U.S. Infrastructure Deficit Creates Opportunity for Canadian Companies

U.S. Infrastructure Deficit Creates Opportunity for Canadian Companies

“America is crumbling,” said Keith Kohl, a financial journalist and author in a blog post in mid-February. “And the worst part is that it’s doing so right before our very eyes.”

Many American cities are now faced with the costly reality of fixing bridges, overhauling wastewater facilities and improving highways and dams. The urgent need was driven home last month with the crisis in California when a huge amount of rain damaged the Oroville Dam, resulting in more than 188,000 people being evacuated.

The U.S. can’t afford to be conservative when looking at its infrastructure issues and is now urgently developing a game plan. That plan includes placing a strong importance on public-private-partnerships (P3s).

“The tectonic plates necessary to recreate a robust, sustainable, market for public-private partnerships (P3s) are beginning to shift into place. Dilapidated infrastructure, significant budget short comes and a growing political will have created an emerging P3 market inside the United States,” says author Dan McNichol in the report, The United States: The World’s Largest Emerging P3 Market. As communities deal with current financial problems, P3s are becoming a good way to deliver civic projects, especially large, complex ones in the transportation sector, he says.

Canada a P3 global model

Canada is no stranger to P3s. In fact, its model is copied around the world for its strong success in completing projects on time and on budget.

Canada is home to the world’s most stable, efficient and well-supported P3 program, says the Canadian Council for Public-Private Partnerships in its whitepaper, P3s: What The World Can Learn From Canada. “Countries such as the U.S., in which P3 markets are only now emerging, have a historic opportunity to create major economic benefits by learning from Canada, the global leader in the use of this form of infrastructure investment.”

For Canadian companies, the “big build” south of the border presents both opportunity and challenge.

The U.S. market offers opportunities for Canadian expertise in P3s as U.S. infrastructure needs grow without any rise in funding, reports the Canadian Trade Commissioner Service web site. “Canada’s infrastructure industry is well positioned to compete in the United States across a number of sectors. The major infrastructure shortfall will ensure that the U.S. market remains an important source of demand for Canadian engineering services in the future.”

According the World Bank, 37 states in the U.S., the District of Columbia and Puerto Rico have put laws in place allowing different P3 approaches to be used to develop transportation infrastructure.

States with PPP Enabling Legislation

Opportunity for smaller companies?

Due to the large, complex nature of many P3 projects, it’s the larger companies that generally possess the necessary resources to seize the opportunity. Add to that the fact that infrastructure is a sensitive sector domestically, particularly in the U.S. This creates an immediate challenge for Canadian companies looking to help with infrastructure projects south of the border.

However, as EDC Vice-President and Chief Economist Peter Hall points out, the U.S. industrial sector is in a unique position right now which is opening doors of opportunity.

“U.S. industrial capacity is quite tight at the moment, and likely to remain tight for the foreseeable future,” he says. “This creates the opportunity for Canadian participants to ‘help out’ by adding badly-needed capacity.”

This is creating favourable conditions for even smaller companies.

According to the Canadian Council for Public-Private Partnerships, not every company has the qualifications, experience and financial capabilities to take the lead role in P3 projects, but that doesn’t mean the door is shut for smaller companies.

“Regardless of who leads the consortium, P3 projects employ many Canadian firms, particularly at the subcontracting level,” it states on its web site.

This is putting more emphasis on supply chain development. As GE Canada’s Vice- President of Regional Programs explained in an article on EDC’s ExportWise Magazine last year, developing partnerships with smaller and medium-sized companies are beneficial for all involved.

“We want to create a win-win situation where we can help these small businesses grow at an accelerated pace by introducing them to our supply chain, which introduces them to new markets and new customers,” he said.

Buy America 2.0?

All eyes will be on the wording on the new infrastructure bill when it’s drafted, and for many Canadian companies, they are hoping history doesn’t repeat itself.

In an effort to jumpstart the economy after the Great Recession, the U.S. passed the $831-billion American Recovery and Reinvestment Act in 2009 that provided the stimulus financing behind many infrastructure projects.

What seemed as a good opportunity for Canadian companies, turned into a protectionist nightmare for some companies. One small element of that legislation, the Buy America clause, turned out to be opportunity lost.

No one knows that better than IPEX Inc.’s Veso Sobot. During a build at a California military base in 2009, an inspector noticed the words “Made in Canada” on the pipes. Days later, they were ripped out of the ground and construction of the base was delayed.

“It hurt us big time,” says Sobot, IPEX’s director of corporate affairs. “We lost customers, 800 people were put out of work and it took us at least a year to recover.”

That was then, this is now

With a total of seven plants in the U.S, IPEX has completed many infrastructure projects south of the border, including supplying the piping to the Trump Hotel in Washington, D.C. Looking forward, the company is optimistic on future opportunities. Sobot says it would open up many doors of opportunity for Canadian companies because of the “unbelievable multiplier effect.”

“We are very bullish about the U.S. in 2017 in spite of any Buy America provisions,” said Sobot. “We’ve increased our targets there by about 10 per cent.”

And if a Buy America does make resurgence, IPEX is prepared.

“We are prepared for it this time because we’ve been through it already,” Sobot added. “This isn’t like 2009 when we were caught off guard.”

Whether the same protectionist sentiment of a decade ago creeps into the new administration’s legislation remains to be seen. Regardless, with the right planning the opportunities are tailor-made for Canadian expertise, service and innovation developed through P3 partnerships.

Categories Infrastructure & Construction

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