Ticking all the right boxes
How mining companies procure for projects is changing - but there is a future for EPCM.
With mining companies under pressure to approve capital more rigorously and apply capital more efficiently, improving project delivery models has moved to top of the agenda for many. As part of the thought process, existing procurement strategies for capital project delivery - which includes the EPCM model - are currently in the spotlight.
The traditional EPCM contracting model has been thought by the industry to leave mine-project-owners exposed to perceived rising costs and potential risks, and has in instances led them to reconsider how risk is shared and managed with consultants/contractors. So where does the future lie for the EPCM contracting model within evolving project procurement strategies?
The emergence of hybrid delivery models
“We see more mine-project-owners looking for ‘best of all worlds’ solutions or what can be termed hybrid delivery model options. In needing to deliver more complex programmes, they are asking how they can increase confidence in the project outcome to the level expected in an EPCM arrangement, while maintaining access to the skills and benefits that an EPCM consultant/contractor can bring to the project,” said Rory Wallace, Mining Director, Turner & Townsend Chile.
Hybrid models can provide an alternative to the traditional delivery models and can be designed to clearly define areas over which the owner may wish to take control (this is based upon the premise that accountability and risk lie in the hands of the most appropriate party/stakeholder). The attractiveness of a hybrid model as it relates to EPCM contracts has to do with the benefits to the mine-project owner in terms of its ability to: change the scope and control of the EPCM contract; change the way these contracts are issued and administered; and offer reduced risk exposure, better change management; and minimised cost and delays.
The changing role of EPCM
Bruce Clarke, Mining Director, Turner & Townsend Johannesburg adds: “We’ve seen a step change in EPCM contracts as mine-project-owners have looked to consider alternative models. We’ve seen mining company clients of ours look at varied pricing options for EPCM services and we’ve assisted with the strategy and planning of many contracts that have fixed pricing for aspects of engineering and procurement, and a reimbursable pricing structure for the construction management services. My sense is that EPCM contracts will be tendered within tighter parameters to include fixed pricing components, strict mobilisation procedures, and the 'right to audit' clauses embedded, as examples.”
Wainwright explains: “To give a few hybrid examples, we supported a mine project-owner with the selection of a hybrid type contract model where the EPCM consultant/contractor– with its supply chain and in-house capabilities - covered the engineering and procurement functions, whilst a greater degree of control over commercial and construction management responsibility lay with the mine-project owner. In a separate instance the EPCM consultant/contractor did not even assume responsibility for the procurement - manufacturing vendors assumed this responsibility. We’ve also supported the selection of other hybrid model types that have included EPCM contracts delivering their full traditional suite of services combined with a series of engineering, EPC, procurement or construction contracts for specific areas of work … and I expect, in future we will find ourselves at Turner & Townsend (as part of the owner’s team) supervising more of these type of hybrids.”
New opportunities to understand procurement
Wainwright continues: “From these examples I think it is clear to see that delivery models are evolving. I believe that with the market as it is currently, a window of opportunity has opened up for more mine-project-owners to spend time understanding the best procurement strategy for the delivery of their projects - including hybrid models and the potential role of the EPCM consultant/contractor within such models.”