NOTE: The following is a Guest Post written by the whistleblower, who I have dubbed the “Anonymous Engineer”. He originally disclosed – on this
Blog – falsification of the estimates for the Muskrat Falls project on January
30, 2017 . At that time, his comments were recorded in a post entitled Muskrat Cost Estimates “A Complete Falsification”. A second post called Muskrat: Allegations of Phony Cost Estimates provided significant additional details of both low-balled estimates at sanction and even after sanction. — Des Sullivan
Guest Post by the “Anonymous Engineer”
I read Ed Martin’s
“Statement” of June 26th, 2017 with a sense of regret and dismay.
Regret – because it represents an accelerated demise from an exalted position; dismay – as
most of the “Statement” made no sense.
|Former Nalcor CEO Ed Martin|
If Mr. Martin’s intent in
releasing the “Statement” was to exonerate himself, it actually achieved the
contrary. For those who know the Muskrat Falls project well, the omissions were
questions no one had raised. They had nothing to do with the ones raised
by SNC Lavalin or by me. The complexity of the Nalcor CEO’s job, or the
efficacy of the seismic drilling program are not matters at issue. They are not
the questions people want answered.
is what role Martin played in the falsification saga of Muskrat Falls.
regarding his role in the award of the disastrous contract to Astaldi, in the
issues raised in the Interim Report of EY, with its twenty page list of Project
Management infractions, in the understatement of costs during project
implementation, to name just a few. Did he really not see the SNC Lavalin Risk Assessment
sorted out in a Forensic Audit which the Premier ought to call without delay.
compilation of statements made, or events where Ed Martin participated, to which
some immediate response is necessary. I have put them in chronological order starting
December, 2012 running through to April 2016, when he was replaced by current
CEO, Stan Marshall.
the sequence of events that got us to where we are today.
Muskrat Falls received sanction with great fanfare, promising a new era of unprecedented
prosperity that was said would last for generations to come, making
Newfoundland and Labrador one of the richest regions in the world.
the project was $7.4 billion with financing costs included. Without financing
the capital cost was $6.2 billion. Media reports, at the time, suggested that due
to the exceptional management skill of Nalcor, it may even be possible to bring
the project in below budget and ahead of schedule.
though, staff close to the project knew the project was doomed even before it
began. The funding was fictitious and critically short. The “Implied Forecast” (implied
as it was not explicitly stated in the SNC Lavalin Risk Report) was about $10
to $11 billion calculated as follows: $6.2 billion base +$2.4 billion in known
risks + 20% financing at $1.8 billion = $ 10.4 billion.
announced the project in December 2012, there is a very high probability that
the Nalcor executives knew the project cost would be in that range.
Minister Coady and CEO Stan Marshall independently arrived at a cost in that
range as they have stated in numerous interviews.
that the culture of falsification was well entrenched within Nalcor even before
the project began.
Martin’s statements which are in need of rebuttal. My comments are highlighted in
a comfortable envelope of where we expected to be,” Martin told reporters
at the time. In the Project Management
world these words are completely meaningless.
that 90 per cent of Nalcor’s Muskrat Falls contracts were essentially complete,
with either fixed-price or unit-rate contracts. – In reality, Mr. Martin had no idea of the
nature of the contracts – particularly the Astaldi Contract. At different times
he would give different definitions for the Astaldi contract: Lump Sum, Firm Price,
Unit Price, paid for quantities installed. Never acknowledged was that the
Astaldi Contract was based on labour hours expended, not work done. In terms of
the owner’s ability to control costs, this is actually the worst type of
contract imaginable. A Forensic Audit should also investigate how the Astaldi
Contract was awarded.
have narrowed down the risk of additional cost increases very, very, very
significantly,” Martin noted in June 2014. This statement
is false. Nalcor had no idea of what the risks were, as confirmed by the now
available SNC Lavalin Risk report dated April 2013, which was conveniently
ignored. A Forensic Audit must investigate who saw what and when – relative to
the SNC Lavalin Risk Report.
risk with executing this project as we move forward. Our job is to
continue to manage it and keep it where it should be,” Martin said. Martin
never knew what the risks were as he categorically denied ever seeing the SNC
Lavalin Risk Report. You cannot manage something that you don’t know.
factors were to blame for the increase in cost, with market pressures making up
two-thirds of the overrun.
tight marketplace right now” said Martin. “What we’re seeing in these bids when they come in,
they’re higher, much higher than we have budgeted for,” he added. The bids were not high. They were compatible with the scope of work.
The problem was that the Nalcor budgets were way, way too low as the Project
Sanction estimate was low-balled. Consequently, the budgets were grossly
inadequate. This needs to be investigated through the Forensic Audit.
is experiencing cost increases we really can’t control in that area”, said Martin. This not correct. Costs were not increasing. They were appropriate for
the scope and location. As stated earlier, the estimates and budgets were too
low due to the falsification process.
saying that it was impossible to low-ball the estimate due to the presence of
so many “experts”. The low-balling of an estimate is an Executive
Decision and can be made by the CEO regardless of the experts. In any case,
history has conclusively proven that the estimate was far too low. The best
proof, however, will come from a Forensic Audit.
Situation in June 2017
Nalcor in September 2015 was soundly rejected by EY Consultants in their Interim
Report, dated April 2016. EY came up with a figure of $11 billion which was later
increased to $11.7B and finally $12.7B in June 2017. It is my expectation,
given the scope of the work yet to be completed, that a final price tag of
about $15 billion is possible. That grim fact should greatly worry the public
of the province.
actually twenty pages of Project Management infractions reported by EY
Consultants in their Interim Report that occurred during implementation period from
January 2013 to April 2016. All occurred under Ed Martin’s
In order for the public to learn the truth, and to have such major cost
issues removed from the “he said-she said” world of political rhetoric, a
Forensic Audit is essentially all about the public’s right to know.
need for a Forensic Audit
influenced the project approval process and those which emerged during the
subsequent management of this project are now widely accepted as fact by the
highest level of Government, including Premier Ball, Minister Coady and Stan
and Minister Coady – are still delaying the Forensic Audit with weak, even nonsensical excuses. In particular, the argument that a Forensic Audit would
slow down construction simply can’t be sustained. Indeed, as noted in a prior
post Forensic audits are an integral part of project management. Rather than
slow down the work, such a process is frequently used to identify
inefficiencies, boost quality control initiatives and give real independence to
spent many years in my field, including on megaprojects like Muskrat Falls. I
can’t speak to the politics that causes resistance to independent review and
analysis. I will leave that to others. My profession deals with standards,
calculations, and knowledge in many forms. Engineering is about allowing
integrity, in its many manifestations, to be a constructive force.
this: don’t let anyone – whether Ed Martin, Stan Marshall or the Premier – tell
you integrity is out of date.