Public Accounts CommitteeSupplementary written evidence from the Nuclear Decommissioning Authority
The Decision to Extend
Performance at Sellafield on projects and operations and, just as crucially, in the development of capabilities required to deliver this complex mission in coming years has not yet met our expectations.
The first term of our contract with Nuclear Management Partners (NMP) has not delivered all of the value that was sought or expected. Remediating the Legacy Ponds and Silos (LP&S) and improving the capability and capacity of the workforce to deliver is taking some time to address.
The main reasons behind the costs of the projects rising is a combination of inherent uncertainty caused by an inventory that is not fully characterised, the age of many of the facilities and the standards to which they were constructed, the uncertainty encountered when pushing boundaries associated with both technology and operations and the logistical and organisational complexity of working at the Sellafield Site.
However in circumstances that are technically and organisationally complex, progress has been made and I concluded that the best way to progress at this time is to extend the contract and allow NMP and Sellafield Limited (SL) to build on experience gained and to move forwards with a strong focus on capability improvement in SL as well as near term delivery of projects and operations.
Fee for Performance
During the hearing it was implied that NMP had been paid £230 million fee for little or no return, which is not the case. Progress has been made and value realised in several areas as we discussed, not least in the generation of efficiencies. NMP are set challenging and stretching plans by the Nuclear Decommissioning Authority (NDA) and around 90% (approx 70% by value) have been completed in the first contract term. Had time allowed I would have liked the opportunity to discuss at the hearing the NAO’s report “Assurance of reported savings at Sellafield”, in which the NAO concludes that NMP will realise £650 million of efficiencies in the first contract period.
The generation of efficiency against an agreed plan is fundamental to the first phase of the contract, indeed NMP earn fee by generating a fee pool from efficiencies that is then released on delivery of specific milestones. Without efficiencies there would be no fee pool and substantially less fee earned by SL and passed on to NMP. Stepping back from the detail, in round numbers the total fee paid to NMP is approximately a third of the efficiency savings generated.
Planned Increase in Expenditure
I do not accept that taxpayers money is being thrown “like confetti”. Whilst the numbers are undoubtedly large, the £200 million/year increase in funding for SL reflects the Governments welcome resolve to tackle this nationally significant non-discretionary and very difficult problem. It is planned expenditure, identified in advance and agreed during successive spending rounds as required to build enabling facilities for LP&S decommissioning. I believe that the Government’s scrutiny and approval of this additional funding reflects well on the NDA’s ability to articulate coherent forward plans and funding requirements, to provide reassurance that the work is necessary and that delivery plans are sufficiently mature.
The KPMG Report
On a personal level I am deeply uncomfortable with the implication at the hearing that we deliberately withheld the KPMG report. Under my leadership the NDA strives to be a very open and straight forward organisation, indeed the NAO have previously recognised publically that our approach to engaging with them on complex issues, including bad news, has been exemplary.
The existence of the report was known by Sellafield Ltd, Nuclear Management Partners, Regulators and Trade Unions, all of whom were interviewed as part of its preparation. It was discussed at our Board and Board Audit Committee, the latter of which is routinely attended by the NAO and was referred to in an article in the Independent in July. While the report was not produced with the specific intention of it being made public, its existence was far from secret and we work on the basis that such documents (subject to appropriate redaction) are likely to be made publicly available.
We were proactive in asking what kind of information PAC and NAO needed prior to the hearing and this resulted in our providing updated project data. The NAO’s efficiency review was carried out in our normal open manner and the resulting report presented to the committee. The contract decision was not relevant to the NAO’s efficiency review, nor was it the focus of the hearing as stated on our invitation. No substantive enquiries were made by PAC or NAO regarding the contract extension prior to the hearing.
Specifically, the purpose of the KPMG report was to provide an independent review of performance to help with our deliberations. It did not advise us on contract renewal. It provides facts regarding performance and opinion as to whether the observed facts, in aggregation, indicate that our desired outcomes and attributes have been achieved.
