The Cyclical Weakness in Mining Project CommercialManagement

As a quantity surveyor, we often face the eternal of battleof “there is a better way to do that”. This can emerge in industries that aren’tperhaps as familiar with the role of a Quantity Surveyor as typical majorconstruction organisations and perhaps one of the most prevelant is the mining industry.

Phrases like “We have the buying power” and “contractor’s value the relationship and project portfolio” are often rolling off tongues whenexplaining why payments haven’t been made in time,  why contracts haven’t been properly administered or why procedures or best practices (and in worst cases, anti competition,security of payment legislation and ethical administration practices) haven’t been followed. Contemporaneous evidence rarely exists, money is spent before approval or justification is made to the business, and the change management process is more often than not, severely broken, compounded by unclear org structures which sees tasks falling under the remit of parties who are perhaps not best placed to tackle them with an overarching skillset - with commercial discussions often being held by legal or engineering departments, in isolation to the team responsible for administering the contracts at the core of the issues at hand.

Budgets are often in place but it means little in pinch timewhere key resources are cut by the numbers rather than with strategy. There’soften a corporate mandate – for the sake of looking at the black and whiteimpact, we’ll put that to one side for now.

But why is that?

Contracts roles in the mining industry are often dilutedwith people from a broad array of backgrounds, many of which aren’t typicallyheavily involved with the strategic, cost-focused and solutions oriented mindsetof a well rounded quantity surveyor.

That’s not to say that there aren’t good ContractsAdministrators out there by any shot, but it just means that the range ofexperiences and backgrounds that the individuals in these roles can often leadto gaps in the skillsets of major mining companies.

There is a recurring pattern across large-scale mining andresource projects in how contracts, commercial management, and project controlsare implemented—and more importantly, how they unravel, sometimes seeminglyinevitably.

It’s not always a capability issue, but often a broaderorganisational and structure issue that is deeply engrained in the DNA of largeresource owner/operators which pre-disposes them to repeat a cycle.

Thinking critically,there is often a 7 step cycle that we’ve seen at almost every major miningproject that we have observed, shockingly, almost without exception.

1. Policy Depth and Practical Reality

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Most large and international organisations operate withextensive frameworks in place that have had committee after committee pawthrough them, or that have been adopted after the churn of literally hundredsof stakeholder.

Whilst these policies and procedures and systems are designed to be robust intheory, in practice, the volume is far too great for full digestion.

The applicability in local markets or on a project level isoften unclear or unfit for a plug and play application.

Teams default to “what works” rather than “what should be”because it is often simply too difficult to get so many individuals and teamssinging from the same hymn sheet.

This creates an immediate disconnect between corporateintent  or theory and site execution.

2. Lean Teams, Broad Mandates

Project teams are often lean by design, yet expected to:

• Administer contracts properly and transparently
• Manage cost and forecasting
• Track change and claims
• Maintain compliance with internal and legislative frameworks

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Compounding this is the fact that the commercial team’sstanding is often unclear. Procurement? Directly for projects? A hybrid?

Where does the buy-in come from with regard to other teams, when the commercialteam’s authority is undermined, their position unclear and project teams flowthrough the path of least resistance, avoiding what they see as simple redtape. A dedicated commercial or QS function is often absent, diluted or failedto be set out in a clear organisational and process chart.

Delivery is always the key output but the importance of commercial rigor to achievethis output is often severely undervalued.

3. Localised “Ways of Working” Emerge

Under pressure, teams develop their own systems or lack of.You know the signs

·        HUGE resistance to change

• Registers that don’t exist
• Correspondence going via emails or phone calls - constantly
• Retrospective justification of costs
• Spending money before business authorisation has occurred
• Informal change management practices

This often results in

• A massive departure from contractual requirements
• Bypassing formal notice requirements
• Relinquishment of rights and entitlements without even realising it.

Often through negligence but also through culture, habit andnecessity.

4. Bolsteringthe team is often done unsustainably

As projects grow, budgets get approved, locked in. Or atleast that’s the theory.

More personnel are recruited to fill those “clearly needed”positions. Issues rise to the surface that were previously buried beneath the obscurity.Gaps in process, compliance and best practice are identified

The momentum builds for a movement to standardise, re-alignand introduce controls.

However, by this stage, positions are usually deeply compromised,records do not exist and narratives are being reconstructed if at all. In theworst cases it’s all simply swept under the rug.

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5. Cost Pressure Drives Reactive Decisions

When external pressures hit (commodity fluctuations,production cost increases are generally front and centre), the response frommining companies is typically:

• Immediate     cost reduction
• Headcount     cuts or my favourite term, “restructures”.
• Reduced     “non-essential” functions that more often than not are absolutely     essential to break the cycle.

Roles that protect entitlement and value rather than directlyincrease production are generally amongst the first to go in a series ofdecisive, short term, numbers-driven decisions which are rarely strategic in protectingdownstream commercial outcomes.

6. Progress erodes

Just as cutting a gym plan will see muscle fade away, withthese typical cuts, lessons learned are disputed or completely absent. Inprogress workflows with key inputs are disrupted and derailed. Context behindcritical thinking is lost.

Critical insight, progress, improvements, strategies are all lost with thepeople that worked towards a better landscape or were firefighting the most obviousproblems. Those that remain try to pick up the slack where they can. Often overworkedto the point of not having time to explore “a better way” and sometimes can’tsee the wood for the trees, being so embedded in the mal-performing system thatit simply becomes the norm.

7. Reverting to Survival Mode

So after another year of the cycle what are we left with?

Generally, reduced teams, often with key experienced personnel moving on topastures new.

An increased workload, to areduced team that can no longer do all of the nice to haves and are simplystuck with “mission critical”. Or in other words a limited capacity forgovernance and improvement. Old habits resurface. Workarounds return.

And the Cycle Repeats whilst the underlying issues prevail.

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Change is not managed, it becomes a hold point. Discovered.Retrospectively resolved. Risk is not mitigated, it forms cost blowouts. Contractsare not pro-actively administered, they are referenced when problems arise. Contemporaneousevidence is somewhat of a pipe dream rather than a core principle. Commercial controlssit completely independently of the reality of major projects. Ultimately, until commercial management is treated with the same rigor and prevalenceas engineering and operations, value will continue to leak in major projects,handing a golden opportunity for Contractors to maximise their entitlementunder fragmented, ill fitting practices on many complex major construction projects.Essentially, despite the denial by many operators out of habit, that is what MajorProjects are – even within the mining industry. And the construction industryis rife with experienced teams such as Quantity Surveyors and commercialmanagers who are perfectly placed to break the cycle.