A hefty cost-overrun of the Dawson-Mayo power line was the result of poor management by Yukon Energy Corp., says a report delivered this morning by the Auditor General of Canada.

Assistant auditor general Ron Thompson said in a briefing for reporters that Yukon Energy did not have the experience to manage a project of that size. Nor did it have in place methods to ensure accountability of a project that ended up costing the Crown corporation millions in additional costs, Thompson explained.

'From the beginning, this project was poorly managed by the corporation,' he said. 'We found that potential costs were not clearly identified and budgeted for in the feasibility and cost analysis.

'. . . We found the corporation did not have the required experience and expertise to carry a project of this nature and magnitude. We also found that the corporation's board of directors was not fully briefed by management about the risks with using the chosen method, something called design-build.'

Yukon Energy moved forward with what was originally expected to be a $27.2 million project in 2000 to connect Dawson City with the Mayo hydroelectric dam as a means of using excess hydro power at the dam to stop the use of diesel generation for Dawson's 1,700 customers.

The 27-page report is chock full of examples where errors were made, such as awarding the contract to Chant Construction Ltd. even before the final design drawings were complete.

It found that instead of re-tendering, the contract was awarded to Chant, the sole bidder after two other bids were ruled incomplete and disqualified, despite the company's inexperience in this type of work.

Highlights of the report show that, for instance, the corporation sole-sourced the contract to hire a project manager and project engineer to watch over the project on behalf of Yukon Energy for an original budget of $800,000. The final cost was $2.6 million.

The corporation had estimated a budgeted of $50,000 for staff time and travel associated with the project. The final tally was $1.1 million.

Altogether, Yukon Energy originally estimated its in-house cost associated with the project would be $1.83 million, an estimate that was eventually revised upwards to $2.7 million. The final tally $8.3 million.

Nothing had been budgeted for legal expenses, though the running tab is now $911,000, with significant claims and counter claims from both Yukon Energy and Chant Construction still outstanding.

Nothing had been budgeted for additional contract work beyond the agreement with Chant, though Yukon Energy ended up spending $800,000 to complete work outside the original contract. The auditors found there were a total of 12 contracts in excess of $50,000 each that were sole-sourced awarded without a tender competition. And while Yukon Energy is technically outside of the Yukon government contract policy, the public would have likely received a better return on their dollar had the contracts been awarded more in keeping with standard government policy, the report suggested.

It was pointed out by Thompson that Chant is claiming it's still owed $17 million while Yukon Energy has countered with $9.5 million for its own claims.

Originally budgeted at $27.2 million, the budget was elevated by the corporation's board of directors to $29 million, though the cost is now sitting at $36.2 million, or $9 million more than the original budget.

'Our audit concluded that the final cost may even be higher,' Thompson said.

The auditor general's office also suggested in its report that the project could be justified if the capital cost did not exceed $38.2 million, though with the recently large increase in diesel fuel, that number could change.

But Thompson agreed, that once the claims and counter claims are settled, the overall project cost could exceed the savings the corporation set out to achieve in the first place.

Yukon Energy president David Morrison said at a press conference following the briefing that he disagreed with the cost-benefit conclusion by the auditor general's office, and has told the auditor general's office that.

Given the high cost of diesel and the likelihood of it going even higher during the 40-year life of the line, it's the corporation's position that the construction of the line would make sense even if the final cost were to hit $60 million, the recently appointed president and chief executive officer told reporters.

Morrison was brought in by the Yukon Party government to sit as chair of Yukon Energy's board of directors in the spring of 2003 to help resolve what was then a work stoppage and stand-off between Chant and the Yukon government. An arbitrator was hired and the parties agreed to disagree and settle their claims against each other after the project was complete. The new line was commissioned in September 2003, a year behind schedule.

Premier Dennis Fentie emphasized this morning during the press conference that the grave problems and cost overruns associated with the project arose during the tenure of the then-Liberal premier Pat Duncan.

'First, it is important to note the government is deeply concerned by the findings of the auditor general's office on the Energy Solution's Centre and Dawson-Mayo extension,' he said. 'That being said, it is also important to note the government inherited these issues.

'Essentially, we are the cleanup crew.'

Fentie and Morrison said as a result of the report, which the premier received just this morning, the government will work with the auditor general's office to build in checks and balance to ensure this can't happen again.

Morrison pointed out, for example, that from now on any capital project being proposed Yukon Energy that exceeds $3 million will be subject to a application to the Yukon Utilities Board.

Thompson said during the briefing that had the Mayo-Dawson project been put before the utilities board for scrutiny, the problems may have been avoided.

The auditor's office did find it curious that the project was not put before the utilities board because it did not fit within the governing legislation's definition of an 'energy project,' he said.

Thompson said the auditor general's legal staff did indeed find that according to the letter of the law, there was no requirement for Yukon Energy to go before the board because it was technically not an energy project.

Morrison said he found it troubling that despite a recommendation by B.C. Hydro, the consultant hired to review the proposal, to not use the design-build method of contracting out the project, the corporation's board of directors was never made aware of that recommendation.

Thompson said through the entire project, there was a noticeable lack of communication between Yukon Energy staff and the corporation's board of directors. It also appears as though the board failed in its responsibility to challenge the details of the proposal and provide adequate scrutiny, he said.

'Essentially, the Yukon Energy Corporation did not follow basic project management principles to implement this project,' Thompson told reporters. 'In the end, it does not appear that the corporation received what it contracted for. The construction agreement specifically stated that the corporation's intent was to receive first-class design and construction work.

'We don't believe this was received,' Thompson said.

Morrison said while the claims and counter claims remain outstanding, he is powerless to have the matters settled because Chant Construction has yet to provide details to support its claims, and he can't force the company to do so.

There is the option of launching a lawsuit, though he indicated he didn't know how much benefit that would bring.