Public Accounts Committee - Minutes of Evidence
hc 708
HOUSE OF COMMONS
ORAL EVIDENCE
TAKEN BEFORE THE
PUBLIC ACCOUNTS COMMITTEE
SELLAFIELD FOLLOW-UP (PART 2)
TOM ZARGES, TONY PRICE and JOHN CLARKE
Evidence heard in Public Questions 172 - 410
USE OF THE TRANSCRIPT
1. This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
2. The transcript is an approved formal record of these proceedings, it will be printed in due course.
Oral Evidence
Taken before the Committee of Public Accounts
on Wednesday 4 December 2013
Members present:
| Margaret Hodge (Chair) Mr Richard Bacon Stephen Barclay Guto Bebb Meg Hillier Fiona Mactaggart Nick Smith Ian Swales Justin Tomlinson |
|
__________________________
Amyas Morse, Comptroller and Auditor General, Gabrielle Cohen, Assistant Auditor General, Jill Goldsmith, Director, and Marius Gallaher, Alternate Treasury Office of Accounts, were in attendance.
REPORT BY THE COMPTROLLER AND AUDITOR GENERAL
ASSURANCE OF REPORTED SAVINGS AT SELLAFIELD (HC 778)
EXAMINATION OF WITNESSES
Witnesses: Tom Zarges, Chairman, Nuclear Management Partners, Tony Price, Managing Director, Sellafield Ltd, and John Clarke, Chief Executive, Nuclear Decommissioning Authority, gave evidence.
Q172 Chair: Welcome. Thank you all for coming and thank you, Mr Zarges, for returning and for coming all the way from the States for this hearing. Thank you also for sending us the full copy of the report. For us as a Committee, this is a key value-for-money exercise. You might help us Mr Clarke: the current guesstimate of how much we are talking about here, over time, is now in the region of-
John Clarke: It is in the region of towards £50 billion.
Q173 Chair: Why have I got a bigger figure in my mind?
John Clarke: That is discounted versus undiscounted.
Q174 Chair: And the non-discounted is?
John Clarke: I would have to confirm that; into the seventies.
Q175 Mr Bacon: You mean one is cash and the other is the net present value of that money?
John Clarke: Correct.
Q176 Chair: Okay, the figure I have in mind is £70 billion.
John Clarke: That is the undiscounted number.
Q177 Chair: That is why this is a huge contract with never-ending increases in cost and never-ending delays in time, which is why we are hugely concerned.
First, Mr Zarges, I should say that, having looked at the KPMG report, just to put it into context, we recognise that there have been advances in safety, particularly on this site. That is a welcome improvement-it is good to see that. The consortium contracts are funded by the taxpayer. Mr Zarges, do you think there should be transparency and open accountability for how you spend that money?
Tom Zarges: I do, and I believe there is.
Q178 Chair: And do you think we have a right to know when things go wrong?
Tom Zarges: Of course.
Q179 Chair: Okay. So, Mr Clarke, why is it commercially sensitive for us to know that the review undertaken by KPMG, at a cost to the taxpayer of a quarter of a million pounds, talked about failures in NMP leadership? NMP leadership appears to have intervened to a very limited extent on the major projects. NMP leadership has intervened very little on the ones we should be making money from, out of Magnox-the vitrification and the THORP reprocessing. It is a publicly funded contract, so it is our right to know whether we are getting value for money. Our interest in this Committee is to know whether we are getting value for money. Why, therefore, is it not relevant for us to know that there are real question marks-I accept by KPMG, but it is a pretty thorough report-over NMP leadership?
John Clarke: The points that we redacted, we redacted on the basis of two factors. One was what we believed to be commercial confidentiality, and the second was the protection of individuals. There were named individual comments in it. We felt that it was appropriate to redact on the basis of both of those. We redacted sections rather than individual words, given the 200-plus pages of the document at the time. We were not trying to hide from anybody.
Nick Smith: Can you speak up?
John Clarke: I am sorry; I do have a slight voice problem. We were not trying to keep secret the fact that there were concerns expressed by KPMG about a number of aspects of NMP's performance. Indeed, in the unredacted version, there are several comments that make that point, but there were some specific elements about their performance that were in the context of some broader issues, and particularly looking at our options going forward, which we felt it was inappropriate to reveal publicly at this time.
Q180 Chair: I think I would probably quarrel with you there, and we will go into the details of the criticisms in the KPMG report. We had a five-year contract, and you have now extended it for a further five years. You have upped the value in year one to £1.8 billion-another £200 million has gone in there-am I right?
John Clarke: That is the estimated expenditure in the first year.
Chair: So it is an increased value to Mr Zarges and his colleagues, and yet we have before us-I accept that it is only one of the items of evidence that you would have in coming to your decision-a report that is hugely critical, Mr Zarges, of how you and Mr Price have operated the site. If you are talking about this massive amount of public money, I am left bewildered as to why the contract has been extended to you. I think we need to know about the leadership provided by Mr Zarges and his colleagues in order to have confidence that this massive amount of money is being well spent, and that taxpayers' interests-the interests of my constituents and those of Mr Bacon-are being properly looked after.
Q181 Stephen Barclay: Mr Clarke, you said a moment ago that you redacted sections.
John Clarke: Largely speaking, we have redacted-
Stephen Barclay: Including when you were protecting named individuals.
John Clarke: Yes.
Q182 Stephen Barclay: Why would you not just redact the names? That is what would normally happen on papers that are submitted to the Committee.
John Clarke: The decision that we took was that people gave KPMG information on the basis that, in giving that information, it would be a confidential matter for KPMG and thence to us.
Q183 Stephen Barclay: With respect, that is not the answer that you gave a moment ago, is it? You said that you redacted on two grounds: commercial confidentiality and protecting named individuals.
John Clarke: What I meant was protecting the fact that they gave us information on the basis that it would not be made public. They were giving us information confidentially in order to help inform our decisions going forward. The deal, if you like, between the people who were spoken to and ourselves was that this would not be made public. That was the reason why we redacted.
Q184 Stephen Barclay: To be clear, what you are saying is that it was not just on two grounds that you redacted; there was also a third ground based on the premise on which information was provided.
John Clarke: That is what I meant by the confidentiality of the individuals.
Q185 Stephen Barclay: Yes, but that is different from commercial confidentiality, isn't it?
John Clarke: Yes, it is. The commercial confidentiality is a separate issue from that of honouring our commitment given to individuals about not revealing the comments they made.
Q186 Stephen Barclay: Right. So there were three limbs on which you redacted, not two. Is that what you are saying?
John Clarke: No, I think I am trying to say that there were two.
Q187 Stephen Barclay: I have no idea. At the moment, you are saying that you redacted on commercial confidentiality, you redacted on named individuals and you redacted on the basis that you said to people that they were providing information on a confidential basis.
John Clarke: What I meant when I said "named individuals" was the second part of that: honouring the commitment that we had given to them that the comments they had made to us would be treated confidentially.
Q188 Stephen Barclay: So it was not just the named individuals subject to the criticism; it was the ability to identify where the information may have come from.
John Clarke: Indeed.
Q189 Stephen Barclay: So that it is a third reason why. In all those cases, you are saying that the redaction of the section was because the information in all of those instances could only have come from an identifiable source.
John Clarke: I'm not sure I would go as far as saying that.
Q190 Stephen Barclay: I thought you just had.
John Clarke: I am pretty sure that we blanket-redacted the comments made by individuals on the basis that we had given them a commitment that we would not reveal what they had said.
Q191 Stephen Barclay: Blanket redactions are compliant with data protection legislation, including the public interest test, are they?
John Clarke: We can look at that again, but that was the basis on which we did it.
Q192 Stephen Barclay: I am trying to establish whether you redacted on legal grounds or reputational grounds.
John Clarke: We attempted to redact. Our intention was to redact on legal grounds: the commercial confidentiality ground of section 36 or whatever it is.
Q193 Stephen Barclay: So that was the intention but perhaps the reality was different. Is that what you are saying?
John Clarke: It is possible that we have gone beyond that. That was certainly not the intention.
Q194 Stephen Barclay: It is possible. You may have done, even if you did not intend to.
John Clarke: I beg your pardon.
Q195 Stephen Barclay: You may have done, but you did not intend to. That is what you are saying. That just does not sound like a very rigorous legal process.
John Clarke: We have attempted to follow, in this instance and others, freedom of information. We genuinely attempt to follow a proper legal process, where we redact those things that it is appropriate and legal to redact, and we make publicly available the information that we think is appropriate.
Q196 Stephen Barclay: Is it still your evidence today, Mr Clarke, that the redactions that you made then are correct, based on data protection legislation?
John Clarke: They were done with the intent of complying with data protection legislation.
Q197 Stephen Barclay: I am not asking about at the time; I am asking now. Have you looked at those redactions again and said they were valid?
John Clarke: I have not revisited them.
Q198 Mr Bacon: On that point, could I just follow on from Mr Barclay? I am looking at a redaction here. I won't name the organisations that are redacted, but the rest of the sentence, all of which is redacted I think I am right in saying, reads: "Contract reviews in 2009" by one named organisation and another named organisation "respectively highlighted concerns about whether the original contract intent was being met".
The effect of that redaction is not merely not to disclose the names of the organisations. The effect of that redaction is also to hide the fact that there were concerns about whether the original contract was being met.
John Clarke: Could you refer me to that page?
Q199 Mr Bacon: It is on page 37. On the left-hand side, at the second bullet point there is a dash after the first two lines of text. Underneath that the next line starts, "greater use of interim storage". Underneath that there is a section of text over two lines, all of which is redacted. I can see why you would redact the names of the organisations, if you had been given legal advice that that was something you should do. That is why I have not mentioned them now. However, the effect of that redaction is to remove from purview the fact that there were concerns about whether the original contract was being met. There had been a contract review and it had flagged up concerns about whether the original contract intent had been met. The redaction hides that as well, doesn't it?
Stephen Barclay: That is a material point.
Mr Bacon: Nods don't get into the transcript.
John Clarke: I acknowledge your point.
Q200 Mr Bacon: On the basis of Mr Barclay's criteria applied earlier, which of them were you using for that redaction? Was it commercial confidentiality?
John Clarke: In that instance, I-
Mr Bacon: Was it commercial confidentiality in this case?
John Clarke: I believe on that basis it would be the protection of the comment made by an individual or group.
Q201 Mr Bacon: Let us go back to the first point. I would like to take it in stages so we don't miss anything. Mr Barclay was pursuing your statement that there were two criteria. The first one was commercial confidentiality. Was this redacted on grounds of commercial confidentiality?
John Clarke: From looking at it, I don't believe so.
Q202 Mr Bacon: Was the entire sentence redacted on the grounds of protecting named parties?
John Clarke: The names and the view expressed by them. Those are opinions expressed by groups; they are not statements of facts.
Q203 Mr Bacon: No, okay, they are not statements of fact. The fact that a party had expressed a view and who that party is, are separate things. That is right, isn't it?
John Clarke: I think that is the point about whether there are two reasons for redacting or three. My view is that I have looked at this through the lens of there being two.
Q204 Mr Bacon: So you were trying to redact to protect the names of individuals or of organisations. That was one thing. Commercial confidentiality was another. But here it is quite clear that you are also trying to redact views expressed. That's right, isn't it?
John Clarke: I think that is the effect that it has had. That was not the intent behind the redaction.
Q205 Mr Bacon: But it goes back to Mr Barclay's earlier question. You are saying that this redaction wasn't done in line with your criteria. Is that right?
John Clarke: We have tried to redact on the basis of taking out those opinions that are down to individuals or groups.
Q206 Ian Swales: Are you trying to say that only one person in the organisation would have the opinion expressed there? Is that what you are really saying? Only one person; and therefore seeing that comment, everyone would know who it was? That is very hard to believe.
John Clarke: Not just on the basis of individuals, it is on the basis of opinions expressed by bodies, because you are talking about individuals from groups. There are comments from regulators. It is not the opinion of the regulator-it is the opinion of those within the regulatory authority that have spoken to us.
Q207 Mr Bacon: But these two names are publicly funded organisations.
John Clarke: They are.
Q208 Mr Bacon: They are not individuals. It doesn't say John Smith and Freda Smith. They are two organisations which are publicly funded. I am just trying to be clear, because what is redacted isn't simply the name of an organisation so that you could protect the fact that that organisation gave an opinion. You are also hiding the fact that an opinion was expressed, because you are removing entirely the opinion. Is it your evidence that that was not the intention? Or is it your evidence that that was the intention?
John Clarke: That was not the intention.
Q209 Mr Bacon: It wasn't the intention to remove the fact that an opinion had been expressed?
John Clarke: The intention was not to remove the fact that there were opinions.
