Public Procurement Practices Under the Microscope

Keith Sashaw — Mon, 31 May 2010 23:08:13 GMT

The Journal of Commerce carried a very interesting story the other day ( Fraud suspected in Calgary construction projects ; May 31, 2010) which underscores the inherent dangers that can face public agencies in the area of construction procurement. According to Richard Gilbert, the staff writer for the Journal,

“a review of procurement policies by the City of Calgary auditor has revealed the possibility of fraud in the awarding of municipal construction contracts. The problem occurred during the recent economic boom in Calgary, when the city had a shortage of skilled labour and experienced contractors. This constraint on growth resulted in a lot of sole-source contracts being awarded for construction and infrastructure projects.”

Again according to the Journal, one of the main conclusions of the audit is that there is an increased risk of fraud through the use of change orders and non-competitive procurement. In addition, there was a disproportionate use of sole/single sourcing to procure goods and services, without evidence to support the rationale for the lack of a competitive process, as well as a disproportionate use of change orders, which substantially increased the value of many contracts.

Clearly, public agencies have to be very careful in the way they approach tendering of construction projects and to be cognizant of the principles of fairness, openness and transparency.

Fortunately there are a number of tools that can used by public procurement officials to ensure they do not run afoul of tendering practices.

The Public Construction Council has developed a number of excellent documents and resources that can be used by public agencies. These resources have been developed jointly by owners, design professionals and contractors to ensure fair and balanced tendering practices. Generally speaking, these documents can ensure the tendering authority is in compliance with CAMF. They include:

Procedures And Guidelines Recommended For Use On Publicly-Funded Construction Projects
Public Construction Council of BC Contractor Pre-qualification Guidelines September, 2006
BCDC 2, 2008 Front End Document Forms , which are Instructions to Bidders, Bid Form & Appendices and Standard Supplementary Conditions for Use with CCDC 2 in a form-filler format for easy use.

In today’s environment, public agencies need to ensure that their procurement practices are not only above reproach and are conducted ethically and fairly, but equally important are seen to be above reproach and are being conducted ethically and fairly.

Proceed with Caution When Dealing with Stimulus Projects!

Keith Sashaw — Wed, 05 May 2010 17:45:16 GMT

There has been a lot of discussion about the positive impact that the federal and provincial governments' stimulus package has had on construction specifically and on the economy generally. While it has been very positive, there are elements about which contractors need to be cautious.

The General Contractors Division of VRCA recently reviewed the issue of projects funded under Federal and Provincial stimulus programs. At this time, many of these projects are subject to a March 31st 2011 deadline for substantial completion. While VRCA has not heard of any projects in BC that have incorporated specific references to liquidated damages in their contracts, we caution contractors to proceed carefully when considering any of these projects.

The Canadian Construction Association has stated that it does not support the use of liquidated damages clauses to recover funds from contractors for projects extending beyond the March 31, 2011 deadline, and has issued a bulletin to members advising them of the potential liability issues involved with work on federally funded infrastructure stimulus projects. For more information, please visit www.cca-acc.com.

It is important to understand the impact that a Liquidated Damages clause can have on contractors. Given the uncertain risk factor associated with contracts that have liquidated damages provisions particularly for contracts currently out for tender, many contractors may decide not to bid or build into their price a significant risk premium to cover any liability related to not completing the project prior to the March 2011 deadline. From a taxpayer perspective, this means there will be less competition among contractors, fewer bidders, and likely higher overall construction prices for these projects.

VRCA is anticipating that there may be some projects that are “fast-tracked” in an effort to utilize stimulus money.   We strongly advise contractors to review these projects carefully, and consider the following:
•         do not assume risk beyond the contractor’s control.
•         Ensure that the schedule is reasonable
•         Ask the proponent for proof of funding prior to bidding on the project.

VRCA recognizes the value of the stimulus programs in creating opportunities for our members and in generating significant economic benefits. However, in the words of CCA, the goal of this federal program was to help stimulate the economy through infrastructure construction, not through the legal community, which will benefit considerably if contractors and governments end up before the courts arguing liability issues related to projects that exceed the deadline.

VRCA Part of the Solution

Keith Sashaw — Tue, 27 Apr 2010 22:39:06 GMT

I had the pleasure of attending a presentation to the Vancouver Board of Trade by Mayor Gegor Robertson of Vancouver in which he provided an exciting overview of his plans for the future of Vancouver, especially in the area of sustainable practices.

During his presentation, he noted the difficulties facing Vancouver as they strive to deliver many necessary projects in challenging times. Like most municipalities, the city staff is under considerable pressure to do more with fewer resources with limited time to manage all the details in the tendering process, while at the same time controlling risks inherent in most projects. Overlaying these considerations, there is pressure to ensure the City of Vancouver embraces sustainable practices.