Despite the length and sensitivity of the report, and the need to formalise KPMG’s agreement to release it, we managed to redact and release it within the FOI time limit and before the PAC hearing. The cost of KPMG’s Performance Review Report was £250k (in response to Q93 and Q168).
Turning now to specific questions raised in the hearing, I provide additional information.
Contract Changes (Q65)
The contract was rolled over in the same form as it exists in the final year of the initial term, which includes the changes we made to the Legacy Ponds & Silos (LP&S) Alternative Pricing Mechanism. That modification to the contract was appropriate in order to explicitly and primarily incentivise schedule ahead of cost in LP&S scope. The cost incentive across the rest of the site remains in place. There also remains a cost incentive in LP&S scope but fee opportunity is dominated by schedule adherence in that area.
Regarding the costs of expatriate executives, we are considering moving in the next term to an arrangement similar to that used in the USA, whereby we pay a capped fee for the provision of Executives, leaving NMP to sort out the split between salary, bonus and expenses. Discussions with NMP are ongoing on this matter.
A review carried out by Aon Hewitt benchmarked current SL Executive salaries against companies from within the UK and internationally and concluded that we are currently paying around median remuneration package rates. We will continue to pay at that level in order to attract and retain the right people.
Expectations for the next Contract Period (Q67 and Q143) (Ref. Annex 1)
The committee asked for a summary of our expectations and requirements for the next contract period. These are twofold—requirements for capability improvement and expectations for near term project and operational performance.
Renewed requirements for capability improvements have been developed by the NDA-led Sellafield Performance Group (SPG) which was established in 2011 to consider and address the key issues and constraints that negatively impact the performance of the site and thus its ability to progress hazard reduction tasks.
Working jointly, NDA, NMP and SL have identified and are working on eight improvement areas. These have formed the basis of the Sellafield Excellence Plan and senior staff from NDA and SL meet regularly to ensure progress is being made.
The eight themes are listed below, further details and metrics are included in Annex 1
1.
2.
3.
4.
5.
6.
7.
8.
Expectations for project and operational performance are set out in our Operating Plan and formally defined and confirmed between NDA and SL through an annual process. By extending the contract into the next period we haven’t in any way reduced our ability to set targets annually or for multiple years, these are set in an ongoing annual process. Next year this will be informed by an updated Performance Plan 14 which is currently being developed by SL and scrutinised by NDA.
At the hearing, with reference to a letter from C.O.R.E. to PAC, we were criticised for setting operational targets that have proved hard to meet. It is understood by NDA, SL and NMP that the targets we set are ambitious but achievable, if the site misses targets this does not imply that they were the wrong targets. Targets attract fee, to hit them all would imply they had been too easy and would cost us and the taxpayer more in fee. C.O.R.E is to correct to point out that operational performance has historically been very volatile and that is part of the inherited challenge that we and NMP contend with.
Annual cost of Storing Pu (Q156)
The actual costs to the UK taxpayer of storing plutonium, both historically and for the future, are not disclosed in detail as they relate in part to commercial contracts with third parties. However we can provide an estimate, and on that basis state that the annual direct costs of storing plutonium at Sellafield are approximately £40m.
Affiliates Trading in 2012–13 (Q165—Q171)
The Parent Companies of NMP are big players in the nuclear sector; their presence in our supply chain is to be expected and desired since to exclude them would result in a loss of important capability and competition from the marketplace. Therefore we do not preclude affiliate companies from bidding for Tier 2, 3 or 4 work and we undertake assurance of contracts let at Sellafield to affiliate companies.
Spend with affiliates sits at around 5% to 6% of total SL supply chain spend. In 2011–2012 the NAO observed that of £986 million of supply chain spend, £57.1 million (ie 5.7%) was spent with affiliate companies. In 2012–13 this was £49.8 million of £1.02 billion ie 4.9%. Up to September of FY 2013–14 this year is £27.5 million of £503 million ie 5.4%.
