Nalcor Energy told the main contractor at the Muskrat Falls site more than two years ago that there were "serious deficiencies in its performance" working in Labrador — citing everything from safety issues to bad cost estimates and poor management.

CBC News has obtained a document that Nalcor sent to Astaldi in 2016 outlining those issues.

"Astaldi's performance was the result of, but not limited to, poor planning, lack of discipline, failure to supervise, rework, extended break periods and early departures," Nalcor wrote, quoting from a consultant's report.

At the time, Astaldi was looking for an extra $785.5 million for its work on the Muskrat Falls hydroelectric project. The initial contract was signed in 2013, for roughly $1.1 billion.

The 25-page document was Nalcor's response to that request for more money.

By the end of 2016 — and despite all of those concerns —​ Nalcor signed a new agreement with Astaldi to keep the Italian company working in Labrador.

The construction site of the hydroelectric facility at Muskrat Falls is pictured in July 2015. (Andrew Vaughan/Canadian Press)

Now, Nalcor CEO Stan Marshall is defending that decision, saying it would have been "catastrophic" to go with another contractor at the time, because the site would have had to shut down and it would have taken a year to regroup.

Marshall indicated that Astaldi's performance improved significantly in recent years.

Astaldi isn't commenting on the specifics of that 2016 document, citing an ongoing arbitration process between the two sides over a more recent dispute.

Astaldi had 'terrible' start, Marshall says

During the early years of the project, senior Nalcor Energy officials made reassuring public statements about Astaldi's work.

But behind the scenes, there were problems.

"The project was in trouble, and Astaldi in particular got off to a terrible start," said Marshall, who took over as Nalcor CEO in 2016.

The 2016 document obtained CBC News outlines just how "terrible" things were — and how quickly things began to go wrong.

Foundation preparation costs bid at $11.09 m² should have been closer to over $100.00/m². - 2016 document written by Nalcor to Astaldi

The trouble can be traced back even before Astaldi was awarded the contract.

"Foundation preparation costs bid at $11.09/m² should have been closer to over $100.00/m²," the document states.

Scaffolding apparently wasn't factored into Astaldi's bid, and Nalcor said the company's estimate for the installation of concrete embeds was "at least 150,000 hours too low."

The contract was awarded to Astaldi in late 2013. Just three months later, Nalcor officials were in Rome meeting with the Italian company's senior management about the "lack of progress and failure to submit required deliverables."

After the work began, the problems continued.

According to the document, $2.4 million was wasted when foundation preparation for spillway base slabs was "done at least five times."

A 2014 photo of the dome under construction. It was supposed to keep workers sheltered from the winter elements but the concept was eventually scrapped. (CBC)

The contractor's plan to work through the winter — by using a dome, or "integrated cover system" meant to cover the worksite and shield workers from the elements — "was a failure of monumental proportions and made no material contribution to the project," according to Nalcor.

And, in the first two and a half years of construction, the project's safety record counted "67 high potential near misses and 98 near misses."

The Nalcor document was dated just days before the most notable safety incident on site: the collapse of a concrete formwork that saw one worker sent to hospital.

At the time, senior Nalcor Energy officials called it "a very, very serious incident."

'Unachievable' assumptions

According to the 2016 Nalcor document, Astaldi's primary position was that the original contract was void because of "misrepresentation" by the company.

Astaldi alleged that Nalcor engaged in "persistent, strategic non-disclosure," and led Astaldi to believe its labour productivity assumptions were reasonable, even though Nalcor was aware they were "unachievable."

Astaldi wrote Nalcor on March 31, 2016, seeking compensation.

Two months later, Nalcor responded with its reasons for not having to provide the additional funding and, in doing so, highlighted problems at the megaproject site.

"The cumulative impact of Astaldi's planning, management, and erection failures resulted in the waste of over three million labour hours, and direct and indirect material expenses," the Nalcor document noted.

"If not addressed, they will continue."

The document outlined staffing problems from the past.

Astaldi went through five project managers in 2014, as work at the site was ramping up.

The health and safety manager and quality manager positions were also unfilled most of that year.

From March to September 2014, when roughly 2,100 workers — close to Astaldi's planned peak workforce — were on site, the contractor "did not have sufficient planned work activities available for half this workforce," according to the document.

Nalcor claims Astaldi didn't "utilize the labour productively" because it didn't have the proper management and supervision in place.

'We're seeing a good story develop'

While this was going on behind the scenes, public statements by Nalcor brass did not appear to reflect the ongoing turmoil.

