Ted: Welcome to the 2022 Spring Construction Law Forum from Gowling WLG. My name is Ted Betts. I'm the head of the Infrastructure and Construction Sector group at Gowling. This is a national group. One of the largest in the country and, in fact, in the world given that we are a global firm as well, and practice construction and infrastructure law throughout the entire country and the world. So welcome. Our Construction Law Forum performed several years ago to help inform in-house counsel, project managers, consultants and others in the industry, on current events in the legal world but also in the practical real world of running projects. So we've got exactly that kind of a program today. These started out originally as in-person in the Toronto office. One of the silver linings of COVID has been the move to online webinars for our Forum, which it would be great to be seeing everybody, but it's also allowed us to extend our reach across the whole country. Our attendance numbers reflect the geography of interest in the program and the materials that we're putting forward today. We've got people from all over the country, from all over the sector, and it's really great to see and at the end of this we'll welcome you to provide insight and comments through a survey. Please do. We set these programs up to be practical and useful for the audience, for our clients and prospective clients, and people just listening in and trying to improve their information and knowledge throughout the market. The topics we choose, the speakers we have, the formats, we take that feedback very seriously because we want these to be very useful and beneficial to everybody who's taken the time of their day to listen to what we have to say. So with that, let's get into the program. We've got a really amazing program today. We've got a couple of key case law updates, in particular relating to COVID and delays. We are starting to see these hit the courts now, and obviously everybody's been impacted by COVID and the delays that result, we're starting to see how the courts interpret everybody's view of contracts and approaches to the delays that have ensued, as well as some other key recent case law from our associate Tristan Neill. We'll then move on to some legislative updates so everybody's aware of what's going on in statutory law, before we move onto an exciting presentation from a supply chain expert, who will give a little presentation on supply chain issues, and then we'll move into a panel discussion with some other experts in the field, to talk about their experiences and what they're seeing and projecting forward on supply chain. So with that I will pass it over to Tristan who will give us a little bit of case law update, some of the things that are impacting at work and our projects. Tristan?
Tristan: Okay, thank you, Ted. I'm just going to bring my presentation up on the screen. I think that should be showing up now. I'm an associate in Gowling's Waterloo office, and I practice in construction and municipal law, and I'm going to give you a very short case law update this morning in the next 15 minutes. Because I have to be so brief I don't expect to get through the full list of cases that we've included here, but I want to focus in on an important theme, because there's a lot of big ticket items that have been happening lately in the construction space and often relating to COVID-19, and you can see that we have the big famous Crosslinx decision as item number one. But this shouldn't distract us from other more routine, less exciting items that are still important when you're pursuing your big ticket COVID related claim. I want to focus in on a narrower theme of notice requirements in your contracts because we're seeing that the courts are getting to be very strict on notice requirements, and meeting those requirements that have been set out in your contracts, and that that can, as it did in the Crosslinx decision from the Ontario Court of Appeal, come into play even when you're focused on those bigger ticket items.
So moving on into the Crosslinx case, of course I expect many members of the audience will be familiar with the Ontario Superior Court's decision from last year. It is the court's first and really only major decision on COVID-19 impacts on construction projects in Ontario. So I'll give a brief overview, given that I expect many will be familiar with the case, but it dealt with the Eglinton LRT construction project in Toronto. There was a provision in the contract that allowed for the owner to declare an emergency, essentially, and to require the contractor to implement additional and overriding procedures as a result of the emergency. In such a case, if that occurred, then the contractor could seek an extension of the substantial completion date. Of course when COVID rolled into town the contractor wanted to make use of that extension, and so asked the owner to declare an emergency, and give notice that additional and overriding measures were required. Not surprisingly the owner was hesitant to do so and also responded that the contractor was required to deal with the health and safety aspects of COVID-19. It fell under the contractor's obligations under the occupational health and safety legislation and also under the division of responsibilities in the contract. This went to Superior Court in Ontario and the Court had three main things to say. The first was that based on the definition in the agreement, there was an emergency that required additional and overriding measures. Second, that the notice requirement in the contract had been met, and third, that despite contractor obligations under the applicable health and safety legislation, the new requirements coming out of the pandemic clearly weren't contemplated by the parties when they entered into the contract and that the health and safety requirements, in the legislation and in the contract, couldn't be seen as wholesale, requiring the contractor to deal with all of those issues. So those are three main points from the Superior Court's decision.
But we now have a decision on this case from the Ontario Court of Appeal, from this year, and this decision focused on the notice requirement. So here is the relevant provision from the contract, which states that if there is an emergency the owner can notify the contractor that it needs to undertake certain additional or overriding procedures. So not a lot of detail here but there is a clear requirement for notice. The owner appealed the Superior Court's decision on the basis that notice was not actually given. That the Superior Court made a factual error in finding that a particular email, that discussed some COVID-19 protocols, was the notice under the contract. Instead the owner argued that this email was never sent to the contractor. The contractor's response was that even if that's true, there was another letter that came from the owner and that set out the requirements that met that notice requirement under the contract. Of course, the Court of Appeal had something to say about this. The first thing that the Court of Appeal said was that the internal email clearly could not be the notice under the contract because it had not been sent to the contractor. Second, the Court of Appeal noted that there were some other provisions in the contract, as there usually are, specifying what a notice needs to say, what a notice needs to do, including that it needed to be in writing, in this case, and that it needed to be transferred in a particular way. So it's very standard stuff, but it's a very important detail, because in this case there was no evidence as to whether the letter that was relied on by the contractor met the requirements in the contract for form or substance, and the Court also noted that the letter didn't clearly indicate that it was a notice under the relevant provision in the contract dealing with the emergency and the additional procedures flowing out of an emergency and, because of this, the Court first set aside the Superior Court's decision because it was based on the factual error relating to the internal email, and second, sent the matter back to the Superior Court to untangle some of those factual issues. Again, going back to the overlying theme for the presentation, the Crosslinx case is a very important decision. It deals with one of the hottest issues that the industry is grappling with right now but we see on appeal the decision was overturned, or set aside, based not on the hot ticket item but on the nitty-gritty contractual piece, being the notice requirements in the contract. and whether or not those had been followed. So very important. We know that there's a very high chance that your contracts include these kinds of details and so it's very important to know what your contract says and to do what your contract says you need to do. That has been confirmed by a number of other recent decisions that I'll touch on very briefly.
