The final report of the independent inquiry into the UK Nuclear Decommissioning Authority's (NDA’s) award of the Magnox decommissioning contract, subsequent litigation and its termination, was released on 4 March. The inquiry, which began in March 2017, was led by Steve Holliday, a former CEO of National Grid, was requested by former secretary of state for Business, Energy and Industrial Strategy (BEIS) Greg Clark.
The Magnox tender was managed by the NDA which sought a parent body organisation to take ownership of the site licence companies relating to 12 NDA sites (the Magnox Sites). It had an estimated value of GBP6.2 billion ($8.6bn). The process began in 2012 and in 2014 Cavendish Fluor Partnership (CFP) was declared winner. However, NDA subsequently realised there was a significant mismatch between the work specified in the contract and the work that actually needed.
NDA terminated the contract in 2019. Meanwhile, in 2014 Energy Solutions (ES), which had also bid for the work took legal action against NDA seeking damages. In 2016 the High Court ruled that NDA had wrongly decided the outcome of the procurement process and another bidder, Bechtel Management Company Limited also issued a claim. In 2017, NDA came to a settlement with ES for GBP85 million and with Bechtel for approximately GBP12.5 million.
In his introduction to the 165-page Final Report, Holliday states that it builds upon the his Interim Report published in October 2017. He notes: “To my considerable frustration, the finalisation of this Report has been delayed by almost two years as the result of an unsuccessful legal challenge to the work of the Inquiry by certain former NDA Executives.” However, he notes: “During that time, I understand that the NDA has continued to make progress as an organisation on the basis of my Interim Report. I have not updated or altered any of my earlier-drafted final recommendations to reflect the progress made by the NDA during this time.”
Holliday’s principal findings are grouped by theme under nine headings: NDA’s procurement strategy; tender design; bid evaluation; management of the legal challenge and ensuing litigation; management of consolidation; NDA governance and accountability for Magnox; oversight by Shareholder Executive (ShEx)/UK Government Investments (UKGI); assurance and the Major Projects Authority ; and NDA culture.
Introducing his findings, Holliday notes: “The NDA has made significant progress over recent years against its key objectives of decommissioning and hazard reduction, and at the same time has achieved meaningful cost savings. It is apparent from the Inquiry's extensive investigations (particularly through the interview process) that there are many people in the NDA who care deeply about its mission, and pride themselves on their high standards of integrity and technical expertise. That said, it is my task, undeterred by such considerations, to establish why the Magnox procurement ultimately went so badly wrong.”
In Finding 1 on procurement strategy, Holliday says: “The evidence … shows that the NDA was aware of slippages at some key sites throughout the procurement period, but I have seen no evidence that the NDA turned its mind to the potential implications these might have for the accuracy of the baseline or that it took appropriate corrective action.”
On tender design (Finding 2) he says tender documentation included “an evaluation methodology that in my opinion was unnecessarily complex”. Finding 3 – Bid Evaluation – identified some “inconsistencies” which were not properly addressed, but Holliday saw no evidence of bad faith. “The Inquiry has found no evidence of any bias on the part of the NDA in favour of keeping CFP in the Competition”.
In Finding 4 on Management of the legal challenge and ensuing litigation Holliday notes: “The evidence shows that the NDA's litigation strategy was heavily determined by the CEO. His base position was…that the NDA should not settle, but fight any claim against it.” On Management of consolidation (Finding 5), he says management of the consolidation process lacked discipline and tight schedule management. “Once it started, progress was allowed to drift.”
On NDA governance and accountability for Magnox (Finding 6), noting that the Commercial Director was responsible for selecting the core team, he concludes “that the depth of skills and knowledge in that team was inadequate for the challenging task they faced”. The CEO “failed to maintain an appropriate system of accountability for Magnox”. In Finding 7 - Oversight by ShEx/UKGI, noting that both –organisations are “rightly recognised as corporate governance experts” says this appears to have carried “insufficient weight” with NDA, “and I have not seen evidence that they were ever fully considered or acted on”.
