“Renewed optimism” across Canadian construction industry: KPMG
The majority of companies in the global engineering and construction sectors have fresh optimism and anticipate further growth across the industry, according to KPMG’s Global Construction Survey. After prolonged economic uncertainty, companies are experiencing a general increase in backlogs and margins, showing an overall positive outlook in the industry.
“Canadian respondents see stability, leading to cautious optimism. The survey results suggest that growth is going to be slow but there are a number of factors that will support steady activity, including demand for new infrastructure projects in the mining and energy sectors, government funding for public transit, and population growth. In the next few years, companies will be tested on their ability to diversify, manage labour cost escalation, and deploy human talent in remote areas,” says Augusto Patmore, partner, Advisory, Global Infrastructure Advisory & Mining, KPMG in Canada.
The survey found that:
- Just over 50 per cent of respondents from the Americas; Europe, Middle East and Africa (EMEA); and Asia-Pacific (AsPac) regions say their companies experienced a backlog increase of at least five per cent from 2012 to 2013.
- Though margins are not rising at the same rate as backlogs, 80 per cent of respondents say their margins will either remain stable or increase more than two per cent in the same period.
In Canada, the majority of respondents cite:
- A reported backlog increase of more than 10 per cent in 2012, as compared to the end of 2011;
- Stable profit margins at the end of 2012 (compared to 2011);
- Stability in 2013 volume of orders (compared to 2012);
- Anticipated/proposed margin rate when bidding in current tenders in 2012.
While the survey shows optimism across the industry, there are still barriers to growth:
- The industry is heavily reliant on national governments’ infrastructure plans for future growth, with two-thirds of respondents citing this as the single most important market driver;
- Risk management continues to remains a challenge for the sector;
- Heavy investments in risk management over the past decade are paying off with the majority of respondents saying their risk management programs have improved project performance. However, 77 per cent claim the existence of underperforming projects are due to project delays, poor estimating practices and failed risk management processes.
The global and Canadian landscape is enthusiastic about the industry but there is a sense of realism to forward planning with many feeling that growth may take several years. “A key theme we are seeing, particularly in Canada, is the focus on ethical practices and enhanced standards particularly over bid and tendering processes. Canadian respondents believe that effective risk management is critical to future growth. As the sector looks forward, there will greater accountability for effective processes and control over construction practices,” says Lorne Burns, partner and national industry leader, Real Estate, KPMG in Canada.