Q210 Mr Bacon: If you delete the words: "Contract reviews in 2009 by"-I'll call them X and Y-"respectively, highlighted concerns about whether the original contract intent was being met", it plainly removes an important view, doesn't it?
John Clarke: I accept that point.
Q211 Mr Bacon: Right, okay. You think that that shouldn't have happened?
John Clarke: Again, we set out to redact this document with good intent.
Q212 Chair: Can you explain to me then why a reference on page 30 that "NMP leadership appears to have intervened to a very limited extent"-
this is one of the key findings on operations and projects-or the next one, "Annual operational throughputs have been consistently below PP11" and it goes on, is commercially confidential? I am not a lawyer. These are two key performance indicators; it again says that "NMP leadership has made little intervention". Why is that commercially confidential? I really don't understand it.
John Clarke: We have taken the view that having detailed public conversations about aspects of the leadership within Sellafield is not helpful. I grant you can have a different view. We have had very detailed conversations privately. We have spoken extensively about the need for the right quality and quantity of leadership in Sellafield Ltd, but our view was that having that conversation publicly is not helpful to our potential for review.
Q213 Chair: Let me just put a counter-view to you that you should consider. This is a massive contract for billions of pounds over time. It is therefore absolutely imperative in the public interest that we seek to get best value. On the very crude indicators of where the contract cost is going and where the contract delivery dates are going, that seems questionable-even accepting the complexity of the work that has to be undertaken. In that context, I think leadership of the contract is absolutely central to any understanding by us or any other body of whether these billions of pounds of taxpayers' money are being well spent. I just cannot see that it shouldn't be in the public interest. If Mr Zarges was a Government Department running this contract-we think of universal credit or something like that-he would be up before us as the accounting officer for his failure to provide the intervention and the leadership.
John Clarke: Can I just make a few comments about the KPMG report? I accept that the elements of redaction may or may not have been entirely appropriate. They were done with good intention in response to a request from an individual. We had debate at the last Committee about why we had not made this public or made it available to you. We genuinely believed that the conversation last time was about efficiencies, which was the subject of the NAO Report. We have subsequently confirmed-I was unfortunately unable to share this at the previous Committee meeting-that the existence of the report was known by the NAO, it had been the subject of comments in The Independent newspaper and we made a comment about it on our website.
We genuinely did not believe that this topic would figure large in this meeting. We spoke to the secretary of the Committee and the NAO beforehand about the documentation required. We did not see it as being central or germane to the hearing. On that basis, we redacted it in a genuine attempt to reply to a member of public who asked a question. I am very happy to look at it again to see whether we have been over-zealous in our redactions. It was not an attempt to keep information inappropriately from this Committee or anybody else.
Q214 Chair: I am sorry you feel that was the purpose of the previous Committee. I thought I had made it clear prior to the hearing that given that the contract had been re-let, and given that this is a recall hearing, part of whose purpose is to look at the work the NAO had done on efficiency savings, this Committee would inevitably have an interest in the re-letting of the contract. I am sorry if you did not know that, but that seems absolutely central to a recall hearing.
John Clarke: We did expect to have a conversation about the contract extension, but we had asked previously what specific information was required. The KPMG report is one of a series of documents that we have used. It is not the only document on which we based our discussion.
Q215 Mr Bacon: I can see how you might have come to the conclusion that you just expressed. The NAO did a Report on managing risks and a separate Report on assurance about cost savings, called "Assurance of reported savings at Sellafield", and it sounds more narrow. So I can see how you could have come to that conclusion.
Let me ask you a different, related question. I am not asking you to be any more of an expert on the Olympics than I am, but we looked at the Olympics quite a lot in this Committee and they were widely thought to be a success. There were some criticisms, but broadly they went well. There was good, tight contract management and project management, and there was a relationship between the two. Consequently, they were well delivered and a success. Do you think that there is a relationship between the high-quality leadership in the Olympic Delivery Authority and the fact that there was very good contract management? Do you think they were intimately connected with one another?
John Clarke: I would be surprised if they were not.
Q216 Mr Bacon: So would I. In the same breath, surely it would be surprising if there were not an intimate relationship between the good, tight contract management, which brought efficiency and cost savings that could be relied upon to be genuine because the assurance around them was robust, and the high-quality leadership, management and intervention by NMP-Nuclear Management Partners.
John Clarke: Yes, I accept that.
Q217 Mr Bacon: So essentially they are related, aren't they? It is not a narrow silo of cost efficiency on the one hand and good leadership on the other. The two are intimately related.
John Clarke: I accept that entirely. The quality of leadership is fundamental to the performance of any organisation.
Q218 Mr Bacon: That is right. I also understand why you might think that having private conversations helps. We all do it in all parts of our lives. Sometimes things are best done privately and sometimes they are best done publicly. But it is also true, particularly with big projects that use public money, that good projects can defend themselves. By defending the rationale for themselves publicly they strengthen their muscles and become better at defending themselves because they have to. That is what happened with the Olympics. Bad projects are like anaerobic bacteria: they can only survive in the dark with no oxygen, no light and with nobody looking at them. Do you agree with that?
John Clarke: I do, but I hope that your inference is not that we have been trying to hide bad projects. We have been extremely open with them. We were complimented by the NAO for our openness, transparency and co-operation in the review it did in 2012.
Mr Bacon: You have been hiding concerns that there was bad leadership.
Chair: Quite. It is the bad leadership you have been hiding.
Mr Bacon: That is what it looks like here.
Q219 Chair: Let me give you an example, and Mr Zarges might like to answer it. If we look at page 62 of the KPMG report-to be honest, I don't know whether this is redacted or not, because I cannot look through the two concurrently.
John Clarke: I should confirm that neither Mr Zarges nor Mr Price has seen the unredacted report.
Q220 Chair: OK but they will know about what we are talking about here is that major projects' estimated total lifetime costs have increased from PP11, which is quite recent-if one went back to PP-whenever, the costs would have absolutely gone through the roof, but this is PP11, two years ago-by £1.2 billion, a 37% cost variance. This includes, and you will have to help me with the acronyms, SDP-
John Clarke: Silos direct encapsulation plant.
Chair: Thank you. The forecast lifetime cost has gone up from £668 million in 2011 to £665 million in May 2013.
John Clarke: Up by £665 million to £1.32 billion.
Chair: An increase of £665 million. Sorry, you are absolutely right. MSS retrievals-
John Clarke: Magnox swarf storage silo.
Chair: Thank you. Cost increased from £421 million to £729 million. That is a £308 million increase. PFCS retrievals?
John Clarke: Pile fuel cladding silo.
Chair: Lifetime cost increased from £342 million in 2011 to £559 million, that is £217 million. So in two years, those three projects have increased massively. What the report says is that you, the NMP, only intervened with specific project reachback staff when you were prompted to do so by NDA staff. You are in charge of this stuff. It then says, if you look at the silos, LP and S, remind me-
John Clarke: Legacy ponds and silos.
Q221 Chair: We will come back to this, I should think, time and time again in these hearings. Again it says NMP actions have largely been in response to NDA. So we are paying you these megabucks-I think Mr Bebb worked out that you got £230 million in the last three or four years as fees-and you do nothing. You wait for the NDA to chivvy you into taking action. In the meantime, the costs, not met by you because there is no cost incentive in this contract to you at all, are passed on to us, UK taxpayers, and escalate through the roof. Do you want to comment?
Tom Zarges: Yes. May I respond? I'd be glad to. There is probably a lack of knowledge about our intervention on behalf of the reporters and I'd like to clear that up and first give some perspective, then perhaps in specific instances where we have-
Chair: I am really sorry, but you are going to have to speak up because the acoustics are pretty poor.
Tom Zarges: I'm sorry about that. I'd like to provide a bit of perspective first, then maybe some specific knowledge about what we have done, so that it can illuminate that subject a bit. First, as I think you know, the structures of the PBO and the site licence company are interesting-they are mandated. The site licence company is the entity that is responsible for all the performance on site and accountable for it. The PBO is responsible for making sure that it is supported, challenged and there is oversight of its activities-and we do so. The intervention that we provide is to lay in specific experts and specific staff to address issues and problems and we have done so in the instances that you have cited. For example, if we talked about just one of those instances, about Evaporator D-
Q222 Chair: Apologies for interrupting, but are you asserting that you don't have responsibility for oversight of these projects?
Tom Zarges: We do have responsibility for all the activities of Sellafield and we do intervene by providing it.
Q223 Chair: What are you trying to pass on to the NDA? Where does the responsibility lie between you and them?
Tom Zarges: We are collegial. We both have intervention and actions to oversee activities on site and we discuss what we see with one another fairly transparently.
Q224 Chair: My view is that you won the contract. Don't tell me that your commitments on the contract were only to come in on these things when you were chivvied into doing so by the NDA.
Tom Zarges: No, of course they're not and that was not at all what I was implying. I was only implying that we share information and we collaborate when we see an issue or a problem to make sure we are aligned in the forensics, in the root causes and how we should solve it. We often do that.
Q225 Chair: With respect, Mr Zarges, you came in-I will repeat again-and "intervened…when prompted by NDA." The report says: "NMP actions have largely been in response to NDA interventions." That is after the lifetime costs of just the three projects had undergone a 37% cost variance-I bet that there was a time variance as well-of £1.3 billion. That does not sound to me-
Tom Zarges: No, I don't think the prompting is entirely accurate. We were obviously engaged and involved in providing active support and active personnel to address these issues from the parent companies, including best practices.
Q226 Stephen Barclay: To be clear, are you disputing the report's findings? It is clear in multiple places-page 62, as just quoted, says: "NMP actions have largely been in response to NDA interventions." Are you saying that you disagree with that finding?
Tom Zarges: They are in part in response to the NDA-of course, we listen to them as our client, but we also take proactive action when we believe it is required.
Q227 Stephen Barclay: But the report says that the intervention of your key personnel has not been as effective as expected. Are you disputing that finding?
Tom Zarges: That is an opinion. I think that we are making very rational progress in every one of the areas where we have indicated that there are problems, shortfalls and issues.
Q228 Chair: What is going well? The only thing I have noticed, having read this report and the various others, is that I think safety standards are better. I acknowledged that at the start. I cannot see anything else where costs are getting under control or where you are getting underneath what to do. You have been on the site for five years on a really, really expensive contract-I keep underlining that. Where is your performance? Give me one example of one of those big projects that you think are going well, apart from safety.
Tom Zarges: If I may start with some context, which I think is necessary to discuss any performance at Sellafield. As you know, it is obviously a very complicated site, and I appreciate that many of the Members here have gone to the site and got a first-hand appraisal of the activities that are going on there. It is a 60-year-old site. It has served the country well. It has a breadth of nuclear operations of a complexity that is unmatched anywhere in the world. In fact, in my 40 years of experience in this industry, I have never seen circumstances quite like this. Its mission has been difficult. It has been hard and it has served well and been very productive, particularly over the exigencies of the cold war, in developing new nuclear technologies. But the legacy of those 60 years, as you know, is a mass of unconsolidated, often uncharacterised and very hazardous waste materials on site in storage conditions that are extraordinarily vulnerable, and in facilities that are well past their designated life. There is no question about that. The new mission on site is unprecedented, it is something that the site has never seen before-
Q229 Chair: It is not new. I am sorry to interrupt you, but I have given you a chance to be general. You have been on the site for five years and all I can find in this report is criticisms of your performance. I am giving you an opportunity to explain to the Committee one project where you think you have added value to justify the money you get out of it. We will come back to what you have done on expertise and money.
Tom Zarges: There are more than 400 projects on Sellafield. We are looking at a very narrow slice and the most vulnerable slice. Obviously it is 14-
Q230 Chair: We are looking at the most expensive, which are the major projects.
John Clarke: Perhaps I could pick up-
Q231 Chair: No, let him. He's in charge of it. For heaven's sake, he gets money for it-he must know what he is doing.
Tom Zarges: Let me explain the 14 projects and their characteristics. Obviously, of them-
Q232 Chair: I don't want the generalities.
Tom Zarges: I understand. Obviously of those 14 projects, three of them are "in the ground" construction projects. They have had problems. They were the first ones out of the box.
Q233 Chair: Which one have you done well?
Tom Zarges: We are talking about evaporator D, we are talking about-
Q234 Chair: No, I have got criticisms on D-there is a criticism in here on D.
Tom Zarges: The SAV project.
Q235 Chair: Which one has gone well?
Tony Price: Can I just intervene?
Q236 Chair: No!
Tom Zarges: Well, Mr Price is in charge of the site and he is in charge of the activities on site.
Q237 Chair: You're the big boss.
