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Magnox: Early Contract Terminations

Volume 624: debated on Monday 27 March 2017

(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?

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.

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?

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.

Will my right hon. Friend join me in paying tribute to the workforce at Bradwell-on-Sea in my constituency? They are doing a magnificent job in decommissioning the power station there. Will he confirm that nothing in his statement will prevent that work from continuing? Will he also listen to their concerns about the effect on their pension entitlements of certain changes that have been made regarding the cap on exit payments?

I join my right hon. Friend in paying tribute to the workforce. As he will be aware, good progress has been made in decommissioning the site in Bradwell, with the underground waste vaults containing intermediate level waste having been cleared and decontaminated. That is a reflection of the hard work. There is a separate set of discussions and consultations going on with regard to the pension arrangements, which is not related to today’s announcement.

I thank the Secretary of State for his response and the shadow Secretary of State for securing this urgent question. This debacle shows that the UK Government cannot even manage their current nuclear project, which comes at great cost to the taxpayer, leaving their case for a nuclear energy future more threadbare than ever. Given the bizarre and illogical decision to leave Euratom, the trade union Prospect is right to be concerned and to seek reassurances that uncertainty over the future of decommissioning will not lead to a deterioration in standards. What assurance can the Secretary of State give today?

This should be a wake-up call. The UK Government’s nuclear obsession will do nothing to lower energy bills and will only burden the next generation with unprecedented economic, environmental and security instability and risk. The Tories should do the responsible thing and scrap their nuclear obsession in favour of investment and renewable energy in carbon-capture technology. Scottish Renewables recently reported that one in six renewable energy jobs in Scotland will be under threat in the next year. Will the Government acknowledge that their energy policies need to be reviewed to allow the Scottish Government to continue with their competent and ambitious vision of a prosperous green future? Finally, when can we expect full details of the timetable of the investigation into this matter?

A little humility might be appropriate here, because the Scottish Government provided oversight of this procurement as part of the NDA competition programme board. I am sure that the lessons to be learned from 2012 to 2014 also apply to the Government in Scotland. I am sure that, whatever the view on future new nuclear power, the people of Scotland, as well as those of the whole of the United Kingdom, would want the existing nuclear power stations to be decommissioned safely and to have arrangements in place to ensure that that can be done reliably. On the independent review, which I hope the hon. Lady welcomes, I have asked Mr Holliday to give some interim findings by October, so that they can inform the further decisions about the re-letting of the contract.

I am sure that my right hon. Friend will pay no attention whatsoever to the bizarre asseverations of the Scottish National party spokesman. In asking Steve Holliday, in whom we have considerable confidence, to do this review, I hope that my right hon. Friend will seek to bring the review to a final conclusion reasonably soon after the interim report in October so that we can get to the bottom of this matter and ensure that it does not repeat itself in future years.

I agree with my right hon. Friend: it is important quickly to learn the lessons and to apply them. This is very important work. The work is being carried out to a high standard, but those lessons must be learned and applied.

May I thank the Secretary of State for his courtesy call on this matter this morning and for his subsequent letter? The Business, Energy and Industrial Strategy Committee will challenge hard, but work constructively with him and with Steve Holliday on this important issue. Will he clarify whether the inquiry will be confined to the procurement process, which led to this specific contract? Will it consider other contracts such as the one to decommission Dounreay, which was awarded to essentially the same consortium that won the Magnox contract? I think that he has already confirmed this, but will he say whether the inquiry will be broad enough to consider whether the governance and management arrangements of the NDA have always been, and will continue to be, fit for purpose?

I am grateful to the Chairman of the Select Committee for what he said. I can confirm that the governance and the management arrangements of the NDA are very much in scope. I put the terms of reference in the Library of both Houses of Parliament this morning. It is open to Mr Holliday to go where the evidence takes him—to use that phrase on this. The particular concern is over this contract, but if he feels that he needs to look at other aspects of the NDA’s management, he is absolutely free to do so.

I welcome the characteristic candour and openness with which the Secretary of State has approached the issue. Will he reassure me and the House that the scope of the inquiry will look not only at the NDA, but—as I think he just alluded to—at the role, if any, of UK Government Departments and the Scottish Government in the process?

I will, indeed. The terms of reference that were published with my written statement this morning make it very clear that, as is absolutely right and proper, the inquiry applies to the NDA and Government Departments, from the beginning of the procurement in 2012 to the conclusion of the litigation and the termination of the contract.

Under current plans, Trawsfynydd power station will lose most of its jobs in less than 10 years. The Government are now in a position to commit to a programme of continuous decommissioning, as recommended by the Select Committee on Welsh Affairs. When will the Secretary of State publish revised plans following today’s announcement, and will he agree to meet me to discuss the future of the Trawsfynydd site?

I will certainly meet the hon. Lady. I am glad that she has given me the opportunity to emphasise that the work will continue as planned at all the sites. As she will know, work is ahead of schedule in the plant she mentioned. In the light of that, I will meet her to update her on the latest timings.

This was clearly a defective procurement with quite serious financial consequences. I welcome the Secretary of State’s determination that the reasons will be exposed, but will he assure the House that people found to be responsible or at fault will be brought to account?

I can confirm that the terms of reference make it very clear that the inquiry can make any recommendations that it sees fit, including as to any disciplinary investigations or proceedings that may, in its view, be appropriate as a result of its findings.

Will the Secretary of State please confirm that the thousands of people waiting for an outcome on their pensions will not be ripped off?

Yes. There have been constructive discussions with the representatives of the workforce. Those discussions and consultations continue. Of course, we want to bring them to a satisfactory conclusion.

The NDA settlement payments are very substantial. Will my right hon. Friend confirm that although the payments were made without accepting liability, the cost had the potential to rise much further were the matter taken to court?

My hon. Friend is absolutely right. We have a duty to consider the further risks to public money, which is why my accounting officer, the Chief Secretary to the Treasury and I accepted on advice that, however painful it is—these are significant sums of money, as my hon. Friend the Member for Finchley and Golders Green (Mike Freer) said—we should prevent the sums of money from being even greater.

Given the cost problems with the NDA’s Magnox decommissioning contract, how can the Secretary of State have any confidence whatever in the cost figures for Hinkley Point C, which will itself need decommissioning, especially given the farce of the massive cost overruns and huge time delays in building the EDF sister reactors in Finland and Normandy, neither of which has yet opened and each of which is years late?

This is about a procurement process that was mis-specified around decommissioning; it is not against the build costs of a future reactor. If Steve Holliday’s report includes wider lessons for the industry, we will be sure to take them.

All public sector organisations can learn much from procurement processes and public-private initiatives, as the £3,700 a minute spent by the NHS on private finance initiatives would attest. Will the Secretary of State assure me that all public sector organisations will be given the opportunity to learn best practice from the Holliday review?

I will. It is important when there is such a serious set of consequences for public money that the conclusions should be publicly available, and available to this House and to other Government Departments that may want to reflect on them.

Will the Secretary of State confirm that the Holliday inquiry will have reached its final conclusions and issued its final report in time for any lessons learned to be taken into account before the new contract process begins?

One reason I have asked Mr Holliday to make a report by October is so that that can happen. I will meet him in the coming days, as he sets out the scope and timetable, but that is one of the key reasons for the report, and I am sure he will want to make his recommendations available for the new process.

I have mentioned the settlement—it is nearly £100 million for the settlement of the litigation. The chief executive of the NDA has come to the end of his contract.