Sustainable construction

There is no shortage of issues—both positive and negative—impacting Canada’s engineering and construction (E&C) sector today. From rising interest rates, still-elevated inflation, and ongoing supply chain challenges to the seemingly endless possibilities of artificial intelligence (AI), executives have a lot to mull over as they set a course for the future.

Despite these challenges, which also include economic and geopolitical volatility, the sector still has strong growth potential. According to Randstad, Canada’s construction sector is expected to top US$354.9 billion by 2024, growing at an 8.5% compound annual growth rate. It currently employs about 1.2 million people, accounting for around 7% of the Canadian workforce.

What may be in store for the sector? Deloitte has identified five key forces that are driving E&C today

1. On-the-go infrastructure projects

There are many important public and private infrastructure projects on the go right now, including a 16-kilometre subway line build between Ontario Place and the Ontario Science Centre in Toronto, and the rebuilding of the George Massey Tunnel south of Vancouver. In Alberta, the provincial government, along with the federal government through its Investing in Canada Infrastructure Program, has committed more than $52.7 million to complete several major projects. In smaller areas across the country, the Community Infrastructure Improvement Fund is pouring over $150 million into projects that will help repair or improve facilities.

One key private sector investment is TC Energy’s $8-billion oil pipeline project in Alberta, which will eventually transport up to 830,000 barrels a day of oil all the way to Nebraska.

2. Continuing supply chain woes

Supply chain backups have eased from last year, but they’re still causing headaches, with 58% of Canadian firms reporting supply chain issues as one of their top concerns for rest of 2023. Because of late-arriving materials, 80% of firms have pushed back project completion dates, and 25% have turned down work because they can’t guarantee the necessary inputs.

Part of the problem is that many of the pandemic-era supply challenges haven’t fully abated, such as transport bottlenecks and geopolitical uncertainties. Much of the sector is still seeing big price fluctuations in input costs, with the volatility in material costs specifically pushing up overall construction expenses. Contractors who didn’t buy large amounts of materials at normalized prices, or who failed to include price escalation clauses in their contracts, could get hurt if inflation continues to rise.

3. A liquid labour market

Like in other sectors, E&C is experiencing skilled labour shortages and high turnover rates. While there’s a lot of work to go around given the strong pipeline of spending, companies can’t find the workers they need to complete their projects.

To complicate matters, there’s about to be a wave of retirements. In Ontario alone, 21% of the workforce is expected to retire in the next 10 years. BuildForce Canada projects that Ontario will be short 81,000 skilled workers by 2030. If firms are going to better attract and retain workers, they’ll need to raise wages or sweeten benefit packages, which will bring additional cost pressures.

4. New efficiencies with AI

One way to help mitigate worker shortages is to invest in AI. These technologies, including robotic process automation, are already being used to help automate administrative tasks, such as verifying change orders and managing bills of materials. New AI applications are also helping firms with generative design, material selection, and code compliance, and to better understand traffic and pedestrian flow where needed.

AI is making a big impact on business, but E&C companies will need to find people who can be trained on, and maintain, the underlying models and effectively apply AI to their operations.

5. Focus on decarbonization

The pressure is on for Canada to become net-zero by 2050. E&C has a major role to play here, especially around building green and energy efficiency. Currently, the building sector accounts for 13% of Canada’s GHG emissions—the third-biggest source. That number jumps to 18% if electricity-related emissions are included. More than 78% of building emissions come from space- and water-heating equipment.

E&C operations are being called upon to develop new and more sustainable buildings and to retrofit older spaces with energy-efficient, non-emitting materials. Some of the financing for these projects will come from the $150-million Green Buildings Strategy, which was announced in the 2022 federal budget.

E&C companies clearly have a lot to think about and, with the Bank of Canada increasing interest rates yet again in June to 4.75%, can continue to expect volatility within housing-related building sectors. When inflation rises, consumer confidence may be impacted, too.

Businesses would be well served to remain focused on the long term—if they can do that, growth looks promising. The construction project pipeline is strong, with governments continuing to spend on infrastructure, and new technologies should help the sector become more efficient in the years ahead.

Read more about sustainable construction in our Global report Decarbonizing Construction: Building a low-carbon future.

^Disclaimer
This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.