In Alberta, PCL Construction a victim of its own success

A hot labor market constrains the Edmonton company amid energy boom

December 07, 2012

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Like many people, Peter Stalenhoef downplays his role in his workplace. Unlike most people, however, Stalenhoef oversees industrial construction projects that gross almost double the GDP of Liberia every year. “You’re always running a volume, hopefully, of around $2.5 billion annually,” says the chief operating officer of the heavy industrial arm of PCL Construction. “That’s where we’re currently at.”


Peter Stalenhoef is is the chief operating officer of PCL’s heavy industry unit
Photograph Curtis Trent

The largest construction firm in the country, Edmonton-based PCL’s big money-maker is its buildings division, which builds everything from sports arenas to federal courthouses to airports, including portions of terminals in Edmonton and Vancouver. But Stalenhoef’s division follows close behind, hauling in a third of PCL’s total revenues despite restricting its operations to North America, unlike the other two arms of the firm.

PCL’s modular construction facilities around Edmonton, where thousands of tradespeople assemble pipe rack add-ons to oil sands plants, are fully booked into 2014. One of the biggest challenges Stalenhoef faces these days is deciding which work he must turn down and how fast he can expand facilities. “It’s all a function of capacity,” he says. “We can’t do everything.”

But they aim to come as close as they can. PCL already commands more modular construction capability than any other firm in Alberta, and it recently opened another 40-acre plant in east Edmonton. Unlike its 110- and 70-acre plants in nearby Nisku, PCL is leasing this latest one – understandable, since the facilities cost around $1 million an acre to construct. PCL makes a lot of money, but it still watches capital expenditures closely, especially in the energy sector, where volatility is the norm. “We try not to be pregnant with a bunch of buildings that we might not require,” Stalenhoef says.

 

Such disciplined thinking informed the firm’s move into modular construction in the late ’90s. Fed up with persuading tradespeople to spend extended periods of time in the bush,

PCL’s leadership decided to invest in controlled construction environments that would allow more efficient, higher-quality work and let employees spend their nights in the beds of their own choosing. The choice of location, according to Stalenhoef, was a natural one.

“We try not to be pregnant with a bunch of buildings that we might not require.”

“Alberta’s set up with specialized shipping corridors that accommodate heavy, wide loads,” he says. “That’s helped fast-track a lot of projects and kept a lot of man-hours off the sites.” The plants load their output onto semis, which then haul them to oil sands projects.

But the most assiduously placed and immaculately built construction plant means nothing if there are no workers available, and lately PCL has struggled to find appropriate staff. “There’s more opportunity in Alberta than there are people to serve it, so that’s a challenging perspective when it comes to recruiting,” says Stalenhoef. At PCL’s headquarters in south-central Edmonton, hiring signs festoon 99th Street like parched cacti in a desert.

If misery really does love company, Stalenhoef can at least take solace in the thought that PCL is not alone. Unemployment is under 4.4 per cent in the province. And Edmonton employers are the most bullish in the country, according to a September survey conducted by employment services firm Manpower. The race to find quality employees is as hotly run as ever in Alberta.

This is why Stalenhoef reacts tepidly to the idea of bidding for work on any of the contentious proposed pipeline projects that periodically convulse the news cycle: Enbridge Inc.’s Northern Gateway, Kinder Morgan Canada’s Trans Mountain, or TransCanada Corp.’s Keystone XL expansion. Stalenhoef sees Northern Gateway, for instance, as a necessary boost to the price of Alberta crude on world markets, and PCL has serious pipeline experience – it built the Alberta Group 1 pump stations for the original Keystone, finishing construction in 2009 after sinking 600,000 hours of labor into a work site 300 kilometers long. But with the difficulty of finding the right people and a full slate of work already booked for 2013, getting contracts on any of these pipelines is hardly a make-or-break proposition for PCL’s heavy industrial division.

 

In fact, the difficulty of finding space on any contractor’s schedule can drive the companies that commission major energy infrastructure projects to distraction. Most majors contract out their infrastructure development, so a bottleneck there can act as a limiter on the growth of the entire energy sector in the province. This happened during the last boom, and given PCL’s construction schedule, history may be repeating itself.

One solution is to develop infrastructure solutions in-house. Cenovus Energy Inc. grew so annoyed with contractor timing, expense and quality issues during the boom of the mid-2000s that it built its own 45-acre modular construction factory in Nisku. The yard can build 65 pipe rack modules at once, and churns out 15 a month for the company’s Foster Creek and Christina Lake oil sands projects.

While the firm still needs to contract out a substantial portion of its construction, the ability to make even half of what it needs to its own satisfaction counts for a lot, according to the company’s mobile construction head Dave Zebak.

And it lets Cenovus build at whatever pace it wants, enabling something Zebak calls a “bite-sized” approach to projects, breaking them up into many smaller ones. “It gives us a greater level of control and input in the entire process,” Zebak says. It also increases accountability: “Ultimately, it’s our funds that are being spent.”

For the construction that Cenovus’s yard can’t handle, which ranges from two-thirds to a half of what it needs done, according to Zebak, the company looks for contractors it knows and trusts. Stalenhoef says PCL does likewise when deciding where to bid for work. Of course, the fluctuations in the global economy have brought more foreign competition to Alberta recently. “If you’re in Europe right now and searching for projects to build, you’re probably looking at a very short list,” Stalenhoef says. “We’re seeing more European contractors coming here and looking for work.”

Even this can work out in PCL’s favor, though, since a European firm awarded a contract likely still needs to get it built in Alberta – there’s very little profit in shipping pipe rack modules over the Atlantic and then across the continent to northern Alberta. In early September, Stalenhoef indicated that PCL was in negotiations for just such work, though he declined to name the specific firm.

Nor does he have to. Employee-owned since 1977, PCL ranks as the second-biggest company in Edmonton, with annual revenue approaching $6 billion. But despite working in the capital-intensive construction business, it sees little upside in going public. “We’ve shied away from being a publicly traded company for lots of reasons,” Stalenhoef says. “There’s an enormous cost to it. We’ve just chosen to stay private as long as we can, and we don’t see any reason we can’t sustain that for many years to come.”

Given that he’s been with the company through booms and busts for 25 years, he should know. “You’ve got so much to do that you don’t have to worry about looking for another job,” he says with a laugh. “It’s a great place to work.”

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