APPENDIX 18
Memorandum by Washington E&C Ltd
1. INTRODUCTION
1.1 Washington Group International (Washington
Group) is pleased to make this written submittal to the Trade
and Industry Committee in relation to their Inquiry into the progress
made by the Nuclear Decommissioning Authority (NDA).
1.2 With the experience of working as a
UK nuclear contractor for the last six years and as one of the
leading and most successful US contractors in the US Department
of Energy Environmental Management (DOE-EM) complex, Washington
Group welcomes the opportunity to contribute to this review, believing
it to be both appropriate and timely.
1.3 With the NDA officially coming into
being on the 1 April 2005 and assuming the overall responsibility
for managing UK Nuclear Legacy Waste, the UK market will see the
most radical change in its structure since the formation of BNFL
plc in the mid 1970s.
1.4 It is our view, therefore, that the
UK is at a critical stage in nuclear legacy waste management and
the decisions made over the next few months will determine not
only how successfully the legacy waste and the associated liabilities
will be managed but also will influence the future of nuclear
generation as an essential component of UK Energy Policy.
It is always good practice prior to starting
a major new project to conduct a detailed and exhaustive "readiness"
review to assess fitness for starting on the project. There is
added value when such a review is conducted by a knowledgeable
but independent body bringing the benefit of an external perspective
to the project team so that they are better prepared to "hit
the ground running". A good start enables successful project
implementation. Washington Group therefore views the Select Committee
Inquiry as a key part of the readiness review process that will
enable the NDA and other stakeholders to make the required best
possible start in assuming the new responsibilities set out in
the Energy Act 2004.
1.5 Our comments will take into account,
from a leading contractor perspective, the evolution of the DOE
market learning curve, the associated lessons learned, and their
potential applicability to the UK.
2. DECLARATION
OF INTEREST
2.1 Overall Objectives of Washington Group
2.1.1 As a major contractor to the DOE throughout
the evolution of the US market and having operated in the UK for
the last 6 years, we believe we have much experience to offer
to the UK market in support of the overall objective of safely
managing the UK nuclear waste legacy in a cost effective and timely
manner. It is our desire, in partnership with major UK companies,
to support the UK Government, the NDA and other stakeholders in
meeting the Objectives set out in the Energy Act 2004 and to share
in this success in a way that rewards our own shareholders.
2.1.2 We would emphasise, however, the importance
of partnerships in our approach both in the US and in the UK.
The issues to be managed are diverse and hugely complex and no
one company has the wherewithal to bring all the needed solutions,
all of the time. In the particular context of the UK, there is
a large and technically knowledgeable workforce and there is a
capable supply chain comprised of other contractors, both of whom
have a part to play in meeting the Objectives. It is very much
our vision to work in partnership with these companies, transferring
appropriate technologies and skills, and through working arrangements
that will effectively address specific issues.
2.1.3 Further details of the Washington
Group of businesses and our experience in the US and the UK nuclear
waste markets are provided in Appendix 2 to this submittal.
2.2 UK Operations
2.2.1 Washington Group International through
its heritage companies has been active in the UK for over 50 years.
Since 1990 our projects have included power plants, industrial
and pharmaceutical facilities. Since 1999 we have been active
in the UK nuclear market, initially through a Sellafield Partnering
Alliance to support BNFL plc with Project Management and Construction
Management services at their Sellafield and Drigg facilities.
Over 200 Washington Group UK employees have supported this work
from our major office, Washington House, located in Risley near
Warrington and from our on-site office at Drigg. We have successfully
transferred our "Washington Way" project processes from
an initial core of approximately 20 US expatriates. Today only
one expatriate remains involved in this transfer process, while
the UK staff has expanded the services to Magnox Electric and
AWE Aldermaston. We do, however, continue to support the UK operations
with US staff on an as needed basis, to selectively bring specific
experience to the UK in a cost effective manner.
