Are you ready for the risks and challenges of rising environmental compliance costs?

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Are general contractors, skilled trades and suppliers in Ottawa aware of the legal risks and challenges of currently evolving environmental issues and legislation?

Roxie Graystone, an associate at Merovitz Potechin LLP in Ottawa, thinks that individuals within the region’s construction industry should take a close look at the legal and financial consequences from climate-related regulatory compliance – including the direct and indirect effects of carbon pricing and severe labor shortages for individuals with the required environmental construction skills.

Without planning and preparation, stakeholders could be caught holding unpleasant business and legal surprises, he says.

“By understanding contracts and policy, there’s a legal element to allow businesses to take advantage and get ahead of the curve, or at least maintain themselves on the curve, with these coming changes,” he said.

From a business/legal perspective, the biggest challenges ahead relate to the ability to deliver on contract obligations profitably.

roxie graystone
Roxie Graystone, an associate at Merovitz Potechin LLP in Ottawa

Contractors with fixed price contracts may find themselves blindsided by extra costs. One solution: build in some price variability or add some contract clauses to allow for pass-on costs. But these measures have a counter-balance: Can variable pricing be abused to extract more money out of clients than is right or fair?

How serious are the potential costs of the coming changes? Consider labor force availability, Graystone said, citing a Canadian Green Building Council (CaGBC) report on the need to equip Ontario trades with environmental construction skills.

As it is, there’s a huge impending labour shortage, with the economy requiring 80,000 new workers by 2026 to replace retiring employees. Even more challenging is the fact that workers will need new skills in areas like environmental HVAC, thermal energy systems, building envelope design, and lighting as building codes move towards Net Zero requirements in the next decade.

These demands could result in severe labor shortages, driving up prices and affecting project delivery schedules.

Carbon pricing, both direct and indirect, presents another cost challenge for the industry, Graystone said. Direct emissions can be relatively easily identified and controlled. The challenge here will be indirect emissions – emissions and associated costs incurred from the beginning of materials extraction to when the product ends up on site. Indirect carbon emissions associated with a product’s manufacturing are often referred to as embodied carbon.

“For commercial buildings, looking at a smaller or medium-sized commercial structure, embodied carbon may add anywhere between $50,000 and $200,000 to the costs,” Graystone warned.

From a planning and budgeting perspective, it is “very difficult to estimate where the costs are – because you would need to drill down into the suppliers and through the chain from the initial source through to the building itself to determine your exposure. This requires a level of transparency from industry that is just not there right now.”

“You need to take notice of these costs and manage them as best you can,” he said. The recent jolt from rapidly rising steel prices caused by US president Donald Trump’s tariffs, and the Canadian government’s retaliation, show the dangers that can occur when contractors are locked into fixed price agreements when unexpected cost increases occur.

Graystone suggests that construction businesses review their standard contracts and consider escalations in environmental compliance expenses in the process. Supplier contracts need to provide more information in terms of embodied carbon and protection against unreasonable price jumps.

Client contracts need to protect the business from carbon costs that are passed-through from upstream emission, allowing those costs to be passed on but in a reasonable and transparent manner. This contractual review would make sense now as Ontario’s new Construction Act takes full effect on Oct. 1, 2019, with changes in dispute resolution and prompt payment requirements.

“When you need to amend your contracts, you can plan ahead and build in the provisions to deal with the potential serious escalation in carbon pricing and environmental costs,” he says. “We need to recognize how these changes are going to impact the bottom line, whether it’s on the supplier side or the client side.”

“We can provide advice on how to adjust your business practices to accommodate for the changes in the industry,” Graystone said. Graystone can be reached at roxie@mpottawa.com or by phone at (613) 563-6695.

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