A panel of construction lawyers assembled to discuss stimulus projects in anticipation of expected government announcements warned that the next batch of project contracts they and their colleagues draft will require significant revisions from those crafted just six months ago.
Risks such as productivity uncertainty, a potential second wave of COVID-19 and contractor insolvency are among the concerns lawyers will have to deal with in future project contracts, observers viewing a webinar presented by Toronto-based Osgoode Professional Development May 26 were told.
“To go to market now with a document you would have gone forward with in January is just silly,” said panellist Michael Atlas, associate general counsel with the Toronto Transit Commission (TTC).
“No-one knows what happens if we get a wave two going forward. How are the procurement documents and the contract documents addressing the go-forward position?”
The panellists, led by moderator Howard Krupat, a lawyer with DLA Piper (Canada) LLP, referred several times during the webinar to details of a stimulus package revealed by federal Ministry of Infrastructure Catherine McKenna in mid-May.
McKenna said in an unofficial preview that the government would be accelerating spending from the $33.5-billion Investing in Canada program with Ottawa picking up 80 per cent of costs and projects to be completed by the end of 2021.
There will be faster project approvals, McKenna said, with the government intending to target resilient social infrastructure such as hospitals and schools along with such projects as building retrofits, health facilities, new pathways and bike lanes.
Panellist Richard Wong of Osler Hoskin & Harcourt LLP said that among the numerous risks that will have to be incorporated into contracts as stimulus projects are rolled out, lawyers will have to accommodate a “rush to design” as owners compete to get stimulus funding.
Owners will be “designing on the fly,” he suggested.
“In a rush to get stimulus funding, especially those that have been tied to conditions, and done by 2021, you may get owners pushing things out just to get shovels in the ground, but what I see from a life cycle perspective, you’ve got to have proper cost control and oversight,” said Wong.
Other issues red-flagged by the panellists were insolvencies — Wong thought a spate might emerge in August or the fall — supply chain disruptions, other COVID-19-related execution risks and permitting delays.
Krupat suggested some of the cash flow and security provisions contained in the new Construction Act would be revisited during contract drafting as stakeholders contemplate how to take advantage of the legislation’s holdback, bonding and other measures.
“I wonder if they will become focal points on projects going forward,” he said.
“There are mechanisms under the act that may come into play more in this environment from a cash flow perspective.”
Atlas said the TTC and municipalities would have two streams of projects suitable for stimulus funding. One is state-of-good-repair work, the “bread and butter” of the TTC capital budget he said, such as road rehabilitation, bike lanes, sewers and small bridges.
“It’s the stuff that the municipality or the TTC does all the time, so the risk is not great. They are project-ready, the specs don’t change — the design may but you are always ready to go,” explained Atlas.
Then the sector would consider other projects perhaps deeper in capital programs, looking for opportunities to advance special initiatives or service a need that has become apparent during the pandemic.
Projects that are predicted to fall outside of the stimulus parameters are longer-term works such as subways and LRT, Atlas said.
Not only are the jobs themselves multi-year, he noted, but even procurement takes a long time.
Wong identified digital infrastructure as likely to benefit from stimulus funding.
“That is something we are seeing whether it’s data centres, cloud computing, telecommunications, broadband, all of those are geared to an uptick with COVID,” he remarked.
On the other hand, projects that aren’t likely to get to the starting line are those hampered by complicated procurement policies or trade agreements.
“When given this kind of once-in-a-lifetime opportunity…I struggle with the fact that policies and trade agreements really don’t allow for those two-week, one-month decisions,” Wong said.
“You still need months to have full compliance, and that takes you out of the ability to move things around and accelerate capital planning work.”
In the end, Atlas urged stakeholders not to waste taxpayers’ money.
“The concern I always have is that people treat it like free money and free money means you build whatever you can,” he said.
“You need to take a needs-based approach.”
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