Solution

Executive Summary

In this assessment, a contract used in Sibanye Stillwater Mine company has been used. The selected category of spend is the procurement of first aid equipment, including safety equipment in the current COVID-19 pandemic. The identified contract has been evaluated in the context of its impact on power distribution and risk between supplier and organisation noted. By use of primary and sector secondary data, the contract terms and conditions are used in governing suppliers’ relationships in Sibanye Mine Organisation as a best practice. Establishing a contract creates a benchmark applicable among the parties in the contract, guiding them on their code of conduct. The conduct is guided by legal relationships and not only exchanging promises. Specifically, the contract has been established to be critical in setting costs, quality, delivery time, and mitigating any unethical practice with all these factors influencing the risk and power balance. The findings of this report evidence that carries the risk or power between the buyer (Sibanye Stillwater Mine Company) or the vendor/supplier.

The findings of this assessment analysis demonstrate that the contract is appropriately formulated. From the stakeholder’s analysis, issues and risks that impact their practice have been established, and best practices for mitigating them using contractual terms. Also, through the use of Kraljic analysis, it has been established that contract terms are of strategic relevance to WGL informing its ability to leverage contractual risks and powers holistically.

In line with the contract of focus, the set of recommendations provided are;

• The contract is unclear in regard to the scope of support by Sibanye Still Water Mine Company, any existing gap solved, and the flexible nature of contract terms and conditions
• Owing to the diversity of engaged stakeholders, the contract ought to be detailed and avoid many legal terms use (Jargons) and ambiguous information to promote ease of understanding of contents
• Since after the emergence of COVID-19, there has emerged an increased demand for first aid and other safety equipment in Sibanye Stillwater Mine Company; instead of each department/subsidiary in South Africa, Finland, and the USA having its contractual terms, they can be harmonised to ease their applicability
• Contractual terms ought to consider laws set in South African laws as opposed to only focusing on the content that fits commonwealth legislations

Table of Contents

1.0 Introduction. 6

1.1 Organisation Background. 6

1.2 Scope of Assessment 6

2.0 Selected Contract 7

2.1 First Aid Supplier and Supply Market 7

2.2 Essentials of Contractual Terms. 8

2.3 Strategic Importance of the SSMC Contract 10

2.4 Relevance of Contract to Stakeholders. 12

3.0 Power and Risks Distribution between Both Parties 15

3.1 Power Distribution between Both Parties 15

3.1.1 Supplier Preferencing Matrix. 15

3.1.2 Porter’s 5 Forces 16

3.1.3 Turnkey- Design and Build model 18

3.1.4 BOOT (Build, Own, Operate and Transfer) 19

3.2 Risk Distribution between Both Parties 19

3.2.1 Risk appetite. 19

3.2.2 Risk Evaluation. 20

3.2.3 Risk register 21

4.0 Conclusions and Recommendations. 22

4.1 Conclusion. 22

4.2 Recommendations. 23

References 25

Appendices 29

Appendix 1: Selected Contract 29

Figure 1:Essentials of a Valid Contract 8

Figure 2:Kraljic Analysis 10

Figure 3:SSMC Stakeholders Analysis. 11

1.0 Introduction

1.1 Organisation Background

The organisation of focus in this report is Sibaye Stillwater Mine Company (SSMC). Since 2013, the organisation has been operating in South Africa Golds Fields Mine (Sibanye Stillwater, 2021). This is a multinational organisations with active operations in Africa, Middle East, Europe and Asia. The organisation operates a diversified portfolio including Platinum Group Metals (PGM), Gold, base metals and battery metals. As evidenced in Sibanye Stillwater (2021a), the major PGM categories produced in SSMC include platinum, palladium and rhodium which collaboratively with gold are identified as 4E (3PGM+Au). Its productivity based on ratio is upto 60% (2019:59%), platinum (Pt), 30% (2019:30%), palladium (pd), 8% (2019:2%) and Gold (Au). As a leader in the mining industry, the organisation currently engages upto 85,000 employees significantly increasing their influence in the South Africa’s Gross Domestic Product (GDP). Cumulatively, the organisation serves an upward of 10 million customers in all their subsidiaries globally. This is achieved by partnering with different organisations who are miners and manufacturers. Similarly, they target partnering with suppliers and vendors through a long-term relationship founded on their contractual terms for ensuring fairness and equity in their dealing. By working collaboratively, they are able to harness trust, transparency in procurement process management amongst their partners. The baseline is the organisations capable of supplying a specific product and agreeing with contract content. This is by ensuring different terms have been evaluated to evidence the level of power distribution and risks between the supplier and organisation. It is these guidelines which define the scope of relationship of the suppliers with SSMC.

