bentall tower was completed in 1966 by Dominion Construction. A total of four towers went up from 1966 to 1982, forming the biggest superblock development in western Canada.

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second Narrows Bridge The Second Narrows Bridge was completed in 1960. In 1958, during construction, the collapse of the north anchor arm killed 18 men. In 1994 the bridge was renamed The Ironworkers Memorial Second Narrows Crossing.

January/February/March 2020

VRCA 90th Anniversary

Richmond Olympic Oval The Richmond Olympic Oval was one of the signature facilities built for the 2010 Olympic Winter Games. Its all-timber roof is the largest of its kind in the world.

Abbotsford Hospital Opened in 2008, the Abbotsford Regional Hospital and Cancer Centre was the first public-private partnership hospital built in British Columbia, and the first LEED Gold-certified hospital in Canada.

Brock Brock Commons Tallwood House is an 18 storey, LEED Gold certified student residence building located at the University of British Columbia. It was the world’s tallest mass wood tower at the time of its completion in 2017,

Library Square Opened in 1995, the downtown Vancouver Public Central Library is another iconic building, resembling the Colosseum in Rome.

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VRCA 90th Anniversary

Canada Place Canada Place, built for Expo’86, was key in the redevelopment of the Vancouver waterfront. With its iconic white sails, it houses the Vancouver Trade and Convention Centre and the Pan Pacific Hotel.

B.C. Place B.C. Place Stadium is a prominent landmark in downtown Vancouver. Opened in 1983, it was the world’s largest air-supported domed stadium.

The dome roof was deflated in 2010 as part of a major revitalization project. The stadium now boasts the world’s largest cable-supported, fully retractable, fabric roof.

Completed in 2019, Vancouver House is a 52-storey iconic residential skyscraper that adds a unique building typology to the city’s skyline.

ICON West Construction

The Stack will rise 530 feet, becoming the tallest commercial tower in downtown Vancouver when completed in 2022. Ledcor Construction.

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Insurance, Bonding, Surety

Be Aware of Water Related Claims

By Jeff McLellan

O

ver the past 25 years, one of the most common source of all claims encountered has been water. Whether it was a broken standpipe on a construction site, a hotel room with a ‘damaged’ sprinkler head, an office window left open over a stormy weekend or the leaky condo debacle, it seems water was everywhere and with gravity’s help it always becomes a bigger issue than most people ever thought it could.

In fact, the sheer volume of water related claims is astounding and would surprise most people. Based on our numbers, we can safely estimate more than 10,000 water related incidents have occurred in the past five years. In fact, in our claims reporting system, 12 out of 33 categories of property claims relate to water in some way. Looking at the stats, it’s apparent that water claims need addressing.

In the late 1990s there were hundreds of water ingress claims advanced against all parties involved in a project. In many cases, the developer’s project company was either shut down or had zero assets and the consultants and contractors involved with the project were all left to navigate their way through the claim in many instances with the support of their insurance providers.

One by one, insurance companies started adding exclusions to their policies in an effort to avoid water ingress claims, this left many companies uninsured for the claims made against them.

The response to this major issue was that consultants started designing buildings differently. Rain screen systems were introduced to many if not all wood frame buildings. Roof top planters were

eliminated or detailed in a different way to ensure that they would not create the types of problems they had in the past. On site mock-ups of envelope systems became common and everyone started trying to do better in an effort to avoid the problems that had plagued the construction industry for over a decade. There was also a concerted effort on the part of strata councils and the property managers who managed their buildings, to follow a more regimented maintenance schedule to prevent issues or at a minimum stay on top of them before they got worse.

So perhaps with ever increasing water damage deductibles on insurance policies and claims costs rising, it is time for everyone involved in the construction industry to look at the issue of water damage through a different lens. Maybe the time has come to build more resilient buildings to prevent water claims from occurring or include measures that would reduce the severity of an incident when it occurs. Many water claims can be avoided, whether during the construction of a building or once it is occupied. The various types of water claims include: flooding, sewer backup, toilets, appliances (fridges, dishwashers and washing machines), burst pipes, sprinklers, roof issues and overflow incidents.

A rough estimate of water damage claims under strata policies in B.C. alone have cost insurance companies over $250 million in the past five years. Simple measures such as recessed sprinkler heads, automatic shut off valves on water lines, water flow monitoring devices to be placed on the pressurized potable and/or fire water mains and floor drains in all buildings could go a long

way in preventing thousands of water claims.

In addition to the water claims on completed buildings, there is a need to put energy into preventing or mitigating water claims during construction. This is critical because despite there being insurance in place, the contractors inevitably end up having to absorb a portion of the claims even if just through the deductible under the course of construction policy, which are getting higher and higher ($100,000 to $850,000).

Knowing the typical sources of water damage claims and taking steps to prevent them before, during and after construction is an investment in your company’s future.

Many of the water damage incidents on construction sites result from leaks in the pressurized potable or fire water systems. Unfortunately a lot of these often go unnoticed because the release occurs after business hours, on weekends or during periods when construction personnel are not on site.

Typical losses encountered due to water damage during construction can include property damage, debris removal, re-work and delay costs.

Leak detection monitoring solutions exist that can reduce the frequency and severity of water damage by implementing an early detection system. The prevention and/or mitigation of water damage losses can reduce builder’s risk insurance claims and prevent project delays, which will ultimately benefit all parties involved including the owner and the contractor.

Jeff McLellan is Western Region practice leader at BFL Canada.

January/February/March 2020

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Insurance, Bonding, Surety

Understanding Insurance Coverage Insurance coverage contractors either miss or dismiss

By Angela McKerlich

I

nsurance is about risk management — covering your company in case something unexpected happens. This event may not happen, but if it does, you want to make sure your company is covered. In this modern age, some risks are also new. In this article we will look at four risks which are becoming increasingly more common.

