TONED DOWN, REDACTED WITH DELETIONS: DID NALCOR WRITE THE INDEPENDENT ENGINEER'S REPORT? (PART II)

The following is Nalcor VP Gilbert Bennett sharing, in his words, a “mark-up” of the very first Independent Engineer’s Report on the Muskrat Falls project. Bennett is sending the email to Ed Martin, Paul Harrington, James Meaney, and PR types Karen O’Neill and Dawn Dalley. The email reads:

Hello All:

Attached is a mark-up of the November 29 report. Proposed redactions are highlighted in red. Once we’re all good we can lock these in. Once Jim has circulated the appendixes from the November 29 report, I will update accordingly for the full package.

If you have any changes, please let me know…

Regards,

Gilbert

First, just in case you missed it, what Gilbert Bennett is in possession of and is “marking-up” and seeking “changes” in is not a Nalcor Report. It is, ostensibly, the “independent” work of the so-called “Independent Engineer” for the Muskrat Falls project. The year was 2013. In all, there have been a total of 20 IE reports made public since that time. We can reasonably assume that Nalcor has had a hand in each one.  
Secondly, the email above (see below for digital copy) is dated 04/07/2014 and a second similar email is dated 03/01/2014. Evidently, Nalcor had the draft Independent Engineer's Report in its possession for more than three months. 

But that is not the biggest surprise.

Executive V-P Nalcor Gilbert Bennett

Nalcor refers to the IE's Report dated November 29, 2013 which it is reviewing, redacting and changing. Note in the digital image below where Nalcor gives the date of the final Report as  December 30, 2013. At first, one might be led to think that this is a clerical error. It is not. December 30, 2013 is the date clearly shown on each page of the Report provided by Nalcor under ATIPPA. 

It seems that Nalcor has been caught editing the Report and giving it a new proposed release date. Possibly it was one of the few instructions the IE felt they could ignore?

The official report - the one issued publicly by the Independent Engineer - is dated not December 30, 2013 but November 29, 2013. This is Nalcor's December 30, 2013 version. This the IE's November 29, 2013 published version. Click on the links and see it for yourself.

This is a matter of great concern. Why? It seems that someone seeking to conceal the fact that changes to the IE's report were made and that those changes were of the IE's origin and not of Nalcor. 

We might well ask: how can oversight be independent if the language and content is modified by the very people under scrutiny — their decisions, analysis and conclusions?

Why should the public view the Office of the Independent Engineer as a source of integrity, having failed to disclose Nalcor’s direct involvement in the crafting and redaction of their report?

Why did the Government of Canada allow this relationship to occur and very likely persist?

Isn’t this just one more proof of the complicity of the Federal Government, with Nalcor, in the creation of a debacle that has the province on its economic knees? 

(The correspondence exhibited below and the December 30, 2013 copy of the IE Report were obtained under ATIPPA by the person I have often referred to as "citizen sleuth". I am very grateful for the research he has given me in the interest of better transparency in the administration of public affairs.)

As distasteful as it is, we are used to Nalcor's complicity. Hopefully, the Commission of Inquiry headed by Judge Richard LeBlanc will put bones on this and other issues.

It is not yet clear if the IE will be called to testify, but that Office should be. 

The IE’s report disclaimer states that tit “was prepared for the exclusive use of Nalcor, Her Majesty the Queen in Right of Canada, as represented by the Minister of Natural Resources…” Disconcerting is that the IE doesn't also say that its conclusions went through Nalcor’s washing machine. 

Gilbert Bennett’s free-wheeling language — “once we’re all good we can lock these in” — is certainly proof, if any more were needed, of the Crown Corporation’s determination to keep key information regarding a failed project under wraps.

The Office of Independent Engineer was established under the conditions of the “Term Sheet” for the Federal Loan Guarantee. It is responsible to the Federal Government. But the group that performs that role — MWH Canada Inc. — was selected by Nalcor under a long-term contract, and paid by Nalcor too.

