EPCM Projects and Local Procurement

A Guide to Working within the Mining Supply
Chain for Small and Medium Sized Businesses
Inside
Introduction2
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
Firms8
Prepare for the Hurdles
9
Direct Advice from EPCM Firms
10
Additional Resources
11
Economic Development Office
807-854-1100 x2033
[email protected]
www.InvestInGreenstone.ca
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.
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.
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.
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.
www.InvestInGreenstone.ca
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
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
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
Construction & Trades
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)
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.
www.InvestInGreenstone.ca
5
Accessing the Construction Supply Chain for the Ring of Fire
Sub-Contractors
Mining Company
EPCM
Contractor
General
Contractors
Suppliers
Vendors
Critical Success Factors for Greenstone Businesses
Mining
Company
EPCM
Contractor
General
Contractors
Sub-Contractors
Suppliers
Vendors
6
• 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.
• 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
• 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
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’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
www.InvestInGreenstone.ca
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.
7
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.
1
Understand 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.
2
Begin 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.
3
Ensure 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.
4
Develop 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
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.
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
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.
www.InvestInGreenstone.ca
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
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
EPCM Projects & Local Procurement
Additional Resources
The Municipality of Greenstone – Economic Development
Office
Phone: (807) 854-1100
Fax: (807) 854-1947
Email: [email protected]
Visit: www.investingreenstone.ca
Greenstone Economic Development Corporation
Tel: (807) 854 2273
Visit: www. gedc.ca
References
Cliffs “Chromite Project: Project Description
Overview” Cliffs Natural Resources Inc, 2011.
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, 2010.
Henchie, Nick “Worlds Apart: a comparison of
EPC and EPCM Contracts” Mayer Brown, 2008.
March Consulting Associates “How to
Successfully Access the Mining Supply Chain”
Saskatchewan Ministry of the Economy, 2012.
Moore, Paul “EPCM – Delivering the Possible”
International Mining, 2011.
Thunder Bay Community Economic Development
Commission (CEDC)
Tel: (807) 625-3960 Toll Free: 1-800-668-9360
Fax: (807) 623-3962
Email: [email protected]
Visit: http://www.thunderbay.ca/CEDC.htm
Town of Cochrane
Visit: http://www.town.cochrane.on.ca
Municipality of Red Lake
Visit: http://www.redlake.ca/cms/
Hatch
Visit: http://www.hatch.ca
SNC Lavalin
Visit: http://www.snclavalin.com
AMEC
Visit: www.amec.com
EPCM World: A Network for the Engineering, Procurement
and Construction Management Industry.
Visit www.epcmworld.com
InfoMine: Mining Intelligence and Technology.
Visit www.infomine.com
Ontario Ministry of Economic Development, Trade and
Employment - Resources for Starting a New Business
Visit: www.ontariocanada.com/ontcan/1medt/smallbiz/en/
sb_startbiz_en.jsp
www.InvestInGreenstone.ca
11
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
807-854-1100 x2033
[email protected]
www.InvestInGreenstone.ca