Out of the Frying Pan and into the Fire – Change is Challenging, but Necessary

By Bill Black, Calgary Construction Association

In the Fall 2022 issue of Western Built, Bill shared an informed path forward for the construction industry. To read his message in the magazine, go to http://westernbuiltmagazine.ca/current-issue.

What follows is the rest of his message.

My message ended noting that significant decisions will be needed from all of us in the years ahead. Are we ready to make tough choices? We have good reason to step into the fire.

What we’re doing now isn’t working

In Calgary, we added to our downturn woes with a failed Event Centre deal in late 2021 that saw $550 million of business and years of effort disappear in a few days – even as the shovels were literally poised to break ground. The BMO Centre has continued, and Arts Commons is in the design stages, however, downtown vacancy remains at historic levels.

We have all been waiting for actual physical progress on a Green Line and last in August we learned that, as predicted, only three proponent groups will be bidding; all non-Calgarian and many foreign entities, some of whom have been associated with results elsewhere in the recent past that paint a very bleak prospect for anyone paying attention. The entire project, from administration to board, and now final proponents, is largely populated by non-Calgarians and yet Calgary taxpayers will foot the bill if this mega project goes badly – possibly for generations.

Despite offhand comments from some about how local trades and suppliers will be able to bid on the Green Line (that was always the case) the fact remains that a significant percentage of the value of the project will still leave our local economy in others’ overhead and profit – much of it likely offshore. In any case, it is a sub-contractor/supplier beware scenario as it is also no secret that organizations with no lasting loyalty or connection to the community do not always leave a clean tab behind, even if they do stay to complete the project. Warnings have been repeated for years on the path this is taking and, so far, they are being ignored.

A cancelled Deerfoot Trail procurement by the province blamed the industry for escalation while blithely ignoring the reality that their risk shedding profile that attempted to impose the impossible was what actually drove the final cost. The bid proceeded despite warnings from industry that this would happen and now not only will Calgarians have to endure a less than functional highway for even longer, but the local proponents who did respond to the bid are now out millions of dollars in pursuit costs for nothing.

Meanwhile, despite numerous warnings to the contrary, the City of Calgary released their Climate Strategy that, while it correctly pointed out the degree to which the built environment played a role in our carbon footprint – according to them 65 per cent – they also included deep retrofit requirements between now and 2050 that, in addition to being physically impossible on many levels, would also cost $87 billion – you can guess how that was received. 

What should have been an incredible opportunity for our industry to step up and be a part of the solution is also now delayed because a ‘too much too soon’ approach has made the prospect unpalatable and, as we predicted, is now delaying any progress while the arguments continue.

Is there a better way?

There is a pattern here of ignoring warnings and then blaming the industry, and the fact remains that the industry has been progressively painted into a very tight corner. It is time to push back for real and in Alberta our back has been against that wall for far too long. We need to respond meaningfully to the realities we are facing and, as Jim Collins told us in his book Good to Great*, the first step is acceptance of the brutal facts. 

Here are some to get you started:

1. Our industry is seen by too many as a service industry – nothing more. This is reflected in the way they procure, the way they contract, and the way they even talk about our industry.
2. This only serves to continually feed the stereotype that careers in construction are a last resort – not a first choice – hardly a factor likely to help our current labour challenges.
3. Never mind what is imposed on us by others – our industry needs to treat itself better.
4. Risk has a price that cannot be hidden. In fact, the more you bury risk, the more expensive it becomes. 
5. Risk should be properly identified, correctly allocated, and compensated for fairly.
6. We need to stop taking on totally unrealistic risk at totally unrealistic prices – no revenue is worth what may take your whole company down.
7. Single digit margins, if any, unfeasible risk, poor payment terms, weak contract documents, one sided contracts, which all culminate in race to the bottom procurement, are setting projects up for failure. 
8. The rising failure rate on projects, some major, is reflected in increasing insurance premiums. The trajectory of this is that in three to five years our industry will be uninsurable.

*The book Good to Great may, in fact, be a very relevant guide for the transformation we need as an industry. I recommend that you read it in this context. 

The change our industry needs is akin to any business turnaround; it ‘only’ requires relentlessly following a few non-negotiable tactics:

1. Identify and respond to the facts as they are – facts cannot be gamed. 
2. Reverse the trends that have hurt the business – no matter how small.
3. Track and measure the progress so you can learn and continuously improve.
4. Celebrate and acknowledge even the slightest wins as they inspire others.

What might that look like for us?  

On the subject of climate change

This is no longer about the argument – it is about the simple fact that a growing proportion of the population, authorities, lawmakers, and investors do consider it a priority, and their priorities influence their choices.

As a city or a province that needs to grow, we are no different than a company that sells products to the public. If your customers – in our case, future residents looking to relocate and investors looking to invest – hold it as a priority, then we need to take it seriously and make meaningful and visible progress. And I do not mean greenwashing!

The key players in the energy industry already get this and have their own path to net zero by 2050 – where is ours?

If the built environment is 65 per cent of the problem, then this is the greatest business development opportunity that our industry has been handed in 40 years. It is a complex challenge that requires high levels of industry involvement and a significant application of subject matter expertise. Who has that expertise related to buildings? We do!

We need to engage in this at the highest strategic level and it must be through the business lens. No matter what the climate imperatives are – in an industry already dogged by unprecedented escalation and delivery challenges – another ‘add-on’ that impacts affordability for end-users and businesses alike, will be met with intense resistance.

After 20+ years of personal experience on many projects across North America that achieved high performance outcomes within budget, I learned one simple fact: It has to pencil out in order to proceed. For that to be possible, the financial proformas have to be rewritten and achieving this is a multi-stakeholder effort. 

If we rally stakeholder groups and engage to fully understand the business models, constraints, and challenges, we will turn them into opportunities that make it all possible. Once the business model is realized, the pilot projects are in place, and the results are there for all to see, the approach will normalize.

Imagine being at the table for this transition – it sure beats being on the menu!

On the subject of prompt payment

Alberta has made progress on the prompt payment portfolio and legislation took effect in August. There was a high degree of interaction between the province and all levels of the industry throughout the development of the legislation, and this was an important factor in arriving at the outcome. 

Despite mixed reviews – many influenced by separate agendas – this is significant progress. It has made visible the poor payment practices that have dogged our industry for far too long at considerable expense, especially to trades and suppliers further down the food chain. I do not care what your opinions on the legislation are, 123 days is not an acceptable payment period when suppliers need to be paid in 30 days and crews every week! 

This may not be a complete silver bullet, but it is meaningful progress that will begin the journey to reverse decades of abuse.

Lean into the challenge

These are just two areas where we either have had an impact or could make a difference by getting directly involved.

All it means is taking our back off the wall, leaning into the challenge, and then starting to take some slow but deliberate steps out of the corner.

I look forward to the years ahead as our industry’s greatest hour is still before us.