On the Rebound – How Recent Events Are Affecting Consulting Engineers across Canada
Canada’s consulting engineering sector is facing repercussions from some dramatic events recently, including two engineering failures, an economic downturn in the oil patch, and scandal in Quebec.
From the December 2015 edition, p. 17
Imagine if someone could take a small mirror, gather into it all the changes and upheavals that are going on in the engineering sector across Canada, then reflect that information back as a beam of light; the energy in the stream would easily be enough to start a fire.
Until recently business has generally been booming for engineering companies in Canada. But calamitous events and disturbing revelations in the past five years have hit hard — shaking the confidence of the industry. The repercussions could have a deep impact on consulting engineers, both as individual professionals, and from the point of view of their businesses.
During the past three years, a fatal building collapse in Ontario and an environmental disaster in British Columbia have been attributed partly to engineering failures. Both of these events have triggered the professional associations to revisit and possibly tighten their licensing rules. In Quebec the corruption scandals in the construction industry and the evidence at the Charbonneau Commission of Inquiry continue to reverberate and are spawning deep structural changes in how the government hires engineers. A more insidious problem — contracting issues — persists across the country. Clients are insisting consulting engineers assume liability for risks over which they have no control. Meanwhile the economy in the west is staggering due to plummeting oil prices and a stagnant resource sector.
Collapse of a roof
The first event that shook the profession, was the collapse of the parking deck roof at the Algo Mall in Elliot Lake, northern Ontario, on a sunny day in June 2012. The collapse decimated the structure, took two lives and injured 19 people. When Justice Paul Bélanger of the Commission of Inquiry into the disaster issued his report last year, he did not mince words. The problems had started in 1970 with a defective roof design using untested materials, but had progressed for decades as the roof continued to leak and cause deadly corrosion in one of the beam connections.
Justice Bélanger found many human causes, but a de-licensed engineer who did the last structural inspection was charged. And other engineering companies that had inspected the roof over the years did not escape the Justice’s ire.
His report said: “Although it was rust that defeated the structure of the Algo mall, the real story behind the collapse is one of human, not material, failures.” He noted that the Mall had been structurally examined by professional architects and engineers 30 times over its life.
In media across the country, the public read Justice Bélanger’s conclusions: “Some engineers forgot the moral and ethical foundation of their vocation and profession – to hold paramount the safety, health, and welfare of the public. They occasionally pandered more to their clients’ sensitivities than to their professional obligation to expose the logical and scientific consequences of their observations. Some of their inspections were so cursory and incomplete as to be essentially meaningless. Others were fundamentally flawed because they were based on false assumptions or calculations.”
Since then Professional Engineers Ontario (PEO) has been wrestling with the Justice’s recommendations. These were intended to help ensure buildings are safe. For example, he recommended that existing buildings be structurally examined regularly and that the reports be posted publicly. He also recommended that the inspections be done by a structural engineering specialist — a step which would require PEO to instigate a new regime that identifies such specialists. It would also mean engineering companies would have to ensure that they have engineers with the designation available to do the work. Currently, like most of Canada’s provincial licensing bodies, PEO does not license or list engineers according to their area of expertise.
Another recommendation that would affect firms is mandatory continuing professional development. Until now Ontario engineers have not been required to participate in ongoing education as a condition of holding their licence. If that changes, companies will have to pull engineers off doing billable work for clients in order to send these staff to take courses, write articles, and the like. Companies could also find themselves paying for the courses, which could be a hardship for small firms.
Over this summer and fall, PEO has been holding town hall meetings (“You talk. We listen”) across the province to gain feedback about how it should proceed in fulfilling Justice Bélanger’s recommendations. In December, a PEO task force headed by Annette Bergeron, P.Eng. is due to report back on the question of how to implement a continuing professional development program. So far the task force has put forward a differentiated system, whereby engineers who work in the areas of highest risk will have to fulfil more rigorous education requirements than those who don’t.
Tailings pond breach
After the tailings pond at the Mount Polley copper and gold mine in the interior of British Columbia broke its banks in August 2014, it spilled 25 million cubic metres of contaminated water and waste into the environment. Streams and land were flooded and Polley Lake rose by 1.5 metres. An outraged public saw NASA photographs showing the vast expanse of the spill. The David Suzuki Foundation called for a halt on new mine proposals, writing “While we wait for answers on how this environmental disaster was allowed to happen, questions are being raised about just how our mines are being operated and regulated.”