Cyber Liability/Social Engineering Fraud (Crime) Despite the pervasive feeling of “this will never happen to me” your company will be a victim of cyber crime. Stealing information, phishing schemes and being held ransom for information are just a few areas where contractors are victimized daily. It is imperative to have a strong IT system and strong internal processes in place to protect assets. Some form of Cyber Insurance Coverage should be part of a company’s plan to protect the bottom line.

An example of a social engineering fraud is a company masquerading itself as another company. The controller of a construction company was responsible for making payments to vendors from which the company purchased equipment or product. After many months of working with the vendor and receiving regular shipments, the controller received an email that appeared to come from his contact, indicating that the vendor’s bank was having issues with accepting payments, and asked if the next payment could be made to a new bank. This one particular vendor was located overseas, making verification a challenge. After the supposed vendor applied some pressure, the invoice was paid by wire transfer.

The following month, when the real vendor realized that its best customer was late on its payment, an investigation determined that the vendor’s email was hacked and an imposter had fraudulently induced the company into believing that the change in bank information was authentic. In the end, almost $250,000 was handed over to the fraudster.

Employee Dishonesty Continuing on the theme of crime, many contractors do not carry adequate crime insurance.

Many insurance policies include a basic amount coverage (typically $10,000 to $50,000) that is a “throw in” to the policy. What is not realized is that most losses happen in small amounts over many years and the sum stolen ends up being extremely large and can be in the millions.

An example of employee dishonesty is when the controller of a construction company included personal expenses on the corporate credit card and padding their pay cheque with 20 construction business

their own personal expenses. This controller was caught earlier than most and the loss amount was $330,000.

Directors & Officers Liability Even directors of a company can make mistakes.

When you think of this coverage, you think of large corporations or non-profits with a board of directors providing governance. Often companies owned by one or two individuals without a formal board will dismiss this coverage as not applicable.

As always, the first step is risk management.

Most directors and officers are aware of their fundamental duties: care, diligence and skill, honesty, loyalty and good faith. Next, directors and officers have indemnification agreements with the corporations they serve, but this is of no use if the corporation becomes insolvent. In addition, the corporation may not be lawfully permitted to indemnify. Allegations of fraud and malicious acts will negate the corporate indemnity.

Breach of trust under the lien act and strict criminal law governing Canadian workplace health and safety (Bill C-45) are areas where owners and directors of construction companies can be held liable.

Whether the director is actually found at fault or not, substantial costs can be incurred in defence. Both the liability and these legal expenses could be covered by a Directors’ and Officers’ Liability insurance policy.

Loss(es) means the amount that the insured person(s) or entity is legally obligated to pay as the result of a claim made against them for a ‘wrongful act’. This includes damages, judgments, settlements, costs and defence costs but does not include fines, penalties or matters uninsurable under the law.

Wrongful acts are any error, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted by an insured person in his insured capacity or any matter claimed against him solely by reason of his serving in such insured capacity.

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Increased Liability Limits Often, contractors wish to insure to the bare minimum of their contractual obligations. It is extremely important to look at the risk on each project. To properly assess project risks, items such as the distance to other buildings, values of those other buildings, wind patterns, geography, and more need to be considered. Will the limit of liability be enough? If another party in the layers of contractors on a project is responsible for the insurance, are the limits of liability enough?

Consider purchasing as much protection as your company can afford.

Many liability policies have a General Aggregate limit. Should multiple losses occur during the year, those limits may be eaten up and have a significant impact on your company.

Take the following example of a situation where increased liability limits are necessary. A building under course of construction near a lake catches fire from hot works. Due to the winds and high temperatures that day, the fire damage extends to an adjacent multi-storey building, a hotel, and multiple vehicles in close proximity of the building under construction. There was a $5,000,000 wrap-up liability in place. The $5,000,000 limit chosen did not nearly cover the total amount of damage to the buildings surrounding the project.

In conclusion, bad things can happen to your company and it is important to be properly covered. Previously unheard of risk can now majorly affect construction companies. With experienced, knowledgeable construction focused insurance brokers, these risks can be minimized.

Angela McKerlich is a partner at CapriCMW, specializing in surety and construction risk.

She is the current chair of the British Columbia Construction Association, director for the Southern Interior Construction Association (SICA), and director on the Construction Foundation.

Insurance, Bonding, Surety

It’s a Hard Insurance Market, Now What?

By Chris Haag

O

ver the past year, owners of construction companies have likely seen their insurance rates rise, premiums increase, coverage often reduced and the overall process of renewing their insurance programs become more difficult and time consuming.

The insurance industry is currently in the portion of the insurance market cycle called a “hard market”. Your insurance broker or agent has likely explained the cycle as insurers losing lots of money over the past number of years and needing to charge more for the risks that they assume from the buying public. This is a simplistic explanation of a much broader issue for the industry.

After the financial crisis and the near collapse of AIG, it was safe to assume that there should have been a correction in the insurance industry as the world’s largest insurance company would have gone bankrupt without a US government bailout. The exact opposite occurred. As interest rates declined to historic lows around the world, capital flooded into the insurance market, looking for a safe investment that would return at a reasonable rate. The insurance industry became flush with capital, looking to be deployed into the marketplace. This caused historic competition for business among insurance companies. Rates went down, multiple insurers would bid on risks, undercutting each other, coverage broadened and traditional underwriting of risk, ostensibly disappeared.

On the surface, the end buyer seemed to benefit. Buying insurance was cheap and easy.

Competition meant your rates likely did not go up even with the rate of inflation. Traditionally, insurers made money from both their investments and underwriting. As safe investments returned at lower and lower rates, underwriting at a profit became more critical. As a consumer, why would you care if your insurance did not increase at least with the rate of inflation? Insurance companies are big multi-

The days of cheap and easy insurance are over for the near term... national institutions, they know what they are doing, or do they? In reality, once underwriting profit left the industry, the industry had to correct the market cycle and start charging more for insurance.

