012 Prognosis for the Construction Market in 2012 by the Canadian Construction Association

Cesar: Hello everybody. My name is Cesar Abeid and this is the Construction Industry Podcast, a podcast dedicated to helping you as you navigate the waters of the construction industry. Whether you’re looking to start your career, looking to improve your professional knowledge or if you’re a construction project or business owner, this is the show for you.

Today, I have the pleasure of having Mr. Michael Atkinson on the line, President of the CCA or the Canadian Construction Association. He will give us some insights on the outlook for non-residential construction market in Canada as we start this new year of 2012.

Michael Atkinson has been President of the Canadian Construction Association, CCA, since March of ’93. He first joined CCA in 1981 to work in the area of standard practices and served for several years as the Secretary to the Canadian Construction Documents Committee, a national joint industry committee responsible for the development of national standard construction contracts in the industry best practices guides.

He has a law degree from the University of Ottawa and he’s a member of the Ontario Bar in the construction law section of the Canadian Bar Association. He serves on the Joint Federal Government-Industry Real Property Advisory Council, the Industrial Security Advisory Board and he’s also a past member of the Board of Directors of the Canadian Council for Public-Private Partnerships. Mr. Atkinson, welcome to the Construction Industry Podcast.

Michael: Hello. How are you?

Cesar: Hi. I’m doing great. Thank you so much for answering my questions here and I’m sure there are a lot of people from my audience who are curious to see how things are going to go.

Michael: Well, I think they will be pleased to hear that the prognosis for our industry in 2012 and beyond is extremely bland. The non-residential sector of the construction industry in Canada has come through the recession pretty well unscathed although there are some regions and some sectors that were hit harder than others. But to just give you a quick idea what I’m talking about, prior to the onset of the recession in September of 2008, the non-residential sector in Canada had seven years of unprecedented record volume.

So for seven years, prior to the onset of the recession, we had recorded every year a new record for volume in our industry or output. As of June of 2011, we were back to those pre-recession levels. So it’s something to say that you’re back to a pre-recession level but we’re actually back to record highs again in our industry.

There are a couple of reasons for why we hear it so well during the first part of the recession. But the main reason has been governments in Canada were poised prior to the recession to invest billions of dollars in the infrastructure because they saw the need to do so because we were running an infrastructure deficit in Canada and when the recession hit, they decided that the best way to stimulate the economy, the best way to give it sort of a jumpstart was to bump up that investment in infrastructure. So we had some pretty key stimulus programs initiated by federal and provincial levels of government with their municipal partners and those programs are rolled out very, very quickly in relative terms and hit the street as they say and at a very friendly rate. So that certainly helped us through the recession.

Going forward, there is a huge activity expected primarily in the resource areas, oil and gas, in mining and metals, potash for example. Continued huge investment in both public infrastructure by governments and in private infrastructure by the mining companies, oil and gas companies, et cetera; and it’s amazing what the prognosis is just to give you a quick indication of how bland or upbeat that prognosis is.

Last march, an international group which included Oxford Economics came out with global construction perspective which is basically looking at the entire global construction market out to 2020, third of a decade outlook. That study predicts that Canada by 2020 will have the fifth largest construction market in the world behind only China, United States, India and Japan.

Cesar: I think we’re seventh today, aren’t we?

Michael: That’s correct. That’s correct and again, they predict that this huge lift in demand in Canada will be as a result of mega projects and a resource commodity-based economy or oil, gas, potash mining, et cetera combined with energy projects and transportation or transit projects.

So it certainly is a buoyant forecast. In fact, Statistics Canada released a report last March that concluded for all construction investment, that’s both non-res and res. In 2010, Canada hit about $232 billion, which was a 13 percent increase over 2009. So that’s a significant increase and a lot of that was due to the stimulus dollars I imagine and it projected that construction investment for 2011 – and we don’t have the actual numbers yet but it projected that for 2011, there would be a further increase of about 3.6 percent to go to about 241 billion.

So that’s a sizable increase. Now, based on that kind of information, a number of economic forecasters including Reed Construction Data projected that total output, the total construction investment in Canada could reach as high as 300 billion by 2014. Why is that significant? Because it’s double. 2004 is the level of 154 thereabout and that’s just in 10 years.

