Ontario sewer and watermain industry survives challenging 2012 economy

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    Ontario sewer and watermain industry survives challenging 2012 economy

                OneCall success, prospects for New Year give industry hope for future

    Ontario Construction Report staff writer

                Ontario’s sewer and water contacting industry is evolving with changes in legislation, procurement practices and technologies. The industry, building on more than $70 billion in assets throughout the province, works in spaces primarily “out of sight, out of mind” to the general public, until something goes very, very wrong – such as the Walkerton water crisis last decade or, more recently, the Ottawa-area highway sinkhole experience, where a freeway driver discovered himself underground when a concrete culvert collapsed.

                Economic challenges, including bundling of jobs into massive, multi-hundred-million-dollar projects, risk transferring to contractors, and government curtailments (especially in Toronto) have created serious challenges for many sewer and watermain contractors in 2012, says Stephen Hall, a partner with surety and insurance brokers Jones DesLauriers Insurance Management Inc.

                “In Toronto we previously were doing three contracts a week,” he said. “This year (2012) it is more like three contracts overall.”  (Hall, who has worked in the insurance and surety business since 1989, is chair of the Surety Association of Canada and chair of the young executives committee of the Greater Toronto Sewer and Watermain Construction Association.)

                The projects that have come on line in the past year have been gigantic ones, requiring incredible capital and resources, too large for smaller and medium-sized contractors to bid on or achieve bonding (even more challenging because of their depleted balance sheets.)

                As competition for the fewer available jobs intensifies, contractors are bidding at extremely low margins just to keep some work coming in – a risky proposition, if they are seeking work outside of their areas of primary knowledge or expertise.  Hall has dozens of clients – but some are going out of business under the pressure, and only a handful are making a reasonable profit.

                Still, all is not doom and gloom.

                Hall and other observers indicate that 2013 may be a much better.year.  Infrastructure work may be delayed, but it cannot stop completely,  and failure to maintain the sewer and watermain system can result in expensive, urgent repairs.  (As well, Hall says political uncertainty which has plagued both Toronto’s municipal government and the Ontario provincial legislature will likely be resolved sometime this year.)

                In 2012, industry leaders expressed joy about the passing of Ontario One-Call legislation, and dismay about the impending arrival of the Ontario College of Trades.  They expressed concerns about the increasing size of tendered infrastructure projects – making it harder for smaller and medium-sized local contractors to achieve bonding requirements for the work.  And contractors, engineers and  association leaders observed concerns about possible labour shortages, coupled with an appreciation that new technologies are reducing costs, increasing safety and enhancing productivity.

                “As an example, 30 or 40 years ago, we would have had a crew of five or six people, to advance a tunnel two to three metres a shift,” said Dave Marsland, an engineer employed at Technicore, which manufactures mining and tunnel equipment and serves underground projects largely in the Greater Toronto Area (GTA). “ Now we can advance a tunnel 10 or 15 metres in a shift.”

                Marsland emphasizes that you cannot simply extrapolate one job or era to another – underground work, by its nature, involves unique and challenging circumstances.  Contractors need some reliability and contract security to justify the costs of purchasing the latest tunnelling and other technologies – and in attracting, training and retaining the skilled work-force to operate underground.

                (Unlike other areas of the construction industry, where trades and apprenticeship paths can be clearly defined from the outset, underground work requires specialized training and skills – and these are generally acquired on the job, with experienced hands assuming supervisory responsibilities.)

                Not surprisingly, several relevant associations have joined the employer coalition against the Ottawa College of Trades.  The Ontario Sewer and Watermain Construction Association (OSWCA) is one of the OCOT’s most vocal opponents, expressing concerns that the new institution will aggravate, rather than help to solve, growing labour shortage issues in the industry.

                “We believe the Ontario College of Trades will not fix this problem and are calling for its abolishment,” OSWCA president Mark Van Bree has written in the association’s magazine, The Undergrounder.  “Sadly, the implementation of the college is aggravating the problem by not addressing apprenticeship reform which would go a long way towards training skilled workers and addressing the shortage.  The charging of a membership fee by the college is simply an unfair taxing of the working tradespeople of Ontario.”