The provincial government acted immediately, tabled changes to the Mining Act and ordered safety inspections of tailings ponds at 60 other mines. It also ordered that an independent panel should review the causes of the disaster.
The expert panel reported on January 30 this year. Again some fault was laid at the feet of engineering design: “The Panel concluded that the dominant contribution to the failure resides in the design. The design did not take into account the complexity of the sub-glacial and pre-glacial geological environment associated with the perimeter embankment foundation….”
As in Ontario, the report made recommendations to avoid similar disasters. The Association of Professional Engineers and Geoscientists of British Columbia (APEGBC) is working to fulfil one, which is to produce guidelines for professionals to use when assessing and characterizing dam sites.
Furthermore, the Mount Polley dam breach has re-ignited discussions at APEGBC about whether it should be regulating engineering and geoscientist companies. The association has set up an advisory task force and will begin consultations next year. If corporate licensure becomes the rule, it means consulting engineering firms in B.C. would join those in other provinces and have to pay a fee and fulfil requirements set by the licensing body in order to offer their services to the public.
An inquiry into corruption
In Quebec engineering companies are starting to pick themselves up after the blows inflicted by the corruption scandals, which culminated in the Charbonneau Commission of Inquiry.
At the televised inquiry scores of witnesses revealed that for years bribes and collusion in the construction industry had been used to influence the awarding and pricing of municipal contracts. Individuals from some of the largest consulting engineering companies were implicated in the allegations.
The Charbonneau Commission report was due out at the end of November, but the province had already implemented steps to clamp down on illegal practices. A month earlier, on October 30, it announced a program called “Passeport Entreprises” to make it easier for small and medium sized firms to bid on construction projects. It proposed standardizing tender documents, and said it will ensure that the bidding requirements are not so onerous that they exclude all but one or two large firms.
The Association of Consulting Engineering Companies in Quebec (Association des firmes de génie-conseil/AFG) supports the Passeport Entreprises proposals. André Rainville, president and chief executive officer of the newly minted association (it changed its name from AICQ earlier this year), says that they’re particularly pleased that the government intends to introduce a new office of Commissioner for Contracts. This was one of the recommendations the association had made in a memorandum to the Charbonneau Commission. “We felt that it was important to have this type of institution to act as a watchdog to ensure that the public sector is using the best processes to award contracts.”
As the unveiling of the Charbonneau report drew near, Rainville said: “We have already informed the government that we are ready to work with them and do what we can to help and implement the recommendations.” He continued, “We should take lessons from the past, otherwise it’s a complete failure. We want to see the Commission succeed. After this experience we should progress and demonstrate that we are now at the head of the parade, as it were, in doing things the best way for serving municipalities and the Quebec government.
In the meantime companies have paid a price. Since the scandals first broke around five years ago, consulting engineering companies in Quebec have lost about 20% of their employees. Their order books suffered because government clients froze many planned projects in the wake of the corruption scandals. Bureaucrats were suddenly shy about working with outside consulting firms.
Since then government departments have built up their own in-house engineering teams rather than relying on outsourcing. Rainville believes these government departments have hired many of the engineers who were laid off from consulting firms. “It’s an interesting equilibrium right now between the engineering competence within government departments and that within the consulting industry,” he says.
“We support the idea of having a public institution with competency,” he continues. “It’s important for managing contracts so we think it’s a good thing. But at the same time we tell government that it is also good to maintain the competency of the consulting engineering firms. Their expertise can be exported and bring value for the Quebec economy.”
Oil industry slump
In Alberta not long ago companies were riding high on oil sands and resource projects. Now, “It’s not very pleasant,” says Ken Pilip, P.Eng., chief executive director and registrar of Consulting Engineers of Alberta. “We’re talking hundreds of billions of dollars in oil sands development which has basically been taken right off the books.”
By mid-November the price of oil had slipped to below $42 a barrel and the worldwide glut was worse than expected. In Calgary Mayor Nenshi said that with the cancellation of the Keystone pipeline project the situation could get worse. Everyone was waiting to hear the outcome of the Paris climate talks in December, and the question of the government increasing oil and gas royalties still hung in the air. The Canadian Association of Petroleum Producers estimated that 36,000 jobs in the oil and gas sectors had been lost this year already.
Pilip sees the effect on consulting firms. “Everybody has looked at where they think things are headed and are doing reviews. At this time they are planning their budgets for next year, so they’re cutting back. The industry here is hunkered down.”