Benchmarking (Q118 to Q126) (Ref. Annex 2)
Our international benchmarking activity is more extensive than that which I articulated in response to questions from Mr Barclay at the committee. Details provided in Annex 2 set out the benchmarking performed on all initiated projects and 2nd contract term Major Projects, (27 in total), describes the development and application of our Benchmarking Tool and Cost Model and states that this work is being expanded into Operational and Asset Care scope.
As well as detailed technical benchmarking, we collaborate and share information internationally through many routes and forums as described. Many come to us to gain insight from our experience of decommissioning and all that it entails. Our challenge is viewed as the most complex, and we are seen as a nation that is getting to grips with its nuclear legacy. Our strategy is considered as best in class and our model, in which NDA leads on the implementation of that strategy with only 220 staff is of great interest.
Finally, although we have concluded that the best way to progress at this time is to extend the contract and allow NMP and SL to build on experience gained and to move forwards with a strong focus on capability improvement in SL as well as near term delivery of projects and operations, I reiterate that the contract extension has not foreclosed any of the options we considered throughout our review. We are still able to terminate for convenience at any point in time, providing NMP with 12 months notice. We could then move to re-engage with the market to find a new PBO, or to dispense with the private sector PBO and take the parental responsibilities within NDA.
In the coming years, our ongoing commercial relationship with NMP and SL is central to success. Whilst there are risks associated with the public scrutiny of the details of that relationship, I understand and support your interest and to that end, if the committee wishes, I would make myself available to attend alongside NMP and SL early in December.
I welcome continued interest from Parliament in the challenging and non-discretionary work of the Nuclear Decommissioning Authority (NDA) and share your desire to get the very best value from the large sums of public money spent across the NDA estate.
John Clarke
Chief Executive
12 November 2013
Annex 1
SELLAFIELD EXCELLENCE PLAN—THE EXCELLENCE PLAN CONSISTS OF EIGHT FOCUS AREAS WITH UNDERPINNING WORK STREAMS WHICH ARE LISTED BELOW
|
Focus Area |
Workstreams |
Metrics |
|
|
1. Organisation & Leadership |
1.1 |
Align NDA priorities in SL strategy & subsequent governance and oversight arrangements |
Core messaging and strategy brochure Executive sign off for org changes Pulse check employee survey, Journey to Excellence feedback, stakeholder survey Formal handshake with Customer in regard to priorities against the SL detailed strategy |
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1.2 |
Independently review, evaluate and address historical leadership |
All currently known leaders gaps and development needs, agreed against leadership standards and competencies |
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1.3 |
Raise leadership standards so that expectations of behaviour and performance are understood, communicated and re-enforced |
Performance ratings (red, amber, green, gold) reflect business performance. |
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|
1.4 |
Establish a single programme of enabling site wide improvement projects |
Excellence Plan SLP’s implemented and 1st programme board |
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Focus Area |
Workstreams |
Metrics |
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2. Commercial Improvements |
2.1 |
An accurate Master Procurement Plan is in place, actively managed, visible, reliable and valuable |
Master Procurement Plan established and published by agreed date (1 August 2014) and annual updates thereafter Accuracy of data (projects included/dates) |
|
2.2 |
Fit for purpose commercial directorate with capability and capacity to deliver the Sellafield 4business requirements (including alternate service models) |
12 month rolling forecast of resource requirements Critical Commercial Vacancies are filled with the right candidates within the required timeframes |
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2.3 |
Improve Project Governance arrangements aligned to NDA for Major Projects |
Number of Business Cases/Acquisition Strategies/Subcontract Strategies recycled from IRP/ERP |
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2.4 |
Strengthened Post Contract Management arrangements |
Individuals in role(s) Improved Value for Money measured against LPT14 baseline |
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2.5 |
Develop and implement best industry practice integrated client service contracts for Major Projects Delivery with effective integration between the Commercial, Project and Engineering functions |
Improved cost and schedule performance versus previous period Improved attainment of LTP14 milestones versus prior period |
