Taxpayers bear risk on nuclear decommissioning contracts

5 February 2013

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5 February 2013 | Andy Allen

Contracts that mean taxpayers bear financial risks of project delays are partly responsible for huge cost overruns at the UK’s largest nuclear facility, MPs have said.

A report by the Committee of Public Accounts (PAC) said the costs of decommissioning Sellafield nuclear power plant are £67.5 billion and still rising.

The Nuclear Decommissioning Authority (NDA) agreed a lifetime plan for the plant with Sellafield Limited, which manages the facility. Sellafield Limited in turn contracted an international consortium, Nuclear Management Partners (NMP), to improve management of the site.

But the committee believes the NDA needs to keep tighter control on the consortium to properly control costs and chairman Margaret Hodge criticised the relationship between the different parties.

“Taxpayers are not getting a good deal from the Authority’s arrangement with NMP,” she said. “Last year, the consortium was rewarded with £54 million in fees, despite only two out of 14 major projects being on track.

“All payments to NMP and, indeed to its constituent companies, need to be strictly controlled and determined by the value gained, so that payments are not made where companies have not delivered.”

The Authority has a cost reimbursement contract with Sellafield Limited and all bar one of the major projects at the site involve a cost reimbursement contract between Sellafield Limited and its subcontractors.

“This means that taxpayers, rather than Sellafield Limited or its subcontractors, bear the financial risks of delays and cost increases,” said Hodge.

The report stated: “Gaps in the capability of subcontractors in the supply chain to undertake work to the standards required for nuclear installations have had direct consequences for the speed and efficiency of project delivery.”

The report also said that the costs of seconding staff from NMP’s parent companies appear excessively high. Contracts between Sellafield Limited and NMP’s constituent companies AMEC, AREVA and URS accounted for 6 per cent of total procurement spending at Sellafield in 2011-12, worth £54.4 million.

The NDA said it had sufficient controls in place to prevent NMP giving contracts preferentially to their parent company’s constituent businesses, but agreed it could be perceived differently.

The report also said: “The £1 billion spent annually by Sellafield Limited on procurement ought to help create jobs, build skills and drive sustainable economic growth in the region and the UK,” the report added. The NDA and Sellafield Limited should set out how that spend can benefit local suppliers, it said.

The NDA and Sellafield Limited have said they are working to address problems and boost capability and performance.

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