EPC Risk in Extractives
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The High-Stakes Nature of Resource Development
⟁ OPINION | Arno Saffran, Mon 09 Jun, 2026In the extractives industry—whether it’s a remote gold mine in West Africa, a deep-water gas project off the coast of Australia, or a metals processing plant in South America—the Engineering, Procurement, and Construction (EPC) model is the vehicle that turns resources into revenue. However, after two decades managing these megaprojects, I’ve learned that the geology is often more predictable than the contract.
In our sector, we deal with "above ground" risks that can be just as challenging as the "below ground" ones. Political instability, commodity price volatility, and extreme environmental conditions amplify the standard EPC challenges. A poorly managed contract doesn't just delay a project; it can wipe out the Net Present Value (NPV) of a mineral reserve or strand a valuable gas asset.
Here are ten critical pitfalls specific to Oil & Gas, Mining, and Metals EPC projects, and how to navigate them based on hard-won experience.
1. The Geotechnical Gamble in Scope Definition
In extractives, the "site" is a living, changing environment. A poorly defined scope often stems from assuming static ground conditions. In mining, this means processing plant designs based on ore samples that don't represent the heterogeneity of the actual deposit. In oil and gas, it means platform designs that fail to account for seabed conditions discovered during piling.
The Expert Approach: Treat geotechnical risk as a shared responsibility. Fund extensive site investigations upfront rather than deferring them to the contractor. The scope must include flexibility for "fatal flaws" discovered during excavation. In mining, ensure the EPC scope aligns with the mine plan's Life of Mine (LOM) schedule; the plant must handle the ore the mine sends, not the ore we wished for.
2. The Logistics Reality Check vs. The Schedule
Extractives projects are rarely located in industrial parks. They are in the Chilean Atacama, the Congolese Copperbelt, or the Russian Arctic. Unrealistic schedules often fail to account for the tyranny of distance—the lead time to get a 200-ton mill shell to a landlocked site or the weather windows required for marine installations in the North Sea.
The Expert Approach: Schedule development must be led by logistics, not just engineering sequences. Use risk-adjusted scheduling that factors in "logistics density" and port congestion. In remote mining camps, the schedule must account for fly-in/fly-out (FIFO) workforce fatigue and turnover. Build "weather days" and "transit buffers" into the critical path as non-negotiable contingencies.
3. Misallocating the "Above Ground" Risks
The extractives sector is hyper-sensitive to sovereign risk. Contracts that try to push all regulatory, permitting, or community relations risks onto the EPC contractor are destined to fail. A contractor cannot control a change in mining law, a new carbon tax, or a local community blockade; they can only manage the impact.
The Expert Approach: Clearly delineate "Owner's Risks" (permitting delays, resettlement issues, royalty renegotiations) from "Contractor's Risks" (construction execution, fabrication quality). Implement risk-sharing mechanisms for sovereign events. For major projects, consider incorporating stabilization clauses that allow for contract adjustments if the host government changes the fiscal or regulatory regime mid-project.
4. Change Management in a Dynamic Orebody
In a refinery, the feedstock is consistent. In a mine, it changes daily. By the time an EPC project reaches construction, the orebody model may have been updated. The "hard rock" the plant was designed for might now be clay-rich, causing chutes to block and throughput to collapse. This necessitates change, but the contract process is often too slow to react.
The Expert Approach: Establish a fast-track Technical Change Committee with representatives from the owner's geology/metallurgy teams and the contractor's design team. Changes driven by ore variability should have a pre-agreed commercial mechanism. This prevents metallurgical reality from being held hostage by commercial disputes.
5. Procurement Fragility in a Commodity Cycle
When commodity prices are high, the market for large mining trucks, SAG mills, or high-pressure piping gets squeezed. Locking in a price with a fabricator who then goes bankrupt, or watching steel prices spike due to tariffs, can devastate a project budget.
