3 While defending the legal claims against its award of the Magnox contract, the NDA progressed a complex process of contract consolidation with CFP. The NDA describes this contractual process as a "trueing-up" between what the contractor was told to expect and what it actually found on taking over responsibility for the sites. This phase was included in the contract because the NDA recognised that the state of the 12 sites - and therefore the nature, scope and cost of work - could be different to what was expected at the outset of the competition. Only by concluding this consolidation process could the NDA agree what fee to pay CFP and determine whether it could achieve the 10% savings target set by HM Treasury (paragraphs 2.1 and 2.2).
4 During consolidation, the expected costs of decommissioning the Magnox sites increased from £3.8 billion in CFP's winning bid in 2014 to £6.0 billion in 2017. The NDA attributes £0.7 billion of this increase to a revised understanding of the volume of waste and asbestos on the sites, which the NDA says could not be quantified before work under the contract began. Of the remaining £1.5 billion of cost increases, £1.0 billion was forecast by the NDA at the time it awarded the contract, but £0.5 billion was not expected. The NDA does not know to what extent this unexpected additional cost reflects inaccurate assumptions about the state of the sites in 2012, when the contract baseline was established, or potential underperformance by the previous contractor between 2012 and 2014. The NDA's internal audit function reported in March 2017 that there was "a risk that the NDA may have paid for work which has been incorrectly reported as completed by the previous contractor". Since this interim internal audit report was published, the NDA has not undertaken any work to establish whether it may have paid for work that was not performed (paragraphs 2.7 to 2.10, 3.19 and Figure 9).
5 The contract provided for the consolidation process to last 12 months and conclude by September 2015, but the process continued without resolution until March 2017. The NDA agreed to extend the contractual deadline to complete consolidation from September 2015 to March 2016 because of the volume and complexity of the changes required. In June 2016, NDA executives notified the NDA Board that they had reached an informal agreement with CFP to conclude consolidation, but that some details still had to be finalised. However, the NDA subsequently decided not to formalise this agreement after receiving legal advice, and after the High Court judgment in July 2016 caused the oganisation to reduce its risk appetite. In December 2016, NDA Board minutes noted the risks associated with "reaching an agreement which is not in line with the mechanisms envisaged in the contract" (paragraphs 2.3 to 2.6, 2.11 and Figure 8).