Guest Post written by Frank Wright
I recently
had a look online simply using the search criterion, "Muskrat Falls".
A NL Govt. website featuring the 'Muskrat Falls Oversight Committee' showed up
so I decided to have a look at what this "Oversight Committee" does.
I didn't have to look hard to realize that the word 'Oversight' in the name was
at best a misnomer.
Amongst
other things, the web page states the following: "Chaired by the Clerk of the Executive Council, the committee comprises
senior officials from Executive Council and the Departments of Finance, Natural
Resources and Justice. It is supported by a working group representing
expertise in the areas of law, engineering, project management, accounting and
auditing."
This sounds
like a good beginning for such a Govt. Oversight Committee; the right types of
people for undertaking vital governance practices for a mega-project are
identified. Apparently, however, the good beginning didn’t get any further than
this.
At first I
thought this may be a reflection of the Oversight Committee's view of the abilities
of the working group; perhaps a lack of trust in this group or the lack of
awareness of the role of such people. Nevertheless, hiring an outside
organization for this work is very strange when you are supposedly surrounded
by so much key talent.
On looking a
little further I discovered where the problem really rests; it is actually the
ineptitude of the Oversight Committee itself. And this is borne out in another
EY report called “Review of project cost,
schedule and related risks, interim report” issued on April 8, 2016 and I
will come back to this report later in this article.
1. EY
took almost eight months to deliver it; and
2. They
stated, "EY's Major Capital Projects practice was engaged to bring additional experience
to assist the Oversight Committee in meeting its mandate." [Emphasis
added]
Let's deal
with the eight months to produce a report first. In the project world, and
especially mega-projects, relevant and timely information is the backbone of
management. This is also true for those undertaking the oversight of a
mega-project. The risks are so much greater and the impact of those risks can
be disastrous. Best practice in project management and governance demands
timely, appropriate and quality information.
A project
management team and its oversight body must be able to report on the status of
a project with 'real time' or at least, near real time information. Timely
status reporting allows everyone involved in a project to have up-to-date
knowledge of progress and make informed decisions early, when it is most
effective.
Taking eight
months to deliver a key project management report that is focused on a
timeframe long past, is generally viewed as useless. And most of the time it
is. On what basis is a stale-dated report of any value for comparing where a
project is, against where it was planned to be? For anyone, whether in the
project management business or otherwise, the answer to this rhetorical, but
very basic question is obvious. It is usually of no value; and more to the
point, such a lag in reporting on a mega-project is extremely dangerous. There
is a huge price to be paid for this folly.
By their
nature, mega-projects are complex with many dynamic variables that intersect.
Timely, actionable information that measures work completed against a well-established
baseline is fundamental and offers the only chance to exercise any degree of
control. An outside organization that delivers key information so long after
the fact is asinine. One could easily say that it is simply throwing good money
after bad. I would normally hold this view of the EY report except that in this
case, the findings are worth several billion dollars - NL dollars that is -
pouring from the public coffers.
Before I get
to the matter of EY findings in the October 2015 report, let’s have a quick
look at the second point I raised above. EY claimed in its report that it
engaged personnel from its Major Capital Projects to bring
"additional" experience to bear.
This statement begs several
questions: First, who did they have working on this review if its Major Capital
Projects personnel were simply "additional"? Given the nature of the Muskrat
Falls Project, it is only people with major capital projects experience who
are capable of performing this work.
Second, anyone experienced in major
capital projects has to know that delivering a report on a mega-project eight
months after being engaged and even longer after the time frame studied, may be
of some value in dealing with lessons learned when the project is completed,
but its value is seriously diminished for anyone engaged in managing or
overseeing an ongoing project. One has to question what EY means by Major
Capital Projects. I suspect it is simply a marketing term of art designed to
bring unwarranted comfort to a naive Oversight Committee.
Now let's
tackle the content of that October 2015 EY report.
Below is a
major excerpt from the report summary. Ordinarily, I would attempt to
summarize this but it is so compelling that it deserves to be read in its
original form.
"The following observations
summarize key aspects of management processes and controls not fully
developed and deployed at the time of our review: [Emphasis added]
Key schedule management process and
control risks and issues
1. Certain baseline documents
defining contractor schedules as well as the documents defining the control of
project schedules were not yet complete.
