On-Site March 2015

MARCH 2015

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DEPARTMENTS 5 Comment 9

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Pondering P3s

News Industry news

12 Construction Stats The latest news on building permits and construction employment.

COLUMNS 27 Risk Project-Specific Insurances: What are the right limits?

30 Contractors and the Law Damages for breach of contract, and how they are measured.

28

Index of Advertisers

features 14

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Automatic lubrication systems help eliminate unplanned and unnecessary equipment expenses.

Dealers have a real stake in your long-term profitability. Hereâ&#x20AC;&#x2122;s how to make the best use of this important relationship.

Why contractors should (and shouldnâ&#x20AC;&#x2122;t) use social media

Understanding Automatic Greasing Systems

Dealing with dealers

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EDITORIAL

Pondering P3s

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ne thing is for sure: whenever this publication covers a successful Public/Private Partnership project, we get a strong protest from the P3 naysayers.

Just to clarify – no, I am not the starry-eyed mouthpiece of Big Infrastructure. P3s are one alternative in project delivery that has advantages and disadvantages. I don’t have a bias here, beyond wanting to see projects getting completed and contractors getting paid.

P3s are predominant in delivering big infrastructure projects in Canada. In fact, the federal government is adamant that this delivery model be considered in detail for all the projects it is funding worth over $100 million. There’s a reason for that, and it doesn’t involve any conspiracies – despite what you may have read in the newspapers.

Trenchant criticism recently came from Ontario Auditor General Bonnie Lysyk. She identified a few P3 projects in Ontario that were late and over-budget, and involved more financial risk than was originally planned. Her comments are all verifiable… the particular projects she cites do have issues.

Nobody in the construction industry was surprised to hear that big projects can run into big problems. She also criticized the P3 model as involving higher interest rates, since the projects are financed privately rather than by government bonds. True enough, if only the government was willing to assume that debt. So does that invalidate the P3 concept?

Something of a rebuttal was issued by Infrastructure Ontario CEO Bert Clark. He noted that IO has saved billions of dollars by assigning financial and construction risks to the infrastructure consortia. If they don’t deliver, they don’t get paid, Clark pointed out.

That’s what is at the heart of the P3 concept: assigning construction risk to the party most capable of managing it.

Some laud the “good old days” of infrastructure investment, when government managed everything about a project, from cradle to grave.

(Some of you who were active then might not remember them as being so good.)

Consider how infrastructure spending has changed for government. In its heyday, government completed a large number of successful

projects. And for every one that was completed, a new demand for service, maintenance and operation was created. A huge chunk of government money now has to be allocated to managing those assets over their usable life spans, shrinking the pot for new projects. Budgets for infrastructure are growing exponentially, and not because new assets are being put in.

Things have reached a tipping point and Canadian governments simply can’t afford to operate as they did in the past. They are turning to private organizations to design, build, finance, maintain and operate such assets. If it weren’t for P3 consortia, some of these assets would be coming on stream much more slowly, or perhaps never be started at all.

P3s have had their share of issues, especially in the first-generation projects where government and industry were still feeling their way. On the whole, though, Canada is in an enviable position with regards to P3s, with a system that has attained a level of maturity.

In Public-Private Partnerships: What the World can Learn from Canada, a case is made that generally, the Canadian approach is working well.

The report, from the Canadian Council for Public-Private Partnerships, points out: • a steady pipeline of well-structured projects; • standardized procurement processes, including consistent project agreements and payment (read “transparency”); • improved mechanisms, evaluation methodologies, and financing requirements; • sharing of lessons learned among and within the provinces; • a developing framework of trust between the public and private sectors, which has contributed to the development of a competitive supply market.

More than 200 P3 projects worth more than $70 billion have been signed in Canada. Besides the financial element, they have driven better performance in procurement.

The document is worth a look. Is the P3 system perfect? No. Is it the best method of delivery available for certain large infrastructure projects?

Check the evidence and decide for yourself.

on-sitemag.com / 5

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MEET OUR CONTRIBUTORS FOR THIS ISSUE

www.on-sitemag.com / Fax: 416-510-5140

JIM BARNES / Contributing Editor, On-Site

EDITOR/EDITORIAL DIRECTOR | Corinne Lynds (416) 510-6821 CLynds@on-sitemag.com (on mat-leave)

On Dealing with Dealers The new contractor needs all the help he can get and the early years can be make-or-break... A source of help you might be overlooking is your equipment dealer.

CONTRIBUTING EDITOR | James A. Barnes

PUBLISHER | Peter Leonard (416) 510-6847 PLeonard@on-sitemag.com

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ART DIRECTOR | Mark Ryan (416) 442-5600 x3541 MRyan@annexnewcom.ca

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ASSOCIATE PUBLISHER | David Skene (416) 510-6884 DSkene@on-sitemag.com SALES & MARKETING COORDINATOR | Kim Rossiter (416) 510-6794 KRossiter@annexbizmedia.com

DAVID BOWCOTT / Senior vice-president, national director large/strategic accounts, construction and infrastructure services, Aon

PRODUCTION MANAGER | Barb Vowles 416-510-5103 BVowles@annexnewcom.ca CIRCULATION MANAGER | Selina Rahaman (416) 442-5600 x3528 SRahaman@annexnewcom.ca

On Project-Specific Insurances How much is enough when it comes to choosing the limits of insurance and performance security for your project?

“

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Published by Annex Business Media 80 Valleybrook Drive, North York, ON M3B 2S9 Vice President Annex Business Media East | Tim Dimopoulos (416) 510-5100 tdimopoulos@annexbizmedia.com

MIKE DECKERT / VP of FLO Components and instructor of the Lubrication School at Mohawk College

President & CEO Mike Fredericks mfredericks@annexweb.com

On Understanding Automatic Greasing Systems

“ Improper lubrication accounts for 53 per cent of all bearing failures, a major

”

cause of equipment downtime and significant, unnecessary maintenance costs.

PRIVACY NOTICE From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not wish your contact information to be made available, please contact us via one of the following methods:

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Phone: 1-800-668-2374 Fax: 416-442-2191 E-mail: jhunter@businessinformationgroup.ca Mail to: Privacy Officer, 80 Valleybrook Drive, North York, ON M3B 2S9

On Excavators: Brain, Brawn, Power How to manage all the brawn and brainpower in a large construction excavator continues to challenge equipment manufacturers. And it’s not all just about engines and hydraulics.

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KRISTA JOHANSON / Associate with Borden Ladner Gervais L.L.P. On Damages for Breach of Contract When a construction contract is breached by a contractor, the usual remedy is for the owner to receive damages.

How will the damages generally be measured?

“

”

JACOB STOLLER / Principal, StollerStrategies

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ontractors looking for quick ROI to justify “ Csocial-media expenditures, however, are likely to be disappointed.”

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INDUSTRY NEWS

INDUSTRY>NEWS 2014 Ontario Concrete Awards recognize concrete innovation The 2014 Ontario Concrete Awards were held in December in Toronto to recognize outstanding achievements in concrete construction in Canada.

Here’s a quick look at this year’s winners.

Architectural Merit Deerfield Hall, Mississauga; Owner: University of Toronto; Architect of record: Perkins + Will; Engineer of record: exp Services Inc.; General contractor: Eastern Construction Company Ltd.; Forming contractor: Alliance Forming Ltd.; Material suppliers: Canadian Precast Ltd. and Dufferin Concrete.

