A Guide to Working within the Mining Supply Chain for Small and Medium Sized Businesses

Transcription

1 A Guide to Working within the Mining Supply Chain for Small and Medium Sized Businesses Inside Introduction 2 The EPCM Process 3 EPCM Contractors 3 How Mining Companies and EPCM Contractors Assesses Value 4 Where do I Fit In? 5 Accessing the EPCM Supply Chain 6 In Focus: Local Procurement Policies 7 How to Market your Company to EPCM Firms 8 Prepare for the Hurdles 9 Direct Advice from EPCM Firms 10 Additional Resources 11 Economic Development Office x2033 edo@greenstone.ca

2 This guide explains how small to medium sized Did you Know? EPCM projects have multi-million dollar budgets; Sona Resources in British Columbia recently awarded an EPCM project to engineering firm CMEC worth $55 Million (US) Companies seeking to begin an EPCM Projects are increasingly required by local and regional Governments to include a Local Procurement Policy in their Work plan Mining GDP in Northern Ontario is expected to grow to $8.5 Billion by 2020 Greenstone is forecasted to become one of the largest mining centres in Canada (Clement media release) The Freewest Black Thor chromite prospect has an estimated 2 km strike length, a depth of 200m and a 40m width containing an estimated 72 megatonnes of chromite ore Greenstone is connected to worldwide markets through the CN Rail Lines and the TransCanada Highway and only 300km from the Port of Thunder Bay More and more, it is becoming clear that the Municipality of Greenstone is emerging as the Gateway to the Ring of Fire. -Greenstone Mayor Renald Beaulieu The Ring of Fire is potentially the biggest mining development Northern Ontario has ever seen... construction could generate $138M in GDP... and could create as many as 5,000 new jobs in the region. - Tony Clement, Minister for the Federal Economic Development Initiative for Northern Ontario 2 enterprises (SME s) in Greenstone can effectively enter the supply chain of projects involving the Ring of Fire. In such projects, the Mining Company will hire one large firm to coordinate the Engineering, Procurement and Construction Management (EPCM) phases of the project. The EPCM firm acts as the Mining Company s agent for the duration of the project, creating and negotiating the direct contractual relationships with suppliers and contractors necessary to complete the development of the mine. As a local SME, the products and/or services your business provides may be highly valued by the EPCM firm, especially if they have a Local Procurement Policy, or LPP, in place (see pg 7). Greenstone is perfectly positioned to play an important economic role in the development of the Ring of Fire. However, the companies involved in its development are very large and the momentum of these projects brings a series of challenges to local SME s. Understanding the supply chain and the role of an EPCM contractor is essential to ensuring businesses in Greenstone take full advantage of the economic opportunities associated with the EPCM contractor responsible for developing the Ring of Fire.

3 EPCM Projects & Local Procurement EPCM Contractors The EPCM Process Engineering During the initial phase of an EPCM contract, the EPCM contractor will provide conceptual mining plans, facilities designs, technical consultation on feasibility studies and economic assessments, process optimization, flow sheets, piping and electrical layouts, instrumentation and control engineering and cost estimations. Procurement Procurement takes the plans, concepts and designs of the engineering phase and gathers the supplies to make them a reality. The procurement phase commonly involves purchasing (local, national and international) and expediting supplies and equipment, recommending qualified bidders for construction projects, coordinating inspections and facilitating all logistics and travel functions associated with the procurement of the necessary equipment and bulk materials including administrative tasks. The Procurement Phase tends to be very deadline focused, ensuring that the Construction Phase of the project is able to begin on schedule. Construction Management An EPCM contract combines the Construction phase with the overall Project Management of coordinating and supervising the Construction of the facility, utilizing the resources, equipment and firms acquired during the Procurement Phase. Construction Management commonly includes initial preconstruction planning, construction and installation, plant commissioning, startup assistance, operational assistance, contract management, cost control and quality checks, and a post implementation review. Enormous construction projects, such as the ones associated with the mining development in the Ring of Fire, require unique strategies to ensure they are completed in an organized and efficient manner. EPCM contracts are awarded by the mining companies to firms that have significant experience in completing these enormous projects. EPCM Contractors are multi-national firms that specialize in ensuring that Natural Resource development projects are completed in a professional manner, safely, on time and under budget. These firms are contracted to provide all services required to the Mining Company, however the Mining Company maintains overall control and assumes the financial risk. While there are a number of these firms with a presence in Northwestern Ontario, an EPCM company can come from anywhere in the world. The involvement of local business is important to the mining company and the EPCM, not only because it will be mandated through the government approval process, but also because local business will provide cost effective and efficient solutions to many of the complex logistical challenges facing these large construction projects. EPCM: Key Characteristics Overall project control remains in Owner s hands Competitive market prices for deliveries, all material, equipment and works, cost advantages remain with the Owner Contractual, schedule, cost and technical risk rests almost entirely with the Owner High effort, co-ordination and communication due to interfaces and multiple contracts Complex contract build-up; potential gaps in risk allocation or missing (but required) services 3

