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Zero Sum Game
Nov 10, 2021

I have been in the mining industry for nearly two decades with a primary focus on formalizing Owner and Contractor relationships through one form of contract or another. For me, the most exciting and rewarding form of contract is a Prime Contract (i.e., EPCM, EPC, etc.). From the vantage point of this position, I am able to get a first-hand view into the Owner’s organization, as well as that of the Contractors.

Everyone has a voice in ultimately, and ideally, developing a win-win relationship between both the Owner and Contractor.

The problem that I and many others have witnessed is this: the majority of those responsible for putting in place contracts don’t have the same win-win philosophy and are really only looking out for the benefit of their own organization or their own careers.

The majority play a zero-sum game. Somebody has to lose in order for somebody else to win. It’s a form of scarcity thinking, not abundance. Why can’t we all win, or at least benefit in some way? Why does the success of one company, or one organization, or one project, rely on the destruction (or domination) of another? Aren’t the ultimate objectives the same (health and safety of the personnel, meeting budget targets, accomplishing the project on schedule, etc.)?

I see this dynamic and line of thinking....

Master Servant Relationships
Nov 3, 2021

I am constantly baffled by the perception in our industry that Owners are the "Masters" and Contractors are the "Servants". As mining companies, we are killing ourselves. We are squeezing contractors’ margins so tight they barely have room to breathe.

I speak with mining leaders every day. They are looking for expert advice in contract strategies and contract formation. Typically, my new clients come to me with preconceived notions mining companies can use contractors as an insurance policy for cost and schedule overruns. This is a fallacy. Contractors do not have the balance sheet to support the massive cost and schedule runs our market is suffering on mega projects.

Market statistics indicate that 4 out of 5 mega projects suffer cost and schedule overruns of nearly 50%. That's a lot of money. On a Billion-dollar project that's a $500M price tag. Ouch.

Turquoise Hill Resources recently announced the expansion of Oyu Tolgoi could cost up to an additional $1.9 Billion while also being 21 to 29 months late. In addition to the additional capital costs, think about the lost revenue of being 2 years late. The Oyu Tolgoi mine is anticipated to produce 550,000 tonnes of copper and over 450,000 ounces of gold per year at peak. At today's prices that's over $7 Billion in lost revenue in 2 years!

With those numbers ......

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