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Major questions on SNC-Lavalin report remain unanswered

By: | June 28, 2017

Former premier and natural resources minister Tom Marshall says Muskrat Falls report “would have rung all kinds of alarms.”

Barely four months after the Muskrat Falls project was sanctioned in December 2012 the company responsible for Engineering, Procurement, and Construction Management (EPCM) did a risk assessment and concluded that it had “serious concerns” about the project, warning there was a “very high risk” of cost overruns of $2.4 billion, or “a potential cost overrun of 39% at 20% of project completion.”

According to the report, as the company responsible for EPCM on Muskrat Falls SNC-Lavalin had a “legal obligation to advise its client [Nalcor Energy] of any major risks that will cause prejudice to the project and which deviates significantly from its budget and schedule.”

The warning in SNC-Lavalin’s risk assessment remained buried for more than four years, until Nalcor CEO Stan Marshall delivered the assessment to Premier Dwight Ball and Natural Resources Minister Siobhan Coady—last week, according to Marshall—who made the report public on June 23.

In April 2013 major procurements, such as Astaldi’s $1.26 billion contract to construct the intake, powerhouse and spillway, had not yet been awarded.

Ball suggested this week that Muskrat Falls was at a stage where it could have been suspended.

In the report SNC-Lavalin says the risk assessment was triggered by “increases in pricing received on some major construction packages, well above their original estimated budget and schedule.”

The company “strongly suggested that these identified risks be discussed openly and with full transparency” with Nalcor Energy officials.

The report’s authors also expressed their expectation that their findings would reach the public domain, stating that “the Public’s interest, as well as the Provincial and Federal governments’ interests need to be safeguarded.”

In the intervening four years the capital cost estimate for Muskrat Falls has climbed from $6.2 billion to $10.1 billion.

In 2013 and 2014, as work proceeded and costs overruns accumulated, Nalcor and provincial government officials assured the people of the province that Muskrat Falls was the “least-cost option” and would provide “stable rates…for future generations.”

Pull Quote Tom Marshall SNC ReportFormer premier Tom Marshall, who was Natural Resources minister in 2013 at the time the report was allegedly shared with Nalcor, said he was not aware of SNC’s cost overrun warning.

“I never saw that report before,” he told The Independent earlier this week.

Asked if the contents of the report would have made a difference had he known, Marshall said it “would have rung all kind of alarms.”

Marshall, who also served as finance minister in late 2013 until being appointed interim premier in January 2014 following Kathy Dunderdale’s resignation, recalls having conversations with Nalcor Energy’s CEO at the time, Ed Martin.

Marshall said he and Martin discussed how Nalcor was attempting to mitigate risks, but that SNC’s risk assessment was never mentioned. Asked if it was possible Nalcor withheld the report’s findings from him, Marshall replied, “That would be terrible. I can’t fathom if that was the case.”

In a prepared statement on June 26 Martin said he “did not receive this report in 2013,” and that “it was neither presented nor sent to me at Nalcor.”

He later told The Telegram that he “hadn’t seen it. I haven’t received it,” and that he has “no recollection of anything like that.”

Stan Marshall, Martin’s successor as of April 2016, said Wednesday he was unable to find a copy of the 2013 SNC-Lavalin risk assessment in Nalcor Energy’s files.

A spokesperson for SNC-Lavalin told The Telegram and allnewfoundlandlabrador.com the company “attempted to hand it over to Nalcor,” and that “when we were asked for the report, we provided it.”

On Wednesday Stan Marshall issued a statement saying he “first became aware of the April 2013 SNC-Lavalin report in early June 2016 during a conversation with an engineer who previously worked for SNC.”

That engineer, Marshall said, “made reference to the report but did not have a copy,” so Marshall “subsequently asked Nalcor Energy executives about the report but no one was aware of it nor was there a copy in the company’s records. A couple of days later in a meeting with SNC executives I inquired about the report and they subsequently provided me a copy.”

Marshall said SNC executives told him that “senior SNC representative(s) had met with [Martin] in 2013 to present the report but the report had not been accepted.”

He said he has “no personal knowledge of the circumstances under which the report was prepared nor what, if anything, transpired between SNC and Nalcor representatives in relation to the report prior to my receiving a copy.

“On my reading of the SNC report I took it as confirmation that by April 2013 professionals associated with the Muskrat Falls Project had recognized the risk factors that have subsequently increased the cost of the project.”

SNC-Lavalin's 2013 risk assessment report warned of a "very high risk" of $2.4 billion in cost overruns. The project's current price tag stands at more than $12 billion. Photo by Justin Brake.

SNC-Lavalin’s 2013 risk assessment report warned of a “very high risk” of $2.4 billion in cost overruns. The project’s current price tag stands at more than $12 billion. Photo by Justin Brake.

In his June 26 statement Martin said he is “satisfied that all of the risks identified in the report released June 23 were identified and mitigation plans [were] put in place within the Muskrat Falls Project Team.”

The SNC report expressed “concern” that Nalcor “has limited experience in huge civil work and earth-filled dam work, power line and power station works.”

Gilbert Bennett, Nalcor’s Vice-President in charge of Muskrat Falls, has as extensive background in telecommunications but no experience in building dams.

A March 2014 government news release from Natural Resources Minister Derrick Dalley, who succeeded Tom Marshall in that portfolio in October 2013, referenced the government’s “robust oversight of the Muskrat Falls project”.

The private members’ motion Dalley was addressing in that release, which passed in the House of Assembly earlier that day, stated the government “ensured that there has been more information made public about this project than any other project in the province’s history, providing opportunity for review by the public, government, and independent experts.”

The release stated “responsible oversight of the Muskrat Falls Project continues to be undertaken by the Government of Newfoundland and Labrador, Government of Canada, Nalcor Energy, project lenders, and independent experts.” It did not mention SNC-Lavalin.

Two days later in the House of Assembly Dalley again spoke to the government’s alleged record of robust oversight of the Muskrat Falls project, saying “nobody is prepared to mortgage the future of this Province if it is not the right investment to do.

“I am not putting my signature on a paper that costs my children $6 billion and $7 billion into the future,” he continued. “I can tell you the work is done. The oversight is there.”

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