4 How Mining Companies and EPCM Contractors Assesses Value Your company s ability to provide a cost-effective, high-quality product or service, on time, is always the foundation for a good relationship with your customer. EPCM contractors are paid to bring projects in on time and under budget, so cost and time to market are critical factors for success. Other important areas, specifically related to EPCM contractors and mining projects such as the Ring of Fire, are highlighted below: Safety will be the number one factor during these projects. It must not be compromised and if you are hired to provide a service or product to an EPCM project, your safety record and your commitment to safety will be continually scrutinized. Make sure you can show your commitment to safety. Think about safety certification and learn how your company can enhance the safety programs of the contractors of companies you will be working with. If you can find a way to provide a product or service in a manner that will enhance safety performance, then you will be adding value. Community Sustainability will also be important during this project. This can be marketed from an environmental or social perspective. It is important to realize that the EPCM contractor will want to have as little negative impact on the community or surrounding environment as possible. Problems increase costs and slow down production. If your company can demonstrate that it contributes positively to the local community, environment and/or economy, you will increase your importance and value to the process. Creative Problem Solving will be critical to the successful completion of the project. Small to medium sized business by their very nature are creative and entrepreneurial. During these large projects, EPCM managers may find themselves facing challenges to which only local ingenuity can find the best solution. Stay ahead of the project and ensure that you understand the challenges that these companies will face. Cost Savings: when commodity prices were on the rise, large mining projects could support cost overruns in order to get a new mine into production. However, in the past few years commodity prices have fallen and mining companies are pulling back on projects due to the increase in capital costs associated with these large projects. The ability to control costs and meet schedules are going to be critically important in the next decade. Capital markets and investors are very sensitive to projects that show any type of increase in project costs or that fall behind schedule. Noront Resources Esker Camp - Northernlife.ca 4

5 EPCM Projects & Local Procurement Where Do I Fit In? EPCM & Suppliers EPCM firms must undertake the massive task of coordinating all services and goods contracted for the duration of the project. As you read the following listing of potential services EPCM projects may want to procure locally, consider what services your business is in the best position to provide and how you could adapt your business to provide services at higher capacity. General Services Accommodation, Pest Control, Catering, Printing, Photography, Cleaning, Laundry Services, Forestry, Environmental Services, Security, Translation Services, Logistics, Warehousing, Transportation Services, Mailing, Courier Services, Landscaping, Gardening, Personnel Agencies, Basic Professional Services (Legal and Accounting) Construction & Trades Small Vehicle Maintenance, Telecommunications, Data Systems, Low-voltage Electrical Maintenance Road Marking & Signage, Simple Mechanical Maintenance, Roofing, Waterproofing, Civil Works Maintenance, Sewage, Drainage, Air-conditioning Maintenance, Carpeting, Flooring, Earthworks, Fencing, Paving, Painting, Corrosion Protection, Waste Management, Recycling Goods (Wholesale, Distribution, Manufacture) Automotive Parts, Furniture and Fixtures, Small Motor Vehicles, Laundry Equipment, Fuels, Machined Tools, Spare Parts, Cleaning Supplies, Office Equipment, Stationery, Food Supplies, Appliances, Electrical Goods, Uniforms, Construction Supplies, Hardware How does an EPCM Firm Identify Local SME s? There are a range of activities EPCM firms may employ to identify potential local businesses including: Contacting local business associations and chambers of commerce Asking local staff Contacting small business support organizations Physically visiting local commercial and industrial areas Tapping into local informal networks Asking existing suppliers to recommend others in different industries Asking other regionally based Oil, Mining and Gas companies for recommendations Searching Government databases Self-Identification* *It is quite common and to be expected that local enterprises will approach EPCM operations and Supply Chain Managers to look for contract opportunities. This proactive approach is the most effective way for you to position your business for inclusion in an EPCM project. 5

