Zero redefined

By Gene Miller, September 2012

SNC-Lavalin’s “zero tolerance” for unethical behaviour apparently doesn’t include a billion-dollar overstatement of the benefits of a proposed LRT for Victoria.

1. Lucky Sevens

The prospect of criminal prosecution is keeping the news alive that England’s Barclays Bank, with the likely cooperation of JP Morgan Chase, Bank of America, Citigroup, UBS, Canada’s Royal Bank and others, has for years been manipulating the London interbank offer rate (Libor) so as to sweep a few additional hundred million crumbs into its lap. 

To memorialize such cupidity and moral squalor it might be timely to undertake a meditation on the dna of gambling—risk in hope of a win—in all its expressions (casinos, raffles, lotteries, the stock market, faith-based belief in a heavenly reward, armed robbery, ponzi schemes, price-fixing, payola, corporate self-generosity, and so on). To do so, you have to plunge into the dark and subterranean subjects of appetite and greed; the mysterious, energetic attraction of winning and getting something for nothing, or a lot for a little; the corrosive appeal of luck on the spirit; and risk, which I define as the willingness to test the frontiers of undesirable outcomes. You will note that the concept of venality keeps a hovering eye above all of this.

Think about it: what, exactly, drives this body of impulses and conditions? I speculate it’s cellular, hard-wired into our consciousness, connected to the original crapshoot of natural selection—in other words, that the conditions of life itself are the essential gamble—and also to our greatest existential dilemma: the paradox of biological finality (death), when everything in our imaginations tells us that we should live forever. It helps to explain two fundamentally opposing ideas that in my view are actually faces of the same coin: the heavenly belief that suffering in this life will be redeemed for pleasure and release in the next (a perfected life after this life featuring milk, honey and virgins) and the urgent desire for pleasure now (this is the first, last and only life, so take what you can get, and get it while you can). 

Both share an essential belief in temporal reward, differing principally on timing. Both also agree that good luck opens the future, makes it rosier. Everyone understands that. Everyone wants it. Most of us want it now—heaven on earth, so to speak.

The genesis and consequences of risk-taking, the arc of risk, is a much-explored topic in our cultural storytelling; and the higher and longer the arc, the more transfixed we are by the story. Outside the world of hip irony, you never see headlines like “10-inch wave destroys sand castle.” Our fascination with bigness and our preoccupation with the out-sized—notably, the self-indulgences of the wealthy and powerful—play into the theme of risk and reward, and are intriguing subjects of cultural study. I’m not a polymath and don’t have the intellectual wattage to join all the dots, but I sense there is a vital connection between both our drive for acquisition and love of excess and our in-built desperation to prolong life and forestall, gain advantage over, death. Even at the biological level, our cells are designed—instructed, you might say—for repair and regeneratiion.  

Maybe this is why we love and are drawn to largeness and quantity as if size itself held some inherent magic and potency, was itself talismanic. Donald Trump is an acquisitive, attention-craving asshole, but that doesn’t diminish our intense cultural interest in his quest for immortality or, at least, his desire to be buried with all of his toys.

As a reviewer of Ray Kurzweil’s disturbing book, The Singularity is Near: When Humans Transcend Biology, puts it: “In essence, Kurzweil conflates the wholesale transformation of the species [via emerging technology] with ‘immortality,’ for which read a repeal of human limit.” 

Talk about tearing down the fourth wall! Maybe that’s where all of this hunger and appetite is headed. It’s interesting that the definition of greed is “the inordinate [the word means boundless] desire to possess wealth, goods, or objects of abstract value with the intention to keep it for one's self, far beyond the dictates of basic survival and comfort.” 

Camille Seaman, the iceberg photographer, notes: “As I was walking across the ice, I had an experience in which I understood that I was on my planet, that I was made of its material, and that in the scheme of things I meant nothing, but the fact that I could even stand there and think about it was a miracle.” This ability to wonder about ourselves, also named consciousness or self-awareness…. The itch that keeps us scratching.

The Beatitudes are teachings by Jesus that are expressed as a set of blessings in the Sermon on the Mount in The Book of Matthew. Together, they provide a cluster of Christian ideas that focus on love and humility rather than force and exaction. They echo the highest ideals of the teachings of Jesus on mercy, spirituality and compassion. Here, are the best-known two:

Blessed are the poor in spirit: for theirs is the kingdom of heaven.

Blessed are the meek: for they shall inherit the earth.