So in 10 years from 2004 to 2014, despite an intervening recession, the projection is that Canada’s total construction investment will have doubled in 10 years.

Cesar: Wow. And based on the projection that we’re going to go up from number seven to number five, that means that that growth is going to be above the worldwide average, I guess.

Michael: Absolutely, absolutely. It should come as no surprise to us that we’ve been seeing over the last 5 to 10 years, is a huge influx of European construction firms in Canada. Well, why? Well, because Canada is certainly perceived as one of the markets to be in and the fact that the European market according to that same global construction perspective study is going to basically flatten or has flattened. So the market here in Canada is quickly changing and is being influenced by a number of things.

Number one, the size of some of these projects, these large transportation resource projects. I was saying to somebody the other day that I can remember 10, 15 years ago when somebody asked me to name how many projects valued at a billion dollars or more I could name. I probably could use one hand and not have to use all five fingers. Today, I can very quickly come up with 15, 20 without even trying to think about it.

Cesar: Yes. We’re a small service company here and we work for a few projects in there and we work for a couple of them that are over a billion dollars, so if that’s any measure.

Michael: Yes. The oil sands alone, I can remember reading reports early in 2011 that was projecting that oil sands investment in 2011 could reach as high as 19.3 billion. I just saw a report that says now that probably oil sands investment in 2011 is going to hit 24 billion. And why is that such a high number? Well, it’s more than a 50 percent increase over 2010.

Cesar: Wow. Do you have insights on why this is usually based on the oil, the Middle East crisis …

Michael: I think commodity prices probably and even the emerging economies, China, India, Brazil, et cetera, to the extent to which they continue to want to buy raw materials, natural resources, that’s going to drive an economy. Potash is a good example of that. I mean potash has just taken off and it’s the main ingredient for fertilizer and then for foodstuffs. So that becomes an extremely important measure of activity in that area and the current potash projects, new projects either underway in construction or planned is more than $10 billion alone in that sector.

Cesar: Now do you think that we’re going to see growth comparable to the ones that we had from the past seven years that were breaking records every year?

Michael: Yes, yes. I think so. I believe so. Residential construction in some parts of the country is going to fall. It’s going to be one sort of calming effect on that so when I mentioned those numbers of the seven years of unrecorded level, that was for non-res but all the residential construction was extremely high at the same time.

We’re seeing the residential construction start to slow a bit, not in all provinces. I mean it’s still pretty healthy in places like Saskatchewan, Alberta and BC. So the overall number as far as what total construction investment will be and whether it will surpass the peaks we had pre-recession probably but maybe not as dramatic as just looking at the numbers for say engineering construction or industrial construction or non-res construction combined.

Cesar: OK.

Michael: What is a bit of a question mark is the extent to which some of the private demand in things like commercial construction is going to continue. There has been a lot of condo building going on. From what I read is a lot of foreign investment looking to park their money in long term real property investments because of the of the market. So there are still some threats. There are still some question marks. Obviously not all regions or sectors of the industry are going to share the same kind of bland volumes. It’s one of those things where some sectors are going to be much more heated than others.

Cesar: OK. Now a lot of companies and a lot of professionals started their careers or were incorporated in the last seven years and they’re used to all that infrastructure money that was coming in and they got used to that kind of project, those kinds of projects. What’s your advice for people that are still in that mindset going forward now that those projects are going to taper off and different types of projects will come in?

Michael: To watch how the market is changing, there’s no question though that even from the infrastructure perspective, most of the action is going to be at the municipal level and in fact, the amount of custodian responsibility for infrastructure custodianship has been directed down to the municipalities by the provincial and federal governments. Over the years, it has been quite dramatic to the extent now that municipalities have the lion’s share of public infrastructure that’s within their responsibility or sphere; and really the worst position of any level of government to raise the necessary to properly fund, expand and upgrade that infrastructure and municipalities through the Federation of Canadian Municipalities and other groups are starting to look at that in a very strategic and hard way; and I think you’re going to see a continued attempt by all levels of government to try and whittle down the infrastructure debts that we have in Canada particularly at the municipal level.

