Wednesday, 13 April 2016

EY REPORT: BALL CAPITULATES TO NALCOR CLIQUE

Written by Cabot Martin and Des Sullivan

Yesterday, the Minister of Natural Resources, Siobhan Coady did not release the Review promised in January, on the Muskrat Falls project; one that was supposed to have been completed by March 31, 2016.

What we have, instead, is an INTERIM, or unfinished, flawed, and incomplete, Report from EY

While the Minister acknowledged, yesterday, the project is suffering major problems and is concerned about the situation, the Premier has given the project the green light anyway - a response that is completely inconsistent with the financial risk to the Province implicit in EY's findings. 

It seems Premier Ball and his Minister concluded, long ago, that whatever the Report contained, they would not put the project on hold and delay a restart - not even for 45 days - when the full EY Report would be finished. 

With timing one would only expect from Nalcor, Coady dropped the EY Report in our laps two days before the very day on which a painful Budget will be delivered by the Finance Minister.


The final Report will not be ready until May 31, 2016... exactly as this Blog predicted in Monday's Post.  

The timing deserves mention because this Liberal Administration is showing signs of the very same insidious characteristics exhibited by the Tories.

The approach speaks to the repetitious trickery of a Nalcor in full denial. Release the Report in advance of another real big event! One that will take attention away from its sordid contents.

The clash of the Interim EY Report and Thursday's Budget is every bit as critical, to the solvency of the Province, as any issue the Finance Minister will raise. Constructing a Budget without Muskrat Falls is to construct an illusion.

This Interim Report contains plenty to be disturbed about. But it doesn't matter. The Ball Liberals have chosen to take ownership of the decision and move forward with Muskrat Falls.

The CBC reports the Minister saying:

"Because of the numbers of contracts that are involved, because of our obligations under the loan guarantee, because of our obligations to Nova Scotia, it's not in the province's best interest [to cancel the project]".
How Premier Dwight Ball or Shiobhan Coady was able to jump to that conclusion is not stated.

Show us the Report, Minister, that brought you and the Premier to that outcome!

There is nothing in the EY Interim Report that supports that decision. On the contrary. If there is some other Report, let us see it!

Or is it the case that, like the Tories, the Liberals are determined to proceed 'come hell or high water'?

At the outset, EY admits its Report is not based on an independent field analysis and interviews conducted on the Muskrat Falls construction site, as one would expect of any "independent" and thorough job. EY states:

"The Review has been based on data and information provided by Nalcor. EY has not sought to independently verify this data. EY has had access to the Nalcor team; we have not had direct access to contractors. EY has not conducted any engineering review, physical inspection or validation of construction process." (p.7)

So, what value do we give EY's claim to independence, if it does not dig down to the underbelly of this project?  It is not as if Nalcor has a record of being forthright with the public.

In addition, the EY review did not conduct "a formal review of the Project's governance arrangements" on Muskrat Falls. "We have not met with the Board of Directors of Nalcor or its subsidiaries..." it says. Yet, its reviewers have observed that "elements of governance have not been effective "and that "there is a need to strengthen" it and "provide more effective oversight..."

As important as governance and oversight certainly, EY did not even assess the effectiveness of Nalcor management and the Project Management team.

The state of the project speaks to that issue.

One has only to read part 3.3 on page 6 of the Report and ask how tEY can draw from unfinished negotiations with Astaldi, the need to review the Muskrat Falls project only as of September 2015 and not up to the present?

Section 3.3 of the Report states:

During the Review, Nalcor advised EY that the commercial discussions in relation to the MFG civil works contract would not be completed within the time frame of the Review and that Nalcor would be engaging in risk assessment and re-baselining activities subsequent to the completion of those discussions.

Then, EY concludes, in the next Section:

3.4   As a result, this interim report will assess the reasonableness of the Project's most recent approved cost and schedule forecast – namely the September 2015 Forecast....

This is illogical; it makes no sense that EY would not insist on up-to-date numbers.

Yet, EY proceeds to describe several egregious examples of Nalcor incompetence, and deception, too.

