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Progress report: Terminating the Magnox contract

Today the NAO reports that the Nuclear Decommissioning Authority (NDA) has incurred additional costs as a result of the failure of its Magnox contract, with the NDA agreeing to pay up to £20 million to exit the contract early, reduce risk and support a smooth transition. The total cost of the work needed to put the Magnox sites into the care and maintenance stage of the decommissioning process has also increased by up to an estimated £2.7 billion since the NAO last reported on the contract in 2017.

In September 2014, following a competitive procurement exercise, the NDA awarded a 14-year contract to manage the decommissioning of two nuclear research sites and 10 Magnox sites (power stations at or nearing the end of their life) to Cavendish Fluor Partnership (CFP). In July 2016, the High Court ruled that the NDA had wrongly decided the outcome of the procurement process. In 2017, the NDA paid £97.3 million to settle legal claims with another bidder and decided, based on legal advice, to terminate the contract with CFP nine years early. In October 2017 the NAO reported that the failed Magnox contract had already cost the taxpayer over £122 million.1

In its new report, the NAO found that given the challenging circumstances created by the failure of the initial procurement and early phase of the Magnox contract, the NDA did well to negotiate a revised contract to enable it to move to its new delivery model. The NDA had six months between March and September 2017 to design and negotiate a revised contract while dealing with several legal risks and planning for its new subsidiary to take over the decommissioning work from September 2019. The NDA has managed to avoid any further legal disputes with its supplier and other parties, while at the same time agreeing a settlement which allowed it to leave its original decommissioning contract nine years early and oversee continued decommissioning work in the meantime.

CFP completed most of the decommissioning work it was asked to do under the renegotiated contract. It undertook £2.72 billion of work, representing 93% of what it was asked to deliver over the five-year period. It succeeded in placing the first Magnox station into a safe and enclosed state and completed the de-fuelling of the last Magnox station. However, CFP fully achieved only 45 of the 97 targets for the expected physical states for sites at the end of the contract.

In renegotiating the contract in August 2017, the NDA agreed to pay CFP a fee of up to £152 million subject to its performance in managing the decommissioning work. This sum included a cost for early termination of the contract of around £20 million to reduce the risk of further legal challenge and incentivise CFP to support the smooth transition to the new subsidiary taking over decommissioning from September 2019. In the end, the NDA paid CFP a fee of £143 million for its management of the work, 94% of the potential fee.

Costs are likely to be subject to further change, largely because of the inherent uncertainties involved in cleaning up the UK’s nuclear sites. When it let the original Magnox contract, it had underestimated the scale of work needed to decommission sites. In July 2019, the NDA estimated that the cost of getting all the Magnox sites cleared and safely enclosed had increased by up to £2.7 billion since the NAO’s last report in 2017 and £4.9 billion since the contract was awarded in 2014. The NDA is continuing to refine its estimates.

The NAO recommends that the NDA needs to increase its understanding of the condition of sites and the volume and complexity of remaining decommissioning work. The NDA also needs to explore with its subsidiaries how future contracts can better support the timely and effective management of underperformance.

“Since the failure of the original Magnox contract in 2017, the NDA has made progress in a number of areas. It renegotiated the contract, avoided further legal disputes and got on with decommissioning the power plants.

“However, the NDA now knows that it will cost significantly more to take the sites to the care and maintenance stage of the decommissioning process, though there remains inherent uncertainty about the final cost. It still needs to ensure it has a solid understanding of the condition of each Magnox site and the costs of cleaning them up.”

Gareth Davies, head of the NAO

Notes for Editors

  1. The NAO previously reported on the Magnox contract in October 2017, in its report The Nuclear Decommissioning Authority’s Magnox contract.
  2. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.

About the NAO

The National Audit Office (NAO) scrutinises public spending for Parliament and is independent of government and the civil service. It helps Parliament hold government to account and it uses its insights to help people who manage and govern public bodies improve public services.

The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. The NAO audits the financial accounts of departments and other public bodies. It also examines and report on the value for money of how public money has been spent.

In 2019, the NAO’s work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £1.1 billion.

Contact

NAO Press Office
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