Case study

VOORSPOED ALLIANCE

Competent partners are a project`s best friend

Project completion. From left to right: Graham Mullany, FD Murray & Roberts Engineering Solutions;
Frank Kruger, MD Murray & Roberts Engineering Solutions; Stephen Dietrich, FD DBCM and Mike Brown,
CO DBCM

In 2008, the Voorspoed diamond mine was completed by the De Beers/Murray & Roberts Alliance well ahead of schedule and below budget. How was this achieved in an environment of high inflation, delivery delays and scarce skilled human resources? Frank Kruger, MD of Murray & Roberts Engineering Solutions outlines the factors behind the success of the project. With the De Beers/Murray & Roberts Alliance, the client and the project implementer forged a partnership that delivered a successful diamond mine and significant value to both parties. The alliance, which included several Murray & Roberts companies in a unitary format, was core to the successful delivery of the project: De Beers, the world’s leading diamond miner, brought its extensive experience and the Voorspoed diamond resource to the alliance, while Murray & Roberts, South Africa’s leading engineering and construction group, contributed its project implementation experience.

Aerial view of mine site showing old workings

Voorspoed is a mid-sized diamond mine in the Free State and is the first greenfields mine developed by De Beers in South Africa for over 15 years. The mine grades were not high and innovative thinking was required to cut the project capital and operating costs to prove viability. The capital implementation phase was delivered well under the voted amount and commissioned to the nameplate test criteria many months earlier than planned.

PARTNERING PHILOSOPHY

The sale by Anglo American of its shareholding in De Beers in 2002 had a direct impact on the capital project development capacity of De Beers, and precipitated a strategic review during which the ‘partnering philosophy’ was initiated. In line with this philosophy, De Beers sought service providers that could be alliance partners – parties who could be strategically aligned and who valued continual learning and long-term relationship building.

In 2003, Murray & Roberts was invited, with others, to participate in the development stages of this partnering philosophy. At the same time, a pre-feasibility study for Voorspoed diamond mine was let to Murray & Roberts Engineering Solutions.

By March 2005, a partnering agreement, the so called ‘organisation to organisation over-arching agreement’ covering projects in general was struck between De Beers and Murray & Roberts.

Voorspoed in the meantime, was taken to the level of feasibility study acceptance by October 2005, but the full project implementation was delayed for 12 months while De Beers obtained the New Order Mining Right for Voorspoed (the first to be issued to De Beers by the Department of Minerals and Energy).

The partnering philosophy was by now reflected in a project alliance agreement, founded on the alliance principles of Jim Ross, an expert and author in the field of alliancing, particularly in Australian public sector projects. Ross was employed as a consultant to De Beers.

Design and procurement work was completed in 2006, but momentum – and certain key resources – were lost as De Beers awaited the mining licence. In October 2006, the licence was attained and the project was finally given the green light.

PROJECT PERFORMANCE

Capital expenditure and the schedule were both well within the agreed targets, activating the payment of incentives to Murray & Roberts. This was a true win/win outcome for both parties. The close-out of the project after a successful performance test was within a month.

The lost time injury frequency rate was three per million hours worked which exceeded the agreed maximum key performance indicator, resulting in the deduction of a percentage of profits from Murray & Roberts.

At the close-out meeting of the project alliance board, the client acknowledged that the alliance model had been value adding for De Beers and that it had allowed the business to demonstrate superior project delivery.

The Voorspoed experience has positioned Murray & Roberts favourably for alliance projects – in fact, the delivery of engineering, procurement and construction (EPC) projects using the 7 n The constructed processing plant alliance model could be considered a differentiator in a competitive environment.

The Group is currently exploring further alliance opportunities.

The constructed processing plant

ALLIANCING

What is alliancing?

In the early 1990s British Petroleum had to develop the North Sea oil reserves more cheaply for reasons of viability. This necessitated a departure from traditional competitive models. Companies were selected on merit not price, the books were open and the painshare and gainshare philosophy was born – behaviour had to change.

After significant effort and game breaking innovation the Andrew well field was delivered six months early at £290 million versus the £450 million originally estimated.

