24 ANNUAL REPORT 2012 MANAGEMENTS DISCUSSION AND ANAL YSIS OF OPERA TING RESUL TS AND FINANCIAL CONDITION DECEMBER 31 2012 of operations and fnancial condition will be adversely impacted In addition a prolonged economic slump or slower than anticipated recovery may affect one or more of Aecons competitors or the markets in which it operates resulting in increased competition in certain market segments price or margin reductions or decreased demand for services which may adversely affect results CONCESSIONAIRE RISK In addition to providing design construction procurement operation and other services on a given project Aecon will sometimes invest as a concessionaire in an infrastructure asset In such instances Aecon assumes a degree of risk essentially equity risk associated with the fnancial performance of the asset during the concession period The Quito Airport Project is a current example of such a project The fnancing arrangements on concession projects such as the Quito Airport Project are typically based on a set of projections regarding the cash fow to be generated by the asset during the life of the concession The ability of the asset to generate the cash fows required to provide a return to the concessionaire can be infuenced by a number of factors some of which are partially beyond the concessionaires control such as among others political or legislative changes traffc demand and thus operating revenues collection success and operating cost levels While project concession agreements often provide a degree of risk mitigation and insurance products are available to limit some of the concession risks the value of Aecons investment in these infrastructure assets can be impaired and certain limited risk guarantees can be called if the fnancial performance of the asset does not meet certain requirements On a going forward basis a slower than anticipated recovery or future economic downturn may directly or indirectly impact the ability of Aecon to make the necessary fnancing arrangements to pursue all of the concession opportunities it would otherwise be interested in RESOURCES AND COMMODITIES SECTOR In recent years delays scope reductions andor cancellations in previously announced or anticipated projects in the Alberta oil sands and commodities mining sector demonstrated that economic activity in the resources and commodities sector could be impacted by a variety of factors General factors include the pricing of oil potash and other commodities market volatility the impact of global economic conditions affecting demand or the worldwide fnancial markets cost overruns on announced projects efforts by owners to contractually shift risk for cost overruns to contractors fuctuations in the availability of skilled labour lack of suffcient governmental infrastructure to support growth the potential introduction of new green legislation negative perception of the Alberta oil sands and their potential environmental impact as well as a shortage of suffcient pipeline capacity to transport production to major markets Given the volatility of world oil prices a sustained period of low world oil prices on a going forward basis may result in material differences in previously projected oil sands development Postponements or cancellations of investment in existing and new projects could have an adverse impact on Aecons business and fnancial condition LABOUR FACTORS A signifcant portion of Aecons labour force is unionized and accordingly Aecon is subject to the detrimental effects of a strike or other labour action in addition to competitive cost factors The Companys future prospects depend to a signifcant extent on its ability to attract suffcient skilled workers The construction industry is faced with an increasing shortage of skilled labourers in some areas and disciplines particularly in remote locations that require workers to live in temporary camp environments The resulting competition for labour may limit the ability of the Company to take advantage of opportunities otherwise available or alternatively may impact the proftability of such endeavours on a going forward basis The Company believes that its union status size and industry reputation will help mitigate this risk but there can be no assurance that the Company will be successful in identifying recruiting or retaining a suffcient number of skilled workers SUBCONTRACTOR PERFORMANCE The proftable completion of some contracts primarily within Aecons buildings business unit depends to a large degree on the satisfactory performance of the subcontractors as well as design and engineering consultants who complete different elements of the work If these subcontractors do not perform to accepted standards Aecon may be required to hire different subcontractors to complete the tasks which may impact schedule add costs to a contract impact proftability on a specifc job and in certain circumstances lead to signifcant losses A major subcontractor default or failure to properly manage subcontractor performance could materially impact results INTERNATIONALFOREIGN JURISDICTION FACTORS Aecon is from time to time engaged in large international projects in foreign jurisdictions International projects such as the Quito Airport Project in Ecuador can expose Aecon to risks beyond those typical for its activities in its home market including without limitation economic geopolitical geotechnical military repatriation of undistributed profts currency and foreign exchange risks and other risks beyond the Companys control including the duration and severity of the impact of the recent global economic downturn On a smaller scale Aecon is also exposed to similar risks through its whollyowned subsidiary IST which has projects in many countries around the world The Company holds a 423 effective economic interest in Corporacion Quiport SA Quiport JV an Ecuadorian company administering the Quito Airport Project concession which includes a managing and operating the Existing Quito Airport until its operations are transferred to a new airport and b the development fnancing construction operation and maintenance of the New Quito Airport under a concession arrangement with the Municipality of Quito In connection with the Quito Airport Project the Company has made equity investments and provided letters of credit in support of its remaining equity obligations and for various project contingencies These letters of credit are supported by guarantees issued on behalf of the Company to the issuing banks by Export Development Canada EDC and will remain in place until its equity obligations are fulflled and the conditions giving rise to the contingencies are satisfed or cleared For additional details see Note 23 Contingencies in the Companys 2012 consolidated fnancial statements for additional details In addition the Company and its joint venture partners