Ed Martin blames 'contractor issues' for cost, schedule overruns at Muskrat Falls

Former Nalcor CEO Ed Martin says the findings of a forensic audit into the construction phase of Muskrat Falls proves that contractor performance, primarily Astaldi Canada, is largely to blame for the massive cost and schedule overruns.

"You're seeing the detail on Astaldi unfold here," Martin said Tuesday during an interview with reporters in Happy Valley-Goose Bay, where Phase II of the public inquiry that is investigating the project is underway.

As he was during Phase I last fall, Martin is once again a consistent presence at the public hearings, and is not shying away from reporters' questions as information is revealed during testimony.

But until now, he has been coy about assigning blame, saying it would be revealed at the inquiry.

While Martin said decision-making at Nalcor was not perfect, "contractor issues" are largely what drove the construction budget from $6.2 billion to $10.1 billion and delayed first power from the Labrador generating station by at least two years.

"I can't assign that Nalcor and we were the catalysts behind this. I just can't do that," Martin said.

Grant Thornton has released a forensic audit that details what went wrong during the construction phase, beginning after Muskrat was sanctioned in late 2012.

There have been a number of eye-opening revelations, including a finding that early bids for various work packages came in $600 million more than the base estimate, before Nalcor and the provincial government were locked into the project when financial close took place in late 2013.

And there's conflicting evidence about a risk analysis carried out by engineering giant SNC-Lavalin that calculated the risk exposure from Muskrat Falls at anywhere from $600 million to $1.7 billion above what Nalcor's own assessment had found.

Again, this analysis was done in 2013, before the signing of a federal loan guarantee that required the project be completed, regardless of the extent of cost overruns.

But there's evidence that Nalcor either dismissed SNC-Lavalin's report, or refused to accept it because it was done without Nalcor's consent.

Martin has repeatedly said, "I didn't know about (SNC-Lavalin's) report" until he saw it years later, and "in my mind, what was in that report, was covered off in Nalcor's risk report."

A torrent of information

The torrent of information contained in the 150-page audit paints a picture of a publicly funded major project that was in trouble right from the start, with critics now saying those early indicators should have been a "showstopper."

When challenged about those early cost overruns, and why the project team didn't either increase the budget or pause the project, Martin said there were other factors that offset those cost increases.

For example, he said it was discovered that the loan guarantee would provide an additional $300 million in savings, and there was the potential for millions more in export power sales.

So even with the increases, he said, Muskrat remained the least-cost option for the province's future electricity needs.

"It was an easy and the right decision to proceed," he said.

And by the time the loan guarantee was signed, Martin said Nalcor's board and the provincial and federal governments were informed the estimate had grown to $6.5 billion, and that there was additional cost pressures on the project.

When asked if the province was fully informed about cost escalations, Martin replied: "No question."

In her testimony late last year, former premier Kathy Dunderdale recalled being told costs would increase by about $500 million.

Astaldi work 30 per cent of overruns

Meanwhile, Nalcor has generally received praise from the auditors for the contracts it signed with various companies, but that didn't prevent costs from skyrocketing, since Nalcor assumed much of the risk if the work went bad.

And that's exactly what happened with the critical powerhouse contract, which was awarded to Astaldi for $1.1 billion, the lowest of four bids.

Costs have more than doubled, and represents more than 30 per cent of the cost overruns on the project, according to Grant Thornton.

And costs to build the 1,100-kilometre Labrador-Island Link from Muskrat Falls to Soldiers Pond have escalated by nearly $800 million, or 20 per cent of the overruns.

Astaldi's challenges loom large in the audit, with the company encountering significant challenges with mobilization in 2014, and never full achieving its productivity goals.

Martin said this created a cascade effect that hobbled the entire project.

"Astaldi obviously became an issue," he said.

But Martin defended the decision to stick with Astaldi, saying the company was hired "in the best interest of the project," and that expelling Astaldi in 2014 or 2015 "would make matters worse."

Astaldi was eventually terminated in late 2018, with the generation side of the project nearing completion.

Martin takes swipe at SNC-Lavalin

Martin also took a swipe at SNC-Lavalin, the Quebec company that is embroiled in an international bribery controversy that is reverberating all the way to the highest levels of the federal government.

SNC-Lavalin played a major role in the Muskrat project, and was originally awarded the important engineering, procurement, construction and management (EPCM) contract.

However, the company later fell out of favour with Nalcor, and was stripped of most of its responsibilities as Nalcor transitioned to another model called integrated management teams.

When asked if the original base estimate of $6.2 billion was artificially low, which has be asserted by many critics of the project, Martin was quick to point out that SNC-Lavalin developed roughly 75 per cent of the estimates.

Those estimates proved to be significantly lower than what construction companies were willing to bid, which resulted in immediate cost increases for the project.

Martin said any estimates prepared by Nalcor "turned out to be relatively robust."

It was the harshest criticism yet delivered by Martin toward the companies building Muskrat, and is likely a sign of things to come as Martin prepares to once again testify at the inquiry in the coming weeks.

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