24 APR 2020
Just over a month ago the Royal Institution of Chartered Surveyors (RICS) and the Canadian Institute of Quantity Surveyors issued a Canadian construction survey that called for a healthy construction workload in 2020 for most regions of Canada.
A few weeks later, the rosy RICS projections for Ontario are shot thanks to the COVID-19 pandemic. RICS member and cost management leader for Turner and Townsend of Toronto Darren Cash offered insights into how project owners are evaluating new and existing projects in light of the current uncertainty in a recent interview.
“This is an unprecedented situation but there are tried and true principles of risk management in commercial management that can protect you from future issues that may arise,” Cash said.
The whole skill set of quantity surveyors — risk managing, project delivery, cost managing, schedule analysis — is being harnessed by nervous developers, Cash said.
“We as a profession are looking to take stock of projects and looking at schedule constraints and delays caused by labour not going to the site, caused by delivery of materials. What does that mean to projects?”
It is far from business as usual in the development sector but for quantify surveyors, Cash said, who are always assessing risk, consulting with clients continues along the same lines as always except that the risks are different. Some large projects take five to eight years from start to finish, he noted, so short-term risks are always viewed through a long lens.
“We maintain we should continue on and support them in any way we can by analyzing risk to the project, until such time as the authorities tell us to shut down,” Cash remarked.
“The situation is very fluid, and every client and project is very different. We have a number of projects in the design phase and we are providing advice to our clients that says, perhaps you should expand where you are getting material from, not focusing on supplies from any one area. Look at the risk profile on that.”
Costs are being watched very closely, said Cash, with spending on consulting and the associated “burn rate” — the value consultants are providing versus their cost — under a microscope.
With projects that are going to market, quantity surveyors take stock of the risk profiles of their clients.
“If they are risk averse, they might say, you know what, I am going to pull the tender, to wait for the market to settle down,” Cash explained. “And some are looking at the market and they may want to lock in at a certain price. Every bid has a 60-day or 90-day acceptance period on it, they may want to wait to 90 days to see if the crisis has abated.”
For projects underway, Cash said, it’s time to look at the schedule and do a full quantitative schedule risk analysis to monetize the risk in that schedule and understand from the client’s perspective which risks are tolerable, what can they live with at this stage, and what can be managed with appropriate controls.
“It is our job to be a voice of reason,” Cash remarked.
This is an unprecedented situation but there are tried and true principles of risk management in commercial management that can protect you from future issues that may arise
Cost Management Leader, Turner and Townsend
And not only is it not time to press the panic button, he explained, there are actually some positives in the long run for project planners.
“I can’t speak on behalf of every developer in the country, but there has never been a better time to borrow money,” Cash said. “Interest rates are getting down to all-time lows.
“There are billions of dollars being put in there for additional liquidity in the market. There is protection on loans backed by the government of Canada and the government of Ontario. There are levers being pulled by the governments to shore up the market.”
Returning to the RICS survey, Cash noted that an area like Toronto had good fundamentals before the crisis — despite a workforce shortage — and it still does. Project money has been flowing into Canada since 2008 and it may well continue when the COVID-19 crisis passes.
“In Canada, the way we have dealt with the crisis, that would give investors confidence in investing in this country,” Cash said.