Today the NAO reports that the Nuclear Decommissioning Authority
(NDA) has incurred additional costs as a result of the failure of
its Magnox contract, with the NDA agreeing to pay up to £20 million
to exit the contract early, reduce risk and support a smooth
transition. The total cost of the work needed to put the Magnox
sites into the care and maintenance stage of the decommissioning
process has also increased by up to an estimated £2.7 billion since
the NAO last reported on the contract in 2017.
In September 2014, following a competitive
procurement exercise, the NDA awarded a 14-year contract to
manage the decommissioning of two nuclear research sites and 10
Magnox sites (power stations at or nearing the end of their life)
to Cavendish Fluor Partnership (CFP). In July 2016, the High
Court ruled that the NDA had wrongly decided the outcome of the
procurement process. In 2017, the NDA paid £97.3 million to
settle legal claims with another bidder and decided, based on
legal advice, to terminate the contract with CFP nine years
early. In October 2017 the NAO reported that the failed Magnox
contract had already cost the taxpayer over £122
million.1
In its new report, the NAO found that given the
challenging circumstances created by the failure of the
initial procurement and early phase of the Magnox
contract, the NDA did well to
negotiate a revised contract to enable it to move to its
new delivery model. The NDA had six
months between March and September 2017 to design and negotiate a
revised contract while dealing with several legal risks and
planning for its new subsidiary to take over the decommissioning
work from September 2019. The NDA has managed to avoid any
further legal disputes with its supplier and other parties, while
at the same time agreeing a settlement which allowed it to leave
its original decommissioning contract nine years early and
oversee continued decommissioning work in the
meantime.
CFP completed most of the decommissioning work it was
asked to do under the renegotiated contract. It undertook £2.72
billion of work, representing 93% of what it was asked to deliver
over the five-year period. It succeeded in placing the first
Magnox station into a safe and enclosed state and completed the
de-fuelling of the last Magnox station. However, CFP fully
achieved only 45 of the 97 targets for the expected physical
states for sites at the end of the contract.
In renegotiating the contract in August 2017, the NDA
agreed to pay CFP a fee of up to £152 million subject to its
performance in managing the decommissioning work. This sum
included a cost for early termination of the contract of around
£20 million to reduce the risk of further legal challenge and
incentivise CFP to support the smooth transition to the new
subsidiary taking over decommissioning from September 2019. In
the end, the NDA paid CFP a fee of £143 million for its
management of the work, 94% of the potential fee.
Costs are likely to be subject to further change,
largely because of the inherent uncertainties involved in
cleaning up the UK's nuclear sites. When it let the original
Magnox contract, it had underestimated the scale of work needed
to decommission sites. In July 2019, the NDA estimated that the
cost of getting all the Magnox sites cleared and safely enclosed
had increased by up to £2.7 billion since the NAO’s last report
in 2017 and £4.9 billion since the contract was awarded in 2014.
The NDA is continuing to refine its estimates.
The NAO recommends that the NDA needs to increase its
understanding of the condition of sites and the volume and
complexity of remaining decommissioning work. The NDA also needs
to explore with its subsidiaries how future contracts can better
support the timely and effective management of
underperformance.
, the head of the NAO, said:
“Since the failure of the original Magnox
contract in 2017, the NDA has made progress in a number of areas.
It renegotiated the contract, avoided further legal disputes and
got on with decommissioning the power
plants.
“However, the NDA now knows that it will cost
significantly more to take the sites to the care and maintenance
stage of the decommissioning process, though there remains
inherent uncertainty about the final cost. It still needs to
ensure it has a solid understanding of the condition of each
Magnox site and the costs of cleaning them
up.”
- ENDS -
Notes for Editors
-
The NAO previously reported on the Magnox contract in
October 2017, in its report The
Nuclear Decommissioning Authority’s Magnox
contract.
