SNC-Lavalin turmoil spilled over to Muskrat, says project director

The critical Muskrat Falls management contract was mired in turmoil and beset by performance issues in the months before and after the controversial hydro project was sanctioned, the man leadingNalcorEnergy's project management team testified this week at the project inquiry.

Despite this, the inquiry heard, Nalcordid not see the need to increase cost estimates prior to green-lighting the project in late 2012.

It's the latest sign that hopes of achieving the cost and schedule estimates for Muskrat were a long shot when then-premier KathyDunderdaleannounced her government would sanction the project six years ago.

There were references to the tension earlier in the inquiry, but it was Paul Harrington who pulled back the curtainon serious issues betweenNalcorandSNC-Lavalin, the Quebec-based engineering company that was awarded the EPCM for engineering, procurement and construction management contract in 2011.

Allegations of fraud, corruption

SNC-Lavalin's reputation was under threat because of fraud and corruption allegations related to its business activities in Libya.Its chief executive officer was arrested. And there was "significant distraction/lack of focus" following wholesale changes to SNC'sleadership, Nalcor said in a statement provided to CBC News on Friday.

"All of the people that we had negotiated theEPCMcontract with had gone," said Harrington, the British engineer and contractor-for-hire who was directing the Muskrat project forNalcor.

That chaos spilled over to the Muskrat Falls project, Harrington testified.

"We were struggling to get resources fromSNC," he said.

TheSNCthat we see today is much different from theSNCthat we were experiencing at the time. They were going through some very difficult situations.- Paul Harrington

"The SNC that we see today is much different from the SNC that we were experiencing at the time. They were going through some very difficult situations."

And Harrington said the situation was further complicated whenSNC-Lavalinpersonnel did not want to relocate to Newfoundland and Labrador from their Montreal offices in order to fulfil a requirement that engineering for the project be carried out in the province.

"We had a succession of project managers and functional managers," said Harrington.

A troubling picture

Harrington painted a troubling picture for a project that was being led by a Crown corporation, with the risks being borne by electricity customers and the Newfoundland and Labrador taxpayer.

He said there were "poor controls" by SNC-Lavalin and inadequate co-ordination between experts in engineering, procurement and cost estimating.

"We saw an ideology gap between the bid phase and how we were actually going to run it from almost three million person-hours to almost double that," said Harrington. "Construction management of early site works was problematic."

And with the public growing increasingly concerned with the fact SNC-Lavalin was even involved with the project, Harrington said, it was "difficult to keep people motivated."

Nalcor takes action

With key milestones under threat, Nalcorwas forced to take action, and essentially stripped SNC-Lavalin of its project management responsibilities by forming what's called integrated management teams, with Nalcorusing its staff and contracted professionals to jointly manage areas such as supply management, planning and quality assurance.

Experts from other companies were also added to the team.

And documents show Nalcor relented on the requirement that engineering be completed in Newfoundland and Labrador.

"We acted promptly on all these things and we turned it around," said Harrington.

But it all came at a steep cost.

Documents show EPCM contract cost estimates increased by $250 million from 2010 until final sanctioning two years later, and there were suggestions at the inquiry that the actual costs were even higher.

But Harrington refused to acknowledge this put any pressure on the project cost or schedule.

"If we hadn't have taken actions that we were taking (it) would have resulted in a significant risk to us. But we did take those actions. We did turn the SNC folks around," he said.

Muskrat Falls was sanctioned at $6.2 billion in 2012, with another $1.2 billion for financing that was not conveyed to the public at the time.

This estimate did not include a strategic reserve allowance, despite the fact that challenges with SNC-Lavalin had been ongoing for many months, and that an independent risk experthad recommended an allowance of nearly half a billion dollars.

The estimate also did not take into account that Nalcorwas aware there was just a slim chance it could deliver first-power from Muskrat in mid-2017, and missing that targetwould almost certainly addmillions to the cost.

Critics have argued these and other revelations at the inquiry are proof that Nalcor did everything possible to lowball the cost estimates for Nalcor in order to win public support for the project, and that the absence of a truly independent review of Nalcor's work allowed this to occur.

A spokesperson for Nalcor, meanwhile, said SNC-Lavalin"continues to provide engineering and other services as part of the (Lower Churchill Project) integrated project management team and they remain the engineer of record."

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