CONTACTS 
0201 - Dep Natrl Rscrs & Consvn           406 444 6699 fax 6721
020101 - Mr. Wayne Wetzel
020102 - Mr. Walt Anderson; Hydro Power Section Supervisor =406 444 6659
020103 - Engineering Bureau  fax 406 444 0533
020104 - Ms. Sarah Ann Bond, Esquire
020105 - Department Counsel =406 444 6660; Legal Division

SUBJECTS
Backcharges to Voith from Sletten
General
A02 - Extend Current Contract
Analysis of Pending Tasks
Engineer's duty to determine disputes

0807 -    ..
0808 - Summary/Objective
0809 -
080901 - Follow up ref SDS 13 0000.
080902 -
080903 - This reviews DNRC's Jan 8, memo on the Welch scope of work, and
080904 - recommends areas and methods of DNRC management oversight on
080905 - Broadwater needed to achieve a successful outcome.
080906 -
080907 - Sarah is scheduling a meeting with Wayne on this.
080908 -
080909 -     [On 920110 met with Wayne and Sarah. ref SDS 14 0001
080910 -
080911 -
080912 -
080913 -  ..
0810 -
0811 -
0812 - General
0813 -
081301 - DNRC's memo indicates the Welch support is no longer needed nor
081302 - appropriate to assist DNRC with managing Broadwater and so Welch
081303 - should complete work by Jan 17, 1992 on DNRC's claims arising from
081304 - Tudor's Oct 5, 1989 letter to DNRC.
081305 -
081306 -  ..
081307 - On Dec 6, 1991 DNRC requested continued support in managing Broadwater
081308 - tasks cited at ref SDS 12 and 5.  Sarah and Walt were assigned to
081309 - draft an amendment to this effect, ref SDS 10 line 051119.
081310 -
081311 -  ..
081312 - I called Sarah this morning on the status of the amendment.
081313 -
081314 - She feels it should be discussed again with Wayne, per her memo, and
081315 - is scheduling a meeting.  Wayne's work on the budget may put the
081316 - meeting off until Friday, Jan 10.
081317 -
081318 - This analysis can guide the discussions with Wayne.
081319 -
081320 -
081321 -
081322 -  ..
081323 - Analysis of DNRC Memo on Welch Assignment - ref DRP 1
081324 -
081325 - This is a document dated Jan 8, 1991, but it is intended to be
081326 - for Jan 8, 1992 and so has been entered as such.  To facilitate
081327 - references, I entered the document and will use the line numbers in
081328 - ref DRP 1.
081329 -
081330 -
081331 -  ..
081332 - Background on Scope of Welch Services
081333 -
081334 - DNRC's memo of Jan 8, states at line 13:
081335 -
081336 -    This is to confirm our earlier discussions (both between you and me
081337 -    and among Wayne, you and me) about the scope of services requested
081338 -    to be performed by Welch Co. for the Department.
081339 -
081340 -
081341 -
081342 -  ..
081343 - Estimated Date of Completing Analysis of pre-July 1989 Claims
081344 -
081345 - DNRC's memo of Jan 8, requests "...a draft final analysis" by Jan 17,
081346 - 1992 and to advise DNRC if such date is not feasible.
081347 -
081348 -    Comment
081349 -
081350 -    I met with Sarah on Dec 16, 1991, per ref SDS 2  and received her
081351 -    comments on the claim analysis submitted to DNRC on Oct 31, 1991,
081352 -    ref DIP 1.  Based on the issues and scope of remaining work we set
081353 -    a follow up target date for the end of January 1992, as follows:
081354 -
081355 -        Welch will work on this matter as time permits relative to
081356 -        other support tasks with the objective of submitting these
081357 -        claims to Voith by the end of January 1992.  This may be
081358 -        delayed if Welch is involved in the meetings on interviewing
081359 -        engineers, hiring and transitioning operations.  (ref SDS 11
081360 -        line 061317).
