Pay cap blamed for collapse of £6bn nuclear decommissioning contract

Written by Jim Dunton on 12 October 2017 in News
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Union says Nuclear Decommissioning Authority cannot be held solely responsible for failings detailed by National Audit Office

A Magnox reactor at Hinkley Point A power station in Somerset Credit: PA

Government driven staff cuts and the public sector pay cap played a significant role in the procurement failings of the Nuclear Decommissioning Authority’s £6bn-plus Magnox clean-up contract, the Prospect union has said.

Its comments came as the National Audit Office said the scrapping of the contract had cost the taxpayer £122m because of fundamental failures in the process that awarded the work to the Cavendish Fluor Partnership in 2014.

NAO head Amyas Morse said the case raised “serious questions” about the authority's understanding of procurement regulations and its ability to handle large, complex contracts, but Prospect general secretary Mike Clancy said the NDA could not be “held solely responsible” for the flawed process.


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Last year the High Court found that if the NDA had applied its evaluation criteria correctly, Cavendish Fluor would have been excluded from the competition, and the authority agreed to settle legal claims with a consortium including Energy Solutions, which was previously one of the cleanup contractors, at a cost of £97.3m.

HM Treasury had approved the competition and contract award on the basis that the new 14-year contract would provide savings of at least 10%.

But in March, energy secretary Greg Clark announced that the Cavendish Fluor contract would be terminated nine years early, citing a “significant mismatch” between the work specified in the contract and the work that actually needed to be done. Last month He kicked off a two-year notice period for the termination last month.

This week’s NAO report said the volume of changes to the contract that a “consolidation period” had identified left the deal vulnerable to legal challenge and that the NDA's proposed approach to concluding consolidation “would have made it more difficult to defend”.

The NAO said that its £122m “cost” figure had included the legal settlement with Energy Solutions and partner Bechtel, £13.8m spent by the NDA on Legal and external advisers, and £10.8m in in-house staff time. It said the figure excluded the time of “senior central government figures” involved in the settlement and the contract termination.

Prospect’s Clancy said the issues raised in the report went wider than capacity and expertise within the NDA.

"With pressure across the public sector to contract out services it also raises questions around the ability of government to handle these cases, especially after seven years of cutting staff and funding,” he said.

“The NDA cannot be held solely responsible, for its inability to attract key procurement expertise. Government cuts on recruitment and continued limits on pay increases have also taken a heavy toll.

“With the threat of Brexit and risks of leaving Euratom hanging over the British nuclear industry, the last thing it need is more uncertainty. Our members will want reassurance from ministers that they are committed to nuclear and protecting the expertise and jobs we have in the UK.”

Commenting on the report, NAO head Morse said the Department for Business, Energy and Industrial Strategy had to look at whether its governance and oversight arrangements in relation to the NDA were robust enough.

“The NDA's fundamental failures in the Magnox contract procurement raise serious questions about its understanding of procurement regulations; its ability to manage large, complex procurements; and why the errors detected by the High Court judgement were not identified earlier,” he said.

Public Accounts Committee chair Meg Hillier echoed Morse’s sentiments, observing that that the NDA would now have to start its procurement process from scratch.

“This was one of government’s biggest ever contracts and it has gone wrong on a fundamental level,” she said.

“Its failure raises serious questions about the NDA’s capability.”

The NAO report noted that before its termination the Cavendish Fluor contract had been forecast to deliver £904m in savings compared with the previous contracts, representing as 13% savings rate.

The NDA said the contract had so far reduced costs by around £255m, relative to the old contracts.

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