Opportunities in the Mining Sector
March 1, 2013
By By Chad Eggerman, Miller Thomson LLP
In Saskatchewan, where a number of greenfield and brownfield mining projects, mainly in potash and uranium are under way, and with many more planned, we are seeing a trend developing which may be favourable to consulting engineers with...
In Saskatchewan, where a number of greenfield and brownfield mining projects, mainly in potash and uranium are under way, and with many more planned, we are seeing a trend developing which may be favourable to consulting engineers with specialized expertise and knowledge in mining.
Many of these large mining projects are undertaken using an EPCM (engineering, procurement, construction management) model, with large multinational engineering firms as one of the partners. But although the project owners have procured an EPCM contractor and are basically using an EPCM model, they may, for example, decide to carve out certain critical work packages from the EPCM contractor’s scope of work and contract them to other, specialized engineering consulting firms. The owner may take this course in order to contain the increasing cost of EPCM contractors, or in anticipation of labour shortages (such as those currently in Saskatchewan). Or the owner may be relying on its existing relationships with contractors and suppliers in other jurisdictions on similar projects. Irrespective of the reasons, the owners who carve out these packages from the EPCM contract create opportunities, particularly for firms that have a broad understanding of how different work must be positioned. There can, for example, be considerable benefits to retaining a consulting engineer to ensure both project management and design remains aligned between the EPCM contractor, the other contractors and the suppliers throughout the duration of the project.
Working for the EPCM contractor or suppliers
The EPCM contractor too can retain a consulting engineer to coordinate and mitigate its risks. EPCM contracts include some provisions for project management and design, but they lack the comprehensive and integrating framework that consulting engineers can provide in these areas. Project management and design has established principles, a body of knowledge and professional institutions that are generally not as developed in the EPCM world. The opportunity for consulting engineers is to sell specialized project management and design services to such EPCM contractors that recognize this evolution.
There are also opportunities for consulting engineers to work directly with suppliers. For some time, equipment suppliers in the mining sector have been moving away from employing and paying for large in-house engineering teams. We expect that this is a trend which will continue as suppliers on large projects look to cut costs further and adjust more quickly to fluctuating and increasingly unpredictable markets, particularly in mining.
Often, the suppliers of equipment to large projects prefer to supply the equipment only to the project owner. Due to the specialized nature of the equipment and its significant cost, the project owner may prefer to purchase the equipment from a supplier who has retained a consulting engineer to assist with both the basic and detailed engineering. So a consulting engineer with specialized expertise and knowledge of the equipment and project may be named as an approved subcontractor in the contract. If the supplier is engaged in a competitive bidding process, the supplier who has subcontracted a consulting engineer with specialized expertise in the industry may have a significant advantage.
After enjoying success for many years, the EPCM model in the mining sector seems to be approaching a point of evolution which may ultimately benefit both large and small consulting engineering firms.
As with many construction contracts, the expectations and interests of the parties to an EPCM contract vary significantly. Project owners are expecting the lowest cost certainty while the EPCM contractor is seeking to maximize its profitability; owners are seeking to maximize schedule predictability while the EPCM contractor wants to maximize possible schedule changes; owners want flexibility to adjust to change while EPCM contractors want to lock in the owners’ design intent; the owner wants to minimize scope change while the EPCM contractor wants to control scope change. Generally owners will want to retain control and EPCM contractors will want self-autonomy to undertake the project. Resolving these competing expectations in the EPCM contract can be challenging but is critical for the EPCM contractor to deliver on-time and on-budget – this is where a consulting engineer can add significant value in ensuring industry-specific compliance with the contract.
The EPCM model is dependent for its definition and legal interpretation on the specific contract agreed between the project owner and EPCM contractor. The elements of the EPCM model may be subdivided and become increasingly fragmented as the project progresses, leading to additional risk for the project owner.
Given the conflicting interests, the parties that take the time and expense to negotiate the details and draft an EPCM contract that properly defines the parties’ rights and obligations could find that it means the difference between delivering the project successfully or ending up mired in litigation. By retaining consulting engineers with industry expertise, the parties involved in a mining project can further mitigate risk. cce
Chad Eggerman is a partner with Miller Thomson LLP in Saskatoon, Sask.. E-mail email@example.com