Ian Michael comments in Lexpert's Infrastructure Special Edition 2023 on the state of contract negotiations and dispute settlements in the sector—where inflation, supply chain issues and the need for skilled labour are changing attitudes about risk allocation.
One of the ways to deal with rising costs and supply issues is for owners to agree on advance payments for materials ordered earlier.
Ian has seen this strategy in action and says, "We’ve had proactive project developers that have forced their contractors to purchase, for example, pipeline steel or other components for their project in advance and warehouse them."
"What you’re doing is trading longer-term cost volatility with upfront investment. So, if your financing and project budget allows you to make that investment upfront and sit on that investment for some time, plus warehousing costs, you may be ahead of the game."
Ian also notes that it isn’t just about the commodity price. Foreign exchange rates can often have an even more significant cost impact.
Many contractors and subcontractors are finding it increasingly tricky to get the skilled labour they need to complete projects promptly and cost-effectively, as well.
"Canada is a big place geographically, but a relatively small market, so one mega project in this ecosystem moves the needle, absorbing resources from a pretty large area."
A large pipeline or LNG project can "suck up huge amounts of labour and engineering expertise that would otherwise be available to other smaller projects in that same jurisdiction, and even an entire industry can get affected by a small number of mega projects.
"It is a national issue in terms of our ability to deliver important infrastructure projects that drive economic development, that drive productivity, that move Canada ahead and keep us competitive," Ian says. "Not having the people to actually get things done is just as much an impairment as regulations that hold us back."
Bennett Jones