Architectural Hardscape Lake Wilcox Park Waterfront Promenade, Richmond Hill; Owner: The Corporation of the Town of Richmond Hill; Architect of record: Dillon Consulting; Engineer of record: R.J. Burnside & Associates Ltd.; General contractor: Rutherford Contracting Ltd.; Specialty contractor: UCC Group Inc.; Material suppliers: Ed’s Concrete Products Ltd., Innocon, and Stone-Link Corp.

Institutional Building

Don Jail section of Bridgepoint Active Healthcare

Sustainable Concrete Construction Bridgepoint Active Healthcare, Toronto; Owner: Bridgepoint Active Healthcare; Planning, Design & Compliance Architects: Stantec Architecture / KPMB Architects; Design, Build, Finance & Maintain Architects: HDR Architecture / Diamond Schmitt Architects; Engineer of record: Halsall Associates; Design Builder: PCL Constructors Canada Inc.; Forming contractor: Alliance Forming Ltd.; Material Supplier: St Marys CBM The state-of-the-art concrete building meets the specialized care needs of people with complex chronic disease and disability. It is registered to LEED Silver and 37,800 cu. m. of concrete were poured.

Social Sciences Building, University of Ottawa; Owner: University of Ottawa; Architects of record: Diamond Schmitt Architects and KWC Architects Inc.; Engineer of record: Halsall Associates; General contractor: Aecon Group Inc.; Forming contractor: Bellai Brothers Construction Ltd.; Material supplier: St Marys CBM

Material Development & Innovation Fung Loy Kok Institute of Taoism, Markham; Owner: Fung Loy Kok Institute of Taoism; Architect of record: Shim-Sutcliffe Architects; Engineer of record: Blackwell Structural Engineers; General contractor: Gillam Group Inc.; Forming contractor: Alliance Forming Ltd.; Flooring contractor: Metro Concrete Floors (1990) Inc.; Material supplier: St Marys CBM

Mid To High Rise Residential Cinema Tower, Toronto; Owner: TSCC 2341; Architect of record: Kirkor Architects & Planners; Engineer of record: Jablonsky, Ast and Partners; Construction Management: Daniels HR Corp.; Forming contractor: C.I.P. Group; Material Supplier: Innocon

Four-lane, 13-km Hwy 404 extension.

Specialty Concrete Products Highway 404 Extension, York Region; Owner: The Ministry of Transportation of Ontario, Central Region; Engineer of record: Hatch Mott MacDonald; Contract administrators: Highway Construction Inspection Ontario and Morrison Hershfield Ltd.; General contractor: Miller Paving Ltd.; Material supplier: Miller Concrete Concrete pavement was used for this 13-km., four-lane extension because it offered the best value, including savings in granular subgrade, environmental aspects and schedule.

on-sitemag.com / 9

INDUSTRY NEWS

Specialty Concrete Applications Dufferin U-Track, Toronto; Owner: Aspen Ridge Homes (Richmond) Ltd.; Architect of record: Quadrangle Architects Ltd.; Engineer of record: Jablonsky, Ast and Partners; General contractor: Aspen Ridge Management Group Inc.; Material supplier: Dufferin Concrete

Structural Design Innovation Aga Khan Museum & Ismaili Centre, Toronto; Owner: Imara (Wynford Drive) Ltd. ; Architect of record: Moriyama & Teshima Architects; Engineer of record: CH2M HILL; General contractor: Carillion Canada Inc.; Forming contractor: Alliance Forming Ltd.; Material supplier: St Marys CBM More info: See http://ontarioconcreteawards.ca/award-winners for additional participants, members of the organizing committee, members of the judging panel and industry supporters, as well as other information.

Deadline for the 2015 OCA submissions is September 24, 2015.

Canada widens lead as top U.S. market for equipment Exports of U.S.-made construction equipment ended 2014 with a broad-based 13.2-per cent drop from 2013 figures, with a total $17.26 billion shipped to global markets. However, of that total, Canada accounted for nearly a third of sales by dollar volume and declined by less than other major markets. The Association of Equipment Manufacturers, Milwaukee, Wisc. published the data in February.

Regionally, Canada showed less decline than other markets (all currency U.S.).

• Canada: $6.66 billion, -2 per cent • South America: $2.57 billion, -28.3 per cent • Asia: $1.98 billion, -7.1 per cent • Europe: 1.98 billion, -22.6 per cent • Central America: $1.95 billion, -11.4 per cent • Africa: $1.23 billion, -5.2 per cent •A ustralia/Oceania: $889.5 million, -32.4 per cent.

In terms of national markets, Canada accounted for nearly half of the top ten sales. The only country to surpass us in percentage sales growth was Saudi Arabia.

• Canada - $6.66 billion, -2 per cent

10 / MARCH 2015

• • • • • • • • •

Cast-in-place Niagara Tunnel is 10.1 km long.

Infrastructure OPG – Niagara Tunnel Project, Niagara Falls; Owner: Ontario Power Generation; Design Engineer: ILF Consulting Engineers; Engineer of record: David F. Wood Consulting Ltd.; General contractor: Strabag Inc.; Material supplier: Dufferin Concrete This cast-in-place concrete tunnel is 10.1 km long and 14.4 m dia. It will provide 500 cu. m. of water per second to Sir Adam Beck Power Station.

Mexico - $1.59 billion, -11.3 per cent Australia - $808.3 million, -34.9 per cent Brazil - $720.5 million, -19 per cent South Africa - $669.5 million, -1 per cent Chile - $617.4 million, -38.2 per cent Belgium - $461.3 million, -25.2 per cent Peru - $460.4 million, -27.8 per cent China - $367.8 million, -3.1 per cent Saudi Arabia - $326.9 million, +10.7 per cent

Q4 of 2014 was the eighth consecutive quarter of decline for U.S. construction equipment exports.

AEM attributed the decline in part to: • retrenching from accelerated spending earlier in the recovery • a strengthening dollar against the Japanese Yen • declines in commodity prices, particularly oil, copper and coal In global markets: • South America, particularly Brazil, remain challenging • China experienced sluggish demand despite government stimuli

•E urope’s market remained uneven, but with growth in the United Kingdom • The Russian market declined significantly

Ontario: new working-at-heights training requirements Falls from heights remain a major hazard for workers in Ontario workplaces, according to the Ontario Ministry of Labour.

As of April 1, 2015, amendments to O. Reg. 297/13 (Occupational Health and Safety Awareness and Training) under the Ontario Occupational Health and Safety Act will require employers to ensure that certain workers successfully complete a workingat-heights training program approved by the Ontario Chief Prevention Officer (CPO), as having met the Working at Heights Training Program Standard.

The new training must be completed by construction workers who are required

by O. Reg. 213/91 (Construction Projects) to use any of the following methods of fall protection: a travel-restraint system, a fallrestricting system, a fall-arrest system, a safety net, a work belt or a safety belt.

The minimum duration for the training is 6.5 hours.

INDUSTRY NEWS

As well, the training must be delivered by a working-at-heights training provider approved by the CPO as having met the Working at Heights Training Provider Standard. The training, once completed, is valid for three years. Workers must successfully complete a half-day refresher course to revalidate. The CPO will issue a standardized proof of completion wallet card.