081361 -
081362 -  ..
081363 - I expect a final claim report on these matters could be produced by
081364 - the end of January, 1992 or early February, as contemplated at the Dec
081365 - 16 discussions.  If a particular completion date is essential,
081366 - overtime could be applied.
081367 -
081368 -      ..
081369 -     Tudor SF Records
081370 -
081371 -     This further assumes information needed from the Tudor main office
081372 -     records is available, or that the information needed to show
081373 -     DNRC's entitlement is at the Helena office.
081374 -
081375 -     I am hopeful all of the information needed is in the Tudor
081376 -     Broadwater records.
081377 -
081378 -      ..
081379 -     Management Strategy
081380 -
081381 -     DNRC should consider whether it is prudent to submit a series of
081382 -     complex claims to the Engineer or Voith at the present time, or
081383 -     whether it might be better to do so after resolving pending design
081384 -     and construction issues.
081385 -
081386 -      ..
081387 -     The current schedule, ref DIP 2, shows the Engineer will begin
081388 -     considering claims formally on or about April 1, 1992, after
081389 -     resolving speed increaser matters, completing review of the
081390 -     contract, reading into the job and publishing an initial report to
081391 -     DNRC on the status of the project.  At some point the Engineer
081392 -     should prepare its own schedule, but at this juncture DIP 2 is the
081393 -     only guidance on this matter.
081394 -
081395 -
081396 -
081397 -  ..
081398 - Welch Provided Requested Management Support
081399 -
081400 - This issue was addressed at ref SDS 6 - 4 in October and more recently
081401 - on Dec 6, per ref SDS 10   DNRC's Jan 8, 1992 memo states at line 21:
081402 -
081403 -     As the [Engineer] selection process is complete, you are requested
081404 -     to devote your primary attention to the pre-1989 claims.  Also, we
081405 -     request you be available to Dave O'Day, the new project manager,
081406 -     to answer his questions that arise while he is familiarizing him-
081407 -     self with the project.
081408 -
081409 -      ..
081410 -     Comment
081411 -
081412 -     I advised the DNRC Director on Nov 22, there would be a lot of
081413 -     work to do to hire a new Engineer and get them up to speed.  Since
081414 -     then, DNRC staff have work hard on this matter, yet much remains
081415 -     to be done to conclude a viable Agreement with Power, see ref SDS
081416 -     1, 12 and 13.
081417 -
081418 -      ..
081419 -     There is no record indicating that DNRC's objectives will be met
081420 -     by Power.  No reports, determinations or analyses have been issued
081421 -     by Power that show its work product will yield a better result
081422 -     than Tudor accomplished.  DNRC believes Tudor did not perform, but
081423 -     can only cause Power to do better through assiduous oversight.
081424 -
081425 -     DNRC's interest in obtaining a favorable outcome then augurs for
081426 -     greater attention to:
081427 -
081428 -        1.  Formulating the Agreement with Power.
081429 -
081430 -        2.  Transitioning and developing Power's assumption of the
081431 -            Engineering duties under the Voith Contract.
081432 -
081433 -        3.  Oversight and coordination of Engineer and DNRC to
081434 -            accomplish project objectives.
081435 -
081436 -
081437 -
081438 -      ..
081439 -     Welch Agreement Pending Amendment #02
081440 -
081441 -     The discussion of Dec 6, 1991 showed DNRC recognized the above
081442 -     points (see ref SDS 10 line 0510), in that:
081443 -
081444 -         Sarah indicated the Legal Division has the [claim] analyses it
081445 -         needs from Welch for the time being, and now needs a month to
081446 -         absorb it without more coming it.  [Therefore Welch would not
081447 -         be needed in January, 1992].
081448 -
081449 -          ..
081450 -         Wayne said that he believes DNRC needs support by Welch for
081451 -         hiring and managing a new Engineer, advising the Department on
081452 -         the Tudor and Voith matters and creating the SDS record that
081453 -         protects DNRC's interests.