How often, on this Blog, has Nalcor been challenged regarding the type of contract it awards and why it has asserted its risk was covered off even as it had difficulty explaining what it meant by "fixed price" or "unit priced" contracts.

Now, we have the answer. What Ed Martin was telling you was bullshit!

All you have to do is go to paragraph 5.8 of page 9 where E&Y talks about the contract structure it was using for Astaldi. E&Y states the contract:

"was designed to realize possible savings in construction labour productivity and also to protect Nalcor from any labour cost overruns that might be experienced by the contractor. It was intended that this would be achieved by including in the contract a maximum value for labour that Nalcor would have to pay to the contractor. However, the payment mechanism is based on person-hours expended rather than m3 of concrete poured. This mechanism did not capture the potential for poor contract management of labour and the consequent decoupling of labour paid for from work completed (measured by m3 of concrete poured). As at December 2015, the proportion of contract value paid to the contractor is significantly greater than the proportion of the concrete that has been placed". (emphasis added)

Renowned Canadian Hydro Engineer James Gordon was quick to telex this comment: 

" With payment based on hours worked instead of measured work (cubic meters of ??) the contract is in effect a cost plus contract instead of a unit price contract. This explains the cost over-runs. A hydro project should never be built with a cost plus contract."

E&Y places the blame squarely on Astaldi's "poor contract management"; but Milan may have other ideas.

For what it's worth, this is vindication for the engineers who have contributed to this Blog. It has been stated here, time and again, that Nalcor was engaging in "cost plus".  And, Nalcor has denied it!

Now, let's look closely at a few more of the Report's most salient disclosures which, taken together, add up to a condemnation of Nalcor's management.

"The overall conclusion...is that the September 2015 Forecast is not reasonable", EY states. 

The Report states the Muskrat Falls Generation ("MFG") contract "is significantly behind schedule"...the delay will have consequences , including "cost and schedule"....target dates related to....Generation facility will not be met..." (p.5)

On the subject of risk, EY states "...remaining Project scope mean that significant risk still exists", including to the generation contract, the transmission line contract, converter stations contract, and the cost contingency fund. (p.8)

But the poster Company for contract cost overruns is Astaldi. E&Y chronicles Astaldi's slow pace of ramp up, planning, and execution and notes this delay "will directly impact overall Project milestones (and) have a knock-on impact to Nalcor's Project costs and to costs of other impacted contracts (with an) ...aggregate cost impact excess of...contingency.."

At December 31, 2015 the amount of the contingency remaining was $173 million (p.10) - now potentially all absorbed by Astaldi - with more, undoubtedly, to come. 

Little wonder the President of Astaldi let it be known he still expected a profit to come out of last year!

Finally, the EY Report contains "Recommendations"; but they do not nearly reflect the conclusions just described, and the many others detailed within its short review. EY is weak given the failure of Nalcor management and the cost their incompetence has levied on the Newfoundland ratepayer.

Instead of hard hitting guidance, the recommendations include phrases like "project should revise its planning and forecasting processes...make appropriate allowances for all risks.....contingency should be reviewed....governance...should be re-evaluated...reporting should be enhanced..."

Totally bewildering, too, is the fact that nowhere in the discussion of project risks does it mention two of the biggest - the need for a Hydro Review Board for the North Spur or Hydro Quebec's challenge to the Water Management Agreement.

In taking this approach, one compounded by the Consultancy's failure to question or verify the information given it by Nalcor, EY has skewered any value its Final Report might offer.
EY even goes so far as to follow Nalcor in excluding "interest during construction" from the total project estimate of $7.6 billion when it should have been $9.05 billion.

And, in spite of all this, the Ball Government has made it clear that Muskrat Falls is proceeding anyway. It has attempted to uncouple Muskrat from the Budget process by engaging in the charade Siobhan Coady began yesterday.

But not even a fool will fall for that.

The Budget cuts and tax increases to be announced Thursday, will be crafted to leave lots for Astaldi. The Finance Minister has already scheduled a "Supplemental Budget" to look after all Nalcor's needs.

A final comment on the structure and tone of the EY Report is necessary.

Given the expected exclusion of Muskrat Falls from the Budget, and the flawed basis of the EY Report, the statements of Minister Siobhan Coady mark the full capitulation of the Ball Administration to Nalcor, and to the other forces behind the Muskrat Falls project. 