2. Contractors’ schedule updates
were not being systematically rolled up into the Nalcor Integrated Project
Schedule (IPS) that forms the basis of reporting to the Oversight
Committee.
3. A completion date had not been
established for finalizing an integrated baseline of contractor and IPS
schedules to correct the issues noted in #1 and #2 above.
4. The IPS development and
maintenance process is not fully documented.
Key cost management process and
control risks and issues
1. The conditions and processes for
rebaselining cost and schedule are not defined in the Project’s control
processes and procedures. The Oversight Committee’s understanding of such
conditions and processes is an important foundation as it conducts its
oversight activities.
2. Nalcor uses a relatively basic
approach to its updating of forecasted contingency requirements which in our
experience is not consistent with the expected practices for a project of this
scale and complexity. Given this, it is not clear whether the cost contingency
as forecasted in reports for the Project will be adequate.
3. The Project does not define
thresholds for variance management, reporting, and escalation purposes. We
would normally expect these to be in place as they assist in giving clear
indications of the severity of issues and the need to escalate to key stakeholders,
such as the Oversight Committee.
4. Fully quantified risks or trends
have not been documented for certain significant challenges on the project. The
scale of potential challenges is also not quantified in the summary reporting
made available to the Oversight Committee."
The summary
report from EY goes on to state:
"Until such time as the
management process and controls risks and issues identified in this report and
the detailed supplementary report are addressed, the completeness and accuracy
of Project cost and schedule status reporting to the Oversight Committee cannot
be fully verified."
Let's keep
in mind that the Muskrat Falls Project was sanctioned by the NL Govt. on
December 17, 2012 and apparently construction also commenced in late 2012. This is a disturbing approach to project management when you
consider that detailed project engineering work had reportedly only reached 98%
completion at the end of 2014. It is not necessary that detailed engineering be
complete before early construction works begins. However, it sure begs the
question what detailed engineering was done at the time considering that the
project received sanction at the same time as construction began.
At the end
of the “reporting period” under review (December 2014-February 2015), the Muskrat
Falls Project was already into construction for over two years. Yet, as the EY
report states, Nalcor hadn't even put the most fundamental and absolutely
vital, fully functional project controls (schedule/cost monitoring and
reporting, risk management, forensic analysis of schedule/cost, and much more) processes
in place for managing the Project, something that should be implemented for any
project long before it is sanctioned. This is unforgivable and in the ‘normal’
project management world, the failure to do this would get people fired.
If project
controls are not robustly established on the front-end of a project and
for all phases of the project life-cycle, there is no mechanism for properly
gathering relevant data, analyzing it and then using it to constructively
communicate and manage the schedule and cost of a project. In addition, in the
absence of robust project controls processes, the ability to undertake any form
of analysis to understand when a project is failing is absent.
Robust
project controls processes implemented by highly skilled and experienced
personnel are the life blood of project management. Successful performance of a
project depends on it; it doesn’t guarantee success, but without it, failure is
guaranteed. All of the fabulous contracting strategies, plans for safety,
quality, communication, interface management, etc. are of little value without
it. In a mega-project, you are on a train that is out of control, it is off the
tracks (if it was ever on), it is crashing into a ravine, and you won’t even be
aware of it until you hit bottom.
This
was the case for the Muskrat Falls Project.
And
when a mega-project is off the rails, the very best that can be done is to stop
the hemorrhaging; the impacts cannot be reversed. Ask anyone in the
mega-project management business; the evidence is well documented.
Based on
this long stale-dated EY report, is it any wonder that the Muskrat Falls Project is now massively over budget
and the schedule is blown out?
The findings
in the EY report are gobsmackingly staggering, and should have shocked the Oversight
Committee to the core. Indeed, one has to ask: What was the Oversight Committee
doing up to this point? It definitely was not oversight. Apparently, the
Oversight Committee hasn’t been doing anything related to oversight since this
report either. Take a look at the reports from Muskrat Falls Oversight
Committee. These documents read more like a project manager’s progress report
than an oversight report.
