P3 bids from mid-size companies face hurdles
By Anthony Davis
Few countries have embraced the public-private partnership model for building infrastructure as openly as Canada, where the number of P3s completed recently surpassed 200. But for mid-sized construction firms competing with construction giants, the hurdles against landing P3 work can insurmountable.
With their complexity, intimidating upfront costs and long-term commitments, P3s remain almost the exclusive domain of big national construction outfits like EllisDon or PCL. "It takes a lot of financial muscle to play in these leagues," says Duncan Glaholt, partner and founder of Toronto's Glaholt LLP, a leading Canadian construction law firm. "It's a very hard market to enter, certainly as a mid-sized contractor."
There are potentially pitfalls for mid-sized companies deciding to tackle the P3 market. And critical steps to success:
Collaborate
One ingredient in the "secret sauce" to getting P3 projects, according to WeirFoulds LLP partner Glenn Ackerly, is for smaller construction firms to collaborate on large infrastructure projects – whether P3s or not – with similarly minded contractors "they can bulk up with."
"P3 deals are large and complex and require a fairly steep learning curve," says Ackerly. Some smaller Canadian contractors are already pairing with larger American or European construction firms bidding on Canadian P3 projects. The Canadian firms provide knowledge of the local construction landscape; the foreigners have the capital to foot the expensive upfront costs of bidding on P3s. It can be a training ground for smaller Canadian firms later chasing P3s themselves.
But, Ackerly warns, there's a risk of culture clash even when local firms team up with each other. He's seen that dynamic first-hand, for instance, when one hard-nosed, old-school contractor he recalls formed a consortium with a contractor that preferred a different approach.
Think Small First
In the beginning, says John Schubert, former Chair of the Canadian Construction Association and President of Winnipeg-based electrical contractor McCaine Electric, taking smaller parts of a P3 can be the smart way to go. Mid-size outfits that are used to being prime contractors on a project are realizing, says Schubert, that to play in the P3 market, they must swallow their egos and accept the lesser role of subcontractors.
"You don't have the experience the first one or two times out of the gate. Nor do you want to incur the costs. P3s can incur a lot of legal costs upfront. There's an old adage that if you don't get one out of every three P3s you participate in, you won't make any money. That's because the cost of the pursuit is so high." Taking on smaller roles reduce costs and risk, says Shubert.
Build Your Resume
Patrick Waunch, CEO of Kelowna-based Rambow Mechanical, which worked on the Kelowna General Hospital P3 project, believes it's tougher than ever for small firms to win such work. Profit margins – which were as high as 25 per cent back in the 1990s – now hover around 16 to 18 per cent. For mid-size firms chasing P3s, advises Waunch, "I recommend they have a good design-build background. If you are trying to get in with a [major general contractor] that you've never been in with before, that's what you want on your resume." It's a skill set many smaller contractors just don't have.
And he offers a warning: "Before you even attempt this risk, make sure you read the documents and read them well, because most of these types of projects have penalty clauses if you do not complete work by due dates. If you are putting up bonding, which you usually do, make sure your bonding company knows what you are doing because they may not necessarily cover you."
Anthony Davis is a Calgary-based business writer.
By Anthony Davis
Few countries have embraced the public-private partnership model for building infrastructure as openly as Canada, where the number of P3s completed recently surpassed 200. But for mid-sized construction firms competing with construction giants, the hurdles against landing P3 work can insurmountable.
With their complexity, intimidating upfront costs and long-term commitments, P3s remain almost the exclusive domain of big national construction outfits like EllisDon or PCL. "It takes a lot of financial muscle to play in these leagues," says Duncan Glaholt, partner and founder of Toronto's Glaholt LLP, a leading Canadian construction law firm. "It's a very hard market to enter, certainly as a mid-sized contractor."
There are potentially pitfalls for mid-sized companies deciding to tackle the P3 market. And critical steps to success:
Collaborate
One ingredient in the "secret sauce" to getting P3 projects, according to WeirFoulds LLP partner Glenn Ackerly, is for smaller construction firms to collaborate on large infrastructure projects – whether P3s or not – with similarly minded contractors "they can bulk up with."
"P3 deals are large and complex and require a fairly steep learning curve," says Ackerly. Some smaller Canadian contractors are already pairing with larger American or European construction firms bidding on Canadian P3 projects. The Canadian firms provide knowledge of the local construction landscape; the foreigners have the capital to foot the expensive upfront costs of bidding on P3s. It can be a training ground for smaller Canadian firms later chasing P3s themselves.
But, Ackerly warns, there's a risk of culture clash even when local firms team up with each other. He's seen that dynamic first-hand, for instance, when one hard-nosed, old-school contractor he recalls formed a consortium with a contractor that preferred a different approach.
Think Small First
In the beginning, says John Schubert, former Chair of the Canadian Construction Association and President of Winnipeg-based electrical contractor McCaine Electric, taking smaller parts of a P3 can be the smart way to go. Mid-size outfits that are used to being prime contractors on a project are realizing, says Schubert, that to play in the P3 market, they must swallow their egos and accept the lesser role of subcontractors.
"You don't have the experience the first one or two times out of the gate. Nor do you want to incur the costs. P3s can incur a lot of legal costs upfront. There's an old adage that if you don't get one out of every three P3s you participate in, you won't make any money. That's because the cost of the pursuit is so high." Taking on smaller roles reduce costs and risk, says Shubert.
Build Your Resume
Patrick Waunch, CEO of Kelowna-based Rambow Mechanical, which worked on the Kelowna General Hospital P3 project, believes it's tougher than ever for small firms to win such work. Profit margins – which were as high as 25 per cent back in the 1990s – now hover around 16 to 18 per cent. For mid-size firms chasing P3s, advises Waunch, "I recommend they have a good design-build background. If you are trying to get in with a [major general contractor] that you've never been in with before, that's what you want on your resume." It's a skill set many smaller contractors just don't have.
And he offers a warning: "Before you even attempt this risk, make sure you read the documents and read them well, because most of these types of projects have penalty clauses if you do not complete work by due dates. If you are putting up bonding, which you usually do, make sure your bonding company knows what you are doing because they may not necessarily cover you."
Anthony Davis is a Calgary-based business writer.
Lawyer(s)
Firm(s)
Glaholt Bowles LLP
WeirFoulds LLP