Water, Water, Everywhere

Though in many cases it was short-term, construction firms feel impact of summer floods

The devastating floods that hit southern Alberta and the Fort McMurray region this past summer will increase business for some construction companies, according to an analyst with the Dundee Capital Markets Inc. research team.

Maxim Sytchev, senior analyst, infrastructure and industrials, with the Toronto-based firm, doesn't see larger companies being impacted, however.

Sytchev uses Aecon Group Inc. as an example: the company generated first-quarter revenue of US$567 million and reported backlog in the quarter of US$2.1 billion. "Given the size of the company, [the impacts of flooding] won't move the needle dramatically," he says.

Despite estimates that the cleanup, rebuilding and renovations required as a result of the late June floods will cost as much as $3 billion, Sytchev said larger construction companies especially won't experience much financial impact.

In fact, the impact was negative in the short term, since workers were unable to get to their offices and work sites in the Calgary area and in the Regional Municipality of Wood Buffalo. "It's wrong to be thinking someone would make a killing," he says.

Sytchev has studied the impact on the construction industry in Louisiana and other southern states after hurricane Katrina in 2005 and on New York and New Jersey after hurricane Sandy in 2012 and the same pattern holds, which he suspects will also be the case in Alberta.

"There is a small negative impact in the short-term, with a greater rebuild opportunity in the medium term (six to nine months)," he wrote in an analysis sent to clients in late June. "[There is] no reason to anticipate anything different in Canada."

LOSSES IN BILLIONS

The Insurance Bureau of Canada (IBC) pegged losses as of late July at about $1.3 billion, but Premier Alison Redford said they will likely be at least double that. Tom MacKinnon, insurance analyst with BMO Nesbitt Burns, was quoted in a Globe and Mail article recently as saying insured losses for Calgary alone could be as high as $2.25 billion.

Sytchev says there will be some business he works with that are more seriously affected by the flooding than others—but the floods are unlikely to lead to a financial windfall for any company.

Most of the companies he covers have significant exposure to Alberta, which has been one of the busiest areas of North America thanks to the oilsands and other energy-related development, as well as public works. Yet Sytchev concluded in his report that many of the firms would be only slightly impacted by the flooding. If construction companies do have projects that are affected, it is unlikely to lead to a substantial financial hit, he said.

"Generally speaking, contract terms stipulate either a force majeure or cost recovery when there is a significant event," he wrote.

Sytchev concluded the analysis saying that three of the companies he tracks could be affected somewhat, since the majority of their contracts are in the province:

Churchill Group derives 58 per cent of its revenue from Alberta, but Sytchev predicts the flooding will have little impact, with the exception of a possible delay in completion of some large projects, such as its $113 million contract for an addition to the Lethbridge Hospital.ENTREC Corporation, a heavy-lift and heavy-haul service provider with an 80 per cent exposure to Alberta, was impacted because utility workers were dealing with flood impacts and were unable to do wire lifting and other logistical tasks for equipment to be moved. However, Sytchev concluded that impact would be short-term.North American Energy Partners Inc., with 90 per cent exposure to Alberta and a heavy concentration of its activities in the oilsands, was heavily hit by the flooding in the Fort McMurray area. However, once again, the impacts were short-term.

There will be some beneficiaries, Sytchev wrote, mentioning Edmonton-based Stantec Inc. in particular, a company that is involved in "literally thousands of contracts," across a diversified range of sectors. "Given the persistent strain on provincial infrastructure even without a disaster event, in the medium term we could see a re-acceleration in repair/maintenance/spending in general," he wrote.

Edmonton-based PCL Construction Management Inc. is probably as good a barometer of the flooding's impact on the construction sector as any. Rob Otway, Calgary district manager with PCL, says the company saw its operations in the areas affected for about a week during and following the flooding.

"We had three projects [affected] because of [the inability to utilize] tower cranes," he says. "But, for the most part, the impact was minimal."

Otway, who is also the chair of the Calgary Construction Association (CCA), said some projects in the Calgary area will experience delays because of the flooding, like the $25-million St. Patrick's Island pedestrian bridge, being built by privately owned Graham Construction.

The bridge, which is designed to link Memorial Drive and the East Village area of the city across from the confluence of the Bow and Elbow rivers, was heavily affected by the flooding. The project was to be completed by the end of the year, but Otway says he doubts that will be the case.

