Mining projects are often derailed because expectations between the mining company and the contractor who has been brought on board are not properly managed upfront.
Mining contractors are an important part of mining operations, often appointed for both core and non-core services. Under such circumstances, good contract management is necessary to manage risk around areas such as workforce availability, occupational health and safety, and environmental incidents. The challenge facing mines is that too often, proper contract management is left on the backburner, suggests Ludwig Snyman, project commercial manager at UMS.
This is concerning, as effective contract management ensures that both parties are aware of the risks and ensures that they become properly mitigated to the benefit of both the mine and the contractor. “Contract management is thus vitally important, because if these risks are not highlighted, they can come as a shock should
they arise, creating new challenges for both parties,” he says.
“The most common difficulties in managing mining-based contracts relate to the management of expectations, and around the issue of change management. This is an industry renowned for unexpected changes in project scope, often due to geological or hydrological reasons that could not be foreseen. So there is an obvious need
to manage expectations around what may change in respect of physical conditions encountered underground.”
Snyman notes that contracts must always be managed by both parties, so there is a need to ensure collaboration to resolve any challenges that arise. “It is vital to ensure someone on both sides has ‘ownership’ of the contract, as close communication is critical in the event of a problem arising. It is also worth mentioning that it is not always only about what is communicated, but also how it is communicated.”
It is also about the timing of the communication – the earlier an issue is communicated, the better, while it is also important to track communication, especially if it is undertaken electronically, he says. “To this end, there are certain software packages that can assist with contract management, especially in terms of correspondences relating to time frames for documents to be submitted and by when responses need to be provided. These tools aid the parties in key aspects such as the issuing, receiving and time-stamping of documents.”
THE LEGAL ANGLE
According to Cherine Hoffman, UMS group legal counsel, some of the key areas of focus highlighted in such contracts include matters relating to project delays, damages and/or penalties, failure to meet deadlines and the costs of overrun. “With contracts, it is all about the management of both risk and expectations. From the legal side, we highlight the schedule of terms and explain what these are. Then, in terms of the contract ownership, this is a mutual responsibility that falls on both client and contractor. Designated persons from both sides must be nominated to actively drive the process forward – and this must always be done with the project’s ultimate benefits in mind,” she says.
Proper contract management, continues Hoffman, relies on regular and effective communication between the parties to ensure there are no unexpected surprises or
challenges that arise by virtue of one party not receiving notification when they should have. This, she says, is the essence of an effective contract management process.
“This is imperative, as there is a cost impact for the contractor if delays are experienced. If delivery times are not met, there will be penalties, and good contract management is ultimately about avoiding potential curve-balls that may otherwise affect the contract and lead to such penalties being incurred.”
Recognising the importance of a good proactive contract management approach between the mine and the contractor is invaluable in ensuring that contracts are
ultimately executed effectively, within quality, time and cost expectations, she says. “Mines and contractors alike do not want to spend valuable time and resources
on post-contract litigation.”