By Jim ChliboykoFeatures Business Intelligence
Ever since Donald Smith drove the last spike into the Canadian Pacific Railroad at Craigellachie, B.C., on that November morning in 1885, Canadians have learnt to scour the horizon for the next mega project that would provide them with employment or define their careers or lead to extra income potential for their businesses.
Ever since Donald Smith drove the last spike into the Canadian Pacific Railroad at Craigellachie, B.C., on that November morning in 1885, Canadians have learnt to scour the horizon for the next mega project that would provide them with employment or define their careers or lead to extra income potential for their businesses. Massive projects, especially in hydroelectric-generation and urban-transportation infrastructure, are taking place all over this country. Each one represents a potential windfall for equipment rental operators in the form of long-term rentals of big, expensive machinery. But smaller operators may need to change their approach to take maximum advantage of these opportunities.
|You might think renting to sophisticated contractors for big projects, like the Romaine Complex hydroelectric development near Havre-Saint-Pierre, Que., would be easier. But experienced rental operators say the demands for training and support are higher.
According to ReNew Canada magazine’s website entitled Top 100, Canada’s Biggest Infrastructure Projects (top100projects.ca), the biggest current mega project under way in Canada right now is the Site C Clean Energy Project in northern B.C., with an estimated eventual cost of $7.9 billion. In fact, the estimated costs for the top 10 of the top 100 alone, combined, total just under $48 billion.
Of those top 100 mega projects, 39 involve the energy sector, including the top three most expensive projects. That includes wind (nine) and hydroelectricity (15) among other kinds of energy. Nineteen of the projects are transit-themed, 16 involve transportation infrastructure – like interchanges and the building of highways – and 12 involve the health-care sector.
So, what does this mean for the country’s equipment rental firms? Are mega projects a predictable source of revenue? Should you base your business’s future health on the presence of mega projects near you? And should you bother opening a satellite office conveniently right near the province’s newest dam-building site?
For rental firms, the size of a project is not always a guarantee of business. There’s a perception out there, for some, that the bigger the job or event — say, the Winter Olympics — the less chance for local firms to get a share of that pie. But, of course, every job and every mega project is different.
“Site C hasn’t actually happened yet,” said assistant manager Tyler Soule of Peace Country Rentals in Fort St. John, B.C., the closest community to the Site C project. “It’s very hush-hush. There are lots of environmental considerations, lots of political considerations. There’s one contractor in town that’s doing some environmental work for them.” Soule says that Peace Country Rentals is a local, mom-and-pop family firm that’s been around since 1977. He says they’ve gotten some business from that local contractor on the early Site C environmental work, but there’s no guarantee that any more work will eventually trickle down to them. “There’s a number of businesses in town that have gone to the (community) meetings (regarding the project). What B.C. Hydro is doing in terms of local contractors, they flat out said there’s no reassurances.”
Soule says that his family’s business tends not to lobby for work. But, at the same time, he’s confident that some of the work will eventually come to them. Part of it is the nature of the rental business. “Lots of businesses go to the meetings. We tend not to. We warehouse lots of equipment,” he says. “Ninety per cent of rentals are unplanned. We’ll get business from Site C – we’re too close not to get used. It’s a pretty word-of-mouth place. Rentals are usually other people’s emergency services. We call it organized chaos.”
Mega projects happen in the city, too. In terms of urban mega projects, the Eglinton Crosstown LRT in Toronto, listed as number five in the Top 100 list, is estimated to be between a $1-billion and $5-billion-job, the goal of which is to ultimately lay 19 kilometres of track across Canada’s largest city. Last year, the project inspired some controversy by bundling all of its components together into such a behemoth of a job that by mid-summer last year only two bids had come in. Bodies like the Ontario Association of Architects, the Construction and Design Alliance of Ontario and the Consulting Engineers of Ontario, have been critical of this and there were some suggestions that breaking a project into smaller components would open it up for more work for local firms – rental firms would be included in that, presumably – and perhaps would even end up saving money on the project.
Another manager of a northern Ontario rental firm who wanted to remain anonymous, a firm that happens to be near a mega project site, mentioned that if the project is big enough, the firms would probably just purchase big equipment items outright and liquidate them after the project is over rather than renting them from a rental firm, especially if there were years of work ahead of them. Also, he mentioned that the larger firms are probably well-stocked enough to have many of the items that they would need already on hand. Is your sales team prepared to overcome objections of this kind?
There is also the luck-out factor. Paul Connors operates Valley Rentals and Sales in Happy Valley-Goose Bay, N.L. He has essentially gotten out of the rental game (except by name) and refashioned himself into an industrial supplier. His town and business happen to be fairly close to the Muskrat Falls project (number 12 on the list). Luckily for him, he still has warehouse space, and he still rents that out. The folks in charge of Muskrat Falls have already been in touch with him to rent the space for what looks to be months if not years at a time. “It could be two years total, and could extend to five or seven more years,” said Connors.
There are others in the industry that see that the entire business is evolving, and the relationships between rental firms and large general contractors is also changing, mostly for the better. According to Scott Fisher of United Rentals, the company gets regular work from mega projects from “all sectors, everything from hydro to clean coal to oil sands, as well as mining.” Fisher, the vice-president of United’s western region, says that United Rentals isn’t just interested in throwing their big project clients the keys to the truck and walking away. “The rental business is transitioning to be a value-added partner, though the rental industry may have initially spawned from providing an immediate need.”
|Megaprojects hold out the possibility of longer-term rentals of larger, more specialized equipment – like extended boom lifts that would find scarce application elsewhere. Photo courtesy of Hydro Quebec.
Fisher says that the complexity of mega projects tend to favour firms like United Rentals. “When you have many, many contractors on site, you need someone to manage the equipment. We provide capacity and service. We have to be there. We’re the experts in the equipment.” he says, adding that United also provides proprietary project management software services. “Today, I find that industries are investing more in front-end planning. There’s a lot of experience. The oil sands industry, for example, has matured, with more emphasis on planning.”
Other mega projects mean different kinds of opportunities. The East Side Transportation Initiative is listed as number 11 in the Top 100. It’s a $3-billion job, all told, with the goal of laying down 1,028 kilometres of road on the remote east side of Manitoba’s Lake Winnipeg, an area that is only currently being serviced by winter ice roads. Ronuk Modha of the East Side Road Authority (ESRA) doesn’t work directly with any equipment rental firms as part of his job, as they are mainly the overseer of the project. The winning MERX contractors are the ones that deal with any rental issues. But, he says, the agency has a mandate involving local economic development. The east side of Lake Winnipeg does have population, primarily remote First Nations. “We’re trying to build capacity through economic development,” says Modha. “One of the things we’re doing is engaging with them through community benefits agreements.” According to the project’s literature, the ESRA “is also developing an inventory of heavy equipment available in the east side communities that could be used by the ESRA or contractors. Equipment must be in good working condition. Anyone interested in renting their equipment to the project should register with ESRA.”
“Essentially what we’re gathering is an inventory from the communities,” says Modha. “We want (contractors) to use equipment from the locals, trained people and services. In our main contracts, there’s a 30 per cent requirement to hire local residents, 20 per cent for bridge contracts.” This may, in the future, spur the development of First Nations rental firms. “That could very well be the case in the future. Some of these communities have the equipment,” says Modha, who also adds that the idea of developing local rental firms hasn’t been completely investigated yet.
Back in northern B.C., though, Site C isn’t the only game in town. Says Peace Country Rentals’ Soule “We do have rumblings that if the (Northern Gateway) pipeline goes through, we will get business there.”
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