How mine owners can improve delivery in the drive to net zero
The technology required for a low-carbon society is driving an exponential demand of mined products, including iron ore, copper, lithium, nickel and cobalt. As miners look to deploy significant capital to meet the net zero future, how can a more agile delivery approach improve project success?
With no shortage of industry news on cost overruns and schedule slippages, it is widely recognised that mine development, particularly mine construction contracting, is challenging. As miners look to successfully deliver the next generation of projects that will enable the energy transition, what options do they have to do things differently?
In this article we review traditional mining project delivery models and uncover five considerations for mine owners looking to break the mould.
Traditional delivery models
Owners base their choice of delivery model on the project size, location, level of scope definition, local supply chain as well as their own engineering and project management capabilities.
The most common delivery models used in the mining industry include EPC and EPCM, with some hybrid options emerging over the years that seek to improve the balance of risk. These are described briefly below.
EPC (Engineer, Procure, Construct)
The EPC turnkey lump sum approach remains a credible commercial option for project execution, particularly in remote locations or where contractors and skills are in short supply. The contractor takes full autonomy for the project, delivering for a lump sum price, notwithstanding any significant change that alters capacity or scope.
EPCM (Engineer, Procure, Construction Manage)
EPCM is often thought of as the standard procurement methodology for the mining industry and is attractive since ultimate control rests with the mine owner and provides more flexibility via owning the principal project risks during execution.
The challenge of engineering-led projects
While these project models may be the preferred option for many mine owners seeking to balance risk with the EPC or EPCM contractor, our experience highlights several challenges for clients working in this engineering-led environment. These include:
- Procurement and contracting methods do not always align well with client, project, and operational objectives.
- Projects fail to balance risk transfer with commercial incentive for contractors to perform.
- Design management can be inadequate leading to poor scope definition, late engineering, and uncoordinated deliverables.
- Poor scheduling driven by lack of connection to engineering and disconnected from estimates leads to likely schedule delays.
- A lack of engineering definition leads to unclear procurement schedules and inappropriate contract award.
- While the client’s project leadership team almost always understands when a project is getting into distress, they rarely have the confidence or transparency of data to intervene and instead are left to simply hope things will improve.
Rise of the project management consultancy (PMC) model
To address the balance and place more focus on data, collaboration, and improved construction delivery, we are supporting more projects using a PMC delivery model. In PMC, responsibility for engineering and project management is split between different consultants. It provides the mine owner with a project management professional during the design phase (performing management of the design coordination and evaluation process to align to the project brief) as well as the construction phase (being responsible for managing the construction contracts).
Under this delivery model, the PMC is appointed by the mine owner to independently manage the direct contracts with designers, contractors, and suppliers.
The project management skills of the PMC can be used without the inherent conflict of interest of it also being the designer. Likewise, the engineer can provide the technical solution, independent of the commercial team.
Increasing crucial data consistency and transparency
In having commercial management and controls provided by a third party independent to engineering, the mine owner benefits from increased transparency of crucial data including quality, cost, contract, schedule, and risk. This includes identification and early warning of increased commercial risk, or reduced performance and progress by the engineer or construction contractors. This data-centric focus is not always achieved in a traditional EPC or EPCM delivery model.
Five levers for PMC success
A PMC approach works best through optimised, integrated teams and a collaborative model including the PMC, client, engineering, and supply chain functions.
In recommending a PMC approach we believe there are five considerations for mine owners.
- Ways of working: Is your project management team ready to transition its mindset to PMC? In considering a change of delivery model, you will need to strike the right balance between yourselves, your partners and the supply chain. This will require new ways of working, based on collaboration, appropriate risk allocation and an agile mindset.
- Supply chain capacity and capability: Do you have comprehensive knowledge of the supply chain capabilities and capacity to deliver under the PMC model, or depending on your location, where expansion into the international marketplace may be required?
- Set up for success: In considering a change of delivery model, early workshopping to establish clarity on the roles of the mine owner, engineer, PMC, and supply chain will lay the foundations for the appropriate governance, processes and systems that will enable data centric project controls.
- Explore best practice from other industries: What are your options to control and balance risk with the supply chain? How can the PMC model help you maintain the right control and balance of risk across your procurement strategy? Have you looked to other industries such as infrastructure for best practice and to assess your capacity to deliver your next project using PMC? We have several examples from the infrastructure industry where alliancing or collaborative contracting strategies are being successfully deployed to encourage innovation and manage risk jointly and transparently.
- Think long-term: Select a PMC that can embed the right tools, techniques, and behaviours throughout the project lifecycle. Experience and capability to collaborate and integrate within your owner’s team is also essential.
Mining better outcomes
Meeting a global net-zero carbon commitment will strongly rely on the mining sector to provide the critical minerals needed for the low-carbon society.
Owners now have a unique opportunity and an increased responsibility, to ensure all projects are set up with the project controls that will enable them to be delivered in the most efficient, sustainable, and productive way.
At the core of success will be a collaborative and integrated delivery approach where the right capabilities and a focus on data-centric project controls are backed up by a framework of transparent governance and progressive assurance. Putting commercial independence at the heart of delivery models will be the mining industry’s best opportunity to allay historic poor performance and accelerate us towards a net-zero world.