Muskrat inquiry hears more testimony that Nalcor ignored expert advice
Risk experts cautioned about a global trend towards productivity slowdown
Words of caution about a global slowdown in labour productivity were essentially ignored by Nalcor Energy, says a risk consultant who repeatedly assessed the project over the years.
That was one of the highlights Monday of testimony by Keith Dodson, co-owner of Texas-based Westney Consulting Group, at the Muskrat Falls inquiry as hearings began for a second week in Happy Valley-Goose Bay.
They assume that what happened to other projects will not happen to them.- Keith Dodson
Westney is an international leader in risk assessment for major projects, and was hired by Nalcor to give advice on the Crown corporation's cost and schedule estimates ahead of final sanctioning of the controversial hydro project in late 2012.
The estimates of a $6.2 billion capital cost and of mid-2017 first power were prepared by SNC-Lavalin, the Quebec-based engineering firm that later fell out of favour with Nalcor as the project ran into trouble.
'Definitely the exception'
Evidence has revealed that both estimates were extremely aggressive, and practically unrealistic, as Nalcor struggled to keep costs as low as possible.
Critics have charged this was part of a strategy by Nalcor to maintain public support for the project, and ensure it remained the least-cost alternative for Newfoundland and Labrador's future electricity needs.
Dodson said Nalcor was advised that labour productivity was "decreasing significantly" around world, a trend that began in 2004 as a result of a greater emphasis on safety and changes in the way contractors were doing business.
But Dodson said SNC-Lavalin's team expressed confidence they could buck that trend, based on what he called "hard data" from other hydro projects the company was involved with in Eastern Canada.
"There was a project in the U.S at that time that was achieving (productivity) rates that were not far different from what they were proposing. But it was definitely the exception," Dodson said of SNC-Lavalin's productivity estimates.
Dodson said there was notable optimism among Nalcor's project team and within SNC-Lavalin.
But, he added, SNC-Lavalin and Astaldi, the Italian company awarded the critical powerhouse contract, "did not recognize the change in world productivity. There were numerous projects estimated in the same time period that has suffered about the same fate as this project. A billion or two dollars more than the estimate."
Estimates artificially low
The inquiry has heard evidence about how the number of labour hours required per cubic metre of concrete poured at Muskrat Falls since construction began in late 2013 is practically double what Nalcor had estimated.
That's part of the reason why construction costs have soared by at least $4 billion, and overall costs are now estimated at nearly $13 billion.
But in a further sign that those early estimates were artificially low, Dodson said the actual productivity rate at Muskrat Falls is in line with worldwide trends.
"They were basically the rates we were proposing that we were seeing trends around the world," Dodson said of performance at Muskrat Falls.
"The rates that were used in the estimate are half the rates of the actual project. But the actual project against the world (is) very good."
Meanwhile, Dodson said Nalcor also ignored advice that it take a more cautious approach to its cost estimates, a move that would have added hundreds of millions to the total.
"Purely optimism. They assume that what happened to other projects will not happen to them," said Dodson.