On June 26, 2014, while there were too many workers on site and not enough work, then-Nalcor CEO Ed Martin said the timeline to first power remained unchanged.

"I believe that we have narrowed down the risk of additional cost increases very, very, very significantly," he said at the time.

"Can I say that there could never be another cost driver? Well, I can't say that. But I think what we're focused on now — I don't think, I know — it's the execution of the project."

In a September 2014 interview on Here & Now, Martin said there had been "no real surprises" to date.

In this September 2014 interview, former Nalcor CEO Ed Martin said the project was 'going well.' (CBC)

"It's going well," Martin said.

"We're finding that we have the best contractors in the world. We have the best workforce in the world. Our labour agreements are strong. Our leadership is good. And we've done all the pre-planning. So, as this is unfolding, we're seeing a good story develop."

We're finding that we have the best contractors in the world. - Ed Martin in a 2014 interview

At Nalcor's March 2015 annual general meeting, Martin said: "We're confident in Astaldi. They've been very successful around the world."

Martin — who has been testifying at the Muskrat Falls inquiry this week — declined an interview request, citing ongoing legal disputes.

'When we sat down to negotiate, we ignored it'

Astaldi's request for more money came around the time Marshall was taking over Martin's position as CEO in early 2016.

In an interview this week with CBC News, Marshall called the request for more cash a "pre-emptive strike" by Astaldi.

"When we sat down to negotiate, we ignored it," he said, referring to the list of demands as "irrelevant."

Mistakes were made by Astaldi, he said, but the project was in a crisis situation and he needed to concentrate on moving forward.

Nalcor CEO Stan Marshall took over from Martin around the same time Astaldi asked for more money. (Eddy Kennedy/CBC)

Plus, Marshall said, it was cheaper to stick with Astaldi because the contractor had signed an agreement at a low price.

"They entered into a contract to deliver a project for a certain price they couldn't do. We were prepared to help them out, but they would have to incur a loss in doing so," he said.

"That was the principle we established in 2016."

Marshall said Nalcor estimated how much it would cost for Astaldi to finish the project, then deducted how much the contractor could bear in a financial burden.

"So they took their part of the pain to finish it," he said.

In December 2016, both sides reached a deal to complete the Muskrat Falls contract.

Marshall said it identified crucial aspects of the work, set out timelines, and provided for more money if targets were met.

In total, roughly another $800 million more was provided to Astaldi, Marshall said.

Contract recently terminated

Now, the companies are in another conflict.

In October, Nalcor broke ties with the financially troubled Italian company, and later terminated its contract.

The two sides remain in arbitration, with Astaldi seeking another $500 million from Nalcor.

"They were terminated not because of lack of performance, but because they simply ran out of cash," Marshall said.

[Astaldi was] terminated not because of lack of performance, but because they simply ran out of cash. - Stan Marshall

"Their performance in the last two years has been really good; you couldn't have a contractor do much better than that."

According to Nalcor, safety has improved on site — this October marked 19 months without a lost-time incident.

Astaldi 'disappointed' by Nalcor's actions

In a statement, an Astaldi spokesperson said, because of the ongoing arbitration process, it would not be commenting on the specifics of the 2016 document.

Astaldi workers collect their belongings from a Muskrat Falls shuttle bus after the company was told to stop work on Oct. 19. (Jacob Barker/CBC)

"We are disappointed that Nalcor has chosen to act as an adversary rather than a partner, but we are optimistic for a positive outcome for workers and their families," Alessandra Onorati said in an emailed statement.

"We, like everyone, wish to see the Muskrat Falls project completed promptly."

Astaldi also defended its work in Labrador.

"Despite the challenges due to the project's size, scale, complexity, and location, Astaldi and its 4,000-plus, mostly local, workers performed exceptionally since being awarded the contract in 2013," she said.

Under our management, the project ran on schedule, with Astaldi meeting numerous requests from Nalcor to accelerate its work. - Astaldi Canada statement

"Under our management, the project ran on schedule, with Astaldi meeting numerous requests from Nalcor to accelerate its work."

Onorati added "it is unfortunate that Nalcor has chosen to evict us from [the] site," as Astaldi had completed 95 per cent of its work scope.

"We have successfully achieved Nalcor's accelerated milestones that were put in place to help recover schedule delays suffered due to the performance of other parties, and yet, Nalcor has not fully paid Astaldi Canada what we are owed," the statement noted.

"Our performance metrics speak for themselves and have been previously praised by Nalcor publicly."

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