Mitigating Risks in Western Canada’s Hot Construction Market: Part 1

Record investment and a hot construction market have made this an exciting time for owners and contractors in Western Canada. There are, however, significant risks amid these booming market conditions.

These risks can impact your operations, timelines and cash flows — but the right mitigation strategies can help ensure your operations continue to run smoothly.

This week, we’ll look at how the workforce shortage is impacting construction projects and discuss the steps you can take to keep your project moving forward. Next week, we’ll look at other issues affecting the construction space in this hot market.

The Workforce Shortage

In addition to the challenge of finding skilled tradespeople, owners may struggle to find enough staff for site supervision, safety officers, project management and accounting, and procurement. Related risks include delayed projects, reduced bidders, workmanship/quality issues, health and safety issues, increased costs, struggling to retain personnel, and international recruitment and immigration issues. Below, we’ll outline each of these risks and explain how you can mitigate them.

Delayed Projects

A shortage of skilled workers may delay your project. Staffing issues can lead to an increase in disputes between owners and contractors, and between contractors and subcontractors.

Mitigation Strategy:

To mitigate the risk of delayed projects and ensure that contractors recognize and can commit to staffing requirements, owners can increase their pre-qualification efforts. This strategy may include evaluating the size of a contractor’s workforce and the other projects the contractor is currently committed to before entering into a contract.

Contractors can create detailed workforce curves and projections for the project’s critical path to ensure sufficient staffing levels and mitigate the risk of delayed projects.

Owners and contractors may both need to consider a prolonged schedule for projects or carry extra contingency for delays.

Reduced Bidders

A workforce shortage may make owners more strategic about deploying their limited labour resources. They may decide not to submit bids if they don’t have enough trade labour, supervision and project management staff to execute projects.

Mitigation Strategy:

Owners can break trade work into smaller scopes and/or encourage partnerships between trade contractors to pool resources to mitigate the risk of reduced bidders.

Workmanship/Quality Issues

Hiring unskilled workers (otherwise known as “green labour”) may result in a higher demand than a workforce can meet, causing increased deficiencies and quality issues.

Mitigation Strategy:

Owners can work with all contractors to develop a robust quality assurance or quality control program to identify workmanship issues in a timely and efficient manner. They can also create transparent contingencies for re-work and deficiency clean-up and build these contingencies into financial and time-related budgets.

Health and Safety Issues

Fewer skilled workers may result in a workforce that is spread too thin—causing staff to work longer hours to the point of exhaustion. Hiring green labour may also increase health and safety risks.

Mitigation Strategy:

Owners can work with all contractors to develop a robust health, safety and environment (HSE) plan to mitigate the risk of health and safety issues.

Mitigation strategies for contractors include developing schedules with less time pressure and sufficient room for inspections and training. Contactors can ensure adequate training resources are available for apprentices and green employees. They can also promote involvement in health and safety initiatives by allowing employees to apply for reimbursement.

Owners and contractors should both invest time and money into creating a proactive work site that generates a safe culture. This strategy should be based on more than just punishment-based safety infractions.

Increased Costs

Demands for higher pay from all personnel may increase costs for contractors and owners.

Mitigation Strategy:

Owners and contractors can ensure that project budgets are calibrated for current market conditions. The contracts for long-term projects should have an allowance for cost escalation provisions. This mitigation strategy would require open-book assumptions on costing, contingencies, rates, compensation, etc.

Retaining Personnel

Increased competition for labour increases the risk that personnel will be poached by competitors, causing employees to quit during a project. This could cause significant disruptions to active projects and pursuits.

Mitigation Strategy:

Owners and contractors can consider implementing a monetary bonus structure as part of their retention strategy. This may help ensure key personnel stay for the entire project.

International Recruitment and Immigration Issues

The need to find skilled labour may require international recruitment, which comes with various obstacles such as certification, common customs and immigration matters.

Mitigation Strategy:

Labour and immigration matters require specialized and expert advice to mitigate context-specific risks. If your firm is looking to recruit international talent, contact the MLT Aikins Immigration Group.

Next week, we’ll take a look supply chain disruptions, irregular cash flows, increasing insolvency risks and other issues affecting Western Canada’s hot construction market. If you need help navigating these risks, contact a member of our Construction team.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.