6 Accessing the Construction Supply Chain for the Ring of Fire Mining Company EPCM Contractor General Contractors Sub-Contractors Suppliers Vendors Critical Success Factors for Greenstone Businesses Mining Company EPCM Contractor Stay informed, keep up to date on project progress, attend open houses and information sessions Participate in the Government Approval Process for the project Stay away from rumors and word-of-mouth updates; verify new information through the Municipal Economic Development Department Once the Mining Company has issued the contract, engage early Seek out the EPCM company s Community Liaison person and get to know them Ensure they understand your interest and capabilities Remember they will be very interested in local involvement but they need solutions that will help with their scheduling, they will not have time to solve issues. General Contractors On a project this size, there will be a large number of general contractors Local involvement will be important for these contractors to meet their commitments (deadlines and pricing) Engage these contractors early, find out which ones have already worked in the area, build relationships Send marketing information to these contractors about business, your capabilities and your experience Sub-Contractors Suppliers Vendors Gain experience in the mining sector by working with other small mining projects in the area, prior to the Ring of Fire development Build business relationships and establish a strong track record Ensure your financial house is in order (i.e. credit, inventory etc.) If larger construction firms are being established in the area, make the investment to partner with them Develop strategic relationships with local First Nations Identify opportunities to provide long-term solutions to strategic issues pertaining to accommodations, food and transportation If you want to position your company as a supplier or vendor, remember to engage in the process early. Utilizing local companies will be a priority but you need to remember that you must provide a cost effective, quality product or service that improves efficiency Your safety performance will always be critical to the process 6

7 EPCM Projects & Local Procurement In Focus: Local Procurement Policies (LPP s) Local Procurement Policies Local procurement refers to the purchase of goods and services from local businesses. Typically, this occurs in emerging markets and in developed markets where local communities have expectations about participating in new opportunities (such as Australia and Canada). Also known as business linkages, local supplier development, local content or local sourcing, local procurement is increasingly favored as a strategic business tool by international companies in the extractive industries. (Source: Engineers Against Poverty, 2011) LPP Benefits LPP s mitigate risk to Company operations LPP s can create and protect value in a project LPP s help EPCM firms and Mining companies meet new government regulations or secure investment agreements stipulating local content levels LPP s provide competitive advantages to EPCM firms, increasing networking, partnershipbuilding, and positive relationships with local government, thus creating pathways for new projects in the future LPP s illustrate demonstrable levels of Corporate Social Responsibility (CSR) the part of the Company and the EPCM firm because LPP s provide benefits to the local community by creating sustainable business opportunities with local enterprises ME s recruited through LPP s are often associated with delivering high-quality products and services LPP Risks EPCM firms recognize that to compete for bidding and contracting opportunities local SMEs will often need training to bring them up to the required operational, safety, environmental and technical standards, which has increased costs. Engaging Local Enterprises may require additional management time and effort at the initiation of the project Unprepared SME s carry higher risks into the supply chain, possibly disrupting flow of supplies and delaying deadlines and creating conflict between the EPCM firm and the Company Local SME s may not readily meet the required quality standards or have the requisite quality management systems in place SME s that become too dependent on short-term contracts with the EPCM project may lose sight of long-term sustainability and have trouble surviving following the completion of the EPCM project. LPP s create greater economic diversity for the Company and the Project LPP s reduce the carbon footprint of the Supply Chain SME s can provide greater flexibility and ease of design changes throughout the EPCM project A local procurement process helps build a diversified local economic base for the Company, which can be self-sustaining if long-term Natural Resource Extraction opportunities exist in the region 7

8 How to Market your Company to EPCM Firms The procurement managers for mining companies and EPCM contractors are employed on projects all over the globe and will have established suppliers from many different countries, so your competition will not just be coming from the Region, or Southern Ontario, it will be coming from all over Canada and the World. Your approach to marketing your company must be professional and tailored to the strengths that your company brings. It must highlight how your product or service can outcompete and provide value when it comes to working within the complexity of such a large project. 1Understand the process you will be working within. The mining company will tender the EPCM contract. Prior to the contract being awarded to an EPCM company it will be critical to stay in the loop with respect to the process the mining company is taking to get the project approved. Stay informed and understand the different phases of construction. Build your knowledge of the different challenges that will be faced. Attend all open houses and make sure you understand what obstacles may add complexity to the project. Start to build your approach to solving these challenges. 2Begin to build relationships with larger companies that might be associated with the project. Try not to go it alone, unless you feel that you have a unique product or service that will allow you to enter the supply chain on your own. Partnering with other suppliers provides an opportunity to maximize the value of your company across the entire project. For example a relationship with an equipment manufacturer can provide an easier access to the supply chain versus attempting to market your company as a sole source. Build strategic alliances with government bodies and other organizations, such as First Nations or other communities that will establish your business as one that works well in a larger context. 3Ensure that your company is currently building experience in mining and construction with the mining activity currently happening in Greenstone. This activity is a perfect opportunity to build relationships, experience and a track record working within the industry. 4Develop a one page summary of your company, one that highlights your particular strengths. Taylor this information page, highlighting that you are a local company, with a solid safety record and strong ties to the community. Remember this one page could be critical in introducing your company to a prospective customer so get as much input into this marketing tool, and spend the time to make it perfect. If appropriate, reference your web-page or the web-page of your suppliers. Make sure your contact information is clear and current. These companies do not have time to search for your information. Remember that while you are providing a product or service to your customer what these EPCM contractors are really buying is a solution to a problem. 8