Tom Zarges: Yes, I am. We have had, for example, an accumulation of about £650 million in programmatic savings on site. I think that that is quite significant. Think about many of the other programmes and projects that we have done: we have stabilised the storage facilities and made them much less vulnerable to exigent circumstances, and we have made them stand up to what I think are some pretty long-term, efficient-
Q238 Chair: What is your one example, Mr Price, that you want to give on behalf of your boss to rescue him?
Tony Price: I was appointed as a managing director of Sellafield in May this year.
Q239 Chair: I know; that is one of our criticisms. You are the fourth or fifth one, aren't you?
Tony Price: I am the fourth one.
Q240 Chair: In five years-real leadership commitment.
Tony Price: I think two left because of ill health, unfortunately.
Q241 Chair: No. Three were ill before you, were they, Mr Price?
Tony Price: Two were ill before me and my predecessor was there for two years.
Q242 Mr Bacon: How are you feeling?
Tony Price: I feel okay just now. Just to be clear, I fully understand my responsibility to the taxpayer and to our client as well. As the MD at Sellafield, I am totally reliant on NMP. You ask for examples of where things have gone wrong, and we do understand-
Q243 Chair: We wanted one example of something that went right.
Tony Price: I'll give you an example. One of our parent companies, AREVA, we brought in to support us in the vitrification area. We have missed our targets-
Q244 Chair: We are very sceptical here that you should be giving contracts to yourselves, but anyway, leave that aside. That was one of our criticisms last time-that you are using this as a vehicle to give contracts to yourselves.
Tony Price: That was not a contract we gave; this was actually using reachback, so reaching back into the parent companies. We brought a team in from AREVA who worked with us on the vitrification plants, which had not been meeting targets, and we are now meeting targets within vitrification. In fact, we had a world record just two months ago. So that is an indication of where we are bringing in world-class expertise from the parent body companies, and I do rely on that.
I think the other thing that we cannot forget is that Sellafield is still the hub of the UK's nuclear industry. We still support Magnox, the AGR fleets, Dounreay and the exotic fuels coming down from Dounreay. So as well as this slice, and I agree these are the important projects, the 14 that are highlighted here-in fact it is 12 because there are two which are no longer required-we are the hub of the nuclear industry and we will be for the next six years. It is very much a balance. We use an infrastructure which is 60 years old; it is a failing infrastructure. We have had to systematically go through the infrastructure to make sure it is properly maintained and that we have got the right asset arrangements in place. That infrastructure supports these projects as well.
It is not an excuse; I think it is just a fact of life, and they are the sorts of challenges. As I think you quite rightly pointed out at the start, Madam Chair, safety and security is at the front of everything we do here, because if we do not get that right, it will put this programme back.
Q245 Chair: Yes, it is the one thing I admit that you have done well. Somewhere in here I have a criticism of the vitrification project, but let's leave that aside.
Can I come back to you, Mr Zarges. Why four chief executives in five years? What on earth where you playing around there with?
Tom Zarges: As Mr Price said, the first one really did not take office very long. He had a health problem and had to retire.
Q246 Chair: Why did you appoint him?
Tom Zarges: Well, he did not have a health problem when he was appointed. He was two years in standing during competition and during the formation of the programme, and once the programme was enacted, he had a health difficulty that required his unfortunate removal.
The second manager that we put in had a similar health problem. He had a minor stroke, in fact, while he was on the job. Fortunately, we have a reservoir of very key people who are prepared to come in and work this programme.
The third manager had been there for five years and he has been there for exactly seven years right now. He was a fixture on the site, chief operating officer, assumed the position just two years ago and was Mr Price's predecessor. So we do have a very good cadre, I believe, of key people who are capable of managing this programme.
Q247 Chair: Mr Zarges, if you or your business had to change the chief executive of a massive project like this four times-I accept one accident might happen-in five years, do you think that is good?
Tom Zarges: It was not the plan.
Q248 Chair: A shareholder looking at you would think, "My goodness, you are bad at choosing or you are not committed to the site". That is what it feels like.
Tom Zarges: It was certainly not the plan and it was not by design. It was forced by these exigencies that I just recounted.
Q249 Chair: Is this the only place you have changed four? It just feels as if you are doing all of this from the States and you are not really committed to what is happening here in the UK. There has got to be some explanation. It is a pattern we see here when projects go wrong, which is why Mr Bacon went on about this. Leadership is poor, and one of the ways in which it is poor is that it has not been consistent.
Tom Zarges: Well, we have replaced some people because we understood that we needed different leadership, or a different kind of leadership, for different circumstances. That, obviously, is part and parcel of our proactive assignment of key leaders on site.
Q250 Guto Bebb: On the issue of leadership and being proactive, however, if you look at the report-have you seen the KPMG report in full?
Tom Zarges: The redacted version.
Q251 Guto Bebb: The concern I have is that we are talking about an individual project, but the comments in the report about the leadership and management of the project are damning. Having been a consultant-for my sins-before I was elected to this place, I would be extremely careful before putting these types of comments into a report. So, going back to the question the Chair asked previously, are you disputing the findings in terms of the reactive nature of the management structure offered by NMP to Sellafield? Time and again it is said in this report, in black and white, that the response from NMP was reactive and that there was no proactive involvement. It is as damning a report as I have seen. So, are you disputing the findings? That is the key question.
Tom Zarges: I am. I do not think that the action is reactive. I think we have taken proactive leadership. Let me just recount what we have done in the last year. For example, we have completely revised the organisation on site; we have simplified it; we have streamlined it; and we have put key people in to occupy new positions with different accountabilities. We have probably put 30 additional people on site, to take on the next phase of the Sellafield mission. In doing so, we have put the organisation into a much more operational focus for the next phase of activities-that is, project development, hazards and retrieval removal, the LP&S decommissioning activities and project delivery. We have accountable people who are experts in their field, responsible for each of those positions, under Mr Price. And in fact, we have revised the whole theory and the operation of governance of NMP with the SLC, to give it a larger presence in Cumbria. We have a standing office there of 15 people, engaged in oversight, support and delivery.
Q252 Guto Bebb: So, in effect, you are disputing the KMPG findings?
Tom Zarges: Yes.
Q253 Guto Bebb: Would you care to comment, Mr Clarke? Do you dispute the findings in the same manner, because, if nothing else, if there is such a huge discrepancy between the findings of a fairly well-known firm in the UK and the comments being made by Mr Zarges, did you waste £250,000 getting this report? Because the decision to give the contract again clearly indicates that you had information that could indicate that you also believe that this report is incorrect.
John Clarke: No, the report was produced as part of a suite of work to help inform our decision. It was not a recommendation; we never sought a recommendation from KPMG and we didn't make one-
Q254 Guto Bebb: On that point, if it was part of a "suite" of information, what other information did you have, because it would have to have been pretty strong to allow you to decide that this was not strong enough to persuade people to renew the contract?
John Clarke: This is looking at one particular aspect, which is performance on the site-
Guto Bebb: I appreciate that.
John Clarke: In response to your earlier point about whether I agree or disagree with the comment, I think I would agree largely with that comment. These are judgment terms. "Largely"-what does that mean? These are subjective comments rather than definitive comments. But I would have to say, and perhaps we may disagree-
Q255 Guto Bebb: In terms of subjective comments, when there is a finding that says that there is little evidence that NMP provides proactive leadership, that is pretty-
John Clarke: I would acknowledge that the degree of proactivity has been less than we would wish to see and that in some instances, the quality of leadership has been less that we would wish to see, and we have had that discussion; I think we raised that at the hearing a month ago.
I don't think it's surprising that there may be a slightly different view from Mr Zarges than there is from me. I expect to see more, and I have said that we have been disappointed with elements of performance. So it is not the case that we are entirely satisfied with performance; we're not, and we have been very clear about our requirements going forward. But this is looking at performance of the site. We were looking at performance on the site, performance of the contract itself, in terms of improving the site-a lot of what happens on the site is down to the inherent nature of the site, and the site licence company-and then separately we look at alternatives. And as I said at the last meeting, in order to move from what we have to an alternative, we have to be confident that the alternative will provide a better outcome. Our judgment at this time is that the thing that provides the best outcome is continuing with this contract into a second five-year term.
Q256 Chair: I hope that, at the end of this hearing, we might help you to think again.
Mr Zarges, you have talked a lot about the capability that NMP brings. Again, I have to refer you to the criticism in this report of your ability to bring capability. On page 120, headed, "Key findings-general approach", the report looks at how you supported the capability improvement and culture change. This is the area where you said, "This is our strength; we brought these brilliant people in from elsewhere". What the report actually says is, "NMP and SL Executive secondees have been inconsistent in the development and application of ICP changes"-I think "ICP" must be culture change. Then it states, "NDA detailed understanding and monitoring of this area has been variable".
This is all about the capability that you assert you've been bringing to the project. On the next page, at paragraph 5.2.2, the report talks about a finding on project management, stating that SL-you, Mr Price, or probably one of your three predecessors-"appear largely reactive to NDA challenge…NMP intervention appears to have had limited impact, with skills regarding estimation not consistently evidenced in improved business case quality".
The next page, also on general findings, looks at project management of on-site design and engineering issues. The report states that "SL is largely reactive to NDA challenge…Escalation to SL executive secondees and NMP, whilst deemed effective when applied, may not occur soon enough, as is largely a response to NDA intervention". At paragraph 5.2.5, on trying to get integration of the projects, the report states that "NMP led initiatives and pilot projects designed to exemplify innovation have not historically been successful".
Just to complete the point about what great talent you have brought on to the estate, the report then looks at the supply chain. It states on page 123 that "SL often appears to lack the commercial skill set to identify the appropriate procurement strategy…SL is largely reactive to NDA…NMP appears to intervene little and limited reachback has specifically been used to support the development of procurement strategy". On supply chain management, the report states that "SL appear not to have the capability or capacity to effectively manage subcontractor relationships. NMP appears to intervene to a limited extent."
All this great discourse you have given us about the skills you have brought in to support better running of the estate is contradicted by the evidence given in the KPMG report, is it not?
Tom Zarges: I would say that every one of those areas are areas that are ripe for work; there is no question about that. We have not succeeded in every one of those areas. It is not because of lack of intervention, interest or talent. We are driving into every one of those areas. We have put new staff and new strategies in place. We have enacted focus areas, with subject matter experts, to address every one of the areas you have just mentioned. There is a work in progress-there is no doubt about that-and it is not concluded.
Chair: It has been five years.
Q257 Meg Hillier: Some of the highest qualified and most experienced people in the world, as a group, are dealing with these things. As you highlighted, this is the biggest nuclear site-it includes 3 of the top 10 international engineering challenges, if I may use layman's terms-yet you are reacting only now to some of these things. Why were you not doing it better from the beginning?
Tom Zarges: There is a bit of discovery: one must remember that when we hit the site, it was the first time we had been on site. We had no evidence of either shortcomings-
Chair: This is 2008, Mr Zarges. You have been there five years.
Q258 Meg Hillier: It was not a secret. Although there are a lot of problems and a lack of documentation about specifics, it was known to be a difficult site. Most of us have visited it, and it is very instructive to politicians and others.
Tom Zarges: The nature of performance could only be ascertained when you exercised the site through a full range of its functions and capabilities. There was no preview of what the problems were or how deep they were, or an analysis of how to fix them.
Q259 Meg Hillier: I appreciate that that is the nature of the site and many of the problems; it was the known unknowns, if you like, that you were taking on. But you were brought in as a consortium because of your expertise. All the criticisms are of your ability to react to what you found; they are about your being reactive rather than proactive, perhaps being a bit slow.
There are obviously challenges-I appreciate that people get sick; that happens-but what went wrong with reacting quickly to ensure that the right things were in place? What when wrong is billions and billions of British taxpayers' money.
Tom Zarges: We realise the obligation to spend taxpayers' money wisely and to anticipate problems whenever we possibly can. When we discover them, either through anticipation or through exercise, we address them quickly and proactively. We did not discover a lot of these problems in the first couple of years, that is true. Perhaps we were late in discovering that these problems were under-reported by the existing staff or not ascertained completely or not completely understood.
Q260 Meg Hillier: When you say "problems", do you mean problems on specific nuclear sites within the site or problems of management?
Tom Zarges: They were primarily in projects, and that is what we are talking about, I believe. It took a while for some of these projects to get completely up to a speed where they could be evaluated.
For example, Evaporator D started some time ago, in 2006. It was in progress and it was reported as "well" when we came on site, but we soon discovered that all was not well. Some of the reports that we got were inaccurate and some of the information was inconsistent with what we were seeing in the conduct of that work. We immediately decided that we needed to review project delivery, and we did.
Q261 Chair: When was this?
Tom Zarges: It was probably 2009, or early 2010.
Q262 Chair: What have you achieved by 2013?