081454 -
081455 -          ..
081456 -         Wayne asked what specific tasks are needed to accomplish these
081457 -         objectives?  I cited the tasks listed in the memo of Dec 4,
081458 -         1991 requested by Sarah, which sets out the scope for
081459 -         amendment #2 to the Welch Agreement with DNRC.
081460 -
081461 -          ..
081462 -         Wayne asked if the Dec 4 memo was discussed with Walt?  The
081463 -         memo was distributed to Walt and Rick, per ref SDS 7, and I
081464 -         discussed it with Walt this morning.  He commented that there
081465 -         is a lot to do.
081466 -
081467 -
081468 -         Wayne asked Sarah to meet with Walt and work on an amendment
081469 -         to extend Welch's contract.  This will be amendment #2.
081470 -
081471 -
081472 -
081473 -  ..
081474 - Owner Oversight Essential
081475 -
081476 - DNRC's Jan 8, 1992 memo contends it would be improper for DNRC to
081477 - obtain help from Welch in managing its Engineer:
081478 -
081479 -     It would be inappropriate for the Department to assign [Welch]...
081480 -     to manage our project engineer.  This is not to indicate that
081481 -     Welch Co.'s services are not valuable, but rather that the proper
081482 -     procedure, as you point out in your diary report of January 7,
081483 -     1992, line 071320, is for Power to provide the management and
081484 -     engineering services, not the Department.
081485 -
081486 -      ..
081487 -     Comment
081488 -
081489 -     A conclusion that DNRC should not obtain competent assistance on
081490 -     oversight of the Broadwater project, especially a new Engineer, is
081491 -     different from the intent of the Jan 7, diary report (ref SDS 1)
081492 -     which states in part at line 071320:
081493 -
081494 -          ..
081495 -         I think the trick is to place the burden on Power to figure
081496 -         out the expertise it needs after fully explaining the objec-
081497 -         tives, issues and background.  We cannot completely explain
081498 -         the background and all of the nuances of the issues in time
081499 -         for the Jan 14, meeting though. The memo, ref DIP 1, seeks to
081500 -         get Power into the subject and indicate other related informa-
081501 -         tion which Power may wish to examine.
081502 -
081503 -      ..
081504 -     Clearly DNRC can hold its Engineer responsible to perform its
081505 -     duties and at the same time DNRC can be looking to see that the
081506 -     Engineer in fact performs such duties correctly, provided such
081507 -     oversight is done correctly.
081508 -
081509 -      ..
081510 -     The record on Broadwater shows DNRC has been improperly pressured
081511 -     to perform or waive tasks which were the responsibility of its
081512 -     Engineer and contractors.  Some of this was overt; much was simply
081513 -     negligence in that the managements involved though nominally com-
081514 -     petent, overlooked details or lacked the experience to recognize
081515 -     and treat critical details.  The job was managed by conversation.
081516 -     DNRC should not permit this mistake to be repeated.
081517 -
081518 -      ..
081519 -     Since these pressures are endemic to contracting, it would seem an
081520 -     appropriate and prudent step for DNRC to avail itself at this
081521 -     critical juncture of the assistance it needs to recognize and
081522 -     effectively resist such pressures.
081523 -
081524 -
081525 -      ..
081526 -     Oversight Skill Maintains Engineer's Responsibility
081527 -
081528 -     There is an important skill and methodology involved in providing
081529 -     owner oversight that does not supplant the Engineer's (or the
081530 -     contractor's) responsibility to perform.
081531 -
081532 -     Thus, the Owner should introduce the Engineer to consultants (e.g.
081533 -     Geartech) and participate in actual discussions during a transi-
081534 -     tion period that is sufficient to:
081535 -
081536 -         1.  Assist the Engineer in understanding the background and
081537 -             and implications of issues; and,
081538 -
081539 -         2.  Evaluate the Engineer's performance in meeting the
081540 -             owner's objectives.
