ANONYMOUS ENGINEER SAYS ED MARTIN'S STATEMENT MAKES NO SENSE

EDITOR'S NOTE: The following is a Guest Post written by the whistleblower, who I have dubbed the "Anonymous Engineer". He originally disclosed – on this Blog - falsification of the estimates for the Muskrat Falls project on January 30, 2017 . At that time, his comments were recorded in a post entitled Muskrat Cost Estimates "A Complete Falsification". A second post called Muskrat: Allegations of Phony Cost Estimates provided significant additional details of both low-balled estimates at sanction and even after sanction. — Des Sullivan

Guest Post by the "Anonymous Engineer"
I read Ed Martin’s “Statement” of June 26^th, 2017 with a sense of regret and dismay. Regret – because it represents  an accelerated demise from an exalted position; dismay – as most of the “Statement” made no sense.

Former Nalcor CEO Ed Martin

If Mr. Martin’s intent in releasing the “Statement” was to exonerate himself, it actually achieved the contrary. For those who know the Muskrat Falls project well, the omissions were blatant.

Martin answered questions no one had raised. They had nothing to do with the ones raised by SNC Lavalin or by me. The complexity of the Nalcor CEO’s job, or the efficacy of the seismic drilling program are not matters at issue. They are not the questions people want answered.

The fundamental question is what role Martin played in the falsification saga of Muskrat Falls.

Illumination is required regarding his role in the award of the disastrous contract to Astaldi, in the issues raised in the Interim Report of EY, with its twenty page list of Project Management infractions, in the understatement of costs during project implementation, to name just a few. Did he really not see the SNC Lavalin Risk Assessment Report?

All of this would get sorted out in a Forensic Audit which the Premier ought to call without delay.

The following is a compilation of statements made, or events where Ed Martin participated, to which some immediate response is necessary. I have put them in chronological order starting December, 2012 running through to April 2016, when he was replaced by current CEO, Stan Marshall.

They bring into focus the sequence of events that got us to where we are today.

December, 2012- The start of it all

In December 2012, the Muskrat Falls received sanction with great fanfare, promising a new era of unprecedented prosperity that was said would last for generations to come, making Newfoundland and Labrador one of the richest regions in the world.

The approved budget for the project was $7.4 billion with financing costs included. Without financing the capital cost was $6.2 billion. Media reports, at the time, suggested that due to the exceptional management skill of Nalcor, it may even be possible to bring the project in below budget and ahead of schedule.

Behind the scenes though, staff close to the project knew the project was doomed even before it began. The funding was fictitious and critically short. The “Implied Forecast” (implied as it was not explicitly stated in the SNC Lavalin Risk Report) was about $10 to $11 billion calculated as follows: $6.2 billion base +$2.4 billion in known risks + 20% financing at $1.8 billion = $ 10.4 billion.

Thus, when Nalcor announced the project in December 2012, there is a very high probability that the Nalcor executives knew the project cost would be in that range.

It is ironic that both Minister Coady and CEO Stan Marshall independently arrived at a cost in that range as they have stated in numerous interviews.

Their comments confirm that the culture of falsification was well entrenched within Nalcor even before the project began.

Now to some of Ed Martin’s statements which are in need of rebuttal. My comments are highlighted in red. 

June 2014  Forecast– Cost $6.99B

"We're well within a comfortable envelope of where we expected to be," Martin told reporters at the time. In the Project Management world these words are completely meaningless.

Martin indicated then that 90 per cent of Nalcor's Muskrat Falls contracts were essentially complete, with either fixed-price or unit-rate contracts. -  In reality, Mr. Martin had no idea of the nature of the contracts - particularly the Astaldi Contract. At different times he would give different definitions for the Astaldi contract: Lump Sum, Firm Price, Unit Price, paid for quantities installed. Never acknowledged was that the Astaldi Contract was based on labour hours expended, not work done. In terms of the owner’s ability to control costs, this is actually the worst type of contract imaginable. A Forensic Audit should also investigate how the Astaldi Contract was awarded.

"I believe that we have narrowed down the risk of additional cost increases very, very, very significantly," Martin noted in June 2014. This statement is false. Nalcor had no idea of what the risks were, as confirmed by the now available SNC Lavalin Risk report dated April 2013, which was conveniently ignored. A Forensic Audit must investigate who saw what and when – relative to the SNC Lavalin Risk Report.

Sept 2015, Forecast Cost– $7.65B

There will be some cost risk with executing this project as we move forward. Our job is to continue to manage it and keep it where it should be," Martin said. Martin never knew what the risks were as he categorically denied ever seeing the SNC Lavalin Risk Report. You cannot manage something that you don’t know.

Martin said three factors were to blame for the increase in cost, with market pressures making up two-thirds of the overrun.

"It's a tough, tight marketplace right now" said Martin. "What we're seeing in these bids when they come in, they're higher, much higher than we have budgeted for," he added. The bids were not high. They were compatible with the scope of work. The problem was that the Nalcor budgets were way, way too low as the Project Sanction estimate was low-balled. Consequently, the budgets were grossly inadequate. This needs to be investigated through the Forensic Audit.

"What we're doing is experiencing cost increases we really can't control in that area”, said Martin. This not correct. Costs were not increasing. They were appropriate for the scope and location. As stated earlier, the estimates and budgets were too low due to the falsification process.

A CBC TV reporter quoted Ed Martin saying that it was impossible to low-ball the estimate due to the presence of so many “experts”.  The low-balling of an estimate is an Executive Decision and can be made by the CEO regardless of the experts. In any case, history has conclusively proven that the estimate was far too low. The best proof, however, will come from a Forensic Audit.

Present Situation in June 2017

The forecast of $7.65B presented by Nalcor in September 2015 was soundly rejected by EY Consultants in their Interim Report, dated April 2016. EY came up with a figure of $11 billion which was later increased to $11.7B and finally $12.7B in June 2017. It is my expectation, given the scope of the work yet to be completed, that a final price tag of about $15 billion is possible. That grim fact should greatly worry the public of the province.

It is worth noting that there are actually twenty pages of Project Management infractions reported by EY Consultants in their Interim Report that occurred during implementation period from January 2013 to April 2016. All occurred under Ed Martin’s watch.

In order for the public to learn the truth, and to have such major cost issues removed from the “he said-she said” world of political rhetoric, a Forensic Audit is essentially all about the public’s right to know.

The need for a Forensic Audit

The enormity of the irregularities which influenced the project approval process and those which emerged during the subsequent management of this project are now widely accepted as fact by the highest level of Government, including Premier Ball, Minister Coady and Stan Marshall. 

The elected officials - Premier Ball and Minister Coady - are still delaying the Forensic Audit with weak, even nonsensical excuses. In particular, the argument that a Forensic Audit would slow down construction simply can’t be sustained. Indeed, as noted in a prior post Forensic audits are an integral part of project management. Rather than slow down the work, such a process is frequently used to identify inefficiencies, boost quality control initiatives and give real independence to oversight practices.

I am a professional engineer who has spent many years in my field, including on megaprojects like Muskrat Falls. I can’t speak to the politics that causes resistance to independent review and analysis. I will leave that to others. My profession deals with standards, calculations, and knowledge in many forms. Engineering is about allowing integrity, in its many manifestations, to be a constructive force.

My last word on this subject is simply this: don’t let anyone – whether Ed Martin, Stan Marshall or the Premier - tell you integrity is out of date.