Tom Zarges: We immediately established a project delivery directorate. We decided that it was a more generic problem.
Q263 Chair: This report, or the research, was done in 2013, so you have had three years at it. The criticisms come out of your performance in 2013.
Tom Zarges: I am saying that we proactively established a project delivery directorate to deal with all this, and it takes a bit of time to get some traction. That is unfortunate and disappointing to us all. The fact is that we put about 30 people on site, and they are project delivery experts in world class programmes like this.
The site itself had not delivered a project in 25 years. It was a skill on site that had atrophied quite a bit and was not in constant use. It took some discovery to ascertain that it was not ready to take on projects such as this. We had to intervene and provide quick and reactive expert help.
Q264 Meg Hillier: To put it in simple human terms, the reason why the contract was let in the first place was that there was a recognition that things needed to be sorted. That was what the NDA was set up to do. There were people on site who were beavering away, but perhaps without the focus on project delivery or on tackling some of these problems. That was why the whole thing was set up.
You were brought in as experts to manage those projects and you are saying that you were surprised that there was a gap. That seems to me to be a contradiction. You were brought in because the British Government acknowledged that there was a gap and set up the NDA to commission you. Why did it take so long to discover that there was a problem?
Tom Zarges: The immediate priority on site was safe stewardship and operations. It was recognised that many of the storage facilities were in a bad shape and the site infrastructure suffered from different maintenance issues.
Q265 Chair: Was safety your only priority? Is that what you said to them to do?
Tom Zarges: It was a predominant priority. Safe site stewardship was a priority.
Q266 Chair: I am asking Mr Clarke, because there are all sorts of bid commitments that disappeared.
John Clarke: It was not our only priority. We were looking for improvements in safety, operational performance and project performance and for overall improvements in capability on the site.
Chair: Safety was only one of your things.
Q267 Meg Hillier: The capability is what I am interested in, because that is particularly what you were set up for-to bring in the capability. That was acknowledged. We can talk about what happened in the past, which is failures by successive Governments to deal with it. It was put in a box labelled, "Too difficult to deal with". Then it was tackled. Nothing is perfect, but you were brought in as the experts and it took you a while to get up to speed on where the gap in capability was.
I would have thought that a fairly obvious thing would be to see the skill sets on site and see where the gaps are before doing the reachback. Are you saying that you did not do that?
Tom Zarges: It was not quite that obvious, and it did not become obvious until we were able to detect trends in the first project being implemented, which was Evaporator D. We saw quite quickly that this was not just a project-specific issue; it appeared to be more like a generic issue. That was when we established a project delivery directorate with about 30 people. That number includes estimators, project control personnel, project managers, people who can prepare sanctions and people who specialise in predictive performance. They hit the site and have now become one of the principal operational elements in our organisation.
There are three operational elements, just to be clear. The first is project delivery, which is a specific focus with extraordinary reachback capability and personnel assigned directly to the site from the parents. They are training up the existing site staff in how to apply best practices, proper estimates and proper project management controls. It will take some time for that training to become completely effective, but it is gaining traction. Those projects on which we have applied these practices and measures are straightening out and performing in a much more predictable environment.
Q268 Meg Hillier: I don't want to go into this in much more detail, but while we recognise that there was a lack of project capability, there have been generations of nuclear workers in west Cumbria who have a great deal of expertise.
When I have visited and met the workers, on site and off site, I have been struck by the camaraderie and the real pride in being a nuclear worker and doing it safely and well. There was no lack of desire to learn how to do things better on difficult sites; I did not sense any recalcitrance from any of these people. They were an amazing group of workers and I was very impressed by them. You have to bring them up to speed. You say it takes a long time, but people were very willing, in my experience.
Tom Zarges: They are very willing. I think the talent is there and these exercises don't become accomplished in an academic or a pure training environment; they are honed through application. It is only by doing that the proper learning and instruction take root and get traction. That is precisely what we are doing.
This cadre of about 30 people who we sent over as a project delivery directorate is teaching and informing several hundred people in how to exercise proper project management techniques and procedures. There are about 400 projects on site today, so it is no small matter. It is a large matter, and training and expanding the cadre of people who can do it well and on whom we will rely to do it well takes a bit of time.
Q269 Chair: I will come back to you, Meg Hillier-I promise you. I just want to bring Amyas in. How often have you visited the site in the past five years, Mr Zarges?
Tom Zarges: I have visited perhaps 20 times a year.
Q270 Chair: When was your last visit?
Tom Zarges: Two or three weeks ago.
Amyas Morse: I have a couple of questions. You will understand why the Committee is questioning you closely on this point. You say that it took some time to realise the extent of the challenges. Were you being misled about the state of affairs on site or do you feel that this was presented to you accurately? Did it take you time to figure out what was really going on because people were making it out to be better than it actually was?
Tom Zarges: No, there was not much previous knowledge prior to coming on site. When we took on the contract in April 2008, because of the vetting requirements it took us fully until the fall of 2008 to have a full team able to begin to take charge of the job and understand the dimensions of the task. We really began to understand it once we set foot on the job. It is almost impossible, I think, to adequately describe or discern the issues or the challenges on site until you get there, review the asset conditions and see how the staff respond to various circumstances.
A paperwork review probably looks better than the real review, because on paper-procedures, processes and through interviews-people have an intellectual understanding of what it takes to put together a job like this and how it should work. But when you get down on the ground and see how it is exercised, it sometimes is not as good as the paperwork or the forensic investigations would lead you to believe.
Amyas Morse: One other question, if I might. As we listen to you answering these probing questions, you are indicating that things are on a much better basis going forward. Would it be fair for the Committee to call you back in a year or couple of years' time and expect you to produce something slightly less confusing than what we are looking at now, in terms of measurable progress? Would that be a fair position for the Committee to adopt?
Tom Zarges: Absolutely. If we haven't learnt from these experiences, we certainly aren't doing our job.
Amyas Morse: So, in a couple of years' time it would be fair to expect you to demonstrate measurable progress on all these major projects?
Tom Zarges: Yes sir.
Q271 Ian Swales: Mr Bacon referred earlier to the Olympics. This amount of money is eight times the Olympic expenditure. On the Olympics, it was recognised that clear leadership was needed. When the chief executive of the delivery authority sat at that table, we knew whom we were talking to and he took full responsibility for what was happening.
I am concerned that with some of the evidence today I do not get that strong sense from the three of you that we know who ultimately sits with the parcel; the parcel seems to be being passed around. I would like you to comment on that first. I want clarity on who really has got their feet to the fire.
Tony Price: That's me. I am the managing director of the site. I am the site licensee. I fully understand my responsibility and accountability to the UK taxpayer. I have been on site for six months and I am very clear about what we have to do. Just following on from Mr Zarges, I think there have been disappointments over the past five years-we fully understand that-but I think there have been some successes as well.
What I have to do is build on those and, importantly, learn from the mistakes we have made over the past five years. I have quickly focused on five key areas at the site. One is that we have to rebuild confidence and trust. I fully understand that and take accountability for that. We have a good work force at Sellafield; I think we can be far better. We can be more productive.
Q272 Ian Swales: If I could pause you there. Can I be specific? I know it will not physically be like this. Are you the person who is going to sign £70 billion-worth of cheques over the life of this project? I know it will not necessarily be you personally. Is it you? Are you running this?
Tony Price: I run the site.
Q273 Ian Swales: No, no. I am talking about the whole project. Who is it? Who runs the whole project?
Tony Price: As far as the money goes, we go through a sanctioning, a governance process. The NDA are engaged as well. That is something where we are aligned with the NDA.
Q274 Ian Swales: Who decides? Is it you, Mr Clarke?
John Clarke: The NDA specifies the outcomes that we are seeking to achieve.
Q275 Ian Swales: That is different.
John Clarke: The licensed company is accountable for determining the way in which those outcomes are achieved, putting together a plan that says how long it will take and how much it will cost. We review and critique those plans.
Q276 Chair: Answer the simple question: who signs the cheques?
John Clarke: Ultimately, the Treasury signs the cheques, because it is public money. But the approval-
Q277 Mr Bacon: You have actually created a complex purchase.
John Clarke: The approvals-
Q278 Ian Swales: Who signs the cheque requisition on which the Treasury then sends the money? Who is ultimately responsible?
John Clarke: I am.
Q279 Chair: Do you take responsibility?
John Clarke: I am the accounting officer for the NDA and I take those things through my board, and from my board through to the Department and Treasury.
Q280 Ian Swales: So, you are the accounting officer and you have effectively bought in all this resource to deliver your responsibility.
John Clarke: Correct.
Q281 Ian Swales: That is helpful. That ought to inform a lot of our questioning, because we just talking to contractors on the other side of the table.
John Clarke: The site is mine. The NDA owns the site.
Q282 Ian Swales: I think I touched on this when we visited the site a while ago. I worry about this whole project. Nobody is ever going to go around and say, "We have just found the cheapest possible nuclear decommissioning partners in the world and, by the way, they are going to do it at the fastest possible speed." Nobody is ever going to have that conversation, because the pressure is all going to be in the other direction about taking as long as possible and spending vast amounts of money.
I worry about the back pressure. What really is the back pressure on this £70 billion? Or is it just going to keep growing like Topsy and the time scales going out for ever? How do we as the taxpayers get assurance that there is pressure on both those things: time and cost?
John Clarke: I have accountability for ensuring that taxpayers' money is spent wisely and delivers value for money. That is a fundamental requirement of an accounting officer. I am also required to ensure that the site is run in a safe and environmentally appropriate manner. It is a slightly complex set-up for nuclear operations, as opposed to other operations, in that the site-licensed company has specific separate legal accountabilities under the Nuclear Installations Act 1965, as amended. You are required to be a licensed company. Mr Price is the holder of the licence, and he has specific accountabilities.
However, in answer to your question about pressures in the system, the pressures in one direction for potentially going slower are those of caution and considerations of safety. I think there are considerable pressures looking to go faster and at lower cost. It is in my interest, on behalf of the taxpayer, to do this as soon as we can and at the lowest cost we can, but not at the expense of cutting corners. The contracts incentivise the work by Sellafield Ltd, under the ownership of Nuclear Management Partners, to be done as quickly as possible and at the lowest cost.
There is tension in the system. We have seen that, in the system where performance has not been as we would wish it, the fee has reduced. The figure was typically around £50 million a couple of years ago. We still haven't bottomed financial year 2012-13, which was commented on at the previous Committee, but it is likely to be nearer £30 million or possibly below.
Q283 Ian Swales: My final point is around the sheer amount of money. I find it quite hard to envisage how you could spend that amount of money at one site. It is hard to imagine what the money is going towards. Before you answer, I had an example this week of a company in the south of England quoting for a heat exchanger for a new power station. It thought there was Government money behind it, doubled the price, and when it found out that the Government money was only helping in research, it had to halve the price because it was actually a commercial company buying the heat exchanger. That is a true story from this week.
I worry that this is a bit like getting your car repaired on insurance. There is a limitless pot of money and every supplier to Sellafield knows that. How on earth do we get visibility and cost control at the detail level that says, "No, no, it's not like that. This is ruthlessly commercial"? I also, by the way, have a local example about Sellafield, which is a similar story. How do you convince us about the money? Do you have open book access?
John Clarke: We do, we have complete open book access. [Interruption.]
Chair: Mr Clarke, there is a vote. I am really sorry. Save it and we will have your answer when we come back in 15 minutes.
Sitting suspended for a Division in the House.
On resuming-
Chair: Right. Please carry on, Mr Clarke.
John Clarke: I think the question was around the costs at Sellafield and the value-for-money aspect. It is undoubtedly the case that there is a premium to be paid for working on a nuclear site generally and for working at Sellafield in particular. That is partly due to the complexity of the site and the fact that it is quite difficult to get to the work face in Sellafield. There are a lot of security checks and other procedures to go through before you can get to the work face, so the working time is a smaller proportion of the working day than it would be elsewhere. There is a premium that comes with that.
We take into account those sorts of factors when we benchmark costs and schedules against other projects. As I pointed out at the last Committee, a direct benchmark of a facility such as MSSS is difficult because there isn't another one anywhere else and there will only ever be one of them. We have benchmarked aspects of those as best we can.
If you look elsewhere in the estate, there is a more competitive market on occasions and we see larger numbers of people bidding. As a consequence of larger numbers of people bidding you tend to get lower costs; when you get fewer people bidding you tend to get higher costs. That is the nature of supply and demand. But we track those costs. We benchmark those costs. We compare them with experience elsewhere in the UK estate. In the United States DOE programme, we have done some comparisons with some French programmes but there are fewer of them. We have also compared them with non-nuclear programmes where appropriate.
Q284 Stephen Barclay: Mr Zarges, will you achieve the minimum performance standard for 2012-13?
