22/08/2013 - 08:08

JV strategy puts major contracts in reach

22/08/2013 - 08:08

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Indigenous business is thriving and growing in the north-west, but it was not an overnight success.

JV strategy puts major contracts in reach
POWERFUL POINT: Nev Power explains why his leader team chose to focus the company on Aboriginal-owned enterprises. (Photo: Attila Csaszar)

Indigenous business is thriving and growing in the north-west, but it was not an overnight success.

The Pilbara is more than just the hot seat of the Australian economy.

Even in the midst of a resources slowdown, the region is providing opportunities to local indigenous entrepreneurs on a scale many other businesses around the country would wish was happening in their backyard.

In the past four months alone, Business News has identified $770 million worth of contracts that have been awarded to Aboriginal businesses, those defined as having an indigenous ownership level of 25 per cent or more.

The bulk of that was a $435 million series of mine camp administration contracts awarded by Fortescue Metals Group to six separate joint ventures between Queensland-based Morris Corporation and separate local Aboriginal groups.

Morris Corporation and FMG have more than five years of history, including a long-standing joint venture with indigenous group Martu Idja Banyjima. It was also an early signatory to FMG founder Andrew Forrest’s Australian Employment Covenant to create thousands of indigenous jobs.

Last month, NRW’s Eastern Guruma joint venture picked up a $180 million earthworks contract from FMG. Other recent winners include joint ventures involving Leighton Contractors, Resource Equipment, Viento Group, and Brierty.

Even multinational groups such as the UK’s Veolia want a look in. It is in the early stages of a joint venture with Perth indigenous business Matera 3, a waste and training group established by former footballer Peter Matera and two of his brothers, which is hoping to win contracts in the Pilbara.

Help wanted

FMG admits its early efforts to work with local indigenous groups did not live up its initial great expectations.

Speaking at the company’s recent public event to mark the awarding of $1 billion in contracts to indigenous businesses, FMG manager of Aboriginal development Heath Nelson said there were a number of setbacks because the Aboriginal groups tendering for the business did not have the ability to win on merit.

“They didn’t have the full range of capabilities,” Mr Nelson said.

“I think their business actually went backwards because they lost confidence.”

He said FMG eventually changed its approach, deciding the way to achieve momentum in the sector was to team up the indigenous businesses with other contractors and joint ventures which had skills and experience that could be passed on to the local people.

“Now we are seeing those Aboriginal contractors tendering and winning work,” Mr Nelson said.

Indigenous Construction Resource Group chairman Clinton Wolf confirmed that FMG rebuffed his group’s first attempts to become a head contractor for the fast-growing iron ore miner.

ICRG was established in 2010 by a team of experienced and entrepreneurial practitioners in the sector. It had the capability and indigenous background but was not directly linked to the Aboriginal people FMG was dealing with on its various sites.

“They said the only way that (head contractor status) would happen was if we started some joint ventures with some traditional owner groups,” Mr Wolf said.

“They had some contractors which were struggling.

“They wanted us to help them out and make sure they had the right systems at the back end and the front end.

“It has been very successful.

“The other indigenous contractors that we have worked with have accepted advice very readily.”

ICRG has been involved with contracts worth between $40 million and $50 million and is targeting the opportunity grow further, despite its joint venture partners learning to operate independently and most likely successfully tendering on their own.

“There is always an end point,” Mr Wolf said.

“At some point in time they will end up running a job of their own.

“But if they get a bigger job we hope they will come to us and get us involved.”

Passing on knowledge

Viento was a battling property investment firm until former VDM Group managing director John Farrell and former NRW Holdings director John Silverthorn came on board with a plan to turn the business into a mining services group. Acquisitions and the arrival of Calibre Group founder Ray Munro as an investor and chairman underscore that plan.

Mr Silverthorn has a strong track record in the indigenous space from his days at NRW, which he helped found in the mid-1990s.

Viento Contracting Services is already partnered with indigenous groups Eastern Guruma and Wirlu-murra Yindjibarndi Aboriginal Corporation in an unincorporated joint venture for the FMG Solomon project tailings storage facility.

More recently, it has joined forces with the Koodaideri people to win business on a Rio Tinto project.

Viento Group director and acting CEO Rob Nichevich explained that the 50-50 joint venture involves the two groups sharing what they have – his company has capital to buy machines and expertise at project management, the Koodaideri group has employment experience in a mining setting and a labour pool in a remote area.

“We have assisted them in finance with two diggers,” Mr Nichevich said.

“They could not do that without that sort of support.”

He said that if either side put in more than its half share they charge the JV on commercial terms. And the joint venture itself has its own people and equipment.

The two joint venture parties were introduced less than a year ago, just before Christmas 2012.

These kinds of arrangements seem to work on a significant amount of trust that both parties are doing the right thing in terms of sharing the workload and billing the joint venture.

That it is difficult to find, and significant public dust-ups in the joint venture space shows that; to date in the state’s north-west, however, such systems are working.

That is not to say there have not been issues in indigenous relations. Numerous miners, including FMG, have had verbal and legal stoushes with claimant groups or those that say they represent them.

There have been significant failures along the lines of FMG’s early disappointment.

Smaller rival Atlas Iron also had to go back to the drawing board with its planned indigenous engagement in contracting after its first major agreement ended in failure.

Another indigenous group recently collapsed, Central Mining & Contracting, sparking calls for more work to be awarded to indigenous businesses as the momentum shifts from the lumpy construction phase to the operations side of things.

ICRG’s Clinton Wolf believes the government is missing from the equation after pushing the industry to do the heavy lifting.

“There has been a seismic shift in terms of contracts,” he said pointing to the scale of contracts let by Rio Tinto, BHP Billiton and FMG.

“The next challenge for us is government.”

Mr Wolf said there was no indigenous component or extra effort to ensure contracts flowed to Aboriginal businesses when it came to infrastructure that the state and federal governments funded.

“The government needs to make a decision about where Aboriginal people need to be in the future.”

 


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