Magnox: Early Contract Terminations

Rebecca Long Bailey Excerpts

Monday 27th March 2017 Commons Chamber

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

(Urgent Question): To ask the Secretary of State for Business, Energy and Industrial Strategy if he will make a statement on the Nuclear Decommissioning Authority’s early contract terminations at the Magnox estate?

[The Secretary of State for Business, Energy and Industrial Strategy (Greg Clark)]

This morning, I informed the House that the NDA has terminated its contract with the Cavendish Fluor Partnership for the decommissioning of 12 redundant Magnox sites. The NDA ran a £6.1 billion tender process from April 2012, which resulted in a 14-year contract being awarded in September 2014 to the partnership, which is a joint venture between the British firm, Cavendish Nuclear, and Fluor Inc.

CFP started work on the estate on 1 September 2014 and there then started a consolidation process to ensure that the scope of the 2012 tender matched the actual status of decommissioning. It became clear to the NDA that there is a significant mismatch between the work that was tendered for and the actual scale of the work that is required to be carried out. The NDA board concluded that it should terminate the contract on two years’ notice. Termination is made with the agreement of CFP and is no reflection whatsoever on its performance.

Dealing safely with the UK’s nuclear legacy is fundamental and non-negotiable. Decommissioning work will continue under CFP for a further two and a half years. The NDA will establish arrangements for a replacement contracting structure to be put in place for when the current contract ends. The NDA has also settled outstanding claims against it by Energy Solutions and Bechtel in relation to the 2014 Magnox contract. The NDA was found by the High Court to have wrongly decided the outcome of the procurement process. It is clear that the 2012 tender process was deeply flawed. The NDA has agreed settlement payments with Energy Solutions of £76.5 million, plus £8.5 million of costs, and with Bechtel of $14.8 million, plus costs of about £462,000—approximately £12.5 million in total.

Those are very substantial costs, which could have risen further if the case had proceeded. Taxpayers must be able to be confident that public bodies are operating effectively and securing value for money. Where that has not been achieved, such bodies should be subject to rigorous scrutiny. I have therefore established an independent inquiry into the original procurement process and why the 2014 contract proved unsustainable. Those are separate issues, but they need to be examined thoroughly. I have asked Mr Steve Holliday, the former chief executive of National Grid plc, to lead this inquiry. It will take a cradle-to-grave approach, beginning with the NDA’s procurement and ending with the contract termination. The inquiry will set out the lessons learned and recommend any further actions it sees fit, including any disciplinary investigations or proceedings that may be appropriate. The inquiry will report jointly to me and to the Cabinet Secretary, and his report will be available to this House and to the Select Committee.

This was a defective procurement with significant financial consequences, and I am determined that the lessons to be learned should be exposed and understood; that those responsible should be properly held to account; and that this should never happen again.

--- Later in debate ---

[Rebecca Long Bailey]

The NDA has withdrawn its appeal against the judgment that was handed down in late July last year, so will the Secretary of State explain why this decision has been taken now, why the matter was brought to appeal in the first instance, and whether both actions were sanctioned by him or his predecessor?

The judgment confirmed that the NDA had not acted properly in the tender process, and that it was

“acutely aware that an unsuccessful bidder might challenge the outcome of the competition.”

The court stated that the NDA had fudged the evaluation to achieve a particular outcome. More worryingly, the judge also confirmed that the NDA attempted to get rid of information that might have been detrimental to its case, and there was reference to the shredding of notes. Given the serious nature of the judgment, will the Secretary of State assure the House that there will be full public disclosure of the investigations, and a public hearing? Does he agree that this case has called into question the future operation of the NDA? Will he explain what structural changes are necessary, and when? Can he offer any assurances to Magnox workers?

Finally, the Secretary of State’s written statement confirms:

“It has become clear to the NDA…that there is a significant mismatch between the work that was specified in the contract as tendered in 2012”.

Will he tell the House when he or his predecessor was first aware of that mismatch and whether it would have been apparent from the work that had already been carried out by previous contractors?

[Greg Clark]

The hon. Lady is quite right to ask her questions, and I hope she will agree that the written ministerial statement I have made today is thorough and comprehensive. I am very happy to have conversations with her and the Select Committee over the weeks and months ahead.

The hon. Lady asked some specific questions about the termination of the contract and the litigation. On the latter, there was indeed a Court hearing and judgment in July last year, and there was another one in December on which the NDA has reflected. On 1 March this year—a few weeks ago—a new chief executive and chair of the NDA took office. It seemed to me appropriate that a new set of eyes should consider these matters and the course of action, rather than those people who were responsible for and involved in the procurement exercise looking into it. In answer to the hon. Lady’s question, it was a decision for the NDA board—that is how it is constitutionally established—but its decision required ratification by me, the Chief Secretary to the Treasury and the accounting officer in my Department.

The hon. Lady asked some very important questions about the conduct of the original procurement process and its management. That is exactly why we need to have an independent figure—independent of Government and of the NDA—to make a report available to the House, to me and to the Cabinet Secretary, not only so that we can learn the lessons and ensure that things cannot happen again, but so that, if there is fault and an error has been made, the recommendation of disciplinary action can follow.

The hon. Lady rightly asked about the Magnox workforce, for whom this will be a difficult day. I am happy to confirm to the House that there is no question about the operational good performance of the contract; it was a question of the terms of the letting of the contract. Good progress has been made, and the workforce employed on the decommissioning contract will continue as planned. When the report is made available, lessons will be learned about the NDA’s structure, as well as any particular procedural aspects.