There will be a two-year transition period for workers who met the existing fallprotection training requirements in section 26.2 of O. Reg. 213/91 before April 1, 2015. These workers will have until April 1, 2017 to complete an approved workingat-heights training program.

Construction Lien Act under review by Ontario Ontario is launching an expert review of the Construction Lien Act that will include the examination of payment issues within the construction sector.

Ontario has selected Bruce Reynolds as counsel to conduct the review, which was commissioned in response to concerns related to prompt payment and dispute resolution in Ontario’s construction industry.

These include encouraging timely payment for services and materials and making sure that payment risk is distributed fairly.

Reynolds, an expert in construction law and senior partner at Borden Ladner Gervais LLP, represents various participants in the construction industry, including constructors, subcontractors, suppliers, private owners, municipalities, condominium corporations, homeowners, lenders, government agencies, insurers, sureties, and industry associations.

Reynolds was selected both for his practical experience and for his scholarship in the field.

The review should be completed by December 2015 and will involve extensive consultation with the construction industry, followed by a report to the province. An introductory letter will be issued to key stakeholders by the review, describing next steps and preliminary plans for stakeholder outreach.

Cement industry applauds B.C. government action on carbon tax The British Columbia government’s efforts to ensure that the province’s carbon tax legislation is applied equally to domestic producers and foreign imports has been hailed by the Cement Association of Canada.

At present, the carbon tax applies only to domestically produced cement.

Imported cement from the United States and Asia is exempt. The net result is losses to both the B.C. economy and the broader fight to reduce greenhouse gases, CAC said following a recent B.C. provincial budget speech.

The proposed three-year, $22-million transitional incentives that were announced in the budget will encourage the B.C. cement industry to adopt cleaner fuels and further lower emission intensities.

“The financial incentives will assist the current inequity the industry faces as a result of imports where no carbon taxes are applied,” says CAC president and CEO Michael McSweeney. “The cement industry has been working with the B.C. government and other stakeholders for many years to find a win-win solution to protecting jobs, economic development, and the environment.

“This incentive will help level the playing field for domestic producers of cement. It assists our company to ensure good jobs stay and continue to be created in British Columbia,” says Bob Cooper, vice president, Lafarge Western Canada. “Our competitiveness has been threatened by imports for the past five years and the move by the B.C. government will also ensure B.C. has a long-term and secure local supply of made-in-B.C. cement.”

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CONTRACTORS STATS A selection of data reflecting trends in the Canadian construction industry

Investment in new housing construction climbs Union wage rate index stays flat According to Statistics Canada, the Construction Union Wage Rate Index remained unchanged in December 2014 when compared with data for November 2014. Yearly gains were modest, too: the composite index increased 2.1 per cent in the 12 months prior to December 2014.

Union wage rates are published for 16 trades in 22 metropolitan areas for both the basic rates and rates including selected supplementary payments.

Housing prices edge upwards The New Housing Price Index posted a fourth consecutive 0.1 per cent increase in December, according to a report published by Statistics Canada in February.

Gains in Ontario and Alberta were moderated by a decline in Quebec.

The combined metropolitan region of Toronto and Oshawa was the top contributor to the December advance, with prices rising 0.2 per cent over the previous month.

According to StatsCan, growth due to market conditions was partially offset by builders offering bonus packages.

In terms of municipalities, London recorded the largest increase, 0.5 per cent, in December.

New housing prices edged up 0.1 per cent in Calgary—the smallest gain since December 2013. Builders reported higher material and labour costs as the main reasons for the increase.

Investment in new housing construction totalled $3.7 billion in December, up 5.1 per cent from the same month a year earlier, Statistics Canada announced in February.

INVESTMENT INCREASED FOR ALL DWELLING TYPES • Single-family dwellings led the charge, with spending up 4.3 per cent from December 2013 to $2.0 billion in December 2014.

• Row houses also showed strength, with a 12.8 per cent advance to $337 million.

• Apartment and apartmentcondominium building construction spending grew 3.3 per cent to $1.1 billion.

• Investment in semi-detached dwellings rose 12.0 per cent to $216 million.

REGIONALLY, THINGS WERE GENERALLY POSITIVE • The largest year-over-year advance occurred in Alberta, followed by British Columbia and Ontario.

• In Alberta, total investment in new residential building construction was up 16.7 per cent to $865 million.

• British Columbia saw an 11.3 per cent increase in spending, to $633 million.

• In Ontario, investment climbed 4.0 per cent to $1.2 billion.

• Manitoba experienced the largest decline (-18.8 per cent to $96 million).

Data on investment in new housing construction is not seasonally adjusted. The comparisons are between December 2013 and December 2014.

Prices

Current prices

2007 constant prices

2014

Type of dwellings

Aug.

New dwellings, all types

4,405,255

4,552,302

4,507,865

4,176,328 3,728,898

Single

2,284,052 2,044,157

Sept.

Oct.

Nov.

Dec.

2,482,164

2,499,121

2,411,365

Double

269,642

260,145

258,643

216,624

215,926

Row

401,037

427,823

428,392

401,473

336,796

Apartments

1,252,412

1,365,213

1,409,465

1,274,179 1,132,019

New dwellings, all types

3,980,450

4,114,259

4,074,848

3,773,875 3,376,571

Single

2,073,850 1,858,625

2,246,953

2,265,673

2,187,505

Double

248,133

239,306

238,334

200,086

200,353

Row

359,601

383,833

384,335

360,429

302,151

1,125,763

1,225,447

1,264,674

Apartments

1,139,510 1,015,442

NOTE: Investment in new housing construction, by type of dwellings, monthly (Thousands of dollars) Cf: CANSIM table 026-0017

12 / MARCH 2015

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Software

By Jacob Stoller

Why contractors should (and shouldn’t) use social media

S

ocial media, we are told, is a tool that marketers ignore at their peril.

“Social media now holds a place alongside print and broadcast as a major, essential marketing channel for businesses,” says a post by Evan LePage on the website of Hootsuite, a widely-used social media tool. “As such, social media should be held to the same standard as those channels.”

Contractors looking for quick ROI to justify social-media expenditures, however, are likely to be disappointed, explains Ben Dickie, senior manager of enterprise collaboration and digital marketing at Londonbased Info-Tech Research.

“That immediate demand-generation angle just doesn’t exist in industries like construction, with typically longer and more complex selling cycles,” he says.

Much of this is due to the way customer relationships are formed in the industry.

“The industry has deep-rooted customer relationships that are built on face-toface interactions,” says Joe Jagodich, vice president and CIO at EllisDon Corp.

Jagodich notes that even CRM (Customer Relationship Management) systems, which predate social media by a generation, are not effectively used in construction.

“It’s about building relationships and helping people,” says Toronto-based digital communications guru Martin Waxman.

“This has been around for a long, long time.

There were people, like used-car salesmen, who pushed something on you whether you wanted or needed it or not. And then you had the other type, who really were there to sell and cultivate a relationship.”

The key to making social media work with this latter group, therefore, is to drop

14 / MARCH 2015

the expectation that you’re going to attract, nurture, and convert leads in a predictable way. Instead, you extend the relationshipbuilding dialogue. “What social media lets us do, and it takes a lot of time, is continue those conversations across different platforms,” says Waxman. “So we’re not necessarily always meeting face-to-face – sometimes it’s face-to-face, sometimes it’s online, sometimes it’s a combination.”

