Escalation of risk

3.20 The NDA Board was made aware of challenges to consolidation as early as March 2015, when a report from the chief executive officer noted that the NDA's estimate of the cost in the full business case "may prove to be too small". The Board was first informed in June 2015 of the risk that CFP would miss its contractual deadline of 1 September 2015. Board minutes thereafter continued to note rising costs and the failure to meet the first, then the revised, deadline for consolidation. Non-executive Board members told us that NDA executives had repeatedly informed them that consolidation was nearing completion, that consolidation was not impacting on site performance, and that the cost increase was still within the parameters of the business case. On 30 June 2016, the Board commissioned the NDA's internal audit team to conduct a review of the consolidation process.

Figure 13

Governance of the consolidation process

	Membership	Role	Changes to role/remit over time
Competition Programme Board	Chaired by NDA strategy and technology director - competition senior responsible owner (SRO). Other members: • NDA CFO; business services director; head of internal audit; head of competition; head of financial planning; • Non-executive independent member from Infrastructure UK; and • Representatives from ShEx (2); Scottish Government (2) and HM Treasury.	Strategic oversight of NDA's programme of competitive procurements. Ensuring good contract management and benefits realisation post-contract award.	Terms of reference reviewed in August 2015 resulting in a shift of its role from a decision-making body to one providing advice and guidance.
Change Control Board	Chaired by strategy director - competition SRO. Other members: NDA CFO; assurance director and business services director.	Strategic oversight of progress on Magnox consolidation. Advise the SRO to approve, reject or instruct site-facing team to review any change controls that affect target cost, client specification or contract.	First met in May 2015; terms of reference not approved until August 2015.
Site-facing team/consolidation closure group	The site-facing team comprises - 1 general manager, 5 programme managers, 2 programme controls managers, 2 finance managers, 4 commercial managers, 1 communications manager and the equivalent of 1 full-time member of staff covering strategy; environment, health, safety and security; and human resources. The consolidation closure group comprises: 1 head of commercial, 1 lead project control manager, 1 finance project accountant and 1 programme manager.	Process, consider and make recommendations on change controls to the Change Control Board.	Originally, responsibility for considering change controls was given to the site-facing team, which was additionally responsible for business-as-usual contract management. In August 2016, the site-facing team was relieved of responsibility for change controls. A new consolidation closure group was set up to consider these, supported by the site-facing team.

Notes

1 In May 2015 the Chancellor of the Exchequer announced the creation of UKGI to replace the Shareholder Executive. In July 2016 the Department for Business, Energy & Industrial Strategy took on the responsibilities of the former Department of Energy & Climate Change, including sponsorship of the NDA.

2 The NDA will submit a revised business case for the contract once it agrees the terms of termination with CFP. It would have also been required to submit a consolidation closure report, if consolidation had been concluded.

3 Approval or endorsement is required from ministers at the Department and HM Treasury. Scottish Government ministers are informed through the CPB.

Source: National Audit Office analysis

Figure 14

NDA assurance reviews into consolidation

Date	Review team	Summary of key points/recommendations
December 2015	External assurance advisers	The review found no evidence that consolidation could be completed by March 2016, resulting in a high risk of future contract compliance contravention. It recommended that a contract remediation notice should be served and expedient contractual settlement was required.
April 2016	NDA staff and external assurance advisers	The review noted that the consolidation deadline of 31 March 2016 had been missed. It recommended: • that the NDA finalise the contract and lifetime plan as soon as possible; • that the NDA should consider formally issuing a defective performance notice to CFP and a contract remediation notice; • that no further extensions of consolidation should be granted and that change controls should not be adopted outside of existing limited contractual provision.
July 2016	External assurance advisers	The review recommended that contract compliance should be subject to an independent legal opinion. The review also stated that the informal agreement on concluding consolidation that the NDA had made with CFP (but not finalised) was likely to result in a total cost that satisfied the 10% cost savings target set by HM Treasury.

Source: National Audit Office analysis of Nuclear Decomissioning Authority assurance reviews

3.21 In seeking ministerial approval for the award of the Magnox contract in 2014, HM Treasury officials described the risk of significant changes to the cost of the Magnox contract as small. HM Treasury focused on whether the NDA would achieve the cost savings target, but could not determine whether it had until consolidation was complete. Officials did not therefore escalate any concerns to HM Treasury ministers about the delay in the consolidation process. HM Treasury told us that its oversight of the process was maintained through the CPB, and informal briefings from NDA executives, UKGI and the IPA.

3.22 UKGI, acting on behalf of the Department, maintained oversight of the consolidation process through governance meetings with the NDA, audit committee meetings and quarterly shareholder meetings. The NDA submitted monthly and quarterly governance reports to UKGI as part of a wider briefing on the NDA estate. These reports consistently highlighted the delays in consolidation. They also noted the potential for increase in the costs relative to CFP's bid. HM Treasury and UKGI told us they were concerned about the delays in consolidation, but relied on the NDA's assurances that a resolution would be achieved and of the importance of ensuring that the quality of their review of change controls was not compromised. UKGI reports noted that the NDA believed that, despite cost increases, it still expected to meet the 10% savings target set by HM Treasury. UKGI reported progress to the Department through a monthly dashboard and risk register, supplemented at times with other briefings. UKGI told us that it was not aware of the full volume of changes to the cost of the contract until the summer of 2016. UKGI briefed ministers for the first time on the potential changes to the cost of the contract in August 2016.

3.23 On 12 January 2017, senior officials in the Department, acting with advice from UKGI, decided to escalate to ministers their concerns regarding consolidation and the risk of material variation to the contract. Between March and April 2017, UKGI made three further submissions regarding the risk of material variation and on termination of the Magnox contract.