Tom Zarges: We will be just short. It will be about 90% of the revised minimum performance target
Q285 Stephen Barclay: But you won't achieve it.
Tom Zarges: It will be about £650 million of savings.
Q286 Stephen Barclay: The minimum performance standard was to achieve 80% of savings. Was that one of the things you would have expected to have been required for rollover?
Tom Zarges: We very badly wanted to meet that. Absolutely.
Q287 Stephen Barclay: So that bit of the report is correct?
Tom Zarges: Yes.
Q288 Stephen Barclay: Do you accept the report's finding that project management needs substantive improvements? Is that correct?
Tom Zarges: It does indeed. I don't think the journey is over until we demonstrate that improvement on the ground and with our projects. I think, and know, that the projects we have revised with this new team are hitting the marks so much better than they did originally, before that team showed up. They are training the people involved in those programmes and they are tracking to the revised schedules and budgets, and have for the last year to year and a half.
Q289 Stephen Barclay: Is the report correct when it says cost predictions require improving?
Tom Zarges: That is a very good point. Of the 14 projects that were cited, the majority of them are projects that are still in development-that is, still being estimated. There is a process that one goes through to put these estimates together and to get them in firm form for construction authorisation. Sellafield is a particularly difficult environment to do that because much of the inventory is uncharacterised. Much of the technologies are unproven. The safety cases need to be evolved and the paths for retrievals need to be reconciled. So there is a fairly strong journey that one must go through to perfect these estimates. The question always is, do you put a large contingency in place on the first day for all of these unknowables to try to get a stronger gauge on what an ultimate development and maturity of process and technology would look like, or do you add incrementally as you go through with a scoping process? As scope evolves and gets confirmed, do you then put the increments on top of the original administrable estimate? It is a bit of a running commentary that we have.
Q290 Stephen Barclay: But you accept it is fair finding?
Tom Zarges: Yes.
Q291 Stephen Barclay: Do you accept that reporting equity is still an issue?
Tom Zarges: It is much less of an issue than it was. We fundamentally often had reports that were submitted to different people on different periodic cycles and so they were not in synchronisation. I believe that we have corrected that and the reports now are harmonised, they are correct and they are on a singular cycle.
Q292 Stephen Barclay: So it is no longer an issue, because you have changed the way you issued it?
Tom Zarges: It is no longer the issue that it was called out for, no.
Q293 Stephen Barclay: When did it cease to be an issue, in your view?
Tom Zarges: I would say about a year and a half to a year ago. Maybe a year ago.
Q294 Stephen Barclay: So it ceased to be an issue before the report had a finding that it was an issue?
Tom Zarges: I would say that we were addressing it and we have been catching up with it over probably the last year.
Q295 Stephen Barclay: Sorry, but that is not the evidence that you just gave. You said it was fixed ahead of the date of the report.
Tom Zarges: Yes, we put the fix in place, but it is not completely implemented. It hasn't gone to the bottom of the row. Some of these implementations-
Q296 Stephen Barclay: So you put the fix in place, but it hadn't been implemented? Is that what you are saying?
Tom Zarges: Not completely.
Tony Price: It is a journey, really. What we recognised was that there were issues with project management. There was a gap there, and also with design capability as well. They were two areas that we knew that we needed to put right. In project management we have addressed that by, as Mr Zarges said, putting a team in there dedicated to look at major projects. We recognised that there was an issue with risk and contingency with some of these projects. I have managed some of the largest projects around the world in oil and gas, and in power, and these are different. Not all of them; we have 465 projects running right now at Sellafield and 112 of those are what we call "gated projects", which are running through the governance process. These 14 here, and there are probably about four of them, are projects, really, that are an orthodox project where you will define a scope, define the design, move into construction, and then into operation and maintenance. Some of the scope and design we will not define until we have nearly completed the projects. That is just the nature of the business.
Q297 Stephen Barclay: Can I go back, Mr Zarges, to the question? You said reporting had been fixed ahead of the date of the report, but that we were also on a journey.
Tom Zarges: I'll correct myself. We applied the fix. It is not completely implemented to our satisfaction.
Q298 Stephen Barclay: So is the report correct to say, at the time of the report, reporting remained an issue?
Tom Zarges: Yes. I wouldn't say it is a blanket statement, but it is correct in some of its specifics.
Q299 Stephen Barclay: Thank you. Is engineering capability still an issue?
Tom Zarges: It is.
Q300 Stephen Barclay: So the report is correct in that?
Tom Zarges: It is.
Q301 Stephen Barclay: So the report is correct in saying that you will not meet your minimum performance standards, it is correct in saying that project management needs improvement, it is correct in saying that cost predictions require improvement, it is correct in saying that reporting accuracy is still an issue and it is correct in saying that engineering capability is still is an issue, but you dispute-
Tom Zarges: I am not saying that they are all terribly deficient, but they all require some degree of correction. None of them are precisely where we wish them to be today.
Q302 Stephen Barclay: To be clear, going back to your earlier evidence, you still dispute the key findings of the report.
Tom Zarges: As generic, blanket findings, I certainly do.
Q303 Stephen Barclay: Why did the contract not factor in performance improvements?
Tom Zarges: Why did it not include performance improvements? In fact, what we call enablers or enhancers-specific, functional performance improvements-are embedded in the criteria that we and the NDA have discussed and that we are imposing on the site.
Q304 Stephen Barclay: So the report is incorrect to say that the contracts did not factor in any performance improvements, in terms of the commercial operations?
Tom Zarges: It is not a contract term per se, but it is a requirement that we recognise and are graded on with-
John Clarke: Could I comment on that?
Q305 Stephen Barclay: No, with respect. I am happy for you to come in later, Mr Clarke, but I am trying to establish something. So it is not a contract term?
Tom Zarges: That is correct.
Q306 Stephen Barclay: So it is not in the contract?
Tom Zarges: It is not a specific contract term. There are some milestones that relate to performance improvement.
Q307 Stephen Barclay: Can it be in the contract if it is not a contract term?
Tom Zarges: Not directly. Indirectly.
Q308 Stephen Barclay: So I come back to the point, when the report says, "The contracts did not factor in any performance improvement", that is correct, is it?
Tom Zarges: The contracts embed performance criteria. To the extent that they improve, we are rewarded under the contract.
Tony Price: May I say something? It is important for the Committee to understand. Moving forward, we have a site strategy in place. On the improvements you have talked about, we have put in place an excellence plan, which identifies the areas of weakness that we have learned from over the last five years. They are areas such as engineering, commercial management, and project and programme management, where we are enhancing our capability and are making improvements.
Q309 Stephen Barclay: Of course. I am not for a minute, Mr Price, suggesting that you are not seeking to make improvements. I am trying to establish what was in the contract and the accuracy of the report. With respect, that is a totally different issue. Mr Zarges, do you think that local government is satisfied with your performance on this contract?
Tom Zarges: I assume not, from what I have read. We have not done a very good job of communicating what we are doing or the benefits that we are bestowing on the local socio-economic community, even though we are obviously working hard at that and are providing some pretty substantial benefits.
Q310 Stephen Barclay: Do you accept that the report is correct in identifying that local government is not satisfied?
Tom Zarges: Yes. The impression of the local socio-economic community is that we are not bestowing the benefits that I believe we are, in fact, bestowing.
Q311 Stephen Barclay: Why do you think that local government thinks that you have consolidated the economic gain of the contract and abused reachback?
Tom Zarges: That is a good question. From our standpoint, reachback is a very specific and very targeted activity. I believe that as we do so they may feel that somebody else could have done the same activity that a reachback person is doing. From our perspective, these reachback people are subject matter experts. They know and are there to install the best practices of the parents. They hit targeted areas that are agreed to by both the site licence company and ourselves, and which need to be refreshed and where new processes and procedures need to be left behind by these reachback personnel.
Q312 Stephen Barclay: But you would accept that there is a commercial benefit to you in continuing to use reachback, rather than developing skills?
Tom Zarges: It is a neutral to us. In fact, it is often quite difficult to get reachback people.
Q313 Stephen Barclay: Why is it neutral?
Tom Zarges: It is earnings neutral. There is no commercial advantage to us whatsoever in putting reachback personnel on site. It is quite difficult to reassign them from their existing clients and jobs and pull them into Sellafield for a period of time.
Q314 Stephen Barclay: So why would you not have developed skills within the supply chain?
Tom Zarges: We are indeed doing that.
Q315 Stephen Barclay: So you dispute that bit of the report?
Tom Zarges: We are developing it in the supply chain, we are developing it on site. The sense of the reachback people is that they are there to develop that and leave it behind so it can be practised by incumbents.
Q316 Chair: There is a particular area. I agree with Stephen Barclay very much that there has been a lot of criticism as to whether or not you are feeding into the supply chain some of this British taxpayers money. If you look at page 136 of the report-this is an issue partly for Mr Clarke and partly for you-the purpose was to foster the capability of the supply chain. It says that you achieved your minimum performance standard there, but it did not address the original underlying intention. Do you want to comment on this, Mr Clarke? It seems to me that you mis-specified or there was some negotiation that did not benefit the local people in the way that was intended.
John Clarke: There are a number of minimum performance standards. This specific one about supply chain requires Sellafield Ltd under the ownership of NMP to put in place an improved supply chain strategy and approach. What is being said in the report, in the opinion of KPMG, is that while it has been put in place, it is questionable as to whether it is sufficient. That is precisely our view as well. It is questionable as to whether it sufficient.
Q317 Chair: With great respect, you put the MPS in there, didn't you? You put in the minimum performance standard and it didn't meet the underlying intention.
John Clarke: What I said at the last Committee a month ago was that there was a range of minimum performance standards that have got a qualitative element to it. This is a qualitative element. Is there a supply chain strategy? Yes. Is it satisfactory? That is a judgment. Our current judgment is that it is unlikely to meet the minimum performance standard. It is NMP's view that it is likely to meet the minimum performance standard and there will be a debate over that.
Q318 Stephen Barclay: Do you think it is commercially neutral for NMP?
John Clarke: Reachback?
Stephen Barclay: Yes.
John Clarke: Reachback is intended not to be cost beneficial to NMP and the arrangements in place are such that they recover their costs of reachback, they don't earn profits on that reachback.
Q319 Stephen Barclay: In terms of developing the supply chain, do you think that's commercially neutral?
John Clarke: I do not think there is a direct benefit or disbenefit to NMP developing the supply chain, other than getting the work done quicker. If they can get the work done quicker at lower cost, then NMP would take a benefit on an efficiency-based contract, so they are incentivised to have a better supply chain.
Q320 Guto Bebb: In terms of the reachback, are secondees appointed by reachback through NMP?
Tony Price: They are actually requested by the site, so if we see a deficiency at the site, we would request reachback.
Guto Bebb: But they would be the secondees, then.
Tony Price: They will be from the parent body companies, yes. I do not think we have communicated the use of reachback very well. In answer to the previous question, what we are doing is replacing reachback people with incumbent people who we have trained up. Over the past six months, we have reduced reachback by 40% and promoted our own people at the site into those positions.
Q321 Guto Bebb: Is that in response to the fact that the KPMG report, for example, highlighted the fact that the significant turnover of secondees was actually creating a problem in terms of continuity?
Tony Price: No, we did that before the KPMG report was available.
Q322 Guto Bebb: Do you then accept the criticism in the KPMG report that the secondees and the turnover of secondees was a problem in terms of providing leadership? The report is very clear on the fact that they feel that the significant turnover in secondees has resulted in a lack of continuity in terms of leadership and management. Would you accept that?
Tony Price: I think we have poorly communicated what reachback is about, why we bring people in, how much it costs and what legacy they leave. Just looking at the successes of reachback, there was the vitrification plant that I talked about earlier. We talk about large projects in legacy ponds and silos and there is a particular project there which has been accelerated by 20 years.
Q323 Guto Bebb: In terms of bringing in expertise?
Tony Price: That was bringing in expertise from the parents. That, to me as a managing director of Sellafield, is a very positive dimension of having parent body companies available.
Q324 Guto Bebb: I am sorry to go back to the report, but this needs to be clarified. When the report says, for example, that in terms of secondees, there is a feeling that NMP are not deploying their A team, it would imply that the best that you have are not being applied to this contract. Would that be accepted or would you challenge the report in that context?
Tony Price: I have been on the site for six months and I make sure that we do get the A team.
Q325 Guto Bebb: For six months? So would this report probably pre-date that period?
Tony Price: It would do. I suppose I am in a fortunate position. I have reports like this available, previous reviews and so on, and what we have learned over the last five years. What we have done very quickly is reduce the number of the executive on the site. We had a 19-strong executive. I have an executive now which is nine strong, 10 including myself. Six of those are British, two are Americans and two French. In that, what I have tried to do is get the right balance from the parent body company so that we get the right calibre of people. I think we have enhanced the calibre of people and we have elevated the focus on decommissioning.