Dickie, who recommends LinkedIn and Twitter as the primary social media tools for contractors, cites several areas unrelated to lead generation where contractors can derive value from social media. “Joining discussion groups on LinkedIn or Facebook pages for professional associations are two ways to keep track of what peers are up to.”

“The second major piece is what I would call the social listening, or the social-analytics piece. This helps contractors keep in touch with larger trends, such as legislation that might impact the construction industry, what’s going on with engineering current best practices, what’s going on in the construction labour markets, and things of that nature.”

This second category is key for EllisDon. “Social media is just one tool used to collaborate and ask questions about interesting and creative things,” says Jagodich. “Many AEC (Architecture, Engineering, Construction) experts use this forum to communicate what they have read about and been made aware of through their network of communities – be it an university, technical association, Internet group, or experienced at a construction conference or on the job.”

Dickie sees recruitment as the third category. As part of their networking activ-

ity, contractors can get to know candidates over time who they might someday hire.

Part of the magic of social media is that it is a two-way medium, meaning contractors can share and learn using the same forums.

“With LinkedIn, one of the value propositions is establishing yourself as a credible thought leader in the industry,” says Dickie, “using LinkedIn to communicate interesting projects that you are working on, sharing new best practices, or tips and tricks that your company is propagating.”

One famous example is swimming pool contractor Marcus Sheridan of River Pools, who began offering posts and videos to help buyers decide between fibreglass and concrete pools. He became so popular as an information source that he not only grew his business but eventually established a company that provides social media consulting to other companies.

So if the bad news is that it is a mushy business case for social media, the good news is that there is plenty of synergy. By networking with a select group of people, a firm can derive multiple benefits – up-todate information on the latest practices, materials and trends, relationships with potential partners and employees and establishment of a thought-leadership position in the industry.

“The first step is getting up and running with your dedicated LinkedIn company page, and getting someone internal to manage it – that is update it on a regular basis, that is ensuring that content is accurate and up to date,” says Dickie.

Jacob Stoller is a principal of Toronto-based consultancy StollerStrategies. Send comments to editor@on-sitemag.com

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EXCAVATORS

DESIGNING EXCAVATORS IS A BALANCING ACT

BY DAVID GODKIN

Hyundai 520 LC-9A: Two swing motors mitigate centre joint wear.

16 / MARCH 2015

EXCAVATORS

T

hey’re big. They’re powerful. They’re smarter than ever. How to manage all the brawn and brainpower in a large construction excavator continues to challenge equipment manufacturers. And it’s not all just about engines and hydraulics.

Product manager Joel Escalante pulls no punches when talking about Volvo’s EC480 excavator in road construction, mass earth movement or demolition. He thinks his machine is at the top of the list for strength and durability - not just because engineers have focused on the gauge or quality of steel used in the machine, but “putting the steel where it counts.” For instance, Volvo places more steel at the lower frames of the 480’s car body and front idlers, which Escalante tells us increases the machine’s robustness and lowers its centre of gravity for greater stability. “(Other machines) can lift more along the crawler frame, but when they swing, they get into trouble. In our machine, because we put the steel down at the bottom, it allows the operator to carry the weight across 360 degrees without any problems,” says Escalante.

Equally important is increasing robustness along the boom and arm. “It’s not by welding plates around it like our competitors do, but by increasing the thickness of steel at special areas, such as the end of the boom where the arm connects to the boom and where the boom connects to the mainframe on the machine.” But don’t you risk making it too heavy? Good question, Escalante observes.

“The engineering balances the harmonics of the motion of that attachment so that it doesn’t affect the functioning of the operator as he’s digging. The attachment doesn’t offset the way the machine moves by my making it tippy, for example,” he says.

Machine longevity, meantime, is enhanced with a cab made of high-gauge extruded steel pillars instead of welded steel and at the front end where the frame is plugged to prevent ingress of dirt. “We

pay attention to detail,” says Escalante, pointing to caulking at the welds around the inside of the EC480’s door frames to prevent water ingress and corrosion.

This is something overlooked in many other designs, Escalante says. “The difference between our machines and the competition is that our machine is built to live longer. It’s bullet-proof.”

The Volvo EC48OD features a Volvo D13-T4 (A) engine, breakout power of 310.6 kN, with up to 15 per cent increased boom down speed and two-pump flow for bucket in. It boasts an additional 196 mm of ground clearance and operating weights of 47.9 to 50.5 metric tons.

The undercarriage on Caterpillar’s 390FL “is heavy, it’s wide, very durable,” says Kent Pellegrini, product application specialist for Excavators at Cat. Ditto the Cat 374 and 390’s boom and stick, which have castings and forgings at high-stress areas including the boom nose, boom foot,

boom cylinder and stick foot. While careful to guard some of the machine’s design secrets, Pellegrini cites the “underbelly wrap” which “in certain areas” of the machine is reinforced with welded side plate. This is designed to address swing inertia, “and that’s because we carry such a big bucket.”

“The higher capacity the bucket you carry, the more stress you’re going to put on the boom and stick. The swing inertia has an impact on boom life, not so much the operator digging,” says Pellegrini.

Hyundai takes a slightly different approach to ensure undercarriage durability, using low-stress, high-strength steel “integrally welded” to form a stronger, more durable upper and lower frame,” says Steve DePriest, sales product trainer for Hyundai Construction Equipment Americas. Hyundai also employs sealing and lubricating rollers and idlers in its R-series excavators for “a maintenance-free undercarriage.” Like other manufacturers, Hyundai mitigates

Volvo EC480EL: Reinforced undercarriage enhances stability and robustness.

The higher capacity the bucket you carry, the more stress you’re going to put on the boom and stick. The swing inertia has an impact on boom life, not so much the operator digging.” on-sitemag.com / 17

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EXCAVATORS

enormous forces and wear at the centre joint using swing motors.

“Two motors working in unison prevent too much stress on a single motor,” DePriest explains.” Using two swing motors evens the weight pulling on the teeth.”

Any manufacturer worth its salt field tests all of this, running an excavator through its paces under different loads and working conditions. The bar has been raised even higher now that international Roll Over Protection Standards (ROPS) are a reality. Cat’s Pellegrini says earlier cabs had enormous aesthetic appeal, with “curved windows and siding to give it a more bubble-look appeal.” If all those lovely contours don’t hold up under a ROPS crush test, what does?

“A welded ROPS, very heavy…Our cabs are really built stout on all four posts. If something like a rock falls off a cliff onto the cab, that’s what’s needed.”

Volvo made a case for its heavy excavators’ ability to change from a low to high arm; this is due to the pin dimensions at the boom which allow change up to a shorter or longer arm to meet different applications. Other machines may “have to exchange the entire front, change the boom along with the arm, instead of the arm alone,” says Escalante.

For his part, Pellegrini says Cat had a good reason for abandoning that approach in favour of heavy-duty boom and arms.

“That way we can cover a multitude of applications. When you have multiple boom and stick offerings, it can get really convoluted and a customer can get confused.”

The 90-tonne 390FL Cat Excavator features a 524 HP Cat C18 ACERT engine, with a net power rating of 391 kW, a maximum forward reach of 17,250 mm, maximum digging depth of 11,800 mm and maximum drawbar pull of 132,637 lb.

It delivers significantly lower fuel consumption than the 390D model.

