Contract Renegotiation and Rationalisation

An economic downturn forced the company to undertake a review of its business-wide external spend. The Geoscience function was identified as a potential area for significant savings due to their large contractor spend on drilling, earthmoving and geophysical logging. A project was initiated to review the exploration activity volumes and the resourcing required to execute these activities. Upon completion of this review, it was found that, if the overall contractor panel could be optimised, the services allocated to the remaining contractors could be increased, thus allowing an opportunity to renegotiate rates due to the increased activity volumes per contractor.

The re-scoping of the works was discussed with the incumbent contractor panel and a small list of potential vendors to determine where optimisation could occur. At first, only minor savings were gained, however, after persisting with further rounds of negotiating, highlighting different scenarios for the contractors, more significant savings were achieved.

Ultimately, the drilling and earthmoving contract work was re-distributed to a reduced contractor panel, with an achieved saving exceeding $10M per annum.

Working Together to Achieve the Goal

The company was attempting to complete a deep-drilling programme from the surface where historical underground mining and existing open cut mining activity were significant. In addition to the challenging drilling environment, the drilling contractor was micro-managed, had been given little latitude in how the programme was to be executed, nor how to manage the holes they were being directed to drill. When the programme was first handed over, the average drill hole completion was around 200m of a 1000+m design. By removing the client-introduced impediments and empowering the contractor to manage the services they were contracted to perform, the contractor took the initiative and began working with the client to achieve the set goals.

The instructions to the drilling contractor became: “I’ll tell you where you need to start and where you need to stop, and where you may encounter difficulties. Outside that, you are the drilling professional, you tell me what you need to do to get to the target!”

Previously, where holes had been terminated due to historical mining activity, the contractor innovated and implemented drilling methodologies to overcome the impasse. After six months managing the programme, the average drill hole completion had increased to almost 1000m with no additional drilling cost: an increase of nearly 500%.

Contract Basics Awareness Course

In general, staff on the ground are the front line in contract management and many have very little, if any, knowledge around contracts regarding they way work and what they are responsible for.

A contracts basics course was compiled to take contract users of all levels through the who, what, when and why of a contract. It provided them with essential knowledge and tips in dealing with contracts. The structure of the course made it suitable for both contractor and client.

The 2-3 hour session covered: contract frameworks, terminology, contract types, tender negotiation tips, interpreting and running a contract, responsibilities of individuals under a contract, and commercial factors. The course also reviewed clause wording and how that wording could open up potential loop holes that may disadvantage both parties.

Such was the success of the course, it was made part of the mandatory new starter training.