Nuclear De-commissioning – £100 billion and a contract management nightmare

The predicted cost of decommissioning the UK’s largest nuclear facility at Sellafield in Cumbria, is now estimated at £67.5 Billion over the next 30 years or so. That figure continues to rise, inexorably, year by year, and represents over £1,000 for every man woman and child in the UK.

The management structure delivering this huge programme is somewhat byzantine. The Nuclear Decommissioning Authority (NDA), an arm’s-length body of the Department for Energy and Climate Change (DECC), was set up in 2005 with the specific remit to tackle the UK’s nuclear legacy. Sellafield is run for the NDA  by Sellafield Limited, the company licensed by regulators to operate the site.

In November 2008, the NDA contracted with an international consortium, Nuclear Management Partners Limited (NMP), made up of URS, AMEC and Areva, to improve Sellafield Limited’s management of the site, including the development of an improved lifetime plan.

Is the taxpayer getting a good deal, from the £1.6 Billion spent each year, particularly in terms of the money spent with NMP? That was what the government’s Public Accounts Committee looked at recently.

The really worrying thing that strikes me, from a taxpayer point of view, is the fact that nobody involved in this has a real  incentive to act as if value for money is important. Because of the uncertainty of the task, there has been limited risk transfer to the contractors – little fixed price project work for instance.

So NMP and their sub-contractors appear to do work, and get paid, with little linkage to deliverables, outcomes or reaching a conclusion. They seem to be reimbursed mainly on a cost plus basis – many readers will know that this can be a recipe for disaster, particularly when we don’t even have the ability to see progress. So on a conventional construction project, time and materials probably isn’t sensible, but at least you can see if the contractor isn’t actually achieving anything!

Here… who knows.

A second concern was the lack of understanding shown by the MPs on the PAC who questioned executives involved. A good example was when the MPs alighted on the payments made to executives working on the programme,  seconded from the firms that make up NMP – AMEC, URS and Areva. The fees for 16 staff were £11 million in 2011-12, or £680K per person. But the MPs seem unable to distinguish between the salaries paid to these people (unknown) and what were in effect the consulting fees paid to the firms for their services.

Now it may be these are market rates for the most respected nuclear experts in the world. But I really want to know the MARGIN that AMEC and co are making on them. One would hope that the NDA understand this, as they manage the provider, although they didn’t volunteer the information to the PAC.

But my main concern is that no-one involved has the incentive to ever make this end – because of course as well as NMP’s obvious interest in prolonging the programme, the ongoing lucrative employment of the senior NDA staff also depends on this task continuing. Their senior team are paid around £300K a year, pretty good for civil servants.

I acknowledge that it is very difficult to transfer risk when there is so much uncertainty in terms of what needs doing at Sellafield, but there’s little evidence that NMP are being managed as tightly as they need to be given the time and materials nature of the contract, and our MPs clearly don’t have the commercial skills or knowledge to hold anyone properly to account.

DECC is not exactly renowned as a highly commercially skilled Department either. The PAC has recommended a greater role for the Cabinet Office Major Projects Authority, which does seem positive – someone has to do some serious thinking about some stronger cost control and ideally how capping of fees can be applied to this programme.

But at the moment this looks suspiciously like a money pit for the taxpayer. A gravy train for those involved. A golden ticket to endless profits. Insert your own analogy here.  And unless something changes, I’d bet that this will cost £100 billion, and end up dwarfing the NHS IT programme, the ID card, Aircraft Carriers and the various other examples of egregious government spend we’ve seen over recent years.

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