SNC-Lavalin has received approximately $120 million in direct award Site C dam contracts, obscuring the embattled engineering firm’s role in building the largest publicly funded infrastructure project in B.C.’s history.

For one contract, SNC-Lavalin provided BC Hydro with a “shadow estimate” — number-crunching to confirm BC Hydro’s figure — for its forecasted $8.335 billion price tag for the dam, The Narwhal found after reviewing Site C documents.

The estimate proved to be wildly wrong, missing the mark by $2 billion.

But that hasn’t stopped SNC-Lavalin — which has been banned from World Bank infrastructure contracts for 10 years following allegations of bribery schemes in Bangladesh — from reaping years of no-bid work on the Site C dam for engineering design services.

Direct award contracts allow BC Hydro and other public bodies to decide which companies or consultants get contracts, instead of going through a more transparent and competitive tender process.

On Wednesday, a Quebec judge ruled that SNC-Lavalin must stand trial on charges of fraud and corruption for allegedly paying $47.7 million in bribes to public officials in Libya between 2001 and 2011. The RCMP has also charged SNC-Lavalin, its construction division and a subsidiary with one charge each of fraud and corruption for allegedly swindling almost $130 million from various Libyan organizations.

There is enough evidence against SNC-Lavalin for the engineering corporation to be tried on fraud and bribery charges, a Quebec Court judge has ruled. https://t.co/eCI1z7M0HY @jonmontpetit

— CBC News (@CBCNews) May 29, 2019

Criminal proceedings against SNC-Lavalin began last fall after the company failed to obtain a deferred prosecution agreement that would have allowed it to pay a fine rather than proceed to a trial. Allegations of political inference to avoid a trial for SNC-Lavalin sparked a national furore and led to the resignation of federal Justice Minister Jody Wilson-Raybould, who declined to grant the company a deferred prosecution agreement.

SNC-Lavalin also grossly underestimated cost of Muskrat Falls dam

SNC-Lavalin also played a major role in the cost estimate for the hugely over-budget Muskrat Falls dam on the lower Churchill River in Labrador, now the subject of a two-year inquiry to determine why the project proceeded.

SNC-Lavalin supplied about 70 per cent of the information for Muskrat Falls’ base cost estimate of $6.2 billion, according to testimony at the inquiry.

The dam’s price tag subsequently swelled to $12.7 billion, leaving Newfoundlanders facing untenable hydro rate hikes unless the federal government steps in to bail out the cash-strapped province.

Muskrat Falls inquiry co-counsels have suggested to Paul Lemay, SNC-Lavalin’s lead estimator for the dam, that the project might not have been approved by Newfoundland politicians if SNC-Lavalin’s cost estimate had been too high.  

Normand Béchard, Muskrat Falls project manager for SNC-Lavalin, enters through security at the Muskrat Falls public inquiry in St. John’s, N.L., on March 27. Photo: Paul Daly / The Narwhal

A thumbs down from the province would have left SNC-Lavalin without “hundreds of millions of dollars” for Muskrat Falls engineering, procurement and construction management work it subsequently carried out for Nalcor, the province’s energy corporation, inquiry associate counsel Michael Collins recently suggested at the inquiry in St. John’s, Newfoundland.

“You don’t know what Nalcor’s budget was, but if you know that if your estimate was higher than the budget, the project wouldn’t go ahead,” Collins said.

“Well, it’s the same thing with any project, sir,” Lemay responded. “If you are going to produce an estimate that is beyond, you know, the budget that you had for it, the project will not take place. It’s normal.”

“So you did know that if your estimate was too high the project wouldn’t go ahead?” Collins asked.

“Well, of course,” Lemay responded, saying that Collins was “speculating.”

SNC-Lavalin’s Canadian track record: low-balling cost estimates

Dermod Travis, executive director of Integrity BC, a non-partisan organization working to ensure government integrity and accountability, said the Muskrat Falls and Site C dams are far from the first time that SNC-Lavalin has low-balled cost estimates for projects in Canada.

“SNC-Lavalin is not exactly renowned for cost estimates [that mirror … ] the final cost,” Travis said in an interview, noting that hospital projects, which are usually subject to more scrutiny, are often the exception.