The news of this success spread to numerous industries around the world, including Australia, where Jim Ross has developed the concept further.

The main characteristics of alliancing are:

Sharing of project risks with incentives to achieve game breaking performance of aligned project objectives, the so-called painshare and gainshare philosophy
An uncompromising commitment to trust, collaboration, innovation and mutual support
Open books
Integrated teams
A no blame, open and honest culture
No litigation
Three tiered compensation: limb 1 for direct project costs and overhead, limb 2 for corporate overhead and profit and limb 3 for the gainshare/painshare arrangement, with downside limited to limb 1.

Furthermore:

As the alliancing model is quite different from traditional arms length contracting, senior management should invest significant time and effort in people selection and team alignment before and throughout the project, with particular reinforcement at every change of phase during the project.
While every process should be challenged, it is not recommended that every process be changed. Remember that the business processes and procedures of operating entities says much about their unique DNA and their ability to succeed.
Due to the novelty of the alliancing approach, service level agreements between functions and individual performance contracts are most important tools.
Any individual incentive scheme which is recommended must be self funding and derived directly from the same criteria as the project incentive scheme.

Governance

The project alliance agreement required a project alliance board. This comprised four representatives from each party. The DBCM representation included business development, operational, projects and financial executives. Murray & Roberts was represented by the managing director of each entity and a Murray & Roberts Limited executive. The board began its deliberations soon after project ‘go ahead’ and performed the role of a project executive committee most satisfactorily. Monthly meetings were regular, formal and effective. Performance was monitored quarterly by a score card
Murray & Roberts Limited established a steering committee comprising the entity managing directors and operations directors, who attended monthly meetings to ensure timeous problem solving and alignment. In addition, a financial executive from Murray & Roberts Engineering Solutions collated and managed all project accounting, while the Murray & Roberts Limited executive chaired the steering committee and assumed the role of project director, including relationship management at all levels of executive leadership of both groups. This approach was mirrored by De Beers.
The project manager produced a comprehensive monthly report which was scrutinised by all parties. The project benefited from the level of detailed review undertaken by the various committees and executives. A low level of scrutiny is an acknowledged cause of project failure.

MURRAY & ROBERTS IN A UNITARY DELIVERY CONFIGURATION

In the South African mining and minerals market, clients have largely dictated the structuring of projects by the engineering, procurement and construction management (EPCM) service provider into engineering, procured items and construction contracts, with suitable firewalls between all of the orders and contracts. As a result, EPC is not typically practised by Murray & Roberts in the mining and minerals industry.
The De Beers Voorspoed alliance was an ideal opportunity to deliver an EPC project with the significant engineering and construction experience of the Murray & Roberts Group.
Murray & Roberts Engineering Solutions, Murray & Roberts Construction and Murray & Roberts MEI were a consortium at cost, overhead and delivery level but overarched in an equal JV format for sharing of risk and reward. This was bound into an entity agreement whereby they provided their expertise to Murray & Roberts Limited, the contracting party to De Beers.
Early involvement in scoping, pricing, method statements, schedule and constructability is an important value adding phase.
Cost rationalisation on site, particularly for human resource and machine utilisation delivers significant savings, not to mention innovation which is limited only by the imagination of the team.
Following due process, various group companies were brought in as subcontractors to the group alliance companies: Concor for earthworks and platework, Genrec for steel work and Wade Walker for electrical and instrumentation work. Group ownership of the project, through the brand and associated brand values such as world class fulfillment, STOP.THINK, BBBEE and risk management reinforces trust, reliability and predictability within the team.

KEY LEARNING AREAS

The project implementation manual (PIM) was too complex in places and undeveloped in others resulting in management stress from time to time. Systems selected should be tried and tested, including a documented process with proficient practitioners in place.
With inadequate change management during the one-year waiting period for the mining licence and insufficient development of cost and schedule controls, a crisis occurred after a few months, necessitating reassessment of quantities, scope and prices.
Management of quantities required streamlining. As the alliance limb 1 concept compensates for costs incurred, discipline in scope and progress management is required. This was achieved by the traditional measured progress certificate approach. This is fundamental.
The various management forums had the authority to effect change immediately, which empowered all concerned.

Diamond