1. Sellafield, the UK's largest and most hazardous nuclear site, has been in operation since the 1940s. The Authority, which took ownership of Sellafield in April 2005, inherited a legacy of poor planning, neglect and gaps in information. Around 240 of the 1,400 buildings on the site are operating nuclear facilities or buildings containing radioactive materials. Some that are deteriorating or fall short of modern standards pose significant risks to people and the environment.
2. The Sellafield site is operated and managed by Sellafield Limited, the site licence company, under a contract with the Authority, which reimburses its costs. In November 2008, the Authority appointed Nuclear Management Partners Limited (NMP), a consortium of private sector companies, as the 'parent body organisation' (PBO) of Sellafield Limited with the aim that the expertise provided by NMP would improve Sellafield Limited's performance. NMP receives fees for improved performance at Sellafield in the form of dividends, which totalled some £50 million in 2011-12 and are expected to total £230 million over the five years of its initial contract. NMP owns Sellafield Limited for the duration of its parent body agreement with the Authority.[1]
3. On the basis of a report from the Comptroller and Auditor General on the efficiency savings achieved at the site[2], performance data provided by the Authority on cost and delivery schedules for the 14 major projects at Sellafield to September 2013[3] and a report by the consultants KPMG on performance and the functioning of the PBO model at Sellafield to 31 May 2013[4], we took evidence from the Authority, the Department of Energy and Climate Change (the Department), NMP and Sellafield Limited on the progress which has been made at Sellafield since our previous report on managing risk at Sellafield published in January 2013.[5]
4. The Authority currently expects the total cost for the decommissioning of the Sellafield site to exceed £70 billion in cash terms. Delays and increases in the estimated costs of major projects are likely to mean that this will continue to rise, although the Authority does not have a revised estimate. The estimated costs of seven of the 14 major projects at Sellafield have increased significantly and target completion dates for eight of the projects have slipped between March 2012 and September 2013. For example, the estimated cost of the 'Magnox swarf storage silos retrievals' project increased from £387 million in March 2012 to £729 million in September 2013. The estimated cost of the 'Pile fuel cladding silo' has also risen from £341 million to £750 million over the same period and its estimated delivery date slipped by six years from August 2017 as at March 2012, to January 2023 in the space of 18 months.[6]
5. Over the years Sellafield Limited's reprocessing operations have rarely achieved the targets set for them by the Authority. The Authority told us that it set stretching and demanding targets for reprocessing and it incentivised NMP to achieve them, reducing the fees payable when targets were not met. The Authority accepted that performance had been disappointing in 2012-13, but considered that there had been examples of good performance in 2011-12, for example, on Magnox reprocessing, when Sellafield delivered 602 tonnes even though this was less than the 800 tonnes target. The Authority told us that the varying performance from year to year reflected the inherent fragility of the old reprocessing plants.[7]
6. NMP does not expect to meet the original minimum performance standard for site-wide efficiency savings for managing and operating the site over the first five year contract period.[8] In October 2012, Sellafield Limited forecast that, over the five years of the initial contract, it would achieve £825 million savings, against a minimum performance standard of £796 million. The Authority revised the minimum performance standards for efficiency savings in 2012-13 to exclude legacy ponds and silos and it now forecasts that Sellafield Limited will achieve £691 million of savings against a revised target of £699 million.[9] NMP informed us that it forecast it would meet the revised minimum performance standard on efficiency if the Authority accepted its method of calculating the target.[10]
7. The Authority brought NMP in to improve the capability of Sellafield Limited. NMP has placed secondees into Sellafield Limited's Executive team to improve its leadership, but there has been a high rate of turnover among them. There has been a disappointingly high level of turnover in the position of Managing Director within Sellafield Limited, with four in the last five years, although in two cases this was for personal or health reasons. The Authority told us that NMP had provided some extremely good people, but that the performance of executives in some positions had not met its expectations and that it had raised its concerns over executive turnover in discussions with NMP.[11]
8. Sellafield Limited has used more support from NMP staff, known as "reachback" than had been expected, to draw in staff with specific skills, capability and experience, and the Authority acknowledged that the use of reachback has not been as controlled as it should have been. Employing staff on this basis is expensive. The Authority expected Sellafield Limited to use 50,000 hours of reachback a year. This was initially exceeded in response to the Authority's demand for additional capability in project management. But in 2012-13 Sellafield Limited used 159,000 hours of reachback support at a cost of £25.9 million, with an average cost of £300,000 per expert provided. KPMG stated in their report that "reachback" was too often used inappropriately to cover, for example, back office functions. The Authority believed that the term "back office" was misleading as this support had been for specific programme and project reviews on behalf of the Managing Director. The Authority asserted that the use of reachback is now better controlled so that Sellafield Limited must define the requirement clearly and demonstrate that it could not be better delivered by existing staff with suitable training, direct recruitment or from the supply chain. Sellafield Limited told us that it is replacing reachback experts with staff trained up and promoted into the jobs, reducing the use of reachback by 40% in the last six months.[12]
9. The Authority told us that there had been, and continued to be, improvements in capability at Sellafield Limited as a result of NMP's involvement, but that the rate of improvement had been less than it would have wished.[13] KPMG were critical of performance across a wide range of areas, from project management, to cost predictions, from engineering capability to meeting minimum performance requirements. NMP agreed that there was scope for improvement within Sellafield Limited in project management, business case preparation and cost estimation, procurement strategy, supply chain management, design capability and engineering.[14] NMP told us that it had taken action to improve project management in Sellafield Limited, but that this was not yet fully complete. NMP highlighted the challenges in building risk and contingency into Sellafield Limited's cost estimates NMP described how it was difficult to assess contingency for all of the unknowables in a project, ranging from the uncertainty in the materials to be decommissioned to uncertainties about the technologies to be used.[15] A large stock of plutonium is currently held at the Sellafield site at a cost of approximately £40 million per year. [16] The department's currently preferred plan is to build a 'MOX' plant, which would convert the stock of plutonium into fuel for use in nuclear power stations. The previous attempt at building and operating a MOX plant had serious problems and had to be abandoned, with some £1 billion of costs incurred to date. There are currently no UK nuclear power stations which can use this kind of fuel, and even if there were, the cost of building, operating and maintaining a MOX plant would be higher than the value of the fuel produced.[17]
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2 Assurance of reported savings at Sellafield, National Audit Office, HC 778, Session 2013-14, 29 October 2013 (C&AG's Report)
3 Ev 44-48
4 The PBO model at Sellafield: Performance to 31st May 2013, KPMG, 11 September 2013 (KPMG report).
5 Committee of Public Accounts; Nuclear Decommissioning Authority: Managing risk at Sellafield, Twenty-fourth Report of Session 2012-13
6 Qq 127-129, 131-133, Ev 44-48
9 C&AG's report; paras 1.17-1.19
10 Ev 65
11 Qq 12, 19, 54, 245, 327-330, 348
13 Q 34, 54, 13
16 Ev 50