“The Muskrat testimony speaks to that — in as far as if you don’t give the client what they want to hear, guess what? The client ain’t coming back to you again.”

BC Hydro says the John Hart Generating Station replacement on Vancouver Island — which SNC-Lavalin is designing, building, financing and maintaining — is on time and on budget, but Travis said the scope of the work has altered so much since SNC-Lavalin was awarded the contract in 2014 that it’s impossible to compare figures.

SNC-Lavalin’s direct award contracts for design services on the Site C dam include jointly designing the earthfill dam, river diversion works, major civil components of the generating station and “permanent excavations,” according to an email from BC Hydro spokesperson Mora Scott. 

BC Hydro said SNC-Lavalin also received “several” sole source contracts in the 1990s and 2000s for work on the Site C dam. Those contracts are not listed on BC Hydro’s website, which lists Site C’s competitive contract awards.

In total, SNC-Lavalin has received about $120 million in direct award Site C contracts, BC Hydro confirmed.

“Details of all commercial arrangements, including SNC contracts with the Site C project, remain confidential in order to manage contracts in the best interests of BC Hydro and its ratepayers,” BC Hydro said in an emailed response to questions from The Narwhal.

The federal government prohibits direct award contracts worth more than $25,000 unless there is a special justification such as a national emergency or national security interests, but there are no such rules in B.C.

SNC-Lavalin involved in Site C dam since 1988

SNC-Lavalin’s involvement in the Site C dam can be traced back to 1988, when the engineering firm Klohn Crippen Berger Ltd. and a predecessor company to SNC-Lavalin signed a contract with BC Hydro, following what Scott described as a “public competitive procurement process.”

“As part of the contract, both firms would familiarize themselves with the design, project parameters and other information relating to Site C,” Scott said in an emailed response to questions from The Narwhal.

The two companies provided Site C dam engineering design and consultancy services intermittently to BC Hydro from 1988 to 2010, according to Scott.

She said the direct award contracts to SNC-Lavalin and Klohn Crippen began after former Premier Gordon Campbell announced in 2010 that the Site C dam would proceed and BC Hydro determined that more engineering work was required.

“Due to the size and complexity of the project, along with Klohn Crippen Berger and SNC’s depth of knowledge and expertise of the project, it was determined that only these engineering firms had the expertise, experience and capacity to provide the engineering design services that were required for Site C,” Scott wrote.

“And they still believe in Santa Claus, don’t they?” commented Travis.

Travis pointed out that SNC-Lavalin lists its chief competitors in annual reports, and BC Hydro would only have had to look at those reports to gather names of other engineering firms capable of working on the Site C dam.

“You can’t claim that SNC Lavalin is the only company in Canada that can do that kind of work. It would be a complete fallacy. You can’t use that as an excuse for direct awards,” Travis said.

“It comes back to the idea of breaking out of these old boy’s networks, which is what has been going on with infrastructure projects in B.C. for far too long … It’s too cosy.”

The Boon family farm at Cache Creek in the Peace River valley, which will be flooded for the Site C dam. Photo: Garth Lenz

Ties to BC Liberal Party are well-documented

SNC-Lavalin’s ties to the BC Liberal Party, which held power until 2017, are well documented.

The firm donated almost $28,000 to the party between 2005 and 2010, according to the B.C. government’s donations database. It did not donate to the BC NDP or BC Green Party.

Gwyn Morgan, the former chair of SNC-Lavalin’s board, was former BC Premier Christy Clark’s top transition team advisor. Morgan donated close to $286,000 to the BC Liberal Party between 2009 and 2018, according to the database.

Klohn Crippen, for its part, donated almost $30,000 to the BC Liberal Party between 2005 and 2014, the database shows.

Scott said BC Hydro is committed to following rigorous standards for all of its procurement activities, and that contracts are awarded “following a comprehensive evaluation and due diligence process.”

“It is only under rare circumstances like this that we direct award contracts,” she said.

The Narwhal previously reported that BC Hydro awarded almost $90 million in Site C contracts during a recent 18-month period without asking for bids.