It is safe to suggest that readers of this article have raised the cost of their services over the past decade by at least the rate of inflation. A number of our clients have said rather specifically that if they had not raised their pricing over time, they would be out of business. Cost

of conducting business naturally goes up over time, which means that if a company wants to enjoy the same profit margin or an improvement year over year, the cost of services rendered or capital deployed would also increase to the end user or purchaser.

In the insurance industry the exact opposite has occurred, profit became dependent, in part, on investment income rather than being driven purely by profit from underwriting or core business operations. Are there any owners of a construction company, who made a profit simply by investing their money versus profiting from their core business? I think we all know the answer to that rhetorical question is “no”.

Over this same period of time, the insurance industry has grappled with an increase in the frequency of CAT incidents such as hurricanes, typhoons, forest fires and other natural disasters. New and evolving risks such as cyber attacks, pollution liability, director and officers liability, increasing litigation costs and other large losses combined with stagnating premiums, along with the after mentioned capital leaving the insurance market, can only mean one thing: a hard market.

The local business owner may say “so what, I am claims free, I do not operate outside of Canada, why should I pay more?” Simple macro economics suggest that what goes down must eventually go up and that is exactly what is happening.

So what do you do about it when your broker comes to you with a rate increase, it is unexpected

January/February/March 2020

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Insurance, Bonding, Surety

and catches the business owner off guard. The rate increase has also likely caught your broker off guard as well. Our industry was and is ill prepared to handle how swiftly the market changed over the course of 2019 and now into 2020. All brokers and agents have been caught with unexpected rate increases or under estimated the severity of the expected increase.

There are a number of key factors the business owner and their insurance broker or agent must consider when dealing with this market cycle: • Do you know who your actual insurance company is? Not the broker or agent, but the firm who is putting up the capital to protect your business? Are they Canadian based, US, international or a combination of the above.

understand the issues noted above. If you have been with the same insurer for more than five years and are claims free, you should expect a renewal that comes in with a reasonable rate increase. There are always exceptions to this rule.

Ask your broker well in advance of your renewal date — we suggest 90 days, on what to expect with your renewal. Do we need to shop, if so, what is the strategy? Ask to see the submission that is going out to insurance companies. If you have had claims over the past few years, understand why they happened and come up with a plan to prevent them from happening again. Insurance is like a bank account. If you use your bank account too often, and over draw your account, the banker will want to charge you more.

The final comment for a construction company owner is: be organized and communicate with your broker. Understand how they work, what their process is and what they are going to do to help mitigate increases and reductions in coverage. The days of cheap and easy insurance are over for the near term, making the relationship with your broker and insurance company, more important than ever.

Chris Haag is a partner at Wilson M. Beck Insurance Services Inc. specializing in risk management for general contractors, trade contractors and real estate development. With 25 years of experience in the insurance brokerage industry, he is well versed in all aspects of the insurance cycle, including the “hard market”.

• If your policies are placed with Lloyds of London. Do you know what that means?

How did your broker get to Lloyds? Do you know who the actual syndicate or syndicates who are covering you, as Lloyds is a brand and not an insurance company. Is the syndicate staying in the line of business they are writing or pulling out of the class of business you are in. Lloyds is a driving force in the changes in the current market cycle.

• Do you know why your broker placed you with that insurer, other than the premium was the lowest available?

• Have you been with the same insurer for an extended period of time, or does the insurer change frequently either because the broker switches your carrier or you jump from broker to broker.

•D o you know what your broker says about you to insurance companies? Insurers rate your business based on what your broker says about you, have you seen the submission the broker sends to insurance companies? Is it accurate? Does it describe how safe of a company you are and what makes you unique or best in class for your industry?

• What rate increase are you receiving this year?

Can your broker show you your rates over multiple years, so you can compare where you stand in 2020 versus 5 or 10 years ago. Are your new rates the same as where your rates were just a few years ago, or are they higher?

If the increase amounts to the insurer recapturing a few years of inflation, then you may be okay. If the increase is substantial and puts your rates much higher than they were 4-5 years ago, you will need to discuss a renewal strategy with your broker.

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This leads to “what should I do to mitigate my costs”? Communicate with your broker, 22

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RSAW 2020_Constrtuction_5.5x7.5.indd 1 January/February/March 2020

2020-01-09 11:04 AM

Infrastructure

Innovative Underground Solution Trenchless technology is low-risk and low-impact

By Olugbenga Ibikunle

Introduction Pipelines are essential utilities around the world, used to convey water, wastewater, oil and gas, and other related products, from source to refineries or treatment plants and to end users.

Conventional open-cut (“trenched”) construction methods are used for the installation of the majority of these underground pipelines. This method involves the pipe being set down into a trench, excavated using either backhoe excavators or trenchers and buried with suitable bedding material, before backfilling the trench.

Construction of new pipelines in urban areas often involves crossing existing infrastructure (e.g. buried power cables, third-party pipelines), major transportation corridors (e.g. roads, highways, railways), environmentally sensitive areas (e.g. watercourses, rivers, wetlands, ravines) and places with restricted workspace. To minimize or avoid environmental and socio-economical impacts associated with this traditional construction method, an alternative low impact and low risk pipeline installation method is required, where the conventional trenching is either prohibited, undesirable or not feasible. This has led to innovation and advances in pipeline trenchless construction techniques. Trenchless pipeline installation techniques require limited excavation and do not require associated construction right-of-way common with conventional trenching methods.

Common Trenchless Technologies Some commonly used trenchless technologies for pipeline installation include: horizontal directional drilling (HDD), horizontal auger boring (HAB), pipe jacking (PJ), pipe ramming (PR) and microtunneling (MT).

• Horizontal directional drilling (HDD), is a surface launched and steerable system, which installs underground pipelines, service conduits and cables using a surface drilling rig. HDD is a 3-stage process: (a) pilot hole — drill a small diameter pilot hole and pump drilling fluid through the drill pipe to the drill bit, (b) pre-reaming — enlarge the pilot hole to a size sufficient to safely install the product pipe, using a series of consecutively larger reams and (c) pipe pullback — pull and guide the product pipe to the HDD rig, through the pre-reamed hole (typically 1.5 times the diameter of the product pipe).

