The Commission of Inquiry into the Muskrat Falls Project has
heard plenty of evidence regarding how Nalcor CEO ED Martin failed to report to
either the Board or the Government the truth about cost overruns and the delay
in the project schedule.
Nalcor’s deceit is only one sub-text of a larger issue, to be
sure. Another is that the Board and the Government — politicians and
bureaucrats — supported and accommodated Nalcor’s secrecy, most effectively by suppressing
bad news under the guise of “commercial sensitivity”.
The Inquiry has now heard evidence that the September 2015
costs, which had grown to $7.65 billion (up from $6.99 billion announced in
June 2014), were significantly understated. First power would be late by two
years, too. Concerns that Nalcor had understated those issues made their way
into a new EY Report in the early part of 2015. The Report’s existence created
a big problem for the Paul Davis Government. The bureaucrats on the Oversight
Committee understood foot-dragging well and Nalcor were never found without
reasons why the truth hardly mattered.
As a matter of history, following sanction critics of the
Project had called for independent oversight of the project. Premier Cathy Dunderdale
ignored the call. Tom Marshall, succeeding her, installed what critics referred
to as “fake” oversight. His Oversight Committee was comprised solely of senior
public servants, none of whom were engineers or possessed megaproject
|Michael Kennedy, EY Consultant to MF Oversight Committee
The Committee was permitted, however, to employ the Consultancy
Ernst and Young (EY), capable of asking pertinent questions and conducting
investigations. In addition, the Oversight Committee was headed by the Clerk of
the Executive Council, Julia Mullaley — who reported directly to the Premier —
placing Premier Paul Davis in the centre of the decision to keep the critical
EY Report away from public view.
Today’s narrative is focussed on EY. The firm was engaged to
perform “Project data and documentation, as well as structured interviews with
Nalcor personnel”. EY’s reporting period spanned December 2014 to February
2015. Its Report is entitled “Review of Muskrat Falls Cost and Schedule
Management Processes and Controls”.
EY’s analysis was completed in April and May 2015, and should
have been released to the public a short time later. But it wasn’t. It bounced
between Government and Nalcor for the remainder of the Davis Administration, until
voters kicked out the Tories.
2015 was a year rife with news of a project off the rails, and
a Tory Government in freefall in the Polls since the unceremonious dismissal of
Premier Dunderdale. Paul Davis hoped that he might still salvage a new mandate
for the PC Party. One of the decisions that he made in pursuit of that
objective was to make sure that the true state of the Muskrat Falls Project was
not made public before polling day, November 30.
It wasn’t until Michael Kennedy of EY was examined as a
Witness at the Muskrat Falls Inquiry on May 13, 2019 that illumination was shed
on the political and bureaucratic complicity that transpired to keep the Report
From here, I will let the lead on the EY Team, Michael Kennedy,
and Inquiry Co-Council, Barry Learmonth, tell the story. I will attempt, for
the purpose of brevity, to record only the most salient excerpts of the
testimony. The scene, of course, is the Muskrat Falls Inquiry. Michael Kennedy is explaining to Barry
Learmonth EY’s experience dealing with Nalcor officials and the Oversight
Committee in the course of their work.
Almost from the beginning, Kennedy notes that on any major
project, “the baseline is where you start and then you measure progress against
that, in terms of cost and schedule.”
He concurs with comments contained in Exhibit P-03413 from which
Learmonth is reading, and he agrees that Muskrat’s “contingency and contingency
forecast are weak”. Continuing, he adds: “I believe, that from July 2014, that
Astaldi’s updated schedule (which Nalcor knew in 2013 had suffered major delays)
had not been built into the Integrated Project Schedule which… builds a sense
that there are some serious problems.” The Exhibit suggests the “likely need
for re-baselining [and a] potential change to execution strategy.”
Mr. M. Kennedy: There is a serious problem on the project.
Mr. Learmonth: A serious problem.
Mr. Kennedy: Yes.
Learmonth brings forward evidence (Exhibit P-03328) that
Nalcor is not acknowledging that EY has identified the “serious problem”. Instead,
Nalcor is complaining to Oversight Committee official, Craig Martin, not that
EY is being diligent but that they are going outside their Scope of Work.
Reference turns to a quote in paragraph 1 of the same Exhibit,
an email written by Richard Noble of EY to his associates and to the Oversight
Committee, in which he states: “In my 17 years’ experience of conducting
project reviews and audits, it is highly unusual when assessing cost and
schedule management that you would be constrained from examining the
processes/basis of plans and estimates to start with. These underpin cost and
schedule performance and its management. Everyone knows that.”
As the Inquiry has heard from several witnesses, Nalcor’s
derision for EY is palpable, even refusing the Government’s request that it be
involved in negotiations to settle the $800 million Astaldi claim. Evidently the
disdain escalated at an early stage. A meeting held between EY and Paul
Harrington, Muskrat Falls Project Director, is recorded in an email from EY
official Emiliano Mancini dated May 6, 2015: “As soon as EY prepares to
formulate the first question, Paul Harrington interrupted the meeting and left
saying that he was expecting a debriefing and was not prepared to respond to
Ensuing emails introduced by Counsel Barry Learmonth show that
Nalcor has not been performing risk analysis of the cost and schedule, which
has EY’s Kennedy stating if such risk analysis “wasn’t used after 2012, that
would be a concern” and adding that “industry practice on projects of this
type… most frequently take place every six months.”