 

2. Win, Place, Show

Montreal-based SNC-Lavalin is not the largest global engineering/ construction/project management firm. Currently that honour goes to French-based Vinci with about 180,000 employees. SNC-Lavalin, though, is Canada’s largest engineering firm, and this giant does business in a hundred countries and employs about 30,000 globally. Were they all our nationals, the company would write paycheques to almost one out of every five hundred employed Canadians. In its last reporting year, 2011, the company earned gross revenues of $7.2 billion. In 2011, the entire Province of British Columbia anticipated revenues of $41 billion, a bit less than six times SNC-Lavalin’s. Not bad yardsticks for understanding the scale and scope of SNC-Lavalin’s operations.

Companies like SNC-Lavalin feed globally on infrastructure projects—airports, dams, urban transportation systems, water systems and power generation plants, manufacturing facilities, ports and harbours, entire new cities, major energy installations, tunnels. Any city or country with dreams of economic renewal, systems improvement or expansion is a place of opportunity, a market, for these companies. Replacing the weather seal on your garage door is not defined by such companies as a business opportunity. Delivering a finished, functioning airport is. This is to say, the stakes and the budgets are enormous.

As you might imagine, there is a global intelligence network that allows SNC-Lavalin and its competitors to be aware of business opportunities at the earliest possible moment—often when they are just errant dreams or mere flickers of possibility. Embedded in such a process are years of relationship-building, opportunity-cultivation, strategic investment, and various and often nuanced forms of business courtship. A lot of paycheques and bonuses are riding on successful outcomes.

SNC-Lavalin was described this spring in the Montreal Gazette as “the embattled engineering giant” after the company was rocked by revelations about $35 million in “misallocated payments” in its Libya operation. The business drama even swept up Canada’s now-ex-ambassador to Libya, Sandra McCardell, and her husband, Edis Zagorac. The Gazette writes:

“According to the Globe and Mail report, Zagorac was involved in the Executing Agency of the Libyan Corps of Engineers, a civilian and military company with ties to Quebec-based engineering company SNC Lavalin and chaired by Saadi Gadhafi.

“The reports raised concerns that McCardell's role in Libya would be affected by her husband’s ties to the ousted [Muammar Gaddafi] regime.

“According to the Globe report, Zagorac was an operations manager and later a managing director at the Executing Agency.

“The agency was a construction company with designs on building a massive desert city as well as a prison. The company was created by Saadi Gaddafi and Riadh Ben Aissa, a former SNC Lavalin vice-president, the report says.”

Unstated but implied is not that McCardell’s husband did anything inherently wrong, just that he carelessly rode the wrong horse.

Tarred by this concatenating embarrassment, long-time SNC-Lavalin CEO Pierre Duhaime resigned in March, and the company said that it will implement "recommendations… directed primarily at reinforcing standards of conduct, strengthening and improving internal controls and processes, and reviewing the compliance environment." The Gazette quotes a company spokesman who notes that SNC-Lavalin has “zero tolerance” for ethical misdeeds. I’m personally confident that SNC-Lavalin is not alone amongst global engineering firms—global firms of any kind, in fact—who have zero tolerance for ethical misdeeds. 

Zero. The biggest number.

 

3. Jiminy Cricket Has Left the Building 

Under the headline “The Spreading Scourge of Corporate Corruption,” Eduardo Porter in the NY Times writes:

Trust in big business overall is declining. Sixty-two percent of Americans believe corruption is widespread across corporate America. According to Transparency International, an anticorruption watchdog, nearly three in four Americans believe that corruption has increased over the last three years. Have corporations lost whatever ethical compass they once had?

Company executives are paid to maximize profits, not to behave ethically. Evidence suggests that they behave as corruptly as they can, within whatever constraints are imposed by law and reputation.

Bigger markets allow bigger frauds. Bigger companies, with more complex balance sheets, have more places to hide them.

Rafil Kroll-Zaidi reports in Harper’s Magazine that nations with a more prevalent belief in Heaven have higher crime rates, and those with a more prevalent belief in Hell have lower rates. While some might take this as a reason to bring back the strap, I consider it to be a strong argument in favour of government regulation.

Porter’s point and Kroll-Zaidi’s (obliquely) speak to the little-studied and dark fact that when a dollar changes hands, something explosive and seismic happens. That is, there is a hidden energetic, a plus-ing and minus-ing, a violence, almost, built into economic transaction—buying and selling, accumulating and divesting, profiting and losing. Why else would ‘squander’ be understood by everyone to represent a loss of power?

 

4. Square Wheels

Welcome to the Smoking Gun Cafe, here in the beautiful Capital Region. Let me show you around, introduce you to a few people.

Kevin Mahoney is the Chairman of the Board of BC Transit, which oversees transit projects and services throughout the province, and which ultimately reports to Provincial Cabinet via the minister responsible. A likeable and competent guy, Kev, beside other corporate chairmanships, is also Chair of InTransit Ltd., described by BC Transit as “the private sector concessionaire [35-year operating contract] for the Canada Line,” Vancouver’s airport-to-downtown rail connection. 

