Riding Fortune’s Wheel

Have there ever been times as good as these? The construction industry is as hot and feverish as a steamy day in Toronto, where temperatures soared to record levels in early August.

As Jean Sorensen writes in “Feeling the Heat” (p. 36), construction activity is especially intense in western Canada, thanks in part to the Alberta oilsands, 2010 Olympics and just generally massive amounts of infrastructure and building spending.

You would expect that given the demand for their services, firms would be raising their fees. According to the laws of economics, as demand rises, so should the price. But it’s not happening — or at least not fast enough. Michael Kennedy, a principal of Stantec in Vancouver, says that in western Canada construction costs of post-secondary education buildings, for example, have escalated 50% to 70% in the last four years. Meanwhile consultants’ fees have generally risen less than 10% in the same period.

Ian Williams, P.Eng., chair and CEO of McCormick Rankin in Toronto and chair of Consulting Engineers of Ontario, agrees: ” I don’t think the market is reacting as it should.” Williams suggests that engineers have a built-in “terror” that if their fees aren’t competitive, by the next year they’ll be paying the price with empty order books and staff left to swivel around in their office chairs.

The guys in charge now remember only too well the stark and cruel days of the 1990s recession when firms had to lay staff off by the score. The construction industry tends to swing wildly round fortune’s wheel, so while the market hangs up there at the top, firm principals are constantly bracing themselves for the stomach-churning fall.

Of course, no-one knows if we really are at the top of the wheel, so there’s a disjunction between the number of engineers who are needed and how many are available on staff. The genius of a good business person is to gauge that balance accurately.

Another tension comes from governments being stuck in recession mode. Even though politicians are announcing (and re-announcing) lots of new infrastructure spending, they are always on tenterhooks, anxious to show that they are keeping tight watch on the public purse. Hence the struggle to persuade governments to hire companies based on their qualifications rather than on who bids to do the work at the cheapest price.

A more important looming problem relates to succession. Sorensen heard that in Manitoba alone 1,000 out of 4,000 engineers are “edging towards retirement.” When the baby boomers leave for quieter pastures, it will create a huge staffing hole in consulting firms. Right now they are scrambling to bring in internationally trained engineers. Another possibility for the future is that the large companies with international branches will simply farm out production work to their overseas locations where engineers and technologists are abundant and much less costly.

In the meantime, those who remember the parsimonious 1990s and the endless work that went into preparing bid proposals, often with no reward at the end, have to feel a certain smug gratification when they hear that in Alberta clients are having a hard time getting firms even to respond to requests for proposals, so busy are engineers with existing orders.