Muskrat Falls project review inadequate, says top-tier risk analyst

Richard Westney was part of a five-person team of experts tocarryout a "cold eyes" independent review of the Muskrat Falls project in the summer of 2012, just months before the controversial project was sanctioned.

That team was given two weeks to do its work, and produced a report that concluded the degree of readiness for the project "meets or exceeds Nalcor and industry requirements."

Hired to help manage risk

More than six years later, Westney is not so flattering in his description of that review process.

"This is not something that you could literally take to the bank," Westney said Friday during testimony at the inquiry investigating why the project was pursued, and why it is billions over budget and years behind schedule.

Westney is an international expert in major project risk managementand the founder of the Texas-based Westney Consulting Group.

He testified via Skype from Toronto after weather conditions prevented him from travelling to St. John's.

His company had a long involvement with the planning for Muskrat Falls, hired to ensure Nalcor was appropriately managing the project's construction and schedulingrisks.

A troubling narrative

But there are now serious questions about how much attention Nalcor paid to his company'sadvice.

For example, Westney said his experts advised Paul Harrington,the project director for Muskrat Falls, to use a probability factor of 75 or higher for its capital cost estimates, which would have added hundreds of millions to the cost estimate.

But Nalcor instead used a P-50 which, in industry terms, means there was a 50 per cent chance of cost overruns.

It is, I think, important for us, in conversations to say things like, if I were you, Mr. Harrington, I would be very conservative and careful here.- Richard Westney

"It is, I think, important for us, in conversations, to say things like, 'If I were you, Mr. Harrington, I would be very conservative and careful here,'" Westney testified.

And the risk assessment report prepared by Westney showed there was just a one per cent chance of deliveringpower from Muskrat on schedule a valueof P1 butthe project was sanctioned anyway, with the knowledge that the delaywouldresult in additional costs.

"When you see the probability of P1, you might as well just say this is a completely unrealistic schedule," Westney said.

When asked if this concern was raised with Nalcor, Westney said he wasn't sure, but added: "I would say that it's absolutely self-evident."

• Nalcor's appetite for risk on Muskrat Falls increased in 2010, inquiry told

And Westney's highly critical assessment of that 2012 project review certainly added to the narrative that Nalcor had a willingness to accept risks, knowing that the provincial government had committed to cover any cost overruns.

A 'compressed' review process

Under questioning from inquiry co-counsel Kate O'Brien, Westney said the independent project review wasinadequate.

He called the timeframe "compressed," and that Nalcor set strict terms for the review.

And considering Nalcor is a Crown corporation taking on its first hydro project one that electricity ratepayers would be expected to pay for Westney said the process fell well short of his expectations.

On scale of one to 15, Westneysaid he would give the review process a one.

We made some slides, we had some spreadsheets with colour coding. Is it good to go or not? Presented to the executives. That's it.- Richard Westney

"We made some slides, we had some spreadsheets with colour coding. Is it good to go or not? Presented to the executives. That's it," said Westney.

Westney said he's "troubled" by recent testimony at the inquiry describing the review as "some sort of due diligence" in terms of project's readiness for sanction.

He called it more of a "snapshot of the project" and a "superficial kind of view of things."

Westney said he assumed the review was just one step in a "fully fleshed-out" review, and said he's not aware that such a process was carried out.

Westney's testimony is the latest evidence that Nalcor was taking steps to keep the cost estimates for Muskrat as low as possible, with some critics saying this was deliberate in order to win government and public support for the project.

And it's not the first time that Nalcor'sinteractions with independent consultants have raised questions.

Earlier in the inquiry, O'Brien accused a former project team member of "cherry-picking" a flattering line from a draft report in order to help win support for a federal loan guarantee for the project.

• Inquiry testimony raises questions whether Muskrat review was truly independent

As for Westney, he's not worried his involvement with Muskrat Falls couldbe harmful to him or his company.

"I don't really see a scenario for myself that I think would be contradictory to our good reputation," he said.

Paul Harrington, meanwhile, is scheduled to appear before the inquiry next week. Four days have been set aside for his testimony, beginning on Monday.

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