Q326 Guto Bebb: So you do not necessarily accept these comments from KPMG. Moving forward, those comments should not be made?
Tony Price: I think it is for us to demonstrate that reachback is value for money for the taxpayer, and we can do that.
Tom Zarges: I would not accept that we are looking backwards either. We have been very conscientious about making sure, because we have limited people that we put on site, that they are the best calibre people we can provide.
Q327 Guto Bebb: But to be fair, this is not just KPMG. OGC Gateway 5 noted "Concerns that the high churn rate in the NMP executive team coupled with a worry that NMP may not have their 'A' team deployed" is creating concerns. That is a pretty comprehensive comment; it is not by KPMG, it is just being quoted by it. You might dispute it, but you are disputing two reports on the issue now.
Tom Zarges: There is consistency in the approach, although people do change over five years. The approach, the practices, the procedures and the way in which they are put in place are correct.
Q328 Guto Bebb: I recognise that people change but the promise to churn is implying that that is happening at a pace which is perhaps inappropriate. The key question I want to ask on this issue is in terms of NDP. My understanding is that any churn should technically be with the approval of the NDP.
John Clarke: NDA.
Q329 Guto Bebb: NDA-sorry. So if there were concerns about the churn, were those concerns highlighted by yourselves?
John Clarke: We have had discussions about the rate of turnover, and think it would be fair to say that, on occasions, we have not felt we have had the perfect people in some of the positions.
Q330 Guto Bebb: So you would accept that the KPMG report was correct in this?
John Clarke: I would accept that the views expressed in the KPMG report in this instance align with my views. I think we have had some extremely good people brought in from NMP, and on occasions, I do not believe that we have perfect people.
Q331 Guto Bebb: So in terms of moving forward, what steps are you taking in the new contract to ensure that you have more control on that issue?
John Clarke: We just have to be clear. To speak to Mr Barclay's comment that I tried to comment on before, we have to be careful about saying "changes to the contract". We have consciously not changed the contract structure itself.
Q332 Guto Bebb: That is the concern that I have.
John Clarke: Can I just explain why that is? We let a contract in 2008 with a particular contract structure, having gone through a competitive process in accordance with the public procurement regulations and European requirements. We did consider-there is reference made to it in the KPMG report as the so-called plan A-making changes to that contract to give a different outcome. Our judgement was-and we took extensive legal advice-that the risk of legal challenge in making the changes of the nature we were talking about was significant. Therefore we chose not to.
Q333 Guto Bebb: That is very concerning because what you are saying in effect is that even though you have three red crosses in a 17-year contract, you feel that you are actually tied to a contract for 15 years or 17 years because of the possibility of legal challenge.
John Clarke: No, I am not. What I am saying is that we felt the risk of challenge in making the changes we were talking about to the contract outweighed the benefits we would get from making those contractual changes.
Q334 Chair: You would have to go back to a competition. Is that what you are talking about?
John Clarke: Yes. In the judgment, our decision could be turned over.
Q335 Chair: By competitors.
John Clarke: Yes, anybody can bring a challenge. It is not so much the fact that there is a challenge which has reputation issues etc., but it can actually set aside the decision. In setting aside the decision we take the site backwards. So we made a judgement, with extensive external legal advice, that the benefits that would accrue from making the change were outweighed by the risks of making that change.
That does not mean to say that we cannot expect different things under the contract. As I tried to explain at the last Committee hearing, whilst the contract structure has not changed, we have made abundantly clear to the NMP the improvements that we require to see. There are the eight factors in the excellence plan, which are about enabling. We have touched on some of them today. Improvements in project and programme performance and improvements in commercial procurement performance are two of them, but there are six others. Often, they are not directly financially incentivised. The benefit for NMP in making those changes is to continue in operation with us. If those changes are not made, that will undermine our confidence.
Q336 Chair: Would you be able to provide us with a note of the key measures that you are going to take to decide whether or not to continue or terminate the contract?
John Clarke: I would happily provide information on that.
Q337 Chair: Because when we come back in a year's time we would like to see how you have performed against those key measures.
John Clarke: I would be very happy to do that. There is a defined set of enabling activities with targets and dates-they are very specific. I would be very happy to provide a note on that.
Q338 Ian Swales: May I ask a question of clarification on what Guto was saying? Why, Mr Price, would you use the expression about your new management team that it has an "elevated focus" on decommissioning? That suggests that it did not before. Isn't that the main game in town at Sellafield?
Tony Price: It is.
Q339 Ian Swales: Why would you use that expression? That suggests that the previous management team had a lower focus on decommissioning. That is very scary given the amounts of money involved here.
Tony Price: To clarify, it is the case that it has been important. We are on a journey here. If we went back 10 years ago, the primary focus was on reprocessing at Sellafield. In fact, we still are reprocessing at Sellafield. We are focusing more and more attention on decommissioning and we have elevated and put additional strength into the team. We have brought some further reachback people in and are starting to see the dividends of that being paid.
Q340 Chair: This is all in the last six months, Mr Price, since you have been the fourth director on the site? Is that right?
Tony Price: What we are doing here is that I am building on the foundation that has been put in place. As you said, safety and security are key issues. Fukushima also happened during the last five years, which took up a lot of time and investment.
Q341 Ian Swales: That is a great excuse, but whose time and what investment?
Tony Price: The people on the site. We've had to respond in terms of resilience etc., but there has been a foundation put there. I think it would be unfair for us to leave here today with the perception that things are all wrong at Sellafield-they certainly are not. There have been some successes, which we haven't talked about today, like bringing a programme forward by 20 years in the ponds area. That is a tremendous success. We have also just recruited 130 apprentices. That is twice as many as last year. We recruited 700 people. This would be headline news if it happened anywhere else.
Ian Swales: I do not think we are in any doubt about your ability to spend money.
Tom Zarges: If I can help for a moment. The term "focus" seemed to be catching your mind. Let me define what we have done. We have reorganised our site organisation so that there is a specific directorate for legacy ponds and silos decommissioning. That directorate now has embedded in it all the functions and skills directly in that organisation to prioritise that against all other tasks. There is another directorate for nuclear operations and another for project delivery, so we have organised the site among the three principal tasks.
Q342 Ian Swales: This comes back to something I was asking about earlier. I would have thought that the organisation and focus of a £70 billion project wouldn't need all that. You profess to be expert in project management and have been telling the Committee today how expert you are and how you have brought all this expertise into the area, and yet there is an overriding sense that there was insufficient focus or project management and, even after five years, we are still making improvements. It beggars belief with the amount of money we are talking about.
John Clarke: May I make an observation on the increased focus? We have been progressively increasing focus on legacy ponds and silos and on the decommissioning challenge. As we said earlier, Sellafield does a range of other activities. In the early days of NMP one of the key concerns was to make sure that fuel receipts and reprocessing of advanced gas-cooled reactor fuel from the stations around the UK were maintained. We had very limited buffer capacity in the event of a problem at Sellafield. Quite quickly, this had the potential to take down AGR stations and impact up to 15% of the UK's generating capacity. Over the past few years, that has been increased so that there is almost a year's capacity-a really significant increase-that provides robust stability for UK nuclear electricity generation.
Q343 Ian Swales: You are now raising another spectre which is that there is not a very good separation financially and organisationally between the money that you have been allocated for decommissioning and the other activities on the site. Is that something that you are now suggesting?
John Clarke: The NDA has allocated money to perform all the activities at Sellafield, which include ongoing support of receipt of fuel from power stations in the UK, the reprocessing of that fuel and the decommissioning. We account for that very clearly.
Q344 Guto Bebb: Just to finish on the second detail. You were saying that your contract can't be changed. That is a key question. You recognise that there was an issue in terms of churn. You were not happy that you had the right people on site at all times through the reachback to the secondee programme. You have the right to make sure that no secondee can leave without the NDA's permission. That is my understanding.
John Clarke: Acting within reason, yes, we can.
Q345 Guto Bebb: Within reason. So clearly the churn we had in the first five years would indicate that you did not actually use that power? The question I have is: will you be using it moving forward?
John Clarke: We have to act reasonably. If you take the managing director-
Q346 Guto Bebb: You were saying quite clearly that you accept that the churn is unacceptable and that it has resulted in a lack of leadership at times-I think you have given that as evidence-yet you have not utilised your power to refuse permission for people to leave. If you are saying that you feel that there has been a lack of coherence as a result of the secondee churn, it would be reasonable, in my view, for you to refuse permission on occasion.
John Clarke: There are two aspects. There are the secondees-the executive team-who were 19, but now nine. There is also the reachback, which peaked at more than 100. We do not have the same right on the reachback; we only have that on the executive secondees.
Q347 Guto Bebb: That is specifically why I asked the question about whether the secondees were part of the reachback programme. No one disputed that they were.
John Clarke: In the report, they are considered as two different items. The secondees are secondees directly into the site licence company, and they take up key leadership appointments in the licence company. Reachback is, in essence, accessing the supply chain effectively, but it is doing so directly through the partners by bringing people in quickly to do that.
We do not have the right of hold over reachback; we do, acting within reason, over the executives. It would be too blunt to say that we are dissatisfied with leadership and that people have turned around too quickly. There is the example of Mr Price's predecessor, who spent five years on the site. That is a good period of time to spend on the site.
Q348 Guto Bebb: But you accept the findings as they stand?
John Clarke: On occasions, there have been people who have left too soon. The rate of change of the managing director has been disappointingly rapid. But I accept the reasons for those. Two of them, regrettably, were due to health issues.
Q349 Chair: Meg Hillier is desperate to come in. I just want to complete the reachback. Can you give me the cost per individual of someone who is employed on the site by reachback-the average cost per individual?
Tony Price: It is a range. It depends.
Chair: The average cost. It is in the report. I just wondered whether you could give it to us.
Tony Price: I do not have that information with me.
Q350 Chair: The average cost is £300,000 per individual.
You said that you have reduced reachback. What did you spend on reachback in 2011-12?
Tony Price: I think it was around £25 million.
Q351 Chair: It was £17 million in 2011-12.
What did you spend in 2012-13, when you started cutting it back?
Tony Price: We have just started cutting that back over the past six months.
Q352 Chair: You went up to £25.9 million. I appreciate that we are now halfway through 2013, and you are saying that you are cutting back, but in 2011-12, it was £17 million, and in 2012-13, it was £25.9 million. The cost per individual is £300,000, so it went up. If you are cutting it back, you are not back to your 2011 base.
Can I refer again to KPMG's report? It clearly says that reachback has not been used appropriately, Mr Zarges. I think that it is a way of getting money out of the taxpayer into your company. It says-
John Clarke: Could we have the page number?
Chair: Page 148. It states: "Costs are significantly greater than anticipated in either CB10 or PP11." Average cost is what we got to-I am looking at the wrong one; I am probably looking over the page. I am really sorry; I mean page 149.
Page 149 says: "However, the use of reach back to source other skills (back office, project management etc.)" was inappropriate. You have been employing people on the site, Mr Zarges. If you look at it, 12% was in project management and 27% was in operational or back office functions. We are talking about £26 million last year. Some 14% was to support the office of the managing director. All of that could perfectly well have been sourced locally. It would have saved the taxpayer money and would have meant more jobs locally in the Cumbrian community.
Tom Zarges: For specific people who do specific tasks, it is an important thing to do to ensure that the best practices in other obligations that we have to improve operations on site are obtained.
Q353 Chair: With respect, what I said was that these are back-office people and project management. I don't think there are Americans, French or anybody with back-office skills that cannot be recruited in Cumbria. These cost £300,000 per person.
Tom Zarges: These are fundamentally specialists. I am not sure what positions they are referring to but we would not recruit anybody from another country to do a mundane job, I can assure you.
Q354 Chair: I think you do. According to this report, in 2012-13, "14% related to the Office of the Managing Director", which strikes me as being admin staff to support him but I may be wrong. "12% related to project management"- there are plenty of project managers in the UK-"and 27% to operational or back office functions" KPMG said that the sourcing of "other skills (back office, project management etc.) has been questioned as these are more generic and could likely be sourced from within the UK at a lower cost".
Tom Zarges: We are gradually doing so, but the first task that we see is to embed best practices, procedures that we are familiar with, understandable-
Q355 Chair: These are not experts, Mr Zarges. These are people who are costing the UK taxpayer on average £300,000 and who are doing jobs that Cumbrian people could fulfil.
Tom Zarges: I would contend that each has a special expertise that has been found lacking on site.
Q356 Chair: Have you got the report in front of you? Look at page 149. These are not experts.