Two contracts worth close to $11 million went to a B.C. numbered company whose officers and directors were top executives of Petrowest, the Alberta company that went bankrupt and was fired from Site C’s main civil works consortium.

The largest of the contracts, for $10.1 million, was awarded to the numbered company in late July 2017 — just two weeks before Petrowest was dismissed from the consortium for insolvency, according to documents obtained through a Freedom of Information request.

Three numbered companies in total received contracts, according to the Freedom of Information response, while four companies that donated to the BC Liberal party also received direct award contracts totalling $11.5 million.

Ken Boon in the kitchen of his and his wife Arlene’s home. The Boons’ house and much of their third-generation farm was expropriated two years ago by the B.C. government but they have refused to leave. Photo: Garth Lenz / The Narwhal

BC Hydro says cost benefits result from direct award SNC-Lavalin contracts

Scott said the Site C direct award contracts to SNC-Lavalin build on the decades of project knowledge and experience held by the company and have resulted in additional project benefits “related to schedule, cost and quality.”

The Site C dam was announced by Campbell as a $6.6 billion project and approved by Clark in December 2014 as a $8.8 billion project (including a $440 million reserve).

In December 2017, Premier John Horgan greenlighted the Site C dam with a new price tag of $10.7 billion. A fast-tracked review by the watchdog BC Utilities Commission found the dam’s final cost could exceed $12.5 billion.

Scott said the decision to grant direct award contracts to SNC-Lavalin underwent “multiple levels of internal reviews and approvals,” as well as an external legal review to ensure the sole source award was consistent with interprovincial trade agreements.

The New West Partnership Trade Agreement among Canada’s western provinces mandates that any services or construction contract greater than $100,000 should be issued through open tender unless a public agency can prove an urgent or specialized need.

Site C dam construction on the Peace River in October 2018. Photo: BC Hydro

Public confidence in BC Hydro ‘eroded’

BC Green Party leader Andrew Weaver told The Narwhal that BC Hydro needs to be far more transparent about contracts and other issues. He pointed to unanswered questions about B.C.’s energy demand and supply and controversy surrounding the B.C. government’s recent report about independent power producers as examples of the need for more transparency.

Many of BC Hydro’s numbers have been challenged by external agencies, Weaver noted.

“Our concern is to what extent BC Hydro has really pushed the case for Site C beyond what I think is defensible in light of the prices of new supply that would come on from renewables.”

The lack of transparency has eroded public trust in BC Hydro, Weaver said.

“I think BC Hydro’s got a big job there to actually rebuild public trust. And I think the best way to rebuild public trust is to start by being fully transparent with contracts, with competitive pricing options, with respect to base load supply … .”

Lack of information about SNC-Lavalin’s work on Site C dam

Site C dam services provided by SNC-Lavalin prior to 2010 include a November 2005 “site reconnaissance” mission to scout out three potential sites for the Peace River dam.

According to one report, SNC-Lavalin engineer Alfred Hanna flew from Vancouver to Fort St. John with two BC Hydro engineers and John Nunn from Klohn Crippen. (Nunn went on to become both Site C’s chief project engineer and a member of the secretive Site C dam “project assurance board” set up by Horgan to oversee construction of the project.)

The quartet rented a helicopter and snapped aerial photographs of the Peace Valley’s notoriously unstable slopes, including the site of a 1989 Halfway River landslide that sent 3.6 million cubic metres of debris into the Peace River.

The report they produced from that two-day trip indicates that BC Hydro’s proposal to build the Site C dam was already well in motion at the time — the men checked on instrumentation and took photos of Peace River islands where test fill was to be placed, also documenting an exploration tunnel entrance.

Two years earlier, the two companies also produced a report for BC Hydro on the potential for a series of cascading dam structures instead of one large dam. The smaller series of dams would have spared the West Moberly River area — identified by Treaty 8 First Nations as containing some of the most important cultural and spiritual values in the valley — and caused far less flooding of farmland and habitat for bird, butterfly and mammal species that are vulnerable to extinction.

SNC-Lavalin and Klohn Crippen concluded the cascading dam structures would cost $3.6 billion, compared to a projected $2 billion cost for the Site C dam at the time.

