The former Nalcor CEO has a history of misleading the public on cost overruns at Muskrat Falls. It’s time for an investigation.
Rumours that the Muskrat Falls project was going over budget began early.
In June 2013, less than six months after the project was sanctioned, Nalcor held its annual general meeting, where then CEO Ed Martin was asked whether contracts and tenders were coming in over budget.
“On the cost estimate side…you’ve heard there have been some significant issues. Currently there’s not, I can say that for sure, because…we know the expenditures and what we’re finding is right now we’re on time and on schedule,” Martin responded.
“I’m confident we are on cost and on schedule,” he later reiterated at the same AGM.
We now know that wasn’t true.
According to an SNC-Lavalin report written more than a month before the AGM, and recently made public:
These reviews were performed in light of the actual [Muskrat Falls] project situation, and the increases in pricing received on some major construction packages, well above their original estimated budget and schedule […] The pricing tendency is showing signs of being well above their original set budget.
Martin claims not to have seen the report even though SNC-Lavalin has said they tried to hand it over to Nalcor. In any case, if bids were coming in way over budget, as the report seems to indicate, it is difficult to imagine that Martin was unaware of it.
The SNC report estimated $2.4 billion of “risk exposure” for the project. This concept was explicitly defined in the report using a mathematical formula that takes into account how likely to occur and how difficult to manage these various risks were. It is important to understand that $2.4 billion was closer to a prediction, than to a worst case scenario (they use the term “probable consequence”).
For Martin to declare the project “on cost and on schedule” when the main contractor overseeing the project was predicting a 39 percent cost overrun was either deliberately misleading or grossly incompetent.
Incidentally, $2.4 billion is the same margin by which Muskrat Falls was declared the “least-cost option” in the Manitoba Hydro report used to justify the project.
Then Finance Minister Tom Marshall told The Independent that he had not seen the report at the time, but if he had it “would have rung all kinds of alarms”. Less than six months after sanction – and before the deal with Emera was signed – we could have paused and reassessed whether the project still made sense at a much higher price.
Instead, Martin — either intentionally or inadvertently — concealed the truth until it was allegedly too late to turn back.
This is not the first time Martin has been caught making false claims about cost overruns. At Nalcor’s 2015 AGM, the CEO was asked about the contract with Astaldi, the main contractor constructing the generating facility, a subject that had been debated in the House of Assembly.
“Is the Astaldi contract a fixed price contract?” he responded.
“The short answer is yes […] They get a unit amount for every bit of concrete they install […] Provided we don’t change the engineering specs, it’s in essence a fixed price contract.”
We learned a year later that this was false. According to a report by consultant Ernst-Young LLP, payment is “based on person-hours expended rather than [the amount] of concrete poured.”
The report went on to say:
This mechanism did not capture the potential for poor contract management of labour and the consequent decoupling of labour paid for from work completed (measured by [the amount] of concrete poured). As at December 2015, the proportion of contract value paid to the contractor is significantly greater than the proportion of the concrete that has been placed.
When questioned about this contradiction by Telegram reporter James McLeod, Martin claimed he didn’t remember saying it.
McLeod’s question was posed the same day Martin announced he was “stepping down” as CEO, and the issue hasn’t been pressed since.
These examples fit into a sustained pattern of misleading or false public statements about the Muskrat Falls project.
If Tom Marshall is to be believed, then senior cabinet ministers were kept in the dark as well.
Many people must have been complicit, including some who remain in positions of authority within Nalcor.
It is imperative that this matter be thoroughly investigated and that those guilty of wrongdoing be brought to justice.
A forensic audit is a good place to start. The sooner, the better.
Tom Baird was born and raised in Gander and spent several years in Ontario and England before returning to the island to work as a math professor at Memorial University. He has been involved with Occupy Newfoundland and Labrador since its inception in 2011. Tom enjoys analyzing socio-political issues using quantitative evidence. In addition to writing for The Independent, he also blogs at OccupyNL.ca and tweets under the handle @BairdTom.