Special to Ontario Construction News
Sudbury will use an innovative bid procurement process that stresses engagement with contractors for its landmark Kingsway Entertainment District project as it aims to stick handle through today’s mounting construction costs.
Recognizing the dramatic shift in market conditions since the process began in 2017, the City of Greater Sudbury says it will adopt a progressive design-build format to replace the current design-build process for the project slated for completion in 2025.
“The change in procurement process is a result of concerns with risks in today’s market,” said Sudbury spokesperson Sacha Novack, adding that the city is not expecting cost savings from the change but does aim to achieve “best value from this competitive procurement process in the current market conditions.” She said the shift does not change the schedule for the project with site preparation still to begin in the third quarter.
The KED development is to include a multi-purpose events centre venue for concerts and sports — to replace the 72-year-old Sudbury Community Arena rink that is home to tenants including the OHL major junior ice hockey league’s Sudbury Wolves — along with a hotel, casino and festival square.
The northern Ontario city says progressive design-build is an integrative process where management engages engineers and contractors early on to glean their insight and expertise throughout the life of the project.
It’s all part of an effort to achieve price transparency and certainty amid 31-year high inflation, supply chain disruptions due to the global pandemic, as well as labour shortages in the construction industry’s industrial, commercial and institutional (ICI) sector.
Soaring prices for materials such as structural steel used in goods distribution centres and automotive and appliance manufacture are a challenge for a construction industry that is otherwise anticipating a strong 2022.
“I have not heard of any specific examples of rising construction costs resulting in delays or cancellations,” said Katherine Jacobs, research director of joint labour-management organization the Ontario Construction Secretariat.
“However, according to our annual survey of contractors, 52 per cent of contractors noted they have had projects postponed,” although 66 per cent of those projects have been re-scheduled.
“Thirty-eight per cent of contractors told us they have had projects cancelled by an owner in 2021/2022. The number one cited reason for project cancellation or delay was the material costs/availability or delay in access.”
The OCS survey also found that strategies used by contractors to manage supply chain disruptions include seeking alternative suppliers, accelerating materials purchases, identifying alternatives and stockpiling materials.
Cost inflation continues to have a significant impact on infrastructure projects, adds Montreal-based engineering and construction firm SNC-Lavalin Group Inc. in its fourth quarter earnings report, leading to project reforecasts and additional losses.
And with Canada’s consumer-price index advancing 6.7 per cent year-over-year in March according to Statistics Canada some contractors have been unwilling to assume the risks associated with a fixed-price contract early in the design process.
In some cases, contractors “have been declining to participate in the RFP (request for proposal) process altogether,” Greater Sudbury said in a statement announcing the shift to progressive design-build.
The format, it says, increases engagement between the contractors and project owner(s) to arrive at a final, approved design and cost.
The steps provide additional checkpoints and, if necessary, make adjustments that maintain “an appropriate balance between the building’s features and the project’s anticipated construction cost,” the statement adds.
At predefined steps in the process, it says, the parties review design features and cost estimates before proceeding to finalize the design and its price.
Escalating construction costs make it critical for owners and contractors building projects under fixed-price arrangements to be aware of contract provisions that may provide some relief against cost volatility, according to lawyers who practise in the construction and infrastructure sectors.
And they say newer infrastructure delivery models can achieve greater price certainty using a progressive design-build format that could involve a single contract between the project owner/financier/commissioner and an alliance of parties that delivers the project or service.
“There’s beginning to be a trickle of projects using the alliance model, sometimes called the IPD — integrated project delivery — or progressive design-build,” Doug Younger, chairman of the infrastructure group at law firm Aird & Berlis LLP in Toronto, said an online post.
He said a progressive design-build, where management sits down with engineers and contractors to plan the project with the aim of guaranteeing a fixed price, is best suited to projects with considerable risks where multiple owners may be involved.
An alliance of parties that delivers the project assumes less of the risk, and the contracts can include provisions intended to ensure there are no disputes.
“They involve greater collaboration between the owner of the project — typically a government agency — and the design builder in the early phases of the project and a greater amount of risk sharing,” Younger said.
Progressive design-build and other collaborative contracts help assign responsibility for cost increases more fairly among project partners, added Giovanni Cautillo, president of the Ontario General Contractors Association, whose members account for the majority of the province’s ICI projects.
He said escalation clauses, contract language and other measures that minimize exposure to potential fluctuations of material prices throughout a project can help “stave off the effects of inflation” in construction costs that could lead to higher prices for consumers.
Ultimately, Cautillo said dialogue among project partners toward mutually beneficial solutions is key, adding that in the current climate of abundant contracts, providers may be able to choose those projects that present the least price inflation risk.