CONTRACTS: Building mines on fixed price EPC contracts coming to Canada

BRISBANE, Australia – For decades Canadian mining companies have only been able to watch with envy as major construction projects in other industries utilize EPC (engineering, procurement and construction) or “fixed price”...

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BRISBANE, Australia – For decades Canadian mining companies have only been able to watch with envy as major construction projects in other industries utilize EPC (engineering, procurement and construction) or “fixed price” contracts. Such contracts allow clients and banks to shift cost and schedule risk, to their subcontractor. Under an EPC model the subcontractor may take 100% responsibility for any capital cost overruns on a project and provide timeline guarantees with significant penalties for delays.

Sedgman Limited, a new entrant to the Canadian engineering and construction market, is finding favour with clients by offering flexibility in contract delivery models including EPC. Sedgman established a permanent base in Canada a year ago and in addition to several studies, has signed a contract for a major mining construction project for Guyana Goldfields’ Aurora project and been named preferred contractor for Coalspur’s Vista project.

CEO and managing director Peter Watson said, “The EPC model makes sense for mining companies because it aligns the contractor’s interests with those of the client. Risk is shifted from the client to the contractor, who is most able to mitigate that risk.” 

The mining industry has been struggling with severe cost overruns on capital projects for the last decade. With project cost escalations often in the 50% to 100% range, investors and bankers are starting to assume project costs will be higher than initially claimed. This makes financing even more difficult in an already challenging capital market. Under these conditions eliminating the capital cost risk can make the difference in getting a project built.

“It is amazing how popular the EPC concept is becoming in Canada mining developments," Sedgman Canadian manager Mark Wilkin said, “This EPC contract style is more common in Australia where Sedgman has been delivering project solutions for clients with EPC contract options for the last 35 years.”

Despite the entry of EPC focused companies into the Canadian market, the majority of contracts remain EPCM or “cost plus”, and that may not change quickly.  Still, mining companies appear to appreciate now having a choice.

Sedgman's Canadian office is located in Vancouver. For more information, please visit Sedgman.com.

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