£6.1bn nuclear decommissioning contract cancelled by BEIS after procurement flaws

Written by Richard Johnstone on 28 March 2017 in News
News

Compensation to firms hits nearly £100m due to botched deal, says business secretary Greg Clark

Hinkley Point A nuclear power station, one of the Magnox reactors that was to be decommissioned under the contract. Photo credit: PA

The government has been forced to cancel a £6.1bn nuclear decommissioning contract due to what business secretary Greg Clark said was a “defective procurement” process that meant the deal agreed did not cover the work required.

In a written statement to parliament yesterday, Clark announced the termination of the contract by the Nuclear Decommissioning Authority would cost taxpayers nearly £100m in compensation to the firms concerned.

In a move described as “extraordinary” by trade unions, Clark told MPs he had given permission for the NDA, a non-departmental public body sponsored by the Department for Business, Energy & Industrial Strategy to terminate the 14-year deal early. He also announced an inquiry into the failure.

Under the contract between the NDA and the Cavendish Fluor Partnership (CFP) – a joint venture between the British firm Cavendish Nuclear and the US company Fluor – the consortium was to manage the decommissioning of 12 nuclear sites, which had operated so-called Magnox reactors.

The partnership was awarded the deal following a tender in 2012, and it was approved by both the then Department for Energy and Climate Change and the Treasury.

However, Clark said that following the signing of the deal in September 2014, a process called consolidation was undertaken to ensure the work done matched the contract.

This process found “a significant mismatch” between the work that was specified in the contract and what actually needed to be done, he said. The shift was of such a scale as to represent a material change to the specification on which bidders were invited in 2012 to tender.

As a result, the NDA had recently sought and received permission from Clark, chief secretary to the Treasury David Gauke and Department for Business, Energy and Industrial Strategy permanent secretary Alex Chisholm to cancel the deal. It will end in September 2019, after 5 years.

The business secretary also confirmed the NDA had settled litigation claims against it by two other firms, Energy Solutions and Bechtel, who had taken legal action following the contract award for the Magnox sites. The agency has agreed settlement payments with Energy Solutions of £76.5m, plus £8.5m of costs, and with Bechtel of around £12.5m.

“This was a defective procurement, with significant financial consequences, and I am determined that the reasons for it should be exposed and understood, that those responsible should properly be held to account, and that it should never happen again,” Clark said.

An independent inquiry, headed by former National Grid chief executive Steve Holliday, will now examine the botched procurement, Clark announced. This will report to Clark and cabinet secretary Sir Jeremy Heywood and cover the full length of the procurement process, as well as the conduct of the NDA and government departments. The Holliday inquiry could make any recommendations it sees fit, including possible disciplinary proceedings, Clark added.

Responding to the statement, Prospect general secretary Mike Clancy said this was “an extraordinary situation given the scale and importance of the Magnox contract to the UK nuclear industry”.
He added: "The public, and our members, will want reassurance that the termination process, and uncertainty over the future of decommissioning, will not lead to standards deteriorating or the loss of UK expertise.”

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Richard Johnstone is CSW's deputy editor and tweets as @RichRJohnstone

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