1.2 Scope of Assessment

The purpose of this assessment is to assess the contractual terms and their impact on the distribution of power and risk between the supplier and SSMC organisation. The selected contract is used in the procurement and supply of first aid equipment and safety equipment in the current COVID-19 pandemic (see appendix 1). Through an evaluation of the contract, the terms assessment in terms of impact on distribution of power and risk between the supplier and organisation evaluated.

2.0 Selected Contract

Adopting the definition of CIPS (2021), a contract is identified as a legally binding agreement between two parties. This assume a form of written documentation, verbal agreement or implied by conduct. The selected contract in this case is the first aid and COVID-19 pandemic safety measures. The rationale of this is identified in Sibanye Stillwater (2021a) which note that despite of lack of formal lock downs in their PGM operations in 2020, operational performance had been negatively impacted by COVID-19. Part of the measures entailed procurement of fast aid and safety measures for mitigating spreading of the COVID-19 pandemic and containing liquidity for the organisation. Also, in order to be compliant with best practice in global mining industry as regulated by Fair Work Ombudsman, SSMC executes the contract. In particular, the contract note that “This compliance deed and/or other requirements of a Government Agency, including the Fair Work Ombudsman may necessitate certain amendments to Sibanye-Stillwater’ Safety and fast aid services agreements, in which case Sibanye-Stillwater may direct the Supplier in writing to vary this Agreement to reflect such required amendments (“Direction to Vary”)”. Also, in 2021, ILO (2021) report had noted that upto 18 employees had lost their lives in work-related incidents. This is with Sibanye Stillwater (2021a) noting on the existence of COVID-19 pandemic daily screening of all their employees with treatment and isolation of employees testing positive. Hence, the fast aid and safety measures contract is critical and influence SSMC sustainable practice.

2.1 First Aid Supplier and Supply Market

Globally, Grand View Research (2021) note that the global first aid kit market is approximately $158.52 by the year 2019 with a further 5.3% growth in 2021 owing to the demand for first aid kits due to COVID-19 pandemic. In South Africa, Nebraska (2021) identified the market as amounting to $68 million in terms of the overall business transactions which are made. This also represent the overall growth scope of the industry in terms of ability of leveraging on competitive advantage and market dominance. For the different suppliers in place, they are as summarised in table 1;

Table 1: Summary of first aid suppliers in South Africa

Owing to the current COVID-19 pandemic, the demand for first aid kits and also the PPEs by SSMC has prompted the organisation to prefer engagement of Hazchemwize as their major supplier. As evidenced in Hazchemwize (2022) the organisation successfully ensure that they supply and fitment of safety equipment and safety measures for ensuring that the organisations are safe from COVID-19 effects and also success in managing their health and safety needs.

2.2 Essentials of Contractual Terms

As evidenced in CIPS (2021a) guidance of contract management, essentials of a valid contract are distinct. As illustrated in provided figure 1, by prioritising on the noted aspects, there is a possibility of identifying the validity of the identified contract to SSMC organisation.

Figure 1:Essentials of a Valid Contract

The evident elements of valid contract can be identified as including;

Invitation to treat (ITT)– This entails the price listing, catalogue, product displayed and the quotation request. This is distinct form formal contract. Also, the contract identified is not inclusive of the ITT but begins with general terms.

