P3’s & Working P3ople
Working Geo People
I’m a huge Rush fan, and I have been dying to quote Rush in an article – here is my chance!
“It seems to me, I could live my life a lot better than I think I am…
I guess that’s why they call me,
they call me the workin’ man.
They call me the workin’ (wo)man.
I guess that’s what I am.”
In case you’re not a Rush fan like me, that was from the song “Working Man”- if you haven’t heard it it’s a great heavy rock song – look it up on YouTube, Apple Music or Google Play. The lyrics got me thinking about the construction industry, and in particular, geotechnical consultants – the brilliant soil experts that inhabit and enrich the construction industry.
These people work very hard – the working Geo People on your projects. They work hard to ensure that developers, contractors, and owners don’t take undue risks on their sites. They work for what usually amounts to a small fee for service but provide a huge upside in terms of mitigating project risks. Should you be lucky enough to get the right one for your project, you would be wise to take heed of their sage advice.
If you’ve done mid-rise or high-rise construction or other more complex projects, you have likely worked with some reputable geotechnical consulting companies in Ontario (you know who they are). The geotechnical consultants at these companies are the true definition of working geo-people. They provide their clients with excellent value at a reasonable price point. These diverse, flexible and quality-driven companies are companies that are “healthy” and grow at a reasonable (but purposefully controlled) rate, they have a great and loyal client base, with a healthy mix of work in private, public (MTO, TTC, Metrolinx, etc.), Public-Private-Partnerships (P3), and design-build projects.
There are many great geotechnical folks in the industry – if you are looking for some, just contact me – I can tell you stories of some of the huge value that these folks have brought to projects. Some working geo-people focus on private, while others focus more on public and P3 projects.
So what’s better for the working geo-people…the geo-professional? Private or public? Where do you think the market is now? Where will it be in the next year or decade? Where is all the money being spent? Although there are always rumblings of a cooling economy, good opportunities are still very present in both the private sector and the public sector.
All-a-Board the P3 Train
Let’s talk Public-Private-Partnerships (PPP or P3). The trends toward the use of P3 to deliver large to medium public infrastructure and building projects is actually a pretty breathtaking one, especially in Ontario.
As of the middle of last year, the Canadian P3 market has successfully reached the financial close of 250+ projects, accounting for more than $120 billion over the past 25 years. The majority (70%) of the country’s P3 projects reached financial close after 2006 (source: fminet.com). The trend continues to show an increase in the use of P3 or alternative procurement for construction projects, at least the large and extra-large projects, but it also seems to be becoming the approach for more medium-sized projects as well.
Ontario leads the way with well over $21 billion in the current P3 project pipeline. That’s a lot of work, and it only seems to be increasing!
Lots of people like lots of things about the P3 approach, but do we need to entirely and always drink the P3 Kool-Aid, or should we be exercising a bit of caution and truly examine the impacts of P3 on the construction industry as a whole? Proponents of P3 tout savings and improved efficiencies as just a few of the advantages of utilizing the P3 approach. Detractors of P3 claim that P3 projects ultimately cost taxpayers more due to legal costs of complex contracts, as well as the additional costs incurred by transferring the risk to the private sector. The only thing that seems crystal clear is that it’s hard to find solid evidence showing which one is the absolute best approach.
This leads to a need for public agencies to be equipped with the tools to choose the right delivery method for the project, without having a one-horse solution to every project. An unbiased analysis of whether P3’s are actually saving the taxpayers money would be a very useful long-term study – such studies are hard to come by right now, and decisions sometimes get made on anecdotal, rather than solid, evidence.
Let’s take a step back and look at the smaller contractor. I have to wonder what’s happening to them, or the small to medium-sized General Contractors as more and more projects go the P3 route, and as medium and even smaller projects begin to move in that direction. The pre-qualification methods used for these bid packages typically drive the need to be BIG as a GC, and speaking realistically, you have to have good financial backing to compete. To combat this challenge, medium-sized contractors will often form strategic partnerships or JV’s to have the ability to pre-qualify. But as the smaller General contractor will need to have a very strong balance sheet, higher risk profile and will have to have the desire to grow pretty fast.