The Expert Approach: Move beyond vendor prequalification to "supply chain survivability" testing. For long-lead items like autoclaves or gas turbines, make early awards and consider owner-procurement of these items to be "novated" to the EPC contractor. Include robust price escalation clauses tied to recognized indices (e.g., MEPS steel prices) to share the burden of market volatility fairly.
6. Performance Testing vs. Operational Reality
In metals processing, a classic dispute arises over the "Recovery Test." The EPC contractor guarantees 90% recovery, but the test period uses a specific grade of ore that doesn't match the first year of production. The plant passes the test but fails commercially. In Oil & Gas, disputes over gas composition (CO2/H2S content) are common.
The Expert Approach: Define the "Performance Test Window" with strict reference to the actual mine plan or reservoir composition. The acceptance criteria must reflect the "nameplate capacity" under site-specific conditions. Include a structured "ramp-up" support clause where the contractor assists the owner in achieving steady-state production, linking final payments to operational stability, not just a 72-hour test.
7. The Governance Gap in Remote Operations
Extractives projects often suffer from the "fly-in, fly-out" governance gap. Owner representatives change shifts, site managers rotate, and institutional knowledge leaves on the plane every two weeks. This weakens oversight, leading to rework and misalignment.
The Expert Approach: Governance cannot rely on episodic site visits. Implement digital project controls with real-time dashboards accessible to stakeholders in the head office and on-site. Use 3D model reviews and drone surveillance to monitor progress remotely. Ensure "overlap periods" for site personnel to transfer knowledge effectively before rotations.
8. The ESG and Regulatory Blind Spot
Environmental compliance in extractives is existential. Tailings dam integrity, water usage, and emissions are under intense scrutiny. Failure to integrate these requirements into the EPC scope can lead to catastrophic license suspensions. A contractor building a Tailings Storage Facility (TSF) must adhere to the Global Industry Standard on Tailings Management (GISTM), which may not have existed when the contract was drafted.
The Expert Approach: Make ESG compliance a contractual deliverable, not a design aspiration. Allocate specific responsibility for evolving standards. Engage with regulators during the feasibility phase, not during commissioning. Third-party audits during construction on tailings or pipeline integrity are non-negotiable safeguards.
9. Liquidated Damages in a Volatile Market
When the price of copper or oil crashes, the owner's appetite for risk changes. Conversely, when prices are booming, the value of early production skyrockets. Standard Liquidated Damages (LDs) often fail to capture this nuance, leading to disputes where the LD rate is either punitive or inadequate.
The Expert Approach: Consider tiered LD structures or "bonus/penalty" regimes that reflect the commodity price environment. If the market is hot, offer significant early completion bonuses tied to production revenue. If the market is cold, renegotiate LD structures to keep the contractor solvent and motivated rather than driving them into bankruptcy, which helps no one.
10. The Handover Gap: From Construction to Operations
The handover from an EPC construction crew to a mine owner's operations team is notoriously fraught. The operations team inherits a plant they didn't build, with manuals they didn't write, and faces a mountain of "punch list" items. In a mining context, this delays the critical path to first ore or first concentrate.
The Expert Approach: Integrate the owner's future operations team into the project during the commissioning phase, not after. Use a progressive handover—transferring systems (like the crusher or the flotation cells) as they are completed, allowing operators to gain familiarity. The turnover package must include "as-built" documentation that reflects the reality of a project that often deviates from the original design.
Conclusion: Building for the Long Haul
Extractives projects are not real estate developments; they are long-term industrial complexes meant to operate for decades. The EPC contract is the foundation of that longevity. By moving away from adversarial, zero-sum risk allocation and toward a collaborative model that acknowledges the unique geological and geopolitical challenges of our sector, we can deliver assets that are safe, profitable, and resilient.
In this industry, the best EPC isn't the one that finishes fastest; it's the one that builds a facility capable of weathering the storms of the commodity cycle for the next 30 years.
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VSG works across the mining & metals value chain, positioning people who form the critical bridge to early-stage relationships in complex regions.
