Officials in firing line over nuclear contract costs

Written By: David Hencke
Published: October 20, 2017 Last modified: October 22, 2017

Parliament’s financial watchdog, the National Audit Office, has issued a scathing report on the mismanagement of one of the government’s biggest ever contracts – a £6.2 billion deal with a private consortium to decommission 12 nuclear power stations.

The contract is to be terminated in 2019 – nine years before it is due to end – and could lead to disciplinary action being taken against senior officials in the Department of Business, Energy and Industrial Strategy and the Nuclear Decommissioning Authority if the findings of a government appointed inquiry under Steve Holliday, former chief executive of the National Grid, merit it.

The NAO report reveals the officials originally thought it would cost £3.8 billion to do the job but the final figure was £6.2 billion. The contract was approved by the Treasury because it promised to save taxpayers £904m by loading risks on the contractors. Instead it has only saved £255m and this has been partly wiped out by a botched procurement which ended up with a rival consortia being able to sue the government for damages.

The High Court last year found that the NDA had wrongly decided the outcome of the tendering process and the NDA agreed to settle claims in March 2017.

The High Court found that, had the NDA applied its evaluation criteria correctly, the winning bidder, Cavendish Fluor Partnership (CFP), would have been excluded from the competition. The NDA agreed to settle legal claims with Energy Solutions and its consortium partner at the time of the bid, Bechtel, at a cost of £97.3 million.

The NAO found that the full cost amounted to £122m. It spent £13.8 million on legal and external advisers. Of this, £3.2 million was spent on the competition and £8.6 million was spent on legal fees in the ensuing litigation. The NDA estimates that in-house staff time has cost £10.8 million. This excludes the cost of staff time of senior central government officials who were heavily involved in decisions, particularly about the NDA’s settlement and its decision to terminate the contract.

In addition the NDA did not know the state of some of the decommissioned power stations so had to revise its estimates as more problems came to light – changing the terms of the winning bidder’s contract which has now had to be terminated early. Originally for 14 years, it will end nine years early.

Amyas Morse, head of the National Audit Office: “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.

“In light of these issues, the Department must consider whether its governance and oversight arrangements surrounding the NDA are sufficiently clear and effective in providing the scrutiny and assurance it requires to meet the standards expected in managing public money.”

 

About David Hencke

David Hencke is Tribune's Westminster Correspondent