ASTALDI CONTRACT “A RECIPE FOR DISASTER” AMONG CONCERNS OF TOP HYDRO ENGINEER

Guest Post by James L. Gordon, P. Eng.

When Astaldi demolished the half-built dome, I just could not
understand the reason for their decision. Now I know!

All hydro projects built in Northern Canada are constructed
with heated and illuminated, insulated fabric enclosures covering all concrete
work, sometimes with a small high-speed crane at the top to transport concrete
buckets and skips of re-bar. The enclosures provide an excellent 24-hour, 7
days per week work environment, greatly increasing productivity.

With the release of the EY interim report, they mentioned
that remuneration for the work undertaken is based on man-hours. Page 9, part
5.8, states –“However, the payment
mechanism is based on person-hours expended rather than m3 of concrete poured.”

This is a recipe for disaster, since the contractor, Astaldi, can increase
remuneration and hence profit, by increasing staff.


This payment method contradicts the statement by Ed Martin at
the 2015 annual general meeting wherein he stated “We gave Astaldi the quantities …. They get a unit amount for every bit
of concrete that they install. So it’s called a unit rate contract
”. Both
interpretations of the contract are likely to be partially correct.

The General Contractor (Astaldi) will have awarded sub-contracts
to a concrete contractor and a bent re-bar contractor. Both sub-contractors are
specialised, and this is normal practice. The sub-contractors will be paid per
unit of concrete and per weight of re-bar.

However, all labor, according to EY, is paid per hour worked.
This covers all labour blasting and crushing rock for the concrete
sub-contractor, all labor involved with building forms, installing the re-bar,
pouring the concrete, and building a heated enclosure over the wet concrete.
After the concrete is set, labor will dismantle to enclosure and formwork, and
start again on new formwork. Hence, Astaldi has no incentive to optimise the
use of labor, quite the opposite.


Astaldi then demolished the dome with the consequence that
more labour had to be hired to shovel snow, remove ice with propane torches
from re-bar and build small heated enclosures over each wet concrete pour. They
are smart – not stupid.

Another statement by EY includes a chart on page 11 (shown below) showing
the percent completion of each contract as of end December 2015. There are ten
contracts listed, with progress ranging from 92% for the Labrador transmission
line to 5% for the Island transmission line. Six contracts have a progress
between 31% and 40%. For an overall progress, these ratios need to be weighted
based on estimated contract cost, which is not available, but should be
divulged so that an accurate assessment of progress can be made














The average progress for the 10 contracts is 34.7%, for 36
months of work from January 2013 to December 2015. With weighting, the overall
progress is likely to be in the region of 36% or less, due to the low progress
on the large Island transmission contract. This works out at a progress of 1%
per month since work started. Hence time to completion is 100-36 = 64 months (5
years and 4 months) for a completion date sometime in April 2021!


Turning now to project costs; the Newfoundland and Labrador budget has just
been released, to include a “Muskrat Subsidy” on all taxpayers. This may have
to be paid for many years if the cost continues to escalate. Studies have been
undertaken by the World Bank on hydro cost escalation during construction, (Paper
#61, Geological complications and cost overruns: A survey of Bank-financed
hydroelectric projects) and it was found that a cost increase in the order of
40% was not unusual, and occasionally a larger escalation can occur.



If the initial cost of Muskrat was in the region
of $7B, then a 40% increase would result in a final cost of around $10B,
including interest during construction. With the hybrid general contract, the
large cost increases provided to date, with the project less than 36% complete,
and the serious delays in the schedule, I suspect that this cost will be easily
exceeded



Hope I am wrong.


Jim Gordon P.Eng (Retired)
________________________________________________________

Editor’s Note:
James L. Gordon, P.Eng. (Retired)

During a career spanning more than six decades, James L. Gordon has
worked on 113 hydro projects, six of which received awards “for excellence in
design” by the Association of Consulting Engineers of Canada. 

Engineering projects have taken him to 15 countries; he has served for 9
years as Vice-President Hydro, Montreal Engineering, practiced as a private
consultant, served on a number of Review Boards, including for Newfoundland and
Labrador Hydro, authored or co-authored 86 papers, and wrote multiple columns
published by Hydro Review Worldwide.

His professionalism is unassailable; his contribution to the discipline
of civil engineering, especially in the hydro field, is simply vast. The Uncle
Gnarley Blog is indebted to him for his contribution to our understand of many complex issues relating to the Muskrat Falls project.

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.

