OTLLC Contract Risk Analysis

Contract name/ project number

OTLLC project Owner

OTLLC project Sponsor

Date Risk Register completed

PURPOSE
This Contract Risk Analysis is intended for use by OTLLC when procuring goods or services. Its purpose is
to allow the risks to the relevant Business Unit(s) to be considered by OTLLC when negotiating a
contract. It is to be completed by the OTLLC Project Owner, in consultation with the Business Unit/s.

RISK DEFINITIONS
Risk means any event which is likely to adversely affect the ability of the Supplier to produce and deliver
the required products and services to the specifications within the agreed time frames and the risk of
any harm to OTLLC as a result of accepting delivery of those products and services.

LIKELIHOOD

Defined as Description
Almost Certain Is expected to occur
Likely Will probably occur
Moderate Will possibly occur
Unlikely May occur at some time
Rare May occur only in exceptional circumstances
Extremely Rare Theoretically possible but not expected to ever occur

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 OTLLC Contract Risk Analysis

CONSEQUENCE BY RISK TYPE

Personal Injury Property Damage Environmental Harm Production Loss

Catastrophic Death Above $ On-site/Off-site release Greater than 4 days

10,000,000 with significant and
widespread detrimental
effects
Major Serious injury $ 10,000,000 On-site/Off-site release 1 – 4 Days
sustained to $ 1,000,000 with significant
detrimental effects
Moderate Medical $ 1,000,000 On-site/Off-site release 4 Hours – 1 Day
treatment to $ 100,000 with some detrimental
required effects which can be
contained
Minor First aid $ 100,000 On-site release with no 1 – 4 Hours
treatment to $ 10,000 detrimental effects
required
Insignificant No treatment *Below $10,000 Negligible release Less than 1 Hour
required

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 OTLLC Contract Risk Analysis

RISK RATING MATRIX

The following Risk Matrix is used to complete the Risk Register in the next section.

Consequence

Likelihood Insignificant Minor Moderate Major Catastrophic

Almost Certain Moderate High High Extreme Extreme

Likely Moderate Moderate High High Extreme
Moderate Low Moderate Moderate High Extreme
Unlikely Low Low Moderate Moderate Extreme
Rare Low Low Low Moderate High
Extremely Rare N/A N/A Low Moderate Moderate

Note: “Likelihood” refers to the likelihood of an event occurring once during the term of the contract.
An event which is “insignificant” in that it results in losses of less than $10,000 per occurrence may
become very significant if the event occurs with great frequency, for example, a loss of $10,000 per
month could be major for a small contract.

USE OF THE CONTRACT RISK ANALYSIS

 Contract Risk Analysis must take place prior to commencing any procurement event.
 The Risk Analysis must be reviewed and approved by the relevant commodity Leader in Global
Supply.
 The Risk Analysis is not a checklist but a tool to help identify the type and severity of risks inherent
in any particular procurement.
 The high risk list should be used as the basis for a discussion with the legal department for the
development of an appropriate contract.
 The Risk Analysis is not a complete list of all possible risks and needs to be added to according to
previous experiences with a particular supplier or product category.

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 OTLLC Contract Risk Analysis

RISK ASSESSMENT
Consequences = Catastrophic Major Moderate Minor Insignificant
Likelihood = Almost certain Likely Moderate Unlikely Rare Extremely rare
Risk Rating = Extreme High Moderate Low (Taking into account on-site risk mitigation strategies)

