1.The continual failure to progress submarine disposal has created an unacceptable and unnecessary problem for the Department. In not yet disposing of a single submarine, the Department now risks running out of both storage and maintenance space. The projects needed to allow disposal to happen have been beset by delays, with an 11-year delay to defueling and a 15-year delay to dismantling. The Department will not be able to meet its commitment to fully dismantle its first submarine in 2023. Delays have resulted from the Department having to clarify policy through public consultations, but also through poor contractor performance and affordability constraints. In its 2018 annual nuclear update to Parliament, the Department outlined the status of its disposal projects, although these are not mentioned in the Agency’s annual report despite disposal being one of its six ‘purposes’.
Recommendation: To ensure the task receives the attention it deserves, the Department and its partners must maintain the recently established momentum by regularly monitoring progress with these projects at senior level, and continuing to provide information on developments via the Department’s annual update to Parliament on the future nuclear deterrent.
2.The Department has yet to resolve significant uncertainties affecting the projects that are needed in order to avoid future space constraints and meet its commitments. The Department has now committed to dismantling its first submarine, Swiftsure, by 2026, when it will roll out a tried and tested dismantling approach across other submarines. After having agreed a dismantling policy, published in 2016, it is confident of meeting this date but still needs to secure regulatory approval, allocate funds and procure the intermediate-level waste transport arrangements, which it sees as high risk. To avoid space constraints for both storing and maintaining submarines, the Department must re-start submarine defueling, suspended since 2004, in 2024. It needs to agree a timetable and cost for completing this work with the contractor, Babcock International Group plc (Babcock), alongside securing nuclear-regulatory approval to restart defueling.
Recommendation: To avoid running out of space and to meet its commitments, the Department must achieve the milestones it has set itself over the next ten years, including by having commercial arrangements agreed for defueling by the end of 2019. It should report to us on progress with both the defueling and dismantling projects by 31 March 2020.
3.The Department has repeatedly made decisions on short-term affordability grounds which have increased costs in the longer-term and led to poor value for money. These decisions included deferring Devonport infrastructure work to save £19 million in the short-term, which then delayed the defueling project by two years. The Department is not yet able to confirm how much it will now cost to complete the project. Given delays, the Department continues to pay storage and maintenance costs of £30 million a year. To achieve value for money, the Department and Babcock recognise the value of a constant ‘drumbeat’ of work to avoid peaks and troughs.
Recommendation: Where it has made decisions on affordability grounds that affect disposal-related projects, the Department should detail the targets, timescales and success indicators in its annual nuclear deterrent report to Parliament how these impact on progress towards establishing a routine programme of disposals, as well as how it will manage the risks to value for money.
4.We remain unconvinced that funds will be available for disposal-related projects, or that the Department has done everything it can to secure potential funds. Wider affordability decisions have increased costs and delayed disposal-related projects. Looking ahead, there remain well recognised affordability challenges. With a £7 billion ‘black hole’ in the defence budget over the next ten years, the Department will need to prioritise, which creates further uncertainty for disposal-related projects. The Department cannot yet provide certainty that funding will be available for either defueling, where costs remain unclear, or for dismantling, where some technical processes need to be finalised. It cannot access the dedicated long-term nuclear decommissioning funding set aside for civil nuclear in the Energy Act 2004, and it remains unclear why the Department has not considered pursuing this source of funds.
5.The engineering challenge of dismantling and disposing of nuclear submarines provides an opportunity to develop much needed skills in support of the government’s wider industrial and skills strategies. There remain skills shortages across the nuclear enterprise with, for example, the 2016 unplanned refuel of HMS Vanguard diverting skilled personnel. Both the Department and Babcock recognise this work can be complicated but challenging for engineers, with graduates keen to work on these demanding projects. They recognise the lack of skills to progress projects is a significant challenge and see establishing nuclear skills as a national endeavour across the civil and nuclear sector.
Recommendation: Given the importance to the UK of developing a broad pool of skilled engineering talent, the Department and Babcock should set out by December 2019 its strategy for exploiting opportunities across disposal projects, such as working with universities, with the aim of increasing the size of the skilled workforce.
6.The Department’s ability to achieve value for money depends on managing complex commercial risks and relationships. The Department has a significant and unique relationship with Babcock, which is the nuclear-licensed site owner as well as the only supplier able to conduct defueling and dismantling. It recognises the need to collaborate with Babcock, while maintaining contractors at arm’s length. The Department has adopted various mechanisms designed to provide the transparency it needs to manage the contract closely, and the protection it needs should things go wrong. To progress submarine disposal, the Department needs to complete challenging commercial negotiations, facilitated by the Cabinet Office, to balance cost and time perspectives. It also needs to re-start the procurement of its intermediate-level nuclear waste transport approach where it misjudged the market’s risk appetite, leading to a two-year delay.
Recommendation: The Department should report to us by 31 March 2020 to confirm that it has in place the appropriate commercial arrangements it needs and that good value for money will be delivered for the taxpayer.
Published: 19 June 2019