17 COMMENTS

  1. The reason why Nalcor has been evaluating the schedule for 8 months, is that they dont know when it will be finished. James Gordon is correct if you simply look at the progress to date. If we can get this project done by 2020, and under 9 Billion CAPEX it will be a success at this point.

    What an absolute mess.

  2. As ussal, Mr Gordon assessment is most valuable. While being against this project from the start, I was recently uncertain if it should be shut down, suject to the degree of completion, contracts with Nova Scotia etc, Seeing these charts of 1/3 completion and heading for more than 10 billion in cost, completion date 2021, and essentially a cost plus job, it makes little sense to continue. And I wonder if the level of deception on the public rises to the level of fraud. Is it not reasonable to fire Ed Martin, without any severance payment, subject to investigation as to whether there is criminality here.

  3. What evidence is there that Nalcor's contract with Astaldi was (or is) unit based (or a "hybrid contract")?

    None.

    Of course Astaldi would likely pay its sub-contractors a unit price. But what Ed Martin said, and what EY is talking about, is the basis on which Nalcor pays Astaldi — not what Astaldi pays its sub-contractors.

    EY's interim report is evidence that Nalcor's contract with Astaldi is labour based — QUOTE: "the payment mechanism is based on person-hours expended".

    A hybrid contract is defined as one where there is a "payment for concrete poured, and another payment for manhours", and requires a decoupling of the payment obligations.

    In this regard, EY's interim report goes on to state clearly that "the payment…. mechanism…did not capture (a) decoupling of labour paid for from work completed [measured by metres (cubed) of concrete poured]".

    How then can it be said that Nalcor's contract with Astaldi can likely be interpreted — even partially so — in a way that let's Ed Martin off the hook?

    • "…Astaldi …. they get a unit amount for every bit of concrete that they install." — ED MARTIN.

    • "the payment mechanism is based on person-hours expended rather than m3 of concrete poured.” — EY.

    Accordingly, I see no rational evidence to support a conclusion that "Both interpretations of the contract are likely correct".

    When Ed Martin said "Astaldi……..they get a unit amount for every bit of concrete they install", it is clear that the "they" Ed Martin is talking about is Astaldi, and that the comment was with respect to the contract between Nalcor and Astaldi, not Astaldi and its sub-contractors.

    It clear therefore, in my view, that Ed Martin has misled the public, and on that basis alone — he should be dismissed — Maurice Adams, Paradise

  4. I would add further, that if any of the $1.3 billion of the peoples' money that Dwight Ball and Cathy Bennett plans to hand over to Nalcor (this year alone) is so that Nalcor can keep paying Astaldi based on such a contract, then the people should waste no time in demanding that Dwight Ball and Cathy Bennett resign. Maurice Adams

  5. But the estimates were robust! The engineering was robust! The project management was robust! The executive team was robust! The contracts were robust! Oversight was robust! EVERYTHING WAS SUPPOSED TO BE ROBUST!!!!!!!

  6. It's difficult to fathom, no, actually impossible to, how our previous PC government, and now the Liberal one, simply refuses to intervene in anything Martin says. So far, pretty much every "fact" from him has been bs. Schedules, costs, North Spur, water rights, the Astaldi contract, the methyl mercury projections. Both governments have allowed Martin the latitude to basically say ANYONE WHO ISN'T NALCOR PAID KNOWS NOTHING! Harvard experts…no good. Professional engineers…nope, they don't know. Labrador residents…nnope, not listening. People who will have to pay….not listening, you're all idiots. I think we have gone far beyond the bad decision making, and ineptitude, and are definitely bordering on criminal, if not already there. Joey's UC deal is looking like a winner more and more, and look hhow we got screwed on that one!

  7. Dont't let him leave town. He has a lot to answer for and I don't want him to disappear from this place until he has answered every question, every inquiry, and every comission. There will have to be an accounting for this massive deception, which is effectively what the whole project has been, and as the ring leader he will have an important story to tell. Premier Ball's next step should be to halt the project immediately until someone can tell us honestly what is going on. The. Whole thing stinks from top to bottom and far too many people have made out like bandits to let Ed Martin ride off into the sunset. Let us all view this as an opportunity to get to the TRUTH and do what is necessary to mitigate this clusterf@&$! We who have children owe it to them as the least we can do.

    John D Pippy B.Eng (civil) MBA

  8. Angry about his own pitiful life. Spewing crap about never being on the inside of the real goings on. Spending his days angry about never amounting to anything past the 1980s. Happy pitiful, 20-something reporters have finally started reading his whiskey rants.