Provisions to ponder when drafting mining service agreements

By Shannon Bleicher

Shannon Bleicher

Mining service agreements are a necessary part of any mining project. No matter the stage of a project, service agreements are likely involved. Whether a project is in the early stages of exploration, involved in active development, or well into operations, essential goods and services to support the project are procured through service contracts.

Relying on a standard form of service agreement may seem desirable as using a form document saves time on the front end and gives a sense of predictability as every agreement you enter into includes the same terms. However, the particular facts and circumstances giving rise to the need for each service agreement are different and there are benefits to including or excluding certain provisions based on those facts. Below is a summary of common provisions to consider including when drafting or reviewing your next service agreement.

Consistency and defined terms. One overarching principle that should be applied when drafting any contract is consistency. If a mining service agreement uses a particular phrase to describe the services to be performed, that same language should be used throughout the agreement.

One drafting tool that can be applied to ensure that the agreement is internally consistent is defined terms. A defined term is a word or phrase that is given a specific definition in a document. To create a defined term, the first time the specific word or phrase is used it will then be capitalized and offset by parentheses or quotations. For example, you can define the agreement referenced in the following sentence: Client and Consultant entered into that certain mining service agreement effective as of January 1, 2024 (the “Agreement”). Any word or phrase that will occur throughout an agreement and that will have the same meaning throughout the agreement can be a defined term. Once the word or phrase is defined, the defined term can be used to refer back to the original definition.

Defined terms give clarity, remove ambiguity, and eliminate repetitive language by shortening a long description or complex concept. By defining a term, the parties have narrowed the possible interpretation of a word or phrase to one agreed-upon meaning. The key to effective use of defined terms is consistency. Once a term has been defined, that capitalized reference should be used each and every time the same topic is raised. In the example above, once the particular mining service agreement was defined as the Agreement, use of the lowercase word “agreement” would not be a reference to the defined “Agreement.”

Term of the agreement. Every service agreement should be given an effective date and a term during which that agreement will remain in effect. The term of the agreement should align with the type of service provided. By limiting the term to the length of time reasonably necessary for the parties to accomplish the purpose of the agreement the parties avoid taking on additional or unnecessary liability.

A service agreement with an undefined term could bind the parties to the obligations agreed to indefinitely. If the service contracted for is one of a limited duration, the term of the agreement should reflect that by remaining in effect for the limited time period necessary to complete the service. A long-term agreement should still include a term and can also include a mechanism to extend the agreement.

Termination provision. Related to the term of a service agreement is the provision by which one or both parties may terminate the agreement. A termination provision authorizes a party to end an agreement early without breaching the agreement. Termination provisions are meant to shield the parties from a hectic or confusing end to the relationship by outlining the conduct required to end participation in the agreement.

A termination provision will set out the conduct required to terminate the agreement, often in the form of written notice, and the length of time required for such notice to take effect. Including a termination provision in your service agreements allows you to avoid breaching the agreement, and litigation over a claim of breach of contract, in the event the relationship is no longer mutually beneficial.

Payment provisions. The subject of mining service agreements can vary widely as will the payment provisions. Depending on the type of goods supplied or services performed the agreement may require a flat fee, monthly retainer, hourly or day rates. The type of service contracted for will often, but not always, dictate the type of payment.

For example, a consultant contract to provide public relations services may charge a flat fee of $10,000 for the length of the agreement, or a monthly retainer fee of $5,000 while the agreement is in effect, or an hourly rate of $250 to be invoiced monthly. The parties to a service agreement should agree and clearly outline the manner and method of payment in the agreement. Ambiguity in the payment provisions could result in a party binding itself to perform unlimited hours of work for a low flat fee or a party obligating itself to pay a high monthly retainer without a guaranteed minimum amount of work performed in exchange.

Dispute resolution. As with the termination provision, parties to a service agreement will benefit from addressing possible disagreements and contentious relationships at the outset. Including a dispute resolution provision to require alternative dispute resolution in the form of mediation or arbitration as opposed to litigation is one method for limiting the costs of a potential dispute. Litigation over breach of contract can be both time-consuming and expensive. An alternative dispute resolution provision allows the parties to outline the manner and timeline in which disputes will be resolved. If the parties to a service agreement include an arbitration provision, that provision may dictate the arbitration rules that will be followed, the timeline and options for selecting an arbiter, the number of arbitrators, and the timeline for reaching a conclusion.

Confidentiality. Confidentiality and nondisclosure agreements are common in the mining industry. When contracting for services it is important to consider whether confidential information may be shared with or otherwise gained by the service provider. The parties should also consider whether a reciprocal provision makes sense. For instance, if confidential information may be exchanged by the parties such that confidential data or information may be gained by both sides of the agreement, a reciprocal provision would be preferred. A confidentiality provision should define what information is confidential including the form of that information (such as digital, written, oral, etc.), identify who the receiving party can give the confidential information to (such as employees or contractors), and require the receiving party to notify the disclosing party of any further disclosures of the information.

Other notable provisions. Other common provisions that should be considered but may not be appropriate in all service agreements include insurance, indemnification, and representations and warranties. The type of service being contracted for will influence whether insurance should be required and the types and coverage that should be required.

Similarly, indemnification may only make sense to include in particular circumstances where one party’s actions could raise potential claims of liability for the other party. Like confidentiality, the parties should consider whether reciprocal indemnification provisions make sense in the particular circumstances. Finally, representations and warranties are customizable to the particular facts of the agreement and allow the parties to address risk allocation at the outset.

As a common, and often necessary, part of any mining project, drafting a consistent, clear, and comprehensive service agreement will help set the project up for success. By considering the specific facts and circumstances that give rise to a need for each service agreement and customizing the provisions to those facts and circumstances, the parties will know what is expected of them and can avoid potential disputes caused by vague or impractical language in the service agreement.

Shannon Bleicher advises natural resource developers and regulated utilities on land, mineral and regulatory matters at Stoel Rives. She can be reached at [email protected].

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