An oversight
report should be addressing oversight…’duh’. I went through these reports
looking for a section I would expect to see near the beginning with a title
such as ‘Critical Project Concerns’, followed by another section with a title
such as ‘Mandatory Requirements to Redress Critical Concerns’ (with deadlines)
and then a section with a title such as “Recommendations to the NL Government”.
Unfortunately, there is nothing like these in
any of the Oversight Committee reports. The Oversight Committee apparently only
has “Observations” coupled with a smattering of repetitions fed to them by
Nalcor or taken from the EY reports. This is not oversight; it is simply
another rehashed and badly presented progress report. Even a progress report should
flag critical issues.
 |
| Clerk of the Executive Council Chair - MF Oversight Committee |
To some,
this may seem like nothing more than an upbraiding of the Oversight Committee by
a malcontent. Well, consider the following little nugget from the EY interim
report recommendations issued in April 2016.
“Project
governance and independent oversight should be re-evaluated by the Provincial
Government and strengthened at the Project, Nalcor Board and Provincial
Government levels; and
Project
reporting should be enhanced to support senior management focus on key risks
and issues, to communicate more clearly how key risks are reflected in the
forecast and to enable more effective Provincial Government oversight.”
It is worth noting, that while not
part of its mandate, EY felt the need to make a seriously stinging
indictment of the Oversight Committee. That
takes chutzpah, especially from the very consultant that was hired by them. You know
it must be really bad for EY to do that. Even the consultant couldn’t stand it
any longer. Quite
frankly, I wonder if the Oversight Committee even recognized the overt
effrontery.
The October
2015 EY report should have also shocked Ed Martin, CEO of Nalcor, and Gilbert
Bennett, VP responsible for the project, to the core, and should have gotten both
of them fired. Of course, to be shocked implies that Ed Martin and Gilbert
Bennett actually understand the role of project management. Clearly, that
assumption cannot be made.
Mr. Martin
got himself conveniently fired, and replaced by Stan Marshall, retired CEO of
Fortis, and there has been much hullabaloo about whether Martin should have
been fired for ‘cause’. Not having a properly constituted set of project
controls processes (the most critical of project management processes) in place
and fully functional on the front-end of the Muskrat Falls Project sure has the
look and feel of gross negligence. The evidence is in the October 2015 EY
report for all to see.
The April
2016 EY interim report also makes some very disturbing revelations. Consider
these excerpts:
“The overall conclusion of the Review is that the
September 2015 Forecast [Nalcor’s forecast] is not reasonable.”
“The MFG civil works contract is the highest dollar
value contract. The deliverables on this contract are required to
allow progress on other contracts, e.g. installation and commissioning of
the turbines and generators, installation of spillway and intake gates and the
balance of plant contract….Progress on this contract is significantly behind
the original contract schedule….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]
.
“HVdc
transmission line contract….In the first nine months of the 32-month contract
duration, actual progress has been only 50% of plan….Performance to date
and the ongoing risks described above create potential for a multiple-month
delay to the contract schedule. This potential delay could be greater than the
time contingency included in Nalcor’s Project schedule and so presents a risk
to overall Project milestones.” [Emphasis added]
“HVdc
convertor stations contract….Nalcor and the contractor are currently
forecasting delays to the mechanical completion of the convertor stations, with
the Muskrat Falls delay being approximately two months. Mitigation plans are
being implemented to maintain the forecast and recover this delay; however,
the contractor would be required to more than double its rate of progress to
date to maintain the forecast schedule.” [Emphasis added]
“The
scope of EY’s review did not include a formal review of the Project governance…However…EY has observed that certain elements of governance and
reporting arrangements have not been effective in respect of the Project’s cost
and schedule forecasts. There is a need to strengthen Project governance
and reporting to provide more effective oversight and constructive
challenge to Project performance and execution, key decisions and forecasting.”
[Emphasis added]
There are many more scary comments
from EY in this interim report but it not necessary to prolong the agony. The
Muskrat Falls Project started out a mess and has not recovered. In fact, it has
gotten worse; far worse. Nalcor’s management, the Oversight Committee, and the
NL Govt. have to all share the blame. Unfortunately, it is the people of NL who
have to pick up the multi-billion dollar tab.
There is one other point that must
be considered. The causes for project failures are well documented. They can generally
be summarized under the following headings:
1.
Poor/incompetent
leadership at all levels
2.