Representations– As part of the contract, the vendor ought to possess capability and capacity. This is with timing being core requirement as the contract note that “clause 3 (Timing), if the Supplier considers that a delay may result in the Timetable not being complied with, the Supplier must notify Sibanye-Stillwater Facilities Management and the Sibanye-Stillwater Manager of a Site that is affected as soon as practicable”.

Offers– The contract involve all identified stakeholders, starting date clearly stipulated with its duration being upto 3 years.

Acceptance– A holistic writing is done as an agreement with the contract evidencing the acceptance

Agreement– SSMC and the vendor/supplier are involved as part of service agreement

Capacity– Supplier is demanded by contractual terms to note their capability. Particularly, the clause evidence that “The Supplier agrees to ensure that throughout the Term it maintains sufficient capability and capacity to be able to provide the Services in accordance with this Agreement”

Considerations– This is inclusive of the services offered, fees, subcontractors and invoices.

Legal Intent– This factor identify the overall KPI metrics, any penalty passed, and termination.

Legal Objects– The organisation proposal, approval of the safety and fast aid materials is done

Operative–  The contract implementation should be mistake free, free from undue influences and lacking misrepresentation. Hence, analysis of entire essentials of safety and fast aid materials ought to be carried out. This will evidence the scope of validity of such a contract.

2.3 Strategic Importance of the SSMC Contract

For the purpose of identifying strategic importance of a contract for SSMC and most appropriate practice of risks and power, Kraljic analysis is applicable (CIPS, 2021b). This is as illustrated in figure 2;

Figure 2:Kraljic Analysis

Source: CIPS (2021b)

Leverage Items (Low Risk and High Value)– This category is defined with a high-level existence of suppliers under control in solving evident risks. The costs of personalised purchasing is lowered.

Strategic items (High value and High Risk)– This include the fast aid and safety measures materials. The rationale of this entail their long-term availability, active collaboration and long-term relations. This is the case in contractual terms which lower risks and various incurred issues.

Bottleneck Items (Low Value and High Risk)– The items are accessed easily from the services and as such lowering risks and incurred problems. Supply is assured, medium-cost contracts implemented and obtaining new suppliers.

Non-Critical Items (Low Risk and Low Value)– These have reduced impact on the active practice of an entity, easily obtained with all products audited appropriately. The purchasing strategy is easier with new markets targeted.

2.4 Relevance of Contract to Stakeholders

For identifying the risks and power distribution hindering success in the contract execution of the fast aid and safety measures in SSMC organisation, stakeholders analysis is needed. This is achieved by use of the Mendelow Matrix Analysis (Willeam, 2021 is applicable as shown in figure 3;

Figure 3:SSMC Stakeholders Analysis

Source: Summarised from CIPS (2021c)

Low Influence, Low Interest– The admin team is mandated in ensuring safety measures in all the subsidiaries particularly in the current COVID-19 pandemic. They exert a low influence and substantial interest on the risks and power.

High Influence, Low Interest– The finance team and IT departments significantly influence the risk and power of the contract execution. The reason of this is evident from the terms in contract which note that “implement technical and organisational measures to protect Sibanye-Stillwater Data from data breaches in accordance with industry best practice, including as outlined in international standards including but not limited to, ISO 27001”.

High Influence, High Interest– The procurement team in SSMC, suppliers and management play a core function of establishing risks and power. In the contract, it is identified that “The Supplier will require all directors and employees who have senior management or human resource management responsibilities or who are responsible for the procurement of Services to participate in an annual workplace relations and human resource training program as selected by Sibanye-Stillwater” which is the proof of its relevance.

High Interest, Low Influence– For the Middle East, Asia and European subsidiaries of SSMC, end-users of mining products and clients and also their legal departments are mandated with a role of optimum success in sourcing of the safety and fast aid materials.

