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December 19, 2001 - EDITORIAL
Public construction: changes coming
It is becoming clear that the world of public construction will be undergoing significant changes in the immediate future. Changes that will demand that general and trade contractors redefine how they do business.
To begin with, the volume of public construction is likely to fall. The difficult state of the province's finances has caused the Liberal government to re-evaluate all of its spending, including capital spending. A number of projects that would have employed almost 2000 construction workers have already been delayed, deferred or cancelled.
In the Ministry of Education, for example, officials are forecasting stagnant or declining enrolment, a 50% reduction in the number of portables needed and a probable increase in class sizes. As a result, demand for new school construction will be lower than in the past. There will be pockets of enrolment increases that would demand construction, but not to the level we have experienced.
We have also heard that the government plans to take better care of their existing structures over the next few years. The previous government targeted budgets toward building rather than maintenance. That has seriously harmed our existing capital stock and drew criticism from the auditor general. This means a larger number of smaller projects to do things like seismic upgrading, repairing mechanical and electrical services, re-roofing etc. This will create an even more competitive public construction environment however, as there is a deeper pool of contractors who can qualify to bid smaller projects.
The other significant change will be the increased role for the private sector in the provision of public sector services. Some traditional public tenders will be offered, but there will be less of them as the transition to public/private partnerships (P3s) for infrastructure development is underway.
The construction industry often thinks P3s is code for off-book financing for the government. In other words, the private sector designs, builds, finances and then leases back to government. But that model offers little savings to the public. This government is considering a more fundamental shift to private sector design, build, operate and finance (DBOF) models.
As an example, in some jurisdictions jails are not only designed, built and financed by the private sector, but the private sector operates the facility as well. The government pays the private sector provider for the service, but does not operate the facility. This is the type of publicly paid, privately delivered P3 model most often discussed.
A further example where the government is even further removed would be a toll road or bridge. In this DBOF scenario, the private sector would do everything including collecting the tolls that pay for operation. Sydney Australia successfully built such toll roads in preparation for the recent Olympic Games.
How does this affect our industry? First, this kind of arrangement does not mean a traditional public tender where the documents are found in a plan room for anyone with the necessary bonding to bid. Private suppliers will likely partner up with general contractors to work on a design-build model. General contractor will work with select sub trade contractors on design. Relationships and teams will be emphasized and life cycle costing exercises will become more important.
Long-term servicing will become an important concept to the industry, as relationships with clients will not end when structures are completed. Twenty year plus contracts have been the norm in places like Europe where P3s are moving ahead full steam.
This new world requires a different orientation for contractors currently focused on public work. Finding jobs to bid will not be as simple as looking in the Journal of Commerce, or reviewing a flyer from a plan room. You will have to seek out clients and convince them that you can provide the long-term service needed to fulfill their contract. As a sub trade, building relationships with general contractors will become crucial. Developing design-build expertise, creating a service mentality with your company and crew are just some of the things to think about. This approach is clearly more expensive, more labour-intensive and requires higher overheads and mark-ups than are currently available in the public tender market.
| ICBA is the voice of BC's construction industry. For further information, or if you have any questions or comments regarding this article, please contact ICBA. |
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