Bruce Reynolds: Across Canada, infrastructure renewal continues apace – as a consequence of which, both the engineering and construction industries are extremely active. At the same time, the residential housing sector in certain areas of the country continues to thrive as the result of consistently low consumer interest rates. In particular, Toronto and Vancouver are seeing sustained high levels of investment in both high and low-rise residential development. As well as this, due to the relative strength of the US dollar over the Canadian currency, the Canadian manufacturing sector is on the rebound for the first time in a decade, with commensurately increasing investment levels in new construction, and the expansion or refurbishment of facilities. With regard to public infrastructure, Ontario is in the midst of a much-needed 10-year, C$50 billion regional and urban transit enhancement programme, led by the province’s transit agency Metrolinx, as well as a series of major highway projects; meanwhile, the upcoming Gordie Howe Bridge (which spans the Detroit River between Windsor, Ontario and Detroit, Michigan) will represent a potential C$8 billion cross-border investment (including a C$1.5 billion contingency against interest rate increases). At the same time, major transit projects are also proceeding in other provinces such as Quebec, Alberta and British Columbia, and major energy projects are under way in Newfoundland and Labrador, Manitoba, and British Columbia. Although pipeline projects in both Eastern and Western Canada have been announced or are currently undergoing regulatory review, they have generated significant political controversies – so there is some question as to when or even whether they will proceed. Importantly, Canada’s new Liberal-majority federal government, elected in October 2015, has just announced its intention to direct C$11.9 billion in stimulus funding into the infrastructure sector over the next two years, as a method of kickstarting a national economy that has struggled due to the fall in oil prices.
Doug Jones: Over the last 12 months, Australian infrastructure has seen a substantial increase in activity with a particular focus on public infrastructure. Significant planning and investment in road, rail, and health has been seen, with construction either under way or soon to begin within the next few years.
In NSW, many projects have already begun, including the Parramatta Westconnex road extension, the Sydney George Street light rail works, and hospital expansions, to name a few.
The planning for public infrastructure in Queensland, Victoria and Western Australia has continued but actual project inception work is yet to be seen. This public sector project development, including the projects involving public-private partnerships, has tended to offset the downturn in construction activity arising from the drop-off in resource-related construction activity.
Bruce Reynolds: My firm has a national platform, with offices in Montreal, Ottawa, Toronto, Calgary and Vancouver; and while the construction law practice is extremely busy right across the country, due to the intense construction and engineering activity described above, there is no doubt that the fall in oil prices, and the diminution of commodity prices generally, has created a drag on the Canadian economy – such that growth in national GDP in 2015 was marginal – and this has had an effect on deal flow for the major Canadian firms. However, dispute resolution activity is generally robust, and international arbitration activity is increasing, due in part to investment in world-class arbitration facilities such as Arbitration Place in Toronto. In Alberta, one province experiencing a regional recession as a result of the fall in oil prices, oil-sand companies have cancelled or postponed significant capex investments, and this is expected to continue for the foreseeable future. Some law firms are taking advantage of the opportunity to pick up oil and gas expertise to position themselves for the turnaround expected to come in the future. Generally, energy firms and law firms are cutting costs to the fullest extent possible and waiting for a recovery of the current sluggish economic environment.
Doug Jones: The drop in the oil price and associated substantial reduction in resource commodity prices have led to a contraction of construction activity in mining, oil and gas developments in Australia. Projects that were once considered urgently desirable are now marginal. The effect of this is that there has been a significant increase in disputes arising from projects whose economic viability has come into question, and a significant drop-off in transactional work associated with new resource, oil and gas development projects.