2.3 Relationship with BNFL plc in the US
2.3.1 Morrison Knudsen, now Washington Group
International, and BNFL, plc jointly purchased Westinghouse Government
Services and Government Environmental Services in early 1999 from
CBS Corporation. This entity, owned 60-40 by Washington Group
and BNFL respectively, has been under the management of Washington
Group and has successfully competed in the DOE market, most notably
providing the Management and Operations. At the Savannah River
Site, the West Valley Demonstration Project and the Waste Isolation
Pilot Project (WIPP) between 1999 and today, Washington Group's
management of these jointly acquired assets and the performance
on major contracts has rewarded BNFL with dividends exceeding
$149 million.
2.3.2 In August 2004, Washington Group acquired
BNFL's interest in the 1999 acquisition. Under the terms of the
2004 agreement, Washington Group now controls all the former Westinghouse
Government Services businesses. In return, Washington Group will
pay BNFL 40% of the profits from the existing contracts of the
two businesses, 40% of the profits on future Washington Group
contracts at certain DOE sites and 10% of the profits from all
other contracts Washington Group holds with the DOE through to
30 September 2012. BNFL will not share in any losses of those
businesses if they occur in the future, but it will maintain its
portion of the liabilities the businesses incurred prior to this
agreement. The dividend potential to BNFL for the 2005-06 period
from current Washington Group activities under this agreement
exceeds $74 million.
2.3.3 BNFL had previously established and
continues to operate BNFL Inc. as a totally separate and distinct
trading operation in the US.
3. THE UK NUCLEAR
LIABILITIES CLEAN
UP MARKET
3.1 White Paper—"Managing the
Nuclear Legacy—a Strategy for Action; 4 July 2002"
3.1.1 In the White paper, the Government
recognised very clearly the importance of starting an accelerated
clean-up programme. The strategy was radical; to establish a separate
Government Agency (initially the Liabilities Management Unit (LMU)
and now the NDA) to manage the nuclear assets and liabilities
of BNFL plc and the UKAEA. Amongst many other issues, this presented
the LMU/NDA with a very challenging timetable, the most immediate
now being to "hit the ground running" on 1 April 2005
3.2 The Draft Nuclear Sites and Radioactive
Substances Bill
3.2.1 In our comments on the Bill, Washington
Group offered our views based on our US and UK experience. Our
submittal of 15 September 2003 contained a number of recommendations
and we would commend this Committee's attention in particular
to the sections 1-4 on:
— Maintaining the Balance, Managing
the Risk.
— Acceleration, Early Site Closure.
— Disposition of the Waste.
For convenience, this submittal is contained
in Appendix 1.[65]
3.3 The NDA: Competition and Market Structure
3.3.1 While the NDA is committed to competition
through optimum utilisation of the supply chain, a period of transition
from the incumbent structure existing today to a fully competitive
free market structure is inevitable. For the NDA to achieve the
objectives placed upon it by the Government, it is important that
this period should:
(i) not be any longer than necessary; and
(ii) be structured to enable the commercial
supply chain to familiarise itself with the knowledge and understanding
of the sites associated with the tier one contractual role so
that it is fully able to bring innovative and value adding solutions.
3.3.2 Competition will drive innovation,
accelerated progress and reduce cost and the sooner a truly competitive
market is established, the greater the likelihood of NDA achieving
their objectives, and hence success. Of necessity the transition
will require careful management but to encourage competition,
it is particularly important that there is transparency in the
role and objectives of the present incumbents. As sites are progressively
competed, the obvious advantages that the incumbents currently
have should not be a discouragement to other bidders. While partnering
with the incumbents may provide a solution in some cases, there
are a number of issues that need to be clarified, preferably well
in advance of the first Invitation to Tender. Among others, we
would recommend early consideration being given to:
— the principles relating to access
to information;
— transfer of staff to new undertakings,
including redundancy and pensions;
— responsibilities of the Tier 1 contractor;
— the bid and selection process; and
— the timetable for competing sites.
