As a smaller guy, Gretzky played an exciting brand of hockey. Creative and fast, he took the game to a new level. The only reason he could play this way, in fact, the main reason he played his game so successfully was because the referees didn’t allow the big guys to use their size to force him out. Without consistently enforced rules, the game would be a slow, low quality and boring event. More importantly, without clear rules and fair referees, most of us either couldn’t, or wouldn’t, play the game at all, talented or not.
No doubt there was a time in construction procurement when there were few rules and weak enforcement. (I imagine it was an era when many small and mid-sized, smart, hardworking contractors were crushed and forced off the ice by the big guys). This gave rise to construction associations like the CCA, the VRCA and ICBA, government / construction industry co-operation as well as bonding and standard setting bodies such as CCDC. As a result, the industry is now reasonably competitive, efficient and innovative.
When private money is being invested into a construction project, the project owners and lenders have the freedom to contract with anyone they prefer and in whatever contract form they choose. When it comes to government funded projects however, it is critical that procurement be open, fair, objective and transparent. Every qualified contractor has a right to compete for this work. Without rules, standards and fair play, there would be very few contractors and public construction would be expensive. If we want a healthy industry – one that is competitive, efficient, innovative and self renewing, there is really no other option.
In recent years standards and transparency appear to be fading in the name of collaboration and innovation. As an example, under the CCDC 2 contract, insurance requirements are clearly spelled out. They reference CCDC 41, which in turn references IBC Form 2100, 4042, 4047 and 2320. These standards came about through many years of national collaboration between all stakeholders including contractors, insurers and owners. The result is a fair approach where the rules of the game are clear and each stakeholder understands their insurance coverage. Everybody wins.
Often, this entire insurance section is now removed from the standard CCDC contract. Revised insurance requirements are reinserted by way of the supplementary general conditions. Occasionally, the new insurance requirements omit key coverage items. Insurance companies, if not bound by the CCDC standard requirement, might issue a “lightweight” wording that reduces coverage. Often this is cheaper for the party assigned in the contract to arrange the project insurance. Riskier sub-trades are sometimes identified and large deductibles can be imposed on them to reduce the insurance company risk or the insurance cost. This approach can effectively remove the project insurance protection for the sub-trade completely.
When it comes to insurance, the devil is in details. Sometimes, the actual policy wording is not even available for the general contractor and sub-trades to review (a contractual right under the old CCDC 41 standard). Depending on the project, departing from the CCDC standard insurance requirements can be enormously expensive. If you want to delve into this, do some reading on resultant damage clauses in project insurance policies. Sadly, most who are involved, from the inexperienced insurance broker to the project owner to the sub-trade, may not know that their coverage has been gutted until they try to claim on the policy.
Government owners often believe that by changing the standards and customizing the approach, they are transferring risk to those who are best able to address this risk. What happens more often is that the risk is forced onto either the weakest or the least sophisticated contractor in the construction chain. One of the leading construction lawyers has said that no contractor is forced to sign these onerous contracts. “If you don’t want to take on the risk, then don’t sign the contract.” As most of us know, this approach is not only callous, it is also unrealistic. It’s not easy to walk away from work over an insurance clause or contract language issue when the company has employees who need to work and overhead costs that must be paid.
As a construction broker (basically an outsourced risk manager), my role is to protect my clients from weak contract language and inadequate insurance and bonding protection wherever possible. The current government procurement environment makes this very challenging. Industry procurement standards have been created with much work and collaboration among all stakeholders. When public owners vary from the agreed upon standards, risk increases. Competition and innovation declines. Everybody loses. Regardless of political philosophy, governments at all levels must re-embrace the principles of objectivity, openness, transparency and accountability. We need government procurement models that promote competition. Otherwise, we are destined for an industry that is big, slow and expensive. And if there is a Gretzky among us, do we really want him sitting on the bench taping sticks and folding towels?
Steve McConnell is client executive, vice president at CMW Insurance Services Ltd.