IN NALCOR WE TRUST

Written by: “JM”

Oversight
is one of those complex words in the English language, an auto-antonym, a word
having multiple definitions which are opposite in intent.  Oversight can be defined as either (i) the
action of overseeing something or (ii) the unintentional failure to notice or
do something. 

Is
there no better word to describe the current government committee which is
entrusted with overseeing the giant Muskrat Falls project?  

Originally,
the Oversight Committee was formed
by government to strengthen and formalize existing oversight of the Muskrat
Falls Project. It was mandated to provide reliable and transparent oversight so
that the public could have confidence in the management of project costs,
schedule and risk.  Premier Marshall was
clear in this intent when he originally announced the formation of the
committee in March of 2014:

“We’re listening. We’re hearing what people have to say,” he said. “It is a big project. It’s the people’s project. We
sense that the people want to have more information, they want more oversight,
and that’s what they’re doing.”
  

For
those of us who remain interested in the Muskrat Falls project, the second
quarterly report was issued by the Muskrat Falls Oversight Committee last
week.  


First of all, I believe the provincial government should be commended for
releasing this update on the project schedule, project costs, and major
risks.  Although the report does fall
short of the content originally envisioned by Premier Tom Marshall  it does provide the reader a snapshot of the project progress, with good
narrative, on the challenges facing the project team.

The
general observations made in the most recent report
include:

·        
Project Capital Budget of
6.99 Billion remains unchanged
·        
Critical Path to First
power in 2017 remains unchanged
·        
No changes to the forecast
milestone schedule in the current quarter.
·        There are schedule
challenges, with production improvements will be required at the Muskrat Falls
Site to maintain critical path.
·       Actual construction
progress is 23% complete compared to the planned     progress of 25.7, a variance
of 2.7 percent


With
a first read of the report it looks as if the Committee has fulfilled their
mandate of “overseeing” the project.  However,
it is clear that the schedule slippage on the Muskrat Falls generating facility
is a primary concern, and there are several pages of the report (16, 17) that highlight slippage on this portion of the project.  The Oversight Committee queried Nalcor on the
project’s biggest risk, the lack of progress by the main contractor, Astaldi.

Nalcor’s answers about management
reorganization and schedule recovery plans provide insight into the
significance of the productivity problems apparent on site.  There seems to be general agreement that the
recovery plans will allow the schedule to remain unchanged and, likewise, minimal impact to the project capital budget.

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Related Reading By “JM”


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The
question must be asked: is the Oversight Committee committing an “oversight” in believing Nalcor’s management?  Has the Committee probed far enough into the
project schedule, labour productivity ratios, and historical performance on the
site to truly challenge Nalcor’s claim that a recovery is possible? 

Hydroelectric
developments of this scale are complex, integrated projects which have a well-documented track record of delay.  The Oxford Paper released in 2014 identified 8 out of every 10 dams experience a schedule over-run with the median
delay being 1.7 years.   Armed with the knowledge provided in this
paper the Oversight Committee would be wise to challenge Nalcor in a more
aggressive manner or, at least, provide the public a more candid narrative of the
project performance to date.

In
July 2013, and after project sanctioning, Nalcor provided a baseline schedule  for the development of the project.  This
schedule is summarized within Appendix K of the November 2013 Independent Engineer’s Report.  In July of 2013 Nalcor
anticipated the completion of the spillway structures by Q3 of 2014.


However, due to delays in awarding the contract to Astaldi, and further delays in
mobilizing the contractor to site, there was at least 6 months delay to the above
schedule.  This problem was recognized by
Nalcor in June of 2014.  At that time the
project costs were updated and the schedule re-baselined.  It is also when Nalcor advised that first power
had slipped to Q4-2017. 