3.4 The Golden Triangle
3.4.1 Security, Safety and Environmental
compliance remains of course paramount and in this regard the
active co-operation of the Regulators, the NDA and licensees in
the "golden triangle" is essential. All the objectives
of the three component parties must be aligned and all be involved
in agreeing site-specific targets and objectives. Each party,
however, has different responsibilities in terms of outcomes and
it will be necessary to be absolutely clear which party has the
determining voice on particular issues.
It is also important that other stakeholders
are fully involved and consulted where appropriate in the process
without clouding the primary responsibilities of the three parties
to the triangle.
3.5 Shareholder Executive
3.5.1 It is important that the role of the
Shareholder Executive should continue in harmony with that of
the NDA.
3.6 Other stakeholder interests
3.6.1 The NDA's commitment to openness and
transparency is key to generating public confidence in the process
of waste management and clean up, perhaps also a necessary prerequisite
in preparing the ground for new nuclear generation. The active
consultation and appropriate involvement of local authorities
and communities at each site is essential and all the parties
in the "golden triangle" have key roles to play.
3.6.2 It is very important therefore that
the NDA should enjoy the full support of all associated Government
departments in their pursuit of a safe, accelerated and cost effective
management of nuclear waste. Not only must there be adequate funding
available to support the programme but consideration should also
be given to active support for investment in new technologies
that are inline with the Objectives. (see also Para 4.8)
4. OBSERVATIONS
ON THE
PROGRESS TO
DATE OF
THE LMU/NDA
4.1 Life Cycle Base Lines and Near Term Work
Plans
4.1.1 The development of the initial Life
Cycle Base Lines and the Near Term Work Plans for each facility
has provided for the first time the opportunity to assess the
potential for a co-ordinated UK approach to liabilities cleanup.
Improvements in the quality and completeness of these early revisions
will lead to opportunities for enhanced site cleanup performance
based upon innovation and cost critical path analysis. Nevertheless,
the UK has now a database on which to take key national decisions
on waste processing, transportation and disposal and we believe
the NDA is to be commended on the progress made.
4.2 NDA Organisation
4.2.1 The leadership team of the NDA are
to be congratulated on the significant progress made in their
initial period of organisational development. Open and candid
communications about process and policies have been their hallmark.
They have shown an openness to meet and listen to the contracting
community from the UK and internationally which bodes well for
future co-operation. Washington Group have been pleased to participate
in a visit by the NDA leadership to key DOE sites in the US. We
recognise that establishing such a new and important organisation
is in itself a major undertaking and remain committed to supporting
the NDA as it builds the necessary resources and capabilities.
4.3 The Importance of Competition
4.3.1 The value that competition from appropriately
qualified companies can bring to meeting the Objectives is fully
recognised in the Energy Act and by the NDA. The reverse is also
true; without effective competition and hence a closed market,
innovation will be constrained and progress limited. While there
are still many issues to be resolved with respect to the transitioning
market structure, notably how competition is to be encouraged
without compromising safety and while enhancing the UK skill base,
we fully endorse the objective of creating an open and competitive
market among fully qualified companies. We also believe that the
NDA leadership fully appreciate the importance of creating financially
rewarding opportunities as an incentive for innovation.
4.4 Developing the UK skill base
4.4.1 Our experience of work operating in
the UK marketplace to date makes us confident that the UK workforce
will benefit from the opportunities created by the formation of
the NDA. More directed effort toward cleanup activities would
generate continued and diverse work opportunities and thereby
support the future development of the UK nuclear industry. For
example, the potential to change the current Magnox strategy of
Care and Maintenance to immediate decommissioning will significantly
enlarge the near-term requirements for skilled resources.
4.4.2 Washington Group also see close parallels
to the socio-economic opportunities generated from our US DOE
site decommissioning activities:
— Retention of experienced members
of the nuclear industry by retraining operations personnel for
decommissioning activities.
