P3 opportunities

Late last year I attended a Canadian Council for Public-Private Partnerships (CCPPP) event held in Toronto. Notable attendees included Prime Minister Justin Trudeau, Ontario Premier Kathleen Wynne, Federal Minister of Infrastructure and Communities Amarjeet Sohi, and many construction and infrastructure industry professionals. The event generated dialogue among public-private partnership (P3) stakeholders and promoted them to attendees from both the public and private sectors. It also served as a platform wherein the prime minister heralded the government’s plan to introduce an “Infrastructure Bank.” This bank will have fiduciary duty over $35 billion in spending as part of the $180 billion planned infrastructure investments over the next decade.

The Relevance of P3

P3 is a form of partnership between the government and the private sector to build public infrastructure such as roads, bridges, hospitals, and transit systems. The P3 model is promoted as having numerous advantages, including project completion expediting and cost-effectiveness. Since governments do not provide payment until project completion, project costs are spread out over the life of the asset. Total project costs are presented upfront, creating a mechanism that transfers the majority of concession risks to the private sector, which in turn absorbs cost overruns for project delays.

While opponents are wary about the government's ambitious planned spending, a 10-year economic impact assessment covering 2003 through 2012 produced for the CCPPP suggests this is a solid investment. Highlights of the study note that 517,400 jobs were created through P3 projects, 291,000 of which were direct full-time jobs; $48.1 billion was added to Canada’s GDP; $9.9 billion was saved by using P3s; and $7.5 billion in taxes was earned by the government.

Benefits for the Canadian Metal and Steel Industries

While the construction industry in general will benefit from the government's infrastructure plan, our metalworking industry in particular can exploit opportunities from this initiative too. The government’s $180 billion investment is a staggering amount. If a company’s products and services fit into the public infrastructure supply chain, it needs to successfully align its business strategies with this initiative. This alignment will determine the extent to which a company can truly benefit.

In the period covered by the study mentioned previously, 150 bridges were built in Canada as well as 40 traffic interchanges and 10 flyovers. The study notes that fabricated steel plates and girders are the largest structural component in any bridge design. The Gordie Howe International Bridge connecting Windsor and Detroit, a P3 project, has a cost estimate of $3.5 billion and delays could push this figure to $4.8 billion. A request for proposal (RFP) was issued in November 2016, and the forerunner proponents were consortia led by three construction heavyweights: SNC-Lavalin, EllisDon, and Aecon. A supplier already associated with one of these firms will have a better chance of securing a portion of the contract. Not all projects have this magnitude, however, so opportunities are numerous for both large and small participants.

Canadian and U.S. proponents of all sizes have been competing for projects against government-subsidized, low-cost foreign bidders for years. British Columbia’s Johnson Street Bridge and San Francisco’s Bay Bridge were made of steel fabricated in China. Yet both bridges abound with quality and safety issues, as well as years of delay and cost overruns that reach into the millions (and into billions in the Bay Bridge case). With this in mind, companies must prepare strategically if they wish to secure a contract for any of the many projects that will be developed. Our quick tips are as follows:

1. Improve internal processes and systems. If your record of winning contracts through the bidding system hasn’t been effective, examine your processes. Success is determined by how quickly you provide a quote and how the quote is managed. Although most project managers in large construction firms appear concerned only about price, this isn’t always true. If a company consistently demonstrates its ability to deliver better-quality projects with less anticipated future maintenance costs, it’s unlikely that a variance of a few thousand dollars in a bid will make a difference. Use the lessons learned in the previous examples to deliver a word of caution in your presentations.

2. Increase cost efficiency by improving productivity. Invest in more advanced equipment and balance it with investment in human capital. Companies that progressively adapt the latest design and manufacturing technologies, train their employees, and apply best industry practices are better equipped to challenge threats from low-cost suppliers.

3. Stay close to your customers. Recently I asked the owner of a steel fabricating company when he last visited the company’s largest customers and he responded only with excuses about how the industry has changed. While change is inevitable, maintaining a great relationship with customers is always vital. Continue to expand your industry networks to lessen your dependence on a few customers. Make attendance at business meetings related to projects a top priority. Become an influencer in the construction community.

4. Lobby the federal government. Prompt-pay legislation, fair global trade environments, and local procurement policies are subjects that industry associations will continue to take to Parliament this year. Participate in these initiatives through the Canadian Institute of Steel Construction (CISC) and other organizations.

The industry challenges mentioned in point 4 have brought many companies in the steel industry to the state of insolvency. No company should be at the mercy of unfair foreign competition. Although not all Canadians will agree with the government’s planned prodigious spending, take action and seize the opportunity for your business.

Alma Johns is president, Bench Capital Advisory, 647-295-2562, www.benchcapital.ca.