Contractors told to ignore risks, lower cost estimates at Darlington nuclear plant, auditors say

Click to play video: 'Key project at Darlington nuclear facility faces massive cost overruns'
Key project at Darlington nuclear facility faces massive cost overruns
WATCH: A Global News investigation has uncovered a single component of the Darlington nuclear project could cost half a billion dollars, four-times initial estimates. Auditors say project "plagued" by problems. Carolyn Jarvis reports – Oct 11, 2017

A Global News investigation has uncovered documents that allege Ontario Power Generation – a provincially-owned company – told contractors to ignore potential risks and enter artificially low cost estimates for work at the massive $12.8 billion Darlington nuclear refurbishment project.

The documents include a May 2014 report prepared by auditors Burns & McDonnell-Modus that claims initial cost estimates for some of the earliest projects at the refurbishment – such as the Heavy Water Storage and Drum Handling Facility – were “poorly characterized” as part of a “deliberate management strategy,”  challenging contractors’ to keep bids low.

According to the report, contractors were told to remove potential risks from their bids despite OPG knowing some of these risks would likely occur. This was particularly true for the heavy water storage facility, auditors say.

WATCH: Consumer policy group says audit reports ‘mind-blowing’

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Consumer policy group says Darlington audit reports ‘mind-blowing’

According to the May 2014 report, OPG told contractor Black & McDonald to remove any costs for unforseen soil conditions from its bid for the facility. This was despite OPG believing there was a “high likelihood” contaminated soil would be found at the site, the report says. (Contaminated soil was eventually found and is one of the reasons OPG gives for the project’s current cost overruns.)

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Heavy Water Storage Facility

At the heart of these problems is the Heavy Water Storage and Drum Handling Facility – essentially, a series of large metal tanks and piping meant to hold and filter radioactive water.

Originally approved at $110 million, a Global News investigation has learned the project could cost Ontarians half a billion dollars when finally complete.

And while OPG agrees current cost estimates for the project are significantly higher than originally budgeted – with no guarantee current cost estimates will remain intact – they insist all amounts including those for risks were included in the final estimate released to the public.

“When OPG prepared the overall $12.8 billion [estimate] for Darlington Refurbishment in November 2015, all 500 projects, including the [heavy water storage facility] were assessed for project risks in order to determine the overall budgeted contingency amount,” said Neal Kelly, a spokesperson for OPG.

READ MORE: Key project at Darlington nuclear facility hundreds of millions over budget, delayed

According to the May 2014 report, OPG first estimated the cost of this facility at $210 million in 2011. A year later, auditors say the budget had suddenly – and without explanation – dropped to $108 million.

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When auditors investigated, they could not find any evidence explaining how or why this drop in price occurred.

“[Auditors] could not find any attempt by [Projects & Modifications] to rationalize or otherwise explain how the cost estimate for this building was cut virtually in half,” said the May 2014 report.

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The report continues, saying Projects & Modifications (P&M) – the division of OPG responsible for managing the Campus Plan Projects – mischaracterized cost estimates as part of an intentional effort challenging contractors to reduce bid prices.

“There is no evidence that P&M engaged in the type of vetting of the estimates that we would expect on projects of these size and importance,” said the May 2014 report. “From interviews with the current P&M staff and the contractors, it appears that these initial [cost] estimates were poorly characterized as part of a deliberate management strategy directed by the former VP of P&M.”
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WATCH: OPG insists Darlington refurbishment within budget, despite cost overruns at storage facility

Click to play video: 'OPG insists Darlington refurbishment within budget, despite cost overruns at storage facility'
OPG insists Darlington refurbishment within budget, despite cost overruns at storage facility

Meanwhile, the report says Black & McDonald won the contract for heavy water storage despite other bids being viewed more favourably. Auditors said this decision was based on cost alone.

“P&M gave only token consideration to determining which contractor had a better approach for executing the work,” said the May 2014 report. “[They] chose the ‘low bidder’ even though the other contractor’s qualifications and project approach were viewed more favorably.”

READ MORE: Ontario Power Generation applies for $5.25 a month rate increase to bills after five years

And while the May 2014 report – as well as subsequent reports –   say OPG took “aggressive action to correct as many of the major issues as possible” – this includes adopting better oversight and management strategies – the report said some of the initial miscalculations were so severe they could not be fixed.

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“Damage to a certain extent cannot be fully mitigated,” the 2014 report said. “The affected [projects] will cost more, finish later and pose a much greater threat to refurbishment than management initially realized.”

Problems persist

Despite auditors saying the outlook for many of the projects had generally improved by the end of 2015, reports continued to note ongoing problems with campus plan budgets and schedules.

A November 2015 report by Burns & McDonnell-Modus also discussed performance issues with SNC-Aecon’s work on heavy water storage. (SNC-Aecon replaced Black & McDonald after its contract for heavy water was terminated October 2014.)

The report says SNC-Aecon was approximately two to three weeks behind schedule with heavy water, but was still on-track to meet the interim completion date of June 28, 2016. (Evidently, this did not happen.)

WATCH: Canadian Taxpayers Federation says public should be wary of Darlington nuclear project

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Canadian Taxpayers Federation says public should be weary of Darlington nuclear project

Despite these delays, the CEO of Ontario Power Generation, Jeff Lyash, says SNC-Lavalin has responded positively to performance concerns and that he has every confidence the project will be completed.

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Meanwhile, Kelly says claims about schedule delays in the Burns & McDonnel-Modus reports refer to the OPG’s aggressive “working schedule.” And that they do not impact promises made to the public.

“The $12.8 billion budget is based on a high confidence schedule.  Our public commitment hasn’t changed and the project is tracking on-time and on-budget,” Kelly said. “In addition, OPG has a more aggressive working schedule that we challenge ourselves and our contractors to achieve.”

Then, in 2016, An internal audit by OPG noted more delays with campus plan projects.

“Work completion was averaging less than 50 per cent of the work scheduled compared to a target of 90 per cent,” the June 2016 report said.

READ MORE: Bruce nuclear plans $13-billion refurbishment of six reactors in Kindcardine

Auditors said these problems were a level-two risk, which is characterized by chronic performance issues and “evidence of lack of management oversight of key program areas”

While testifying before the Ontario Energy Board in March 2017, Dietmar Reiner, OPG vice president of nuclear projects, confirmed some of these problems.

Meanwhile, a March 2017 report by Burns & McDonnell-Modus said prolonged problems on campus plan projects had begun to impact the refurbishment as a whole.

“These projects continue to drain resources from refurbishment,” the report said. “There are [also] trends observed in the vendors’ management of those projects and other past [] projects that must be eradicated.”
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The report also discussed delays with work on the overall refurbishment. In one section, the report says that as of February, project status was at 19 per cent compared to a completion target of 23.4 per cent. The report also says that “near or non-critical path work has fallen behind by 123,876 hours.”

Again, Kelly says these delays are relevant only to the company’s internal working schedule and not that released to the public.

Asked why problems with the heavy water storage facility weren’t anticipated earlier, and whether these issues were a failure in management, Lyash was unequivocal.

“I don’t agree with that at all,“ he said. “For each of the risks we identify, we build up contingency in terms of additional funding and additional schedule… There was risk that was identified with [heavy water storage], that risk was realized.”
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