I was struck during his presentation that VRCA can provide tremendous assistance in this area. For over ten years, we have been operating the Electronic Planroom in cooperation with our partners, Infinite Source Systems. Our system eliminates paper production and reduces administrative effort while reducing risk of errors or omissions. It is compliant with the Agreement on Interprovincial Trade and TILMA. The benefits of working with the Vancouver Regional Construction Association in disseminating project information would be consistent with the objectives outlined in Mayor Robertson's presentation.

Kwantlen Polytechnic University has recently decided to use this system for all of its capital projects as well as Operations and Maintenance projects as well, and one of the many benefits attained by using the services of VRCA is the reduction in paper and improved control over procurement.

Clearly, VRCA can be part of the solution for municipalities as they wrestle with complex issues such as reducing overheads, improving efficiencies and embracing sustainable principles.

The Year in Review

Keith Sashaw — Mon, 14 Dec 2009 21:46:48 GMT

Generally speaking, for most people in construction, they will be p eased to see the end of 2009. The last twelve months have been among the worst we have faced in over thirty years, with building permits half of what they were the previous year, and construction employment down by about 25%.

While we are not fully out of the woods yet, we are beginning to sense some optimism about 2010. Aside from the excitement of the Olympics, we are seeing some recovery on the residential side of the industry. Architects and Engineers are reporting that their shops are getting busy again with projects. We are forecasting that activity will pick up in the second or third quarter of 2010.

In spite of the dismal economic conditions that we had to endure, 2009 was not all bad however. There were a number of things that help put a positive glow on an otherwise dreary year.

In the last year, VRCA has been busy working with our partners on a number of fronts. Our relationship with Building Opportunities with Business (BOB) successfully concluded having trained and put to work over 70 individuals from the Downtown Eastside. VRCA expressed its support and started work in soliciting support for the construction of Honour House, a facility targeted to helping returning soldiers and first responders who require medical assistance. We were pleased to see the expansion of the STEP program which has already helped hundreds of people transition into employment

A highlight of the year was the launch of the U35 Network, a group established for employees of VRCA members who are under the age of 35. The energy and commitment of this group was demonstrated in a community project in which over 40 individuals took time on a sunny weekend to paint a social housing project in Vancouver’s downtown eastside.

While challenging for many of our members, VRCA has been very busy and productive. Attendance at our events has continued to grow and our education programs have been well subscribed. Membership in the organization is strong and growing and we are continuing to develop new and innovative programs.

While pleased to see the end of 2009, we are hopeful about the prospects that will come with 2010. On behalf of everyone here at VRCA, best wishes for a Merry Christmas and prosperous and successful New Year!

Future Role of Contractors

Keith Sashaw — Tue, 29 Sep 2009 18:22:42 GMT

At a recent meeting of the VRCA Trade Contractors Division Board one of our members raised an interesting issue. He had become aware of a new product being imported into Canada which will challenge the usual mindset of contractors. The product was a fully, self-contained bathroom module that can be pre-ordered to demanding specifications, shipped anywhere you want and simply “plugged in” to a high rise complex. These units come fully outfitted with toilets, sinks, showers, grab bars, tiles, ceilings and floors. The role of the mechanical contractor will be to simply hook up the outlets.

In my opinion, this is the next logical step that needs to occur in construction, for several reasons.

First of all, notwithstanding the current downturn in construction, medium and long range projections clearly show that we will be facing skill shortages in the future as our population continues to age. I once heard a great line: “the first response to a skills shortage was called the Industrial Revolution”. Clearly, the industry has to be responding to this challenge with innovative ways of doing more with fewer people.

Second of all, in an increasingly complex world, with more and more products becoming increasingly sophisticated, we will need to look at methods by which we can ensure the best quality control possible. It makes sense that building modules in a factory setting is a far better method of assembling things rather than having thousands of parts shipped to a job site for assembly in adverse conditions. We have already seen evidence of this as roof trusses are now assembled in tightly controlled factories to demanding specifications, rather than at the job site.

The implications for our industry are profound. What will be the role of the contractor in this new environment? Will the function of tomorrow’s plumbers and electricians simply be to connect pipes and wirings dangling from a module unit delivered to a job site? Or will the industry move to a higher value role for the average tradesperson, who will be challenged with more complex issues? Will new trades and occupations be developed that reflect the skills required in a factory setting, which will probably require more knowledge of robotics than carpentry?

What are the commercial opportunities for contractors in moving to the new style of construction? Will the first person who can neatly integrate a variety of skills and processes successfully replace the way in which things are done now?

We have seen numerous instances of increasing use of factory assembled components of building. One thing is for sure – we will see this trend increase exponentially in the future. All of us should be thinking about this and getting ready to embrace new concepts and methods of construction, whatever it may be.

