The government has terminated a £6.1bn contract with Cavendish Fluor after a botched procurement process to clean up 12 nuclear sites put the deal at risk of further legal challenges.
A 14-year Magnox decommissioning contract was awarded in September 2014 to the JV between Babcock International subsidiary Cavendish Nuclear and US firm Fluor.
But energy secretary Greg Clark today announced that the Nuclear Decommissioning Authority would give two years’ notice to cancel the deal, meaning it will end nine years ahead of schedule.
The cancellation will remove about £800m from Babcock’s order book.
It comes as the NDA settled a long-running legal dispute with unsuccessful tenderers for the £6.1bn contract Bechtel and Energy Solutions over the botched procurement process.
The government dropped its appeal against a High Court ruling from July 2016, which said the NDA had “manipulated” and “fudged” a tender for the clean-up of the UK’s nuclear power plants, and had wrongly decided the outcome of the procurement process.
According to a ministerial statement, the NDA has agreed settlement payments of £76.5m to Energy Solutions, plus £8.5m in costs, and $14.8m (£11.8m) to Bechtel, plus costs of around £462,000.
Mr Clark said: “The NDA has today announced its decision to terminate its contract with Cavendish Fluor Partnership (CFP) for the management and decommissioning of 12 redundant Magnox sites (including two research sites) which, together with the Calder Hall reactor on the Sellafield site, formed the UK’s first fleet of nuclear power stations.
“It has become clear to the NDA through this consolidation process that there is a significant mismatch between the work that was specified in the contract as tendered in 2012 and awarded in 2014, and the work that actually needs to be done.
“As part of the settlements, NDA has withdrawn its appeal against the judgment. While these settlements were made without admission of liability on either side, it is clear that this 2012 tender process, which was for a value of up to £6.1bn, was flawed.”
NDA chief executive David Peattie said: “Terminating is no reflection on CFP, as performance on the sites under its ownership has been strong.
“Making progress on the ground and keeping our sites safe and secure remain our collective priorities. I would like to thank CFP for its ongoing commitment, as we transition to new arrangements.”
Babcock International’s shares fell 3.2 per cent in morning trading after the announcement.
The company said it would not be “materially” affected by the decision, although it did confirm that the value of the firm’s £20bn pipeline would fall by approximately £800m.
Babcock said: ”The change to the contract will create an annual step down in revenue of around £100m. This contract change is not expected to have any negative financial impacts over the next three years and we do not expect this announcement to change the financial guidance we expect to give at the Group’s full year results in May.
”Around £1bn will be removed from the c £11bn bidding pipeline; however a number of new identified opportunities coming forward from our tracking pipeline is likely to result in the bidding pipeline being broadly unchanged.”
Commenting on the contract cancellation financial analysts Shore Capital said: “It has become clear that the size of the task in decommissioning the 12 Magnox sites, the scale of additional costs in the long term, leave the existing contract open to challenge.
“The consequences of this will have no impact on financials for FY2018 [forecast] and FY2019 [forecast], other than to remove c£800m from the order book.”