Giovanni Cautillo, president of the Ontario General Contractors Association (OGCA), appeared before Ontario’s Standing Committee on Finance and Economic Affairs for the second time this month to discuss the impacts of the COVID-19 crisis on general contractors, this time focusing on small and medium sized construction enterprises.
Seventy per cent of the industrial, commercial and institutional (ICI) sector is made up of small and medium sized firms that are both unionized and open shop, Cautillo told the committee.
“These smaller firms are dispersed across Ontario, with smaller contractors having roots in rural communities that are in desperate need of economic stimulus,” he said.
“Over the next few months small and medium sized contractors will be facing cash flow shortages. This is the start of a financial crisis that requires the government’s immediate response.
“Simply put, we need to protect these employers from collapse due to cash flow issues. What can we do to keep these employers above water amid cash flow issues and delay costs? Start with ensuring the problem doesn’t get worse.”
In his presentation, Cautillo tabled the OGCA’s recommendations intended to provide contractual and debt relief for the ICI sector.
“What we are asking for is to put language in that protects contractors in the force majeure clause,” Cautillo told the Daily Commercial News.
“We’re asking them to put out more projects with less impediments so that you stimulate the economy because construction is a driver of the economy. We’re asking them to backstop lines of credit to ensure contractors have the working capital to get those projects moving.”
The OGCA is suggesting any monies that the federal government has be redirected into projects in order to get people back to work.
“Right now is not the time to pull the plug,” said Cautillo. “If you start to pull projects you are going to stagnate and die. You need to put blood flow into the organism to ensure that it’s going to be healthy.”
The three recommendations include: apply pandemic-related costs to the force majeure clauses of contracts; remove regulatory impediments to the planning and delivery of all construction projects, including the removal of exclusion clauses from procurements policies; and establish a relief provision that allows banks and bonding companies to financially support contractors while they deal with contractual and payment delays.
“Typically things outside a GC’s control are covered by a force majeure clause, but these clauses do not allow for a pandemic or a mandatory closure of the industry, meaning GC’s will be held liable for all associated costs,” Cautillo explained in his presentation.
“Adding ‘pandemic’ as a component of the force majeure section in contracts would begin to address this issue for employers. By taking this action, the government would be able to protect contractors from COVID costs that could cripple their business while allowing them to continue to build under challenging and uncertain conditions.”
Another thing that is needed is an infrastructure pipeline that supports small and medium sized construction.
“Although public projects make up a critical portion of our business, public infrastructure is only one part of the ICI construction industry,” said Cautillo.
“But with our economy in recession, many OGCA members are worried that they will be completely dependent on the Infrastructure Ontario pipeline for business. This is because the pandemic stopped much of the planning and approvals for commercial and industrial construction slated for 2021. The only way to fix this is by providing a long-term pipeline of public projects, large and small, that will encourage investment.”
It also serves as an incentive to train those who lost jobs due to the pandemic.
“Right now many workers are looking to the trades as a place of opportunity,” said Cautillo. “With the recent changes to training ratios, the skilled trades are primed and ready to grow and small and medium contractors are the perfect vehicles to teach apprentices.”
The OGCA is also asking the government to ask banks and bonding companies to support contractors financially with relief provisions.
“A lot of small and medium size firms actually invest their own personal assets as collateral when they are applying for a line of credit, so if the banks and bonding companies start pulling lines of credit then you are not only bankrupting companies, you have the potential of losing thousands of jobs in small communities across Ontario,” Cautillo noted.
“By backstopping these loans and just insuring them from a governmental standpoint saying, ‘listen these guys are going to be fine you just have to extend credit to them just to get them over the hump.’ We’re asking for assistance to ensure that contractors can deal with the contractual payment delays so once the money starts flowing again then we don’t have cash flow issues.”