Tom Zarges: I understand what they say.
Q357 Chair: The evidence we have before us suggests that it is not experts you are bringing back. Can I just ask you one other thing on this? We heard last time that an audit of 606 expenses claims on the UK taxpayer found that you claimed over £250,000 on things that could not be justified such as trips to masters tournaments. Is there anything you would like to say about that, including the infamous £714 taxi trip for a cat?
Tom Zarges: That is obviously misreported. There was never such a claim for reimbursement.
Q358 Chair: There was a cat in a taxi.
Tom Zarges: There was a cat in a taxi with a family that was going home and being repatriated to the United States.
Q359 Chair: Yes, £714.
Tom Zarges: They were going to the United States with the luggage, and the cat was in a box.
Q360 Chair: But £714?
Tom Zarges: This was a relocation trip.
Q361 Chair: I don't think I have ever-where would you spend £714 on a taxi? I don't even think a taxi from Cumbria to Heathrow would cost that.
Tony Price: Just to be clear. There is not cost to the taxpayer here. We regret that we did not pick this up but we took swift action. We have put procedures in place that are robust enough to demonstrate to me as a managing director that we are in control of the situation.
Q362 Chair: Will you apologise to the British taxpayer for the £250,000 of expenses claimed as a sample of 606, which could not be justified?
Tom Zarges: We apologise, obviously, for the errors that we may have made, and did make, in submitting these expenses incorrectly. We apologise and we are sorry for that. With that apology comes the requirement that we fix it-we have-and we make it right to the British taxpayer, which we have, I think, to the satisfaction of all concerned. The immediate amount in dispute-dispute is the wrong word-in question from the audit was a much smaller amount. The day we discovered it we immediately reimbursed a full year's worth of expenses to the NDA and then only resubmitted expense reports after they had gone through a rigorous review to make sure that they were proper and that they were documented to the appropriate level so that they are, indeed, legitimate claims.
There are instances where secondees, for example, may have a parent company policy. There may also be a policy for Government reimbursement. They may have put them in the wrong place, to the wrong payee. We have created disciplinary action to make sure that that does not recur. We have created training to make sure that the proper coding and the proper direction is maintained. Most of all, we took quick, earnest and wholesome action to make sure that as soon as those events were discovered we corrected them immediately and corrected them for the future. We are sorry that those errors occurred, just to be clear, and to answer your question. We admit that there were errors and we are dedicated to correcting errors wherever they occur and correcting them well and quickly.
Amyas Morse: I have a couple of quick questions. One is to Mr Clarke. When you are so kindly replying to the invitation to put forward some improvement objectives, it would be great if that was not the whole objectives schedule that is in the strategy for excellence at Sellafield, because it is really quite complicated-there is a huge number of work streams. It might be helpful for the Committee to have the top few, with some clear, measurable objectives against them.
John Clarke: We will do that.
Amyas Morse: Secondly, I had a question earlier about reachback personnel. I just wanted to understand, when someone is requested to come on reachback, there is presumably a period for which they will be expected to be in place, when that requisition happens. Is that right?
John Clarke: That is how it is now. I would have to acknowledge that in the past, the control of reachback has not been as robust as it should have been. I think that that is reflected in some of the findings of the report.
Amyas Morse: I ask that, because a lot of the debate about the issue might be cleared up if you were able to look at the original period for which reachback personnel were requested, and whether they actually served out that period or terminated earlier and were replaced by someone else. If I may suggest it, you might think about having something like that very clearly in place, so that when we come to have these discussions in the future, we can be satisfied that people were appropriately qualified for the job and that they actually stayed out the time for which they were requested, if not longer.
John Clarke: We have modified the arrangements for reachback to ensure that for each and every reachback, we understand what task is required. Why is reachback the answer and not direct recruitment, or somebody in the licensed company, or other use of the supply chain? What is the duration of the reachback? What are the arrangements-are they that we need this capability for only six months? In which case they come, they finish and they go. Or do they come in and spend a period of time training up that capability? Who will they train up and over what period of time?
Amyas Morse: So in future you will have auditable records of these things.
John Clarke: Correct. Unfortunately, we have not had that discipline in the past, which I think is reflected in the findings of the report.
Q363 Guto Bebb: Specifically on reachback and the efforts you made to try to control it, my understanding is that under the current contract, they have allowed 50,000 hours of reachback in a year, but that has been exceeded in every single year of the contract. Indeed, in 2012-13, 159,000 hours were charged under reachback, rather than 50,000. Are we going back to the 50,000, or will it be at a level over and above that?
John Clarke: Fifty thousand was the expectation of the number of hours required.
Q364 Guto Bebb: Which has been massively exceeded.
John Clarke: It has been exceeded. I would have to say that when it was first exceeded, that was done in large part at the request of the NDA. We felt that some additional capability was required, particularly in project management.
Q365 Guto Bebb: If that was the case, why were the figures in 2012-13 more than three times the anticipated estimate?
John Clarke: Because we had found that the level of performance we were getting was not that which we desired.
Q366 Guto Bebb: How often do you change the estimates then?
John Clarke: It is a continuous review. We do not want 50,000 man-hours of reachback; we want appropriate reachback for the nature of the task. The expected number was 50,000 when the contract was let.
Q367 Chair: Do you accept the KPMG view that it is currently inappropriate? They are saying that it is being used inappropriately for "back office" skills at an average of £300,000 per person.
John Clarke: I accept that reachback has not been as controlled as it should have been, and I accept that, on occasions, there has been reachback that we have been disappointed with. I think that "back office" is slightly misleading. On page 149, the report refers to the fact that reachback in the office of the managing director was for reviews. It is misleading to say that they are back office-these are people who have come in to carry out specific programme and project reviews on behalf of the managing director. Although it appears as a back office cost because it is charged under the office of the managing director, the capability being brought in is actually very experienced, senior people who have operated around the world, coming in to do project reviews.
Q368 Guto Bebb: We accept that, but the point is that if reachback goes over 50,000 hours, the costs actually increase as well.
John Clarke: That was the case for a period of time, but we have reset that for the second contract period. All reachback will be at a single cost. We have not set a cap of 50,000 though; we want to make sure that reachback is-
Q369 Guto Bebb: The additional element of cost incurred under the previous way of operating has been changed.
John Clarke: Correct. That will not be incurred. We have gone back to the intent of the original contract in terms of how it is managed, but we are not setting a limit. We want to see-to go back to Mr Price's comment-reachback as a positive. We engage these large, internationally successful private sector companies to bring in their capability. We want that capability.
Q370 Meg Hillier: Just before we finish on reachback, Mr Price, you talked earlier about the vitrification plant. AREVA brought reachback people in to sort that out. Is it working now?
Tony Price: It is, yes.
Q371 Meg Hillier: I understand that there are problems with it right now, in that the ventilation system is not working properly.
Tony Price: That is not correct.
Q372 Meg Hillier: Can you perhaps explain what a vitrification plant is in layman's terms, and then explain where it is at the moment?
Tony Price: It is where we take highly active liquor and turn it into glass, basically, so that it can be containerised and stored at the site. As it says in the report, over the past few years we haven't met our vitrification targets. However, this year we will meet them. A significant input to that performance has been the use of reachback, and using the AREVA team to come over and help us. They spent a short period of time with the vitrification team, then returned back to their parent body company. That is a good example of where reachback has worked very positively.
Q373 Meg Hillier: So that is working fine now and workers are able to work in it normally-there are no problems with ventilation or anything like that?
Tony Price: They are able to right now, yes.
Q374 Meg Hillier: So the reachback team have gone, and that's it?
Tony Price: Reachback is gone. Reachback in totality across the site has halved this year.
Q375 Meg Hillier: Thank you. I just wanted to touch on governance. Without going back into the complete history of it, as I understand it, directors from NMP companies-the three companies-are also directors of Sellafield Ltd. Is that right-Mr Zarges, are you a director of Sellafield Ltd as well?
Tom Zarges: No, there is only one concurrent director, who is Mr Price.
Q376 Meg Hillier: Okay, so it is just you, Mr Price, who sits on both?
Tony Price: I am a director of NMP, but also a director of the SLC board. I have three other directors who are executives on my executive team, who are on the SLC board.
Q377 Meg Hillier: So they work for NMP, or the companies of NMP?
Tony Price: They work for the parent body companies, yes.
Q378 Meg Hillier: What percentage of your directors are also NMP directors?
Tony Price: I have nine executives on my executive board. Three are from URS, two are from AMEC, two are from AREVA and two are incumbents.
Q379 Meg Hillier: So there is nobody who has not got a foot in both camps? I am just doing the maths quickly.
Tom Zarges: The parent companies are separate from NMP. NMP has a governance structure that includes a board and there are board members of NMP. What Mr Price is talking about is individuals from the parent companies who are assigned to the site and become directors of the SLC. We each have a board: there is an SLC board and an NMP board.
Q380 Meg Hillier: My experience of Government and public life suggests that it is quite good to have people who are separate and independent to oversee things, so I am a bit confused about how there is no conflict.
Tom Zarges: We agree. We invite Mr Price to the NMP board just to make sure that he is present for deliberations about status and performance, and is there to give us information when we require it. We pull other people in from the SLC as well, for interrogation and specific reviews of programmes. Our activity includes Mr Price as a member of our board who can give us first-hand information and be privy to all the give and take of our deliberations, so that he has a full flavour of what we have discussed and advised.
Q381 Meg Hillier: But it is a web of people who know each other. Mr Clarke, would you say that the NDA is the body that has to oversee this? You are not cosily on one of these boards, are you?
John Clarke: No, we are not.
Q382 Meg Hillier: So are you the body that steps aside and makes sure there is no conflict between companies that are getting profit from the taxpayer? It is acceptable to get some profit from the taxpayer, as that is partly what you are there for. But how do you make sure that the governance is clean?
John Clarke: There are two aspects. We are separate and independent. We do not sit on any of the boards, be they of the licence company or the parent-body companies. We hold them to account. The second observation I would make is that under the Nuclear Installations Act, the directors of the company-
Meg Hillier: Of Sellafield Ltd?
John Clarke: Yes, the directors of Sellafield Ltd have to act in the specific interest of Sellafield Ltd. Mr Price and his colleagues who are seconded in sign legal secondment agreements that say that they will put the interests of the licence company first and foremost in everything they do.
Q383 Meg Hillier: What is the sanction if they don't and how would you know?
John Clarke: It would be a breach of the Nuclear Installations Act, as amended.
Q384 Meg Hillier: Does that mean they go to prison?
John Clarke: It's a break of the law; I don't know what the precise sanction is, but it is clearly breaking the law if they do not follow that.
Q385 Meg Hillier: So the judge will decide. How do you know that they haven't? For instance, look at the rationalisation of the supply chain, which is the biggest interest area to me. The Design Services Alliance was set up, and NMP members were in the consortium that bid for that. There is a benefit to Sellafield Ltd board members making a decision that will benefit NMP component companies.
John Clarke: On aspects like that, we review those contracts that are let. They are let by Sellafield Ltd; they are not let by NMP. We review those contracts to ensure that they are run with a clean and fair process. The regulators have, in part, an oversight on other activities-as do we, but the regulators provide additional oversight-such as taking actions in the interests of safety, that may not be in the interests of commercial interests, because their concern is to ensure that Mr Price and his colleagues act at all times in the best interests of the safety of the site.
Q386 Meg Hillier: It does come across as a bit murky from our perspective. We are not dealing with it every day, but thinking of the local supply chain, if the companies that run Sellafield Ltd and NMP are deciding it, effectively among themselves-albeit with some oversight-how does the local supply chain get a look in? You have the big players already at the table, determining the contract, letting the contract and winning the contract. Perhaps I am being obtuse, but it seems to be not very transparent.
Tony Price: It is. There is blue water between ourselves and the tier 2s that we award to. One thing that we are driving for is getting the maximum amount of the £1.7 billion into the local supply chain and the local community in general. We spend £650 million on salaries and that goes into the local community. We spend £300 million in the local supply chain as well, so more than half our budget goes directly into Cumbria.
Q387 Meg Hillier: May I stop you? We have covered that in previous reports and, with respect, we do not need to rehearse it all. The salaries were known to be good, but, because they are good, that can stifle people setting up other businesses.
That £300 million you talk about going into the local supply chain is peanuts in comparison with the overall size of the contract-you are getting as much money from the taxpayer as, comparatively, all of England's regeneration projects. Only £300 million is going into the local supply chain, yet the Design Services Alliance was set up and benefits those companies already involved and not necessarily local people.