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2.6 |
Supply Chain Engagement |
Number of expression of interests, PQQ responses &/or ITT Submissions Increased interest and participation in major SL competitions |
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Focus Area |
Workstreams |
Metrics |
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3. Resourcing & Training |
3.1 |
Review and benchmark the current organisational structure, roles and staffing; implement agreed changes |
Initial generic metrics for external benchmarking will include: layers and spans of control; accuracy of organisational charts; compliance with Sellafield Ltd Management System policies on Organisational Design; and current R2A2s (Roles, Responsibilities, Accountabilities and Authority) Further SL metrics will be developed and overseen by the Safety & Assurance Governance Committee, including: line of sight to delivery units; alignment of core functions (functional vs. projectised resources); and SQEP status of staff |
|
3.2 |
Improve Resourcing Processes |
Key metrics for resourcing: Staff numbers/skills vs. ASL. % of critical vacancy lists filled (Decom) as shown in milestones. Decom mobility: achievement vs. target list of skills required Site-wide mobility: wider measures of redeployment to be developed Planned vs. actual man-hours—targets to be developed The Applicant Tracking System: effectiveness and speed of recruitment. Annual analysis of attrition (resignations)—skills/origin/destination |
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3.3 |
Improve Employee Knowledge and Skills through Technical Training in order to ensure our people have the necessary fundamental knowledge to safely deliver |
Deployment of training professionals from the Persides contract—evidence of completion of development of new training for value added activities Systematically Produced Training Materials—burn down curve of completion of SAT development schedule for the year—goal to achieve the schedule Evidence of completion of year 2 craft apprentice programme in 2014 – completion of training programme content for year 2 craft apprentices Overdue Mandatory Training Events—number overdue as % of total training events - goal <0.5%—acts as evidence of control of qualification |
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Focus Area |
Workstreams |
Metrics |
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4. Programme & Project Management (Including Key Programmes, PEIP & PDIP Elements of Work) |
4.1 |
Develop & Implement a pilot process that enables early review and endorsement of technology and delivery strategies on SL Projects and Programmes (via Strategic Outline Business Cases) |
Agreed Project & Programme Strategic Outline Business Cases (SOBC) submitted to NDA on agreed timescales. SOBC’s enable NDA Board to endorse Direction of Travel or Provide clear direction in a timely manner prior to Sanction request at Initiate Project Delivery Gate. |
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4.2 |
To ensure that Risk & Contingency Management at Sellafield aligns with HMRC Greenbook & meets stakeholder expectations |
Project Estimating Risk and Uncertainty Ranges align with HMRC Green Book guidance with consistent Contingency Tracking & Monitoring in place across the Major Projects Group Reduction in number of associated SPER findings related to Risk and Contingency Management and Estimation. |
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4.3 |
Improved Project Control arrangements consistently and effectively applied to Major Projects at Sellafield. Programme Reporting requirements established and implemented in agreed Programme Areas. |
MPR implemented on schedule across all projects requiring an MPR and meet the required Standards Number/Percentage of Projects with Part 2 & 3 Improvements in place. Number of Programmes implementing standard Programme Reporting. Modular training scheme in place covering standard project controls arrangements and rollout to project controls personnel is ongoing |
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4.4 |
To improve development and execution of Integrated Project Engineering and Commercial Strategies which are aligned with Project drivers and support improved time, cost and quality Project performance. |
Assessment reports and improvement plans to be shared with NDA. Independent Capability Maturity measures to form the basis of the baseline assessment and improvement measure scores |
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4.5 |
To continue to enhance SL’s Programme Management capabilities through evaluation of the current level of maturity, development & implementation of targeted improvement actions and assessment of progress & achievements against agreed improvement targets. |
Assessment reports and improvement plans to be shared with NDA. Independent Capability Maturity measures to form the basis of the baseline assessment and improvement measure scores |
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Focus Area |
Workstreams |
Metrics |