For example, the Tower Restoration and Attorney General decision, also a recent case from the Ontario Superior Court. In this case the contractor sought to recover around a million dollars in additional costs. That claim was rejected by the owner and the owner issued a final decision. In this contract there was a dispute resolution provision that required the contractor to dispute the decision within 15 days. The contractor didn't do that. Instead, 2 years later the contractor initiated litigation and brought a formal claim in that manner. In response the owner brought a motion for summary judgment, asking the Court to dismiss the claim on the basis that the notice provision in the contract, for a notice of dispute, was not followed. The Court agreed with that argument and found that the requirements of the contract were crystal clear. It was clear what the contractor needed to do and the contractor didn't do it. The Court noted that particularly in the case, the sophisticated commercial parties, it is going to hold them to a high standard but knowing what they've agreed to do and following through on that if they want to come to the Court later and seek some form of relief.
A very similar chain of events occurred in the Elite Construction and Canada case. Again, a recent decision of the Ontario Superior Court. In this case we have a contractor who was looking for around 4 million dollars in additional compensation for delays and extras. This contract had two applicable notice provisions. First, there was a requirement to give notice within 10 days of an intention to bring a claim for extras or for some other form of loss or damage. Second, a requirement to submit a notice of dispute within 15 days of the owner's decision, with respect to such a claim. Again, the contractor didn't follow those to the letter of the agreement and the owner brought a motion for summary judgment, again asking essentially that the claim be dismissed on the basis that the notice provisions in the contract weren't followed. In this case the contractor responded that it had raised this issue. It had sent emails. It had sent letters. It had requested extra time to respond. That it clearly hadn't walked away from its rights but the Court didn't accept that argument. The Court said, yes there were these attempts to deliver notice but they didn't strictly comply with the requirements in the contract, and so that claim was not able to go ahead. The Court gave a number of reasons for why it favours this strict compliance approach. But I think they really all boil down to the Court wanting parties to focus on the issues before them, to deal with the issues as they arise, to deal with disputes in a timely manner, in real time, and to also provide certainty so that if there is a deadline in a contract, and the deadline isn't met, then both parties know that it wasn't met and that that is what was a firm deadline and that they can then move forward on that basis.
I know I'm getting close to the end of my time here so I'm going to very briefly speak to one final case. The H.R. Doornekamp Construction case from this year. Another decision of the Ontario Superior Court. It has a similar set of facts but there's a twist. So here we have the contractor making a claim for additional compensation under the contract. The claim is initially denied. Then the owner backtracks to some degree, takes a second look and approves a small portion of the claim, but the majority of the claim is still denied. Again, there's a requirement for a notice of dispute and no notice of dispute is given. Instead the contractor commences litigation. So this is starting to look an awful lot like the last two cases that we were discussing. Again, the owner brings a summary judgment motion to dismiss the action on the basis that the dispute resolution clause wasn't followed properly. But this is where the case gets a bit more complicated. In this case the contractor responds that the owner also failed to follow the dispute resolution provision to the T, by failing to properly consult and cooperate with the contractor in resolving the dispute, which is was the requirement under the contract. In this case the Court declined to deal with this matter on summary judgment. It found that there were factual issues that had to be addressed and it required a trial. So while there is no decision on whether the owner failed to comply with the requirements in the contract, there was not clear compliance such that the Court could deal with this on a summary basis as it did in the last two cases. So really a cautionary tale here that had there been that clear compliance, the owner may well have been able to deal with this in a straightforward manner, as the Government of Canada was able to do in the previous two cases. In this case it couldn't do that because there was some question as to whether it met its requirements under the dispute resolution provision.
Overall, as I'm just coming up to the end of my time, I think we can see that the Courts have recently been hammering home this message that if you want to bring a claim, and you want to seek a remedy from the Court, the Court wants to see that you followed the procedure that you agreed to in your agreement, and that if you don't that it can have serious consequences for your ability to bring your claim.
Jordan: Thanks so much, Tristan. That was a great presentation and a great case law update. So my name is Jordan Crone. I'm a partner in our Calgary office in the construction group. Today Tom Brookes and I, who's an associate in our group, we're going to be giving you a bit of a presentation on what's coming to Alberta, which is called Bill 37, or the Alberta Prompt Payment and Construction Lien Act. This is new to Alberta but to those of you in Ontario this is something you're probably very familiar with. Our Act is a little bit different than that in Ontario but what I propose is we're going to go through what's happening in Alberta, what it looks like in Alberta. Tom and I will also discuss a little bit about how it's different than Ontario and to many of our attendees today who are in Alberta, one of the things that we've been offering to a lot of people is we've been doing webinars, sort of introductory webinars to the Prompt Payment and Construction Lien Act. So if you haven't had the opportunity to do that, I think Tom, Kerry and I, Kerry Powell of our office, have done over 30 or 35 of these already. It takes about an hour and a half and we work through it with your organization and do everything we can to sort of help you get up to speed and get prepared and tell you sort of what's coming down the line. With that, let's dive in.
