Muskrat oversight greeted with 'loveless embrace' by Nalcor team, inquiry learns

As the Muskrat Falls cost and schedule plan was falling apart in 2014 and 2015, Nalcor was aggressively resisting attempts by the provincial government to increase oversight, the public inquiry investigating the controversial hydroelectric project heard Monday.

And when government agreed to hire the professional services firm EY to assist the oversight process, tension really started to flare, said Craig Martin, a senior bureaucrat who served as executive director for the oversight committee during that early, rocky period in the project.

"From a Nalcor perspective, every time we turned around we would be getting pushback on something," Martin told the inquiry.

"And Nalcor never ever welcomed EY with open arms, I can say unequivocally."

"So it was a loveless embrace, was it?" asked inquiry co-counsel Barry Learmonth.

"Yes," said Martin.

EY was hired to review the project team's costs and schedules, but an undertaking that was expected to take weeks turned into months, and cost the provincial treasury far more than was anticipated.

The inquiry has heard that at one point during a kickoff meeting for the review, Muskrat Falls project director Paul Harrington stood up and walked out of a meeting before any serious dialogue could begin.

The meeting was planned well in advance and included EY officials who had travelled from other locations in Canada, and government expense.

"The relationship between EY and Nalcor was very difficult to manage," added Martin. "This behaviour was unacceptable at the end of the day."

Harrington will testify Wednesday and Thursday at the inquiry.

Nalcor tight-fisted

It's the latest evidence supporting a narrative that Nalcor was tight-fisted with information for a public project supported by the provincial government.

Officials at the inquiry said Nalcor repeatedly told a government oversight committee that the project was facing pressures, but that mitigation measures were being taken.

At the same time, Crown corporation executives were withholding final forecast costs that were hundreds of millions of dollars higher than the capital cost estimate of $6.2 billion.

Last week, former Nalcor CEO Ed Matin told reporters the forecasted figured fluctuated. 

"A forecast final cost is something — it's up, it's down, you're waiting for contracts to come in, you're waiting for bids to be evaluated … [it's] moving all the time," he said. 

Craig Martin was executive director of the government's Muskrat Falls oversight committee for a year beginning in the spring of 2014.

Martin ended his term May 11, 2015, after he was appointed an assistant deputy minister in the Department of Finance. But he continued to serve as a member of the oversight committee.

The committee started receiving reports from Nalcor in the fall of 2014, but it's now clear the information was not complete.

Martin said the relationship with Nalcor was "fairly decent" in the early going. But when EY was hired by the provincial government to assist the oversight committee, things changed.

Martin and it was a challenge to get "detailed answers" from the project team.

When asked if he believed the committee was receiving complete and full information from Nalcor, Martin said there was "no expectation at this stage any information was not being put forward."

An upbeat tone to a disastrous situation

At this point in 2014, Nalcor was advising the committee it was confident  that suppliers would be able to meet their contracts on time, and that "overall, Muskrat Falls remains on schedule and construction progress is where we anticipated it to be at this point."

Nalcor wasn't reporting how badly things were going with Astaldi, the company hired to construct the powerhouse at Muskrat Falls.

The company stumbled badly in 2014, and never fully recovered to meet the aggressive schedule targets imposed by Nalcor.

"These are Nalcor's words coming forward at this point in time," said Craig Martin, referring to the upbeat tone in the company's reports to the oversight committee.

When asked if he had full trust in Nalcor, Martin replied, "At this point."

Learmonth challenged Martin on why the oversight committee did not do a complete review of Nalcor's original $6.2-billion capital cost estimate for Muskrat.

But Martin said it was felt the baseline estimate was fully vetted by groups such as Manitoba Hydro and the independent engineering firm hired to verify the project's viability for the federal government's loan guarantee. 

But it's now been revealed that the estimate was never fully reviewed, which is something Martin acknowledged with regret.

"We would have approached oversight from different perspective," Craig Martin said.

Forensic audit findings disappointing

As part of the inquiry, accounting firm Grant Thornton was hired to conduct a forensic audit of the project. It found that Nalcor's cost estimate was in big trouble before the financing arrangements, including a federal loan guarantee, were finalized in late 2013. 

This was never disclosed to government, or its oversight committee, and Martin said he was disappointed and frustrated to learn this through the inquiry.

And while Nalcor was claiming the project was on schedule, there was serious slippage on nearly every front.

It wasn't until early 2015 that Martin and the oversight committee begin seeing red flags. Months when Nalcor was forecasting progress of more than two per cent on the project, actual progress was practically zero, he said.

"But we're still being told at this point that there's time to make this up," Martin testified.

Sensitive about disclosure

The inquiry has heard Nalcor was concerned about disclosing information that might contain sensitive commercial information. But Martin said that should not have been a concern when it came to sharing information with the provincial government, which is Nalcor's lone shareholder.

"From an internal reporting perspective from the oversight committee, there shouldn't be any screening of that. It should be flowing through," said Martin.

What's more, Martin said the constant reassurances from Nalcor were "not consistent" with the damaging findings of the forensic audit, which showed the project management team was forecasting much higher capital cost estimates than what was being disclosed to the oversight committee, and by extension, the provincial government.

With the benefit of hindsight, Craig Martin said it's now his belief that Nalcor's cost and schedule estimates were "extremely low" for such a massive project.

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