Nuclear Decommissioning: the £2.8 billion a year opportunity. Is your company ready to take a slice?5 August 2010
Why it is essential for contractors to have the right tools in place to tightly manage project cost and performance and meet Government-mandated reporting, such as Earned Value Management (EVM), as part of their bid processes. by Andrew Davey, Business Director, Deltek
The projected £2.8 billion per year budget for nuclear decommissioning in the UK represents significant opportunities for contractors.
With Coalition Government public sector spending cuts announced in the recent Emergency Budget, funding for 2011 onwards will be almost certainly announced in the 2010 Autumn Spending Review. In advance of this, the Nuclear Decommissioning Authority (NDA) engaged with the previous Government in its Public Value Programme (PVP) to identify options for improving its effectiveness and affordability.
In this scenario, it has become essential for contractors who want to be involved in this industry to have the right tools in place to tightly manage project cost and performance and meet Government-mandated reporting, such as Earned Value Management (EVM), as part of their bid processes.
This document outlines the challenges and opportunities that the nuclear decommissioning industry presents – and how performance management can radically improve contractors’ chances of winning a slice of this £2.8 billion business.
‘Pivotal’ performance management
When the NDA was formed back in 2005, many thought it was the death-knell for the nuclear energy industry. The reality is that, rather than being the demise of one industry, it represented the birth of a new one.
Tony Fountain, the NDA’s Chief Executive, wrote in the organisation’s recent business plan: “In the current economic climate, which has brought increased pressure on public expenditure, it has become even more imperative to channel investments and resources in the right direction. As a strategic authority, the NDA delivers its mission through others, primarily our Site Licence Companies (SLCs). Having clearly defined roles and accountabilities is pivotal to performance management...Over the period of this plan we will be focusing on… improving project and operational performance; reducing support and overhead costs… and improving organisational effectiveness.”
The market potential is ‘enormous’
With 17 nuclear sites in the UK currently being decommissioned, and with more sites due to enter decommissioning in the years ahead, the market potential is significant. Bill Hamilton, Head of Stakeholder Relations at the NDA said recently: “It’s an enormous market…with real long-term prospects. There is, if you like, a UK pipeline of opportunities stretching out to 2030 as nuclear sites go offline and into decommissioning. Work that has to be carried out, not only in terms of meeting operational targets, but in terms of ensuring public confidence in the UK nuclear programme.”
Contractors are tiered in the nuclear decommissioning industry. The big players in the supply chain are the ‘Tier 1’ contractors, or SLCs, who oversee the decommissioning process and subcontract to smaller suppliers.
The NDA makes all Tier 1 appointments, and looks for companies with real hands-on experience of managing nuclear projects. Only those that share the NDA’s values of safety, efficiency and value for money - and who can demonstrate the necessary expertise and skill sets - make the grade for these primary contractor roles.
Tier 2 contractors are major sub-contractors, whilst Tier 3 contractors will be responsible for specialist work or supply, appointed either by Tier 1 or 2. Contracts are awarded directly by the SLCs and are independent of the competition process for Parent Body Organisations (PBOs). The NDA also spends a small amount of its budget directly with the Supply Chain and publishes details of its requirements via the Office Journal of the European Union (where required) and its own web site.
As might be expected, there are many barriers to entry up and down the decommissioning supply chain - that’s why companies within it have to work hard to ensure that they are flexible, innovative and on the constant cutting edge of industry ‘best practice’. Indeed, when working within the NDA estate supply chain, suppliers are encouraged to bring innovation, challenge costs and look for more efficient ways of working to continually demonstrate best possible value for money and improve delivery.
The role of performance management
Nuclear decommissioning consists of multiple large scale and highly complex projects. To do business in this environment, contractors therefore need to have deeply embedded project management capabilities and skillets.
An important sub-set of project management – and one which differentiates contractors seeking to meet the challenges of this industry – is performance management.
Contractors in this industry are expected to tightly manage performance whilst meeting stringent government mandated reporting like Earned Value Management (EVM). This can be a monumental challenge without the right tools. The full EVM criteria are standards for management control systems and often mandated by government bodies (i.e. UK, US, Australia and Sweden), or by contract owners to state the minimum system and reporting requirements for all concerned in the programme supply chain.
The NDA uses Deltek Cobra – a fully integrated Earned Value solution - to manage the decommissioning of each of the 17 sites it controls. Each site is required to report EVM metrics to the NDA, and these reports are then analysed by the NDA project management team to ensure the sites are being decommissioned on time, and within budget. These metrics are then published on the NDA’s website: http://www.nda.gov.uk/sites/updates/index.cfm.
Whilst many organisations are aware of EVM, some believe that it is only appropriate for large projects and are wary of the potential overheads associated with setting up and overseeing a full EV Management System (EVMS).
Still using spreadsheets
The fact is many contractors today are still using spreadsheets to manage cost and performance on projects. However, given the scale and complexity of most nuclear projects, this is an unsatisfactory and unworkable approach.
There are many fully compliant ‘certified’ EVMSs supporting work on large programmes in the defence industry, and an increasing number of organisations, including those in the nuclear decommissioning industry, are now using EV for a myriad of project sizes. In fact, it is worth noting that the existing SLCs are required to report cost status back to the NDA based on EVM techniques, and the vast majority use Deltek Cobra to automate the process.
Software tools such as Deltek Cobra are available to automate the processes of managing project costs, measuring earned value, and analysing budgets, actuals, and forecasts with Government-compliant reporting. They produce an objective measure to compare performance at every level, including comparison of different projects and programmes, subcontractors and historical performance.
Enterprises can drill-down into a project to gauge future performance and identify issues - giving them time to implement effective corrective action, invest, prioritise and manage the project with increased insight and awareness.
As projects and programmes progress, remaining costs are continually evaluated and updated and performance-to-date is used to analyse forecasted costs. Fundamentally, it is about getting the right information, to the right person, to help make the right decisions.
In virtually every industry – and in particular those that are publicly-funded – the ability to not only show, but also prove, tight project cost and performance management in the current economic climate is essential.
Bid processes in the nuclear decommissioning industry are notoriously difficult and time-consuming, as well as competitive. The winners will be those contractors who can demonstrate real cost and performance management capabilities – and have the tools in place to automate these processes.