Who owns InTransit Ltd? It’s owned in thirds by Caisse de Depot, the Quebec-based institutional investor (pension and insurance fund money); BC Investment Management Corporation, investment manager for public trust funds and employee pension funds in our province; and...SNC-Lavalin. 

Pacific Liaicon and Associates “specializes in project and construction management and management consulting.” The highly successful company was founded by Henry Wakabayashi in 1970, initially to address BC forest industry needs and opportunities. 

In 2001, Wakabayashi sold Pacific Liaicon lock, stock and barrel to…SNC-Lavalin and has since then been a Senior Advisor of Business Development in the SNC-Lavalin Transportation Division.

Currently, Wakabayashi also “provides senior advisory services” to BC Transit. Pacific Liaicon has a diversified portfolio of project management work, including management of the initial study stages of LRT feasibility in Victoria—work for which it has received just north of $4,000,000, so far. 

The bullet-headed guy? That’s Gwyn Morgan, a name that you may already know. Former CEO of EnCana, Morgan has made a name for himself as a right-wing ideologue, generous donor to the Fraser Institute, climate-denying scary monster in environmentalist circles and, in the wake of Gordon Campbell’s exit, a key advisor to BC Premier Christy Clark. He is now a local boy, with a spread out on the Saanich Peninsula. Fracturing the laws of coincidence, Morgan is currently Chairman of the Board of... SNC-Lavalin.

I’m reminded at this moment of the unnamed sage who noted: “If you shake the branch, all the leaves rustle.”

 

5. Corpse in the Study

Actions and meanings: when Obama straightens his necktie, is he telling ghetto youth to get it together, or sending the Iraqi leadership a message they’re all gonna hang, or fidgeting, or just straightening his tie?

Probably no one has more carefully studied—or been so motivated to study—the reports emanating from the various entities involved in transit decision-making than Jim Hindson, Executive Director and intrepid researcher of the citizen group CRD Business and Residential Taxpayers’ Association. Hindson, a semi-retired public-sector transportation engineer and municipal information systems manager, has spent a professional lifetime planning and assessing projects, and evaluating systems efficiencies. He comes to his current role equipped with a penchant for forensic review and an ability to hold up all the jargon-loaded reports and executive summaries so bright sunlight shines through them.

For the last few years, he has been playing Inspector Morse on our regional transportation file. As in a drawing room murder mystery, there are complicated relationships, fingerprints on wineglasses, blind alleys, tantalizing hints found in unlikely corners, connections to be uncovered and understood.

Hindson has reviewed all materials available publicly and has filed over a dozen freedom of information (FOI) requests on behalf of the Association. He has been trying to piece together a puzzle of conflicting and erroneous information in an effort to understand why, how, and on what basis the decision was made to pursue the LRT option instead of other more viable options such as HOV (high-occupancy vehicle) lane dedication. Why, he wonders, was the decision made so hastily and apparently with little professional regard for standard decision-making protocols? Sheer incompetence? Gaming the system? 

The HDR Corporation, an engineering consulting firm retained (and paid) by Pacific Liaicon to undertake data modeling (cost/benefit scenarios) in support of the LRT option, noted in its July, 2011 Draft Final Report: “Many inputs and assumptions used in the model and presented in the report herein have been provided to HDR by BC Transit. The data was used as given, and has not been independently audited or verified by HDR.” Such a note at the beginning of a professional report is a kind of ‘get out of jail free’ or a ‘please don’t blame us’ card for the authors.

The “inputs and assumptions,” however, are in some cases so suspect, bizarre or flaky, that you have to wonder why HDR, a consulting engineering firm with nothing in the game other than a paycheque, and with its reputation presumably unsullied, would undertake the work without balking. It is hard not to read into BC Transit’s attempts a desperation to justify LRT as the mobility option-of-choice; that is, to throw shit at the wall until something stuck.

Here is a small, glaring and by no means isolated example. One input used in calculating the potential benefits of Victoria LRT is accident data. The idea is that a switch to LRT use by car drivers will statistically reduce accidents, consequently reducing life and property damage; and that this reduction is a quantifiable ‘benefit’ attributable to LRT. Okay. So, you would think someone would, as a starting point, get hold of the readily available data set showing accident history on Highway One between Langford and Downtown. Nope. Well, then they would at least use other relevant and comparable MOT (Ministry of Transport) data. Nope. Well, then at least Canadian statistics. Nope. It appears that someone provided, and HDR used, much higher data from the US Department of Transportation that allowed for an orders-of-magnitude larger and entirely bogus accident savings attribution.