• Horizontal auger boring (HAB) drills horizontal boreholes from a drive shaft to a receiving shaft, using an auger boring machine sitting in a track system with attached rotating cutting head, while simultaneously pushing a steel casing forward through the ground, using hydraulic jacking force. Spoil is removed from the

Technology

Main Application

Suitable Pipe Material

Diameter Range (mm)

*Drive Length (m)

#Minimum Depth (m)

HDD

Water, Sanitary/ Storm Sewers, Gas, Electricity & Telecommunications

Steel, FPVC, HDPE, DIP

50 – 1,800

Up to 3000

<15 (Mini), <50 (Midi/ Maxi) –

HAB

Water, Gas, Electricity, Telecommunications

Steel

200 - 1,500

12 - 180

≥ 1.2

PJ

Sanitary/Storm Sewers

Steel, RCP, GFRP,

1,000 – 3,000

12 - 200

Varies

PR

Water, Sanitary/ Storm Sewers, Gas, Electricity & Telecommunications

Steel

150 – 2,425

12 - 150

≥ 1.2

MT

Sanitary/Storm Sewers

Steel, RCP, GFRP, VCP, DIP, PCP

250 – 3,000

50 – 1,000

> 1.5

* The drive length could vary based on the carrier pipe diameter #The minimum drive depth could vary based on

borehole by the rotation of the helical-wound auger flights. The use of HAB in tandem with a guided boring system will result in increased alignment accuracy.

• Pipe jacking (PJ) involves installing pipe from a drive shaft to a receiving shaft employing hydraulic jacks and accompanying lubrication system to directly install the pipe as a continuous string in the ground, via pipe-to-pipe interaction as the jacking face is excavated manually or mechanically with a tunnel boring machine (TBM). Usually operators are required to be inside the TBM to operate the spoil removal system and for control of alignment and grade. This is where pipe jacking differs from microtunneling, as the minimum recommendation in pipe diameter is 1,050 mm (42”) due to this requirement.

• Pipe ramming (PR) uses a pneumatic pipe ramming system to drive a steel casing through the ground, from a drive shaft to a receiving shaft. In the drive shaft, with steel tracks in place to provide continuous support, a pneumatic hammer is secured to the end of a steel casing using cotter segments, specifically sized to ensure maximum driving force is transferred. In this technique, over-excavation (or over-cut) is minimal.

• Microtunneling (MT) achieves installation of pipes from a drive shaft to a receiving shaft by employing a hydraulic jacking system to force pipe through the ground via pipe-to-pipe interaction as spoil is simultaneously being excavated and removed. The jacking face is excavated mechanically with a microtunnel boring machine (MTBM). MTBM is a laser guided, remotely controlled steerable rotating cutting head that excavates material at the face of the

advancing pipe column. The spoil is removed through a slurry removal system, which mixes the excavated material with slurry behind the cutting head and pumps it to the surface into a separation system, to be recycled and re-used.

Factors Influencing Selection The subsurface geological conditions, along the proposed crossing alignment, are an important technical consideration and provide the basis for identifying potential construction risks associated with each of the highlighted trenchless technologies. Cost, schedule, access/available working space, crossing length and depth, pipe diameter, pipe wall thickness, availability of local contractors, topography, and potential environmental impacts, are other factors that can influence the selection of the appropriate crossing method.

Furthermore, type of construction (i.e. new installation, online replacement, renovation and repair/maintenance) and type of utility (i.e. water, sanitary and storm sewers, oil and gas, electricity and telecommunications), will often influence the applicability of each of the trenchless methods.

What the Future Holds?

The 21st century is recording unprecedented advancements in technology. It is expected that the ability of the currently available trenchless technologies to provide more sustainable, low risk and low-impact underground construction solutions, will also advance in direct proportion.

Olugbenga Ibikunle works with global leaders in underground infrastructure practices at Stantec Consulting in Edmonton.

January/February/March 2020

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Infrastructure

Redefining Civic Infrastructure

By Mark Hentze Baxter Arena, Omaha

2

020 is a good time to reflect on how the design and construction of community facilities has evolved since the excitement of Y2K. Twenty years ago sport and recreation projects were commonly viewed as infrastructure suited to inexpensive suburban sites with ample parking and executed with economical and often uninspiring designs.

Today, civic governments value community and recreation centres as wellness gathering places that promote social and sustainability objectives, contribute to urban design visions, win design awards and enhance property value.

Having worked internationally, I can report some of the best work is definitely being done

by Canadian architects, engineers and builders.

Something our industry should be proud of.

So what comes next? Here are some factors that will influence the delivery of the future community centre in Canada.

Unstructured Play

West Fraser Centre, Quesnel

Society is increasingly challenged with diminished free time as work, education, and regulatory processes become more complex and time consuming. North America is meanwhile experiencing a decrease in registration for team sports.

Pressure is bearing on the community centre of tomorrow to facilitate dynamic self-directed activity. Facilities will still need to provide competitive sports amenities but designs need to be adaptable to change and non -traditional usesâ&#x20AC;&#x153;Parkourâ&#x20AC;? anyone? A great example of this is the remarkable Athletics Exploratorium in Odense Denmark by Keingart Space Activators.

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Data Driven Design Characteristic to recreation facilities are dynamic forms reflecting community values and local industry, but when cost overruns occur on these complex projects it impairs the credibility we need to have with our clients. The use of data can be a solution. Last decade we used parametric modeling tools to design Baxter Arena in Omaha Nebraska within a stunning glass box, confident sun glare would not affect the ice.