Bruce Reynolds: Insourcing is a reality in Canada, and includes not just basic commercial legal work, including small M&A transactions, but for some clients also extends to expanding their in-house legal team to build expertise in P3 transactions, as well as in elements of dispute resolution and even automated document management. Accordingly, the major firms find themselves competing for talent with their clients, and this is becoming a consideration in terms of both retention and exit strategies. Significant effort must be put into retention (with particular attention being paid to the work-life balance concerns of new-gen associates) and into managing departures in an enlightened manner, so as to maintain the downstream value of major training investments in junior lawyers who are of the view that life in-house will be more conducive to the realisation of their life objectives. Without a doubt, one of the key factors influencing this phenomena is the perception of some junior lawyers that the in-house environment is somehow less demanding of one’s personal lifestyle – a perception that oftentimes does not prove to be justified. Importantly, senior in-house counsel are now recognised for being as talented and effective as – and sometimes more talented and effective than – their counterparts in private practice, such that junior lawyers see that their career growth objectives can be achieved within a powerful in-house team.
Doug Jones: In my view, the development of in-house legal teams is a cyclical process. There are certainly highly competent in-house teams in public and private sector organisations, and among the national and international contractors. Team sizes vary according to the economic conditions and the capacity of private-sector lawyers to provide efficiently focused commercial and dispute resolution advice to those organisations with substantial in-house legal teams. However, the capacity of in-house legal teams to manage significant dispute resolution work themselves remains unclear, and thus because dispute resolution work tends to be outsourced to legal firms, available work for in-house legal teams on the transactional side tends to be related to the economic conditions.
Bruce Reynolds: The ability to adapt quickly to changes in the market; the need to attract talent; and the need to retain talent through accommodating different lifestyle choices are three key elements to success. Aggressive recruiting, training and retention are perhaps the three most important things required of a modern law firm, together with promoting a work-life balance that has become so important to many of the younger generation. To maintain competitiveness, however, major investment in intensive firm educational programmes – an area in which my firm excels is required to ensure talented professionals develop and maintain the high levels of expertise required to distinguish them and the law firm from others, and effective diversity and inclusion programmes, including those addressing gender equality issues, are essential. In addition, investments by law firms are required in industry-leading information technology systems, and in cutting-edge pricing algorithms, supported by the across the board containment of firm overheads that is necessary to maintain competitive pricing. Primus inter pares, however, is the focused development of rainmakers, as the reality in our market is that clients with significant retainers still hire lawyers as opposed to firms.
Doug Jones: Focused, economical, commercially relevant advice is what enables law firms to successfully compete. The capacity to successfully deliver external legal services for outturn costs relevant to the particular need is critical. Law firms need to develop fee-for-service models which are more directly related to commercial relevance of the service than simply charging on an hourly-rate basis. Arrangements such as lump sums for discrete areas of work, including in contentious matters, and retainer arrangements covering a range of work for clients are a significant development in legal practice. Further, the growth of litigation funding businesses represents a new factor in the pressures facing delivery of legal services.
Bruce Reynolds: For Canada, 2016 will be a challenging year, as the economy struggles to overcome low commodity prices. However, if the investments announced by different levels of government in infrastructure development proceed, this is expected by the government to kickstart the economy, with stimulus being particularly important for Alberta, Saskatchewan, and Newfoundland and Labrador. As a result, Canada is expected to continue to experience the inflow of international expertise and investment that has characterised its infrastructure renewal programme to date, and PPPs will continue to play a central role in this respect. Hopefully such investments will be sufficient to invigorate deal flow in multiple sectors. In the meantime, for Canada’s law firms, dispute resolution abounds, and the practice of construction law will continue to experience significant growth.
Doug Jones: The most significant demand within Australia for construction services in the transactional area is in NSW. There is a significant and increasing demand for dispute resolution services in Queensland and Western Australia, where the diminishing economic viability of major projects is driving an increasing degree of dispute resolution. Internationally, dispute work is growing in the wake of pressure on the economic viability of oil and gas and resources projects.
Doug Jones: In construction projects nationally and internationally there is an increasing emphasis on dispute avoidance. This can be seen from the role of dispute boards within Australia and internationally, where the emphasis is moving from actual decisions on disputes to a proactive process of dispute avoidance by the dispute boards in order to be part of a collaborative process for sensible project decision-making.
There is an increasing use of mediation but, notwithstanding dispute avoidance and mediation, there is still a very significant amount of international construction arbitration. In relation to construction arbitration, emphasis is increasingly being placed by parties on efficient and economical processes designed to manage and confidently predict the costs of dispute resolution.