Construction costs, material price escalations, supply chains and labour market conditions are impacting the architectural community, prompting the Royal Architectural Institute of Canada (RAIC) to issue a cautionary note warning members to be vigilant when it comes to dealing with clients.
The special advisory notice and recommendation, titled Extraordinary Market Conditions or other Factors not Reasonably Foreseeable, advised members to exercise caution with respect to contract definitions, terms, conditions and clauses related to construction budgets, costs and estimates.
“We encourage them to be absolutely frank with their client when starting the process, that their construction budget may be challenging going forward and that we are in a period of high inflation,” said Gregory MacNeil, vice-president of practice with the RAIC.
“That’s the best advice that we can give them and to look carefully at the terms and conditions of the contract. We have heard from some members that their clients are refusing to acknowledge the term extraordinary market conditions etc. That’s going to lead to legal disputes.”
He said there are recurring themes and the first one began 50 years ago with the baby bust.
“Canada has a large population of highly skilled workers in their 50s and 60s and we have a diminished supply in their 20s and 30s, so that’s going to change our marketplace with respect to consumption and also with respect to export,” said MacNeil. “We’re going to have to rely on exporting goods rather than internal consumption to support our economy going forward.”
This is particularly evident with finding architectural interns. Employers are getting very concerned about the number of interns that are presenting themselves to fill available positions, he said.
“Architectural firms are struggling to find replacements now for workers that are retiring and they are struggling to find interns,” MacNeil said. “With a larger population in their 50s and 60s that population had to compete for jobs and wages, so effectively, by their volume, they drove down their wages. The younger generation coming in, especially the interns, which in architecture are about 25, their salary demands and their benefit demands are competitive with what an architect would expect 10 years ago that had about 10 years of experience.”
He added this may be an issue for the next 20 years.
Another recurring theme in the last 18 months is inflation and interest rates creeping up.
“They will effect everything from the finance in the construction projects to the risk of construction projects,” said MacNeil. “Contractors are referring to risk now as a commodity.”
Supply chain disruptions are another factor and material prices.
“We’re also seeing construction materials suppliers are giving a one day quotation,” he explained. “In some cases they are giving you a budget number and when you pick up the material that will be the price of the day. You can imagine the contractors are having to take on a certain amount of risk in giving a client a fixed price to complete a building six months to a year from now.”
In terms of contracts, when using or executing the RAIC Document Six Canadian Standard Form of Contract for Architectural Services the RAIC is strongly recommending that close attention is paid to A19, GC 4.4, GC 4.5 and GC 4.6 due to the presence of construction cost volatility and schedule creep drivers, such as cost-push and demand-pull inflation; interest rate adjustments; labour disruptions; labour shortages; material scarcity; supply chain disruptions; geopolitical influences; and changing monetary policies.
While they haven’t heard of any project cancellations on the architectural side, they are seeing projects coming in anywhere from 15 to 50 per cent higher.
“One of the reasons we put the notice out is because we are concerned about contract provisions with our standard contract because architects under certain conditions can in fact be liable to redesign if you go over 15 per cent,” he noted.
“We wanted to remind our members that they have to be very careful dealing with their clients. Clients will put together the construction budget and you may be six months away from the formalizing of the construction budget to the commencement of design. In some cases the client puts together a construction budget and it is 18 months before a contractor gives them a final price and there can be shocks along the way. Even the construction estimators are having a hard time putting realistic numbers on it.”
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