Currently we are applying data driven design tools on a new Aquatic Centre in Prince George, B.C. to

January/February/March 2020

create enhanced cost control. Instead of defaulting to the cheapest solutions as value engineering exercises can sometimes do, data gives us opportunities to quickly test combinations of systems thereby empowering value based decision making. This is a game changer for which the technology is not new but how it gets applied is increasingly dynamic.

Qualitative Public Engagement Core to the delivery of community buildings is detailed public engagement, often including stakeholders directly in defining project objec-

Infrastructure

tives, programs and design expression. A valid and highly inclusive process, there are multiple instances in which projects have stalled once costs of the wish list is tabulated.

Looking to the future, “qualitative” evaluation will differentiate between quantitative, and anecdotal information providing more holistic data to work with. Steven Patty, PH.D. wrote a great book, Getting to What Matters, that explores how to seek qualitative information. For us, we have been experimenting with forms of ethnographic and associated engagement processes seeking information from those who don’t typically show up to pop up tents and user group meetings but who still very much matter.

Collaborative Delivery

As project risk increases for owners, designers and builders, collaborative delivery systems will increasingly replace traditional ones. Community and recreation projects benefit from the early integration and sharing of expertise between constructor, owner and designer. It also establishes trust. Fortunately our young industry professionals seem to be rejecting traditional gamesmanship between owner, builder, designer and are motivated for success through partnership.

As a result, we will see more and more projects delivered via IPD and CM processes where quality delivery and financial success are objectives for all participants. For us a great example is the West Fraser

Centre in Quesnel, B.C. in which, if not for forward thinking procurement processes and “team first” mentality, the project may have never happened.

Recreation as a Catalyst for Integrated Design The most significant evolution in the delivery of community amenities is emerging as civic leaders embrace community recreation projects as city

...the concept of wellness and physical literacy is now being embraced as a vibrant strategy... building catalysts. There are numerous award winning projects delivered by excellent architects, engineers and contractors across Canada, but the vast majority are stand alone and compliment their realm but don’t necessarily define it.

This is starting to change.

We’ve recently completed master planning concepts in Calgary, and Denver in which recreation centres are being applied as the hub of “live/ work” communities and for which the overall programs are highly integrated with

retail, commercial, residential and infrastructure services. It’s interesting to see that after many decades of being on the fringe of civic infrastructure prioritization, that the concept of wellness and physical literacy is now being embraced as a vibrant strategy to make our cities and towns more livable and satisfying experiences.

Climate Crisis We can hardly conclude contemplating the future of community building without addressing global warming. Our industry discussion and commitment (or not) to “Net Zero”, “Well Building”, “Step Code”, “Passive House” is an ongoing critical conversation altogether.

If we can agree that physical and social literacy lead to healthier societies, can we also consider that a commitment to wellness (that these kinds of facilities and their committed staff passionately champion) might just lead to lower health care costs, less greenhouse gas, less processed food and no more plastic bottles?

Mark Hentze is vice president at HDR Architecture Associates, Inc. in Vancouver. He is a leader of the civic practice with an emphasis on sport and recreation projects over a 20 plus year career.

He is currently the chair of the Ice Facilities Experts Circle with the International Association for Sport & Leisure (IAKS).

supplying products communities are built on.

now manufacturing precast concrete microtunneling pipe. microtunneling pipe, designed and proven to last 100 years. structural concrete pipe for microtunneling. Made in b.c.

January/February/March 2020

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Infrastructure

Performance of the Contract Identifying problem tenders on infrastructure projects

By Andrew Kolper

I

t is something no one wants to have happen — firing a contractor from a construction project for default of the terms of the contract. Unfortunately, sometimes it needs to happen to save a project or to prevent both the owner and contractor from spending more money than necessary. This article looks at key indicators of where problems may arise in the performance of the contract and what things need to be considered before making that final decision to terminate the contract.

Preventing an unqualified or poor contractor from winning a bid is not always easy or possible. Many owners — especially municipalities — sometimes have less than ideal procurement policies; policies that favour low price over experience. A contractor submitting a compliant low tender is generally always awarded the project.

This is particularly troubling for complex projects where qualified and experienced contractors lose out to the lowest bidder. In many cases this results in contractors “buying” work with the lowest bid, that invariably cause issues during the performance of the contract, as the level of effort exceeds the bid price.

Avoiding Hiring Problem Contractors Understanding how to prevent these issues from occurring in the first place is a valuable technique that consultants can employ to protect the interests of the owner as well as ensure that construction is carried out by qualified contractors experienced in the type of work they are contracted to perform. In the case where prevention is not possible or was not perceived at the time of bidding, there are things to consider before embarking down the road to terminating the contract. Termination of the contract for default is not something to consider lightly, and legal council should be sought before acting.

In many cases, owners have lists for pre-qualified consultants and / or contractors. This is a first step to vet out unqualified contractors and an important tool to ensure that the owner has an updated listing of qualified contractors that can be invited to bid on the project.

When a pre-qualification list does not exist, diligence is required to spot red flags which signal that a contractor may not have the best intentions, is overselling their experience, or has simply made an error in the bid. To avoid having to terminate the contactor, there are three main indicators to consider prior to awarding the contract: unreasonable/incomparable bid price, organizational turnover, and references.

26 construction business

Tender prices are usually the first thing that the owner/consultant will look at when selecting the successful bidder. A surprisingly low tender price is a big red flag. Important things to consider when scrutinizing a tender price (in addition to material costs) are whether or not the tenderer is missing any key elements and if there are costs that indicate that the tenderer is bidding with limited experience.

As part of detailed design, consultants often prepare a detailed construction cost estimate of the proposed works. Comparison of the bid prices against the consultant’s cost estimate, and the low bid against the other bids, will provide a basis to evaluate the bids. Significant prices fluctuations in the bid items should be a red flag. This may indicate a misunderstanding of the intended scope of work, missed scope of work, an honest error, or a manipulation of the bid.

Key employee turnover is an issue in many organizations for a variety of reasons. On a construction team, turnover is something to be mindful of when evaluating the organization.

