1973, May, Pg. 1. Mining Contracts.

• Author: by Stanley Dempsey

2 Colo.Law. 1

The Colorado Lawyer

1973.

1973, May, Pg. 1.

Mining Contracts

1Vol. 2, No. 7, Pg. 1Mining Contractsby Stanley DempseyThis paper was originally delivered as a talk before the Mineral Law Section of Colorado Bar Association. It is intended to stimulate more exchange of ideas between mineral lawyers concerning the interesting legal and practical problems associated with mine development contracts.

Today a typical exploration and mine development program goes something like this: Geologists define a target area by doing geochemical and geophysical work and preparing and analyzing geologic maps. This is usually followed by diamond drilling. Some hard minerals drilling now extends to depths in excess of 5,000 feet. Once a mineral deposit is discovered, development drilling continues in an effort to define the geometry and mineral content of the orebody. If the deposit is deep, a decision may be made to sink a development shaft or run a development adit (tunnel) into the orebody so that diamond drilling and bulk sampling can continue, but at a lower cost than would be the case if the drilling continued from surface locations. If the development work demonstrates the existence of an orebody of sufficient quantity and quality to justify a mining operation, a full-scale development program is undertaken. Such a program usually includes excavating mine openings or stripping overburden and constructing surface facilities such as hoisting works, shops, warehouses, and, in most cases, a concentrator.

The attorney whose client is engaged in mine development and construction faces many problems similar to those involved in any construction contract work, and much of the precedent in this field comes from the field of public works. However, there are a number of problems peculiar to mining.

This paper discusses only matters involved in formulating construction contracts. The problems of contract administration deserve to be considered in a separate paper.

Organizing to Handle Construction ContractsNumerous skills are required to successfully pursue a mine development program, and a combination of disciplines is necessary to properly prepare the required construction contracts. The owner is, of course, the prime mover. The owner may be a corporation having a sophisticated mine development group, or a small entity

2which has an attractive prospect but very little technical competence. The owner must decide early whether to use the services of an independent engineering firm or an architectural firm, and what the relationship will be between the engineering firm and the owner's own engineering and operating staff. Contracts between the owner and the architect or engineer are discussed below. Before discussing these contracts, however, we should discuss the other players on the mine development team.

An accountant or company comptroller is essential. He helps design contract payment methods and makes sure that provisions for accountability during the life of the agreement are included in the contract. During the term of the contract he works closely with the construction superintendent to make sure that the owner is getting what he pays for. The construction superintendent, whether he is an employee of the owner or of an outside engineering or architectural firm, plays an important role, mainly in administering the contract. It is also very helpful to have experienced insurance people available to make sure that a contract contains provisions for adequate coverage for the complicated type of work inherent in most large scale mining developments.

Mining companies, construction contractors, and engineering firms customarily make very little use of lawyers in construction contracting. There are exceptions. Such firms often ask an attorney to review the contract documents, or merely some of the contract documents, after they have been completed and are ready for signature. The review may extend only to the main body of the contract and not to the general conditions, specifications, drawings and material control sheets that constitute the entire contract. This skimpy use of lawyers is unwise. Experience in settling disputes between an owner and a construction contractor or in litigating such disputes will show that the entire contract is important and that the change orders, extra work orders, rulings and interpretations, and the various letters exchanged between the construction superintendent and the contractor during the life of the contract are all extremely important in sorting out the rights of the parties. If a lawyer is involved in the details of preparing the construction contract and is close enough to the situation to monitor the administration of the contract, the owner's odds for a favorable outcome of a dispute are much better.

In summary, the mine...