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5. Nuclear Safety & Operations (Including CAP, IWM & Emergency Management |
5.1 |
Implement Standard, industry best operational practices throughout Sellafield Ltd’s facilities in regard to Disciplined Operations and Human Performance |
standard for instruction use issued and embedded in line with rollout programme (5.1.1) and red-penning process in place and meeting turn-around targets in support of instruction use. pre/post job review standard issued and in use (5.1.2), contributing to improved right first time operations/reduction in events control and supervision manual issued and implemented(5.1.3)(in support of Org and leadership work stream) |
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5.2 |
Establish Performance improvement and the Corrective Action Programme (CAP) as business-as-usual |
graded approach to investigations implemented (5.2.2–5.2.4) resulting in improved quality and timeliness of investigations increase in % of self-identified issues and reduction in repeat events in line with targets trending tool in place, allowing targeted corrective actions |
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5.3 |
Fully implement and embed IWM in line with Sellafield strategic priorities |
IWM implemented and running to specified criteria in line with roll out programme for priority areas (5.3.1–5.3.6) Increase in work completion rate and resource utilisation in line with target due to effective implementation of IWM and supporting |
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5.4 |
Implement a cohesive drill and exercise programme at the site and facility level that effectively and efficiently tests the emergency preparedness and response capability across the Sellafield site |
Emergency drill/exercise programme schedule and success criteria are met (5.4.3) performance at level 1 exercises meets expected standards (5.4.3 and 5.4.4) SL’s EM arrangements and standards are fully defined and documented (5.4.1 and 5.4.2) |
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Focus Area |
Workstreams |
Metrics |
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6. Site Integration |
6.1 |
Implement enterprise-wide corporate planning/programme management across SL |
Near Term Site Integration Office (SIO) core team established (Sept 13) Site Integration Office R2A2s in place (Dec 13) Audit of SIO performance against objectives and R2A2s (July 14) Business unit strategies aligned to SL Strategy (Apr 14) Individual PMAs aligned to business unit and site strategies (50% SL by April 14) Single executive business performance reporting tool implemented (Oct 13) Enterprise-wide risks, issues and opportunities (RIO) collated and prioritised (Nov 13) Executive Management Plans addressing the top 5 RIO in place (Feb 14) Key business data for executive decision making collated (Oct 13) Executive decision calendar implemented as business-as-usual (Dec 13) Review of current SL enterprise-wide business planning process (Dec 13) Long Term Annual review of effectiveness of SIO tools Implementation of enterprise-wide programme management process (Jun 14) Alignment of principles/process with organisational design review (Dec 14) Establish a single point-of-contact department for business reporting (Mar 15) Automation of data capture and report production (Mar 16) |
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Focus Area |
Workstreams |
Metrics |
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7. Site Logistics |
7.1 |
Implement Inbound Logistics an Warehouse Programme incorporating: • Warehousing and transportation of materials, • Co-ordination of road and rail movements, • Co-ordination of specialise equipment usage |
Gross number of deliveries to Sellafield (target reduction) Ratio of transferable to non transferable deliveries (target increase) Value of stocked inventory (target reduction) Full Truck Load (FTL) equivalent transferred to rail |
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7.2 |
Movement of people and support facilities to deliver the site plan |
Utilisation of current IWM standard metrics People volumes through monitored turnstiles (Separation and island sites) Delivery quantities measured through different control points (HSA, Separation and island sites) |
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7.3 |
Provision of accommodation and site support facilities including people moves through different boundaries eg Separation area, HSA and island site access points |
Changeroom locker capacity v usage (SL and supply chain) Lay down area gross capacity and utilisation |
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7.4 |
Re-design of organisation and service provision |
No current metrics agreed |
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7.5 |
Preparation and Delivery of a Site Logistics Plan |
% performance v Site Logistics Plan |
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Focus Area |
Workstreams |
Metrics |
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8. Engineering (Asset Care, including Maintenance) |
8.1 |
