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Contracting in the New Economy

Contracting in the New Economy. June 2007. Managing Construction Projects In Today’s Environment. Aecon Atlantic Group Presented by Frank Ross, President. Agenda. Overview Canadian Marketplace Projects are Unique Project Goals Key Issues Our Philosophy Contracting Process Risk

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Contracting in the New Economy

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  1. Contracting in the New Economy June 2007 Managing Construction Projects In Today’s Environment Aecon Atlantic Group Presented by Frank Ross, President

  2. Agenda • Overview • Canadian Marketplace • Projects are Unique • Project Goals • Key Issues • Our Philosophy • Contracting Process • Risk • Construction Disputes • Differentiation • Stakeholders • Conclusion

  3. OVERVIEW • Are the best of times just around the corner • British Columbia – P3’s, Olympics • Alberta – P3’s, Oil Sands, Institutional, Residential • Prairies – Gas Alternatives, Infrastructure • Ontario – Healthcare and Infrastructure • Quebec – Infrastructure, Healthcare • Maritimes – LNG, Heavy Industrial, Healthcare

  4. OVERVIEW • What does this mean? • Labour is at a Premium • Supplies are harder to come by • Vendors Market • Competition for Bidders • Do not assume that things have not changed • Risk is Margin • Owners are in Competition for their Projects • Lenders outnumber Builders • Compliance is scary for the Owner • Budgets must be realistic • Negotiation on over-budget projects are never good

  5. EACH PROJECT IS UNIQUE • Majority of Construction Risks are Uninsurable • All Stakeholders must be Considered • All Contractual Models must be Explored • Status Quo may not be acceptable • It’s not about the Product we are delivering • It’s about the Peril we face in delivering it • Traditional thoughts are limiting

  6. Trends in Contracts • Newer forms of contracts are being seen • Traditional Owners are leaving the scene • What may be good for one job may not be good for another

  7. The Goal • On time • On budget • As per specification

  8. KEY ISSUES • Labour • Instance of Failure will increase • New Owners • New Models • New Lenders • New Products

  9. Our Philosophy • The best way to start a project is with an equitable allocation of risk • What contractors/subs/suppliers and owners don’t know about their contracts can be fatal • Risk Management includes management of the non-insurable contractual risks of cost overruns and delayed completions

  10. The Contracting Process • Identify the high-risk contract clauses • Decide if anything is a deal-breaker • Negotiate to the extent possible • Business decision to proceed

  11. Risk Management • Everyone is aware • Programs and goals are established • Team effort to avoid risk

  12. Risk Financing • Too rare an occurrence in construction • Thought process is contrary to competitive nature of business

  13. Risk Assumption • Too often the case in construction • “Let’s pass it down and see what happens”

  14. Risk Transfer • Contractually • person who accepts risk must understand the risk • person who accepts risk must be able to afford the risk • person who accepts risk must be able to qualify • if the above do not occur, you have not transferred risk properly

  15. Ten Specific Causes of Construction Disputes 1) 1. Contract provisions which unrealistically shift risk to parties who are unprepared to cover those risks. 2. Unrealistic expectations of the parties, particularly owners who have insufficient financing to accomplish their objectives. 3. Ambiguous contract documents. 4. Contractors who bid too low. 5. Poor communications between project participants. 6. Inadequate contractor management, supervision and coordination.

  16. Ten Specific Causes of Construction Disputes (cont’d) 7. Failure of participants to deal promptly with changes and unexpected conditions. 8. A lack of team spirit or collegiality among participants. 9. A “macho” or litigious mind-set on the part of some or all project participants. 10. Contract administrators who prefer to buck a dispute to a higher level or to lawyers rather than take responsibility for resolving the problem at the source. 1) Preventing and Resolving Construction Disputes, 9 ALTERNATIVES TO HIGH COST LITIG. 182, 185 (1991).

  17. WHAT DO WE SEE HAPPENING • PPP’s and Modifications will be prevalent on Large Projects • Owners will continue to down load the Risks • Competition for services will become greater

  18. DIFFERENTIATION • Owners must be prepared to deviate • Traditional may not be the best • Competition is focused on Performance • Value for Money

  19. STAKEHOLDERS • Everyone has their issues • New entrants in the field • Confrontation is not the Solution • Each Project is a Snowflake

  20. CONCLUSION • What used to be may not be • There is a solution if you look hard enough • Focus on the Peril not the Product

  21. Questions

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