The nature of contracting itself as a service to coal mining has also changed and the line between the operator and contractor has blurred to a point where we now see organisations like Theiss and Allied owning or having equity in coal mining operations as well as providing contracting services.
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This is one of a number of interviews with leading coal industry figures in the September issue of Australia's Longwalls. To secure your copy, call Scott on (+61 8) 9489 9116, or click here to email AL.
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In this article, opinions of some of the industry’s leaders were incorporated to outline how the nature of contracting has changed over time and how it has significantly changed the coal industry - for the better. In saying this, contracting is a highly contentious issue from an industrial and economic point of view and if these two factors are not managed correctly, contracting can be more unproductive that the use of internal resources. This article will conclude by highlighting a few key ideas on how to ensure that the industry continues to benefit from the use of contractors.
History
Contracting has been an integral part of hard rock mining for many years and its use in the coal industry was initially confined to construction and specialised tasks that existing resources could not fulfill. This restriction was largely due to union resistance who saw contractors as a direct threat. This resulted in the industry lagging well behind hard rock mining within Australia and the benchmark coal mines in the United States from a productivity perspective.
With the advent of longwalling the use of contractors increased as the specialisation increased. This was strictly controlled by the union movement who had a strong influence in the early days when demand, margins and profits were high. As unions won more concessions costs rose but they were small compared to the profits being made and it was easier to give in rather that fight and risk losing market share. This was mainly confined to the larger operators like BHP and MIM, whilst some smaller operators were able to operate more autonomously and utilise contractors more freely.
In the last decade, the cycle turned and under the influence of the Japanese strategy of equity in Australian mines and oversupply, prices fell, driven again by the larger operators. The Asian crisis amplified the situation whilst labour, equipment and material costs continued to rise. Marginal operators started to feel the pinch and so they turned to contractors to reduce costs. The union influence had been weakened by the new industrial legislation and so the stage was set to introduce contractors under the threat of staff reductions and mine closures if this did not occur. Enterprise agreements enabled operators to win concessions to reduce manning and introduce contractors in exchange for increased rewards for those who remained.
This period resulted in many reductions in numbers, but interestingly the method of reducing numbers through offering voluntary retrenchments meant that many quality people secured a high payout and became available for contract employment. In some operations low performing employees remained (protected by the legislation) which further highlighted the need for contractors to raise efficiencies and perform specialised work.
Types of contractors
Contractors used to be confined to specialised functions that could not be performed by the normal workforce but now they are performing many tasks that are peripheral to the core task of mining. The definition of “core task” has narrowed to the extent where contractors develop longwall blocks, move longwalls and now we are seeing the emergence of fully contracted and unionised operations.
Contractors can be divided into three groups. The first is the large project based group who are specialised in a particular facet of mining. The second is the individual or small group who perform a specific task like planning, geological survey or HR. The third are the new groups of suppliers of operators and trades (eg UMS sponsored by the CFMEU). This group arose as a direct result of last decades’ layoffs and the ongoing need for labour for short periods.
If the industry follows general Australian trends, a full time job could be a feature of the past. However, industry sources believe that this would be a retrograde step because well managed, flexible and trained full time employees bring a level of commitment, satisfaction and loyalty that contractors find hard to match in the longer term.
Impact on the longwall industry
Contractors now seem to have earned a permanent place on the Australian mining industry and this is largely due to their:
* Specialisation in being able to develop highly productive expertise in a particular function
* Capability to collect, accumulate, and develop expertise and knowledge from their industry experience and then focus this on future clients and projects. This has great advantages over a generic miner because coal mining has become highly complex due to the technology and the difficult mining situations in which many operations now find themselves
* Role as a catalyst for change in challenging current limitations, boundaries and practices
* Role in assisting operators to understand the core parts of their business that need to be retained and developed and the peripheral elements that can be economically performed by external contractors
* Flexibility in two dimensions; being able to readily respond to client requirements as well as the operators option to terminate the relationship if the project has finished or if it has not been performed to expectation
* Paul Chesher, managing director Business Improvement Australia, has 15 years experience with coal mining in assisting with change processes, building productive work teams, and selecting and managing high performing employees.