— Creating manufacturing facilities
to support nuclear waste packaging.
— Creating new companies to serve multiple
local industries from existing site focused resources.
— The possibility of creating an international
consulting spin-off from resources previously focused on single
site activities. (Washington Safety Management Solutions is a
$100 million example from US experience).
— The introduction of new technologies
and work methods.
4.4.3 These potentials plus the potential for
a new nuclear build program are exciting.
4.5 Contract Structures and Margins
4.5.1 Washington Group believe that the
significant improvement in cleanup performance in the US DOE-EM
complex coincided with the clearly stated objective of site closure
(cf on-going operations) and the use of incentive contracts, focused
on results rather than programmatic compliance. Contractors were
given significant rewards for delivering cleanup at below cost
targets and on early completion. Delivery below the cost target
allowed the contractor to share in the under-run savings with
the Government. Completing cleanup early enabled the US DOE to
save on the overhead and indirect costs associated with a longer
duration contract and enabled other work programmes to be initiated
and completed early. This type of motivation results in contractor
innovation and performance that generates major reduction in site
cleanup costs for the Government. We recommend this incentivised
contract model to the NDA.
4.6 Integrated Safety Management
4.6.1 Washington Group commend the requirement
for a site by site Integrated Safety Management System (ISMS)
as part of the site draft contract Heads of Terms. Washington
Group believes that outstanding safety goes hand in hand with
great project performance. ISMS is the project management tool
for assuring that safety is integrated at all levels and is a
major consideration in all critical decisions. The US DOE requires
the stringent implementation of ISMS and the result is a complex-wide
safety record that is six times better than general US industrial
worker safety statistics.
4.7 New Technologies
4.7.1 While the recommendations of CoRWM
are eagerly awaited, the imperative for the UK to have an integrated
waste management plan is clear. Of particular importance, is the
rapid selection and deployment of proven and applicable waste
minimisation, encapsulation and storage technologies. We believe
that the NDA, with support from other Government agencies should
actively encourage the investment in new technologies where this
is clearly in line with the overall objectives. While these technologies
are of necessity sophisticated and require careful selection and
application, many are already well developed and do not require
extensive investment in R&D. What will be required, especially
to support commercial investment, is a willingness to entertain
medium- to long-term performance-based contracts, examples of
which already exist in other UK markets.
4.8 The Position of BNFL plc and UKAEA
4.8.1 The changes envisaged pose major threats
as well as opportunities to the present incumbents. However, overall
their response has been encouraging. Both have publicly recognised
their new roles as "contractors", have undertaken significant
reorganisation, declared the need to form alliances and are taking
appropriate lessons from US experience.
4.8.2 It should be recognised that the uncertainty
about the Government's plans for the incumbent organisations and
the potential impact on the NDA plans, fuelled by continuing media
speculation, are causing concern within the supply chain.
5. CLOSING REMARKS
5.1 Washington Group congratulates the Liability
Management Unit/Nuclear Decommissioning Authority on their progress
toward an open and competitive marketplace. Their openness, candour
and interest in building upon the Lessons Learned from international
experience is encouraging. We are pleased that the NDA are acutely
aware of the importance of developing a "level playing field"
where with the right incentives, the commercial imperatives of
private firms will produce a safer, faster and more cost effective
cleanup of current nuclear liabilities. Under the leadership of
the NDA the socio-economic opportunities for the local communities
and the UK nuclear community should be significantly enhanced.
The introduction of competition will provide new and much needed
stimulus to the development of new decommissioning skills. The
development of new infrastructure projects for waste processing
and disposal will enhance the future career prospects for nuclear
trained resources. Washington Group is committed to fully supporting
the NDA and their continued progress in the critical 2005-06 period
ahead.
5.2 Washington Group welcomes the opportunity
to contribute to this inquiry and would thank the Committee for
their consideration of this submittal.
65 Not printed. Back
| 