Just as important as horsepower is engine torque, i.e. delivering the highest torque at the lowest RPM so that you consume less fuel and increase the engine’s

Caterpillar 390F: underbelly wrap addresses swing inertia resulting from big bucket.

Every component in a machine is vulnerable to dust. There is no electronic system out there that is bullet-proof.” longevity. But that’s not all, says Pellegrini.

You need to run higher engine horsepower, lower engine RPM, increase pump displacement and minimize production loss.

Another factor, DePriest adds, is how engine horsepower is used. Hyundai swears by the Eco standard and power settings on its excavators which “control the RPM so if full engine power is not needed, it can be turned down for the application.”

Power boost is another standard feature on Hyundai 9-Series excavators, says DePriest, which provides 10 per cent additional hydraulic power to break out a load or start the lift, again, with more precise control.

“Improved pump flow control reduces flow when controls are not being used. In other words, it delivers power when and where it’s needed, which maximizes productivity while keeping fuel consumption low.”

The Hyundai 9 Series also includes as standard arm-in and boom-down flow regeneration, “and improved control-valve technology and auto boom swing priority,”

he adds. “These make it easier for any operator to be more productive, whatever their application.”

The cab is very quiet. “Some seasoned operators say they miss louder operating noises because they use engine sound as a guide for operation,” says DePriest. “We actually hear some say that the machines are too quiet!”

DePriest believes operators will continue to be drawn by the ease of operation of its excavators.

As for all those buttons and switches the operator is facing, the R520LC-9A’s cluster monitor “is very intuitive – like a tablet computer – so we usually get high marks for ease of use,” says DePriest.

The Hyundai R520LC-9A has a 263-kW Tier 4 Interim Cummins QSX11.9 engine, maximum reach at ground level of 12.4 m, maximum digging depth of 7,590 mm, bucket breakout force of 253 kN and operating weight of 52 metric tons.

It’s a subject that too often overlooked:

on-sitemag.com / 19

EXCAVATORS

dust and vibration. “You touch a very sensitive point,” says Escalante. “Every component in a machine is vulnerable to dust. There is no electronic system out

there that is bullet-proof.” For its part, Volvo seals all connectors and covers any harness entry way with panels across its entire heavy product line. “You seal them

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not only to avoid dust, but to avoid water.”

Heavy equipment sometimes finds itself in very harsh environments, according to Pellegrini. “Say, you go into an ammonium nitrate facility where you have a lot of airborne particles. Those are not only contaminants, they’re corrosive.” Fluid film to seal electronic components is the usual solution. “But if we have a customer that’s going into a facility like that, then we’ll seal it in the factory and protect the entire machine.”

In a 2013 study published at the Faculty of Mechanical Engineering in Poland, engineers discovered that vibration problems frequently occur in high-performance machines like bucket wheel excavators.

The report concluded the reasons for this are “various and difficult to investigate…

If undetected at the design stage, they can lead to serious problems in operation such as excessive vibration, cracks, deformations, wear and mechanical failure.”

Manufacturers continue to tackle the problem on the ground, and with success. Viscous rubber cab mounts on CAT’s 390FL dampen vibrations and sound levels for greater operator comfort while thick steel tubing along the bottom reduces vibration and fatigue. Hyundai performs thousands of hours of endurance testing on its machines to reduce dust and vibration under “extreme temperatures and cycles,” says DePriest.

The bottom line is that engineers have provided cab operators with a great place to work – auto climate cabs that are comfortable summer and winter. “It keeps it kind of like your house,” says Pellegrini.

“You set the thermostat” and the automatic climate controls look after the rest.

The air cooled and air heated seats don’t hurt either, he adds.

LIGHT TOWERS

©2014 Doosan Infracore Portable Power

David Godkin is a B.C.-based freelance writer and editor.

Send comments to editor@on-sitemag.com.

LUBE

UNDERSTANDING AUTOMATIC

GREASING SYSTEMS S uccessful companies in the construction industry are constantly seeking new solutions and advanced technology to reduce costs, minimize downtime and maximize productivity. Can lubrication play a role in that? You bet!

In a study conducted by a major component manufacturer, improper lubrication accounts for 53 per cent of all bearing failures, a major cause of equipment downtime and significant, unnecessary maintenance costs

including: replacement bearings, labour to repair or replace bearings, unscheduled downtime and the impact on meeting customer delivery commitments. Primarily, these failures are caused by contamination of bushings by dust, dirt and moisture or inadequate amounts of grease applied to bearings.

Lack of lubrication isnâ&#x20AC;&#x2122;t the only problem, however â&#x20AC;&#x201D; inefficient manual lubrication practices can often result in over-lubrication of key pivot points, which brings its own indirect, but very real, costs including wasted

lube, environmental issues, safety or housekeeping issues and higher labour costs.

Automatic lubrication systems (ALS) also known as autogreasers, autolube or centralized grease systems, help eliminate these unplanned and unnecessary expenses. Created to minimize improper lubrication (both over and under-lubrication), an ALS automatically lubricates multiple points on a machine from a centralized pump/control unit, mounted in an easily accessible location. Specifically for mobile construction equipment, a

on-sitemag.com / 21

LUBE system dispenses small measured amounts of grease at frequent intervals, while your equipment is operating, maintaining a uniform supply of grease in the bearing at all times and a consistent grease seal to prevent dirt and contaminants from migrating into bearings. This is in contrast to the feast and famine conditions often associated with manual greasing, where greasing is done “when there’s time”.

THE KEY BENEFITS OF ALS 1) SAFETY An ALS helps to reduce or eliminate climbing over and under machinery or into difficult-to-reach areas. Whether you’re an owner/operator of a single piece of equipment, or the fleet manager for a large operator, personnel safety in the workplace is a key consideration.

2) EFFICIENT LUBRICATION An ALS applies grease while the machine is running so you don’t have to stop what you’re doing or set aside time to lubricate it - in other words, less downtime. Furthermore, because the bearing is turning when it receives the grease, all the surfaces that bear the load are continuously being exposed and you get much better grease coverage on the bearing.

3) BETTER LUBRICATION Applying grease is often most effective when it is dispensed in small, measured amounts over short, frequent time intervals. Unfortunately, tight deadlines and manpower constraints or in some cases the location of the equipment often make effective manual greasing impossible.

4) BETTER HOUSEKEEPING How much grease is too much? If you’re old-school, you keep pumping it in until you see it oozing out of the bearing. As previously stated, frequent and small, measured amounts will give your bearings the best protection. In addition to no over/under lubrication, this also means that you get less spillage and leakage. The end results are

22 / MARCH 2015

less grease wastage and less mess on your equipment and jobsite.

5) LESS DOWNTIME, REDUCED MAINTENANCE COSTS, & REDUCED BEARING REPLACEMENT Time and manpower constrains often make it nearly impossible to keep up with the manual greasing requirements of equipment, especially in the harsh Canadian climate. The “preventative maintenance” provided by an ALS is absolutely key to reducing maintenance costs and minimizing downtime by extending the life of the many pivots, bushings and components on the equipment. There are also fewer replacement parts to stock.

6) INCREASED OVERALL PRODUCTIVITY Resulting from an increase in machine availability and reduction in downtime due to breakdowns or general maintenance.

7) LONGER EQUIPMENT LIFE AND HIGHER RESALE VALUE Because bearing areas are consistently protected and your machinery in general is better maintained.

