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Consultant disapproves of use of report to offer confidence in megaproject
Richard Westney of Westney Consulting was part of the “independent project review” (IPR) team looking at the Muskrat Falls hydroelectric project before its go-ahead. He told the Muskrat Falls Inquiry Friday he’s not happy with how the team’s report has been used.
Westney described the review by the consultants in 2012 as being on an “extremely compressed” schedule of about two weeks and ultimately a “superficial” view of the project details.
The IPR was meant to offer “cold eyes” check of project work — approach to risk, review of the processes used in developing estimates — still months before sanctioning.
The report has been referenced since in support of the construction of the Muskrat Falls dam and associated transmission infrastructure, by Crown corporation Nalcor Energy and the provincial government.
“I would say that I’m troubled as I listen to the testimony at this hearing that that IPR effort in August 2012 is seen as some sort of due diligence in terms of readiness for an actual sanction gate,” Westney said Friday.
He testified by Skype from Toronto, after being unable to reach St. John’s due to high winds.
He offered context for the 2012 IPR report.
He suggested picturing a scale from one to 10, with the scale being for due diligence — work that might be undertaken by an oil company, or petrochemical company, given a planned $6-billion or $7-billion megaproject. Since the Muskrat Falls project involves a Crown corporation, new to projects of this kind, with the public directly affected by costs, he said to stretch the scale up to 15.
“This IPR, I would say, is maybe a one on that scale,” Westney said.
Other team members — IPR lead Derek Owen of RDO Consulting and Newfoundland and Labrador Hydro’s former vice-president of engineering, John Mallam — both testified in mid-October they saw cost and schedule risks for the Muskrat Falls project at the time of their review work. The team did not see a finalized “strategic risk” assessment or schedule risk report for the project.
Their 2012 report included a general call for Nalcor Energy to budget to cover potentially unforeseen strategic risks and budget adequately for cost and schedule.
Westney described their work as “tightly prescribed.”
“This is not something that you can literally take to the bank. This was a snapshot and I assumed at the time that this was just one step in what would be a fully fleshed out, due-diligence process – what we actually call in project terminology ‘project assurance.’ You’re assuring the quality of the deliverables to support the decision at the gate,” he said.
There were actually two collections of work where the name “Westney” has come up in connection to the Muskrat Falls project. The first is the IPR, with Westney personally involved. The second was risk assessment work by Westney Consulting, led by Keith Dodson and Jack Evans. Dodson is a partner with Westney Consulting, and Evans is a senior executive responsible for risk analysis.
The Grant Thornton report suggested the two sets of contracts could be considered a conflict of interest, whether real or perceived.
Asked about it, Richard Westney acknowledged the idea in concept, but said there was separation between himself, with the brief reviews he participated in, and the company’s team and its specific tasks. He said he wasn’t supervising day-to-day work by the Westney team.
The Westney Consulting team worked with the project team, he said, encouraging a broad look at risks, to try to avoid overconfidence and tunnel vision. He said Dodson did report to him that he raised concerns with Nalcor Energy, and had recommended more be put into the project’s cost and schedule estimates.
Westney said his understanding is the project went ahead with a schedule at a “P1” probability, or near-guarantee of not making the first-power date.
As repeatedly referenced during the inquiry to date, there was also a $497-million estimate ($500 million) for “strategic risk” not included in the public cost estimate, with the dollar figure supplied by Westney Consulting.
Westney noted the figure doesn’t include any escalation to the time of sanctioning. He did not agree early contracting and other mitigation measures could have negated the need to have funds to cover strategic risk.
Next week, the inquiry is expected to hear from Nalcor Energy’s project director, Paul Harrington, who is scheduled over four days, as well as Nalcor Energy Oil and Gas lead Jim Keating.