Books & Training Resources

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Cracking the VfM Code™ in Mining

The Pros & Cons of Collaborative Contracting in the Resources Sector

Cracking the VfM Code in Mining:  The Pros & Cons of Collaborative Contracting in the Resources Sector was written in response to requests from readers of the existing Cracking the VfM Code in Collaborative Contracting duo.

With Australia’s mining industry experiencing an indisputably bumpy road as it heads out of its unprecedented half-decade boom and into a distinct cool-down period, leaders across its various sectors are framing the question:  

Is there a role for collaborative contracting and alliancing-type delivery methodologies to help curb the spiralling costs and other contractual challenges plaguing project owners?  

This new addition to what has now become the Cracking the VfM Code book collection investigates this potential through a series of interviews with well-recognised opinion leaders from the Australian mining industry. Readers will be shocked, surprised, encouraged and informed by the unedited opinions of some of the mining industry’s “wisest heads” on the subject of alliancing and other forms of collaborative contracting.

Read:

  • How the cost of developing a mineral resources project in Australia is an average 1.5 times that of getting a project up in other mining nations – and how disillusionment by project owners is prompting an active and more open-minded search for alternative delivery methodologies.
  • Why Minerals Council CEO Mitchell Hooke has said a “wake-up call” lies in wait for anyone hanging on to the belief that the country’s mining sector is sufficiently resilient that it will continue to thrive, irrespective of events and trends in the industry, the economy, and markets globally.
  • How international law firm Ashurst (formerly Blake Dawson) reported in its most recent infrastructure survey that 67% of respondents who had delivered a project using an alliance had seen them come in on schedule, on budget, and to the required standard. Only 48% of respondents had experienced these desired outcomes using other contractual methodologies.
  • The (often substantial) financial penalty paid unwittingly in the marketplace by project owners employing inefficient project delivery methodologies.
  • Why the transparency feature of alliancing and other reasonably “pure” forms of collaborative contracting offers substantial scope for mining interests and contractors to solve the industry’s current woes.
  • How one mining management consultant considers alliancing “a giant leap on from joint venturing” and “an evolutionary step onward from EPCM”.
  • Why proponents of collaborative contracting still need to solve the issues surrounding the convincing demonstration of VfM and the challenge of appropriate risk-sharing, if they want to talk seriously with mining industry leaders.
  • Why some mining industry leaders still view alliances as simply another form of cost-plus contracting, with the owner footing the bill for everything, including poor contractor performance – and what the construction sector can do to change that opinion.
  • How setting accurate TCEs and meaningful KRAs is vastly different to achieving the same in the public infrastructure environment.
  • When and how to interest a mining major in an alliance or other collaborative contracting arrangement.
  • Why alliances need to be kept “fresh” if they are to deliver value in the highly-specific context of a mining project.
  • How the contracting sector could play a more valuable role in reducing the failure rate of mining projects by sustaining collaborative effort past the hand-over stage.
  • How alliancing stalwarts would benefit from “sparing the mystique and the buzz words, and ‘embracing boring’”.
  • What’s behind the mining industry’s growing interest in the application of Early Contractor Involvement (ECI) formats, the specific benefits owners and contractors should be capitalising on, and the communications priorities that must be recognised for a successful ECI.
  • Why the collaborative contracting movement’s leading facilitator believes many mining executives have a “command and control paradigm block” that inhibits their beneficial application of alliancing principles. 
  • Why understanding the distinction between “co-operation” and “collaboration” in the context of a mining industry project could be the difference between the acceptability or non-acceptability of alliancing for many mining houses.  

Reader Review

As Australian mining industry executives continue their desperate search for strategies to contain costs and maintain project profitability, infrastructure industry commentator and author Jordan Kelly proposes a possible solution: alliancing and other forms of collaborative contracting.

"While this form of contracting is largely unfamiliar to the resources sector, it's a methodology that effectively cleared huge backlogs of public infrastructure projects during the overheated construction market years of 1995-2009, bringing literally hundreds of big-ticket projects in under time and under budget.

"The potential to bring about a similar performance turnaround is the subject of Kelly's recently-released 'Cracking the VfM Code in Mining', a book she wrote at the request of readers of her slightly earlier 'Cracking the VfM Code in Collaborative Contracting' duo. ('VfM' stands for 'Value for Money' – a hot topic and a bone of contention for those that remain cynical about this form of project delivery.)

"Kelly and the industry leaders she interviewed for the book believe most mining company heads misunderstand the alliancing concept, viewing it as a loose form of "relationship" contracting open to abuse by contractors.

"Firstly, says Kelly, that's not an accurate perception. Alliancing, she says, is arguably more structured in many regards than conventional forms of contracting. Secondly, for some mining projects there's little to lose and much to be gained by giving it a shot: As at 2012, the cost of developing a mineral resources project in Australia was an average 1.5 times that of getting a project up in other mining nations, and it's getting steadily worse.

"For contrast, she points to a recent infrastructure survey by global law firm, Ashurst. The survey showed that 67 percent of respondents who had delivered a project using an alliance had seen that project come in on schedule, on budget, and to the required standard. Only 48 percent of respondents had experienced these desired outcomes using other contractual methodologies.

Karen-Maree Kaye Editor West Australian Transport Magazine