Plotting a course for prosperity

Plotting a course for prosperity
Haligonians cheer after finding out Irving Shipyards had won the bid for a $25-billion federal shipbuilding contract. Photo: Sandor Fizli / Reuters
Business ahoy! That is the call resonating throughout Nova Scotia in the wake of the federal government’s announcement that Halifax-based Irving Shipbuilding Inc., has won the $25-billion contract to build this country’s next fleet of war vessels. Law firms are listening — and they are getting ready for a new wave of business. “It is a very significant agreement. It’s a lot of money, and it’s going to have a great impact on the region,” says Danny Gallivan, CEO and managing partner of Cox & Palmer in Halifax. Indeed, notes John Young, chairman of Boyne Clarke in Dartmouth, “I think we will be richer over time.”

Increased wealth certainly appears to be on the horizon. According to the provincial government, the lucrative 30-year contract will translate into an additional 11,500 jobs for Nova Scotians and will increase the province’s GDP by almost $900 million during peak production years. As well, the impact of the shipbuilding work is estimated to produce $2.8 billion in additional revenue over the course of the next 19 years.

Law firms want in on the largesse. In anticipation of what lies ahead, firms are preparing to meet increased demand in several key areas. McInnes Cooper, one of the three largest regional firms in Atlantic Canada, has already developed a strategy that identifies prospects and how those can be capitalized upon. While preparation of business plans is business as usual, the shipbuilding strategy “does reflect the uniqueness of this opportunity,” says John Roberts, a partner with McInnes Cooper in Halifax who is leading the initiative within the firm. “We’re not positioning ourselves for something that is short term. We want to ensure we have the resources we need.”

McInnes Cooper is not alone in its preparation or its anticipation. “There is no doubt that all the major law firms in the area are gearing up for the impact [the contract] will have on their capacity to do work for their clients who have a connection with the project — and the expected spin-off generally,” says Lawrence Stordy, a Halifax partner with Stewart McKelvey. “The amount of work that will flow into the legal community will be significant and is not dissimilar to the type of work that currently exists.”

The increased demand for legal services will emanate directly from the contract itself. But most opportunities will result from related business and consumer activity, says Fred Morley, executive vice president and chief economist of the Greater Halifax Partnership. “This would come from new business creation, new housing construction — 420 new homes a year on average — and general population growth.”

Not surprisingly, one of the key growth areas is contract law. “Irving will need to enter into a lot of contracts,” notes Roberts. “Some will be large defence contractors with operations in Nova Scotia or from afar. That will create a substantial amount of work.” For most firms, the majority of that work will not be for Irving (that brass ring already belongs to Stewart McKelvey), but for the shipbuilder’s suppliers and contractors as well as indirect spin-off businesses.

Flowing directly from the contract will be more calls for lawyers with experience in tax and immigration. As well, government and regulatory issues will be prominent and law firms will be at the ready to offer support. “If you’re going to contract with the government, you have to be able to meet these needs,” says Gallivan.

While the total indirect spinoff is difficult to measure, it will involve lawyers with corporate-commercial practices as well as real estate lawyers especially as the shipbuilding contract moves into the steel-cutting phase and employment ramps up, says Stordy. “We have already seen an uptick in the work for developers and construction companies,” he notes.

Lawyers and their clients are anticipating more blue skies ahead. Earlier this year, Morley spoke to a gathering of real estate clients as part of an annual event hosted by a local law firm. “The turnout was more than double last year’s event and most left pretty upbeat,” he says. “We have seen some big surges in housing construction in some months this year, and sales and prices in the north-end neighbourhoods close to the shipyards have jumped.”

Of course, where there is increased activity, there is also the increased likelihood of disputes. Litigation is potentially a large slice of the legal pie. To date, there has been “no bump to report in litigation,” but that is not surprising, says Brian Awad, a partner with Burchells LLP. “A bump in litigation is a lagging indicator of a bump in economic activity, so I would not expect to see an immediate impact.”

While the volume of services may increase and the mix of legal expertise may change course, in many ways, the Irving contract will amount to more of the same for lawyers. Stordy points to the contract Irving currently has to build mid-shore vessels for the Canadian Coast Guard. “That project, like the new contract, involves negotiations between the shipyard and the contracting entity, in each case the federal government, but also involves a significant amount of contract negotiation between the shipyard and the multitude of subcontractors and suppliers that will provide services and materials in support of the project,” he says. “Legal counsel for subcontractors and suppliers would normally be involved to review the requests for proposals and to help negotiate terms and conditions with respect to their clients’ response.”

Ultimately, however, the lure of the shipbuilding contract goes beyond a boom in one legal area or any individual upsurge in firm growth. “The broader goal is to create a shipbuilding cluster of excellence,” says Roberts. “The approach to this project is that it needs to be lasting development. The legacy needs to continue,” he notes. “The hope is it will become engrained in how we do business here.”

“In the long term,” Young says, “you create a highly sophisticated, integrated industrial base in support of shipbuilding. That leads to a more qualified workforce with higher skills.”

