Avoiding the battle of mistakes
Miners or programme owners have to date enjoyed a reasonable level of certainty with respect to the price and quality of construction work for mine expansion projects. Contractors in this field of construction are considered experts – to protect their reputation and ensure repeat business, they must deliver on time and within reasonable cost.
However, credit restrictions and strict budget control, with construction contractors facing a downturn in work and limited credit, have changed the objectives of both mine owners and mine construction contractors.
Aside from the lack of available credit, there is a worldwide shortage of skilled and experienced mining design engineers. As a consequence, mine construction projects are suffering from an increase in engineering mistakes, procurement delays, and estimating errors – all followed by installation delay and disruption, primarily due to engineering drawing rectification and subsequent remedial work.
Usually, engineering mistakes in mine construction are encountered in parallel with mine owner ordered variations of scope or change orders. As a consequence, mine construction contractors combine the cost of an ordered variation with those arising from engineering mistakes.
The approach whereby these costs are combined and the contractor seeks their recovery from the mine owner is called a global claim.
For a mine contractor to win the tender for the construction of a mine expansion project, the price must be competitive and based upon 100 percent efficiency and maximum production outputs (notional production). During execution of the work, any departure from the notional output is considered the mine owner’s responsibility with no acknowledgement by the contractor of inefficiency and mistakes.
A contractor may tactically choose to wait for a client to order a variation or change of scope to the work that is being carried out and then rely on this change as a cost collection point and the start point of a global claim.
An example could be where an unforeseen natural event is relied on by the mine construction contractor as the cause of failure to achieve notional production for earthworks. Following this, the mine construction contractor then attributes all earthworks loss of productivity to the event and ignores any loss caused by inefficiency and underestimation.
Another example could be where engineering mistakes in design and steel fabrication by the mine construction contractor are masked by misleading progress reports and schedule submissions to the mine owner. The mine construction contractor then attempts to spread these costs amongst suppliers to be absorbed by inflated and exaggerated claims for work done.
Unfortunately, global claims have a further sting when the mine construction contractor relies upon them to place pressure upon the mine owner. In this situation, the mine owner has a duty to calculate the contractor’s entitlement in a logical, methodical, fair and reasonable manner and to use contemporaneous records. This is when it gets tricky for the mine owner.
If, in calculating the entitlement, the owner unknowingly relies on incomplete contemporaneous records and/or makes a mistake, this gives an advantage to the contractor, who can rely upon this mistake, drive a claim to dispute resolution, and potentially win a claim and unjust reward because of a calculation mistake.
This situation is commonly called the ‘battle of mistakes’; it has little to do with construction of the mine and is usually a claim won by the party who has the most accurate set of contemporaneous records.
In short, a contractor may rightly or wrongly choose to use global claims to change the impetus and direction of a mine construction project, recover just or unjust additional costs, potentially delay completion and impact on a project financial plan.
How can such outcomes be mitigated from both sides?
Ideally, global claims associated with mistakes, planned and unforeseen risk, together with post-contract change, should be eliminated by bid verification and validation and provision made for risk. However, a mine owner is usually in a rush to get to the revenue stream and commence work as soon as possible.
If global claims are to be avoided, they must be managed out in the bid process for the project. Ideally, the best method of avoiding a global claim is to ensure the mine construction contractor has included sufficient sums of money for each task, and for the mine owner to provide for a team of professionals during construction of the programme to check the mine construction contractor’s programme management, cost control and contemporaneous records. When faced with accurate contemporaneous records, mine construction contractors prefer to concentrate on progressing the project to completion rather than the pursuit of global claims.