Contractor references also should not be overlooked. Some things to consider are whether or not the project team is the same as the reference jobs, whether the references are current, or out of date, local to the project location or regionalspecific references, and/or references that are not relevant to the work being tendered.

Being aware of these issues can prevent the contract from being awarded to an unqualified bidder. Pre-award meetings are one way to flush out issues and discuss areas of concern with the bidder before any contract is awarded.

So the project has ended up with a ‘bad’ contractor, now what?

Even with measures in place and precautions taken, many projects still run into the issue of “bad” contractors. This may be a result of some pre-identified measures not being taken, or procurement processes requiring the lowest bid be awarded. The owner may be faced with a choice between terminating the contract and calling the performance bond to have the surety company manage the completion of the work.

Termination of the contract requires sufficient cause to declare the contractor in default. Slipping schedule or refusal to provide schedule updates, defective work and continuous poor-quality work are just a few reasons the contractor can be declared in default. In most cases, issuing a notice

January/February/March 2020

of default is enough for the contractor to provide corrective action. However, when it doesn’t, the contract termination may be considered. If the contract can be successfully terminated, it may result in the project being re-tendered if it is in the early stages of construction. Many municipalities have procurement/purchasing rules prohibiting direct-award, resulting in a re-tender that will add further delays in project schedule.

The alternative — calling in the performance bond — is often not considered until the project has progressed significantly enough for the contractor’s performance issues to be apparent. This problem is two-fold, as the bonding company will evaluate the project status and determine that the project is too far along to hire a new contractor.

Their first action is typically to re-hire the defaulted contractor with the bonding company managing the contract. This may not be ideal as the goals of the bonding company (i.e. expediate and complete the project) may come at the continued loss of quality work being completed.

The consultant is faced with the final option, continuing to work along with the contractor.

This path initially appears to have the least resistance, but can continue to drag out the construction phase, and result in negative relationships, lack of trust, payment delays, claims, and disputes. Action can be taken by enforcing liquidated damages but this also comes with its own set of problems and issues.

The consultants, the contractor and the client all want a project to go well and with some forethought and thorough vetting at before and during the tendering phase, decisions such as those discussed in this article won’t need to be made.

Andrew Kolper is stormwater project manager at Kerr Wood Leidal Associates Ltd. He has more than 10 years of engineering experience in stormwater, water resources, and municipal infrastructure projects.

Wilson M. Beck Insurance Services Inc. “General Insurance & Contract Bond Brokers” ~ Serving the construction industry ~ ~ Personal, auto & ICBC fleet insurance ~ ~ Commercial insurance ~

BURNABY 303-8678 Greenall Avenue Burnaby, BC V5J 3M6 Tel: 604.437.6200 Toll Free: 1.888.437.1100

KELOWNA 107-2040 Road Kelowna, BC V1Y 9N7 Tel: 250.763.3840 Toll Free: 1.888.292.6202

CALGARY 640-1414 8th Street SW Calgary, AB, T2R 1J6 Tel: 403.229.2060 Toll Free: 1.855.229.2002

Constructive Advice — Superior Service www.wmbeck.com

Legal File

Managing Risk: Construction Bonds

By Carrie Fleming, Rosalie Clark and Alysha Visram

C

onstruction bonds are tools used by owners as a means to protect a project from the potential risk of a contractor default, shifting the financial risk of a potential contractor default from the owner to the company that issues the bond. Construction bonds are three-party agreements entered into between a surety (typically an insurance company), a principal (the contractor), and an obligee (typically the owner). The surety issues the bond and provides financial guarantees to the obligee in the event of a contractor (principal) default.

There are four general types of construction bonds: 1. Performance bonds: provide security to owners where a contractor fails to perform its work (including by failing to meet a project schedule), defaults on its contractual obligations or becomes insolvent and fails to pay its subcontractors and material suppliers. On the event of a triggering default, the owner may seek compensation for any financial loss it has suffered pursuant to the terms and monetary limits of the bond.

2. Labour and material payment bonds (L&M bonds): provide security for subcontractors and material suppliers that are not paid by a contractor, by guaranteeing payment for the materials and labour provided, subject to the terms and limits of the bond. Owners hold security provided by L&M bonds in trust for potential claimants.

3. Bid bonds: issued at project tender to guarantee that the contractor awarded the tender will enter into a final contract with the owner. If the contractor fails to enter into a final contract, the owner may seek compensation under the bond for the difference between the bid provided and the cost of the contract between the owner and the company ultimately awarded the work.

4. Construction lien bond: used to secure the discharge of liens filed against land in connection with the project by providing a guarantee that lien claimants will be paid.

Performance bonds and L&M bonds are the two types of bonds most frequently used in British Columbia. There are standard forms of the above bond types in circulation, however, the terms of each bond may vary and should be reviewed carefully. Any claim made under a bond must comply strictly with the requirements established by the bond’s terms.Contractor’s should also be aware that, although the surety is the party providing financial guarantees to the owner, typically, a surety will not issue a bond until it has an agreement from the contractor to indemnify it for all costs incurred in connection 28 construction business

with a bond claim (which may include legal or administrative costs).

Performance Bonds After a triggering default in the contractor’s performance of a bonded contract, an owner may initiate a claim by issuing a notice of default to the surety in the prescribed form under the bond.

Typically, an owner will not issue a notice of default unless the triggering default is serious.

After a surety has received a notice of default, it has a duty to investigate and remedy any default. The surety’s duty to investigate includes duties owed to both the owner and the contractor under the bond. The surety has a duty to the owner to remedy any default, but the surety also has a duty to consider carefully the position of the contractor in response to the alleged default, and must assess and consider the contractor’s position and any potential defences to the allegations of default raised by the owner.

