Feeling the Heat

Fired by a red-hot economy in British Columbia and Alberta, construction projects across western Canada are feeling the heat as building costs climb. In Winnipeg, a new water treatment plant expected to cost $230 million jumped to a cost of $300 million, while the cost of a 25-year upgrade plan for a wastewater treatment system has doubled to $1 billion.

The University of Saskatchewan, doing a major campus building program in 2007, has found combined costs for its three major projects rose from $417 to $490 million. In B.C., the organizing committee for the 2010 Vancouver Olympics, known as VANOC, announced in May it would require another $110 million, or 23% over the estimated $470 million budgeted for venue construction.

Labour shortages, skilled trades and material costs are all being blamed for the rise in construction costs. Certain items such as rebar took a 60% price jump over four months two years ago and the price is steadily rising. In May, VANOC cited increases of 12-16% in excavation costs, 15-20% in pilings work, and 20-25% in concrete form work, while commodity costs saw increases of 20% in asphalt and 40% in structural steel.

A brisk Canadian economy and a seemingly insatiable appetite by Pacific Rim countries such as China for oil and construction materials has contributed to the rising cost of materials and demand for labour, skilled trades and professionals. Cochrane Engineering vice-president Bill Brant, P.Eng. in Manitoba says that it is not uncommon to see costs in the municipal sector come in at 25% and even 50% higher than budgeted. He cites the Winnipeg water treatment plant as an example. The city decided to tender it in sections, rather than get a fixed price on the whole project. The sections are now being buffeted by a fast-paced market with high material costs and acute labour shortages.

And costs are still on an upward climb. The BTY Group, a Vancouver-based cost management company, expects to see construction costs in B.C. escalate 11% in 2006, by 10% in 2007 and 2008, and then rise 9% in 2008.

Peter Buckland, P.Eng., principal of Vancouver’s Buckland and Taylor, a structural engineering firm known internationally for their work in bridges, says that because of the market situation certain projects such as the $63 million Needles Bridge in the B.C. Kootenays have been designed but delayed. “You have to bear in mind that some of these are political decisions,” he says, pointing out that as increased costs occur, governments make tough choices to ensure budgets are balanced.

Rising construction costs for bridges have mostly affected those who are looking for a “signature bridge,” Buckland says, referring to clients who want not a simple design but a showcase structure or “giant piece of art.” “The cost of doing these has frequently been under estimated,” he says.

Alberta-based EXH Engineering Services in Red Deer, Alberta is involved mainly with infrastructure and roads. President Brian Oshust, P.Eng. agrees that the most noticeable aspect of the hot market is the gap that exists between the budgets set by governments and the construction costs tendered in the bids as a result of higher labour, fuel, concrete, asphalt, and steel prices. As a result, there is often a paring back on the amount of roadway being built. “Municipal governments have made some adjustments,” Oshust says, but as for the provincial government, “They have to catch up.”

Across the country in Quebec, Montreal-based Ali Ettehadieh, P. Eng., vice-president of project services for GENIVAR, says he’s not seeing the same intense pressure and shortages experienced in western Canada. But still the market there is busy, causing construction price increases.

Infrastructure construction, he says, is proceeding is two ways. As costs climb, there is a tendency to defer projects as long as possible. However, it reaches a break point. “It then becomes a question of … Do we really want the bridge any more?”

Once the decision has been made to replace a needed bridge or hospital, then clients do accommodate the cost issues. “They go on a need basis rather than a cost basis,” Ettehadieh says.

Ron Wilson, P.Eng., chief executive officer of Morrison Hershfield in Toronto, says that a growth market with rising construction prices can contribute to a more efficient client relationship. “There is a clarity of purpose, as the client is looking to get things done. There is a sense of urgency and purpose on both sides — and that makes the relationship strong.”

Engineering staff snapped up,

while “middle-crop” is missing

“It is not just B.C. that is experiencing a construction boom,” says Buckland, “it is all of Canada and also the rest of the world.” That, he says, has made it difficult to find and hire engineers who have specialized experience. The problem is made more acute by difficulties getting trained engineers through the Canadian immigration system. Buckland says his firm had to wait a year for a candidate’s paperwork to clear, and by the time the approval was in place the candidate had been snapped up by a German firm. Other consulting engineers tell the same story.

The reason that Canada is struggling can be tracked to the construction doldrums of the 1990s when prospective engineers went to other fields, or engineers were drawn off to computer technology and software design. “We are paying the price,” says Ettehadieh. There is a pool of younger engineers in their early and late 20s, and another pool of engineers in their 50s and 60s. But there is only a thin middle-crop. “We are missing the 37 year-old engineer with 10 years of solid work place experience,” Ettehadieh says.

Hatch Energy in Calgary (formerly Acres International) is in the hottest part of the market — the energy sector. Competition for employees is intense. “We are really being innovative to find ways to keep our staff,” says Ron Thomas, P.Eng., managing director of Hatch’s oil and gas division. “We are doing a lot of salary checking — more than just once a year.” As well, the company has forged a partnership with a Venezuelan firm that has a branch office in Canada so that it can access their staff resources if required.

Catterall & Wright Consulting Engineers in Saskatoon are looking to hire more technologists. “There is a huge shortage,” says Alan Mickelson, P.Eng., partner in the firm. “The schools here are just not putting out enough graduates.” Saskatchewan’s institutions have a five-year wait list for entrance, he says. When young people resort to going to other provinces for their education, unfortunately they often fail to return home.

With 1,000 of the province’s 4,000 engineers edging towards retirement, Manitoba is another province looking for engineering staff, says Brant of Cochrane Engineering. But, he says, the province has aggressively recruited immigrants who have technical and professional skills. His firm has gone out to the immigrant communities and welcomed newly landed professional engineers looking for an opportunity to work with a Canadian company. They have even offered a $2,000 hiring bonus to staff members who find new engineers. This strategy has given Cochrane a leg-up, as new immigrant employees are alert to other professionals arriving within their own communities.

The company has hired engineers from Romania, Russia and the Ukraine in Eastern Europe, and from South America. The largest talent pool now is the 50,000 strong Filipino community. “We have five people and just hired number six,” says Brant, adding that the last candidate was identified within the community and as soon as he arrived “we grabbed him.”

Brant says many of the engineers arriving in Canada have worked for U.S. or other international firms and adapt easily to Canadian standards and workplace norms. Tapping the immigrant community has been “a lifesaver” to his firm in today’s tight labour environment, he says. “We can’t rely on people from North America — there are not enough of them.”

Reaching the break-point