Strengths and weaknesses in mining business models

Since 2014 global regulators have published several articles concerning the need for mining business model reviews. Whilst a considerable emphasis is placed on a decade-long trend of decline in productivity, several other factors have placed overall Owner and investor satisfaction at risk, including but not limited to:

●  the regular occurrence of construction claims;

●  cost overruns;

●  ongoing disputes;

●  schedule slips;

●  sub-standard construction quality;

●  ​​​​​​​a very competitive design professional market;

All of which have tended to push the need for a project delivery system towards methods perceived as delivering the desired Owner satisfaction.

The most common project delivery system applied by the open-pit mining industry is the traditional Design-Bid-Build approach. In this project delivery system which is well known for the aforesaid risks, the Owner deals directly with the Design Professional and General Contractor.

During two decades of applying sound Construction Management principles and experience drawn from Construction Management assignments on more than 50 multi-commodity projects across Africa, has confirmed that this project delivery system has consistently contributed positively towards Owner and investor satisfaction.

Today, risk is the enemy, and Owners are recognizing that having a team motivated with the Owner’s best interests can help to identify and mitigate risk in planning and executing construction projects. Since construction projects require management of the process, whether it’s done in-house or with hired expertise, the incremental cost of hired expertise can be more than offset by the cost efficiencies of better planned and coordinated construction.

Whilst it is common to appoint a Construction Manager or EPC Contractor that strictly abides to sound project management principles in every construction sector employed by the mining industry, the lack of this project delivery system in open-pit contract mining has and continues to place overall owner and investor satisfaction at risk.

Having worked both as Civils and Open-pit mining contractor as well as Construction Manager in mining looking after the interest of the Owner, it is not difficult for Tacmin to identify (and this is proved over two decades of assignments) that the traditional project delivery system must have and continues to cause the open-pit mining industry to lose millions of dollars that could otherwise be saved.

Construction Manager at Risk has gained a following in the construction industry and with Owners as a method to reduce risk, cost overruns and schedule predictability, deliver functionality, and stay within restrictive budgets and schedules. Established contractors likewise prefer Construction Managers At Risk contracting since it avoids much of the competitive bidding risk, the costs of developing unsuccessful hard bids, selection is based on experience and qualifications, profit margins are generally better than those in the hard bid arena; and the emphasis is on client satisfaction, which leads to repeat business.

The third “partner” in the Construction Manager at Risk delivery method, the Design Professional, generally is also pleased with the methodology, since the often adversarial relationship between the Design Professional and Contractor is greatly improved. Selection of the Design Professional and Construction Manager at Risk is based on demonstrated teamwork in that contracting setting, and often on projects where the Design Professional and Construction Manager at Risk have successfully worked together before.

Although Construction Manager at Risk Contractors that work on a fee percentage of total construction cost basis have a fiduciary duty to the employing Owner, they can bring a goal oriented objectivity to the construction management process that could be missing by using in-house staff alone. Having a broad range of experience with a variety of Owners, Design Professionals and Subcontractors enables the Construction Manager at Risk Contractor to employ proven methods and systems and accurately assess and report project status without having a potentially conflicting agenda. Under Construction Manager at Risk, all the parties are focused on Owner satisfaction, and with that common goal and motivator, real teamwork can be achieved.