In Alberta what we have is the new Prompt Payment and Construction Lien Act, and it's a renaming of our Builders Lien Act. So it really does three things. It introduces prompt payment for us, it changes the existing Builders Lien Act by adding some new timelines and it adds a fast tracked adjudication dispute resolution process. So very similar to what's happened in Ontario but these are all brand new concepts for us in Alberta. So the whole intention of this legislation is the same as it was in Ontario, which is it's designed to speed up and deal with the consistency of payment throughout the construction industry. So really that's the main goal, and then as well with respect to the fast tracked adjudication process, it's really designed to help sort of streamline the dispute resolutions and get sort of money flowing through the project faster, if an adjudication does happen. When is it coming in Alberta? When do we need to start getting ready, if your in Alberta or if you have a project in Alberta, what's the date we're circling in our calendar? It's August 29, 2022. So it's coming up very, very quickly in Alberta. Why they picked this date, nobody's quite sure, but that's the date here in Alberta so we're going to run with it. Interestingly in Alberta, our Prompt Payment and Construction Lien Act does not apply to the Provincial government at all. So unlike Ontario where the Provincial government is a part of a prompt payment regime, it is not in Alberta. It also doesn't apply to the Federal government, which obviously makes sense because it's a Provincial legislation. In Alberta if you're dealing with a Provincial government project you're going to still be governed by the Public Works Act, or the PWA Act, and that's the same for any public private partnership which involves the Provincial government. Same here if you have an operation or maintenance dealing with a public private partnership, or P3, that will not apply and same here, which is a common question we're receiving a lot, it doesn't really deal with maintenance and turnaround projects in Alberta. It's a bit unique, a bit different but very similar. So with that I'm going to hand it over to Tom, and he's going to talk about the payment cycle and how that works in Alberta, as quickly as we can.
Tom: Thank you so much, Jordan. So as Jordan alluded to this prompt payment employs a new fast track way of ensuring payments go down the construction chain. You can see in this diagram how the payments are intended to flow, specifically the owner has 28 days after receiving the proper invoice from the contractor to pay the contractor, then the contractor has 7 days to pay his sub-contractors and those sub-contractors have 7 days to pay their sub-subs and so on down the line. That 7 day requirement cascading further down the construction chain. We also have now a requirement to formally dispute if a party intends not to pay an invoice in full. For this the new legislation requires each of the parties to provide a specific form in which they indicate the amount that is not going to be paid as well as the reasons. The reason for this is that instead of non-payments simply sitting on someone's desk for months, instead it has to be overtly brought up in a form and the parties know precisely why they're not being paid. You can see in this diagram that the forms cascade downward, from the owner down through the contractor if, for example, the owner fails to pay. The intention is that these forms are delivered downwards so that everyone downstream understands why they are not being paid in full.
We can see an example of one of these forms on this slide. You can see that they're very basic. This is the Form 1. This is the owner's notice of dispute indicating why the owner is not going to pay the contractor. Outside of some basic information you'll see that it requires, in particular, reasons as to why the owner is not paying. Importantly, the forms lower down on the construction chain, also require that the parties commit to adjudicate a dispute if in fact they can't negotiate a settlement. The result being that any non-payment down the construction chain will quickly result in an adjudication to determine who should or should not be paid.
So you can see how this process works in this diagram. On the left hand side we have a 31 day timeline that's required of the contractor to render his proper invoice to the owner. This is unusual. This is Alberta specific and isn't found in the Ontario legislation. The owner then has 14 days from receiving that proper invoice to dispute any, or some, of that proper invoice received from the contractor. This is implications for how quickly the cost certifier has to review the proper invoice and certify the amount payable. There are then 21 days from submitting that proper invoice for contractors to issue their notices of non-payment to the sub-contractors and then we have our 28 day period after the proper invoice for the owner to pay. We also have a 35 day deadline for where the contractor should be paying its sub-contractors and 42 days after the proper invoice where the subs should be paying their sub-subs.
Next slide please, Jordan. The last point I'll make is about the new builders lien timelines. So the present timeline in Alberta is typically 45 days. That's going to be extended now to 60 days. There two exceptions to this. Oil and gas wells and well sites get 90 days. That's consistent with the existing legislation but also manufacturers and suppliers of ready mix concrete, but not their installers, also get a 90 day builders lien timeline.
Jordan: Perfect. Thanks so much, Tom. So obviously we're trying to summarize as much of this as we can and I think one of the things that's interesting about this, for us as well, is this fast track adjudication process. The fast track adjudication process is a bit different in Alberta than that in Ontario. So as we see on the far left, this is when we start with notice of adjudication. You can agreed to a specific adjudicator or our nominating authority, although we don't have one technically yet, we'll appoint one for you. The interesting thing about Alberta is you are only providing, in your entire basis for the adjudication, is written submissions. There is no in person hearing. There's no questioning. There's no affidavits. It's nothing. You just provide your materials and your supporting documents and then the other side has that opportunity to do the same. So you're doing that on day 16 and day 28. So it's purely written submissions going to an adjudicator. Then the adjudicator has 30 days to make a decision. In Alberta it's designed that you go from a notice of adjudication to, at it's longest time, 58 days to a decision. So this is a very, very quick process and what you ultimately get from the adjudicator is something that we're calling an interim and binding decision. Meaning there are abilities for you to go court, if you're not happy with the decision or ways to get outside of the decision, but the decision remains binding during that period of time, absent of a few considerations.