A more affluent business community, of course, often brings with it a need for greater human resources. More lawyers may be needed to meet the increased demand for legal services. The numbers certainly indicate this will be the case. “The direct, indirect, and induced impact of the $25-billion project will drive almost half a billion in extra income each year. This level of annual personal income supports the need for 35 lawyers and a similar number of accountants and bookkeepers,” says Morley. It’s a domino effect, notes Gallivan. “If demand for services are increasing, there will be enhanced job opportunities for recent [law] graduates,” he says. “I can’t think of any other project this big.”

It’s not only the numbers that will shift. Different skill sets may also be required as a result of the three-decade contract. “For example, if you put a few thousand new people in the city, they have to live somewhere,” says Young. “It’s not just ships and boats.”

The journey to a new legal landscape has just begun, however. The promise of greater prosperity is, at least right now, just that — merely a promise. “People shouldn’t go out and buy their new Cadillac tomorrow,” stresses Young. “Calgary didn’t become the city it is today in one week.”

There’s the rub. Despite the euphoria that swept through Nova Scotia when François Guimont, the top civil servant from Public Works and Government Services, announced in Ottawa last October that Irving had won the contract to build 21 Canadian combat ships, there has been no parade of sail. In fact, no lucrative contract has yet been signed. A preliminary agreement was announced in July worth a mere $9.3 million. That deal — which brings with it no new jobs — is for preparatory work only including a review of the design and specifications of the existing fleet of Arctic offshore patrol ships and development of an execution strategy on the new patrol ships project.

Still, all is well, Defence Minister Peter MacKay told reporters. “While, in monetary terms, this amount is but a fraction of the overall investment in terms of the money in the strategy, this contract is, however, a significant and an early achievement of the strategy.” The inaugural deal, inked amid rumours that the federal government was pulling back on its $25-billion promise as part of its new austerity program, served as somewhat of a wake-up call. “There has been a realization that expectations need to be tempered,” notes Roberts.

Short term there was never any great expectation of newfound wealth. In its major projects inventory for 2012, the Atlantic Provinces Economic Council notes that Nova Scotia had a weak 2011 economically and the province continues to struggle in 2012. Next year, however, the bright lights are expected to start shining. Paul Ferley, assistant chief economist with the Royal Bank of Canada in Toronto, expects Nova Scotia’s GDP to grow by 1.6 per cent this year, well below the national average of 2.5 per cent. But, he says, “in 2013, we think the province could outperform the national average by a percentage point.”

There may not yet be any noticeable jump in economic activity, or its attendant legal offshoots, but there is something important happening in the short term: People are smiling. The award has affected the psyche of businesses and residents alike. “A thriving, healthy economy needs optimism and
positive momentum,” says Stordy. “This new contract is providing that in a way that has not been seen for some time.”

The slow ramping up has also given law firms a chance to right their own ships in anticipation of sunnier skies overhead. “A lot of hard work will be required,” says Roberts. “Law firms need to position themselves.”

They’re doing that internally — and externally. McInnes Cooper, for example, has created a Shipbuilding Knowledge Centre on its web site to highlight its expertise in this area as well as identify opportunities for clients. Stewart McKelvey is one of four founding partners (and the only law firm) of All Ships Rise, an initiative of the Halifax Chamber of Commerce, which was established to take advantage of spin-offs from the shipbuilding contract now and in the future.

For the most part, the spotlight and the swirl of activities have centred around the region’s larger firms. But size is unlikely to be an exclusionary factor. “There will be roles for smaller firms,” says Roberts. “To some extent, a rising tide lifts all boats.”

It also attracts attention from outside the province. In at least two significant ways, the legal community on the East Coast is unique. First, it has truly regional firms; Cox & Palmer, McInnes Cooper, and Stewart McKelvey have offices in all four Atlantic provinces and offer integrated services. Equally unusual perhaps is the absence of national firms from the legal landscape. The general thinking has been that the enticements of the region have not been big enough to attract their attention. Newfoundland and Labrador, with its wealth of offshore oil, has started to change that thinking, and $25 billion may spur some come-from-away firms to re-evaluate their East Coast absence.

Lawyers in the province aren’t worried. Tradition and distinctiveness will continue to set them apart, they believe. “National firms haven’t seen the necessity of locating here yet,” says Gallivan. “We have a very talented, competent bar here, and regional firms are an anomaly.”

Currently there is little to dispel the vision of smooth sailing ahead for law firms and their clients. “There are always negative consequences with any expected boom such as increased traffic as the project ramps up to full capacity, pressure on wages for employees and perhaps pressure on office rents as real estate values rise — but we will take the downside willingly given the significant potential upside,” says Stordy.

Morley points out that the annual impact of the project is not so great that it will disrupt labour markets or other businesses too severely. “Even though the yearly impact is large, the main impact comes from 25 years of consistent economic activity,” he says. ”It’s like having an exceptional year in the Halifax economy and having that multiplied by 25.”

But the race to greater prosperity has just begun, and the finish line is nowhere in sight. Common sense must prevail, says Young. “I take a Presbyterian view that heaven must wait.”

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