The Premier and the Minister leave the public service and the taxpayer to face the full fury of Minister Bennett's Budgetary ax.  

11 comments:

  1. Let there be no doubt: Dwight Ball is "Premier" in name only. Ed Martin is the real Premier and has been for at least six years.

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  2. Heard a construction worker say he had never worked on a prior large project being so mismanaged on site, No, or very fer power sites to connect to tools etc , few drill bits available, fundamental things.But more white hats of Nalcor then you could imagine. Now it makes sense,......cost plus..... a make work project , and a gold mine for contractors.

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    1. Other comment this construction worker made was that there was special forms (I assume for pouring concrete) that came from Germany, but that no one knew how to put them together.He worked there last summer and fall. He is from Conception Bay North, a carpenter, a good one.

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  3. That is exactly what it is: the ultimate make-work project, to be paid for by the ultimate tax hike (in the form of power rates.)

    All to satisfy Danny Williams' vanity.

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  4. why does anyone think and anonymous post has any credibility??

    im darryl j harding

    des can it be stopped in its tracks and at what cost to us...??

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    1. Re Darryl's comment - I believe the credibility lies in the thoughts, (or not), but not in the identity.

      Some of us have had experiences (political/corporate repercussions) such that it's simply wise to shroud for personal and family safety reasons. Given my experiences, it would just be foolish to do otherwise. I don't even fear death (personally) but my family has been through quite enough thank you!!!

      Also, I do anticipate that the blog can identify the source of anything that I iterate. Some folks may submit through a Tor site for this stuff but I don't, and I'm certainly not hiding from Des and company! :)

      (FYI for anyone - the group "Anonymous" offers advice on that for those who need it for activism etc.),

      Regarding stopping the MF fiasco, I've replied to Des's comment below, and thanks for asking the question.

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  5. It can be stopped if enough people tell the Premier they want it stopped. As to the cost, that ought to have been one of the roles of the EY Review. Instead, the Government ignored the mess which EY reported begging the question why did it bother to waste public money on the Review if it had no consequence for the decision?

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    1. Collectively, (as a society), we owe it to future generations to start a petition to tell the Premier (not ask) that we need either: a Judicial inquiry into the contracting of the project, (which, seemingly, may lead to an organized crime criminal investigation), or we need it shut down altogether.

      Once a concise version of what has been observed on this blog becomes public knowledge (to a much wider public audience), then the vast majority of NL'ers will likely jump onside with both feet, instead of the largely ignorance vote of 47%.

      It seems obvious (to me) that the Italian company is bleeding our children dry as we speak, (as are our Nalcor and our elected officials past and present) and that nobody (in office) has courage enough to speak of it directly. I think the RCMP should examining this situation (for free?) instead of tossing another 1.6 million out the eighth floor window for some accountants to "play nice" on paper.

      The contract commitments to NS/others are not going to worth a plug nickel (or an Italian or political contract?) if NL goes bankrupt, so they'd be well advised to re-open negotiations. Simply put we don't have the cash flow to complete the contract because we have no earthly idea what the final cost will be. Nalcor doesn't know either because Astaldi hasn't decided yet. Let's collectively "call the cops" and end the seemingly mafia-like madness.

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  6. it's a monkey in a barrel going over muskrat falls....

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  7. Just listening to VOCM, their question `should Muskrat Falls be shut down` the result 47 percent said yes, 47 percent said no, 6 percent said did not know. I had voted, and pondered before answering, being opposed from the start. I was with the 6 percent and voted did not know,as I do not know our exposure to various law suits that could apply with Nova Scotia, and contractors, and other risks, which should have been done this past months. More than a year ago I was for shutting this down. Expect the budget today will tip many more to agree on shutting down MF. Winston Adams

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    1. Agreed Winston. The VOCM questions, by and large, are hardly worth reading let alone deserving of a "vote". Remember a certain former PC MHA now Liberal MHA goosing the vote in support of all things PC.

      I think Des is right...just call the premier's office and tell them you want it stopped. For the record I've already done that. Keith

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