2009 Awards of Excellence

Keith Sashaw — Mon, 24 Aug 2009 17:54:58 GMT

Excitement is building about this year’s VRCA Awards of Excellence program. This year we had over 240 entries in 65 different projects, worth over $2 billion dollars. The judges were impressed with the quality of all entries and were hard-pressed to select just three Silver Award winners in most categories.

It is exciting to sit through some of the judging and to visit the sites that are up for consideration. Clearly there is great pride on the part of the contractors and their workers when a project is being considered for an award. It is great to see the ingenuity and creativity exhibited by our members as they work to bring simple drawings on a page into concrete reality. It is also sobering to realize the tremendous risk inherent in these projects as contractors strive to bring them in on time and on budget, in the vast majority of instances successfully.

Winning a VRCA Award of Excellence gives the recipient many rewards. Firstly, great pride can be taken from being recognized by one’s peers for pulling together an outstanding project. The industry appreciates the complexities and challenges that face contractor s and to have your project recognized is a testament to the contractor.

Secondly, recipients of an Award of Excellence often use the occasion to recognize the hard work and dedication of their workers. This is a great opportunity for contractors to celebrate team work and commitment on the part of everyone from the management to the estimators, project managers, site superintendents and the tradespeople who put it all together.

Thirdly, winning a VRCA Award of Excellence is a great promotional tool that contractors can use to showcase their work to future clients and the design community. Successfully bringing a complex project to fruition and being recognized by one’s peers can often be the deciding factor in determining who gets the next project.

Click here to view 2009 Awards of Excellence Silver Award Winners

June Stats: What it means

Keith Sashaw — Mon, 17 Aug 2009 20:01:13 GMT

The numbers are in; Permit values edged up 2% in June compared to May 2009; Non-residential permits fell 21%; Residential permit values jumped 29%; Housing starts decline by 10%; Construction employment increases by 3%.

What does it all mean?

For one thing, these figures demonstrate the volatile nature of the current economy and the difficulty of getting a clear picture of what is happening. As the economic cycle continues to play through, we can expect to see some conflicting numbers that are seemingly contradictory and which make it very difficult to forecast. In general, I trust the reports that have come out and that we are nearing the end of the downturn. However, we can expect to see conflicting signals as we bounce along the bottom of the economic cycle for the next few months.

I believe what is important to recognize is that we are indeed nearing the bottom of the cycle. The activity level of the regional construction industry is operating at a level where it was in 2006, in terms of building permit values and employment. In spite of eight months of continuous declines there are more people still working in construction than there were in 2006. Non-residential permits are about where they were in 2005

In talking to several contractors lately the general outlook was that while it is certainly slow right now there is a mood of increasing optimism.

There are several major projects that are in the works that will soon be out to tender. It seems that even some of the major residential projects that came to a screeching halt in October 2008 are being dusted off and re-examined.

One thing we know about economic cycles and construction is that there will be a recovery. While it is still not clear as to when this might be, it does appear that recovery is in sight. In the meantime the prudent contractor will continue to monitor the market, continue to ensure costs are under control and pay attention to the business.

Tax Harmonization - A double edged sword?

Keith Sashaw — Wed, 05 Aug 2009 20:55:41 GMT

On July 23, 2009, the BC Government made a very significant and somewhat controversial announcement that BC intends to harmonize its PST with the GST. PST harmonization with the GST will become a reality on July 1, 2010.

There has been a lot of discussion in the media about who will win and who will lose in the new tax environment. Clearly for many consumer items that were previously exempt, consumers may face higher prices. For the general business owner, however, eliminating the PST and moving to an HST will remove a significant tax burden on businesses. The PST is an outdated, complex and inefficient tax paid by both consumers and businesses. The PST paid by business is generally incorporated (embedded) into the price of goods and services paid by consumers. The more links in the supply chain between raw materials and final goods, the greater the amount of PST embedded in the product.

According to information from the Province, the Construction Industry will be the single biggest beneficiary of the newly-refundable provincial portion of HST.

Commercial projects will cost significantly less under HST than GST/PST. Residential projects where unit prices are $400,000 or less will be eligible for an HST rebate (similar to the current GST New Housing Rebate) that theoretically will not increase the sales tax cost of the purchase. Some end-users may have to pay more when HST is implemented but, ultimately, the market will likely have much more of an effect on prices such as on new homes, etc., than the harmonization of the GST and PST.

Very few details have been released at this point. Some significant issues still to be presented include transitional rebates, i.e., how the government plans to deal with PST paid on construction materials purchased prior to July 1, 2010 where the sale of the project occurs after June 30, 2010, subject to 12% HST. VRCA would certainly encourage the Ministry of Finance to engage in full consultations with our Association, the Home Builders Association and others to ensure the transition is handled smoothly and fairly.

It may be several months before a comprehensive set of proposed new rules is made public. In the meantime, VRCA and BCCA will continue communicate with BC's Finance officials to ensure the smoothest possible transition to HST for our members.

For more information on the proposed harmonization of the PST and GST, click here