Thank you, Mr. Chair and members of the committee for giving us this opportunity to provide feedback on federal measures that could make the industry more productive and competitive.
My remarks today will focus on question number two, as it relates quite nicely to the goals that CCI is mandated to accomplish.
At the outset I'd like to underscore that CCI is a multi-stakeholder organization, including all the stakeholders during a construction project, from construction owners all the way to suppliers, manufacturers, and allied industries. This ecosystem that we have put together gives us the strength and the ability to work together and look after the industry so that it realizes its full potential.
By way of background, I think it's important for this committee to understand that historically this industry has an intensity in R and D that is very low—0.06% of GDP. You should also know that its productivity level over the past many years has remained quite stagnant.
There are leaders in the industry. They have their own labs and they do tons of research. There are others that do not hesitate to adopt technologies and processes to stay ahead of the game. The problem in this industry, however, is that systematically there are major impediments that limit their ability to do better. This is where we believe the government can play a significant role. I will speak about those impediments, because they are the source for our guidance concerning where we need to go with those measures that need to be considered.
We have silos in the construction industry. You may have heard about this. The procurement process, together with codes and specifications and contract documents, isolates the members of the value chain and encourages them to work in silos whereby each party focuses on its own scope of work with regard to the project's complexity, rather than on the complexities of the project as a whole. There is a lack of integration. Given that each project is unique and may involve teams that have never worked together or have had little experience working together, it is difficult to create synergy, common platforms, or systems within which all stakeholders are comfortable working together as a group toward one common goal, which is a project.
The traditional method of procurement, which is based on the concept of the lowest qualified bidder being awarded the project, is a major impediment as well. It means that the winning team often does not have the necessary financial margins to face unforeseen conditions that are prevalent in the construction industry. Low bids equate to low-cost, cheaper materials that meet code requirements, and code requirements are the lowest denominator in design performance. Low bids also mean lower wages, and whenever possible, avoiding overtime and premiums, and also aversion to risk, as there's no money available to handle it.
When it comes to risk aversion, the art of submitting a bid in construction is risky enough in itself. There are many factors, such as delays, that can significantly affect a project. Adding risk without proof of concept or means to mitigate it is something the industry is not comfortable with.
Speaking of delays, the World Economic Forum states that worldwide and on an annual basis, delays in issuing permits alone in the construction sector equates to $1.13 trillion a year. Delays cause a significant amount of frustration and at times animosity among the stakeholders, each trying to deliver their scope of work on a very tight schedule. This impacts the availability of tradespeople, material services, cash flow, and the date of completion of the work. This is an area in which improvements are warranted.
Canadian governments have historically made substantial investments in R and D, primarily related to higher education. The Jenkins report suggests that R and D money spent in Canada does not produce the expected return on investment.
The current government has pledged to review the programs in place and has notably increased R and D spending. We hope that revisions will take place with respect to those programs. The uptake of R and D dollars available through various government programs has been low in construction; however, this is changing rapidly because of the involvement of CC Innovations.
The industry stakeholders need proof of concept to mitigate risk and demonstration projects to acquaint themselves with products, materials, processes, and practices. The industry also needs to modernize itself, increase its productivity, and remain competitive, given the flocks of foreign competition coming to our country. The Canadian construction industry can do better on the world stage, but the export of its services starts at home in a favourable environment that is conducive to innovation.
What are the measures that the federal government needs to introduce and implement in support of these desired outcomes?
The World Economic Forum states that Canada ranks 15th out of 144 countries for business competitiveness, 23rd in business sophistication, 27th in corporate R and D spending, 26th in its capacity to innovate, and 30th in being an early adopter of technologies and processes.
That needs to change. We need new measures to change that. The current government wants us to be a world leader in innovation. It's not going to happen with those kinds of rankings that we have in Canada, unless the right measures are put in place.
We have five recommendations to make, Mr. Chair. One is that the government embrace the unique opportunity to partner with the construction ecosystems created by CCI. We have yet to find our home in this government. We are not a commodity. We are a service industry, and it's hard to find someone, somewhere who will champion what we need to offer, but within government. Another time we could give you examples of that.
We need collaboration through the development of industry-led incubators whereby we can identify with experts in the field what needs to be done for this industry to improve its performance. We did approach one department with the suggestion that we create those incubators, and that over a long term we identify projects that will resonate with the purchasers of construction services—that includes the federal government having billions of dollars in assets—and we were turned down.
Another recommendation is that the federal government recognize the funding made available by the provinces and municipalities as matching funds under the supercluster initiative. Again, given the fact that the government is the main beneficiary of innovation in construction, the matching funds required under the supercluster are targeted to industry alone. I think the provincial and municipal governments should be allowed and entitled to spend the money for the projects they want, and that can be attributed as matching funds.
We also suggest, Mr. Chair, that a small percentage of the capital investment of the infrastructure bank be redirected towards a specific fund focused on supporting innovation activities in construction.
The last recommendation is key. We would like the federal government, as a leader, to enable a more agile procurement process so the industry can better respond to the complexities of the projects being tendered. As is the case now, the traditional method of procurement provides very few opportunities to be innovative. The lowest bid—and I might say, some tax measures that we are currently looking at—will do nothing for innovation.
Canada has a unique opportunity to be a major global leader in modern construction practices and a significant exporter of construction services to rapidly developing nations around the world. To achieve this, it is of the utmost importance that we work together to address those challenges, and that we put new, disruptive government measures in place to make this happen.