There are various ways in which a surety may remedy a default under a performance bond. Depending on the circumstances of the default and the stage of the project, the surety may: assist the contractor in completing the project (typically, by way of providing additional financing); engage another contractor to complete the work; re-issue tenders for the completion of the work of behalf of the owner (and pay the owner any additional costs of the successful tender); or pay the owner the amount the surety determines it is liable for pursuant to the bond.

Each of these potential remedies has the objective of making the owner whole for any loss or damage it has incurred as a result of the contractor’s default.

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Labour and Material Payment Bonds The triggering event for an L&M bond is the failure of a contractor to pay its subcontractors and suppliers. L&M bonds may be pursued by unpaid subcontractors and suppliers as an alternative to or in conjunction with a lien claim.

L&M bonds will establish a notice period within which a claimant must advise the surety, contractor and owner of its claim, and a further period within which legal action must be commenced in order to preserve a claim if payment is not readily made. On receipt of such notice, the surety’s duty to investigate the claim arises.

When investigating a claim, the surety will work with both the bond claimant and the contractor to consider the positions of both parties and to assess any potential defences to the allegations of non-payment. Contractors should be aware that having a clear payment record will greatly assist such an investigation.

Owners should be aware that there is case law stating that owners may have obligations to disclose the existence of labour and material payment bonds, though the type or scope of notice that will be required in all circumstances will need to be considered.

Carrie Fleming is a partner at Blake, Cassels & Graydon LLP and Alysha Visram is an articling student at the firm.

Rosalie Clark was an associate, and has since moved her practice to Clark Wilson LLP. This article is intended for informational purposes only and does not constitute legal advice or an opinion on any issue.

Legal File

Performing Contracts in Good Faith

By Dirk Laudan

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an you rely on the strict letter of your contract, even when the other side considers it unreasonable or unfair for you to do so?

Historically, in Canada (outside of Quebec) the law did not require parties to a contract to act “in good faith”, except in the case of insurance and employment contracts. This meant that the contracting parties were, within certain limitations, free to rely on their contractual rights, whatever their motivations may have been, and whether or not their reliance was objectively reasonable in the circumstances. This was in clear contrast to the United States, where all contracts contain an implied obligation of good faith and fair dealing, and the province of Quebec, whose civil code imposes a similar requirement.

That situation changed in November 2014, when the Supreme Court of Canada decided the case Bhasin v. Hrynew. In that case, a marketer of educational savings plans had actively misled one of its dealers, and ultimately terminated the dealership agreement, switching his business and goodwill to a competitor. The court came to two important legal conclusions: (1) there is an “organizing principle” of good faith in contractual performance, and (2) there is a specific legal duty that applies to all contracts, which requires the parties to be honest with each other in relation to the performance of the contract. In the result of the case, the court concluded that the dealer would have kept his business if it had not been for the dishonesty of the savings plan company, and ordered the savings plan company to compensate the dealer for its loss.

In the court’s reasons for its decision, it gave examples of past cases that, it said, formed part of the organizing principle of good faith. One example was where the contract requires the cooperation of the parties to achieve its objects.

This arose in a case where the parties to a real estate agreement did not specify, in the contract, who was supposed to obtain planning permission for a subdivision. In that case, the court said that the seller had a duty to take reasonable efforts to obtain the required permission. Another example: one party has contractual discretion, which directly affects the other. This came up in a case where the lease agreement for a helicopter included an option to buy it, at its reasonable fair market value, “as established by the lessor”.

Could the lessor say the market value was anything it decided? No, the court held that the lessor had to be reasonable in deciding what the fair market value was. A third example, again referred to by the Supreme Court of Canada, was where one party uses a contractual right to evade a duty in the contract. This arose in a case where the seller of land regretted selling the property,

and failed to convey the property to the buyer, saying his wife had failed to waive her rights in the property. The court said the seller should have made an effort to obtain his wife’s waiver (which he had not), and that he should not have acted arbitrarily in using that loophole to terminate the contract.

All of this begs the question of how the new(ish) “organizing principle” is going work in the context of building agreements, engineering contracts, and other construction related agreements. After Bhasin, the courts have followed the idea that active dishonesty is contrary to the duty of good faith, and indicated it probably applies in cases similar to the ones above. But to what extent (if any) does that duty go further?

There was an earlier glimpse of this in a 2014 decision of the Ontario Superior Court in Urbacon Building Groups Corp. v. Guelph (City).

There, the contractor for a civic administration project encountered a number of issues that led to schedule delays, including numerous change orders issued by the owner. The owner got the

...active dishonesty is contrary to the duty of good faith... consultant to issue a notice of default and told the consultant what to say in it. Based on that notice, the owner terminated the contractor. The notice of default contained allegations that were not supported by the evidence at trial. Then, at trial, the owner tried to rely on other reasons for termination, which had not been set out in the notice of termination. The court held that the owner breached its good faith duty when it orchestrated the consultant into issuing the notice of default. The court also seemed to accept the contractor’s argument that a notice of default that fails to set out the real reasons for termination, and to permit the contractor to cure them, is invalid.

That said, there are limits to the obligation. In a 2018 decision in Ontario, the Court of Appeal considered a situation where the owner terminated a winter maintenance contract under a 10day notice provision, having made the decision to do so (according to the contractor) months before, and in the meantime the owner allowed the contractor to provide many “freebies” for the owner. The court concluded that this was not truly dishonest conduct, and to prevent the owner from doing this would have effectively rewritten the 10-day notice clause in the contract.

Numerous decisions after Bhasin have said that while part of the duty of good faith is to bear in mind the other side’s interests, there is generally no obligation to sacrifice one’s own interests for those of the other party to the contract.

As of the writing of this article, two significant cases are before the Supreme Court of Canada, so further developments may be forthcoming.

In the United States, a requirement for good faith contractual performance is explicitly set out in the Uniform Commercial Code, which has been adopted in all 50 states. As a result, obligations of good faith in American construction contracts have been litigated in numerous cases.