Two possibilities result, small GCs are relegated to smaller non-P3 jobs in a very competitive marketplace or the small GC simply becomes a larger GC. This leads to the natural creation of more and larger contractors, which can be very disruptive to the marketplace. Should the P3 trends for any reason suddenly reverse, it may unleash a wave of large hungry contractors, who have grown beyond the traditional GC model, onto the general marketplace.
So, what about the “working (geo) people?” How do they navigate this new P3 landscape? I can tell you that the Geotech will have to learn how to work for free. “Wait”, says the geotechnical consultant, “I already often do that in my regular tendered consulting work!” Yes, I still hear today that geotechnical consultants will “give away” the geotechnical investigation in hopes of getting the leg up for the testing and inspection work. Uggghhhh, not great, and it doesn’t really work like that anymore, so just stop doing it! Understand your costs and charge a fair price for your valuable geotechnical work.
So, is P3 work better for geotechnical engineers than tendered work? Tendered geotechnical work certainly has its warts! Tendering geotechnical consulting work without pre-qualification, based on the scoping done by a non-geotechnical person is wrong-headed on many levels – it leads to low-quality information about one of the most important aspects of the project…the soils. And poor information can lead to construction extras, performance issues, and project difficulties.
For P3, usually there are three teams pursuing a project and you generally can only be on one as a consultant as these are highly competitive, secretive situations. “Wow, this sounds pretty great – I’ve got a 1/3 chance of winning – compared to the usual tendered geotechnical work where I’m battling it out with 10- 20 other firms!” However, the Geotech could quite easily get caught in the “Oops wrong team” scenario too many times and get into a situation where they do pursuits with no wins and that can be very bad for profitability.
It’s generally understood that those large GCs regularly participating in P3 bidding will win their share because the jobs are so large that once a GC wins one, they become less of a front runner for the next one, likely opening up a better chance for one of the other few consortia capable of taking on these projects. This may not be true for the geotechnical engineer, particularly if they don’t always get involved with the same contractor for a period of time. There is, therefore, a lot of risk for the geotechnical engineer on these P3 pursuits – a risk of just not winning enough work to have it be worthwhile pursuing P3 from a financial standpoint.
That said, there are potential rewards for the consultant, or at least there should be in principle. I am not sure if those rewards are properly filtered down in proper measure to the geotechnical consultant in the P3 project context. Although both are arguably important parts of the P3 team, design and construction for these projects can often be separated and/or even pitted against each other in some cases, and construction runs the show.
Geo P3ople for P3 Success
As the contractor in the P3 context, what you want is the working “geo” man (or woman) on your job – one that provides value and brings new and innovative ideas to the project. Hire the right Geotech and pay them for the value they bring. If you do that and keep them involved in the decision-making along the way, the good ones will step up and work hard for you to find value and take the appropriate amount of risk to ensure that the project stays on track and is successful.
Geo-Professionals looking at getting into the P3 game will have to think differently, consider innovation on these projects (things like ground improvement!), and must be ready to think outside the box to maximize your team’s chances for a win.
In closing, I personally am still on the fence as to whether P3’s are good in every case for the taxpayer and good for the general health of our competitive marketplace. Regardless of whether P3s are here to stay or not, whether you are a contractor, a consultant, or “other” serving the construction market, you should always be aware of where the industry is headed and set up your company to be able to nimbly respond to whatever project delivery system is currently in favour, without marrying to it. Remember, sometimes too many eggs all in one single basket, with one approach can lead to egg all over your face. Always keep in mind that although the P3 approach is showing positive signs of a new and better way of doing things, if it suddenly becomes a rarity for any reason, maintaining a healthy level of project diversification in your portfolio will always allow you to maintain a thriving business regardless of construction industry trends.
“…They call me the working man, I guess that’s what I am…”