Graham Construction would not comment on the status of the project.

Otway says suppliers to the construction industry, such as aggregates and concrete giant Lafarge North America Inc., which saw its southern Calgary cement plant heavily damaged by the floods, was able to access supplies from plants elsewhere in the Calgary region, including its Foothills plant.

TALE OF TWO CITIES

"It's quite surprising how the construction companies and the suppliers were able to get up and running again," Otway says. Commenting on the situation in Calgary, Otway says, "It was largely a tale of two cities, with some residential neighborhoods and commercial areas near downtown Calgary affected, but outside of those areas it was situation normal."

The Saddledome, home of the Calgary Flames, sustained extensive damage, although it is expected to be up and running again for the upcoming NHL hockey season. Calgary-based CANA Construction Ltd., which built the original Saddledome and completed a $30-million renovation to the interior in 1995, has been awarded the multi-million dollar contract for repairs.

Otway says the executives of CCA and city officials have met to discuss expediting repairs to several city-owned buildings. City officials have estimated total costs around $257 million to repair the damage to city-owned facilities. City-owned facility repairs include:

The Calgary Zoo: $50 millionThe Calgary Police Service's downtown administration building (structural damage): $31 millionMcDougall and Civic Centre parkades: $34 million in repairsCalgary Transit facilities: $11.7 millionCalgary's historic old city hall (built in 1911): unknown costsTalisman Centre multi-sports complex: $6.2 million (contract received by Bird Construction)

Otway says suppliers of electrical and plumbing fixtures rose to the challenge and brought in most of the supplies that were needed for the repair work, although there were delays in obtaining some items.

HITS TO HOMES

Otway sees the biggest long-term impact from the flooding being on the residential construction sector, with estimates of 10,000–15,000 homes destroyed or needing repairs in the Calgary region.

Dave Smith, president of CCA, has been warning contractors that shortages in trades will drive up wages of skilled tradespeople province-wide. He says the rebuilding in southern Alberta will create so much work for tradespeople who live in the south, there will be fewer willing to head north for work in the oilsands or on other industrial projects. "People who have been working in the north from Calgary will stay here," he says. "If people have their druthers, they'd rather work in Calgary."

Smith also agrees with Otway that the residential construction sector is the most affected, although some of the 870 CCA member companies that are involved in institutional, commercial and industrial projects are also being impacted.

He says this year's flooding will cause the construction sector to rethink how it does things, including incorporating design features that shield buildings from damage when similar events occur in the future. The flooding that hit the Calgary area in 2005, which was not as serious or widespread, didn't cause the industry to engage in "sober second thought," but he thinks this year's flooding will.

"It's just a matter of rethinking the design of buildings," he says.

That is exactly the point professor Tang G. Lee wants to hit home.

Lee, an architectural professor at the University of Calgary, supports moves by the Alberta government to deny any future assistance to homeowners who insist on living on flood plains.

"This is a wake-up call," he says. "Rivers are supposed to flood. That's how they clean themselves."

But Lee also believes residential contractors and homeowners need to be more proactive, designing houses that can withstand flooding.

As an example, Lee points to the very buildings in downtown Calgary where major structural damage was avoided—office towers and other high rises.

In many cases the parkades were inundated with water, but upper floors escaped damaged.

"The way they design those buildings they want the parkades to flood," he says. "You'll notice that most of the parkades have holes in the concrete, so the water escapes and the building is not compromised."

In many flood-prone areas of Asia and the Netherlands, as well as in New Orleans, houses are designed that way as well. "Don't have a finished basement," Lee advises. "Just elevate what would have been a basement and make it a crawl space, with the electrical and plumbing and the furnace on upper levels.

REPUTATION MATTERS

The Canadian Home Builders' Association-Calgary Region (CHBA) is working to protect reputable contractors by launching a media campaign to help consumers avoid being swindled.

Consumers are encouraged to visit a website (hiringacontractor.com) jointly developed by the CHBA and the Canada Mortgage and Housing Corporation, which advises homeowners to "Get it in writing!" before hiring a contractor. The website guides consumers through the process of hiring a reputable renovator. The organization's RenoMark program (renomark.ca) also offers a step-by-step guide and encourages consumers to hire CHMA members, who must subscribe to a code of conduct.

The same advice is given regarding hiring a contractor for a complete rebuild, with consumers urged to retain a CHBA member.


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