In need of Restoration

Restoration Contractors Organization of Canada 1st Annual AGM and Supplier Exposition (Niagara Falls)

The Restoration Contractors Organization of Canada (RCOC) held its inaugural Annual General Meeting and Supplier Exposition at the Sheraton on the Falls Hotel in Niagara Falls, Ontario on June 17-18. RCOC was formed two years ago by eight contractors – Winmar, Canadian Disaster Restoration Group (CDRG), DKI Canada (then Disaster Kleenup Canada Ltd.), BELFOR, FirstOnSite Restoration, Service Master of Canada, First General Services Ltd. and Paul Davis Systems – to represent contractors in matters such as safety and regulatory affairs. As of mid-June, RCOC had 35 members.

RESTORATION FACING SOME OF SAME CHALLENGES AS AUTO REPAIR 

The margins of restoration contractors are being squeezed. Contractors are seeing revenues from insurance claims climb more slowly than costs, all while their relationship with carriers are facing some challenges, RCOC president Kyle Urech told an audience of executives from restoration contractors at RCOC’s exposition and AGM.

Urech suggested contractors specializing in repairing and cleaning up damaged properties are starting to encounter problems similar to those of auto repair shops when dealing with insurance carriers. Many auto body shops have gone out of business because they are either losing money or their margins are too low, the former adjuster said. “They are dictated to by the insurers,” he added.

“For a lot of them, they can’t even go out and buy their own parts and materials. They have to go to the insurance company portal and order it that way. The insurance company makes the margin on those parts, not the auto body repair facility. The repair shop makes a 6% handling fee. What has resulted? There’s a very adversarial relationship with insurance companies.”

The resulting tension can make claimants feel as though they are in a “tug of war” between the collision repair centre and the insurance carrier when they get their cars repaired, he said. “It kind of sounds familiar, doesn’t it?” Urech said. “It sounds like what the restoration industry is going through right now.”

Beyond strained relations, Urech added that many restoration contractors are facing rising costs – in some cases above the rate of inflation – while revenues are either flat or not rising as quickly as the cost of materials.

During the AGM, one member asked Urech how some costs are calculated. “Part of how industry pricing’s arrived at is they phone contractors who don’t do insurance work, but do the same type of work in order to come up with pricing,” he responded. “But those contractors don’t necessarily have a late-model, $40,000 van with $70,000 worth of equipment packed into it, and they’re not on the road at 3:00 in the morning with highly trained workers to go and mitigate some damages.”

There are increasingly more contractors who do not specialize in restoration, Urech noted, but who still want to compete with restoration contractors for insured jobs. “There is additional complexity in the restoration industry that the auto repair industry doesn’t face,” he said. “You’re still compared to ‘Chuck in the truck,’ who has no health and safety protocol, no health and safety plan, probably no workers’ compensation and probably no insurance.”

GETTING A FIX ON PRICING

Attendees of the RCOC event also heard on June 18 that questions are being raised about the prices generated when insurance carriers or adjusters use the Xactimate software to estimate the cost of property claims. RCOC tracked 18 common items on the estimate of a project to repair a damaged property over three years in eight Canadian cities and found that almost all costs increased, reported RCOC president Kyle Urech. At the same time, though, Urech pointed out the change was “relatively flat” over time when using Xactimate to track those costs.

“What’s happening is, your costs are going up, your revenue isn’t going up at the same rate, so the ship is sinking,” he said. “This is a recipe for an unsustainable business model,” Urech added.

To help answer these questions, RCOC has commissioned Deloitte Canada to take an up-close look at how insurers are using Xactimate. The plan is for the Deloitte team to examine as many as 75 different products used in estimating restoration project costs in four different regions in Canada, Michael Parent, senior manager for consulting and strategy at Deloitte Canada, said during RCOC’s AGM. The review is expected to be complete by late August, at which time Deloitte will issue a report to RCOC’s Board of Directors.

“Deloitte will point us in the right direction of how to correct that and what the strategy will be,” Urech said in an interview after the AGM. “It may involve insurance companies. It may not.”

But he noted during the AGM that some RCOC members are “worried about their survival in the industry.”

MISMATCH FOR WORKERS’ COMP

Restoration contractors who are concerned about their survival in the industry are also being hit by rising workers’ compensation premiums in Ontario, RCOC president Kyle Urech suggested during the AGM in mid-June.

Showing members slides listing the workers’ compensation premiums by province and by industry, Urech noted that renovation contractors in Ontario could expect to pay $7.33 per $100 of payroll, while the province’s Workplace Safety and Insurance Board (WSIB) lists the new home construction rate at $8.88 per $100 payroll and the commercial contracting premium at $4.44 per $100 payroll. “We do have an issue, within our industry around workers’ compensation, and that is, the assumption is your safety record is far better than new homebuilders, and yet a vast majority of you are paying new homebuilder premiums because there is no alternative,” Urech explained.

Burlington, Ontario-based Organizational Solutions Inc. is gathering information about WSIB claims to “create a fact base” on restoration contractors, he reported. The idea is to provide hard numbers to argue for a reduction in the rates that RCOC members have to pay.

A MATTER OF ASBESTOS PROTOCOL

Contractors specializing in cleaning and repairing damaged properties face competition from general contractors who tout their expertise in asbestos remediation – even though restoration specialists may have the requisite qualifications, RCOC president Kyle Urech noted during the association’s first exposition and AGM June 18. “There are contractors out there who are telling your customers that you shouldn’t be doing asbestos work,” Urech said. “They know that you’re qualified. They know that you’re trained. They know that you’re insured to do the work, but there’s no national asbestos protocol.”

RCOC has responded by working on its own national protocol, he reported, one that will be copyrighted and available exclusively to RCOC members.

Urech suggested that restoration contractors need a guide, which takes into account all provincial regulations, on how to handle restoration projects involving asbestos. As it stands, some general contractors are marketing their own asbestos protocols to prospective clients to secure those jobs and prevent restoration contractors from doing so, he said.

Before 1985, Urech said in an interview, “there was quite a bit of asbestos” used in building materials, so a “large proportion” of restoration contractors’ work is on these older buildings.

Health Canada reports asbestos was used “widely” in insulation board, floor and ceiling tiles, and drywall joint cement, meaning there is a risk to workers exposed to older buildings undergoing renovation or demolition. Health risks of exposure include asbestosis, mesothelioma and several cancers.