When Discussing SNC-Lavalin, Proper Public Procurement is too Critical to Overlook.
There has been much ink spilled (millenials and younger: keystrokes typed) on the recent SNC-Lavalin issue with the Prime Minister’s Office (PMO) and the former Minister of the Attorney General, Jody Wilson-Raybould. So much so, that it is hard for inquiring minds to keep up with everything that is happening. It reminds me of the early 2000s when the Sponsorship Scandal dominated headlines month after month, that it made your head spin trying to keep up with all the nuances.
Disclaimer: I am not adding my take on this current matter: rather, I am going to help paint the picture of what companies like SNC-Lavalin find themselves in when undertaking large-scale public projects: first with procurement.
SNC-Lavalin: A Company with a Massive Portfolio.
There are very few companies in the world that can do what SNC-Lavalin can. Five companies, to be exact. Formed in 1991, the company has become one of the largest engineering and infrastructure companies in the world, operating in approximately 100 countries with over 50,000 employees. The company’s lines of business include engineering, procurement, construction, project management and financing. Projects include everything from Agri-food and biotechnology, to ports, bridges, highways, airports and mining.
Didn’t I say this company was massive?
In 2017, the company had over $9B in revenues, mainly from oil and gas, with the remainder coming from infrastructure, power and mining. Most of the company’s activities are in the Americas with 23 per cent happening in Middle East and Africa.
The. Projects. Are. Numerous.
There are too many iconic projects that SNC-Lavalin has been part of to name. The company boasts many subsidiaries that operate throughout the world. Everything from the Sochi Olympics tunnel boring, to the massive James Bay hydro-electric project, this company has perceivably done it all. Being such a large engineering company, the firm was awarded many prestigious contracts in Canada, which include: the 407 toll highway in Toronto, Montreal subway extensions, light-rail systems in Calgary and Vancouver, and fixing the roof of the iconic Montreal Olympic Stadium.
In 2002 (as far back as the Annual Reports can go), SNC-Lavalin had a composition of vastly different projects from different segments. The general breakdown included:
- 31 per cent from Power
- Reservoirs in Quebec, power generation in Sichuan, China, hydro power plants in India.
- 19 per cent from Chemicals and Petroleum
- Gas plants in Oman, heavy oil facilities in Venezuela.
- 17 per cent from Infrastructure
- Water diversion in Algeria, Jacques Cartier Bridge, Vancouver SkyTrain
- 16 per cent facilities and operations
2002 was a great year for the company. A quote from their Annual Report even indicated this much:
“How to present 2002? A year when our consolidated net income went up to $202.5M, and where revenues reached $3.4B — increases of about 667% and 48% respectively, over our 2001 results.”
Since then, projects have not slowed down and neither has the company. Fast forward to 2018, and this is how the company looks like today:
- 36 per cent from oil and gas
- 23 per cent infrastructure
- 14 per cent power
- 3 per cent capital
It is interesting to see this shift towards oil and gas from previous years, however what is central to this company functioning the way it does is strong public procurement methods.
Procuring the Services of SNC-Lavalin is too Important to Get Wrong.
There are countless politicians that boast about standing up for the taxpayer. Ensuring proper spending of public money seems to be an aspect of politics and political speeches that never goes away. It’s ‘easy’ to say, but even harder to do. And with large-scale public infrastructure projects, to do so requires having the right people leading and managing projects.
With projects as large as those noted above, one can naturally understand that necessary project procurement and oversight by the recipient countries are heightened based on size, scale and scope of these types of projects.
There is an important distinction to be made between public governance and project governance. Public governance are the formal and informal arrangements, determining how public decisions are made and how public actions are carried out, which maintains a country’s constitutional values in the face of changing problems, actors and environments. Project governance is being accountable to the stakeholders of a project.
It is very important that proper project and public governance exist in large scale projects. When either or both are absent, the results can be very negative for the country and taxpayers left footing the bill.
There are too many examples of large scale construction projects that had poor public governance, project governance or a combination of both. In Boston, the Central Artery/Tunnel is one of the largest federally funded public work projects in US history. In 1984, the project was scheduled to cost $2.4B, and by 2002 had ballooned to $14.6B. The federal government created a task force, which found project cost and oversight issues, as well as a lack of governing as a main reason for cost overruns.
