This is a construction cost consultant’s unsolicited advice to Premier John Horgan.
The Community Benefits Agreement will come with a big price tag.
The amount will depend on the implementation by the bureaucratic administrators. Contractors are currently suffering from “regulation burn-out” as a result of the overwhelming burden of regulations from all levels of government.
It has increased relentlessly over the past 20 years with a corresponding increase in construction cost. This new set of regulations is “Trumpian” in its audacity. The cost increase will match the audaciousness of the regulations.
Contractors are now comprised of teams of highly qualified professionals. The increase of specialization has resulted in an ever larger number of subcontractors and suppliers. It is now an industry dominated by small business. Your policy will have a negative impact on small business.
General contractors operate both as professional consultants and construction managers. Few have large workforces hired directly. Subcontracting is standard practice. Your approach to bids is not applicable to many specialized projects that demand input from contractors from the conceptual stage of a project.
This contractor expertise is in high demand and very mobile both nationally and to the U.S. It could result in reverse discrimination: non-union contractors and their highly qualified staff may boycott your projects. The flight of this expertise from B.C. could be an unintended consequence.
Contractors and subcontractors maintain their own teams and work crews on a permanent basis. Hiring is done online, through personnel agencies or for the larger firms their own human resources department. The construction workforce is in constant flux throughout a project. Interfere with this dynamic process and the consequences will be costly.
Your government intends to insert itself between the contractor and their workforce. This is gross interference in the construction process with serious cost and schedule negatives. The dead hand of the state will lie across the construction projects, suffocating ingenuity, productivity and performance. It will have a paralyzing effect.
Construction prices have spiked in the past year. The industry is busy. This reality will complicate the implementation of this new policy. It will amplify the negatives.
For all government projects, project delivery systems need to be flexible – even for smaller projects such as schools. Exploring different project delivery methods is now common because a one-size-fits-all approach is considered old thinking. School districts have to maximize what they buy for their construction dollar.
This policy would box them in and force them to pay more and get less.
Regarding your “union-only” plan: as a general guide, anytime a client restricts supply, the price increases. Your restrictions go way beyond union-only, they almost nationalize the workforce. This will have a huge negative impact on construction cost. Inflexibility equals higher cost and is an established fact in the industry. It will reduce the contractors’ ability to manage his workforce effectively leading to delays and extra costs.
For the potential cost impact, I can only give you my gut feeling based on my experience with similar policies in the ‘90s. I suggest you plan for an increase of 10 to 20 per cent on all projects affected by this policy. The actual increase will vary on a project by project basis.
Implementation will be important. If poorly implemented, this could result in high volatility in bid prices. Poor bid responses for the affected projects could result in project delays, re-bidding and even mothballing of much needed projects.
Over a three-year period, this policy, I speculate, depending on the scope and implementation could absorb $1 to $3 billion of your capital funds. There is a high risk that this amount could increase dramatically due to current heated market conditions, poor implementation or a negative response from non-union contractors.
The cost of these projects will not be based on competitive market prices as the term is commonly understood in the construction industry. It will be “fake competition.” The defenestration of this mainstay of cost management could have unintended cost consequences: out-of-control costs could be in the cards. Since contractors base their estimates on historical data of their work crews’ productivity on previous projects, this unknowable new system will result in a roulette wheel method of estimating.
Denis Walsh has practiced construction cost consulting for over 40 years. Send Industry Voices comments or questions to firstname.lastname@example.org