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Letter: The path not taken

Published on February 28, 2017

Many questions remain unanswered arising from the byzantine flurry of events surrounding the departure of the Nalcor CEO Edmund Martin as recounted in the auditor general’s recent report, bringing to mind a quote from Sir Walter Scott: “Oh! What a tangled web we weave, when first we practice to deceive!”

Pam Frampton’s column (“Comedy of errors,” Feb. 22) on the auditor general’s report on the “appropriateness” of the severance package given to the former Nalcor CEO rightly focuses on the failure to conduct due diligence to minimize the financial cost of termination, a failure to which both the government and the former board contributed. Was there another option which would have better protected the interest of shareholders, namely the people of the province, but one which was rejected or ignored?

When Ed Martin announced on April 20, 2016 that he was stepping down, he described the move as his own decision, rather than that of the board of Nalcor or of government. If so, why did the board not accept his resignation as a voluntary departure and not as termination by the board? Such action by the board would have saved $1.4 million.

Surprisingly, the premier, in recent comments on the AG report, also said that the CEO resigned on his own volition. If government takes the position that Martin resigned, contrary to the auditor general’s conclusion that Martin had been “constructively dismissed,” then they should demand repayment of the severance. The CEO was not entitled to the additional $1.4 million if he retired voluntarily and the severance payment should be recovered by Nalcor.

If government had lost confidence in the Nalcor CEO, as might be inferred from the remarks in the budget speech, then government could have terminated him “for cause” and stated the causes, including those in the budget speech. This could also have avoided severance benefits. Such action might have led to litigation, but compelling evidence is readily at hand to support it. The “just cause” for termination might include, among other things, the unrealistic and contrived original cost estimates ($6.2 billion in 2010, escalating to $11.7 billion by 2016) and the two-year delay, combined with overstated load growth and glaring breaches in quality control standards. It might also include the management lapses leading up to Dark NL, as documented for the Public Utilities Board by the Liberty Group.

 

The auditor general’s report alludes to the April 2016 interim report of Ernst and Young which contained a number of criticisms of the management of the Muskrat Falls project, including inadequate contingency reserves and weaknesses in governance and oversight. It points out major flaws in the payment mechanism under the original Astaldi contract for the powerhouse and related structures, a contract which has escalated from $1.1 billion to $1.83 billion, without any explanation. These are all performance weaknesses for which the CEO is ultimately responsible and go to the heart of his abrupt departure!

To quote from the EY report: the payment mechanism is based on person-hours expended rather than cubic metres of concrete poured. This mechanism did not capture the potential for poor contract management of labour and the consequent decoupling of labour paid for from work completed. In other words, the contract was in reality a “cost plus” contract and not the “lump sum” contract described by the former CEO during the 2015 AGM of Nalcor when responding to the undersigned.

In this context, was the payment of salary and bonus for the two-year notice period, amounting to $1.4 million, a reward for non-performance by Nalcor’s CEO, not unlike the cost-plus contract with Astaldi?

A decision to terminate for “cause” requires strong evidence of failure to perform. It would not have been difficult to make a compelling case for dismissal for “just cause,” but it was a path not taken. Termination for cause was an option and one whose rejection remains one of the many unanswered questions surrounding Muskrat Falls, questions which can only be answered through a full judicial inquiry.