In Finding 8 – Assurance and the Major Projects Authority – Holliday notes: “The NDA may have regularly sought independent assurance but it was, in my view, principally seeking comfort or positive confirmation of its decisions and actions, rather than a more rigorous identification of key risks, and possible reasons to stop or pause.” Finally, on NDA culture (Finding 9), he says: “There appears to have been a culture that sought to self-justify, and which was inward looking.” In particular, NDA “had a belief in its own skills and intellectual ability, and did not recognise or seriously contemplate that it may have any weaknesses”. As to external advisers, “it had a propensity to limit their role, and did not appear to welcome strong challenge”.
Holliday’s recommendations are divided into two parts: those specific to the NDA; and those that have relevance across wider Government and the public sector. The seven related to NDA are as follows:
- Review the strategic nature of the NDA: The review should question how NDA manages its site licensing companies. Any operating model should maintain sufficient oversight and adequate quality assurance of the services and work performed by contractors and sub-contractors. It should also consider how NDA can attract and retain the world class expertise to be an 'intelligent' buyer of such services, and how this might be supplemented with suitable external experts.
- NDA organisational capability: NDA should implement a “root and branch review” of its organisational structure, staffing levels, and competency, and develop a plan to ensure it has a structure with suitably qualified and experienced resources at all levels. NDA must supplement its own resources with external expertise and should ensure an adequate diversity of background, training and experience for those in leadership and management. The NDA Board should be confident that the CEO’s Executive team has “roles and accountabilities that are clear, appropriate and properly documented”.
- Oversight by the NDA Board of the business of NDA: The NDA Chair should be given delegated authority to decide on the mix of expertise required, and the appointment of Non-Executive Directors, to ensure that the Board has a spread of expertise from within and outside the nuclear sector. NDA Board should be able “to provide an effective challenge to the NDA Executive across the entirety of its business”.
- Oversight of the NDA by BEIS and role of UKGI: BEIS should take a more active, direct role in overseeing NDA, and UKGI should be removed from the day to day oversight of NDA. UKGI should be called upon by BEIS to provide independent advice on its areas of expertise. Any UKGI recommendations “must have teeth, and be followed through, or formally rejected with written reasons by NDA”.
- Future procurements by the NDA: Before starting further competitions NDA should “take steps to assure itself that the information presented to bidders is as complete and accurate as possible”. The evaluation criteria should be thoroughly tested through a range of different scenarios to ensure that they are workable. Where risks of bidder challenge or other material bidder disputes are identified, NDA must ensure that they are escalated appropriately, and considered at NDA Board level with the benefit of access to independent legal and commercial advice.
- Future assurance by the NDA: NDA should significantly enhance its own internal assurance resource, by ensuring that it has the right level capability and skills that can be supplemented by external assurance of its activities. NDA must develop annual assurance plans and programmes. A Board subcommittee should ensure that the programme of assurance covers the spectrum of possible risks.
- Developing the right NDA culture: “There has to be a change in culture in the NDA to ensure full and open dialogue that encourages challenge and embraces the delivery of 'bad news', and moves away from optimism bias.” Individuals should be empowered to bring forward concerns, and a clear system of identifying the risks, combined with open discussion, should be integral to decision making, “rather than pressing ahead in the belief that doing so accords with the particular leader's wishes”.
Presenting the report to parliament on 4 March, BEIS Secretary of State Kwasi Kwarteng said NDA had already acted upon the Inquiry’s interim findings published in 2017 and significant improvements had been put in place. “This includes strengthening of its commercial and legal capabilities and the introduction, with Government support, of a board-level Programme and Projects Committee. My Department has already taken action to improve its own oversight of the Nuclear Decommissioning Authority by strengthening the capacity and capability of the team in BEIS that provides the sponsorship function and also by appointing a Director from UK Government Investments onto the Board as a Government shareholder representative.”
He added that NDA must continue to develop to become a more efficient, effective and resilient organisation. “I will be looking to the organisation’s Chair, Chief Executive and the other Board members to demonstrate that, where they have not already done so, they will respond fully, effectively and in a timely manner to the findings of this report. There are also findings and recommendations for my Department and UK Government Investments as well as for Government more widely which we will consider with great care.”