In-house counsel cautiously optimistic amid government investment plans
While some projects were deferred or even cancelled as a result of COVID-19 restrictions, many infrastructure projects continued through the pandemic-induced shutdowns, with a range of new safety protocols in place, so industry players have been cautiously navigating the new landscape in uncertain times. In response to an ongoing infrastructure deficit, the federal government has announced a significant investment in transit infrastructure across Canada over the next number of years, offering cause for optimism for the future of the industry.
Pivoting to adapt to a rapidly changing environment has been one of the major challenges facing developers throughout the past year, particularly given evolving health and safety protocols.
“COVID has been a key challenge faced by contractors of all sizes and in all sectors,” says Sharon Vogel, a partner at Singleton Urquhart Reynolds Vogel LLP. “Everyone has been affected by having to introduce new measures on construction sites in compliance with Ministry of Labour guidelines and public health advice.” Other significant challenges for contractors include changes in contract models and dealing with legislative change, Vogel says.
“The implications of COVID have been a big focus for us, with everything from staying on top of changes to health and safety regulations, to really being nimble and dealing with a very dynamic and evolving situation,” says Andrés Durán, senior vice president, legal services at EllisDon Group.
Managing the construction of tower projects has been the biggest challenge, Durán says, due to capacity restrictions in elevators during the pandemic.
“Some of these projects have hundreds of people on site every day,” says Durán. “When you have elevators that normally have a capacity of 24 but social distancing reduces it to four or six, that has a big impact on how much work you can get done in a day.”
For Andrew Wallace, general counsel at PCL Construction Inc., the primary issue has been finding the appropriate risk-sharing model between general contractor and owner or between general contractor and other project participants across a suite of contracting models.
“Different projects faced different impacts and that’s necessitated a project-by-project evaluation of how we manage it,” says Wallace. “The task for managing these issues has been one of flexibility and adapting to the circumstances that applied to the particular project.” The availability of insurance products will be another major issue for contractors in 2021, Wallace predicts.
“In 2020, COVID forced us all to adapt quickly to circumstances that we had not previously imagined and, as a result, we found ourselves operating in zones of legal uncertainty and without precedents,” says Wallace. “We could still have a few more COVID wild cards ahead of us.”
Concern about risk transfer during the procurement phase of infrastructure projects is top of mind for Mark Platteel, general counsel at ACS Infrastructure Canada Inc.
“We’re trying to figure out a way with procurement authorities to protect ourselves and share the risk of COVID and ensure that we’re not assuming risks that we can’t control,” says Platteel.
Many players in the infrastructure development industry have expressed concern about the allocation of risk between public and private sectors, causing some companies to leave the P3 market entirely. While the problem has not been fully resolved, some progress has been made.
“The procuring authorities are clearly trying to be responsive to feedback from the industry that the risk transfer in the P3 model has become problematic,” says Platteel. “I think there’s a view that risk elimination is better than risk allocation, so there has been a desire to try to find ways to eliminate risk because some risks are very challenging to allocate.” Durán agrees that there have been notable improvements in certain areas, although he says the P3 model is still in a state of flux.
“There has been some very meaningful effort on the government agency side to listen to the market, but we’re still looking for some fundamental changes in risk transfer,” says Durán.
Changes to contract models have presented further challenges to in-house counsel in the infrastructure industry in recent months, with the exploration of alternative delivery models. In particular, the introduction of the alliance contract model has been a big development, as it was used by Metrolinx and Infrastructure Ontario in the recent Union Station enhancement project. Under the alliance model, parties work collaboratively and assume less of the risk.
“The jury is still out on whether that model will be a success in Canada, but it’s certainly indicative of a reflection of procuring authorities trying to be responsive to concerns raised by the private sector,” says Platteel.
Industry experts regard the future with a mix of optimism and uncertainty.
“There is a strong sense that infrastructure development will be a very important part of government stimulus programs so we’re working to get past COVID and be in a position to participate in a meaningful way when that happens,” says Durán.
Wallace remains cautious. “We don’t yet know what the pent-up demand is going to be as we exit from the pandemic. We don’t yet know what the government stimulus will look like. We don’t yet know if vaccine rollouts will proceed on intended timelines, and we don’t know what the impact of the variants will be.”
Despite the uncertainties, Wallace says there is room to be optimistic that we are heading into a more stable future.
“The contracting community are very entrepreneurial, highly adaptive folks who figured out the new normal of construction very quickly,” says Bruce Reynolds, a partner at Singleton Urquhart Reynolds Vogel LLP. “So long as construction continues to be considered essential, the industry will thrive.”