As evidenced in CIPS (2021d), the contractual terms are applied in the supplier engagement and defined with clearly set conditions, warrant and innominate contract terms. For the different figure 3 stakeholders analysis, contractual terms and conditions offer solutions in times of failure and ensuring optimum satisfaction and consistent fulfilment of organisation obligation. For identifying the various risks and power in the contract by SSMC, SWOT analysis can be used (Gurl, 2017). The core areas and risks presenting challenges in the safety measures and fast aid procurement provision and their mitigation by application of relevant terms evident.

Strengths– SSMC today adopt the Purchasing to Pay (P2P) plan and modernising the technology use in a supply chain. The process promote the ability to report, plan, efficiencies, offering services and management. This establishes the pricing highlighted in the contract as “Unless otherwise expressly provided, Sibanye-Stillwater will be responsible for its own costs in connection with an audit (including an Audit), except where such audit reveals a non-conformance or breach by the Supplier of this Agreement”. Hence, any technology applied contribute to accuracy and relevance of the prices set.

Weaknesses– The stakeholders who lack detailed knowledge and skills in quality of fast aid and safety measures services and equipment hence failing in attaining identified key performance indicators. For the KPIs, they highlight that “Supplier invoices are to contain no material errors, such as an error in the invoiced amount when compared to the Quoted rate and to the rates agreed in the Associated Documents. Invoices are to be issued in a timely manner and contain necessary information for approval by site manager”.  This puts into account of the issue with quality and health & safety demands. For ensuring its achievement, contractual terms evidence that “The Supplier must comply with the workplace health and safety policies of Sibanye-Stillwater as notified by Sibanye-Stillwater to the Supplier in writing from time to time”.

Opportunities– Their positioning in South Africa and other subsidiaries in different countries impact on their attraction of most qualified suppliers. Further, their area of operation which is mining demand a strict adherence to health and safety measures requirements. In regard to the contractual terms, they highlight that “Prior to commencing Services at any Site, the Supplier agrees to prepare, and throughout the Term the Supplier agrees to maintain, a safety plan which sets out its workplace health and safety policy for undertaking Services at the Site”. This is for addressing risks timeline in delivery. Therefore, a significant risk determining power balance is health and safety amongst the SSMC employees and their operations.

Threats– This entail the scope of competitiveness amongst the suppliers of the fast aid and safety measures services. Failing in providing the services in a timely basis and leveraging on the opportunity contribute to supplier incurring losses. In the contractual terms and conditions, it note that “In the event that the Supplier does not accept the proposed variations and/or the parties cannot agree on adjusted Charges within 4 weeks of the Direction to Vary, then Sibanye-Stillwater may terminate this Agreement upon notice”.

3.0 Power and Risks Distribution between Both Parties

3.1 Power Distribution between Both Parties

3.1.1 Supplier Preferencing Matrix

As evidenced in CIPS (2021h) this tool is applied in demonstrating an understanding of how they are positioned in the heart of a supplier, strategy of building and maintaining an effective business relationship appropriately. As evidenced in figure 4, this is categorised into development customers, core customer, nuisance and exploitable customer.

Figure 4: Supplier Preferencing Matrix

Development Customers- At the initial phase of the contract implementation, the power is with a buyer. As part of developing a customer, the seller would engage with the buyer estimated spending volume and spending value calculated in terms of contribution to their sales revenue. For instance, in engaging Hazchemwize in the procurement of first aid items, SSMC ensure they even reveal the potential cooperation opportunity by noting the short and long-term goals. For instance, they identify om the issue of COVID-19 pandemic and its continued implication to global health. This ensure that they have the power of attracting brand value, leadership in technology. The contract particularly note that “the estimated contract value of the Works executed and the Contractor’s Documents produced up to completion of each stage shown in the Schedule of Payments (including Variations”.

Core Customers- For this seller, the risks are distributed equally to the organisation and the supplier. This is since there already exist a mutual trust among them, they are found investing collaboratively, sharing platforms, cooperating and developing new technologies and products. As evidenced in the contract document, it note that “The Contract constitutes the entire agreement between the Parties in relation to all matters contained herein, including all understandings, rights, responsibilities, duties, and obligations and supersedes”. All these details are agreed upon in the contract.