West Moberly First Nation Chief Roland Willson has been a vocal opponent of the Site C dam. Photo: Jayce Hawkins / The Narwhal

SNC-Lavalin helped move Site C dam forward

Between 2005 and 2012, SNC-Lavalin and Klohn Crippen teamed up to produce at least five more reports that helped BC Hydro move the Site C dam forward. The reports included a 2012 reservoir filling plan and a 2009 report on relocating a provincial highway out of the flood zone.

According to BC Hydro financial documents, the public utility paid SNC-Lavalin more than $453 million between 2010 and 2018 for work on the Site C dam and other projects.

In the fiscal year ending March 31, 2018, the last year for which information is available, BC Hydro paid SNC-Lavalin more than $45 million for its services.

SNC-Lavalin’s website does not mention either the Site C or Muskrat Falls dam projects. The media relations contact form on the company’s website was broken when The Narwhal tried to use it, and an email to SNC-Lavalin’s office in Vancouver, forwarded to the company’s national media relations department, went unanswered.

Travis said a watchdog representative from civil society needs to be involved in publicly funded projects “all the way along,” from conception to ribbon-cutting, to make sure the public is getting the best deal.

“That person’s job has to be nothing but saying, ‘excuse me, I’m the one who’s going to be paying for this at the end of the day.’ ”

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

This is part three of a three-part, reader-funded series on the Muskrat Falls dam inquiry.

The Muskrat Falls dam in Labrador and the Site C dam in B.C. are on opposite sides of the country yet share some startling similarities. Both projects are being built with public money and both are billions of dollars over-budget.

In Newfoundland and Labrador, a two-year inquiry is underway to find out why the province’s energy corporation, Nalcor, continued full-steam ahead with the Muskrat Falls dam on the lower Churchill River despite early warning signs that the project was uneconomical.

The Muskrat Falls price tag — originally set at $6.2 billion — has now jumped to $12.7 billion. Newfoundlanders are bracing themselves for at least 50 per cent hydro rate increases when full power from the dam comes on-line next year.

In B.C., the contentious Site C dam on B.C.’s Peace River is tentatively scheduled for completion in 2024.

The Site C dam’s $10.7 billion tab — up from $6.6 billion when the project was announced in 2010 — will come due only when the power comes on-line.

With so much at stake in B.C., The Narwhal is keeping tabs on the Muskrat Falls dam inquiry, which is hearing testimony from everyone from politicians and senior bureaucrats to SNC-Lavalin executives and Nalcor officials.

Here are nine things B.C. can learn from Newfoundland’s Muskrat Falls mistakes.

1) Don’t assume your Crown corporation will act in the public interest

The inquiry has revealed that Newfoundland politicians failed to rein in Nalcor, the publicly owned energy corporation that pushed the project forward despite internal knowledge of rising costs and increased project risks.

One government lawyer interviewed by inquiry co-counsels called Nalcor a “fiefdom” and a “runaway train.” In testimony at the inquiry, he said Nalcor “jealousy guarded access to its information.”

A number of Newfoundland politicians have testified that they trusted the information they received from top officials at Nalcor, leading inquiry co-counsel Barry Learmonth to call the politicians “naïve” and “blindly accepting” of Nalcor’s work.

“Government was simply accepting whatever Nalcor told you, with very little review. And I suggest to you that was a very risky decision to make.”

2) Don’t write a blank cheque from the provincial treasury

Newfoundland consumer advocate Dennis Browne told the inquiry last month that Nalcor received a “blank cheque” from the provincial treasury to build the boondoggle dam and its transmission lines.

Soaring costs for the Site C dam indicate that BC Hydro also has a blank cheque for the project.

Site C’s price tag had already risen to $7.9 billion by the time the project was examined by a federal-provincial panel.

Following that review, the price tag climbed by almost another billion dollars — to $8.8 billion — when former Premier Christy Clark granted final approval to the project in December 2014.

The independent B.C. Utilities Commission conducted a fast-tracked review in the fall of 2017 based on that price tag.

But only weeks after the commission delivered its final report, BC Hydro revealed that the dam’s cost had skyrocketed by almost another $2 billion, to $10.7 billion.

Despite having access to outdated budget information, the independent review concluded that the Site C dam’s final tab could exceed $12.5 billion.