                Associations opposing the OCOT include, among others, the Conestoga Heavy Construction Association, the Durham Region Heavy Contractors Association, the Greater Toronto Sewer and Watermain Contractors Association, the Hamilton and District Heavy Construction Association, the Heavy Construction Association of Toronto, the Heavy Construction Association of Regional Niagara, the Kingston Construction Association – heavy construction sector, the London District Heavy Construction Association, the Ontario Concrete Pipe Association and the Sarnia Heavy Construction Association.

                Dave Marsland at Technicore says the labour shortage has increased in recent years.  This can be seen in both challenging and positive lights.  In part, (despite the rather serious industry challenges in 2012) the reason for the labour shortage is increasing demand and commitments for infrastructure spending as aging sewer and watermains are replaced and modernized – and new projects are introduced. Tunnelling, Technicore’s speciality, has its own requirements.  “We get by.  It’s been tight.  We find operators and teach people – it can take 24 months to learn the skills,” he said.

                OSWCA’s president Mark Van Bree has written that the industry is making progress in encouraging young people to consider civil construction as a career, similar to the Ontario Civil Construction Careers Institute (OCCCI), initiated by the association. “Last year, OCCCI, supported by the OSWCA, spoke to more than 15,000 students, offering presentations and hands-on experience, demonstrating that construction jobs are available, attractive and do provide prosperity.”
    The industry has expressed concerns about the rising size and scale of projects.  Contractors who could successfully compete and win $20 million projects are shut out because of bonding limitations on $200 million massive jobs, which (for capitalization reasons) often land in the hands of large foreign-owned contracting businesses.  Marsland and others say there are still opportunities for local businesses as sub-contractors, but the “risk premium” of the larger jobs drives up costs, more than offsetting the perceived administrative simplicity of the larger projects.

                Some of these concerns have been addressed by Infrastructure Ontario, which is now taking into account local capacity in determining successful bidders, but many industry leaders believe more can be done to increase the opportunity for smaller firms to compete – creating an environment where there is more opportunity for competitive bidding and, presumably, overall lower taxpayer costs.

                Meanwhile, the industry experienced a significant challenge in 2012 when a badly corroded corrugated steel pipe failed under Highway 174 – a major highway in the Ottawa area.  A driver survived a harrowing experience when his car was “swallowed” by the road in a sinkhole.  Emergency repairs resulted in more than $5 million in construction costs, what the Concrete Pipe Journal reports as being “almost three times the cost of a project that had been previously planned to re-line the deteriorating steel pipe, and does not include the operational costs associated with the sinkhole, such as policing and traffic operations.

                “The Highway 174 sinkhole should be a wakeup call for municipalities across Ontario and for the province of Ontario,” the newsletter reported. “The damaged pipe was inspected in the summer of 2011 and identified as in need of renewal, but there was no indication that it was at risk for collapse according to officials at the City of Ottawa.”

                However, one 2012 news event representing a “win” for the industry is the introduction of mandatory one-call utility locator dig legislation.  This legislation, encouraged by the underground industry and supported politically by all parties, became law last summer before the Liberal government prorogued the legislature.

                The Ontario Underground Infrastructure Notification System Act 2012 (Bill 8) “will ensure that one call notifies all owners of buried infrastructure within the area of a planned excavation: every owner must be registered with ON1Call,” the previously voluntary ON1Call service reports.   “Municipalities have until June 18, 2014 to register and all others must be registered by June 18, 2013.”

                ON1Call says the mandatory legislation will ensure 100 per cent participation, helping to overcome upwards of $63 million in annual damages from utility disruptions. “More than 1,000 utilities and other owners of buried facilities will join ON1Call over the next 22 months, with the majority joining over the next 10 months,” the non-profit organization says on its website.

                Stephen Hall at Jones DesLauriers, meanwhile, encourages contractors facing tough times to be thoughtful about their internal business processes and careful about which contracts they bid.  “You need to look at your day-to-day operations” and see where there are some “leaky faucets” — perhaps additional staff training can improve efficiency, he said.

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