Most importantly however, cost overruns can jeopardize public confidence and faith that the project will be completed on time and on budget. Citizens may fear the government lacks the ability to deliver on key infrastructure needs of the community, city and country. And, as a result, it can lead to resentment from citizens and local businesses affected.
As well, unlike private contracts, accountability in public contracts become even more important when considering the interests of the public.
Transparency and accountability will be at the heart of any massive infrastructure project, as these projects will have a lasting impact on the citizens it is to affect. In Toronto, new subway lines have been debated and discussed and, should more come to fruition in the near term, these projects would completely transform the lives of the people living in the city: life decisions on where to move, whether or not to purchase a car and the general economic activities of people will change. If these projects are undertaken, and decision-making is completed without proper and meaningful engagement and behind closed doors, the perception of corruption can become rampant and undermine faith citizens have in government and the company in establishing a proper way forward.
The Need for Qualified Public Servants in Charge of Procurement
It is no stretch then, to demand qualified civil servants to be placed in roles overseeing these types of projects. And, that a robust and transparent method of accountability be engrained as well.
The need for qualified public servants at all levels when managing large scale public projects is essential to proper project governance, which both the client and end user benefit from. In a case study examining the procurement process for large public projects in the European Union, some findings indicated that the key issue is limited funding to attract qualified staff and to ensure appropriate staff training, which exacerbated issues of no capacity requirements and/or certification or accreditation in place for staff.
The complexity of the projects, as well as operating in a regulatory environment in which the construction firm must adhere to a number of critical requirements, (e.g., types of construction materials, environmental regulations) heightens the need for a qualified civil service to oversee these projects and provide tactical responses.
It is a lot to ask of the civil service, however. Ministries are not made up of the most qualified engineers, experts in the PMP Certification or knowledgeable in the types of construction materials that are necessary for these types of projects. In fact, the civil service may even hire consulting companies to help grasp the seemingly endless amount of information needed to make qualified and calculated decisions. That’s right: engineering consulting companies may be hired in addition to the actual firm doing the work.
Oh, and civil servants need to stick around.
Due to the length of time these projects take, engineering projects of this size and scale may see a complete turnover in the government, not just from the staff level, but all the way up the chain to include senior and executive management. And there may be one or more elections thrown in the mix, temporarily shutting down the administrative arm and ability for bureaucrats to act on decisions. Perhaps the new government wants to halt all spending and may even limit interaction with all firms by civil servants until a thorough review is undertaken. And in some cases, a new government may even want to cancel and exit existing contracts.
All of this can make an otherwise ‘simple’ project seem long, drawn out and extremely costly.
Perception is (Often) Too Optimistic
We have all seen it before: ribbon cuttings, politicians in their Armani suits with construction hats on and shovels in the ground. There’s some strange political imagery that resonates with people when they see their politicians actually ‘doing the work’ to get projects started.
Okay, half a shovel in the ground is not work. If they were cutting sugar cane, then maybe.
There is something about politicians wanting to get projects started while in office: perhaps it is a milestone achievement, or there is growing need for a specific project. Take for example, the desperate need for a downtown relief subway line in the City of Toronto. The municipality itself may have limited resources to get it completed, and will depend on other levels of government (federal, provincial) to assist with financing. Many Toronto citizens agree with the need for some type of relief line to be built, which automatically creates a powerful incentive for any politician to say the line will be built.
When looking at large scale projects, it is easy for optimism to take over. No politician wants to say ‘hey, this project is going to take a long time, there will be staff that come and go’.
The impacts of being so optimistic include politicians and governments not emphasizing enough the real costs of projects and the potential pitfalls. Who wants to be that politician that explicitly discusses the nuances of a project and the potential delays?
Lessons Learned.
This is the environment SNC-Lavalin finds itself in: the ability to undertake large-scale infrastructure projects that may extend over many years outliving political terms and witnessing complete turnover in the government bureaus administering the project.
Combined with the risk of poor public governance, is the overwhelming optimism imparted by politicians on new and shiny objects. What politician doesn’t want a new bridge, highway extension or subway and say they were a part of its building and construction?
Governments and politicians need to be honest with themselves: does their ministry have the capacity to administer these projects? How will cost overruns be mitigated, and what steps are being taken to avoid the potential for the misuse of public funds? And, in the event of an election, can they walk across the aisle and garner bipartisan support of the project so that it does not risk being cancelled or delayed further? Politics isn’t easy.
This takes time, and is not sexy. But for SNC-Lavalin, this is the environment they operate in.
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