HOW INDEPENDENT IS THE “INDEPENDENT ENGINEER”?

Nalcor’s Ed
Martin recently released a redacted Report of MWH Americas Inc., officially the
Independent Engineer (IE) on the Muskrat Falls project.  The critical financial parts were blacked
out.  While that is not the fault of the
IE there are other reasons its claim to ‘independence’ is under strain.

That is not
to diminish the idea of an “independent engineer”; such oversight is critically important and has been a
frequent subject of this Blog.    

Unfortunately, the Report lacks the robustness one would expect from an overseer with MWH Americas’ mandate. 

Possibly, the
Firm attempted impartiality. It may have simply missed the mark. 
To be fair, the
IE’s Report offers some solid information and analysis, but one cannot dismiss its
considerable limitations.


The services of Independent Engineer (IE) services for LCP (Lower Churchill Project) according to Nalcor’s Expression of Interest document are for the benefit of “rating agencies, lenders, guarantors, and other organizations that may be involved in providing financing for LCP rather than on behalf of Nalcor or its partners…”. 

Still, MWH Americas
Inc. was selected by Nalcor, its services are paid for by Nalcor, and it reports to
Nalcor. 

That is at
best an odd arrangement and the oddity is magnified by the absence of an arms-length relationship with its paymaster. 

Secondly, as
in the case of any Report that puts claim to “independence”, whether that of
Judge, Arbitrator or Professional Engineer, it is the level of rigorous analysis
which it employs, and the conclusions which  follow, that constitute the best evidence of considered
and impartial counsel.

On that
basis, too, the Report is deficient.  

The initial
concern was noted by an Energy Consultant, in a private email.
  Perceptively, he wrote:  “The Independent Engineer (IE) swallows the whole story about how Nalcor,
armed with the WMA (Water Management Agreement), will be able to take winter
capacity from the Upper Churchill.”

The WMA
represents one of the most critical issues threatening the viability of the MF
Project. Yet, the IE relies solely upon Nalcor’s analysis rather than its own:  States the IE: 

“We requested further
information from Nalcor pertaining to any dispatch constraints and where and
why they may occur, since this issue was studied and risk assessments
conducted. Nalcor reports that no constraints were identified.”
(p. 171)

The IE continues:
“Long-term generation is assured by the WMA that provides storage at Churchill
Falls and a means of operating the Churchill River to near-optimize the power
production.” (p. 173)

Nowhere in
the document does the IE offer the conclusions of its own independent legal
counsel.  Nor does it discuss
Nalcor’s thesis in the context of Hydro Quebec’s legal challenge in the Quebec
Superior Court.

While it may
not be politically correct to say so, that legal authority hardly constitutes a
beacon of light for independent review of issues like this one.  

Yet, the
Federal Government, as a key Party to the financing of the project, and the public are denied fair warning
that the Loan Guarantee is at risk given the extreme uncertainty associated
with Hydro Quebec’s legal action.

The Feds may
hardly give a damn given that it was Peter McKay’s Nova Scotia that is assured the
benefits of the Federal Loan Guarantee.  But we should care, as the real guarantors. The public of this Province will pay whether Muskrat Falls achieves its rated power
capacity or not. 

A second
major deficiency relates to the “quick clay” stability problem at the North
Spur, an issue which former Government Advisor, Cabot Martin, has single handedly
given public profile. 

The IE
accepts what is at best a preliminary analysis of the problem and possible
remediation measures, not by conducting its own thorough analysis, but again by
relying upon Nalcor and its Consultant, Hatch & Associates. 
Hatch recommends “additional investigations and analyses…”

The IE adds,
“the recommended work includes further investigations of the properties of the
sensitive clays with respect to cyclic softening, more detailed stability
analyses to assess the impact of earthquake ground motions and further seepage
analyses….”(P.9)

Later in the
Report the IE asks: “When available,
Nalcor is requested to furnish to the IE for review the complete analysis of the
North Spur including the laboratory test reports that determine the strength of
the soils under the loadings that it will sustain during the life of the
project.” (p.175) Emphasis Added

In essence, the IE is asking for information after it has rendered an opinion.  The phrase “when available” indicates that as of November 2013,
Nalcor did not have its work done.

Ignoring the
potential for mass destruction of the Project’s most important natural feature just
seems cavalier.  Moreover, as engineers,
the IE ought to have noted that any failure of the ‘North Spur’ might imperil
the lives of residents living downstream, in Happy Valley-Goose Bay and Mud
Lake. 

For both
technical and economic reasons, as well as to acknowledge the fundamental
matter of safety, the North Spur ought to have been a central feature of the
IE’s Report.


It is
noteworthy that the same type of unstable clay is thought to have caused forty-three residents of Washington’s Snohomish County to lose their lives in April, 2014 following what
was colloquially called a ‘mudslide’.

The third
issue with the IE’s Report is the conclusion reached in this sentence:  “In our opinion, and based on past
experience
, the Integrated Project Team consisting of SNC-L (the borrower’s
Engineer) and Nalcor (the borrower) are qualified to design, contract, manage,
commission, operate and maintain the three projects currently under design and
construction for the LCP (Lower Churchill Project).” Emphasis Added.

No one has
questioned SNC’s ability to design the project though its contract with Nalcor
ought to have been made public especially given the corruption allegations that swirl around the Company, the disbarment of an SNC Unit, by the World Bank, from bidding on contracts it finances and given, too, the charges pending against specific former
Officers of that Company.  

As to
management and construction, the IE comes to its conclusion, notwithstanding
the fact that SNC-Lavalin’s capabilities are virtually non-existent on the
project management team of Muskrat Falls, that neither the President nor the
V-P of Nalcor have mega project expertise, that, according to one source knowledgeable of Nalcor’s management, 19 of the 20 senior Nalcor
hires possess no mega-construction expertise and the 20th person has
no experience at a senior project management level. 

