Inquiry after NDA terminates nuclear contract

The Department for Business, Energy & Industrial Strategy has been left red-faced after the Nuclear Decommissioning Authority was forced to terminate its contract with Cavendish Fluor Partnership for the management and decommissioning of 12 redundant Magnox sites (including two research sites).

These, together with the Calder Hall reactor on the Sellafield site, formed the UK’s first fleet of nuclear power stations. BEIS has now ordered an independent inquiry into the fiasco.

The NDA ran a £6.1bn tender process from April 2012 which resulted in a 14-year contract being awarded in September 2014 to the Cavendish Fluor Partnership – a joint venture between the British firm Cavendish Nuclear, a subsidiary of Babcock International, and the US company Fluor Inc. This decision was approved by the then Department for Energy and Climate Change and HM Treasury.

Work started on the Magnox estate on 1 September 2014. There then began a process to ensure that the scope of the contract assumed in the 2012 tender matched the actual status of the decommissioning to be done on each site, a process known as consolidation.

In a statement, energy minister Greg Clark said: “It has become clear through this consolidation process that there is a significant mismatch between the work that was specified in the contract as tendered in 2012 and awarded in 2014, and the work that actually needs to be done.

“The scale of the additional work is such that the Board considers that it would amount to a material change to the specification on which bidders were invited in 2012 to tender.

“In the light of this, the  Board, headed by a new chair and chief executive, has concluded that it should exercise its right to terminate the contract on two years’ notice. The contract will be terminated in September 2019, after five years rather than its full term of 14 years. “

He added: “Dealing safely with the UK’s nuclear legacy is fundamental and non-negotiable. It is important to emphasise that this termination is no reflection on the performance of Cavendish Nuclear or Fluor, and work on decommissioning at all the sites will continue for a further two and a half years.

“During this period, the NDA will establish arrangements for a replacement contracting structure to be put in place when the current contract ends. This work will be led by the NDA’s new chief executive, David Peattie.

“In addition I can announce today that the NDA has settled outstanding litigation claims against it by Energy Solutions and Bechtel, in relation to the 2014 Magnox contract award.

“As part of the settlements, NDA has withdrawn its appeal against the judgment. While these settlements were made without admission of liability on either side, it is clear that this 2012 tender process, which was for a value of up to £6.1bn, was flawed. The NDA has agreed settlement payments with Energy Solutions of £76.5m, plus £8.5m of costs, and with Bechtel of $14.8m, plus costs of around £462,000 – approximately £12.5m in total.

“These are very substantial costs and had the potential to rise much further if the case had proceeded to trial.”

Clark said in the light of these procurement failings he was setting up an independent Inquiry into the conduct of the 2012 procurement process and the reasons why the 2014 contract proved unsustainable. “These are separate issues but both need to be examined thoroughly by an authoritative and independent expert.

“I have asked Mr Steve Holliday, the former chief executive of National Grid to lead the inquiry. The Inquiry will take a ‘cradle to grave’ approach beginning with the ’s procurement and ending with the contract termination.

“The inquiry will also review the conduct of the  and of government departments and make any recommendations it sees fit – including what further investigations or proceedings, for example possible disciplinary proceedings, may be required as a result of its findings.”