9 EPCM Projects & Local Procurement Prepare for the Hurdles: Pre-Qualification and Evaluation Once the EPCM contract has been awarded and the Authority to Proceed (ATP) has been granted, it will be overwhelming how fast things start to proceed. It is difficult to describe the pressure the EPCM contractor will be under to keep the project on track. The EPCM contractor will rely on large construction firms to take on the different parts of construction. These large construction firms will engage sub-contractors, suppliers and other vendors to support specific tasks. Within a very short time frame there could be hundreds of different companies associated with the project. It will be critical for your business to have already built relationships with these construction firms so try to identify which larger construction contractors the EPCM will be engaging to start the process. It will also be important to understand the specific tendering process all of these firms will use. You will need to be ready to send your information out in a manner that will qualify your firm to provide your service or product. In many cases a prequalification process will be used. It will be critical that you determine before this process occurs if your company or product has any specific short falls in this process. Once the process has started it will usually be too late for you to adapt your product or service. The key to this process is to engage these companies early and make sure they not only understand your particular capabilities and interests but that you understand their procurement process. It will be critical to correctly position your company within the supply chain. It must be very clear what value you bring to the process. Price may not always be the most important factor; ability to provide a safe, quality product, on time that will not create delays in the schedule may very well be more important. Follow up, be aggressive, and remember, these companies are inundated with requests every day, however they will be interested in working with the local community and will rely on local SME s to help make the project a success. Pre-Qualifying Factors The pre-qualification process is typically carried out by the Mining Company and then relayed to the EPCM Company. It can be a real opportunity to market your company early and ensure you stay ahead of the process. It is usually carried out through the use of a questionnaire. The process will examine a number of different parts of a company; the following provides a list of some of the more common elements: Safety Certifications Quality Certification Quality Assurance/Quality Control Program Environment Certifications (ISO 14001) Training Programs Financial Reference Checks Community Involvement Relationship with First Nations Experience in the Sector Insurance/WSIB Evaluation Criteria The criteria for evaluating suppliers can vary; the following is a summary of common evaluation criteria identified through interviewing a number of Mining and EPCM companies: Safety Price Quality Delivery Experience Compliance to Government Regulations Sustainability (Environment and Social) Performance Standards 9

10 Direct Advice from EPCM Firms: We asked industry insiders, If you could speak directly to local SME s before accepting bids for an EPCM project in the Ring of Fire, what advice would you give them? Here s what they want you to know: Safety record and performance is number one EPCM firms can t afford to do business with those that do not understand safety Buying locally is going to be a priority, relationships with First Nations will be important Get to know our people Understand that on-time delivery is just as important as price Stay ahead of the procurement process, be ready Don t over promise Value = Safety, Relationships, Quality, On-Time Delivery, Service and Price We must deliver project under budget and ahead of schedule. Develop a marketing strategy Market your company Looking for creative problem solving Be familiar with the pre-qualification process: safety certification, insurance/ WSIB, quality, environment, sustainability, cost, experience 10

11 EPCM Projects & Local Procurement Additional Resources The Municipality of Greenstone Economic Development Office Phone: (807) Fax: (807) Visit: Greenstone Economic Development Corporation Tel: (807) Visit: www. gedc.ca References Cliffs Chromite Project: Project Description Overview Cliffs Natural Resources Inc, Engineers Against Poverty A Guide to Getting Started in Local Procurement International Finance Corporation, 2011 Esteves et al. Procuring from SME s in Local Communities: A Good Practical Guide for the Australian Mining, Oil and Gas Sectors CSRM, University of Queensland, Henchie, Nick Worlds Apart: a comparison of EPC and EPCM Contracts Mayer Brown, March Consulting Associates How to Successfully Access the Mining Supply Chain Saskatchewan Ministry of the Economy, Moore, Paul EPCM Delivering the Possible International Mining, Thunder Bay Community Economic Development Commission (CEDC) Tel: (807) Toll Free: Fax: (807) develop@thunderbay.ca Visit: Town of Cochrane Visit: Municipality of Red Lake Visit: Hatch Visit: SNC Lavalin Visit: AMEC Visit: EPCM World: A Network for the Engineering, Procurement and Construction Management Industry. Visit InfoMine: Mining Intelligence and Technology. Visit Ontario Ministry of Economic Development, Trade and Employment - Resources for Starting a New Business Visit: sb_startbiz_en.jsp 11

12 Contact the Economic Development Office to find out how to gain access to Greenstone s mineral exploration and mining developments as well as other upcoming investment opportunities. Economic Development Office x2033 edo@greenstone.ca