The Cost of Risk

In Montreal, the construction industry thrives on major infrastructure and industrial projects and rides the wave of the residential construction market. Who would have thought of such enthusiasm at the start of the pandemic!

With this effervescence, contractors are no longer sufficient for the task, we observe a return of the pendulum that for the last 30 years has favored project owners.

We observe fewer and fewer bidders on projects. Where once there were several invited to bid, we find only one (1) or two (2) who accept, even for major projects. From now on, the project owner spends time announcing, explaining and discussing with contractors to generate enthusiasm and interest, but nothing works.

In trying to understand this new reality, we are forced to look at the contractor's perspective, who has always chosen projects based on profitability and risks. The current climate allows contractors to push back and refuse risks that were automatically attributed to them, and this for too long. We note here risks associated with project managers for the owner, financial risks, contractual, constructability and coordination risks.

The typical contractual conditions developed by different project owners over the last decades have become unbalanced favoring the latter and accentuating the above-mentioned risks. Contractors are no longer ready to accept these risks and unbalanced conditions, and even less to have them imposed: indirect damages, unbalanced bonuses & penalties, etc. In fact, they have the choice to contract increasingly favorable conditions.

A "setup for Failure" with typical financial and contractual conditions developed in silos is from another era, an era where the cost of transmitting these risks cost less. An extraordinary construction project concept, complex and avant-garde construction, an innovative environmental project can be relegated to oblivion.

This new reality can be mitigated with an experienced client management team that knows how to manage all parties. But without this assurance, the contractor often plays it safe and includes provisions.

This new reality means that refusing to bid on contracts worth several tens and even hundreds of millions of dollars is more common than we think.

We have reached the point where contractual management governed by litigation or financiers is no longer the lever to privilege. Transferring risks to contractors is far too expensive and becomes a major issue. To remedy this, we must return to project management as the keystone of success. By having access to all levers both technical, commercial and construction, the manager with tools and experience is a means to manage risk and get out at a reasonable price.

For large public projects, it would be opportune to revisit the cities and towns law which is not always appropriate for this new environment, a framework too rigid and limiting, especially for complex projects.

To learn more about our services or discuss with Mr. Pieter 's Heeren for your project, contact us!