As part of this, and at the end of our presentation, we generally give our clients a bit of a to-do list because there's a lot that's changing here in Alberta. If you're in Alberta, or you have projects in Alberta, or you're doing construction in Alberta, we really need to be focusing on what's going to happen and how can we get ready for August 29. We're doing everything from reviewing our contract terms, looking at supplementary conditions, even if you're using CCDC contracts. You're looking at your invoicing. You may have to be adjusting your financing arrangements. We now have the ability to post certificates of substantial performance electronically. So there's really just a lot of things that are happening in Alberta that are new to industry here but there are a lot of positive changes. As part of that, we wrap it up with this to-do list and we tell everybody, if you need some help or anything that we can do, come see us and we'd be happy to help you, in Alberta, because we've had the benefit of having Ontario go first. So we've had Ted and everyone in Ontario helping us get prepared and make sure that we know exactly what we need to do and sort of use the lessons learned from Ontario, here in Alberta. So with that, I'm going to hand it over to Alex, who's got a presentation for us. And while Alex get's ready I'll make one more comment that prompt payment is happening in Alberta but it's also imminent in many other Provinces. So we actually have it passed in Saskatchewan as well and it's going to be in Nova Scotia and I think there's even a Federal prompt payment legislation that's coming up. So everyone's following and looking really closely at what's happening in Alberta and what has happened in Ontario. So it's very important that everyone sort of knows that this whole process is coming across the industry on a national scale and we'll see it with Federal projects as well shortly. So thanks again, and Alex, I'll let you take over from here.
Alex: Thanks so much, Jordan and Tom, for the excellent Alberta legislation update. Sorry for the technical difficulty. I think I've solved the problem. Good afternoon, all. I'm Alex Sadvari, an environmental lawyer and partner, practicing out of Gowling's Toronto office. So we're moving to Ontario with this presentation. It's a pleasure to be here today to give you a regulatory update on excess soil in Ontario. I only have 10 minutes to present, like my colleagues, so I'm going to try to give you a basic overview of the Ontario excess soil regulation and how it applies to Ontario based construction projects. I know that some of you are already familiar with the regulation while others may be less familiar. I can't cover everything today so please feel free to contact me afterwards with any specific questions. Next slide please, Shannon. Sorry. Go back.
The excess soil regulation, under the Ontario Environmental Protection Act, is enforced by the Ontario Ministry of the Environment Conservation and Parks Board, MECP. The purpose of the regulation is to manage excess construction soil in Ontario by making sure that clean (ie: uncontaminated excavated soil) is not wasted and providing clear rules on managing and reusing excess soil so that contaminated soil doesn't end up where it doesn't belong. Next slide, please.
The Ontario MECP has taken a phased approach to implementing the excess soil regulation. It introduced the regulation back in 2019, so it doesn't sound new, but the first phase of requirements only came into effect on January 1, 2021. On January 1, 2022, a second phase came into effect. The second phase required testing, tracking and registration in an online soil registry and it was much more onerous. On April 20, 2022, after consulting with various stakeholders, many of whom were not yet ready to comply with the phase 2 requirements, the MECP took an unusual approach and temporarily suspended the implementation of the second phase until the end of this year. So that means the second phase is set to come back into effect on January 1, 2023, and everyone needs to be ready this time because I don't think the Ministry would suspend it again or extend it, but I guess who knows? Next slide, please.
This slide sets out the sections of the regulation that have been temporarily suspended. So they've been suspended by the regulation listed at the top. Ontario Regulation 388/22. I'm not going to go into detail because I don't have time but this may be circulated at the end if you want to take a look. Next slide, please.
I'm going to take a step back here just to explain what we mean when we refer to excess soil under this Ontario regime. As you can see on the slide, the regulation defines excess soil as soil, crushed rock, soil mixed with rock or crushed rock, and then this is the key part, that has been excavated as part of a project and removed from the project area for the project. I'll get to the definition of project in a minute but project area, as you see under the definition here, can include a single property or adjoining properties. So this means that when soil is first excavated it is not considered excess soil. It's only considered excess soil if it leaves the project area and I think that that's a key point for construction projects. Under the regulation excess soil is also, by default, designated as waste unless it meets certain criteria. But it means it's not waste until it leaves the project area, if it's going to be designated as such. So you can store it onsite and you're not subject to the waste storage requirements. Next slide, please.
Key question. What projects are regulated under the Ontario excess soil regulation? Well obviously only Ontario projects. The definition of project is very broad. So almost any Ontario project that involves the excavation of soil is caught, unless it's specifically exempted. Next slide, please. Section 2 of the regulation sets out a limited list of types of projects to which the regulation does not apply. Schedule 2 sets out specific criteria, that if met, mean that the sampling analysis and registry requirements of the regulation don't apply. So you have to look at these very carefully. For example, under Schedule 2, if the amount of soil removed from the project area is less than 100 meter square and the excess is directly transported to a waste disposal site, that's not a class 2 soil management site, then the sampling analysis and registry requirements don't apply. But that doesn't mean that regulation as a whole doesn't apply. That still applies. Just the onerous parts that you don't want to apply, you're exempted from those. The regulation also includes a grandfathering provision for soil management contracts entered into before January 1, 2022. So for those of you who already had contracts before that date, you are grandfathered, as you probably know. Next slide, please.
