As 2022 continues to move ahead, one word keeps popping up again and again as businesses and households review their finances: inflation.
As costs increase, everyone is having to find ways to make ends meet. What that means for our industry has been calculated in an economic impact analysis done for the Saskatchewan Heavy Construction Association.
That analysis found that the industry is expected to face a further $426.7 million in new costs. The analysis looks at what that would mean for the profitability of the industry. It finds the industry profits $670 million per year on sales of $9 billion. Subtract $426.7 million in new costs and profits are squeezed to $243.4 million.
Knowing that profits are not distributed uniformly among all companies in the industry, reducing an industry’s profits by more than half would be too difficult for some companies to survive. It would also mean far fewer jobs in the industry as employment numbers could drop by more than half.
One of those additional costs that our members face is an increase in the price of diesel. That increase in fuel has been difficult for many of our members under the existing contracts they have with the Ministry of Highways.
You might recall that in July, I said in my President’s Message in The Interchange that we were discussing this situation with the Ministry of Highways. Seeing that the increase in fuel was estimated by the ministry to be around 69 per cent, it was important that we find a way to resolve the issue.
Earlier this year, the Ministry of Highways presented our association with some proposed adjustments to the fuel escalation clause.
The ministry had proposed expanding the scope to include additional types of work. It is also looking at the consumption rate and applying the existing consumption rates more broadly in some areas of work. It is looking at better options to address fuel consumption for haul. Then, there is payment. The ministry is using a monthly adjustment to apply interim adjustments in advance of a final calculation.
Our industry has reviewed the proposal and several SHCA members provided additional improvements they would like to see beyond what the ministry has proposed.
We provided actual figures and examples of how the industry has been impacted by the price of diesel fuel escalating. We asked for compensation for our members that currently provide asphalt concrete products that go into making the binder materials for crushing, micro-surfacing, paving and more. Then, there are the various types of work that also consume diesel fuel that the ministry didn’t include in its presentation, such as rock excavation and hauling used for dirt excavation.
We have been working with the ministry on revising the industry consumption rates to reflect more realistic figures. It should be reasonable and fair to both industry and government.
The result of all that work is that there have been updates that will be included in fall tenders. Look for updates to the specifications for bid requirements and conditions, measurement and payment (which includes details on payment for extra work, partial payments, final payments and diesel fuel adjustments) and site occupancy, which will be incorporated into all contracts with a tender close date of Sept. 19 or later.
Also, a dating error has been corrected in the Weekly Diesel Fuel Prices document and the payment schedule has been changed to monthly instead of at the completion of each phase of the project. All of this should help contractors with their cash flow.
Having this situation addressed by the provincial government was important and I am pleased we have been able to make this progress.
I must say that I have enjoyed getting to know the new Minister of Highways, Jeremy Cockrill, who moved into the role in May. I appreciate the interest he has in getting to know the industry, its pressures and successes as well as its people.
I appreciate all of you who contributed input so that we could provide the government accurate and meaningful information so your need could be addressed.