Unhappy with the company’s early performance, Nalcor Energy changed SNC-Lavalin’s work on the Muskrat Falls project in 2011-12.
An amended agreement to a February 2011 contract, covering the changes, was only signed in September 2017.
The new agreement transfers more risk and liability to Nalcor Energy, particularly related to procurement and construction management. The agreement specifically states indemnity for Nalcor Energy based on any error or omission of SNC-Lavalin is restricted to the period prior to April 1, 2012 in respect to all contracted services, but only to engineering work thereafter.
April 2012 is when an engineering, procurement and construction management (EPCM) contractor approach — originally decided on for the Muskrat Falls hydroelectric project — had morphed into an “integrated project management team” approach, with Nalcor Energy’s individual contractors injected to work side-by-side with SNC-Lavalin’s team.
A summary document from Nalcor Energy’s team, produced in June 2018, spells out problems Nalcor reps say they were having ahead of the megaproject’s sanctioning.
“There are two pages here that talk about ‘serious SNC-Lavalin Inc. performance issues in 2011-2012,’” said inquiry co-counsel Kate O’Brien, referencing the document during proceedings Tuesday.
O’Brien went on to read the list of claims, including “significant senior personnel gaps” compared to what had been promised, a “growing ideology gap” between the companies and day-to-day process issues. The document notes turnover in SNC-Lavalin personnel and lists seven “key personnel” who failed to “mobilize to the project.”
SNC-Lavalin’s estimate for person hours required jumped up in the project estimate.
Nalcor Energy vice-president responsible for the Muskrat Falls project at the time, Gilbert Bennett — now executive vice-president responsible for power development — said he knew about his senior project team making changes in the work with SNC-Lavalin.
Bennett said he didn’t see a need to personally sign off on changes as they were happening.
“I understood that there were some challenges and I also understood that they were being managed by the team in a reasonable manner,” he said in response to questions from O’Brien.
He said the changes were to improve performance.
“If (the Nalcor project team) were to let SNC-Lavalin go, terminate the contract, replace them with a new contractor, then that would have been a new commitment that definitely would have had to have been explicitly approved in advance — given that it’s more than $100 million — by Mr. Marshall,” he said, referencing to current Nalcor Energy president and CEO Stan Marshall instead of former Nalcor Energy president and CEO Ed Martin, who departed the Crown corporation in 2016.
The lead estimator for SNC-Lavalin on the Muskrat Falls project, Paul Lemay, appeared by Skype before the inquiry briefly in early November. There was a request made for at least part of Lemay’s testimony to happen in private, not on the public record, leading to testimony being cut short. After a subsequent ruling on the request from Nalcor Energy by Commissioner Richard LeBlanc, Lemay is expected to be recalled and testify further before the end of the year.
Lemay had already told the inquiry about turnover he was aware of within the SNC-Lavalin team, including the loss of two individuals he reported to, due to illness.
He referenced the change in the arrangement between the two companies, particularly after a project estimate was submitted in December 2011, with more detailed engineering.
“I’ve been quite aware, later, that our (engineering, procurement and construction management) mandate was terminated in April 2012, but nobody came to me, said, ‘Paul – the morning of April that this decision was made – now we have a different contract,’” he testified.
But he reported to different people.
Former deputy project manager Jason Kean, a Nalcor Energy contractor, spoke favourably of the capabilities of the SNC-Lavalin team members he was working with at the time, including Lemay, while he was on the stand. Kean left the project in January 2017.
He testified the SNC-Lavalin team was responsible for about 70 per cent of the base cost estimate. The rest of the estimate included some revisions by Nalcor Energy and the addition of aspects such as the Strait of Belle Isle cable crossing, where estimates were handled by Nalcor Energy and other consultants.
Bennett is scheduled to continue on the stand through Thursday and will be subject to cross-examination. On Friday, the inquiry is scheduled for an in camera (not public) day, addressing the issue of water management.
The Muskrat Falls Inquiry