In fact the federal government back in November – and now its strategy for developing the next sort of building Canada Plan or Building Canada Fund to replace the current one which expire in 2014 and as part of that exercise, federal government is sitting down with the provincial and territorial government and with municipalities and other stakeholders to try and develop a long term infrastructure investment plan. A lot of that is going to be looking at or directed at municipal infrastructure.

You also have a situation in which municipalities have come together and the First National Infrastructure Summit was held last year in Regina and other one is planned for September of this year and again bringing municipalities together to look at more non-traditional, optional alternatives for funding municipal infrastructure, how it partnered with other levels of government, how it partnered with the private sectors, et cetera to try and do that.

So what’s my advice to the contractors, their companies and the services industry? That is look in municipalities, municipal growth, municipal infrastructure investment. It is not going to taper off. If anything, it’s going to increase. However, the methodologies used to deliver those projects and how those projects come to the marketplace may well be different than from traditional projects. Certainly would be different, I think, from many of the stimulus projects. You’re going to see some municipalities start to look more at the P3 delivery method or looking at other forms of user fees or even taxes to try and fund those projects; and in doing so, may look at project may look at delivery methods in doing that.

So, don’t sit back and assume that public work projects, either at the municipal or even provincial level for that matter, are going to continue to be delivered or procured in the same manner as they have before.

The second thing that I hear from firms who kept coming through the recession in relatively good shape, how important they feel it is to have a diverse client base. Don’t put all your eggs in one basket in other words, right? If your clients primarily were in the export and manufacturing sectors, you probably were hurt more than others through the last couple of years whereas if your main clientele was public infrastructure projects and resource-based industrial type projects, probably came through it in better shape.

So having a bit of a diverse clientele helps in most circumstances and certainly Canada has always been basically an export economy and one of the things that’s also happening, I believe not just with Canada but other countries as well, is that they [0:17:13] [Indiscernible] the number of customers you have on an export base so that it’s not just the United States. A lot of Canadian exporters are looking to export their services to other markets internationally, particularly developing markets; and as a result of that, their needs or desires in terms of construction services, et cetera, they change somewhat. Those things. The other thing that’s going to influence the market big time is competition. There’s no question with that.

Cesar: OK.

Michael: Competition in particular from Europe. It’s here to stay. Project sizes, the amount of P3 activity going on in Canada, et cetera, makes the Canadian market an attractive one particularly when you’re going to the domestic market and your biz is flattening up.

Cesar: Right. Well, that was going to be my next question because we’re based in Canada but our audience – people from over 50 countries download this show. So what do you have to say to people outside of Canada, either individuals or corporations that are in the construction industry but outside of Canada?

Michael: Yes. Just focus on something else now. One of the major challenges we have going forward is people. We have extremely difficult challenges in the area of skilled labor, skilled workers, at all levels not just on the site workers or on the field supervisory people. Detailer, estimators, you name it. The last report out of the Construction Sector Council which is an organization that maps out what we have in terms of skilled labor coming through the system internally, apprenticeship et cetera and how that matches up with demand. Their last analysis says like 2019, the construction industry of Canada is going to have to find 320,000 new workers just to replace those that are going to be retiring in the next 10 years or so and to keep pace with demand.

Cesar: OK.

Michael: When they look at to what extent that we have 320,000 people coming through the system right now in terms of training, they only came up with – well, just about 160,000 or so. So the rest is going to have to come from immigration, from wandering workers. Otherwise, we’re not going to have anybody. So it’s no coincidence that our immigration systems are being retooled as we speak.

Cesar: Yes.

Michael: It’s perfectly understandable that Canada’s immigration levels are creeping up because there is an extreme challenge not just in construction industry. So if you’re a foreign-trained worker and whether a site worker or in a supervisory role and you’re looking for a market where your talents, your experience is going to be extremely marketable, Canada is certainly a place I would go.

Cesar: Great. That’s good to know. I’m an immigrant. Our family business, my dad is an engineer. I’m an engineer and one thing that we noticed, there’s a disconnect between the demand for foreign workers and the accreditation bodies, professional bodies.