Another key question, of course, is who is responsible for most of the requirements under the regulation? The MECP drafted the regulation so that the project leader is responsible for most of the testing, tracking and registration requirement. The regulation defines project leader as, set out on the slide, the person or persons who are ultimately responsible for making decisions relating to the planning and implementation of the project. This means that project proponents (ie: developers, municipalities, whatever the case may be) rather than contractors are generally considered project leaders. Clients have asked me about the possibility of delegating project leader responsibilities. It's not clear whether full delegation is possible, however, certain responsibilities can be delegated and this should be clear when drafting any Ontario construction contract. We can help you with that. Next slide, please.
We're running out of time but I wanted to point out that the excess soil regulation incorporates, by reference, a two-part document that needs to be followed along with the regulation. So it's important that you take a look at this as well. The Rules for Soil Management and Excess Soil Quality Standards. Next slide, please.
I recognize that was a lot to digest, if you weren't already familiar with the Ontario excess soil regulation, although I know some of you are. The following are some ways in which Gowling can you help navigate this complex excess soil regime. One, exemptions or non-application. We can help you determine whether your project falls under any of the non-application provisions or if it's exempt. Two, requirements in timing. We can help you determine what requirements apply to you in this changing landscape and the timing of those requirements. Three, we can draft or edit construction contracts to include provisions regarding excess soil, and we can draft excess soil agreement. Four, we can help you manage potential liability associated with the sampling, transport, storage and final re-use of excess soil, including potential environmental liability. As an environmental lawyer, of course I'm plugging the last one. Next slide, please. So again, if you have specific questions, please feel free to reach out to me, by phone or by email. I know this was just an overview, so it didn't get into the particulars that may apply to you, but it's a complex regulation and definitely reach out with your specific questions. Thank you.
Sahil: And I'm very excited to be having this discussion with Alyssa and Paul because I know, based on discussions which I've had with them in advance of this session, as to some of the things that we are going to be speaking to you about. Both Paul and Alyssa are going to be sharing some of the war stories, really, in terms of how they're dealing with these issues on a day to day basis. So, firstly, I have the pleasure to introduce Alyssa Moore. Alyssa is corporate counsel with Cummins and at Cummins she supports the engine business, PSBU oil and gas and NPBU legal matters. She has been with Cummins for quite some time now and she has over 7 years of experience as an attorney and as a member of the Bar in the State of Maryland and District of Columbia. She has a JD and an MBA from North Carolina Central University, School of Law in Durham, North Carolina, and she also has an LL.M in financial securities from The Catholic University of America. Alyssa is a strong advocate and believer in equity and equality for minorities, especially in workplace and, lastly, she's a native of Southern California, who loves animals. Has a cat named Berry who loves to take naps in Alyssa's lap and she loves to read as well. Welcome, Alyssa. Secondly, I have the pleasure of introducing Paul Hughes is a leader of the Altus Group's infrastructure business in both the US and Canada. Paul has been part of this industry for over 35 years and he has background in working on P3s as well as other alternative procurement routes, including the Alliance Model. He's worked on the asset type, all types of asset type, including healthcare, highways, defense, education and he's represented developers, contractors and JVs and other things. So welcome both, Paul and Alyssa, for what I hope to be a very good conversation about what is happening in our industry and the supply chain issues that we are spending lots and lots of time dealing with on a daily basis. So before we get into the discussion, just to give some context to our listeners, we're going to really focus our discussion on two areas. As to where are we today given what is happening in the supply chain industry, and what do we need to do in order to ensure and adjust the health of our industry, as a whole. So I'm going to ask my first question of Paul. Paul, why don't you give us your perspective in terms of the key forces behind how and why the costs are fluctuating in the industry that we are all a part of?
Paul: Well obviously that's the million dollar question that everybody's asking and there's no easy answer to that. I don't think there's one answer. I think there's the truth and I think we've touched on a number of those points in the course of what's gone before us, really, but clearly market activity across North America and Canada is no different. Very, very busy over these last few years and it's got busier. I'm just talking sort of Toronto, Ontario. I think we've got 105,000 units under construction, sort of apartments, which is like 40% more than 4 years ago. 130 billion planned in infrastructure. The US, there's lots of activity as well, and so I think certainly that's a backdrop. Population or demographics, again, the changes of those over time is driving some of this. Material costs, clearly COVID, has magnified that and maybe caused some blockages and problems. So I think the question begs how much of it is temporary and transitory and how much of it will remain. I think the answer, again, often is it's both those things some will remain and some's not going away, and it will depend on the particular asset or the product type as well. Obviously labour costs. Again, focusing on the local here, we've seen labour disputes fueled by, I think again, the market and obviously what everybody reads in the media about inflation, as well. I think that's obviously driving some labour issues. I think not everything's the same for everybody. Meaning depending on who the client is, and the type of work you're doing, you might see different things because inflation isn't sort of single rated. It depends on what you're doing and how good a client you are and what you're trying to do. There's sort of risks inherent in the type of work you're trying to construct as well.
Sahil: I am sure, Paul, there's lots to unpack in the response that you've given us. I'm going to try my best to do that. This is not a cross-examination. This is a discussion that really three of us are having but, Paul, how are the clients that you are servicing? Taking into account the impact of what the industry is facing in the planning and the development of a capital project, or a project in question that they maybe working on, how they are addressing this issue?