It is the perfect set-up for a potential conflict of interest. For that reason, if the IE was oblivious to that potential conflict, or didn’t care, the very fact that the information  is formally released to the public with the knowledge of the Government of Canada obliges it to give fair warning to all, including the parties for whom the IE’s reports were prepared.  

Let’s not kid ourselves. For Nalcor’s Gilbert Bennett to have had access from the very beginning and the right to engage in the “mark-up” of the report, including a great many redactions, suggests that the Office of the Independent Engineer was likely never intended to be “independent”.

Not just the Nalcor Vice-President but the President and CEO, the VP Finance, the Construction Manager and the heads of Nalcor’s PR department (O’Neill and Dalley) were all invited to subject the document to editing and redaction.

What a cozy arrangement for Nalcor!

Just as former Premier Tom Marshall was content to ascribe “Oversight” to a Provincial Government Committee that provided anything but, the Federal Government was equally content to include “Independent” in the naming of the oversight engineering Office for the project. Except that neither offered oversight or independence.

One has to ask: on what basis does the group that runs Nalcor deserve such deference?

Why would MWH Canada Inc. condone the creation of the perception of “independence” when Nalcor’s involvement prejudiced the integrity of the reporting process?

Likely the public would accept that very select “commercially sensitive” matters should be redacted. But that is not the same as putting Nalcor in charge of editing the document and keeping from the public knowledge of invited interference.

Consistent with the norms associated with concepts of transparency and integrity, of course the public would want to know that that consent was granted, including how often, and the reason for each one. That would have required that MWH Canada give disclosure at the outset of the report. Their failure to do so is not acceptable, even if the public is not on their client roster.  

What about specifics?  

If the reader conducts a page by page comparison between the two versions of the report, they will find that entire sections have been rewritten, new sections added (some of them redacted, too), and others omitted in the published version. 

Were all of then - there were a great many - performed by Nalcor? I don't know. It is not as if Nalcor ever came running to confess their incompetence or complicity except when they are running out of money. That said, what is clear is that some sections of the Report disappeared altogether; the IE's concerns over Nalcor's methodologies and analysis were toned down or changed outright in the final published version.

A few examples:

The last sentence in paragraph 4.2 contained a proposed Nalcor redaction. It read in part: “MWH considers all of the CH0006 (Bulk Excavation) work to have been completed satisfactorily and conforms to industry standards… Nalcor has advised that there is a pending acceleration claim, which may have an effect on the final contract price.”

The paragraph was completely omitted in the published version.

In the case of Table 5-2 Expenditures to Date versus the DG3 Capital Cost Estimate (the title given in the published report) the Nalcor write-up version showed no proposed redactions but the published version is substantially redacted, suggesting either that Nalcor had more than one opportunity to change the document or that more than one version was on Nalcor’s operating table — which is likely, given the number of Nalcor officials with access to the document.

The December 30th  draft of 5.1.3 Defined DG3 Contingency Analysis stated:

“… the IE is of the opinion that the calculated overall 6 percent scope contingency representing an adder of $368M to the project budget is not conservative relative to our legacy experience with similar remote heavy-civil construction endeavors, and is, therefore, judged to be somewhat optimistic. The IE typically sees scope or tactile contingency allowances in the range of 8 percent to 12 percent at comparable DG3 stage gates, A mitigating circumstance for the current LCP budget is the fact that cost certainty has been achieved for the awarded-to-date work (See Section 5.1.4) that provides a rationale to carry a reduced contingency allowance.”

In contrast the published account stated: 

“… the IE is of the opinion that the calculated overall 6.7 percent scope contingency is aggressive relative to our legacy experience…” though “the IE would advocate for adjustment of the project contingency fund", suggesting, after some redaction, that “[t]he IE believes the drivers on contingency will be varied and not entirely predictable as the project unfolds…”

It is not hard to discern the differences in tone and emphasis after the Nalcor editors got their black pencils in gear.