The
schedule progress now reported by the Oversight Committee is compared not to
the project schedule at project sanction, nor to the one issued in July 2013, but presumably
to the revised schedule re-baselined in June 2014.  It is worth reviewing the most recent
progress of Nalcor when compared to what they predicted in June of
2014.  The actual progress, as documented
within the committee reports, are provided in the following table:


On Page 15 of the December
report, the committee concludes: “
As of the end of December 2014,
the actual construction progress for the generating facility was 25.6 per cent
complete as compared to a planned progress of 31.3 per cent complete, a
variance of 5.7 per cent behind the planned schedule”. 
This statement is highly misleading. 

In reality, in Q4-2014 Nalcor
achieved only 2.3% of the planned 6.2% of progress.  This works out to achieving only 37% of what
they thought they would when they re-baselined the schedule in June 2014! 

When you look at the delays
experienced by Nalcor prior to awarding the contract to Astaldi, and poor
schedule performance in the first year of the contract, it is clear that this
project is having significant schedule pressures.  It must be asked: is it reasonable to assume
that Nalcor will be able to implement a recovery plan which protects the
project milestones of first power Q4-2017, and the project budget of 7.0 billion? 

Irrespective of what Nalcor say they
can accomplish, are they actually able to do it?

The Oversight Committee should
fulfil their primary objective to provide reliable and transparent oversight
on the costs and schedule performance of the Project. 
To do this they must access and
report to the public the information which was requested by Tom Marshall in his
July 29, 2014 letter to Nalcor CEO, Ed Martin. 
Specifically the oversight
committee must have access to the performance graph and the trend forecast to
determine if the forecasted schedule and costs are reasonable, and determine if
they should be adjusted based on the actual efficiency experience at site. 

It is not clear to the reader
how delays such as those reported in Q3/Q4 in 2014 could not have an adverse effect
on the overall project schedule or budget.

What is even more disconcerting, though, is that the person the Oversight Committee reports to, Natural Resources Minister
Derek Dalley, was not able to answer the most basic of questions, in the House
of Assembly. During the March 18th Question Period Dwight Ball asked
whether it was Astaldi or Nalcor that is responsible for the costs associated
with the delay.  The Minister did not
know the status of the largest contract on the project. He did not know whether the contract was lump sum or reimbursable.

The Minister’s detachment raises
basic questions, too: what is the government doing with the information
provided by the Oversight Committee?  Has
the Government actually demanded proactive measures such as the changing of
Astaldi’s management? Or, is this Oversight Committee merely a check in the
box, to pacify a public tired of government secrecy?

The inability of the Natural
Resources Minister to answer the most basic question, on the biggest contract,
on his biggest file suggests that he is indifferent to the content of Oversight Committee reports.  Minister Dalley has
put his blind trust in Nalcor, but the public should not.  The public should demand to see documentary
evidence of a recovery plan to maintain schedules.  The oversight committee should insists on a
true third party challenge of the schedule. 
The PUB should require real evidence that Muskrat Falls Power will be
ready by the winter of 2018/2019. 

I do not blame Nalcor for this
delay.  This is normal in large and
complex mega projects.  It is also being
experienced on other major projects such as Hebron. 

What I cannot defend are the decisions made
by Nalcor and the provincial government in 2012 and 2013 to sanction the
project in it’s current form, and commit the taxpayers of the province to an $8
billion dollar expenditure.  These
decisions were made with great assurances about the robustness of the schedule
and cost estimates.  The decision-makers
suffered from optimism biasT
hey sold the people of the
province on their ability to deliver on those unsound assurances. 

Real public oversight has been
missing on this project since its inception.  

In Nalcor we trust. 
  
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Editor’s Note:

“JM” is the
anonymous researcher and writer who presented a major Paper to the PUB Review
during the Muskrat Falls Review.  He has
written a number of articles for Uncle Gnarley Blog; three are highlighted in the above item.  Others include Gnarley’s Theory of Political Devolution, and

The Great Revolutionary From The Shore. Readers are also invited to review major Papers on the Muskrat Falls project listed on The Sir Robert Bond Papers Blog by Ed Hollett.

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