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Swift action needed to avoid bankruptcies: Panel

Don Wall
Swift action needed to avoid bankruptcies: Panel
SCREEN GRAB — Sandra Skivsky, chair of the National Trade Contractors Council of Canada, was one of four presenters at a recent McMillan LLP webinar.

Canadian construction stakeholders have worked together to solve problems in remarkable fashion during the COVID-19 crisis but much more needs to be done, and soon, to keep contractors from sliding into a financial abyss, construction lawyers were told during a recent national webinar.

Four panellists from national construction associations warned that numerous contractors will soon exhaust their pre-COVID savings and come August and September, many will be too cash-poor to bid on projects and there will be bankruptcies.

“That is a big threat. You’re a trade contactor, you get on a site and you are 60 days out before you can expect to get any money,” said panellist Sandra Skivsky, chair of the National Trade Contractors Council of Canada, making a case for government backstops.

“In the meantime, you have labour, equipment, materials, operating costs, you need money to take on new work. You need a healthy cash flow to hire more people, you need cash flow to take on first- and second-year apprentices.”

A recent Ontario Construction Secretariat poll of contractors referred to during the seminar found their revenues had dropped by 42 per cent, more than half had applied for government assistance and 30 per cent had taken out loans.

The webinar was presented May 14 by McMillan LLP and billed as Construction after COVID-19. Skivsky and fellow panellists Mary Van Buren, president of the Canadian Construction Association, John Gamble, president and CEO of the Association of Consulting Engineering Companies – Canada and Clive Thurston, president of the Ontario General Contractors Association, discussed health and safety advances, loss of productivity, the need for early stimulus and contractual challenges in addition to the cash-flow crunch.

The sector as a whole has stayed relatively infection-free despite the early “handwringing” of some, Gamble suggested, and most engineers have been able to be productive working from their homes.

So as the sector goes into recovery mode, engineers are already in “rhythm” and will play an essential role in getting projects to the starting line, said Gamble. But immediate government stimulus spending is needed, he said.

“If our members aren’t busy now, we are not going to have those shovel-ready projects ready in six months, a year and 18 months,” Gamble commented.

Two initial problems will be finding ways to pay for the additional costs of making workplaces safe and making sure the permitting system is in place to get the stimulus programs processed.

The municipal sector has not “weathered the storm” as well as federal and provincial governments, Gamble noted.

“If a municipality has closed doors or if people are not there, who is going to handle applications for those programs?” he asked, referring to stimulus funding.

Project owners are going to have to show flexibility as they work with architects, engineers and contractors to resolve pressing issues, Gamble said.

“In the short term we need to have adult discussions with owners about cash flow, about fairness of contracts, about additional costs, we have to have those discussions about supply chains, because it’s in the owners’ interests that we be able to keep the lights on and retain as much of our employees as possible. I think some firms are going to have to make some very tough decisions,” he remarked. 

Van Buren noted the construction sector has stepped up its efforts to work collaboratively to solve various problems, suggesting that productivity at jobsites is now up to 95 per cent of what it was pre-COVID after a steep earlier dip.  

Employers and workers have been focused on figuring out how to deliver projects and have not been immediately worried about costs, she noted.

“Now,” said Van Buren, “we are focused more on costs,” with contractors needing liquidity to take on new projects.

Skivsky differed with Van Buren on whether the sector had reached the 95 per cent productivity level needed to approach profitability.

“Ninety-five per cent, I don’t think that is the number we are going to see across all the trades yet,” she said. “There are different schedules every new project is going to take on. You have to rethink how you are going to adhere to all the requirements.”

Thurston said the first order of business will be resolving disputes with owners over who is on the hook for project delays.

“There is no willingness of the owners to compensate us for delays or even recognizing that the delay is beyond our control,” he said. “That is just nonsense.”

Then there is the matter of resolving contractual issues raised by the pandemic such as reprisal clauses and force majeure. This will no doubt require government intervention to level the playing field as new contracts are drawn up, he said.

“What we are seeing in last few weeks on new jobs that are being tendered, there are very one-sided clauses basically saying COVID-19 is not a pandemic, it is your problem and deal with it,” Thurston said.

“We are working very hard to advise our members on policies and practices. We are working with our legal experts, there is language being developed to augment CCDC 2.”

 

Follow the author on Twitter @DonWall_DCN.

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