Michael: Yes, yes.

Cesar: Right? Well, the government will say, “Yes, come,” but then people get here and they can’t work in their field because …

Michael: If you’re an engineer, I would strongly recommend that you visit the Engineers Canada site.

Cesar: OK.

Michael: Because there are gobs of information there for foreign-trained engineers and about how to deal with recognition of foreign credentials, et cetera, et cetera; and work with the profession. Certainly for all professional groups that have self-regulating licensing rules in Canada, you’re almost better off to deal with those groups there primarily and the immigration is almost secondary because you want to make sure that those skills would be recognized or at least you have a clear path as to how do you get accredited before you’re 75, 90 percent in the immigration process.

Cesar: Right.

Michael: So that would be my strong recommendation. Similar if you’re an architect, to visit the Architecture Canada website.

Cesar: OK. Now how does the Canadian Construction Association fit into this scenario of the construction market and what’s your role in the industry?

Michael: We’re the national voice with the non-residential sector in Canada so obviously we represent our members to the federal government and federal policy makers and international groups, et cetera. We are very much involved in the development and promotion of best practices and standard construction contract, language, standard bidding procedures, et cetera. We are involved as well through our Gold Seal Certification Program, providing a national certification service for construction management occupations such as supervisors, project managers, safety coordinators, estimators.

So we provide those types of roles at the national level. We’re working very closely with the federal government and with other stakeholders in the development of the new long term infrastructure programs. We’re working obviously with the federal government on immigration reform to try and to ensure that our immigration policies and procedures are much more “construction-friendly”.

We’re working in part of the environmental reform process now reviewing the Canadian Environmental Assessment Act to ensure that environmental assessment in Canada is effective and meets its goals and is not duplicative and watered down by the current situation we have where because of overlapping jurisdiction between the provinces and the federal government, you have two or three assessments being done on the same project.

So we’re looking for reforms in that area to ensure one project, one assessment but that assessment meets that national standard and in essence, it fulfills all the obligations. We’re very busy. We have an integrated membership structure whereby when someone joins for example the Calgary Construction Association, the firm also becomes a member of the Canadian Construction Association. Through that integrated structure, we have approximately 17,000 member firms from coast to coast in Canada.

Cesar: OK. Now if our listeners want to learn more about the outlook for the construction market in Canada or the CCA, where should they go?

Michael: Well, you can go to the Construction Sector Council website. Just Google “Construction Sector Council”. It has a whole economic projection data on the construction industry so it’s an extremely good source. Reed Construction Data is another. You can Google “Reed Construction Data”. They also are one certainly that we follow quite a bit. Statistics Canada is another one but I would say with the Construction Sector Council and the Reed Construction Data.

Cesar: OK. Great. Well, I’m pumped. I’m excited of how this looks. It looks good. I think a lot of people that I know in the industry could use some encouragement after the last few years and this sounds like things are looking up for the years to come.

Michael: Yes. It’s very exciting times for younger people, I would think. I saw statistics the other day that 2011 was the first year that the baby boomers, 1946 was sort of the start, turned 65. Retirement age and the stat I saw said that for the next 10 years, 1000 Canadians are going to retire everyday.

Cesar: Wow.

Michael: And the number in the United States is 10,000 a day.

Cesar: Yes. Wow.

Michael: So that shows you or gives some kind of indication about the kind of demographic transition that’s happening and even though many of those people may well work beyond 65, retirement age, it shows the tremendous challenge that obviously opportunity industries and businesses et cetera in Canada and United States are facing; and how if somebody has the skill and the training and the experience in a lot of the areas where those skills and experience are portable such as in construction trade, the sky is the limit.

Cesar: Yes. Great. Well, that’s a great way to end the episode. Thank you so much for your time and it was great to talk to you and get your insights and I hope the listeners will get a lot from it and I will post all the links that you mentioned on the interview. I will post that on the show notes and you can go to ConstructionIndustryPodcast.com/Episode12. All the links will be there. Again thank you so much, Mr. Atkinson.

Michael: You’re welcome. I enjoyed it.