Dermod Travis: Site C cost overruns and delays—what's new?

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      Lost in the threats and counter-threats, charges and counter-charges over the Trans Mountain pipeline is news that B.C. Hydro will be cutting a cheque to Flatiron-Graham, principal contractors on the Interior-Lower Mainland transmission line, for approximately $100 million following a semisuccessful arbitration, depending upon your perspective.

       

      First announced in 2009, the then-$602-million line was to be completed by 2014. Naturally, it came in “on budget and on time” in 2015, at a cost of $743 million, or—in the words of B.C. Hydro's then-president and CEO Jessica McDonald—“about $18 million higher than Hydro's original budget of $725 million”.

       

      It was another B.C. megaproject riddled with errors from the get-go: failure to consult with First Nations, substandard steel imported from India, and frustrations that led the utility to complete one section of the line itself.

       

      In 2015, reacting to the growing litany of problems plaguing the line, former energy minister Bill Bennett cut to the chase: "Hydro has characterized [the problem] as a failure to perform."

       

      The utility was a little more nuanced a few months later, stating: "The contractor faced scheduling pressures during construction and, based on feedback from the contractor, BC Hydro pushed the in-service date to late 2015.”

       

      The current cost for the line now stands at $828 million, almost 40 percent over the 2009 estimate.

       

      Flatiron has also run into “scheduling pressures” in Montreal, along with SNC-Lavalin, Grupo ACS, Hochtief, Dragados Canada, and EBC Inc., all members of the consortium building that city's new Champlain Bridge.

       

      Pressures that an additional $235 million from the federal government somehow managed to fix.

       

      Hydro isn't the type to hold grudges, though. Flatiron is getting another kick at the can on Site C.

       

      In March, the utility announced that it had awarded AFDE Partnership (AFDE) a $1.6-billion contract for “the generating station and spillways civil works component” of the project.”

       

      AFDE is made up of Aecon, Flatiron, Dragados, and EBC Inc.

       

      In awarding the contract, Hydro noted that the AFDE contract “falls within the project’s revised budget of $10.7 billion”. They failed to mention that their initial estimate for that work was $1.35 billion—a figure arrived at in 2014, as the result of an “exemplary” process, in the words of KPMG.

       

      Construction highlights of the contract include “installation of 34,000 tonnes of rebar”.

       

      Rebar can be tricky, as the Windsor Essex Mobility Group (WEMG) consortium learned in 2013 when it had to replace “500 pre-stressed concrete bridge girders due to the use of tack welding” on the Detroit River International Crossing project.

       

      Of the 500 girders, 160 were already “installed with a concrete deck poured on them”.

       

      There were scheduling pressures too, as the Windsor Star reported in March 2015.

       

      WEMG had bid $200 million less than the Ontario government's original estimate for the project and likely won the contract as a result of that bid and its promise to meet the targeted opening at the end of 2014. It didn't. The penalty of $100,000 a day ran into the the “millions of dollars”.

       

      WEMG is a partnership between Fluor Canada Ltd., Acciona Concessions, and ACS.

       

      Despite working alongside them on the Windsor project, Acciona is actually a competitor of ACS and here's where things can get a little tricky.

       

      Multiple companies bid on projects, but they're often subsidiaries of just a few parent companies. A scorecard is almost needed to keep track of the players.

       

      Who owns AFDE partner Dragados? WEMG's ACS.

       

      Who owns Flatiron? Germany-based Hochtief. Who is the controlling shareholder in Hochtief? ACS.

       

      Acciona has a Site C contract, too, which hasn't worked out so well.

       

      In 2015, Hydro awarded the main civil works contract to Peace River Hydro Partners (PRHP), which was then made up of Acciona, Petrowest Corp., and Samsung C&T Ltd. It was the lowest bid, at $1.75 billion.

       

      By this time last year, PRHP had been paid $1.865 billion, not including $327 million in costs that are still in dispute.

       

      In its report for the B.C. Utilities Commission, Deloitte LLP found that “PRHP has demonstrated several performance issues, including: two months of delay in mobilization to the dam site, delay(s) in obtaining permits and document submittals.”

       

      The accounting firm felt that PRHP's “ability to meet the critical milestones poses a major risk to the Project”.

       

      It noted that PRHP “may have significantly underbid the project, by $285 million to $345 million”.

       

      Fellow PRHP member Samsung C&T “was widely believed to have underbid” for work on an Australian iron-ore project, Roy Hill Mine, in 2013. In 2016, the company reported a $1-billion loss on the project.

       

      Petrowest filed for bankruptcy in August 2017.

       

      After Deloitte submitted its report, news broke that the Site C project had missed a key deadline and the river diversion would be delayed by one year.

       

      Hydro claims the latitude it gave itself for Site C's in-service date could still be met, but it would mean an extra $610 million in costs, a sum not included in the Deloitte report.

       

      Scheduling pressures come with an additional price tag: every month of delay will result in an additional “$21 million in interest costs”.

       

      $100 million there, $21 million here—pretty soon you're talking serious coin.

       

      The government won't get much flack from one group of power brokers, though.

       

      Of the $1.25 million that unions donated to the B.C. NDP between July 1 and December 31, 2018, $860,000 of it came from vocal supporters of the government's decision to proceed with Site C.

       

      We'll see how their members react in a few years to their monthly utility bills, because the chances that Site C will come in at $10.7 billion are about the same as pigs flying.

       

      Dermod Travis is the executive director of IntegrityBC.

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