£6bn Magnox contract scrapped and ‘defective’ procurement to be investigated
The Nuclear Decommissioning Authority is scrapping Cavendish Fluor Partnership’s £6bn contract for the management and decommissioning of 12 redundant Magnox sites.
Energy secretary Greg Clark admitted that the procurement process had been flawed in the first place. He said there had been “a 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 Nuclear Decommissioning Authority (NDA) has agreed to pay more than £100m to settle outstanding litigation claims against it by Energy Solutions and Bechtel in relation to the original contract award. The government has commissioned an independent inquiry into the procurement process.
Cavendish Fluor Partnership is a joint venture between the Cavendish Nuclear (65%), part of Babcock International, and US-based Fluor Corporation (35%). Babcock said that the early termination of the contract was by mutual agreement.
The 14-year contract will come to an end in August 2019 after just five years, costing Babcock £800m.
Babcock said: “Following the detailed contract consolidation phase, it has become apparent that the work that needs to be done at the 12 Magnox sites is now materially different in volume from that specified in the NDA's tender, and this puts the contract at risk of a legal challenge. Last year a High Court judge ruled against the NDA in respect of its award of the Magnox contract.”
NDA ‘s new chief executive David Peattie said: "Terminating is no reflection on CFP as performance on the sites under its ownership has been strong.”
Babcock chief executive Archie Bethel said: "I am pleased that the NDA has confirmed that CFP's performance has been strong. We have developed a good working relationship with the NDA and we look forward to working with them, not only to bring this contract to an orderly end in two and a half years' time but also on future projects, including the completion of the decommissioning of the Magnox power stations."
CFP started work on the Magnox estate on 1st September 2014. There then started 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 – or consolidation. Here, the ‘mismatch’ emerged.
In a written ministerial statement today, energy secretary Greg Clark explained: “The scale of the additional work is such that the NDA 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 NDA 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.”
NDA chief executive David Peattie, who only joined the organisation this month, will now establish arrangements for a replacement contracting structure.
The NDA has also agreed to pay out more than £100m to settle outstanding litigation claims against it by Energy Solutions and Bechtel in relation to the 2014 Magnox contract award.
The NDA was found by the High Court in its judgment of 29th July 2016 to have wrongly decided the outcome of the procurement process. As part of the settlements, NDA has withdrawn its appeal against the judgment.
Energy secretary Greg Clark said in his statement: “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.”
Mr Clark added: “These are very substantial costs and had the potential to rise much further if the case had proceeded to trial. Taxpayers must be able to be confident that public bodies are operating effectively and securing value for money. Where this has not been achieved such bodies should be subject to rigorous scrutiny.
“I am therefore establishing today 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 NDA’s procurement and ending with the contract termination.
“The inquiry will also review the conduct of the NDA 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.”
He concluded: “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.”
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This article was published on 27 Mar 2017 (last updated on 29 Mar 2017).