OGCA addresses COVID-19 challenges for small and medium-sized general contractors in Stanting Committee presentation

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Ontario Construction News staff writer

Ontario General Contractors Association (OGCA) president Giovanni Cautillo made a second presentation presentation to the provincial legislature’s Standing Committee on Finance and Economic Affairs last Wednesday. In this presentation, he focused on the  impacts of COVID-19 on small and medium-sized general contractors.

While the OGCA’s  recommendations remained largely the same coming after its previous presentation on Aug. 4, Giovanni’s second presentation stressed the significant challenges facing the industry that may lead to job losses.

Although many people recognize ICI by the larger companies, 70 per cent of our sector comprises of small and medium-sized firms that are both unionized and open shop. These smaller firms are dispersed across Ontario, with smaller contractors having roots in rural communities in desperate need of economic stimulus. In the ICI sector, small and medium firms typically bid on smaller projects as they cannot provide the capital or the bonding necessary to invest in larger projects.

In his presentation, Cautillo recommended that legislators change the rules apply pandemic related costs to the force majeure clauses of contracts, remove regulatory impediments to the planning and delivery of all construction projects, including the removal of exclusion clauses from procurements policies, and establish a relief provision to allow banks and bonding companies to financially support contractors while they deal with contractual and payment delays

Hello.

My name is Giovanni Cautillo and I’m the president of the Ontario General Contractors Association. This is my second time appearing before the Standing Committee on Finance and Economic Affairs to discuss the impacts of the COVID-19 crisis on General Contractors.

Today, I will focus on the impact of the pandemic on small and medium sized construction enterprises

I will table our recommendations, that will provide much needed contractual and debt relief for the ICI sector. A sector that I believe will be instrumental to keeping Ontario working and for our ultimate economic recovery.

OGCA members account for approximately $12 Billion dollars of construction each year in Ontario in the Industrial, commercial and Institutional sectors (Generally referred too as ICI. Although many people recognize ICI by the larger companies, 70% of our sector is made up of small and medium sized firms that are both unionized and open shop.

These smaller firms are dispersed across Ontario, with smaller contractors having roots in rural communities that are in desperate need of economic stimulus. In the ICI sector, small and medium firms typically bid on smaller projects as they cannot provide the capital or the bonding necessary to invest in larger projects.

Some of these smaller projects have been vital to Ontario’s COVID recovery, like the retrofit of health care centres with barriers to keep employees safe .Smaller firms will also be instrumental in the installation of protections necessary for the safe return of students to schools. Some of our members have been working on school-related projects for many years and boards rely on them heavily for maintenance.\

COVID directly impacted our sector during the government-mandated shutdown when ICI construction was deemed “non-essential” from April 3 to May 17. Due to the existing investments in safety and the ability for contractors to secure PPE, the ICI construction industry has effectively managed the logistical challenge of COVID-19, but the financial scars remain.

To illustrate the sectors’ effectiveness, earlier this month the WSIB had accepted over 4,340 workplace claims, with only 18 from construction. During the pandemic GC’s of all sizes have invested heavily in training, sanitation, cleaning, physical distancing, and PPE. Since reopening, we have been focused on the workers’ safety.

In a survey of over 200 contractors done by the Ontario Construction Secretariat, the cost of new safety initiatives was shown to have increased overall project costs by 13 per cent.. This number is not insignificant and coupled with the government mandated shut down is formulating into a pending crisis.

Over the next few months small and medium sized contractor will be facing cash flow shortages caused by the six-week gap in billings. You see, many contractors have reported being busy in May and June, but they are finishing off jobs that are taking longer than anticipated or starting new work with fewer workers on site. The result is that progress is slower and completion dates have been significantly extended resulting in fewer and smaller billings.

Our members have reported that they expect issues within the next few months that may have severe implications for project timelines. The timing literally cannot get any worse as contractors are presenting their second-quarter statements to their banks and bonding companies.

As stage 3 continues, contractors are bearing even more of the actual costs associated with delays, and this problem is only getting worse, with 41 per cent of the scheduled work that was to start this year, remaining delayed.

This is the start of a financial crisis that requires the Government’s immediate response. A financial crisis for small to medium sized business in construction may be further detrimental to our economy because many small GC’s use their own personal assets for equity when they apply for a line of credit. In short, we are talking about the potential to lose thousands of jobs in small communities across Ontario.

Simply put, we need to protect these employers from collapse due to cash flow issues.

The OGCA recommends the establishment of a relief provision that allows banks and bonding companies to financially support contractors while they deal with contractual and payment delays.

What can we do to keep these employers “above water” amid cash flow issues and delay costs?

Start with ensuring the problem doesn’t get worse.

According to Construction Law in Ontario, unless stated otherwise by the owner, the contractor is legally liable for all damages as well as delay penalties, which in many cases, are substantial. Typically things outside a GC’s control are covered by a “force majeure clause”, but these clauses do not allow for a pandemic or a mandatory closure of the industry, meaning GC’s will be held liable for all associated costs.

When the Ontario Construction Secretariat asked about this in the survey I have referenced, 18% of owners said they have been somewhat or very inflexible in accommodating new costs or any delays. Adding “pandemic” as a component of the force majeure section in contracts would begin to address this issue for employers. By taking this action, the Government would be able to protect contractors from COVID costs that could cripple their business while allowing them to continue to build under challenging and uncertain conditions. It would also allow banks and bonding companies to support contractors financially while they are dealing with contractual and payment delays. And it could save thousands of jobs in the process.

Another thing that is needed is an infrastructure pipeline that supports small and medium sized construction. Although public projects make up a critical portion of our business, public infrastructure is only one part of the ICI construction industry, a sector that contributes just under $9 billion to our province’s GDP.

The ICI sector represents a large number of projects in the commercial and industrial sectors. But with our economy in recession, many OGCA members are worried that they will be completely dependent on the Infrastructure Ontario pipeline for business. This is because the pandemic stopped much of the planning and approvals for commercial and industrial construction slated for 2021. The only way to fix this is by providing a long-term pipeline of public projects, large and small, that will encourage investment.

It will serve as an incentive to train those who lost jobs due to the pandemic. Right now many workers are looking to the trades as a place of opportunity. And I think that Ontario is well equipped to find these individuals highly rewarding jobs. With the recent changes to training ratios, the skilled trades are primed and ready to grow. And small and medium contractors are the perfect vehicles to teach apprentices.

To summarize, our recommendations are:

  1. Apply pandemic related costs to the force majeure clauses of
  2. Remove regulatory impediments to the planning and delivery of all construction projects, including the removal of exclusion clauses from procurements policies, and
  3. Establish a relief provision that allows banks and bonding companies to financially support contractors while they deal with contractual and payment

We’re very grateful to the Ministry of Labour Training and Skills Development, the Attorney General’s Office and the Ministry of Infrastructure for the ongoing support of Ontario’s construction industry. I want to personally give special thanks to Premier Ford for his unwavering support for the construction sector and his commitment towards ensuring that all workers are kept safe during the crisis.

Thank you. I look forward to your questions.

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