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Risk Type
Supplier Capacity and Capability
Is this a new Supplier?
Is this a new procurement category?
How large is the spend?
Is there a risk that we are overly dependant
upon one Supplier?
Is the Supplier the producer of the goods or
only an agent, special purpose/holding
company or third party?
Is there any risk that the Supplier may not be
able to supply all of the contracted
quantities?
Does the Supplier have complete control
over the supply of its input materials or
produce its own?
Is there a risk that the Supplier may not be
able to secure sufficient supply of input
materials?
Does the Supplier have appropriate
contingency plans in place?
If the Supplier fails to deliver, what is the
likelihood of being able to source alternative
supply?
OTLLC Contract Risk Analysis
Consequence Likelihood Risk Rating Relevant Contract Terms
Major Unlikely Moderate Force majeure, clause 33, considers bespoke
terms for high risk categories.
Performance of Supply, clause 5.
Supply Timetable, clause 9.
Alternative supply, clause 17.
Supplier’s information, accounts and
records, clause 18
Performance security, clause 20.
Preservation of existing third party supply
arrangements, clause 21.
No minimum purchase or exclusivity, clause
22.
Term, clause 10.
Contractor default, clause 37.
Schedules, Contingency Plan.
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Risk Type
Quality of Products
What are the risks of receiving products that
don’t meet the quality requirements?
What are the risks that the Supplier’s quality
could change during the term of the
contract?
What would be the effect of receiving out of
specification products?
Quality of work
Is there an agreed scope of work?
Does the equipment require commissioning
or acceptance?
Will the Supplier supply or work with any
equipment, property or process that if not
timely supplied or if defective or damaged
would cause Oyu Tolgoi harm?
Will Oyu Tolgoi be reliant upon the Supplier’s
professional advice about how and when to
use the goods and services?
OTLLC Contract Risk Analysis
Consequence Likelihood Risk Rating Relevant Contract Terms
Moderate Moderate Moderate Supplier’s representations, clause 3.
Supplier’s warranties, clause 7.
Defects liability, clause 8.
Delivery, title and risk, clause 12.
Contract price, clause 13.
Payments to contractor, clause 15.
Deductions from payments, clause 16.
Alternative supply, clause 17.
Performance security, clause 20.
Inspection, clause 25.
Testing and conditioning, clause 26.
Insurance, clause 34, in particular product
liability.
Consider Independent Expert provision.
Minor Unlikely Low Supplier’s own investigations, clause 4.
Supplier’s warranties, clause 7.
Defects liability, clause 8.
Performance security, clause 20.
Packing, despatch and transport, clause 24.
Inspection, clause 25.
Testing and commissioning, clause 26.
Insurances, clause 34, in particular, general
and product liability insurance and
professional indemnity insurance.
Indemnities, clause 35, particularly in
relation to damage resulting from breach of
contract.
Be alert to attempts to limit liability.
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Risk Type
Site Risk
Does the contract require the Supplier to
enter any Oyu Tolgoi site?
Do any Oyu Tolgoi personnel need to enter
any Supplier site?
If so, will the Supplier work at height,
underground, in close proximity to heat,
confined spaces or with or near to
hazardous substances, explosives, live
electricity, flammable substances or any
other physical risk?
Will the Supplier use Oyu Tolgoi owned
equipment?
Is there any risk of injuring or causing
property damage to third parties?
Will the Supplier have to work with other
suppliers and, if so, are they competitors?
OTLLC Contract Risk Analysis
Consequence Likelihood Risk Rating Relevant Contract Terms
Insignificant Rare Low Insurances, must obtain a waiver of
subrogation, clause 34.
Indemnities, must obtain cross-indemnities
from Supplier, clause 35.
Supplier personnel, facilities and equipment,
clause 24.
Health, safety and environment, clause 27.
Access to site, clause 29.
Compliance with relevant company policies,
clause 30.
Laws, clause 31.
Cooperation with third party, clause 32.
Confidentiality, clause 40.
Audit rights, clause 19.
Intellectual property protection, clause 42.
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 OTLLC Contract Risk Analysis

Risk Type Consequence Likelihood Risk Rating Relevant Contract Terms

Technical Moderate Moderate Moderate Schedules, specifications and scope of work.
Are there any special features in our Supplier’s representations, clause 3.
specifications which make it particularly Variations, clause 6.
complex or are they still uncertain? Inspection, clause 25.
Is there any risk that the Supplier may not Testing and conditioning, clause 26.
fully understand our specification? Assignment and sub-contracting, clause 52.
Is there any risk that the Supplier wants to
sell us something different to that which we
want to buy?
How soon will the technology become
obsolete?
Has the product already been applied at site
for the purpose for which it is being bought?
Is there any risk that the specifications will
need to change during the term of the
contract?

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Risk Type
Supplier’s Future Minor
Are there any risks of the Supplier going out
of business, being taken over or otherwise
adversely changing?
Is there any risk that we may need to
remove or replace the Supplier during the
term of the contract?
Is there any risk that the Supplier’s strategy
will change in relation to Oyu Tolgoi?
What is the risk of the Supplier falling behind
in production of goods that have very long
lead times, but which may not be visible to
Oyu Tolgoi?
Are any of the risks identified in this Risk
Analysis likely to change during the life of
the contract?
OTLLC Contract Risk Analysis
Consequence Likelihood Risk Rating Relevant Contract Terms
Unlikely Low Supplier’s warranties, clause 7.
Supplier’s information, accounts and
records, clause 18.
Performance security, clause 20.
No fault termination, clause 36.
Contractor default and insolvency, clause 37.
Introduce a service level agreement and
make provision for more frequent
monitoring of the Supplier’s production at
source.
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 OTLLC Contract Risk Analysis