“Many companies do whatever they can in order to survive, meaning reducing hours, taking holidays, reducing salaries, to try and hang on as long as they can,” he says.
It’s important they do, “because in the consulting engineering industry we don’t do downturns very well. The problem is that when we are in these situations and have layoffs, we lose people who never come back, which means a loss of knowledge.”
So far the situation is holding, and Pilip hopes that engineering firms will be sustained by the government investing in infrastructure. “One of the most encouraging things that will give people a little staying power in our industry,” says Pilip, “is that we have a new government in Alberta and they have seen the wisdom in increasing infrastructure spending. Over the next three years they are rolling out significant investment to take advantage of lower commodity prices and lower labour costs.”
“We’re talking $10 billion worth of work from Alberta Infrastructure and Alberta Transportation,” Pilip continues. “That’s a lot of money. It’s going into LRT expansions in both Edmonton and Calgary, and to complete major transportation corridors in the two cities. The province has also provided funding to rural Alberta to upgrade their infrastructure such as roads. Then we have at least three major hospitals announcements in the planning stages that are each $1 billion or more.”
“We also have a new government in Ottawa, he continues, “and by virtue of their pledges during the campaign the Liberals are going to be increasing spending to stimulate infrastructure across Canada.”
Pilip worries at the prospects for the province if the price of oil dips below $30 a barrel as some predict: “We are in trouble if it does,” he says.
But on the bright side, the association sees the downturn as a chance for the consulting engineering industry to recalibrate. “We think it’s a good time to talk about our industry — how we can become more efficient, how we can bring greater value to projects. It’s a good time to have those kinds of conversations. Engineering firms are looking for efficiencies, and clients are looking for added value that they may not get when things are going really wild.”
British Columbia consulting engineers, and to some degree those in Saskatchewan, are also starting to see a drop in project opportunities. Keith Sashaw, president and chief executive officer of the Association of Consulting Engineering Companies British Columbia (ACEC-BC), says, “We have seen a downturn in the resource sector, as much of Canada has. There are not as many robust opportunities.”
But for ACEC-BC and for Consulting Engineers of Ontario (CEO), a major concern is the contracts that clients are expecting their member firms to sign. Both associations have committees looking at the problem of clients who expect their consulting engineers to agree to indemnify them against all kinds of risks that lie outside the engineers’ control.
“We’re finding increasingly that contracts are coming with more onerous clauses — the transfer of risk through unacceptable conditions being inserted in the contracts,” says Sashaw. “This is posing significant risks to the consulting engineering industry.” The association has started to include a “Contract Corner” in its newsletter, offering advice to members. So far the association has identified 16 different examples of contract clauses that could cause firms legal difficulties down the road.
In Ontario, Rex Meadley, P.Eng., is chair of CEO’s Business Risk Committee, which is also looking at contracts with municipalities. “There is a tendency for clients to download risks on to their consultants,” he says. “The wording can get so broad that the risk is uninsurable, so then it rests entirely on the firm. It’s potentially a huge cost and it can shut firms down.”
Asked for an example, he explains: “Say somebody drives off the road in the vicinity of a construction project. Thanks to a clause in the engineers’ contract with the owner, the engineer on the project could be held responsible for all the damages related to that accident, both direct and consequential. But the accident was not related to the engineers’ professional negligence or actions in any way.”
Both ACEC-BC and CEO are talking with municipalities and negotiating the problems. “We’re going through a two-part process,” says Sashaw. “One is educating our members about the importance of reading and understanding the contracts, and challenging onerous clauses where they present a risk to the consulting firm. Then secondly we’re educating clients. We explain that they may be discouraging firms from submitting proposals, or that engineers will be pricing the risk transfer accordingly, which will increase the price of the work. That means the client will not be getting the best value for their money.”
Steering the course
It’s important to keep things in perspective. Overall the consulting engineering industry continues to be strong, is a vital part of the economy and highly respected. The disasters of Elliot Lake, Mount Polley, and the damage of the Charbonneau Inquiry are setbacks, but nothing compared to the ongoing creativity and dedication of so many engineers who strive to shape the built environment in a responsible way. Recent events might be causing changes to licensing and practice, but change of any kind can stimulate the fires of creativity and excitement.
On the other hand, fire is best kept at a simmering glow, rather than erupting in the small explosions we’ve been experiencing lately.
Bronwen Parsons is Editor of Canadian Consulting Engineer magazine.