Although Canada experienced a setback with the 2008 financial crisis, today our economy is recovering and we boast one of the largest construction markets in the world.   In fact, Canada has become the 5th largest construction economy largely due to natural resources and the recessionary infrastructure spending, which helped to ensure a “soft landing”.

However, Canada’s large infrastructure deficit remains one of the country’s most significant challenges.  Much of our current infrastructure was built in the 1950s and 1960s and on average Canada’s infrastructure is about 70 percent through its useful life and in need of serious upgrade. The Canadian Federation of Municipalities estimates that Canada’s infrastructure needs more than $250 billion just to bring it up to acceptable levels.

All levels of government are keenly aware of the infrastructure challenge and have connected future economic growth to infrastructure investment.  Obviously, funding remains the biggest challenge. Governments are now earmarking funds for infrastructure investment as evidenced recently by the federal government’s New Building Canada Plan, which aims to provide funding over a 10 year period, as follows:

  • $32 billion Community Improvement Fund for the benefit of municipalities
  • $14 billion New Building Canada Fund ($4 billion national infrastructure component and $10 billion Provincial-Territorial infrastructure component)
  • $1.25 billion for the P3 Canada Fund
  • $6 billion under existing infrastructure programs

However, more money is needed and Canada has led the way with the P3 initiatives and private investment in public infrastructure.  The result of Canada’s infrastructure challenges has been:

  • Projects have become larger and smaller initiatives are being bundled
  • International firms have entered the Canadian marketplace
  • Consolidation
  • Competition remains fierce. Margins are much tighter than they were before 2009
  • Bid lists are still long

So what does much of this mean for mid-size regional contractors?   For many, it means re-assessing their markets and looking for diversity to grow and sustain their business.  One of the most apparent avenues is larger projects.  However, securing and managing larger projects is not easy and can come with significant risk.  Contractors looking to “move up” must be ready and willing to identify and implement best practices to give themselves the greatest opportunity for success.

Focus on Strong Estimating Practices

All construction projects begin with a solid estimating process, but in today’s competitive environment, estimating is more important than ever.

Research and Understand Every Part of the Project

At the procurement stage, get to know the project inside and out. Establish a team that will conduct a full review of:

  • Jobsite conditions
  • Surveys
  • Contract terms and conditions
  • Productivity expectations

Assign team members for each of these functions and have them report to the management team. 

Develop a Contract Review Matrix

A contract review matrix is a tool to help a contractor assess its risk appetite.  Large construction projects often push a firm’s limits and a contract review matrix can help guide decision-making, especially when choices get tough. In particular, it can help establish a “walk-away” point when the risks get too high.

Maintain Strong Project Management

Once a contractor has successfully secured a larger project, now they must get it done in accordance with the contract’s terms and conditions.  Large projects have many moving parts so it’s essential to track, assess and monitor the various functions and components. Documentation and record keeping is vital, especially for potential dispute situations.

Focus Your Communication Skills

Right from the beginning, contractors should establish an open channel of communication with their customer, and their subcontractors and their suppliers.  Specifically, ensure key staff have strong negotiation skills and can resolve issues before they become problems that will affect the project’s outcome.

Rely on Known and Trusted Site Supervision

Never underestimate the importance of on-the-ground supervision.  Large projects involve hundreds of decisions each day, so having tight oversight of the project ensures the contractor can react quickly when there are difficulties.   Strong site supervision will ensure productivity stays on track.

Have a Strong Balance Sheet

Invariably, contractors get into trouble when they run out of cash.  Before getting into a larger project a contractor needs to ensure its balance sheet has sufficient strength, liquidity and access to cash.  It is vital that the contractor’s balance sheet can sustain the cash flow needs of the both the large project and the contractor’s entire backlog of work.

Practice Strong Financial Management

The bottom line is the primary reason to consider larger projects.  A great job cost and accounting system that can measure project and financial performance is essential and will allow a contractor to:

  • Manage and control costs
  • Maintain strong cash flow management
  • Ensure balance sheet strength
  • Develop forecast models

Develop and Rely on Strong Business Partners

Successful contractors develop a strong relationship with Surety partners that are interested in understanding the contractor’s unique business and business plan.   Contractors should be able to rely on these key partners for advice, as they have seen it all and understand why some contractors succeed and others have not.  They can help ensure the contractor’s business is set up appropriately for larger projects and success.

Your Turn

Has your company or clients undertaken large construction projects?

Which of these best practices prepared you for the risks and challenges of these large-scale initiatives?