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Policy Department D: Budgetary Affairs ____________________________________________________________________________________________ Figure 20: Fee payments 2008-2009 to 2011-2012 Source: (NAO 2012) The contracts between Sellafield Ltd and subcontractors are generally reimbursement contracts, which involve very little financial risk transfer. That means Sellafield Ltd has to bear the rising costs and the impact of delays and passes this one-by-one to NDA (NAO 2012). Only some few contracts use a fixed price model or target cost contracts, involving limited risk transfer, where the subcontractor shares the saving if actual costs are lower than the target. Incomes from Sellafield e.g. via commercial activities are paid to the Department by NDA. The financial flow for the year 2011-2012 was already shown in NAO 2012 (on page 73). The NDA routinely reports on performance to the Department of Energy and Climate Change, including on individual projects. It is working with the Shareholder Executive to ensure that the indicators cover the full range of issues. Most major projects require approval from the Department of Energy and Climate Change. But NDA does not report externally on the performance of its major projects (NAO 2012). 78
Nuclear Decommissioning: Management of Costs and Risks ____________________________________________________________________________________________ Since the Sellafield project is outside the scope of the Major Projects Authority, it is also not reviewed by that authority (NAO 2012). The Major Projects Authority aims to improve project performance for the taxpayer. It is collaboration between the Cabinet Office, HM Treasury and departments and has the fundamental aim of significantly improving the delivery success rate of major projects across central government. It was launched in 2011 (UK Government 2013). 3.3.9. Overall characteristics of the example Several reasons for cost escalation and delays can be identified in the UK Sellafield case, e.g.: Weaknesses in cost and schedule estimation were identified. Weaknesses in planning, e.g. of waste treatment facilities, caused delays and cost increases. Gaps in information and weakness in communication between NDA and Sellafield Limited were identified. Until 2011 NDA did not collect enough robust and timely information on projects from Sellafield Limited to enable timely intervention. The decommissioning concept, with nearly continuous work at the site for more than 100 years and performed by thousands of employees, points to weaknesses in the technical concept, in the work planning as well as in the cost calculation. NDA does not report externally on the performance of its major projects. Projects therefore are outside the scope of the Major Projects Authority and thus are not subject to independent reviews. Sellafield Limited does not bear risks for delay and cost increases, because the contract with NDA requires it to reimburse Sellafield Limited for all allowable costs. The roles of management quality, work performance, excellent project management and risk control are questionable under such framework conditions. NDA uses fees to incentivize efficiencies and achieve milestones, but a major part of the fees are paid regardless of any project progress. The criteria for other fee contributions are intransparent and seem to fail to work properly. Sellafield Limited`s contracts with its subcontractors generally involve very little risk transfer. Rising costs and the impact of delays are therefore borne by Sellafield Limited and then passed to NDA and finally to the taxpayer. Cost effectiveness is poor, due to extensive use of costly external contractors and workforce. Experiences gained in the process are not accumulated at NDA but remain mostly with the consultants. Gaps in the capability of subcontractors to undertake the required work are identified. The supply chain lacks capacity. The following conclusions can be drawn from this: A reliable decommissioning plan is required on which to base appropriate project management, planning and risk management and to perform reliable cost and time estimations on. Without 79
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