Both HM Treasury and the Department for Business, Energy and Industrial Strategy are “culpable” for the nuclear decommissioning contract debacle that saw the UK government lose nearly £100m in legal claims, the Public Accounts Committee has said.
The committee of cross-party MPs slammed the Nuclear Decommissioning Authority’s “overly complex procurement process” but pointed out that it had been signed off by the Treasury and BEIS, while the latter failed in its oversight of the NDA.
The NDA, a non-departmental public body sponsored by BEIS, agreed to settle claims worth £97m with two losing bidders, after the High Court found that a contract worth up to £6.2bn to clean up 12 nuclear sites had been awarded to the “wrong bidder” following failures in the evaluation process.
In addition, the NDA has been forced to terminate the contract nine years early, in 2019, after it underestimated the scale of work needed due to what the PAC described as a “staggeringly inaccurate understanding of the state of its sites”.
In a new report the committee said the failure in procuring and managing the contract, known as Magnox and one of government’s biggest ever put out to tender, was “one of the most significant we have seen in public contracting”.
A tender process for dismantling 12 nuclear sites was launched in 2012 and in 2014 it was awarded to Cavendish Fluor Partnership, in which Babcock International Group has a 65% stake.
Two US engineering companies, Energy Solutions and Bechtel, immediately launched a legal challenge, claiming a series of failings in the tender process including inconsistencies in the way bids were evaluated.
The evaluation process was “overly complex” – it included over 700 criteria against which bids were scored – according to the PAC.
Its report detailed other failings, including too few contract management staff (the NDA had decided to rid itself of its commercial director post in 2014), and a “lack of due diligence” in assessing the state of sites before letting the contract.
"It is wholly unacceptable that some details of what took place should remain so murky" – Geoffrey Clifton-Brown, PAC
Costs of decommissioning were underestimated to such a degree that Cavendish Fluor Partnership submitted nearly 100 requests to change the contract after it was let, with costs rising from £3.8bn in September 2014 to £6bn in March 2017 – an increase that was “beyond the limit that was legally defensible in court” and led to the contract termination.
Sir Geoffrey Clifton-Brown, PAC deputy chair, said the “sorry affair casts serious doubt” on the ability of the NDA to perform its role effectively.
“From the design and execution of the procurement process onwards, the handling of the Magnox contract has been an appalling piece of mismanagement and financial waste,” he said.
He also criticised BEIS’s oversight through UK Government Investments, which failed both in its duty to recognise that the NDA was missing crucial expertise on its board, and in its duty to challenge the NDA on cost increases to the contract.
He said: “Central government is also culpable. Having signed off the NDA’s needlessly complicated procurement plan, it then failed in its duty to taxpayers as issues emerged and costs grew.
“We accept a balance must be struck but oversight structures are there for a reason and, for a significant and critical period, UK Government Investments was simply too hands-off.”
The MPs called on BEIS, the Cabinet Office and the NDA to explain how they have changed their advice and guidance in the light of these failures.
Some £500m of the cost increases requested by Cavendish Fluor Partnership remains unaccounted for, and the NDA has suggested they may have paid a previous contractor for work that was not done. The committee also called on the NDA to keep it abreast of the findings of an investigation into the unaccounted-for costs, and to detail how it will recover any lost money.
"The workforce are best placed to advise on how this can be avoided again" – Sue Ferns, Prospect
Clifton-Brown added: “It is wholly unacceptable that some details of what took place should remain so murky – not least the NDA’s inability to fully account for some £500m of taxpayers’ money paid to its previous contractor.
“We expect the NDA to be open with us about what it is doing to address this and other failings identified in our report, such as shortcomings in the skills and expertise of its staff.”
Sue Ferns, senior deputy general secretary of Prospect, the largest trade union for scientists and specialists working in the UK nuclear industry, commented that the government must learn from these errors and commit to providing additional resources to avoid them in the future.
She said: “The findings of the Public Accounts Committee reinforce Prospect’s concerns, at the time, about the money available, and project and contract management capability of the Nuclear Decommissioning Authority.
“Central government must also be held to account for approving the NDA’s approach to procurement which resulted in a monumental waste of taxpayer’s money.
“The recommendations made by the committee should be implemented through dialogue with the workforce who are best placed to advise on how this can be avoided again.”
An independent inquiry into the debacle was announced by government last year, which published its interim findings in October.
Responding to the findings, BEIS said that business secretary Greg Clark had been clear that the reasons for the failure of the Magnox procurement should be "exposed and understood" by the independent inquiry.
“We have already taken steps to further strengthen the governance and oversight of the NDA and we look forward to the final recommendations of the Magnox Inquiry when it is completed later this year.”
An NDA spokesperson said: “As the Nuclear Decommissioning Authority continues to improve the way it manages the clean-up of the nation’s oldest nuclear sites, we welcome the scrutiny of the Public Accounts Committee and [its] report.
“We will study the committee’s recommendations and those to come from the Holliday Inquiry, and have already taken significant steps to address the issues arising from the Magnox competition and contract.
“We are committed to learning from the mistakes made, implement any necessary improvements and continue to focus on the important work of cleaning up the UK’s nuclear legacy.”