8) HELPS THE ENVIRONMENT For the environment, less premature wear of bearings and other components means less landfill. Also, since you’re not over-greasing, you’re depleting fewer resources from the environment and you’re not contaminating the environment with dripping grease.

AUTOMATIC LUBRICATION SYSTEMS VARY IN QUALITY AND DESIGN BY MANUFACTURER, BUT TYPICALLY CONSIST OF FIVE MAIN COMPONENTS: Controller/Timer – activates the system.

Pump & Reservoir – stores and provides the lubricant to the system.

Supply Line – the line (typically stainless steel or nylon material) through which lubricant is transferred from the pump to the metering valves.

Metering Valves – component that measures/dispenses the lubricant to the application points.

Feed Lines - lines that connects the metering valves to the application points (typically stainless steel or nylon material).

LUBE Operation begins when the controller/ timer sends a signal to the pump starting the lube cycle. The pump station automatically delivers lubricant through a supply line to multiple metering valves that then measure and dispense a predetermined amount of lubricant through feed lines, to the individual lubrication points.

ALS are used on machines in a wide range of applications including construction, road building, mining, aggregates

and all types of on-road trucks. As an example, on a wheel loader, a typical system would service: steer cylinders, oscillating axles, upper and lower articulation, lift cylinders, boom top frame pins, tilt cylinders, tilt link pivot, pushrods and boom to bucket pivot. On a truck, a system typically services the king pins, tie rods, steering drag link, slacks, spring pins, transmission cross shaft, brake shafts and fifth wheel if applicable.

There are several manufacturers offering automatic lubrication systems in the industry today, so when sourcing a system, it's important to make sure you're comparing apples to apples and asking the right questions, so you can get the system thatâ&#x20AC;&#x2122;s right for you. The first thing to know is that there are different operating principles by which ALS are designed. The two most common types of ALS used on mobile equipment are Series Progressive and Parallel.

In a Progressive system, a pump delivers the grease to the grease points via progressive metering valves custom-sized for each application point. Grease flows through a primary valve which redirects to multiple secondary valves, and finally through feed lines to the ultimate application points. The nature of this system is such that if any line/bearing is not taking grease the entire system shuts down and there is (in a properly designed system) visual indication to the operator that there is a problem. This allows the operator an opportunity to take action before any damage occurs to the bearing.

Series Progressive ALS.

In a Parallel type system, grease flows from the pump through a single supply line to multiple branches of injectors. The injectors operate simultaneously but are independent of each other.

Each injector serves only one grease point and may be accurately adjusted to deliver the precise amount of grease or oil required.

The nature of a parallel type system is such that only main line pressure is monitored, so if any feed line or bearing is not taking grease, the remainder of the system will continue to function normally, but the grease-starved bearing may be lost.

Parallel Type ALS.

ONCE YOUâ&#x20AC;&#x2122;VE DECIDED ON THE TYPE OF SYSTEM YOU WANT, OTHER QUESTIONS YOU WOULD WANT TO ASK COULD INCLUDE THE FOLLOWING: 1. D OES THE PUMP PACKAGE INCLUDE A HIGH-PRESSURE, INLINE, GREASE FILTER? A filter prevents the introduction into the distribution lines of contaminants that can cause system failure and costly component replacement and labour costs. For many system manufacturers, a filter IS NOT supplied as standard - it must be specified.

2. A RE THE HOSE AND FITTINGS STANDARD NPT THREAD? Some system manufacturers use metric hose ends and fittings. Adapters are required to adapt to NPT bearing inlets, causing increased costs and labour and possible delays during servicing if you are not prepared with the proper replacement fittings.

3. D OES THE SYSTEM INCLUDE A PRESSURE GAUGE? A pressure gauge allows for visual monitoring of the system pressure during regular maintenance inspections.

For most system manufacturers, a pressure gauge IS NOT supplied as standard - it must be specified.

on-sitemag.com / 23

LUBE 4. D O THE METERING VALVES INCORPORATE HIGH-PRESSURE, MANUAL GREASE FITTINGS? Having a manual grease fitting at every metering valve allows for easier troubleshooting, servicing, priming and flushing of grease lines. Not having a manual grease fitting means lines have to be disconnected to perform many of these tasks, substantially increasing labour costs. Many manufacturers either DO NOT include grease fittings, or use standard grease fittings which leak when faced with the high back pressure of a blocked line. Alternatively, using high-pressure grease fittings specifically designed to handle high back pressure, on every metering valve ensures that in the unlikely event of a blocked line, the only leak will occur where the machine operator will see it - at the pressure relief valve on the pump package.

5. H OW DO YOU KNOW IF A BEARING IS NOT GETTING GREASE? With a progressive system, the metering valves work in series to each other. Some systems incorporate a cycle indicator pin (CIP) at the master valve assembly to provide visual confirmation of system cycling every time. If any line/bearing is not taking grease the entire system shuts down and there is visual indication (CIP) to the operator that there is a problem, allowing the operator an opportunity to take action before any damage occurs.

In a parallel type system, as previously mentioned, the metering valves operate simultaneously but are independent of each other and only main line pressure is monitored, so there is no indication (related to pressure) if each individual feed line is operating. For some manufacturers' systems, if any feed line or

bearing is not taking grease, the only visual indication is the lack of grease at the bearing point. In a properly designed system, there are indicator pins on every injector which move in and out as grease is dispensed to visually confirm each individual feed line is operating.

6. DOES THE SYSTEM REQUIRE SPECIAL GREASE? Some systems typically used for on-road vehicles have a low maximum operating pressure, with small diameter hose/tubing and can only handle grease 000 through 0 (consistency of honey). In addition, if temperatures fall below -10°C, the #0 grease becomes too hard to pump and thinner grease must be used. Alternatively, in warmer climates, the thinner grease will drip away, causing potential damage to the bearings and environmental issues.

Systems with higher maximum operating pressures will take any grease 000 through EP2 and can use any #2 chassis grease rated to perform down to -25°C. Also important to note, some manufacturers require you to purchase grease directly from them in order to warranty the system.

Others have no restrictions on the brand of grease, which allows you to use your standard in-shop grease and considerably reduce inventory and costs.

In closing, an automatic lubrication system is a valuable tool in reducing the direct and indirect costs resulting from inadequate lubrication, but you need to understand how it works, the different types of systems available and which type best suits your (or your company’s) operation style. Most important of all, when sourcing an ALS, ask the questions outlined in this article and you’ll be on your way to purchasing a tool that will help maintain your equipment, reduce your costs and increase productivity for years to come.

Mike Deckert, VP of FLO Components, is an instructor of the Lubrication School at Mohawk College and sits on the Conestoga College Advisory Council, Faculty and Board of Directors.

24 / MARCH 2015

DEALERS

DEALING with

DEALERS How new contractors can build a strong relationship

BY JIM BARNES

T

he new contractor needs all the help he can get and the early years can be make-or-break. While most of them know exactly how to run a piece of equipment, fewer are as experienced in how to run a business. Good decisions on selecting, financing and maintaining equipment are critical, and in the early days not many have the time to research these things thoroughly.

A source of help you might be overlooking is your equipment dealer. If your dealer can’t give you sound advice on these issues, you might be buying from the wrong guy.

A good dealer doesn’t want just to sell you a machine. He wants to sell you dozens of machines over the years to come, and that will depend on satisfying you as a customer and helping your business grow.