The original 5.1.4 Reconciliation of the DG3 Capital Cost Estimate to Actual read:

“To account for uncertainty in the project’s cost opinion, stakeholders should be aware that a range of probable outcomes is possible. Reconciliation of the project's DG3 capital cost estimate to actual tendered amounts up to mid-November 2013 provides a means for interested parties to trend the current budget and understand variance relative to DG3 metrics.”

Again, in contrast, the published report was far more understated.

It read: “Estimated capital costs included in the DG3 estimate are costs based on 2012 values. These values were escalated in the Nalcor financial models to reflect expected cost bases in the years of construction.” (p. 85)

That is a significant departure from the original copy; any gravitas expressed as to the reality of Nalcor’s cost position has been purged.

Engineers will tell you that “trending” of costs is the basis of forecasts once a project is under way. Presumably Nalcor didn’t like that phraseology because Ed Martin’s public utterances did not reflect the terrible trend portended by the Tender results piling up.

At the time of the IE’s first report, it would have had access to a good many confirmed Tender awards and been able to compare them with Nalcor’s budgeted figures. The Office ought to have sounded the alarm giving truth to the concerns about cost overruns. Instead, they were more preoccupied with giving Ed Martin and Gilbert Bennett, among others, plenty of time to obfuscate the real story unfolding.

Overall, comparing the original and final report of the IE requires one to sustain a level of nausea required for the Manitoba Hydro International (MHI) and Navigant reports. They were the Consultants hired by Nalcor (following the PUB’s refusal to endorse the project based upon DG2 estimates) to assess Nalcor’s DG3 assumptions, estimates and analysis and found, with few exceptions, everything to be “reasonable”.  Ultimately those reports were horribly wrong; yet they fuelled the process, if any were needed, allowing Nalcor and the Dunderdale Government to hurry project sanction.

Elswhere in the IE’s report, Part 5.2 was completely changed. For example 5.2.2 Allowance for Contractor Bonus was added and then completely redacted.

5.2.3 Highlight Sensitive and Critical Areas was also added and partly redacted.

Contingency was, in the version given to Nalcor, a major issue addressed by the IE. But it got substantially toned down in the final draft, too.

The first IE Report contained this nugget under Price Risks in part 5.2.4, which should not go unreported. It states: “The risk assessments they [Nalcor] conducted… appear to be carefully performed and were taken into consideration in their economic analysis.”

Of course, it is now well known that Nalcor hid the SNC-Lavalin Risk Assessment Report detailing a plethora of potentially large-cost Risk issues. The EY Interim Report, too, expressed deep concern that Nalcor had disregarded major strategic and tactical risks. 

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This disclaimer, inserted in the IE Report, should give the reader cause for pause when the current state of the Muskrat Falls project is considered. That it was "based on information supplied by Nalcor…", the IE judging all of that to be "reasonable" gives new meaning to the common usage of the phrase: "garbage in, garbage out".  

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As it stands, the public is none the wiser — the Independent Engineer (and the Government of Canada, too) having failed to perform their most basic obligation: to disclose, to inform at the very least the group identified as the intended recipients — the “rating agencies, lenders, guarantors, and other organizations that may be involved in providing financing for LCP…”

At least the Federal Loan Guarantee secures the bankers. Likely they won't care how many versions of IE reports Nalcor has scripted. The public is not so lucky.

Don't expect the Premier or any of the seven Federal MPs to make inquiries or to give explanations as to the behavior of the IE and Nalcor.

Acquiescent politicians and public servants are a virus on transparency and democracy.

‘Fake’ is not limited to America, either. It threatens institutions and democratic government everywhere self-interest is deemed paramount. Elected and non-elected alike are complicit; an uninformed public mere pawns.

That is why you will likely never hear another word about what you have just read, or of the other nineteen reports that were subjected to Nalcor’s censors. 

Of course, continued silence by the IE may confirm the doubts that we fear most.