Risk Type Consequence Likelihood Risk Rating Relevant Contract Terms

Logistics and delivery Minor Moderate Moderate Performance of Supply, clause 5.
What are the risks in the Supplier’s supply Delivery, title and risk, clause 12.
chain to Oyu Tolgoi and the Supplier’s own Packing, despatch and transport, clause 24.
supply chain of critical raw materials? Inspection, clause 25.
What is the risk of delayed delivery? Access to site, clause 29.
What will be the effect of late, short, or Laws, clause 31.
damaged deliveries? Insurances, clause 34, particularly
Will the method of delivery expose Oyu transportation insurances and goods in
Tolgoi to any additional risks? transit.
What is the risk of Oyu Tolgoi or the Supplier Indemnities, clause 35.
being unable to secure necessary transport? Term, clause 10.
Are the goods imported and are there any Force majeure, clause 33, consider third
additional marine or customs risks? party event language carefully.
Taxes, clause 14.
Pricing Minor Likely Moderate Contract price, clause 13 schedules, consider
Are there any risks of price increases other tightening all language around service.
than through the established escalation Term, clause 10.
provisions in the contract? Force majeure, clause 33, consider
Are prices in this particular industry volatile? narrowing rights.
Are the price escalation provisions Strongly resist “hardship” and governmental
sustainable throughout the life of the price escalation provisions.
contract? Taxes, clause 14.
Are some aspects of their costs at particular
risk of increase?
What is the risk of taxes on the contract
going up for either Oyu Tolgoi or the
Supplier (for instance, high emissions
industries)?

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Risk Type
Environmental
Does this Supplier deal in dangerous goods?
Is the Supplier in an environmentally risky
business?
Does the actual product supplied carry an
environmental risk?
Does the product supplied carry the risk of
frequent changes to government regulation?
OTLLC Contract Risk Analysis
Consequence Likelihood Risk Rating Relevant Contract Terms
Insignificant Extremely Rare N/A Supplier’s warranties, clause 7.
Defects liability, clause 8.
Supplier’s information, accounts and
records, clause 18.
Right to audit by Oyu Tolgoi, clause 19.
Performance security, clause 20.
Packing, despatch and transport, clause 24.
Health, safety and environment, clause 27.
Access to site, clause 29.
Compliance with relevant company policies,
clause 30.
Compliance with laws, clause 31.
Insurances, in particular, insist on waiver of
subrogation, clause 34.
Indemnities ensure full indemnities with no
limitation of liability, clause 35.
No fault termination, clause 36.
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Risk Type
Country Risk
Is the Supplier from a mature or emerging
economy?
Is the home country politically stable?
Is there any risk that the government may
prohibit export of this product (i.e., does the
government of the Supplier’s country
encourage this industry and export?).
Is there any risk of nationalisation of
products, equipment or assets owned by
Oyu Tolgoi?
OTLLC Contract Risk Analysis
Consequence Likelihood Risk Rating Relevant Contract Terms
Minor Rare Low Ensure we use appropriate country template.
Delivery, title and risk, clause 12, particular
attention to payment terms, no upfront
payment.
Alternative supply, clause 17.
Right to audit by Oyu Tolgoi, clause 20.
Performance security, clause 20.
Preservation of existing third party supply
arrangements, clause 21.
No minimum purchase or exclusivity, clause
22.
Inspection, clause 25.
Testing and commissioning, clause 26.
Force majeure, clause 33.
Insurances, ensure that emerging market
supplier is insured, clause 34.
Indemnities, clause 35.
Dispute resolution, always requires bespoke
arbitration clause, particularly important to
investigate enforceability, clause 39.
Conflict of interest, clause 45.
Business standards, clause 46.
Governing law, clause 57.
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 OTLLC Contract Risk Analysis

Risk Type Consequence Likelihood Risk Rating Relevant Contract Terms

Intellectual Property Moderate
Are there drawings, blueprints or other
intellectual property for this project?
Will the intellectual property produced from
the services be of value to Oyu Tolgoi?
Anti-competition Moderate
What are the risks to our bargaining
position, example, the Supplier has already
been told that they will be awarded the
business, it is a sole source contract, it is an
industry of monopolies, it is particularly
urgent, or market conditions are highly
unfavourable?
Is the Supplier engaging in monopolistic
behaviour or has a history of unethical
behaviour?
Will the procurement raise anti-competitive
legal issues, e.g., joint purchases by
competitors?
Moderate Moderate Intellectual property rights in supply, clause
42.
Third party intellectual property rights, clause
43.
Privacy and data protection, clause 53.
May require bespoke intellectual property
provisions to determine who keeps the
benefit of new IP developed.
Rare Low OTLLC must endeavour to develop alternate
sources of supply.
Consider additional language for frequent
meetings including both the business units
and OTLLC representatives and regular high
level meetings (example, CEO).
Requires detailed market analysis and legal
advice.

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