15.In late 2013, whilst the Magnox contract was still in competition, the Nuclear Decommissioning Authority’s (NDA) Chief Executive Officer decided to remove the role of commercial director. He made this decision against a backdrop of failures in public sector contracting, and a cross-government review of the management of major contracts which supported an expanded scope of the commercial director role. The NDA’s chief executive officer at the time told us that he was confident that the executive team in place at the time had sufficient commercial skills. The NDA told us it now thinks that it would have benefited from having more commercial capability in place at the time it let the Magnox contract.
16.The NDA also faced capacity challenges during the consolidation process after the contract had been awarded. By March 2016, Cavendish Fluor Partnership (CFP) submitted 95 requests to change the contract. We heard from CFP that after it found that the state of the sites differed so substantially from what the NDA told them to expect, they brought in 300 staff to manage the consolidation process. The NDA had nothing close to that level of capacity in key areas including commercial and programme management. This delayed the consolidation process as the NDA found it challenging to review and agree the changes to the contract requested by CFP.
17.UKGI, which oversees the NDA on behalf of the Department, is responsible for ensuring that the NDA’s Board has the right mix of skills and the ability to govern the NDA’s executive team. Despite their involvement, and UK Government Investment’s (UKGI) credentials as the government’s experts in corporate governance, the NDA Board lacked sufficient expertise in key areas. We heard from the NDA’s chief executive officer at the time that this included includes a lack of operational experience of managing nuclear or other hazardous materials. UKGI confirmed that this is atypical, and that organisations with a technical role should have board members with the required level of technical expertise. UKGI was unable to explain to us whether, in its opinion, the Board lacked sufficient technical expertise, and whether this contributed to the failure of the Magnox contract.
18.A number of departments and government bodies were involved in the oversight of the NDA at the time that the failures with the Magnox contract unfolded. This included HM Treasury, the Infrastructure and Projects Authority, and the Department, which devolved oversight of the NDA to UKGI. It is not clear who is accountable for the failure to spot and challenge the now obvious risks to the contract as they materialised. We heard that despite having the primary role of overseeing the NDA on behalf of the Department, UKGI does not have any expertise in commercial procurement and contract management–both central to the NDA’s role as a contracting authority.
19.Despite being aware of the repeated delays to the consolidation process and that the costs were increasing substantially, UKGI does not appear to have challenged the NDA sufficiently as to the volume of cost increases and reasons behind them. Crucially, UKGI did not bring this to the attention of ministers until August 2016—nearly two years after the contract was let. UKGI told us it used dashboards to report these issues to the Department on a regular basis but it is unclear that the emerging risks and the potential for wholesale failure was escalated effectively or with sufficient urgency. This is all the more surprising given the NDA was already in court defending legal claims against the award of the contract.
20.The Department accepted that it must understand the underlying causes behind its failure to effectively oversee the NDA. It acknowledged that the governance arrangements must strike the right balance between ensuring effective oversight and enabling the NDA to get on with the important job of decommissioning the UK’s nuclear legacy facilities.
21.In March 2017, the Secretary of State for Business, Energy & Industrial Strategy announced that the government had set up an independent inquiry to look into the root causes of the Magnox contract failure, and key lessons to be learned by all the parties involved. The Inquiry’s final report is expected to publish in 2018.
22.We welcome the NDA and the Department’s acceptance of their respective responsibilities for the failure of the Magnox contract. We heard from both parties their commitment to learn the lessons and the Department told us it was implementing the recommendations set out by the Independent Inquiry in its interim report published in October 2017.
25 Qq 155–157, para 3.25
26 Q 98
27 Q 99, para 2.3
28 Qq 16, 18, 99
29 Q 99
30 Qq 51, 52, 95, 104, 105–108
31 Qq 120–121
32 Qq 166–167
33 Qq 51, 52, 80, 164, 165
34 Qq 140- 147, 151, 152
36 para 4
37 Qq 49, 50, 163
27 February 2018