The £6.1bn nuclear contract debacle

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Understanding spend

3 min readMar 29, 2017

Image credit: https://www.flickr.com/photos/martinrp/2047586869

There are few public contract bungles as egregious as the Nuclear Decommissioning Authority’s (NDA) £6.1bn contract to dismantle 12 Magnox nuclear power stations. Not only will it be terminated ten years early, but two of the unsuccessful competitors are also being paid a hefty settlement by the UK taxpayer after a series of errors emerged in the tendering and bid evaluation processes.

The tendering process began in 2012 and lasted 18 months, with Cavendish Fluor Partnership (CFP), which is 65% owned by Babcock International Group, emerging as the winner. These are the hardest kinds of procurement to conduct, high value and complex, they are very challenging for governments to conduct and almost always end in litigation. In this instance, the award was challenged in court by two unsuccessful parties, EnergySolutions and Bechtel.

The case revealed several shortcomings in the NDA’s approach to the tender. CFP was not disqualified despite failing a pass/fail criterion and the NDA’s training advice to evaluators appeared to encourage ‘shredding’ notes, with evaluators told to use online software in which notation could be deleted. The court found in favour of EnergySolutions and Bechtel, noting that, had the bids been scored appropriately, CFP would have been disqualified.

On the 27th of March, Energy Secretary Greg Clark stated that the government had settled the litigation claims for £100m. In the same statement, he also announced the termination of the contract with CFP after it emerged during a scoping exercise that the nature of the works would be ‘materially different’ to the contract specification. As Dr Paul Dorfman, of University College London’s Energy Institute, explains ‘Each Magnox reactor is bespoke so decommissioning each one is different with its own complexities and challenges.’

The results of this debacle are not just a painful payout from the public purse and embarrassment for the NDA; this affair has the potential to damage the public’s trust in the public procurement process. There will now be a full scale enquiry into the contract headed by Stephen Holliday, former chief executive of the National Grid.

Babcock has also suffered. Although Clark stressed that the termination of the contract was not the result of poor performance on behalf of CFP, the infrastructure giant’s share prices are down 3% and the company will lose £800m in future profits.

This case emphasises the importance of transparency in government contracting. The court felt that the NDA had deliberately obfuscated their evaluation process to avoid scrutiny, resulting in harsh criticism from the judge.

Transparency is not about ticking boxes. It is a way of working in which decisions are made that are open to public scrutiny. The lessons learned from the failure of this contract and the large settlement paid strengthen the argument for open contracting in the UK. After all, it was by attempting to dodge scrutiny that the NDA put itself in breach of procurement law. Had it embraced scrutiny, the public would be better off to the tune of at least £100m.

Sources

The £6.1bn nuclear contract debacle

Written by Helen McNally