Some of the results are surprising. For instance, some American cases have held that the decision to terminate a contract for default must be made by the person designated under the contract, using his or her independent discretion, and that person cannot, for instance, be ordered by head office or his CEO to terminate the contract without making an independent decision: if the decision maker defers to higher authority, the termination can be set aside.

American cases have also found that an owner cannot properly insist upon a cure period that is in strict conformity with the contract language, without regard to the design criteria that might make such a cure period impractical, or without regard to whether such a cure would be an unnecessary waste of money (for instance, if the default was for technically non-conforming work that was still objectively suitable for the owner’s purpose).

There is reason to doubt that the law in Canada will go that far in effectively rewriting agreements, and Canadian courts have been reasonably conservative in interpreting the duty of good faith. As the Ontario Superior Court said in a 2015 decision, the duty of good faith is “no authority for unbridled creativity in the creation from whole cloth of obligations in a contractual context which the parties have not provided for or have not addressed in a fashion in which one party regrets in hindsight”. But if the recognition of good faith contractual obligations in the common law provinces of Canada gives participants in construction projects some pause before acting unreasonably in trampling the interests of their counterparties without valid reason, in terminating their contracts capriciously or for questionable motives, or in actively misleading their counterparties about material facts, then perhaps the continued development and articulation of this duty is not a bad thing.

Dirk Laudan is a partner at Borden Ladner Gervais LLP in Vancouver.

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Legal File

Design-Build Project Delivery Risks and insurance implications

By Vanessa Reakes

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esign-build contracts, where a single entity is retained by an owner to design and construct a project, are an increasingly popular method of project delivery. Compared with the common design-bidbuild model, where the design and construction of a project are completed under separate contracts, design-builders fulfill both scopes of work, with the goal of accelerating project completion and achieving greater certainty over costs.

While the design-build model may benefit an owner by providing a single point of responsibility for the project and potentially greater ease in enforcement of performance warrantees, for the design-builder, this method of project delivery may expose it to a broader range of risks under both design and construction scopes of work.

Understanding these potential exposures is essential before engaging in a design-build venture.

Design-Builder’s Duty of Care While under separate contracts, design professionals and builders each owe independent duties of care to a project owner. The design professional has a duty to provide its services with a level of care, skill, diligence, and competence commensurate with the standard practice of design professionals providing similar services in the relevant jurisdiction at the material time.

Builders, on the other hand, owe a duty to carry out the work in accordance with the a level of care, skill, diligence, and competence commensurate with their industry and also in accordance with the design specifications and relevant bylaws, all while ensuring that the project is delivered on time and on budget.

Under the design-bid-build project delivery model, the duties owed by design professionals and builders are, to certain extents, mutually exclusive. A defect which is found to have been caused by a design error, will exposure the design professional to the bulk of liability. Conversely, an error in the builder’s selection of means and methods of achieving a design or performance specification is likely to exposure the builder to liability.

The convergence of these duties under the design-build model is reflected in the Canadian Construction Documents Committee’s standard form Design-Build Stipulated Price Contract (CCDC 14), the terms of which require the design-builder to take responsibility for both design, delivery and performance of the work. This over-riding duty to all aspects of the project is not contractually limited by the design-builders engagement of subtrades or outside consultants. While claims against such parties by the design-builder may still be viable, 30 construction business

under the CCDC 14, the owner maintains a direct contractual claim against the design-builder, potentially leaving it to recover from others who might have liability, but with whom the owner has no contract. In cases where insurance limits of sub-trades and consultants are inadequate, the risk to the design-builder that it is required to indemnify the owner but not obtain full recovery from those subcontracted to it, are heightened.

Insurance Requirements Added risk exposure understandably comes with insurance implications. As the single point of responsibility, the design-builder will want to consider commercial general liability insurance, builder’s risk insurance (typically the responsibility of the contractor), and professional liability insurance (typically the responsibility of the design professional). Commercial general liability insurance responds to losses suffered by third parties caused by the builder’s work. Builder’s risk insurance is essentially property insurance, designed to cover the project during the course of construction. Each of these policies contain significant exclusions, including the “your own work” exclusion, which removes coverage for defective construction or faulty workmanship, as well as “professional services” exclusions, which expressly remove coverage for design related services provided by a builder. Professional liability insurance, on the other hand, provides insurance for errors, acts, or omissions in the designer’s performance of professional services. Like the CGL and Builder’s Risk policies, professional liability policies are the subject of their own unique exclusions.

Insurance companies now have products tailored to address the more broad and additional exposures faced by design-builders. These policies aim to cover the design-builder for negligent errors and omissions in the performance of professional services of in-house staff and, sometimes,

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subcontractors and sub-consultants, while also providing coverage for the construction aspects of the project. To ensure coverage is sufficient, design-builders should provide an exhaustive list of the scope of services that will be performed on the project and inquire whether coverage applies equally to all trades and consultants involved.

Further, as most policies exclude coverage for performance guarantees or warrantees, the designbuilder should ensure policy exclusions are modified or otherwise ensure that the form of contract for the project reflects only those items for which the design-builder has coverage.

Conclusion While design-build contracts may prove to be an effective way to fast track project delivery, increase collaboration, and cut costs, they may also expose design-builders to additional risks and burdens. Accordingly, design professionals and general contractors must acquaint themselves with the legal and contractual responsibilities they owe to the project owner, and to each other, before partaking in a design-build venture. The added responsibilities for design, construction, and, collectively project performance, should be appropriately delineated in the design-build contract, and sub-trade/sub-consultant contracts.

Further, to avoid any gaps in insurance coverage, it is imperative for the design-builder to ensure that its insurance policies correspond directly with the design-build contract. Doing so will ensure that the design-builder and its subtrades and consultants move the project forward on the right footing while avoiding unexpected gaps in coverage should conflict arise.

Vanessa Reakes is a principal of SHK Law Corporation with expertise in professional negligence claims, construction builders lien, commercial litigation and insurance law.

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