Inadequate
business case to support going ahead with the project
3.
Disregard
of project warning signs
4.
Poor
planning, inadequate project procedures and processes
5.
Inadequate
methodologies/personnel to document and track cost, schedule and risks
6.
Failure to
set expectations and manage them
7.
Inappropriate
contracting strategy
8.
Inexperienced
project management personnel
9.
Inadequate/unreliable
cost estimate
10.Inadequate/unreliable schedule
11.Lack of appropriate communication
12.Competing priorities
When you read the two reports from EY
you can only conclude that the Muskrat Falls Project fits into every one of
these headings. With Ed Martin out of the way, the next person in the queue
with the responsibility for establishing the groundwork and delivering the
project is Gilbert Bennett. Clearly, he has also failed on every front. Even
without the damning EY reports, you just have to ask the question: What the
hell is Stan Marshall thinking?
 |
| Gilbert Bennett - Executive V-P Nalcor |
Stan
Marshall is expected to provide his own project update by the end of June. It
is obvious his initial steps to realign senior management were serious missteps.
You don’t have to read between the lines in the EY reports to quickly
understand that the most significant failures on the Muskrat Falls Project lie
at the feet of Nalcor’s leadership. In fact, the EY reports scream it. However,
in this case the missteps involved just a handful of people.
Now Stan
Marshall must deal with a larger (approx. 400 personnel) and also seriously
underperforming project management team.
Nalcor originally engaged SNC Lavalin as the Engineering,
Procurement & Construction Management (“EPCM”) contractor. It is well
documented that engaging an EPCM to manage your project is a recipe for
disaster. EPCMs are most often paid on a cost reimbursable basis. Even if they
are performing under a lump sum contract (which is rare), the business model of
an EPCM is totally inconsistent with the needs of a project owner. An EPCM’s
motivation is to make more work for itself. More work requires more bums in the
seats and therefore, more profit for the EPCM. It has no interest in delivering
a well-managed project. As the saying is well known in the project management
world, ‘chaos equals cash’ for an EPCM.
In
November 2013, Nalcor did get around to changing the management model to an
‘integrated project management team’ using Nalcor staff, SNC Lavalin personnel and
other third-party consultants. At first blush, this looks like a good move.
However, the recent EY interim report states that one of the
“…main drivers [for cost overruns] reported by Nalcor…” is related to “project
management execution”.
So
what went wrong?
The
model of an integrated project management team is sound in principle. However, management
models don’t perform project management or make it successful. Quality
personnel working with quality processes and procedures (something clearly
lacking at Nalcor from the beginning and from the top down) working as an
integrated team are what make the model successful.
In
an integrated project management team it is standard procedure to utilize
personnel from an organization such as SNC Lavalin and third party consultants.
Owner’s often do not have sufficient numbers of the right kinds of personnel to
fully staff a large project. However, it is fundamental to the success of this
model that there are sufficient and highly experienced personnel to fill all
key project management positions from the owner’s organization. With the right
people in the right positions, the right behaviours can be driven in those who
report to them. This is central to the integrated project management model. And
if the owner doesn’t have them, it must hire them. They must be beholden to the
owner.
Based on the
notation from the EY interim report, one can only conclude that Nalcor
overlooked this crucial ingredient. Without this, organizations such as SNC
Lavalin and the third party consultants are still left running the show.
Ultimately, it ends up being no different than having an EPCM managing the
project. Get ready to pay and keep the cash pouring.
 |
| Stan Marshall - CEO Nalcor |
If Stan
Marshall’s response to all of those deep seated problems is as superficial as
the executive changes he announced last week, get ready for the final project
cost to reach a level that will be well beyond every Newfoundlander’s worst
nightmare.
__________________________________________________________________
Editor's Note:
Frank Wright is a seasoned
executive with 25 years’ experience delivering large EPC projects around the
globe. He possesses immense strategic and technical knowledge of energy
construction project development and management. His international experience
includes projects in North Africa, Middle East, South East Asia, South America
and Mexico. Frank says that focused leadership and prudent management are the key
influences on project success. Frank’s curiosity was piqued when he happened
upon the Uncle Gnarley Blog. He decided to take a closer look at the Muskrat
Falls Project and offered to share his views.