Here’s another example. HDR forecasted a lower rate of corridor travel growth with LRT than without, but then spun the data in a way such that by 2038 (the study horizon), the reduction in auto travel and the increase in transit travel were out of balance by over 11 million trips. This is to say that an erroneous reduction in auto travel growth (the ‘error’ compounds over the 27 years of the study time-frame) was then converted to accident, travel time, and vehicle operating benefits for the LRT scenario (see items 3, 4 and 5 below). The end result, when all of these highly suspect calculations are pooled, according to Hindson, is an overstatement of LRT benefits exceeding a $1 billion. The CRD Taxpayers’ Association wrote to the CRD: 

“The revised total of $1.2 billion [rounded] in overstated LRT benefits includes:

1) LRT ridership forecasts inflated by including predominantly bus passengers as LRT passengers: $23,730,000

2) Nearby Property Uplift value incorrectly included as a project financial benefit: $182,130,000 

3) Accident benefits overstated by $405,509,800

4) Auto (includes trucks and others) travel   time benefits overstated by $402,950,000

5) Vehicle operating cost benefits overstated by $148,350,000 

Total LRT overstated benefits $1,162,669,800.”

It’s a convention that to justify themselves, these major capital projects have to achieve a minimum ratio between costs and benefits of 1:1. Reading the Association’s conclusion below, it’s not hard to understand why there has been so much sleight-of-hand during the study phase of this project: 

“The net impact of these errors is that the Present Value cost of the LRT Project is now $922 million and benefits are at a maximum of $264 million ($1,427 billion original – $1,163 billion overstated) resulting in costs exceeding benefits by 3.5 to 1.”

Lest you imagine that self-respecting professionals would feel any shame about applying such flagrant body English, consider these additional observations of the Association’s about the contents and conclusions in various reports and presentations:

The LRT option was loaded with a $3.25 transit fare, while the other options were held at a $2.50 transit fare; the business case analysis does not comply with the Provincial or Federal business case guidelines for Capital Plan Development Projects; the accident benefits claimed in the Study are 17 times higher than similar LRT studies in Canada; the accident costs used are based on U.S. collision cost data which are considerably higher than the (required use of) Canadian accident costs; the LRT costs do not include notations about the $90 million additional balloon payment required to replace all the LRT vehicles in 2042.

In the vintage days of radio, The Shadow knew “what evil lurks in the hearts of men.” Now, we have to excavate cupidity and stupidity with FOI requests. 

In the absence of more conclusive evidence, it would be irresponsible for anyone to assume that this entire regional transit process has been designed, however unwittingly, to produce outcomes favourable to the long-range business interests of SNC-Lavalin. I mean, how could you possibly assume that? 

If you are looking for a more far-fetched but more innocent explanation, maybe it’s just ‘ironitis,’ as my parent’s generation used to call such fevered infrastructure grandiosity. From the BC Transit website: 

“Light Rail Transit (LRT) from downtown to Uptown and then to West Shore has been recommended by the Victoria Regional Rapid Transit Project (VRRTP) and endorsed by the BC Transit and CRD Boards and the municipal councils. The estimated cost is $950 million and the business case has been submitted for funding under the Provincial Transit Plan.”

After all, this is Canada, not Libya, and we do things very differently here. In today’s parlance, let’s call it the zero effect.

 

6. Napkin Math

I’ve been playing with a calculator, exploring a wayward idea. Lessee...

Current stats indicate that heavy rush-hour traffic, two lanes wide, on the Island Highway is about 3800/hour. Let’s up it to 4,000.

If you invested principal of $1 billion (the rounded-up cost of LRT between Langford and Downtown) at a mere 2.5% interest, it would throw off $25,000,000 annually. If at the start of Year Two, with that interest income in-hand, you bought some really snazzy commuter buses and fancied up some key bus stops, you might have $10,000,000 left over. You could, in some appropriately safeguarded program, give 4,000 current single-occupancy car commuters an annual incentive of $2,500 to take the bus and leave their cars at home. By my calculations, this would totally remove the equivalent volume of one hour’s worth of crawling traffic from the highway during the morning and afternoon peaks, effectively restoring highway functionality probably in perpetuity. And in Year Three and subsequent years, you could redirect the $15 million you used on capital improvements at the start of Year Two to other regional transit improvements. Or you could solve the regional homelessness problem. Or end world hunger. 

And remember, you would have preserved the original $1 billion in capital—returnable, at some point, to its various sources. So, what would be the taxpayer cost of such a strategy?

Zero.

Gene Miller, founder of Open Space Cultural Centre, Monday Magazine and the Gaining Ground Conferences, is currently writing Massive Collaboration: Stories That Divide Us, Stories That Bind Us and The Hundred-Mile Economy: Preparing For Local Life.