The NAO said the NDA mismanaged the tender to clean up 12 Magnox nuclear sites © Magnox
The NAO said the NDA mismanaged the tender to clean up 12 Magnox nuclear sites © Magnox

Nuclear clean-up tendering 'failures' cost £122m

12 October 2017

Ministers must address the “fundamental failures” made during the tender of a nuclear clean-up contract, which caused the loss of at least £122m, the UK’s public spending watchdog has said. 

A report by the National Audit Office (NAO) has accused the National Decommissioning Authority (NDA) of mismanaging one of the largest contracts awarded by the UK government to clean-up 12 Magnox nuclear sites—Britain’s first generation of nuclear reactors.

In 2014, the NDA awarded the 14-year contract to Cavendish Fluor Partnership (CFP)—a joint venture between UK-based Babcock International and US construction company Fluor—after a tendering process where CFP quoted a cost of £3.8bn for the project.

However, the projected cost soared from £3.8bn to £6bn because of higher-than-expected volumes of radioactive waste, which the NDA said could not be quantified before work began under the contract.

US bidders Energy Solutions and Bechtel then mounted a legal challange against the NDA over the “faulty” bidding process and in 2016 the UK's High Court ruled that the NDA had mishandled the tender process. 

The NAO report found the jump in cost had undermined the economics of the deal and exposed the NDA to the legal challenge.

In March, Greg Clark, secretary for the Department for Business, Energy and Industrial Strategy (BEIS), announced that the government was terminating its contract with CFP and launching an independent inquiry into the “defective procurement”. 

The cost of cancelling the contract was estimated at the time to be about £100m but NAO's report said the figure was “upwards of £122m”.

The report said the figure included £97.3m of settlements with the US groups Energy Solutions and Bechtel after the High Court ruling.

A further £13.8m was spent on legal fees and £10.8m of staff time was consumed by the “fiasco”, the NAO said. 

Amyas Morse, comptroller and auditor general of the NAO, said the issues raised questions over NDA’s ability to manage large contracts.

“The NDA’s fundamental failures in the Magnox contract procurement raise serious questions about its understanding of procurement regulations and its ability to manage large, complex procurements,” he said.

“In light of these issues, the department must consider whether its governance and oversight arrangements surrounding the NDA are sufficiently clear and effective in providing the scrutiny and assurance it requires to meet the standards expected in managing public money.”

The report found that the BEIS knew for two years that the changes to the contract would have “significant cost implications” but “did not make itself sufficiently aware of the scale” of budget overruns.

It added that NDA executives were slow to alert the agency’s board to problems with the contract and that officials at BEIS were slow to raise concerns with ministers. 

In March, new leadership was installed at the NDA when David Peattie, former senior executive of UK oil group BP, replaced John Clarke as chief executive and Tom Smith replaced Stephen Henwood as chairman.

Responding to the report, Peattie said that the department accepted the findings of the report and was now going to consider how the findings should be addressed. 

“I would like to apologise for these past mistakes. Since taking over earlier this year, I have made a number of improvements to the way the NDA operates ...  I am committed to doing everything to ensure these mistakes will not be repeated,” he said.

“We should not overlook the fact that good progress and savings continue to be made elsewhere in our decommissioning and hazard reduction work. However, this does not detract from the regrettable series of events highlight by the NAO.”

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