Don White, president of Canadian Construction Institute Inc., has a few sage words for people opening their own construction companies.
“Don’t get in the business. It is the highest risk industry in North America.”
Most smaller contractors spend time bidding and completing projects rather than managing the business, he says. And, as a result, the business fails.
In the first quarter of 2003, business bankruptcies numbered 2,379 with construction companies accounting for 369 filings. Statistics Canada reported 356 construction businesses incurred bankruptcy.
“Only the strong survive,” White says.
White is also director of the CCI’s Conflict and Decision Management Centre and spent 12 years as manager and comptroller of a general contracting firm. He was the owner of a general contracting business for 27 years.
To become an engineer, architect or even a building inspector a certain degree of education is required, but there is no forum where people can learn to manage a construction business.
White’s recommendation is to investigate management-training programs at colleges and universities, and through construction associations.
Specifically, he recommends the Canadian Construction Association’s Gold Seal program, which shows entrepreneurs how to bid and manage projects, while keeping an eye on cash flow.
Education seems to be the key element for the industry, Michael Atkinson, president of the Canadian Construction Association, says. Disputes pertaining to how contract awards are closed, especially with public owners appearing to become all too common, and a better understanding of how to approach the bidding process, may help dissolve preconceived notions.
The general misunderstanding lies in the industry believing the owners and large contractors have to set out fair rules in the procurement process.
But one has to understand the court’s definition of fair, Atkinson says.
Under the privilege clause in Canada, companies bidding on a project have to accept all the conditions outlined in the documented statements by the owner or large contractor, be they fair or unfair.
For instance, suppose “Agency X” was to put out a Request for Proposals (RFP). In the solicitation documents, it stipulates that if a company were to bid on the project they would agree that “Agency X” could do anything they wanted. They do not have to award the project to bidding companies, even if they come in with the lowest bid; they could award it to a friend who did not take part in the bidding process at all. Conditions found in the document prohibit bidding companies from laying claims against “Agency X” during or after the procurement process.
If companies submit proposals based on these conditions, it means they have accepted the terms of that agency.
A rise in disputes after the bid closing comes from the mistaken belief on the part of the bidders that public owners have to apply fair rules. They don’t.
“The courts are saying they have to apply their rules, yes, but those rules need not be fair from the perspective of bidders. They have to be fairly applied ... equally to all bidders,” Atkinson says. “In short, you must be equally unfair to all bidders. Now that may be somewhat unfair but if I bid, I have accepted those terms.”
White admits the procurement process can be a “little one-sided,” but it has become that way because of previous disputes. Owners and large contractors used to file a standard one-page nation-wide subcontracting agreement 20 years ago. Today, there are 15 to 30 page custom-made contracts with appendices and addenda.
“They do this because they want to protect themselves ... against subcontractors in disputes.”
Details in the document mean owners and large contracting companies have considered time horizons and financial deadlines, for example.
“They do not want to spend all their time in dispute resolution with sub-contractors unless it is addressed at the contract stage,” White says.
There is a new saying in the construction industry. If a company wants a contractor to sign for a project, the company makes sure they do it in the “honeymoon phase.”
In other words, when the sub-contractor has just been awarded the project and, unfortunately, will not spend enough time reading it, White says.
“There are more disputes created at the beginning of the contract than there were in the past because of ambiguity in contract documents ... and the transference of risk between the contractor and sub-contractor,” White says.