Paul: I think what we see currently at the moment is that, again I don't think it's everywhere but certainly in some markets, you will see contractors not giving fixed prices on long term projects and trades not doing so. Which is probably a prudent thing to do in their place. I think that's filtering through in terms of procurement approaches and risk allocation, is one. I think there's different ways you can manage the reality that you face which is some part of it can be looking at the particular items, or a supply chain problem, or otherwise and perhaps there is some redesign or some alternative approaches that can be looked at. I think work load planning and resource planning is never easy. It's easier to say than it is to do, but I think there's no excuse for not at least endeavouring to do that, and managing the work flow. So the engaging with the sub-trades and the sub-contractors. They're probably at the real sharp end of this and having to try and deal with it and manage it. So they've probably got as good sort of eye on what's really driving this. A long term issue that's never gone away, and still remains, is just general labour resources anyway. We have an aged sort of trades resource or pull and people are retiring and maybe over the last 2 years some even have pushed them over the edge and maybe some more have. Right? So I think the training and the apprenticeship is an issue. I think immigration and policy in terms of trying to bring new people into this sector and this industry is another way, perhaps, of doing that and maybe we all need to lobby the politicians a little more better to make sure that we're bringing in the right skills and the resources. As I touched on the sort of risk pricing and maybe what we're seeing is more of a shared approach but with clients, which I think's an intelligent way to do deal with it rather than just trying to, I want a fixed price, trying to pass it all off to the contractors. Because I think the reality is that could lead to some issues anyway and some real challenges and perhaps conflicts further down the road just taking that approach.
Sahil: That's very good information, Paul. Now, Alyssa, moving over to you. This is definitely not news to companies. This is an issue that Cummins experiences, based on discussions you and I have had, and generally as an industry. So what is Cummins doing, or how is Cummins involving its practice in relation to these big supply chain issues?
Alyssa: Yes, so, we're just taking things on a case by case basis. We have to evaluate as if each situation is a new moment. This is an unprecedented event. In our lifetime at least. The last plague was what, the Bubonic Plague, maybe? I probably am missing one or two but it's still an unprecedented event so the approach has evolved over the last 2 and a half, 3 years. We started with suppliers sending out their force majeure letters and us responding sometimes. With the Suez Canal and the ECM shortage we've had to evolve how we approach force majeure and we've also had to ask the hard hitting questions. Now that we're in year 3, is COVID-19 still an unforeseen event? Can the force majeure clause still be boilerplate language like it has been prior? It takes more time now to get these agreements across the threshold because we're adding in the other heavy hitting term of the force majeure clause.
Sahil: Let me ask you a follow up question of that, Alyssa, so what are you doing on a daily basis? Like where are you spending the majority of time speaking with the business folks and what they're telling you as to what they're listening from their suppliers? Tell me more about your day.
Alyssa: Yeah. So I've reached out to you prior for business issue. They're asking the hard hitting questions. They're actually actively engaging in this force majeure discussion. Customers may come to us asking to alter the demand schedules. Us coming to them to discuss any supply chain issues going on. It's becoming more collaborative. Before, like I stated prior, the force majeure clause was boilerplate. It was something you said, oh yeah great. Act of God. Sure. Like that's going to happen. And here we are. An act of God. A pandemic, epidemic. Those verbs, or nouns, verbs or nouns. I'm not an English person, but either one of them, they're put in there and now your having to actually think, hey, I don't see pandemic or epidemic in that force majeure clause. How do we approach this? Can we put those things in there, and also, how do we reply to these letters now that you know COVID-19 is here, what do we do now in order to still say, yes, we've been living in this, however, we're still having unforeseen issues? It's a tightrope to walk with these business folk and they're leaning on our legal team heavily.
Sahil: Yeah. So both you and Paul have said a couple of times that there is at least better collaboration than what it used to be in the past. So I think that takes me to my next segue from what we are experiencing to what are some of the changes we need to make, or our group here thinks the industry should make to address this issue head on. Alyssa and I are lawyers, and Paul, you have a really good role to play outside of the legal world because you act for a number of different entities. So I'm going to start with you, Paul. In your view, Paul, what do you think some of the changes can be implemented as it relates to the issue? Pricing and then mitigating the risk, other than the double concept of collaboration. We are seeing some of that in Canada as the Alliance Model has been picked up on P3 stuff. But how do we address the challenges and the changes when it comes to pricing, if nobody's giving you a fixed price? How can we address this issue, or in your world, how would you like to address that issue?
Paul: I think, like all good consultants, the first answer is it depends. It depends on the project, I think. It depends on its value, what its duration is and I think there's still a world where a fixed price makes sense. People will give at you, where works and a fair risk allocation. I think a lot of the projects we're dealing with, the sort of 7, 8 year multi-billion dollar transit or other type projects, where clearly you can argue the case a fixed price never made sense in that environment and certainly at the moment, certainly doesn't. So you'll see in the agencies, whether that's in BC or Ontario or, frankly, elsewhere, in the US as well, responding to that and I think it's the market that's leading that. Well let's give them some credit. Maybe they're being informed and saying we're adopting a more enlightened approach. I think maybe that's part of if but ,I think it's also the fact that the market is pushing back and they're having to respond to that, and that's just not number of bidders but the sort of manner of bidding and that risk allocation approach. Devil's in the detail with some of the things you mentioned. Two stage design build. Progressive design build. Partnering, alliancing. They've all got shades of the same thing which is a sort of open negotiated, sort of more shared risk allocation and a transparent sort of pricing approach. I think that's, certainly and I say in these large infrastructure projects, that seems to be the way things are gravitating and even in some of the, I'll call them vertical building projects, you'll see in some of that as well. There's some particularly large hospital projects in Ontario, namely Trillium, I think it's near almost 3 million square feet, 21 or 22 stories, so several billion dollar hospital projects. If you break that down M&E will be 50% of that. If that's a 3 billion dollar hospital that's one and half billion dollars of M&E work. You just think about that in terms of the resources and the trades and how you're going to have to package and respond to that.
