Page 43 - Annual Report 2020

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Third party performance
Risks associated with non-operated joint ventures and the delivery of products and services by third parties engaged by BHP, including contractors.

Why is this important to BHP? Strategic Report
The Group, through its affiliated entities, holds interests in companies and joint ventures that we do not operate, primarily within Minerals Americas
(Samarco, Antamina, Resolution and Cerrejón) and Petroleum (Algeria, Australia and Gulf of Mexico). Joint venture partners or other companies
managing non-operated joint ventures may take action contrary to our standards or fail to adopt or apply standards equivalent to our standards
in relation to health, safety, environment, communities and other aspects of operations. In these situations, we may be unable to influence
non-operated joint venture activities and any incidents could result in potential financial, legal and reputational exposure.
In addition, approximately 60 per cent of our workforce (around 40,000 people) are contractors, with approximately 80 per cent of those
contractors undertaking activities classified as high risk. As a result, appropriate contractor selection and effective management of contractors
from a safety, business ethics, cost, quality, schedule and performance perspective is important to the success of our business. We also contract Governance at BHP
with many commercial and financial counterparties, including end customers, suppliers, joint venture partners and financial institutions, which may
experience financial difficulties (for example, in the context of global financial markets that remain volatile).
Threats
Third party (including contractor) activities, including a failure to adopt • loss of access to third party owned or supplied infrastructure
and apply standards, controls and procedures that are equivalent to • disruption to essential supplies or delivery of our products (for
ours, could lead to material risks, including the risk of: example, where access to or use of BHP owned and operated rail is
• safety events that may result in injuries or fatalities, including among disrupted by third parties)
community members • reduction in production at our assets
• production downtime and damage to or loss of equipment or facilities • litigation (for example, for contractual breach) and reputational damage Remuneration Report
• delay in project delivery • loss of revenue
• poor quality on service delivery The potential effects of the COVID-19 pandemic on third parties may
• failure to meet remediation and compensation requirements (such as increase the likelihood of or amplify the risks or impacts set out above.
delays to community resettlements related to the Samarco dam For example, the operators of our non-operated joint ventures may not
failure; see section 1.8 for information on our response, support implement effective standards, controls or procedures in response to
and commitments) the pandemic, which may result in production downtime. In addition,
• litigation (including class actions) or regulatory action, inquiries there is an increased likelihood of disruptions to our supply chains,
and reputational damage which may result in a shortage of critical equipment and supplies in
• shareholder activism (for example, to divest our interest in a some geographical locations. The mobility of our direct and indirect
non-operated joint venture or stop using a certain supplier) workforce (including contractors) has been limited by restrictions
• industrial action, civil unrest or other adverse impacts on human rights implemented due to the pandemic which, for example, may impact the Directors’ Report
delivery of construction projects.
(for example, our joint venture partners may not engage in appropriate
consultation with communities or non-operated joint venture Our existing counterparty credit controls may not prevent a material loss
operations may cause disruptions to community access to water, to us due to our credit exposure to certain customer segments, or
including through contamination of potable water supplies) commercial or financial counterparties.
A failure by suppliers, contractors or joint venture partners to perform Our risk financing approach is to self-insure or not purchase external
existing contracts or obligations may lead to adverse impacts, including: insurance for certain risks. For more information, refer to the Asset
• non-supply of key inputs, such as explosives, mining equipment, integrity and tailings storage facilities risk factor.
petrol and other consumables important to our business
Management Financial Statements

We manage our interests in non-operated joint ventures through: • our Contractor Management Framework, which specifies a holistic
• dedicated non-operated joint venture teams approach to support regional alignment and is supported by
global training
• development of formal influencing plans and key focus areas specific
to each non-operated joint venture • training on anti-corruption, competition and Our Code of Conduct
• governance frameworks that define how joint venture partners work • independent inspections, assurance and verifications (in some cases
performed by regulatory bodies)
together with operators
• where appropriate, governance improvement plans specific to We are in the process of improving our Contractor Management
non-operated joint ventures Framework by developing a globally integrated approach, enabled
• BHP and external reviews of non-operated joint venture projects, through the introduction of a new BHP standard for contractor
risk management and governance activities management, delivery of a suite of technology solutions to support the
• internal audits and participation in joint venture partner audits of end-to-end contractor management process, building organisational Additional information
capacity and capability, and changing behaviours to be more inclusive
non-operated joint ventures and integrated with our contractor workforce.
In addition, we have global practices and standards for operations and We maintain a ‘one book’ approach with commercial counterparties,
production that apply to contractors, including: which means we aim to quantify and assess our credit exposures on a
• BHP’s standards on supply, safety, health, aviation and capital projects consistent basis. We also have contingency plans in place if production
• Our Code of Conduct, which sets out requirements related to working or shipping is interrupted.
with integrity, including dealings with third parties as described in
section 2.16
FY2020 insights
While the COVID-19 pandemic may affect some third party performance risks (as described above), it has also presented opportunities to BHP. These Shareholder information
include focusing on local supply chain resilience by supporting small, local and Indigenous businesses (for example, in March and April 2020 we
made immediate payments of outstanding invoices and reduced payment terms from 30 to seven days for our small, local and Indigenous suppliers
in Australia and for those that support our Petroleum business), as well as employing additional contractors to support our Australian operations.

BHP Annual Report 2020 41