Where is
this “past experience” to which the IE refers and on what basis does the IE believe such a management
deficiency is prudent or that the interests of all the Parties to the project are
protected?

A fourth
nugget is the IE’s concern over Nalcor’s Integrated Project Schedule prepared
by Nalcor.  The IE finds “that it is generally
complete as far as listing contracts, but it is a Gantt chart without activity
linking, critical path(s), float time, etc., and is not suitable to the
level of detail we require and had expected to view to allow us to form
opinions
we cannot express an opinion as to the likelihood of the contracts
being completed as scheduled
.(P.174) Emphasis added.

A Gantt
Chart, or bar chart, is a common tool used by Firms to illustrate a project’s
schedule and the interdependence of certain activities, milestone targets and
schedule status.
The IE is noting the lack of sophistication, employed by Nalcor, in the planning of this large project, one ostensibly quite far advanced.  Yet it “cannot express an opinion” on the project’s status.  The finding
ought to have constituted proof of inexperience and an additional signal of Nalcor’s deficient project
management team.

That the IE gives Nalcor ‘two thumbs up’ to proceed with the
Project stretches credibility too far.

_________________________________________________________


RELATED STORY: DERRICK DALLEY UNMASKS SPENT GOVERNMENT
__________________________________________________________


Telegram
Columnist Brian Jones wrote a very fine Article detailing some the IE’s
comments relating to matters of scheduling, costs and other issues.
 This is a key sentence:  “Here’s what Martin and Nalcor don’t
want the public to know: the final cost of Muskrat Falls will exceed $10 billion.  
Jones item
is well worth reading.
But all the
issues he cites may just be secondary when weighed against those which could, single-handedly, undermine the project.  Afterall, what is magical about a forecast $10
billion price tag when pressed against losing the WMA case, collapse of the
North Spur or collectively inexperienced construction management? The figure of $10 billion may not even come close!

More was
expected from the Independent Engineer on Muskrat Falls. It is fine to possess the title “independent”.  But all we know from MWH Americas is that such an appellation is no assurance of either detached or
skilful analysis. 



Perhaps its next Report will do better.
Des Sullivan
Des Sullivan
St. John's, Newfoundland and Labrador, Canada Uncle Gnarley is hosted by Des Sullivan, of St. John's. He is a businessman engaged over three decades in real estate management and development companies and in retail. He is currently a Director of Dorset Investments Limited and Donovan Holdings Limited. During his early career he served as Executive Assistant to Premier's Frank D. Moores (1975-1979) and Brian Peckford (1979-1985). He also served as a Part-Time Board Member on the Canada-Newfoundland Labrador Offshore Petroleum Board (C-NLOPB). Uncle Gnarley appears on the masthead representing serious and unambiguous positions on NL politics and public policy. Uncle Gnarley is a fiscal conservative possessing distinctly liberal values and a non-partisan persusasion. Those values and opinions underlie this writer's views on NL's politics, economy and society. Uncle Gnarley publishes Monday mornings and more often when events warrant.

NALCOR (Masquerading as ‘Hydro’)LIVES IN AN UPSIDE DOWN WORLD

If a Big Mac costs McDonalds $10 to produce and it is sold for $1.50, McDonalds will go out of business. They would not declare a profit!

REMEMBERING BILL MARSHALL

Bill left public life shortly after the signing of the Atlantic Accord and became a member of the Court of Appeal until his retirement in 2003. During his time on the court he was involved in a number of successful appeals which overturned wrongful convictions, for which he was recognized by Innocence Canada. Bill had a special place in his heart for the underdog.

Churchill Falls Explainer (Coles Notes version)

If CFLCo is required to maximize its profit, then CFLCo should sell its electricity to the highest bidder(s) on the most advantageous terms available.

4 COMMENTS

  1. Mr. Sullivan, you continue to raise some very serious questions which the mainstream media is ignoring, whether deliberately or due to other constraints. The scenarios you describe point to several potentially major problems not the leaf of which is the safety of the people living downstream from this dam.

    The cavalier dismissal of these and other concerns fill me with dread at times and I despair of this province ever taking the necessary steps to harvest its resources for the benefit of all. We continue to elect "feudal" governments, with the last decade being among the worst examples of that. The abundance of wealth has resulted in very questionable spending and decision-making that will come back to haunt the economy and the people of the province.

    From the lack of response to your blog, it seems that many people are out-of-touch with these realities or, to put it crassly, "Don't give a s..t". I feel sometimes that the few people who respond to your blog are the only ones who care and sincerely hope that not to be the case. Yet, the absolute hijacking of our basic institutions by the PC administrations of Williams, Dunderdale, Marshall, and now this Danny puppet, in the person of Mr. Coleman….but so were the others…is tantamount to dictatorial governance…and hardly a word of protest except by the few.

    Where has the courage of the people gone, Mr. Sullivan? Our forebears would be ashamed of our complete acquiescence.

  2. Ed Martin is a very deliberate, reasoned, articulate and rehearsed communicator. It was deliberate in April when he cautioned that there may be delay to the project. He argued it was to mitigate cost growth. The reality is that the Independent Engineers report was very clear that the project schedule was in trouble. The IE is particularly honest in this regard.

    Yet 2 months later both NAlcor and Emera are stating that they will meet a 2017 delivery of first power. Does this not seem odd? Why are the media and others not making hay with this complete flip flop by Nalcor… Ed Martin never has a slip of the tongue… there is more to this issue.

    I expect that Emera read basic contract law to Nalcor, in which it is very obvious that Nalcor need to meet their delivery date. The IE was right to be concerned on the schedule.