Monday, 26 October 2015


A better Nalcor CEO would tell us what he plans to do differently

The one certainty about Ed Martin’s demand for another $600 million for Muskrat Falls is that it will be repeated, over and over.

JM has written, on this Blog, that Nalcor will have to work hard to keep the final cost below $10 billion. 

A senior Nalcor engineer offered the prediction, more than two years ago, that the final cost will come in around 2.5 times the DG-2 estimate of $5 billion. That’s $12.5 billion.  It’s a scary number. He knows a thing or two about large projects.

Proof of the financial hole being dug at Muskrat is found not just in the third party analysis conducted by JM and James L. Gordon; it is implicit in what Ed Martin did not say. We will come to that in a moment. But, first, to James Gordon and JM.

JM forecasts first power in September 2018 and full commercial power by mid-2019.

Via Cabot Martin’s post, Jim Gordon, a veteran engineer of 45 dam projects, estimates the earliest date for first commercial power occurs in 2020. 

Exhibit from Cabot Martin's Blog Post prepared by James L. Gordon
JM estimates 1st power (optimistically) September 2018; full commercial power mid-2019
Construction delays are costly. 

They include additional interest, costs for management, labour, equipment rentals, camp operations, travel, claims by other contractors financially injured by the delay; the list just goes on and on. Claims by Emera for breach of contract, as the Maritime Link sits idle, can be added.

Were JM’s and Gordon’s forecasts mere guesses?  No.

As highly experienced engineers, the two performed a task conducted every day by project management professionals. Each uses the metrics of their profession, especially past project performance, to calculate the rate of future progress. It is no accident their conclusions are similar. (Note: past performance is used to derive a unit of work within a unit of time. The measurement applies until better efficiencies are proven, i.e. if the contractor demonstrates sustained actual results.)

The two engineers calculated Muskrat’s completion date, without assistance, using published information. In contrast, Nalcor pays a team of more than 20 people to continuously input data into a project management computer software tool. Nalcor uses a model called “Primavera” or one equivalent.

Related to this Post:


Primavera is designed to handle large-scale, highly complex, and multifaceted projects. It offers Nalcor the capability to obtain reliable cost and schedule information as well as data that assists the project’s forecasting and logistical requirements, on demand. 

Nalcor engineers and data entry staff input contract data, change orders, payments, invoices, completions, and hundreds of other inputs.  A similar system is used to construct the Hebron project. (It was originally developed by Boeing to manage aircraft construction.)

The management software is very sophisticated.. 

When Ed Martin tells the media, as he did at Muskrat Falls, that he is unable to confirm either the final cost or the completion date, it is not that he doesn’t know. 

It’s simply that he doesn’t want you to know.

When I penned  on July 27, 2015, entitled Engineers Break Silence on Problems at Muskrat Falls, the participants forecast not just the delay to which Ed Martin reluctantly admits; they warned, too, without fundamentally changes the project would run "serious red ink".

So, beneath JM’s and Jim Gordon’s project completion forecasts is Martin’s failure to even attempt to “fix” what is wrong.

Martin’s demand for additional $600 million ought to have been accompanied by changes in Nalcor’s senior management, in the project management team, in its contracting practices, and in the choice of Contractor, Astaldi, whom Nalcor blames for having blown the schedule on the powerhouse and spillway.

When Hibernia fell behind schedule at Bull Arm in the 1980s, at a time when the price of oil was far lower than it is now, Mobil replaced the Project Manager who, in turn, got rid of the principal contractor and a host of senior project engineering staff. He turned the project around; the all-important schedule was made paramount.

Such a “house-cleaning” occurs on a good many projects, in part for incompetence, but also because of mismatched skill-sets. Muskrat is loaded up with engineers with offshore experience (not senior experience either); Muskrat is largely a civil engineering project.

A more experienced and astute Premier than Paul Davis, would have asked Ed Martin why he persists with a failing strategy, why he can’t make the changes this mega-project needs.

The public might be reminded of the Premier Tom Marshall’s promise found on the Government Oversight Committee’s web site.  It states: “On behalf of the people of Newfoundland and Labrador, Government mandated the committee to provide reliable and transparent oversight so that the public can have confidence in the management of project costs, schedule and risks.” Those words have never matched the promise. Not even once!

Premier Paul Davis, too, fails to direct Nalcor to release the data compiled each month by staff the NL public pays for.

Nalcor hides under claims to “commercial sensitivity” when, in fact; it’s all about protecting their own jobs and careers.

The point should be made that overruns, at Muskrat, are occurring as the government is experiencing a worsening budget deficit. The 2015-16 Budget was based on $US62 for Brent crude; it is now $US48. This year’s oil production target is off substantially from the 82.75 million barrels forecast, due mainly to problems experienced on the Terra Nova platform.Other revenues are lower, as well.

If public servants, in the Department of Finance, are not experiencing mortal fear the government is entering a financial “perfect storm”, you can only conclude that Nalcor’s “kool-aid” flows there, too.

Another $600 million.  It deals only with Muskrat’s immediate cash flow problem. 

The sum is merely a pinch compared with the amount that will be needed.

Change is the only tourniquet.

A better Nalcor CEO would tell us what he plans to do differently.