“Who would build a house without asking the contractor, ‘What are the upper limits of the cost of this?’ ” Browne told media following his testimony. “No one out there who is reasonable would conduct themselves in such a fashion. But our government did.”

A tower crane is assembled on the south bank of the Peace River amid ongoing construction of the Site C dam in November 2018. Photo: BC Hydro

3) Restore independent oversight

Newfoundland’s Conservative government stripped the province’s public utilities board from deciding if the Muskrat Falls dam was in the public interest. The board was eventually asked to review the project, but it was given such limited terms of reference and outdated information from Nalcor that it said it was unable to reach any conclusions.

In B.C., much the same scenario unfolded. Determined to build the Site C dam, B.C.’s former Liberal government changed the law to remove the independent B.C. Utilities Commission (BCUC) from examining the project to determine if it was in the public interest.

The commission finally reviewed the Site C dam in the fall of 2017 but with limited terms of reference from a new NDP government and no power to recommend whether or not the project should go ahead. The commission was also given Site C dam budget information for its review that, just weeks later, was replaced by new numbers adding up to billions of dollars more for the final cost.

Normally the commission would have the power to scrutinize BC Hydro’s quarterly reports about Site C and to ask questions or for supporting documentation.

So far the NDP government has chosen not to reinstate the commission’s watchdog role in monitoring the Site C dam. BC Hydro files quarterly Site C reports to the commission, but it has no power to ask questions about the reports or to request supporting documentation.

Instead, the NDP government has set up a secretive Site C “project assurance board” whose members include six BC Hydro directors and a consultant who was commissioned by B.C.’s construction trade unions to write a report favourable to the project.

The findings of the “project assurance board” are not available to B.C. ratepayers who are paying for the Site C dam.

The Muskrat Falls inquiry led to an announcement from the Newfoundland government that it is restoring the “appropriate” role of the independent utilities board in providing project oversight.

The Muskrat Falls dam under construction in February 2019. Photo: Nalcor

4) Be prepared to toss your plan when your dam becomes uneconomical

Just as Nalcor planned for decades to construct the Muskrat Falls dam, BC Hydro planned for decades to construct the Site C dam.

Clark touted the Site C dam as a legacy project in keeping with a vision championed by populist premier W.A.C. Bennett, who constructed his namesake dam on the Peace River in the 1960s.

In Newfoundland, former Premier Danny Williams aimed to follow in the footsteps of legendary Premier Joey Smallwood, who constructed the behemoth Churchill Falls dam on its namesake river in the 1960s. (The dam became operational in 1971.)

But just because large hydro projects made economic sense in the 1960s and 1970s doesn’t mean they are viable now. The global energy market has shifted dramatically in the past decade and Canada’s publicly owned energy corporations haven’t kept up with the trends, according to energy experts.

Muskrat Falls energy will be sold to the U.S. for a pittance of what it costs to produce the power.

Site C’s hugely expensive power — destined for the U.S. spot market and B.C.’s already heavily subsidized LNG industry — will also never be sold for close to what it will cost to produce.

At $10.7 billion, the Site C dam is uneconomical, according to a 2019 report from the C.D. Howe Institute, which says it is in the best interests of BC ratepayers to cancel construction immediately. (In an email to The Narwhal, the B.C. energy ministry dismissed the report as “fundamentally flawed.”)

Power from uneconomical dams can’t be sold for what it costs to produce, leaving unsuspecting ratepayers to make up the difference.

The Muskrat Falls dam inquiry has highlighted opportunities when politicians could have stopped construction of the dam as costs rose and risks heightened.

5) Stop before taxpayers are on the hook for a big bailout

The cash-strapped government of Newfoundland and Labrador can’t afford to bail out Nalcor.

So it has to turn to the federal government for a Muskrat Falls bailout. That means federal taxpayers will help pay for the troubled project.

Like Nalcor, BC Hydro is deeply in debt. The B.C. government — which is in a far better financial position than the Newfoundland government — recently bailed out BC Hydro for $1.1 billion.

But the public utility is still $4.4 billion in the red even before the unsightly tab for the Site C dam comes due.