Sahil: Paul, just to follow that then, Paul, you know the books that you're speaking within the industry, how are they addressing the current escalation challenges on the projects that they are working on, which are under contract? What are you hearing and tools that some of those folks maybe are applying to the projects and contract?
Paul: Longer contracts that have already agreed fixed prices. I think if you're in the government you're going to be holding people to that contract. I don't think they're going to back off that. I think the reality, is it going to cause stress and does it lead to a higher likelihood of let's say dispute escalation, I would say almost certainly it does, and could it in a world lead to stressed sub-trades or contractors leading to bankruptcies? I mean, yeah, in extreme it could even do that, couldn't it? So hence why I'm saying that a more balanced approach, a more transparent approach, I think is the more informed way and probably at the end of the day should. I think it probably pays to client's interests anyway because even if you've agreed a fixed price in theory, in contract, if your contractor starts to run out of money and the sub-trades aren't turning up then you're not going to get your job finished and that has all other sorts of ramifications and costs. Even when I've worked for a contractor, we've kept certain key sub-trades going, not necessarily by we could have held them to the contract, or we thought it was in our own self-interest to come to some deal. Because the costs of not doing so was higher than just playing hardball and saying, okay guys, you're out of here. You're done. We'll get somebody else then. That's not always an answer, right?
Sahil: Exactly. So you know I'm going to now turn to Alyssa because Cummins is a contractor on a number of these large scale multi-billion dollar projects. So, Alyssa, when you're speaking with your business folks, are they telling you that the owners are being receptive of the asks? How are those discussions going?
Alyssa: It depends on the client or the customer we're working with. But for the most part it's been a very collaborative space, if I can knock on wood. It's like Shannon McDougall said before our session, our panel portion, be resilient and build resiliency and get ahead of the situation. I don't know if we can get ahead of it before the resiliency is coming into play. It's adjusting to what the market is giving us and adjusting to what the supplies and all the supply and demand, how's that going. So I'm seeing more of that. The hard ones that pushback, once you pushback against them it's kind of like, okay we tried. Alright. We're conceding to that. It's also asking the real questions again. Is there a contingency plan? Is it more fruitful to pushback or to resolve commercially? Keeping these things in mind and being the resilient entity I think is helping.
Sahil: That's good information, Alyssa, because if I would take it a step further that is in relation to the contracts that you currently have in place that you are having an issue, delivering on. But how are the discussions, Alyssa, that you are part of at Cummins, how are the discussions taking place where the contract is a new contract that is getting negotiated for something in your business unit that you're part of and this issue is the life, right, left and center. Like you cannot not talk about this issue.
Alyssa: Yeah, yeah. Those discussions, I've had several over at least the last 6 months, and it's usually a, like I stated prior, is it still a force majeure event? Can we really claim that? So I've seen myself having to tailor language to be a little bit more drilled down. There's certain earth metals that you have to discuss in some force majeure clauses. You have to talk about supply chain issues and not get into labour disputes because that's when that negotiation starts ramping up on are labour disputes really a force majeure issue? Could be under the COVID-19 situation we're having now. It's all about narrowly tailoring, per constitutional law, that horrible word, narrowly tailoring these clauses to fit the applicable situation.
Sahil: So let me ask you this, Alyssa, because I'm finding this very interesting. What are you spending the majority of your time when you're negotiating contracts? Is there a certain section of the contract? Because my colleague, we're speaking so much about all these cases that are reminding us to read our contracts once we've signed them because the notice provisions.
Alyssa: Yes.
Sahil: Where are you spending a lot of your time advising the business on?
Alyssa: In no particular order limitation of liability, indemnity and force majeure. Those three interplay with each other in ways that I'm still learning. You would be amazed how many carve outs individuals want to have in indemnity clauses and limitation of liability clauses that could kind of back door into unlimited damages for force majeure. So you're having to play, it's almost like a chess match. You have to be this person is asking this. Why are they asking for this and read it and synthesize it into ten different ways that this could result. So it's very, I dare not say manipulative because it's not that, it's just an unprecedented time that we're having to make decisions counting 10 years down the line because some of these are very long term agreements. Be diligent. Read every single sentence, especially in those three clauses, is what I tell my business counterparts. Of course I read them multiple times but I'm finding myself also giving them trainings in our staff meetings. Law for Dummies. Law Lite, I should say, and it actually has gone a long way. It's helped with negotiations. Just kind of smoothing it out and not letting it be as chaotic as it was when the pandemic was more so raging than that.
Sahil: Thank you, Alyssa. Moving over to you, Paul, where are you spending the majority of our time depending on the deal that you're working on?