The key criterion is trust, notes Ted Breland, director, National Product Support, Strongco Corp., Mississauga Ont. “It’s all about being a trusted advisor in a long-term relationship. If they grow, we grow.”

“If the relationship is built on trust, then the information flows freely in both directions,” notes Breland. The more the customer tells the dealer about his business objectives and his strategy for reaching those objectives, the better feedback he will get. The dealer should be able to talk to you about the local construction environment, regulations, mitigating risk and the total cost of ownership of a machine.

“Typically, when someone is starting out, they are challenged for cash,” notes Breland. “They are often waiting to get paid.” A good dealer will help the contractor deal with those challenges, serving like a personal business consultant.

Here are some tips on establishing a productive relationship with a dealer.

CHOOSING MACHINES: Help with equipment selection is the obvious place to start. The dealer should be showing you the machine you need, not the machine he wants to sell you. Even if you think you know equipment well, getting background is always useful. The dealer has extensive experience and knowledge that can be tapped into.

A good dealer can help connect you to useful associations and forums, recommend tradeshows and set up equipment demos.

“The type and size of equipment and what attachments are needed is dependent on what work the contractor is expecting to do,” says Breland. “Are they moving dirt, digging holes, stockpiling or loading trucks? What is the environment of the expected work site, how many hours a week is the machine expected to work, what is the customers’ budget?” The answers help lead you to a profitable choice.

LIFECYCLE COSTS: It’s usually a mistake to focus on price rather than lifecycle costs. Sometimes, the cheapest machine you see is also the most expensive, long-term. The dealer can help you determine the projected total cost of ownership, considering things like fuel economy. “A five per cent savings in fuel every day over the operating life of a machine has a large impact in the overall cost of ownership,” notes Breland. Many dealers have spreadsheets to help you work through the lifecycle cost calculations.

FINANCING: A good dealer will make suggestions on acquiring the machine. “Does it make sense to consider a rental purchase option, a lease, or make an outright purchase?” asks Breland. “If the purchase is being financed, what are the terms available – from interest rates to length of the agreement? Are skip payments needed over a slow period of the year to assist with business cash?”

Skip payments can help with your cash flow. “(In winter), when not everybody is working, you might need to build some skip payments into your financing plan,” says Breland.

on-sitemag.com / 25

DEALERS

KNOWLEDGE IS POWER STANDARD WARRANTY: Make sure Breland says his reps visit the Product support staff like Chris Safinuk, manager, ICT, SMS you understand the terms of your customer, work with them on set-up, Equipment Inc., Acheson Alta., are well aware of what having a basic warranty. The dealer can help shows them how to access the site productive relationship with the customer means. “If they are not by explaining the differences between where they can monitor the equipment, happy with that first machine, they are never going to come back.” different manufacturers’ warranties. put in the PM alerts, and help build a “There is always apprehension with new technology. It The standard coverage may vary from geo-fence, for example. “(The contracdoesn’t matter if it’s somebody that’s brand-new to the indusmanufacturer to manufacturer, on eletor) should be digging holes and movtry, or they are nearing retirement,” says Safinuk. “Customers ments like the total hours or the time ing dirt – not trying to figure out how to want to be assured that they are going to have that support.” the machine is covered. Another exuse his technology.”

“In my former job, I used to be a consultant,” he says, ample is travel; “Some dealers include SERVICE AGREEMENTS: Customer adding that the relationship he builds with customers is very travel coverage to a machine during service agreements for PM (preventative much like consulting. the standard coverage, but many do maintenance) programs are available Safinuk and his staff focus on machine control technolnot,” notes Breland. from most dealers today. Some contracogy, working with the customer to get them up to speed. “A lot EXTENDED WARRANTY: Large contors prefer to handle their own mainof times, customers aren’t sure what machine control is, so we struction companies often self-fund tenance, but there are pros and cons, help them and show them how our equipment can help their to cover unexpected costs. However, especially for the new contractor. businesses.” for a new player, an extended warranty Should you be spending time and It’s important that they know how to use the equipment might help control equipment risk resources on work you can’t bill for? What productively right off the bat. Safinuk and his team do everything and help the business avoid financial about expertise – are you adequately from setting the customer up on the first date to product support a stress. “Most extended warranty protrained to service a sophisticated mamonth down the line or a year down the line. grams offer flexibility over the amount chine? Will it take you twice as long as Information is the key. “Getting the customer as much of hours and/or time, which allows the the dealer to get the machine back into knowledge as possible is always to our benefit,” he says. new machine owner the flexibility to action? Do you have all the tools and Helping customers access information is also a priority. modify the coverage to their specific equipment to do the work properly? How “It’s a fairly new technology, so making those connections to business needs,” notes Breland. much will a breakdown cost you if you forums and user groups can be difficult,” he adds.

TRAINING: Training is a strong difdon’t meet the PM schedule or the work ferentiator between dealers. Does the is not done correctly? dealer take the time to do a walk-around PRIMARY ASSETS: “Visiting any dealof the machine, show the operator all the controls and explain the ership can be scary the first time, if you don’t have a relationship features and functions? Does he go over the operator’s manual and rewith the people in the building. You really don’t know what level view the safety and maintenance requirements, as well as any special of support you’re getting. There can be a fear of the unknown,” features? Is the dealer willing to train operators over time, and not just says Breland. the owners? Find out what your purchase includes.

But remember that your business is a good dealer’s primary NEW TECHNOLOGY: Technologies like telematics are becoming asset. “Growing customers buy more equipment, so we will do important in owning and operating equipment profitably. It can whatever we can to help them get there,” says Breland. support remote monitoring of hours, fuel levels, security, location and machine operating condition. “You can have all this technolJim Barnes is a contributing editor to On-Site magazine. For more ogy, but you need to know how to use it, access it,” notes Breland. information, contact editor@on-sitemag.com.

THE TOUGH QUESTIONS

Just like in any new relationship, you want to ask your prospective dealer a few tough questions. Make sure he satisfies you on the following points: • What is the response time for field service? If you’re sitting at the side of the road, how long will it take to get the machine working again? How long will it take the dealer to get there?

• Are dealer technicians factory-trained? How often do they get updated training?

26 / MARCH 2015

• Does the dealer provide after-hours emergency service? If you’re doing snow removal at 4 AM, what happens when your machine breaks down?

• What is the dealer’s over-the-counter fill rate for parts supply? If you need a part, how long is it going to take to get it?

• There are other points to cover. What does the dealer offer as ancillary support, such as online parts ordering? How big is the customer support staff? Is the dealership involved in industry associations and does it have a community focus?

What associations and local trade shows would the dealer recommend for the customer to attend or join, and why?

You need specific answers on what the dealer is prepared to do to keep your business moving forward.

RISK

By David Bowcott

Project-Specific Insurances

H

What are the right limits?

ow much is enough when it comes to choosing the limits of insurance and performance security for your project? I am asked this question almost on a daily basis – usually, as it pertains to a specific cover used on a project.

We are talking about possible events in the future and events that could have catastrophic consequences. How much is enough usually comes down to the risk appetites of the key project participants: the owner; the lenders; the contractor(s); and the design firms. Sometimes, stakeholders outside this core group – such as regulators or neighbours to the project – have an influence on the chosen project limits.