More taxpayer bailouts for BC Hydro are almost certain.

In December 2017, when explaining his decision to greenlight the Site C dam, Horgan warned that a BC Hydro bail out could lead to cuts to services and compromise the government’s ability to build schools and hospitals.

6) If you squander public money, beware

Newfoundland politicians, senior bureaucrats and Nalcor officials are all in the hot seat at the Muskrat Falls inquiry, which seeks to determine who was responsible for moving the boondoggle project forward.

The inquiry’s final report, due by the end of the year, is expected to point fingers. That could lead to charges against politicians and senior civil servants, as well as disciplinary hearings for members of professional organizations such as engineers and accountants.

James Meaney of Nalcor Energy prepares to take the stand at the Muskrat Falls Public Inquiry in St. John’s, N.L., on March 26, 2019. Photo: Paul Daly / The Narwhal

7) Secrecy doesn’t pay in the long-run

Like the Site C dam, the Muskrat Falls project was shrouded in secrecy until a public outcry forced an inquiry.

People like David Vardy, the retired chair of Newfoundland’s public utilities board, tried to get detailed information about the Muskrat Falls dam for years through access to information requests, often coming up empty-handed or with critical pages redacted. All the while, the Newfoundland government assured the public that everything was fine.

Now the previously secret reports are part of the inquiry testimony, available to the public. They paint a disturbing picture of a Crown corporation so determined to push forward with dam building that it withheld pertinent information from decision-makers, according to evidence presented at the inquiry.

The veil of secrecy surrounding the Site C dam was briefly lifted by the fast-tracked B.C. Utilities Commission review. But since then detailed information about the project’s cost, schedule and geotechnical problems have been kept secret.

8) Request a copy of any SNC-Lavalin risk assessment report

The embattled global engineering firm SNC-Lavalin was involved in cost estimates for both the Site C and Muskrat Falls dams.

In the fall of 2012, as questions about SNC-Lavalin’s global business practices made headlines, a new CEO came on board to steer the corporate ship away from the shoals.

Bob Card, an American engineering veteran who had served as the U.S. energy ministry undersecretary, replaced SNC-Lavalin CEO Pierre Duhaime, who had been arrested on fraud charges.

Card was tasked with putting a plan in place to show the World Bank, which had assigned a full-time monitor to SNC Lavalin, that “SNC was putting everything in place to avoid [being] caught in any future issue,” according to inquiry testimony from Normand Béchard, the Muskrat Falls project manager for SNC-Lavalin. That included reviewing and amending policies, and ensuring compliance, Béchard said.

Card brought best management practices with him, according to Béchard. And one of those best practices was to assess risks on large projects in which SNC was involved, in order “to better control the exposure of the company.” From then on, every big project would need to have a SNC-Lavalin corporate risk assessment, Béchard told the inquiry.

Béchard was tasked with the Muskrat Falls corporate risk assessment, a job he said took up to a month and a half to complete.

His risk assessment pegged the financial risk for the Muskrat Falls dam at $2.4 billion higher than Nalcor’s budget for the project.

Whether or not Nalcor ever saw the SNC-Lavalin report is a matter of dispute.

Jean-Daniel Tremblay, director of risk assessment services at SNC-Lavalin, recently testified at the inquiry that it was his understanding that Nalcor had seen the report but that the report needed “to not exist” because it could have been made public through an access to information request. (Former Nalcor CEO Ed Martin has said he never saw the report.)

Béchard’s testimony suggests that somewhere — as costs soar for the Site C dam — there may be a SNC-Lavalin internal risk assessment report that could provide valuable information about risks and related additional costs.

BC Hydro told The Narwhal it is not aware of any SNC-Lavalin internal risk assessment report for the Site C dam. SNC-Lavalin did not respond to a request for a brief interview.

9) Eventually a public outcry will ensue

The public outcry about the Muskrat Falls dam began when Newfoundland ratepayers realized their hydro rates were poised to soar to pay for the project.

B.C. ratepayers are already facing new hydro rate increases of at least eight per cent over the next five years even before they start paying for the Site C dam in 2024.

With almost no scrutiny from most of B.C.’s media, the Site C dam continues to fly beneath the public radar — for now.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.