CEO issues caution on Muskrat Falls contracting

Ashley Fitzpatrick
Published on September 21, 2013

Aecon chairman and CEO John Beck says the big contracts for Muskrat Falls and other construction megaprojects in Canada should not be awarded to companies unable to cite project experience in Canada, or at least point to a Canadian joint venture partner.

“There have been, regrettably so, a number of instances where foreign companies gain unfair competitive advantage through tax applications, predatory pricing and so on,” he said at the Mining Industry NL’s Resource Investors Forum in St. John’s this week.

His statements echoed those made earlier this month by former minister of Natural Resources Shawn Skinner, an employee at Aecon.

“We’re not against foreign contractors. We welcome them, as I said, we partner with them. But we don’t see the wisdom in prequalifying them without Canadian partners,” Beck said, in an interview the day after his forum presentation.

Aecon has bid on Muskrat Falls construction work.

The short list for a contract to build the intake, powerhouse, spillway and transition dams at Muskrat Falls includes four bidders. One is a three-way partnership that includes Aecon Construction Group, Flatiron Construction and Barnard Construction. Of the other three bidders, one is a partnership known as IKC-ONE Civil Constructors, then there is Astaldi S.p.A. out of Italy and, finally, a three-way joint venture of Salini S.p.A., FCC Construction S.A. and Impregilo S.p.A.

Despite Aecon’s bid on Muskrat Falls work against foreign contractors, Beck said his concerns are not about any one contract or any one project.

“When (foreign contractors) come in, because they can’t properly evaluate their risks, they’re much cheaper than the other guys — like 25, 30 per cent — these are not the kinds of margins we have in our projects, but that’s how much cheaper they are,” Beck said.

The lower bids, as a result of improperly weighting and accounting for Canadian standards and localized operational risks, are difficult for project leaders to reject, he argued, especially when public money is involved.

“Then all of a sudden the reality sets in, they can’t afford to do the project, what do they do? They have no forces of their own. It’s all subcontractors. They start squeezing the subcontractors, in some cases bankrupting them, in some cases just huge suffering and consequences,” he said.

He pointed to the failures and overruns of about a half-dozen projects nationally since 2004, wherein work was being led by a foreign company on its own.

Nalcor Energy vice president and Lower Churchill project lead Gilbert Bennett has said contract bids for Muskrat Falls run through several stages of review, including a detailed investigation of contractors. He said contracts will be awarded on the basis of “best value” for the province.

“I have no criticism of Nalcor. First of all, I don’t know if they will award or not to the Italians — there’s no announcement yet. And I’m sure they have the right processes and I respect that. I’m not criticizing that,” Beck said.

Yet, he said, he questions if each would-be contractor’s experience in the local climate, labour market and geographic area is being considered as bids are weighed.

While in St. John’s, Beck met with union representatives, Newfoundland and Labrador Construction Association and St. John’s Board of Trade to talk contracting.

The Board of Trade is still looking at the issue.

The chair of the Newfoundland and Labrador Construction Association, Kevin McEvoy, was not in the meeting with Beck, but was briefed after the fact.

He said he cannot dismiss the possibility of unfair underbidding, calling it “a legitimate concern.”

He also said it should be remembered that it is not unheard of for Canadian companies to end up with overruns.

As for Muskrat Falls safety and product quality, he pointed to the experience held by many foreign companies bidding on project work and the oversight of Nalcor Energy and its engineering, procurement and construction management lead hand SNC-Lavalin.

“There’s a contract and a specification there that tells (contractors) how it’s to be built and they have got to be held to that — just like a Canadian company would be, or a Newfoundland company,” he said.

Speaking on behalf of the Council of Canadians in Newfoundland and Labrador, Ken Kavanagh was less impressed by the statements of Skinner and Beck, calling their expressed concerns about foreign contractors “self-serving.”

“It’s not that I support this Italian company getting this contract from Nalcor, it’s just a sign of how hypocritical these people are,” he said, suggesting the company representatives were trying to “have their cake and eat it too,” by issuing warnings against open bidding on contracts only when that bidding is not falling their way.