Entering Canadian market tough but worth it

By GENE HUSSEY
Mortenson

At first glance, The Crystal seems to be just another mixed-use project rising out of the ground in the booming construction market in Lower British Columbia. But dig a little deeper and you'll find that it's more than that.

The Crystal is a 1.3-million-square-foot project being built by a multi-cultural team. The form work crew is Italian; the rebar installer is Portuguese; the quantity surveyors are British and the contractor team is an amalgam of two construction companies -- M.A. Mortenson Co., from the United States, and Stuart Olsen, a Canadian firm.

It's the first foray for M.A. Mortenson's Seattle office into the Canadian market. Although the construction market is hot in Vancouver and throughout B.C.'s lower mainland, very few U.S. companies break into the market.

The potential rewards are substantial. It is estimated that construction business in Vancouver and surrounding areas will exceed $1.2 billion (Canadian) this year and that number is expected to grow. The strong international influence provides stability and a promising future.

Paul Cossette, a senior vice president for Mortenson, believes the firm is one of just a few large U.S. contractors working in the Canadian market.

The company began the process several years ago, when Mortenson's Seattle office bid on two large public projects. Although Mortenson didn't get either project, the experience helped officials understand the opportunities in Canada and realize what was needed to successfully bid in the Canadian market.

The Crystal will cover a full city block with retail, a hotel, condos, office space and a cultural center over parking.

"It's a tough market to get into," said Cossette, who is also chief operating officer of the company's western offices. "It takes persistence, flexibility and a willingness to find the right partner who understands the bureaucratic and legislative challenges and knows how to overcome them."

Crystal Square Development Corp., a joint venture between Dong Ah Canada Development Corp and Tyba Group, Inc., faced a tight construction deadline. The developer needed an experienced contractor to oversee The Crystal, an $86 million (Canadian) venture that, when completed, will cover a full city block and include a retail complex, hotel, condominium tower, office tower and cultural center. It also will have a large underground parking facility.

The office building will have 68 very small offices, different from the ones normally found in U.S. office buildings. These are attractive to Asian companies that are flocking to the lower B.C. mainland and will buy, not lease, space as business assets for one- to four-person offices. The residential units also will be offered for sale and marketed primarily to Asian businesspeople. The retail complex also will be dense, with 279 spaces totaling 234,623 square feet.

M.A. Mortenson, one of the largest general contractors in the Puget Sound region with annual local revenue of more than $800 million in 1997, got the opportunity to oversee the project in Burnaby after extensive research by Cossette and the Mortenson team. In retrospect, Cossette says, it's been a long learning experience.

Here are some of the things that Mortenson has learned as it helps The Crystal rise out of the ground in Burnaby.

Partner up

Cossette saw the need for a Canadian partner to enable Mortenson to break into the promising Vancouver market. In 1993, he established a strategic initiative with Stuart Olson, an established local Canadian contractor with offices in Vancouver.

Stuart Olson is smaller than Mortenson but has the roots and contacts that will help Mortenson be successful in British Columbia. The alliance allows Stuart Olson to work on larger projects. Cossette continued to foster the relationship with Stuart Olson, and when The Crystal needed a general contractor, the joint venture partnership was already in place.

"Forming a relationship with a quality contractor who is well respected in the marketplace was critical," Cossette said. "Equally important was the need for our two companies to have shared values and compatible contacts."

The Mortenson and Stuart Olson Team had only a week to prepare an estimate for The Crystal. The Morteson team, led by Cossette, spent that time camped out in the offices of Stuart Olson, working together to produce the estimate. Stuart Olson' knowledge of the local market and contacts in the Vancouver subcontracting community blended well with Mortenson's sophisticated estimating process.

"We wanted a contractor who could handle this very large, complex project and meet our time frame," said Peter Ho, project director for Crystal Square. "The joint venture was a big factor for this job. We needed the enormous organization capability of Mortenson and the local knowledge of Stuart Olson to get this job done."

Embrace cultural diversity

The Crystal is an international project and one of the biggest challenges for Mortenson is to handle the cultural diversity of the team. The Crystal itself has an Asian influence and it's expected that most of the office space and condominiums will be sold to Asian businesses. Working with team members from five countries, Mortenson is charged with bringing them all together to achieve maximum results for the project.

"We are the glue that holds the whole thing together, and our biggest job is to manage the people doing the work," said Ron Montoya, Mortenson's project manager for The Crystal. "It can be challenging down to the smallest detail. We found that there are different terms for pieces of equipment in the different countries, so we have to ask a lot of questions and make sure everyone is clear."

Cross-pollinate business practices

"The best thing about entering a new market is the excitement and the chance to learn new ways of doing business. Our partner has been great and so have the subcontractors on this project," Montoya said.

Mortenson quickly learned that drawings and specifications on Canadian projects are less developed than those found on most American projects. For example, the number of drawings produced for The Crystal were one third what would have been produced if the project were built in the U.S.

"We build from less information on drawings in Canada, especially on private projects. The system works for us because it is based on trust and experience," said Jim Gibson, senior coordinator for Stuart Olson. "For example, if there is not a handrail shown on the drawings, our workers know they need one by code and will put it in as they go along."

Opportunities to teach and learn didn't exist solely on the technical side. Mortenson introduced its Zero Injury-Training program and it received a warm reception from government officials and major subcontractors.

The program, which rewards workers for injury-free days, was adopted for The Crystal. Subcontractors will help cover the costs of the reward system that gives workers hats, shirts and jackets for each quarter they work without injury. The program is so attractive and popular that it will be used on other, upcoming projects in Vancouver and surrounding areas that do not involve Mortenson.

Learn the conversion rates

As managing partner of the joint venture, Mortenson is focused on overall management of contracts and costs and the relationship with the owner. Montoya must work carefully with costs since all work is done in Canadian currency. It's impossible, he said, to estimate costs simply by determining the cost of construction in the U.S.A. and applying the U.S.A./Canada exchange rate.

"The exchange rate goes up and down and we have to be on top of that to optimize our purchases," Montoya said.

The Crystal will be finished in December 1999 and it has already opened up a number of possibilities for Mortenson and Stuart Olson, Cossette said. The partners are looking at other projects in British Columbia, including several large city block mixed-use projects similar to The Crystal.

"British Columbia offers a wealth of opportunities for Mortenson and construction companies, but we have to keep in mind that it's not business as usual," Cossette said. "They have to be prepared to learn, grow and adjust our business practices to the marketplace and local culture."

Copyright © 1998 Seattle Daily Journal of Commerce.