Tony Price: What we are striving for is to encourage more of the DSA to be worked out of west Cumbria. We are succeeding there. It has generated 200 jobs and 100 of those are in west Cumbria. We also awarded the Infrastructure Services Alliance contract. The two companies working for us there have a presence in west Cumbria and are taking on local apprentices. A lot of the people who work for them are based in west Cumbria. Through the movement of the services alliances, we are encouraging them to base their workers in west Cumbria.
John Clarke: If I can add to that, we are keen to ensure that the benefit to the nation and the local area in which we operate is maximised, but independent research has shown that 30% of the supply chain spend from Sellafield is spent in one county: Cumbria. Cumbria is not a hugely industrialised county, so that spend is not insignificant. There are opportunities to do more, and we have worked very closely with other Departments and the Cabinet Office to look at how we can ensure that we get the best regulation-compliant procurements that maximise the opportunities for the UK and, in particular, the local Cumbrian supply chain.
Q388 Meg Hillier: Can I touch on staffing? You said earlier, Mr Price, that you recruited 700 people for a particular area of work and you talked about a couple of hundred in another project in the supply chain. What is the long-term planning for the work force? If jobs stop and start, that does not do any good for the British economy or the nuclear industry internationally. What thought have you given to that? Where does the responsibility lie for that and what are you doing about it?
Tony Price: That is part of the planning moving forward. We are leading the site, over the next two to five years, through the largest transition in its history. We are moving the site from primarily being a reprocessing facility into a site that will host a fleet of high-hazard waste retrieval, waste management and waste storage plants.
The shape of the organisation will definitely change over that period. We want to ensure that the people on the site have the best opportunity. Through retraining and moving them into these new projects, the incumbents will be used and we will maintain that level of staffing requirement as we move forward. However, there is another requirement that we have to the taxpayer-to demonstrate value for money. We are looking at efficiency, productivity and being able to benchmark ourselves with the outside world.
For me, the position I would like to see for Sellafield is to be recognised as an honest, efficient and hard-working group of people. We know what our number one mission is-that is the NDA's mission, and we are absolutely aligned to that. However, if there were opportunities in the future to bring more work into west Cumbria and we could play a part in that, if we are seen as this honest, efficient, hard-working group, I hope we would be the choice to do that work.
Q389 Meg Hillier: What is the incentive? Is there a financial incentive for Sellafield Ltd or NMP to do this?
Tony Price: It is for Sellafield and the people of Sellafield. That is part of the strategy in moving forward. We are creating a site strategy and we have the overview of that in place. It is really about this transition.
Q390 Meg Hillier: But if you understand what I am saying, with the difference between not doing it and doing it, what is the incentive to do it?
Tom Zarges: It is a requirement from the NMP board that Sellafield Ltd execute a socio-economic policy that emphasises local procurement wherever it is practical and possible. Obviously, there are balancing acts there between value for money and bidding processes that we have to observe, but we are coaching a lot of local enterprises in how to respond and perform better and making them more proficient at answering the call for the supply chain procurements that we have in mind, particularly over the next five years. We do impose that requirement directly on Sellafield Ltd.
I would also add, just as another flavour, that the parents also recognise their own obligation to the local community. As you probably know, we have put £22.5 million into socio-economic benefit over the past five years. That is a little more than 10% of our fee, so it is a massive commitment, and it is one that we are quite proud of. Those benefits are bestowed through an objective agency that looks at programmes and projects on merit and ensures that the money is used effectively.
Q391 Meg Hillier: I am not knocking anything like that. Helping enterprises establish, set up, grow, recruit and perhaps become international is to me a bigger prize. Just to put you on notice that when you come back, I and other Committee members will have been watching that. Mr Zarges, did you see our last Report on Sellafield that we did a year or so ago?
Tom Zarges: I believe I scanned it. Do you mean a transcript of the previous meeting?
Q392 Meg Hillier: We produced a Report that has the transcript in it.
Tom Zarges: I may have seen parts of it.
Q393 Meg Hillier: You didn't respond, and John Clarke would probably say that it is the NDA's job to respond, but this comes back to where responsibility lies. When we produce this Report, will we get a response from NMP or Sellafield Ltd?
John Clarke: The actions from the last Report were all on the NDA. We have taken those actions very seriously and are responding to them. We are making good progress.
Q394 Meg Hillier: If we put actions in this Report, which we might do, I don't know, we haven't decided what we are going to write yet-
Tom Zarges: Of course we will respond.
John Clarke: Yes.
Q395 Meg Hillier: To address the NDA, we talked a lot last time, so I won't revisit it, about why you decided to go ahead with renewal of the contract. You do have this clause in the contract. You are quoted in the last hearing-though I won't repeat it back to you-on the importance of the immediate termination clause in the contract. If you had invoked that you must have had a plan B in mind. What is plan B, if you had not renewed this and don't renew it in future? We are building up the supply chain and the expertise. Is that the plan B, or is there something else you have in mind?
John Clarke: At the time of making the decision, we had two other options: not very imaginatively called plan B and plan C. The two other options were to go back to the market to seek a different contract and/or contractor and to dispense with -.
Q396 Meg Hillier: In a very small field.
John Clarke: There were a lot of players.
Q397 Meg Hillier: I didn't pick that up from last time.
John Clarke: We have more than a dozen companies competing for our Magnox and research reactor sites at the moment. We had about 10 companies competing in different consortia for Sellafield a few years ago. I am confident there is a market there if we want to go back to the market.
So we looked at going back to the market for a different contract and/or contractor, and we looked at dispensing with a parent body and operating with Sellafield Ltd as a direct subsidiary to the Nuclear Decommissioning Authority.
Q398 Chair: What is plan B now?
John Clarke: Both of those remain options as we go forward.
Q399 Chair: Will we get to the position? It seems to me that you delayed taking action so the only action you could take was to extend this contract. How are you going to convince us that you are developing plan B to a point where it can be a real alternative, if this contract continues to fail in the way it has in the past?
John Clarke: We do have a plan B available to us now, and we are obliged to have plan B available to us at all times. This is an odd way of saying it, but under the nuclear site licence requirements, the only way we are allowed to have a parent body is to demonstrate we can operate without it. We must not allow the parent body to take on duties that tie us inexorably to being stuck with the parent body-not least because if the parent body was to go bust and disappear overnight, we would have to make sure that safety, security and environmental performance were maintained.
Q400 Chair: Safety and security is different. My impression of how you got into extending the contract was that the alternatives were not sufficiently developed. You will come back on your key measures in a year's time to see whether they continue to fail or have improved performance. What assurance can you give the Committee today that you can actually implement your two plan Bs-either to go to a competition and get somebody else in, or to take over responsibility, cut out the middle person and deal directly with Sellafield Ltd?
It is not just there as a theoretical. You have to translate that into a real alternative. What we have seen is five years of failure. We now see further promises of improvement. In a year's time, we want to see evidence of improvement. You have to give us assurances that the alternative is there.
John Clarke: We will continue to develop those other options.
Q401 Chair: So they will be real alternative options ready for when we come back to this in a year's time?
John Clarke: Absolutely, and I believe that we had options at the point at which we made the decision. We chose that this was the optimum decision for these circumstances at this time. We are committed to making this work going forward, but as I have said previously, we will monitor performance and if it doesn't continue to deliver the optimum likelihood of success going forward, we will make a change.
Q402 Meg Hillier: I have specific questions about particular projects. I have been to visit the site, as a number of us have. Can you update the Committee on the B41 decommissioning at Windscale?
Tony Price: That project is in the planning and design phase. That is very complex, probably the most complex. There are two silos projects on the site. We have looked at an alternative to the original plan, which was a very expensive plan that was going out to the right. Within the next couple of weeks we will decide on our way forward with that particular project.
Q403 Meg Hillier: Can I ask what the original budget was for this project?
Tony Price: The original budget was £342 million.
Q404 Meg Hillier: And what are the estimated costs now?
Tony Price: Right now they are around £620 million. However, we are, as I said, looking at an alternative to the original design. We felt that it was a very complicated design. We have a team looking at an alternative way forward. I think that we are quite confident that that is the way we will be going forward, but we won't make that decision until just before Christmas.
Q405 Meg Hillier: That is a huge increase, but it is too late in the day to get into the detail of that. Can I just ask about the project value of another project-the Separation Area Ventilation project?
Tony Price: We have spent £150 million to date. We have put that project on hold to look at the design moving forward. We estimate a final cost of £224 million. That has to be determined; we are still working up that estimate.
However, the SAV project is one where we have had disappointments in performance. We have had to put those right. As Mr Zarges said earlier, we have injected a different level of project management expertise to help the project. We have better integrated with the supply chain. So we have taken the learning out of that particular project. That project and evaporator D are the two projects that we have learned the most from. We have certainly put those right.
Q406 Meg Hillier: Those figures are just going northwards. They are huge figures.
Perhaps I could ask you, Mr Zarges. After all the financial scandals about individual expenses and mismanagement, as highlighted in the KPMG report, do you think there was a more efficient way that you would have done this from the beginning, knowing what you know now?
Tom Zarges: We have learned some lessons from them. Obviously, we would not be who we are unless we could learn from these and make sure that we do not repeat the lessons of the past.
Q407 Meg Hillier: The lessons have been at the cost of the British taxpayer. So the British taxpayer has been funding a very big learning curve. Have you any comments about how you would perhaps have saved that money for the British taxpayer?
Tom Zarges: We have a number of other programmes that are in evaluation where we think alternatives exist that could provide some savings over and above some of the plans that we have had in place to date. So we are innovating and doing as much as we can to establish different means, methodologies and less complex solutions, to ensure that we can find solutions that don't increase cost, but rather bring costs back. You mentioned one of them today, but we have several others that we are looking at.
Q408 Meg Hillier: So would you have done anything different?
Tom Zarges: Yes. Obviously, there are a number of things that we'd probably do differently. One is to control the design gated process better-make sure that before we started construction, the design was finally and firmly committed and complete.
The other would be to make sure that we had a much stronger, tighter, interactive relationship with many of the subcontractors that we have used on the job. We have obviously hired the best that we could find and subjected the bid to evaluation, but we have sometimes been disappointed that they haven't been able to measure out their commitments well against the contract requirements or the performance requirements. We believe that we should have and could have helped them to navigate the site and make sure that they were addressing their commitments and plans going forward in a much more interactive way.
Q409 Meg Hillier: It sounds like you have got a lot to say about the subcontractors and that they were the problem.
Tom Zarges: No, I am not saying that. They are our subcontractors. We own the problem, regardless of whether we choose to do the work or whether it is done through a subcontractor. It is all our responsibility.
Q410 Chair: I am going to bring this to an end. On Meg's last point, my view is that your interest has been the shareholder value, which clearly has to be yours. That has not been properly aligned, Mr Clarke, to taxpayer value. That is one of the conclusions that comes out of KPMG. The taxpayers lost money while your shareholders have, no doubt, made a good buck out of this and it is not very satisfactory.
We wait to see whether the situation improves. It would be nice if there was an apology for the lost millions to the British taxpayer-I do not know whether you feel able to do that. I have to say to you that I am sceptical as to whether, after five years on the site, you can really improve your performance.
Tom Zarges: We appreciate the opportunity to give you a final word or two. First, I want to assure you that we are totally aware of our obligation to the taxpayer. This is not an agreement about self-aggrandisement; it is about performance-reputational performance and performance on this project. What drives companies like ours fundamentally is doing important things, and the people in our company are driven by important challenges. That is the nature of our business and we have got to succeed on that to enhance our business.
So it is not about earnings, but performance first and foremost. If earnings follow performance, because that is the rational connection, so be it, we're happy for that, but our first interest is making sure that we perform well. Obviously, when we sense our responsibility to the taxpayer, we think first and foremost about safety and safe stewardship, ensuring that the safety and resilience of the site is maintained. Equally, we want to ensure that our performance creates the proper value for money going forward, and we are absolutely dedicated to that.
I would tell you that while we have had achievements, we are not satisfied with those achievements. We are a long way from satisfaction. As we have remarked today, the pace of these improvements has not been what we wanted. There have been disappointment and shortcomings, which we sincerely regret. Equally importantly, there have been errors and failings, which you have brought to our attention today, and which we recognise. Some have been self-discovered and some have been discovered by others, but blame should be laid solely at our feet. Of course, we are humbled and truly sorry for any of those events that have cost the British taxpayer money and added the cost of tuition-learning what is necessary for the job.
We can say that we are sorry and humbled only because we have equal resolve to set things right. I want to assure you and all members of the Committee that we are fundamentally driven to ensure that the improvements are enacted on site and are driven home. We must have transparency, visibility and performance accountability. That certainly is our obligation for the second term and for the future. I do want you to know that it is our absolute intent to live up to those obligations and to be proactive about recognising them and trends in performance, and moving on them aggressively.
Chair: Okay. Thanks very much for your attendance.