May 3, 2018
Mitigating Drilling Contract Award Risks
A good drilling/project manager is looking for the right contractor to complete the drilling project on time and on budget. What happens, though, when the selected drilling company can’t meet the safety, productivity, uptime, or sample recovery goals?
It happens, and often ends up costing more to complete the work and cause projects to fall short of their objectives. It begs a question; do you know the difference between the lowest cost and the lowest priced drilling contractor? The lowest priced drilling contractor is not always the lowest cost drilling contractor. It’s imperative to look at the risks associated with a lack of safety and performance. When evaluating and selecting drilling contractors, the difference between “cost” and “price” is a critical factor. The perceived value of the lowest priced contractor is not always the best choice. Here are a couple of examples.
A mine hired two drills from one drilling contractor to complete a project with a tight timeline. The contractor had five months to complete the project. Two months into the project, it was clear the drilling would not be completed on time. The mine brought in Boart Longyear with two additional drills to ensure the project was completed by the original deadline. Boart Longyear outperformed the original drilling contractor and during the final month of drilling, the mine released the first contractor allowing Boart Longyear to finish the project.
Though the first drilling contractor quoted a lower price and won the contract, they were unable to deliver the meters within the given timeline. If the mine had not contacted Boart Longyear, the project would not have been completed by the deadline. The mine needed the core samples to meet a reporting deadline driven by reserve calculations and a decision to expand their facility. If the deadline had not been met, the reserve modeling, mine planning, and financial evaluations could not proceed until the following year. This would have ultimately delayed mine development, delayed deliverable ounces, delayed cash flows and could have led to layoffs of mine personnel. In the end, the mine was forced to spend additional money and allocate additional internal resources to get the samples and geologic data required to plan future mining operations.
Boart Longyear was awarded a contract as one of the only contractors that could meet the mining company’s stringent safety requirements. Most of us are aware that safety incidents can affect not only the injured person’s life but their family and co-workers as well. There is also a financial impact, a risk to the project and company reputation when a serious incident occurs on any site – whether exploration or an active mine. Safety should, therefore, carry weight in every contract award decision. In this case, the mining company performed a full safety audit of all applicable EHS (environmental, health, and safety), training documentation and procedures. The mining company concluded that Boart Longyear’s safety plans were more robust and better than their internal documents for drilling standards and procedures. All of Boart Longyear’s safety programs are designed to address the critical risks our employees encounter and allow them to go home safely to their family after every shift.
In addition to the examples above, there are many other factors to consider when choosing a contractor for your drilling project:
Let’s face it, there is no point drilling a hole if you’re not going to get any information. It is not uncommon that Boart Longyear gets hired to pull up and drill next to a drilling contractor that’s struggling with poor sample recovery. In most cases, this also improves the performance of the first contractor as they are held accountable for their performance. It can increase productivity through competition and helps get the most out of the project.
Uptime is a key factor for a successful drilling program as delays can be costly. Boart Longyear has substantial maintenance facilities located in key operating centers. Our rigs arrive on site drill ready. In cases where a mechanical failure occurs in the field, our in-house mechanics are trained to repair our equipment. Other companies may rely on third-party mechanics who may be unfamiliar with their equipment. Boart Longyear employs mechanics who are available 24/7. Boart Longyear also stocks an inventory of key components for quick shipment to site as needed to maximize uptime. If your project is remote, Boart Longyear ensures that sufficient spares and an inventory of parts are onsite for preventive maintenance and repairs as needed.
Hiring a smaller drilling company with only a few rigs in its fleet because they’re the lowest bid might not work out if they are inefficient in performing the task. Though management may have the experience on a local level, Boart Longyear’s global experience means a larger drilling contractor can bring unique solutions to challenging technical issues. For instance, if a drilling crew encounters a technical issue while drilling, is there a robust team of drillers, supervisors, engineers, and managers that can help operations tackle that issue with practical, cost-effective solutions? Boart Longyear has this experience and can provide specialty tooling or a one-off piece of equipment that is needed for sampling which can prove invaluable on a project. Our in-house engineering group has unique technical capabilities.
Does the lowest price contractor have the ability to put additional resources on the job without a change order? If you get the “A” team drill crew from any company things typically go well. However, in a market with increasing demand and limited supply of experienced drill crews, that is not always feasible. If things start to go south, will the lowest priced contractor have enough support to move the project back toward project benchmarks and guidelines?
Most projects don’t fall behind schedule overnight. Many times, as a consultant prior to my employment with Boart Longyear, I would inherit projects that were behind schedule, were time critical and/or over budget. I would often be asked, “How did we get so far behind schedule?” to which I would reply “I believe it happened one day at a time.” Having the experience in-house to properly plan drilling programs in order to eliminate problems or identify problems early on at a project is invaluable. Without it, the client’s cost associated with completing any project invariably escalates. At the very least, their geologist(s) and technicians may have to stay onsite longer, thus increasing labor costs along with accommodation costs, etc. Furthermore, there is the lost opportunity of doing other work needed onsite for any project. At the worst, an otherwise viable project may fail.
When evaluating proposals, using the lowest price as the number one determining factor for awarding contracts can be risky. It is the responsibility of the project manager, supervising geologist, or consultant to assess risk associated with the factors discussed above. The selected drilling contractor must effectively manage the drilling project safely and to a schedule and budget. Successful drilling/project managers know how to find the lowest cost contractor to efficiently and safely complete any drilling project. The drilling or project manager who understands the overall cost and addresses the risk of poor contractor performance will be successful in completing their projects safely, on time, and on budget.
If your project is in the early stages, ask Boart Longyear for a budgetary estimate. Though not a firm quotation for work, a budget estimate is important to set a project up to be completed successfully. If your drilling program is ready for quotation, ask for a quote from Boart Longyear. We have the safety performance, experience, equipment, tooling, and support to complete virtually any drilling program.
DRILLING SERVICES CAPABILITIES
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