Paul: We're working on a lot of large, dare I suggest some of legacy COVID commercial issues, there's a lot of that, and of course, as if often the case, it's never, how should we say, it's not entirely COVID. There's all these other things going on and how do you pass and separate some of these issues can be a bit of a challenge. Then there's no consistent impacts because a linear highway project impact is different to a vertical high-rise impact in the course of COVID. We're working on the 401. We're project managers on the 401 widening and you can actually say for 12 months they've got a win because the traffic was only 30% of what it would normally be. So that was probably good news story but meanwhile, on the other hand, Quebec pre-cast concrete plants were shutdown so that maybe wasn't. So all that to say, again, it's never universally consistent. It certainly, on a lot of the large, and there's an awful lot of large procurements in the market at the moment, and some of those are quite different as well. We have systems projects and others and the agencies, as I say, are responding to that by actually taking some of that risk back, which I think is intelligent. They are introducing, let's call it fluctuating price provisions into the contracts, that address assets, other commodity types, with some form of adjustment approach. So clearly understanding that, explaining that, and trying to help, often it's lenders or others. Kind of get informed and understand if it's a fair risk allocation then how that's going to work.
Sahil: So, Paul, just on the last part of your sentence, when you're having these discussions with the lenders how they're really interested I'm sure and understand not only the risk and logistics but also getting the project done on time. So when you are having these discussions with the lenders, I'm sure they're very interested to know the impact that the industry is facing. The impact that they're going to have on the money that they're lending. How are those discussions going?
Paul: Certainly, obviously the schedules, I think those are broad comment over the last not just 6 months but probably 2 years or more. What we've seen is a shift in risk appetite for some of the bidders regardless of COVID. Maybe that's just the fact that there's been more work so there's been more pushback by contractors. Maybe it's living some of these deals and experiencing some of these risks a bit more. So that's probably partly that. But certainly the risk allocation I think has changed. Pricing, and again it's trade specific, you can't say it's a flat X%. It's not. It depends very much on the trade, what we see in the market with escalation and obviously the pricing has shifted considerably over time, and I think the schedules have grown which obviously is an impact in terms of further pushing up pricing for projects. What does that feed through? I think we're seeing clients and customers, whether they public sector or private sector, I think in the public sector case there may come a point where they're going to say, we're going to have to rationalize or which one don't we do, perhaps, and I think even the private sector, I think some of their projects. They may hit pause for 6 months and see if this settles down and then return. But I do feel it's starting to have a sort of an impact on work flow, I would think. I think that's what we're starting to see a little bit of.
Sahil: That's very, very interesting, Paul. I do have a number of follow up questions but I now have a note that we have 1 minute left. We have been on for 29 minutes but not this has been a great discussion. So parting words, folks. Alyssa, to you, is there anything else I wished I had asked you based on the discussion you and I had in advance of this discussion that we didn't get to?
Alyssa: Actually, no. I feel like we've covered a lot. Stressing the importance of commercial legal interacting with their business partners in a way that combines efforts is important.
Sahil: Good. Paul, to you. Parting words.
Paul: I've mentioned fluctuating price contracts and indexation. There's a whole subject for a discussion there because, again, easier to say than to actually draft the mechanics of how that's going to work and what index and blah, blah, blah. I think you're going to see some changes in procurement approaches. Be that the just in time approach and, in fact, country of origin and where things are sorting. I think even you might see some different views taken on some of those ideas as well over this.
Sahil: Good. Thank you both, Paul and Alyssa. Now that Ted is up our time is definitely up. So thank you and over to you, Ted.
Ted: Thank you, Sahil, Alyssa and Paul. Yeah, we could be talking about this for hours and days and weeks and years and I think we will. These are very impactful changes. People are having to adjust the way they run their projects. The way the draft their contracts. We're going to have court decisions eventually, as we're starting to see now, that interpret the actions and conducts in contracts that we are dealing with right now and shedding new light on the way the law looks at this, as well as what are the best practices in this circumstance? What are the best and most practical responses to unusual, unexpected situations that really make us rethink how we're approaching projects in many cases. We just had a tremendous panel. I want to thank the panelists, Alyssa and Paul. I want to thank Shannon before that, giving us their insights on these really challenging times, really challenging issues that we're going to continue to grapple with. So part of what we're trying to do here is just generate the dialogue on what are those solutions? What are the options out there? How do we best deal with and address these challenges? I think we've gotten a long way into that with this panel discussion and with Shannon's presentation. I wanted to thank all of our guest speakers. I wanted to thank our Gowling speakers. I continue to be very impressed and proud of our team. We've got such a big team. A lot of success in the sector helping clients and really contributing to the sector in our collective understanding and grappling with all of these kinds of issues. Behind the scenes, we're just the talking heads of course, us lawyers, and behind the scenes people who actually do work and not just talk about it. I wanted to thank Shannon Wadsworth and Margaret Williams for helping us with the technology, the invitations and putting it together. Their job is also unlike ours, not done, because they will follow up with everybody with a thank you for joining us, with a survey which I really encourage you to fill out, because as I said at the outset, we do really look at that. We do want to make these most useful and practical and valuable to our audience. So we do want to adjust and reflect what you want to know about. You are always welcome to reach out to us, individually or through Margaret or Shannon or myself, with follow up questions. I know we couldn't get to all of the questions today but this is an ongoing live issue. So is prompt payment in Alberta. So is excess soils. As I also said at the outset, if you aren't registered already for our newsletter, please do so. We have many webinars on these topics and others throughout the year. We have our Spring Construction Forum like today, every year, and our Fall Construction Forum, again every year. We're going to try in the fall to maybe look at having it in person again and alternate. We also have our annual adjudication workshop, which will be in the fall, which we started in Ontario several years ago giving practical tips on how to actually do adjudications and we'll be expanding that, of course, again this year for Alberta adjudication. So a lot going on. Make sure you're registered and on our distribution list so you can stay informed or reach out to anyone of us. Thank you to all of our audience for joining us. Looking forward to seeing you all in person or virtually next time. Thanks.