National Audit Office Identifies Mega Taxpayer Losses on NDA Programme

The National Audit Office published their report last week into the Nuclear De-commissioning Authority’s disastrous handling of the procurement and management of the Magnox contract. There are a number of issues tied up in this, including one we wrote about extensively – the letting of a contract to CFP which was challenged successfully by Energy Solutions, an unsuccessful bidder. The court found in the supplier’s favour and the NDA ended up paying around £100 million to that firm and Bechtel in damages.

We wrote about the case extensively here and on our Public Spend Forum website. It truly was one of the very worst public procurement projects we have ever seen. The NDA team ignored their own rules on qualifying factors for bidders, and manipulated evaluation scores after the event – with no attempt to justify their behaviour – to arrive at the result they wanted.

The NAO work is what they call an “investigation” rather than one of their value-for-money reviews. That means it sticks very much to establishing the facts, rather than making more judgemental comments or generic recommendations. Because of that, the tone of the report is perhaps less “furious” than the casual reader might expect, given the dreadful waste of public money. But while they don’t actually go into the procurement details in as much depth as we did in our articles, what the NAO does very well is highlight some additional issues that didn’t come out during the procurement court case.

These are even more costly potentially than the damages payments, running into the billions of pounds, unbelievably. (You would think this would be front page news were it not for all the attention on Brexit and political shenanigans). For instance, as the NAO says:

“During consolidation, the expected costs of decommissioning the Magnox sites increased from £3.8 billion in CFP’s winning bid in 2014 to £6.0 billion in 2017. The NDA attributes £0.7 billion of this increase to a revised understanding of the volume of waste and asbestos on the sites, which it says could not be quantified before work under the contract began. Another £1.0 billion of the increase was expected by the NDA when it awarded the contract, but £0.5 billion was not expected”.

This “consolidation” process was around what the contractor found when they started work, compared to what they were told in the tender process. Consolidation went on for years., in part because the NDA did not understand its own sites, equipment and so on. But how can you “expect” a £1 billion increase in cost when you let the contract, for goodness sake?

Anyway, the report reveals a frightening lack of commercial capability in NDA – and yet this is an organisation that a few years ago decided it didn’t need a Commercial Director. The NAO reports that “the NDA has decided to re-instate its Commercial Director position”. But why did they ever get rid of it? This is an organisation that spends billions with third-party suppliers – how could they possibly think they didn’t need a Board-level commercial head? Bill Crothers was in place as CPO for government during this period, and perhaps he should have insisted on that, but NDA is on the periphery of central government so it probably wasn’t top of his priority list.

We are also still shocked by the role played by legal advisers Burges Salmon in this. How they could have thought that the procurement process was acceptable is beyond me, and why they advised the NDA to fight the challenge is another mystery.  NAO reports that “£8.6 million was spent on legal fees in the ensuing litigation”.

Then we have the role of the Cabinet Office’s Major Projects Authority (MPA), which gave the NDA procurement a clean bill of health over several reviews between 2012 and 2014. John Manzoni, now Chief Executive of the civil service and the second most important civil servant after Jeremy Heywood, joined as head of the MPA in February 2014, so he just about escapes culpability for that failing. But how did those reviews not spot what was going on? Either they just did not look at the detail of the procurement process, or they did not include reviewers with procurement experience and expertise, or perhaps both of those shortcomings were evident.

All in all, this is a historic case study of dreadful public sector waste and incompetence. Back in March, the government appointed Steve Holliday, the former Chief Executive of National Grid, to lead an inquiry into the affair; we will see whether he comes up with anything additional to the NAO report (and our previous articles of course). We don’t know when his findings are due.


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