As EY battles Nalcor for detailed information on costs and
schedule and finishes a draft of the “Project Review”, EY finds out that the
Oversight Committee is siding with Nalcor. Learmonth brings up an email dated
June 5, 2015 which displays the Oversight Committee’s concern not about the
Report’s contents but its format — lest it be available to the public through
ATIPP. (So much for oversight!)
In addition, by June 8, 2015 Exhibit P-03417 reveals that
Nalcor has reviewed the draft and is seeking a “significant re-write”. EY is
having none of it. In an email dated June 25, 2015 EY’s David Steel informs
Craig Martin of the Oversight Committee that “we’d advise very minor changes to
the report.” Michael Kennedy put a finer point on EY’s position for Learmonth. He
said: “We paid close attention to [Nalcor’s objections but] we disagreed… with
the points that Nalcor were raising.”
As noted, this is now June 2015, but by August 12th
EY has revised the draft Report to the Oversight Committee (P-03419) “after
taking into account Nalcor’s comments.” The Report, as Learmonth noted, took “a
little longer than eight weeks that [sic] were contemplated.”
Kennedy notes that the delay was due to the “backwards and
forwards between governments and Nalcor on drafts of the report.” The final
report emerging from the edits (Exhibit P-03583) is dated October 29, 2015. But
the Report is still not released to the public.
And, Learmonth notes, the review has been watered down. He
refers to limitations on page 5 of the Report which describes a list of
exclusions “from the scope of the review.” He notes: “The estimating processes
and cost baseline process were not assessed.” In addition — and this is
important — the Oversight Committee had decided to rely on the results of
Nalcor’s Decision Gate (DG) approval process reviewed by MHI (with which Nalcor
had interfered while Government bureaucrats removed from their scope of work a
risk assessment of the project).
The Oversight Committee also instructed EY that it would rely on
the DG3 review by the Independent Engineer (which had done only a high-level
assessment and did not review the project cost estimates; the Inquiry heard
that Nalcor had been allowed to edit the Independent Engineer’s Report, too). Possibly,
the Oversight Committee was unaware but more likely oblivious – one of its own
having been the Government’s go-between with Nalcor – to their meddling in
Reports which effectively offered no value from an oversight perspective.
Why were those items omitted from the EY scope of work? Says
Kennedy: “Because we didn’t have… definitive forecasts provided by Nalcor.” On top of that, the EY Report revealed that
the Consultancy had been cut out of an assessment of Nalcor’s “Change
Management and Risk Management processes.” Instead, the Report indicates that
the Oversight Committee had chosen to accept Nalcor’s Internal Audit reports
for reliance purposes.
That decision also gave EY considerable concern because, as
Kennedy noted (Exhibit P-03331), “you can use that information or data that is
being prepared as long as you have been through a reliance process.” Asks
Learmonth, “So, it’s not a substitute then?” To this Kennedy replies, “No.”
“Do you know what qualifications the Oversight Committee would
[have] to make that assessment?” Learmonth asks Kennedy. “I can’t speak to that,”
Learmonth pursues the issue of the Report’s delay: “So this is
October 2015, and you started your work on this project in March, 2014… does
that appear to you to be a long period of time?” Replied Kennedy: “It took a
long time to get to October 2015, to be highlighting further levels of details
of the issues that we were identifying over a year earlier.”
EY notes that “the Oversight Committee is presenting Nalcor’s
viewpoint and EY’s viewpoint without putting forward its own viewpoint.”
Release of the Report is further delayed. Nalcor, having failed to get EY to
come to a different set of conclusions, has now invoked control via suggestions
of “commercial sensitivity” which the CEO is permitted to characterize as he
sees fit. The Oversight Committee is seen
buying into Nalcor’s new attempt keep the EY Report under wraps.
As noted already, the Oversight Committee is responsible to
the Cabinet — effectively, the Premier. There is no mistaking, therefore, that
Premier Paul Davis is fully informed about a project gone totally off the
A General Election looms and the EY Report remains in draft.
Learmonth’s interview of EY’s Paul Kennedy continues. In Exhibit P-03337, EY investigator Richard
Noble is emailing Team Member David Steele who says, “Sorry David… But we first
need to qualify the commercial sensitivity with Nalcor.” Learmonth continues to
read from the email: “We don’t know what Nalcor’s thinking is for a majority
(10/11) of items identified commercially sensitive… we can hypothesize… but it
is not clear why they see them as such.”
Learmonth’s examination then turns to an email from Craig
Martin of the Oversight Committee dated October 26, 2015. The Committee has now
invoked the idea of splitting the EY Report into “two separate reports (one with
the confidential info and one without) in order to address Commercial Sensitivity concerns
raised” by Nalcor.
On October 28, 2015 Richard Noble reports to Craig Martin that
the Report has been redrafted “into two parts as requested.”
But it doesn’t much matter. Both EY Reports remain shielded
from public view. The results of the General Election on November 30, 2015
overtake any further involvement in the Reports under the Tories.
Mr. Learmonth brings up Exhibit P-03340. He notes that the
election is over and Premier Ball “is now in the Premier’s Chair.” The Exhibit
contains an email from Paul Hickey and he writes: “I just got off the phone
with the Premier. He has asked Julia to talk to David about a full review of
For those who always wondered how they could for so long be
denied the real story of Muskrat Falls and cost overruns to $12.7 billion… and
a two-year delay in the Schedule… well, now you know.
With good reason, former Premier Paul Davis should be dragged
back before the Inquiry and held to account. But that’s the call of
Commissioner Richard LeBlanc.