081541 -
081542 -          ..
081543 -         In such discussions, the Owner may well be asserting facts and
081544 -         contract interpretations, but at the end of the day, the
081545 -         record shows the Engineer relied on his own determination of
081546 -         facts and analyses.
081547 -
081548 -         This requires knowledge and skill in knowing what questions to
081549 -         ask, what facts to assert, what authority to cite and what
081550 -         information to record.  It is also helpful to have a tool like
081551 -         SDS to apply the skill.
081552 -
081553 -
081554 -      ..
081555 -     Engineer is Not an Advocate
081556 -
081557 -     DNRC has hired an Engineer to perform the duties in the Voith/DNRC
081558 -     contract which require the Engineer to make impartial determin-
081559 -     ations rather than advocate one position or another.  If the
081560 -     Engineer is compromised in this regard, then much of the benefit
081561 -     of hiring an engineer to make contract determinations may be lost.
081562 -     It requires management skill to preserve this posture.  The
081563 -     current state of the project in some respects reduces the
081564 -     importance of this objective, but DNRC should strive to maintain
081565 -     the cloak of impartiality where practical.
081566 -
081567 -
081568 -      ..
081569 -     Owner's Advocate Management Alternatives
081570 -
081571 -     Owners often use construction managers for project support, where
081572 -     the Engineer reports to the CM.  Another scheme is for the owner
081573 -     to hire an audit Engineer that periodically (usually quarterly),
081574 -     reviews the project and reports to the owner on the status of the
081575 -     work and recommends management improvements needed by engineer,
081576 -     contractor, owner, etc.
081577 -
081578 -      ..
081579 -     Management Support Needed for Next Several Months
081580 -
081581 -     At this time I believe full time CM is not warranted, nor is it
081582 -     necessary to hire an audit engineer.  However, continuing manage-
081583 -     ment support is recommended for at least the next several months
081584 -     to transition the Engineer and to ensure that DNRC's interests are
081585 -     protected in the record with respect to its claims against Voith
081586 -     and Tudor, as cited by Wayne at ref SDS 8 line 051105 (repeated
081587 -     above under "Amendment to Welch Agreement").
081588 -
081589 -      ..
081590 -     It is understandable that the engineer and the contractor prefer
081591 -     to avoid such oversight, as Tudor, Voith and Sletten preferred.
081592 -     The record of the project, however, indicates that acceding to
081593 -     such preference has not served the Department well.  DNRC needs
081594 -     more management support at least in the near term because there
081595 -     are more people to manage.
081596 -
081597 -  ..
081598 - Right now the new Engineer is managing by conversation.  There is a
081599 - lot of talk among a lot of people that makes it seem like a lot is
081600 - getting done.  DNRC knows from the past, however, that valuable
081601 - knowledge and ideas are slipping away.  Conversations today that seem
081602 - to produce solutions will prove wanting, and what appears to be
081603 - inconsequential nuance, will later prove critical.
081604 -
081605 -      [On 920110 Sarah concerned about Welch directing the Engineer.
081606 -      ref SDS 14 0869
081607 -
081608 -  ..
081609 - To get better results and avoid past mistakes, we have to do things
081610 - differently.
081611 -
081612 -  ..
081613 - Sarah points out in her memo that Welch is to answer questions
081614 - proffered by Power.  Leaving aside whether Power knows at this stage
081615 - what questions to ask that will advance the interests of DNRC, it is
081616 - unlikely Power or any reasonable Engineer would subject themselves to
081617 - the accountability inherent in asking Welch a question.  So far Power
081618 - has not done so.  Tudor did the same in April of 1989.
081619 -
081620 -  ..
081621 - Only the owner can set in it place and support the management needed
081622 - to protect its interests.  I urge DNRC to do so.
081623 -
081624 -
081625 -
081626 -
081627 -
081628 -
081629 -
081630 -
081631 -
081632 -
081633 -
081634 -
0817 -