UK 6-billion-pound decom tender cuts spending via unrealistic schedule

As the UK government prepares to re-tender its giant nuclear fleet decommissioning contract with revised scope, project updates indicate delays to reaching Care and Maintenance status at seven of the 12 reactor sites.

The UK government has launched a “cradle-to-grave” inquiry into what went wrong in the National Decommissioning Authority’s (NDA) two-year procurement and governance of a 14-year decommissioning contract across 12 of its nuclear power plant sites.

On March 27 Energy Secretary Greg Clark announced the NDA would terminate its contract with Cavendish Fluor Partnership (CFP) for the management and decommissioning of the sites in September 2019. The contract was allocated in a 6.1 billion-pound ($7.9 billion) tender launched in 2012 and was effective from 2014 and expected to run until 2028.

"It has become clear...that there is a significant mismatch between the work that was specified in the contract as tendered in 2012 and awarded in 2014, and the work that actually needs to be done," Clark said.

Magnox, a subsidiary of CFP, is managing the decommissioning work. A detailed contract Consolidation Phase has shown that the required work “is now materially different in volume from that specified in the NDA’s tender, and this puts the contract at the risk of a legal challenge,” Babcock International Group, owner of Cavendish Nuclear which holds a 65% stake in CFP, said in a statement March 27. The cost Consolidation Phase was built into the contract to compare the bid CFP made in 2013 with the situation CFP inherited in September 2014.

The termination of the contract follows a judgement by the UK’s High Court in July 2016 that the NDA did not correctly decide the outcome of the procurement process in 2014.

Justice Peter Fraser said the NDA had failed to follow the U.K.'s Public Procurement Regulations and had treated a competing tender by Energy Solutions and Bechtel "quite differently and less advantageously" than CFP's tender. The Judge said NDA had awarded “the most economically advantageous tender” in the interest of public policy.

Following the verdict, the NDA has agreed to pay settlements to Energy Solutions-- the previous contractor for the sites from 2007 to 2014-- and Bechtel.

“Terminating is no reflection on CFP as performance on the sites under its ownership has been strong,” NDA Chief Executive David Peattie noted in the Babcock statement. Indeed, Magnox has yielded significant savings through the implementation of standardization programs and lead and learn concepts.

The CFP's Consolidation Phase cost findings are expected to feed directly into the government's enquiry, which will be led by Steve Holliday, former CEO of National Grid.

The enquiry team is to publish an interim report in October and NDA will establish a replacement contract structure by 2019.

While published estimated costs for the decommissioning work have fallen year-on-year, underlying business activity updates indicate that work is taking far longer than expected as the contractor tackles first-of-a-kind challenges.

Cost savings

CFP submitted their proposal for the 14-year contract to the NDA in November 2013, based on scheduled project developments and costs over the following 18-month period. 

When announced as preferred bidder in March 2014, CFP was expected to cut public spending by over 1.5 billion pounds (around 25%) over the contracted period. In its statement last month, Babcock said the contract potentially offered “in excess of 2 billion pounds of savings” by the end of the original contract tenor, a position they said was “widely recognized by the NDA.”

In its latest Annual Report and Accounts published in July 2016, the NDA remained confident that required savings were still “forecast to be achieved.”

According to the NDA, CFP’s innovations in waste management and streamlined leadership structure and management systems generated cost savings as the fleet progressed towards the Care and Maintenance (C&M) stage.

Undiscounted costs for the Nuclear Provision of the contract over the past three complete fiscal years (i.e. years with accounts submitted to-date), show the estimated lifetime costs of decommissioning the fleet have fallen year-on-year.

            Total undiscounted Nuclear Provision by site (million pounds)

Source: Nuclear Energy Insider.
Data aggregated from NDA Annual Reports and Accounts, NDA Business Plans, Magnox Plan Summary Reports.
NB/ No undiscounted cost data is provided prior to 2013-14.
NB/ Undiscounted cost data is analyzed over discounted cost data in this instance to facilitate year-on-year comparisons without factoring in variable adjustments.

However, by early-2015 it was reported that around half a dozen projects were not as advanced into their decommissioning program as had been expected and the CFP required more state money to sustain the fiscal savings we are currently seeing over the contract duration.

Schedule slippage

In February 2015, the Independent newspaper reported that managers were openly discussing the need for extra funds in presentations and meetings following their site appraisal program. Delays in the decommissioning plans at Bradwell and Trawsfynydd had significantly raised costs, the report said.

Year-on-year changes to C&M status during CFP’s post-award scope assessments indicate some of the adjustments required going forward. The below table shows that seven sites are behind original schedule to enter C&M, four sites are on target, and the expected Dungeness C&M status is now two years ahead of target.

Site activity updates show that Bradwell and Trawsfynydd have seen the most delays, while the Wylfa site has only recently started Site Restoration and Integrated Waste Management tasks as its operating period was extended to 2015.

                       Contract End Point Status Targets to 2028

                                             (Click image to enlarge)

Source: Nuclear Energy Insider.
Information aggregated from NDA Annual Reports and Accounts, NDA Business Plans, Magnox Plan Summary Reports.

At Bradwell, the bulk of delays have been connected to Fuel Element Debris (FED) retrieval and dissolution, which began in 2013-14 and remains on the agenda for the 2016-17 period.

As the UK’s first Magnox site scheduled to enter the Care and Maintenance stage in 2019, Bradwell is fielding a lot of first-of-a-kind challenges.

                   Bradwell Business Activity Trajectory, 2012-17

                                     (Click image to enlarge)

Source: Nuclear Energy Insider.
Information aggregated from NDA Annual Reports and Accounts, NDA Business Plans, Magnox Plan Summary Reports.

At Trawsfynydd, delays within the initial design phase and civil enabling works impacted on the commencement of the retrievals phase, while FED retrieval project delays in turn impacted on follow-on decommissioning and demolition projects. During financial year 2016-17, Magnox was in discussions with regulators over the End State definition for the Ponds complex after targets slipped from strategies agreed in 2015-16.

Balancing act

The phased cost schedule carved out for CFP forecasted 4 to 5 billion pounds of spending in the first seven years (up until 2021) and a further 2 billion pounds of spending in the final seven-year term.

The tenor and value of the new post-2019 contract will depend upon a number of factors, including the revisions to work scope and subsequent changes to project timelines. Given the revised C&M entry dates, the contract tenor could run into the 2030s.

The NDA will need to strike a balance between a realistic budget and optimizing taxpayer funds. Public confidence in decommissioning cost estimates has already been dented by earlier issues-- in 2015, the UK government stripped Nuclear Management Partners (NMP) of its 20-billion-pound Sellafield decommissioning contract, six years into its 17-year term. The NDA had notified the government of underperformance, delays and spiraling costs.

Babcock CEO Archie Bethel has made it clear the company wants to continue to play a major role in the NDA decommissioning projects going forward.

"We look forward to working with [NDA], not only to bring this contract to an orderly end in two and half years’ time but also on future projects, including the completion of the decommissioning of the Magnox power stations,” Bethel said in the company's March 27 statement.

By Kerry Chamberlain