Asset Management- Make risk informed investment decisions to optimise critical assets (eg steam, electrical, water, chemical distribution systems) life cycle costs in order to deliver the site mission safely and securely |
8.1.1 AMP produced and approved by DHoE for each asset on top 30 Critical Asset 8.1.2 60% of the following year’s delivery of AC and AE is milestones by December 8.1.3 Design Authority transferred from DAreps to OUEng Managers in all OUs by 8.1.4 Tornado diagrams produced for Ops Division, Decom Division and for Site 8.1.5 Wastwater phase 1 pipe replacement complete and line energised 8.1.6 PB refurbishment complete 8.1.7 New Substation 6 and 7 installed and energised 8.1.8 THORP cooling tower cross over complete 8.1.9 PMF North vent airlock completed and active 8.1.10 Hydrogen purge suppression compete |
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8.2 |
Maintenance—Develop arrangements to optimise physical asset condition, availability, performance and quality in line with business requirements. |
8.2.1Plant Engineering, Maintenance and IWM orgs populated to 90% 8.2.2 20% of SL maintenance craft (effort/cost) moved onto Task work by end of FY 2016/17. 8.2.3 Phase 1 Technical Basis of Maintenance (TBoM’s) implemented by OUs as per |
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Annex 2
BENCHMARKING
The last ten months has seen a significant effort by NDA, supported by the supply chain, to further develop the Benchmarking Tool and Cost Model previously developed for the Dounreay competition and the Magnox Optimised Decommissioning Programme. These tools are now being actively deployed to support PP14 Assurance at Sellafield.
Benchmarking means different things to different audiences. For the avoidance of doubt and to manage expectations, this immediate phase of work uses structured comparisons from worldwide nuclear facilities, (predominantly UK and US projects at this stage), to help define and implement best practice concerning delivery of our Major Projects. Outputs include a combination of scope, schedule and cost recommendations to inform dialogue with Sellafield as part of forthcoming PP14 Assurance work. The overarching purpose of the work undertaken is for demonstrable improved confidence in Sellafield’s PP14 dates and costs for the Major Projects which collectively comprise a significant percentage of NDA’s overall annual spends. Whilst the initial focus has been for ALL in-flight and 2nd contract term Major Projects, (a total of 27 projects—see list below), we are also about to expand this work into Operational and Asset Care areas.
Following completion of this initial benchmarking work for projects, we have now reached the business end of this work whereby outputs/recommendations will be used as to inform PP14 Assurance activities. Dashboard summaries focused on schedule and cost data have already been shared with SL key players and we are now commencing a series of formal engagements with SL to utilise outputs to inform PP14 Assurance work as part of the overall acceptance process. The first output is being piloted for the SMF project. This will involve NDA challenging costs and schedules and holding SL to account using worldwide comparators as a basis to deliver improved performance. Based on the outputs that have been delivered to date, we are confident that this will help drive improved discipline within the SLCs and subsequent improved delivery confidence levels for our major projects.
We have undertaken staff exchanges with the French waste management organisations and have specifically benchmarked the decommissioning of our respective graphite reactors. We are also actively engaged with organisations from Canada, Sweden, Switzerland, China and Taiwan, where they have come to us to gain an insight into our experience of decommissioning and all that it entails as it is viewed as the most complex, and that we are a nation that is getting to grips with its nuclear legacy. Our strategy is seen as best in class and the model that sees NDA leading on the implementation of that strategy with only 220 staff is of great interest.
One of our most active relationships is with the United States Department of Energy and their Office of Environmental Management and Office of Nuclear Energy covering site clean-up approaches and geological disposal. Here there has been much discussion and sharing of lessons learned in a wide variety of areas such as remote decommissioning technologies, approaches to contracting, security arrangements, vitrification technology, plutonium management, spent fuel management, alpha plant Deplant & Decommissioning and orphan waste disposition to name but a few. There is a regular interchange between subject matter experts which have led to tangible benefits for both sides, including knock-on benefits for the UK supply chain.
We also work with others to identify joint technology development programs which avoid duplication of effort and which build on our respective strengths to better leverage resources.
List of SL Major Projects for which Benchmarking Work has been Complete:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.