Most general contractors that I have spoken with have a rather “bearish” outlook for 2023, and possibly beyond. Some of our contractors are currently witnessing a steady reduction in the number of tenders being issued, both publicly and privately. This is a definite “red flag” for ICI construction and should not be ignored.
When the buyers of construction start to restrict or diminish the output of projects, this translates directly into a diminishment in the confidence of said buyers. This loss of confidence is not unfounded and can be highlighted with what the entire construction industry is experiencing.
Firstly, for at least the last decade, the construction industry as a whole has been trying to attract new entrants into all of the possible construction roles as existing workers are either retiring or departing from the industry. Our sector has not reached an acceptable level of success with any of our initiatives to date since the workforce requirement still greatly exceeds those entering the field. In economic terms, we are in a supply and demand deficit wherein the demand far exceeds the supply. This discrepancy translates into a limit on the number of projects any one general contractor can accept due to a physical lack of people to perform said project. This is a leading limiting factor that will not be solved in the next twelve months.
The OGCA understands the importance of this aspect to our members and is involved in multiple initiatives in order to rectify this deficit and move the workforce situation closer to a state of equilibrium.
The OGCA was a driving force in appealing to the Minister of Labour, Immigration, Training and Skills Development to have them develop a campaign for construction that was targeted at young people still in school to make them aware that construction is a viable career path. This government led campaign commenced last year and targeted children from kindergarten to grade12. This is a step in the right direction, and may yield results in five to ten years, but does not solve our immediate need.
The OGCA has also launched the Pathways to ICI construction, that directly focuses on new entrants into the Project Coordinator role through a bridging program from new graduates as well as newcomers to Canada. This program is in the curriculum development phase, but will be greatly beneficial to our members since it will impact their largest requirement – supervision – directly and positively.
The OGCA has partnered with the Toronto District School Board (TDSB) in the STEP to ICI Construction program that places students onto work sites for an entire semester and allows the student to navigate all of the trades in order for the student to be fully exposed to all possible career paths. This is a fabulous program but still limited to the TDSB. The OGCA and TDSB are appealing to the government to replicate this program in all school boards across Ontario to increase the level of intake into construction.
The OGCA is also working with other associations and the Canadian Construction Association (CCA) on reducing the barriers for immigration, especially for skilled workers. This topic is not new and may require its own article to fully demonstrate the need for Ontario to attract workers from across Canada and the world into construction.
The second major issue facing the construction sector is the current and ongoing volatility in the supply chain. Disruptions that commenced during the pandemic have not been rectified, and in some cases, have increased in magnitude. In speaking with suppliers, this situation will most likely continue throughout 2023 and possibly beyond.
What solutions does the OGCA have for our members on this matter? Unfortunately, all of our solutions are logistical in nature and may diminish the overall impact of the supply chain disruption, but this is a symptomatic approach and does not adequately address the overall root causes of the issue.
The OCGA can arm our members with the knowledge that items that directly impact the critical path of projects need to be procured early, and that delivery dates need to also be constantly reviewed and managed. This is nothing out of the ordinary for our members however, and it does not solve the problem but instead addresses “living” with the problem.
The OGCA has also provided our members with Escalation Clauses that can be utilized in contracts that, if utilized properly, can greatly diminish the overall exposure for our members on supply chain costs. The issue remains the implementation of said escalation clauses. That and the need for some buyers of construction to create their own “unique” clauses that actually compound the issue instead of adequately rectifying it. I will not call out any specific owners clauses at this time, but our members have provided us some that would require an PHD in calculus to fully comprehend.
At this time, the OGCA can only really provide the recommendation of ensuring that your contracts allow for such volatility in the supply chain. Additionally, contractors need to be keeping complete and detailed records of all interactions and communications, should the need arise for the contractors to employ an adjudication or other dispute resolution mechanism open to the members. Detailed records will greatly assist with how a verdict is rendered and hence the OGCA strongly advises that all our members instruct their staff on proper procedures.
The last item that this article will address, that directly affects the construction sector, is the increase in interest rates and the overall impact that inflation is having on projects. This issue is more prevalent in directly deterring the buyers of construction from advancing projects and instead, pushing said projects to a future date where interest rates are more favorable.
The matter of interest rates is a greater component in the residential sector since interest rates and an increase in inflation may deter buyers from purchasing homes. We also have the juxtaposed issue that more homes are needed in this province. These two diametrically opposed situations may actually be unattainable and slow the progression of that sector greatly.
In the ICI realm, infrastructure projects are required and must continue, but the increases in the interest rates may stave off subsequent phases of building out a project in lieu of a more favorable economic climate. However, these are all possible hypotheticals and may not come to pass.
Ultimately, the entire construction industry will be faced with these three, and possibly more challenges, over the next twelve months. The OGCA will continue to provide our members with the timeliest of information in order for our contractors to make the proper business decisions that directly affect their businesses.
Should anyone want to discuss the upcoming 2023 construction challenges, or if you require any assistance from the OGCA, please contact me directly at giovanni@ogca.ca or via phone at 905.671.3969.