Nuisance Customers- This is a relationship where both the buyer and the supplier are in a loosing relationship. Hence, there is no party who hold the power over the other. For instance, at some time when SSMC had attempted to engage Bramley safety due to Hazchemwize delays in providing the supply on time. The outcome of this was the seller failing to provide the first aid kits on time. A follow-up evidenced that the supplier had failed to treat the buyer as a customer hence nuisance. The supplier failed to offer what the buyer expected and wanted.

Exploitable Customers-  When this supplier relationship exist, the supplier has full power. This does not exist in in the context of SSMC since they does not provide the respect to the sell side or payment postponement again and again. The terms of the contract note that “The Employer shall be entitled to terminate the Contract, at any time for the Employer’s convenience, by giving notice of such termination to the Contractor. The termination shall take effect 28 days after the date on which the Contractor receives this notice.”. This means that postponing the contract is not an easier undertaking, and if it occurs, there are costs which end up being incurred.

3.1.2 Porter’s 5 Forces

In power distribution between the supplier and the buyer, it is essential to note on the supply markets and the competitive factors affecting the markets. As evidenced by CIPS (2021i), through the use of  Porter’s 5 forces tool, is applicable for industry analysis (see figure 5);

Figure 5: Porter’s 5 Forces Analysis

Threats of new entrants– In the first aid market in South Africa, entry into this industry is a significant challenge.  There are immense barriers of entry with the costs of entry being high and closely regulated by the South Africa government. As evidenced in GOV.za (2022), through the National Health Act of 2003, any first aid sellers would need to create an appropriately structured and uniform health system for South Africa. Hence, the contract note that “the Contractor shall give all notices, pay all taxes, duties and fees, and obtain all permits, licences and approvals, as required by the Laws in relation to the execution and completion of the Works”. This means that the buyer (SSMC) has the full power in the contract with Hazchemwize as the main supplier being required to settle all the costs.

Bargaining power of suppliers– As earlier aforementioned, apart from Hazchemwize, there are equally other suppliers of first aid kits. In this regard, SSMC has the full power with the suppliers being disadvantaged. To support this, the contract states that “if there are no applicable or suitable rates, prices, or percentages in the Price List, the variation shall be, unless otherwise agreed between the supplier and the Contractor, using competitively tendered or competitive open market rates, prices or percentages”. This means that the buyer has the power to competitively/alternatively select a supplier who meets their specifications/requirements.

As evidenced in the CIPS materials, it highlights the Vienna Convention Uniform Law for International Sales of Goods (1980) which is relevant for SSMC context and include altering the materials. As evidenced in Chaerunnisa et al. (2019), unless there prevail a contrary agreement, delivery times of products and services are forthwith set in the purchase order. For the identified spend category in SSMC, their contract evidence that “Supplier invoices are to contain no material errors, such as an error in the invoiced amount when compared to the Quoted rate and to the rates agreed in the Associated Documents. Invoices are to be issued in a timely manner and contain necessary information for approval by site manager”.

Bargaining power of buyers– SSMC being a large organisation has the power to switch to a new, cheaper competitors. In this regard, they control the suppliers prices and how they set their expectations and needs. In particular, the contract note that “if there are no applicable or suitable rates, prices, or percentages in the Price List, the variation shall be, unless otherwise agreed between the supplier and the Contractor, using competitively tendered or competitive open market rates, prices or percentages”.  Also, by having this power, SSMC is in a position of controlling the quality and expectations of the different first aid products.

Threat of substitutes– Similar to the aspect of bargaining power of buyers, threats of substitutes are also to the favour of SSMC. For the supplier, there are other multiple suppliers available who can easily be replaced by the company. For instance, in the contract, it note that if the costs are not favourable, the buyer has the right to switch the supplier under their own volition. The contract note that ‘if there are no applicable or suitable rates, prices, or percentages in the Price List, the variation shall be, unless otherwise agreed between the supplier and the Contractor, using competitively tendered or competitive open market rates, prices or percentages”

3.1.3 Turnkey- Design and Build model

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