Besides the risk appetite of the participants, the nature and location of the project itself influences choices. For instance, is it a straightforward project with little rip-and-tear risk, or is it a complex project where the asset being built houses a process with output thresholds that must be met? Is the project sitting in the middle of a high-risk earthquake zone? The nature and location of the project have a significant impact on the choices of limit.

Both factors are driven strongly by information – that is to say, data regarding things that have gone wrong on previous projects.

Primarily, it is experience, or the data provided from experience, that drive these factors. You must have accurate and fulsome data to ensure that you are making the right choices when setting project limits. With the right data, your perception of risk is in line with reality and you have done adequate due diligence to ensure the right choices.

Next, we can discuss the actual core project policies for which limits have to be set. We can also discuss some standard project benchmarks in the current marketplace.

Let’s use a hypothetical $300-million hospital project in Toronto to set our limits.

• Builder’s Risk Insurance (property insurance during construction): Limits for builder’s risk tend to be to the full value of the asset at completion of project. In some cases, due to the size or nature of the project, key stakeholders agree to take limits less than the full value of the asset.

Usually, this is done in conjunction with a probable maximum-loss study that shows the key stakeholders that their maximum exposure is actually less than the full value of the asset. Think of a road that stretches for 50 km. and consider the chances that the entire road might be destroyed, and you get the idea how PML studies work.

• Wrap-up General Liability (liability insurance for third-party bodily injury or property damage during construction and in the completed operations phase): A key driver of the wrap-up limit is the location of the project. The greater the exposure to third parties (e.g. in downtown Toronto), the greater the chance there could be a significant liability event. The current market usually looks for limits between $50 million to $100 million for an asset of this type.

•P rofessional Liability (liability insurance for errors and omission by professionals on the project – namely, design): There are many techniques used to set professional limits for projects, Some make little sense, like setting limits based on level of design fees. Either way, limits for an asset of this nature tend to come in between $10 million to $25 million.

• Pollution Liability (liability insurance for environmental events on the project – unknown and exacerbation of existing conditions): Limits for an asset of this nature tend to fall in the range of $10 to $15 million and can be significantly influenced by the location.

•P rime Contractor Performance Security: The nature of the security on a project

of this nature changes, depending on the delivery model being used and the stakeholders that have influence. We usually see the following instruments used to secure prime contractor performance: performance bond (usually 50 per cent of CV); the new liquid-performance bond and/or letter of credit (usually 10 per cent of CV); and a parental guarantee.

•S ubcontractor Performance Security – Once again, this depends on delivery model being used and stakeholders involved.

We tend to see: subcontractor default insurance (usually the per loss limit is set between 20 per cent to 50 per cent of the largest subcontractor and aggregate is 20 per cent to 50 per cent of CV); performance bond (again usually 50 per cent) or potential use of liquid performance bond; and/or parental guarantee.

These limits are by no means etched in stone. They vary, based on the stakeholders involved, the risk appetite for those stakeholders and, of course, the nature and location of the asset itself.

It is vital that you examine the underlying covers and endorsements for each of these insurance lines, to ensure that you are getting the coverage you expect as well as the latest technology available in the marketplace for those covers. There are some truly great coverage add-ons and/or coverage integration that could significantly improve your project’s risk profile. Further, there are some exotic covers making their way to the marketplace and these solutions are beginning to take on risks previously seen as being uninsurable.

Good luck and happy limit setting!

David Bowcott is senior vice-president, national director of Large/Strategic Accounts at AON Reed Stenhouse Inc. Send comments to editor@on-sitemag.com.

on-sitemag.com / 27

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CONTRACTORS & THE LAW

By Lauren E. Kristjanson & Grant H. Mayovsky

Damages for Breach of Contract

W

How are such damages measured?

hen a construction contract is breached by a contractor, the usual remedy is for the owner to receive damages. How will the damages generally be measured? What about circumstances where the building was completed contrary to the specifications in the contract, but is only marginally less valuable?

The general approach to damages when a building contract is not fulfilled in accordance with original specifications is to place the owner in the position she or he would have been in had the contract never been breached. This is referred to as the “costs of performance” or “cost of reinstatement.” The owner would recover the costs of rectifying those parts of the building that are not to specifications.

So if the contractor installs laminate flooring when the contract specifies that the flooring must be hardwood, the owner is awarded the cost of replacing the laminate with hardwood. In other words, the damages under the “cost of reinstatement” method amount to the cost of remedying the deficiency.

This general approach is not always followed. In certain circumstances, an award of damages is based on other methods of measurement. When the owner’s personal preferences are not met, the court may award a nominal amount based on the loss of amenity. Alternatively, as illustrated below, damages may be awarded based on the diminution of the capital value of the property caused by the breach.

A recent Canadian case confirmed that where a contract has been breached and the court is determining the measure of damages, it may ask, “Is it reasonable to award damages equal to the cost of rein-

30 / MARCH 2015

statement given the nature of the defect?”

(Diotte v. Consolidated Development Co, 2014 NBCA 55).

In this case, under the construction contract, the builder agreed to erect an office building and garage for the owner in accordance with certain specifications required by the future tenant that agreed to lease the building after completion. Asbuilt, the garage was 70 sq. ft. less than was specified in the contract. This resulted in a 4.33 per cent loss of leasable floor space. The tenant of the building accepted the premise as-built and paid the pre-negotiated rent. No appraisal evidence was provided to allow for a measurable estimate of any effect on the property’s market value.

In these circumstances, following the general approach to measuring damages, the contractor would have to pay the cost to rectify the breach, increasing the square footage of the garage by 70 sq. ft. at an estimated $53,932.51.

The New Brunswick Court of Appeal declined to measure the damages based on the cost of reinstatement, finding that awarding damages equivalent to the amount of remedying the breach would be unreasonable. Instead, the Court concluded that the owner was entitled to a nominal damages award of $2,000 for lost expectations or a presumed diminishment in value.

An earlier judgment in British Columbia, 514953 B.C. Ltd. v. Leung, 2007 BCCA 114 provides another example. This case was regarding the construction of a residential home. Upon completion of the house, the owner refused to pay the final invoice until all alleged deficiencies in construction were remedied to his satisfaction.

The builder admitted to some deficiencies,

but stated that the majority were due to either authorized changes or matters that caused the homeowner no loss.

In this case the diminution in value test was again adopted. The Court looked at the lack of evidence put forward regarding the cost of remedying many of the alleged deficiencies and the fact that the owner, over several years, had failed to remedy a number of them – signaling that he had no intention of remedying the deficiencies. There was an agreement between both parties that a column was missing from the house. For this item, as in the case above, the Court held that the costs of demolition and reconstruction would render construction of the missing item unreasonable. Further, there was no evidence to indicate the effect on the quality or character of the house.

In conclusion, although generally the remedy awarded to an owner when a contractor has breached its contract is to award the cost of making good the defects and omissions, this may not always be the result.

More specifically, Canadian courts have indicated that where the cost of rectifying the breach would be disproportionate in light of the defect, the courts may award nominal damages based on diminishment in value.

(This article is for information purposes only and may not be relied on for legal advice.)

Lauren E. Kristjanson and Grant H. Mayovsky are lawyers at the law firm of Borden Ladner Gervais LLP. They both practice in the area of commercial litigation with an emphasis on contract and construction disputes. For more information, contact editor@on-sitemag.com.

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