Private contractors processing and storing highly toxic radioactive waste as part of a national programme to rid Britain of its legacy of nuclear hulks may seem far-fetched – even irresponsible, after the Railtrack privatisation fiasco – but that is what the government wants to see happening within the next three years. So contractors are gearing themselves up for what will become a £1.5 billion a year market, for several decades.

Britain led the world in the 1950s and 60s in developing civil nuclear power, under much cruder standards of operation and safety than today. The early nuclear power programme and its supporting research and development spawned numerous facilities at sites across Britain, most of which are now closed – or, in the case of the first generation of power stations, built during the 1960s and 70s, due to close by 2010. The physical state of the early facilities built during the 1940s and 50s leaves much to be desired, and the industry has been working for the past decade to ensure they are safely mothballed and decommissioned.

The scale of the nuclear clean-up is huge. Facilities are spread over 20 locations across Britain, including the sprawling British Nuclear Fuels Limited (BNFL) complex at Sellafield, much of which will continue operating to service UK and overseas fuel reprocessing contracts. Current estimates of cost – and we’re talking here only of the civil sector, most of which will fall on the taxpayer – are put at £50 billion in undiscounted terms, but the final figure is likely to be higher. A leading consultancy, Arthur D Little, estimates some £10-20 billion will need to be spent over the next decade, doubling current annual spending of some £700 million.

In the late 1990s, the UK government became concerned that not enough was being done and costs were spiralling out of control (up by one-third over the previous five years). Arthur D Little produced a report in 2000 for the Department of Trade and Industry on the market, which it found to be fragmented and uncertain. It was considered fragmented because different contracting strategies were in use at the two state-owned licensees or operators of nuclear legacy sites – BNFL in the case of Sellafield and its 11 Magnox power stations, and the UK Atomic Energy Authority (UKAEA) for its five research and development establishments.

With BNFL, this was largely explained by its focus on operating commercial assets rather than tackling the less profitable and politically sensitive clean-up of redundant plants, and its unwillingness to outsource. Meanwhile, the UKAEA was hamstrung by government funding policies that gave little scope for forward planning.

The uncertainty was caused by individual contractor work packages being too small, short term, and providing insufficient scope for innovation. As Rick Eagar, Arthur D Little’s director responsible for producing the report, says: “The market was characterised predominantly by fixed-price tendering, which specified the job to such a close degree that innovation was difficult and competition was often based on price.”

This view is echoed by John Priestland, deputy managing director of Atkins Nuclear, part of Atkins and a major contractor in this market. “Suppliers were competing on how cheap the job could be offered and not what they could do for the client in terms of project delivery.” The result was to put considerable power in the hands of the two site owners, with contractors feeling squeezed and forced to take on too much commercial risk.

Risk is particularly acute for this industry, which has often been the subject of critical media coverage and political interference. However, with decommissioning comes the added challenge that for many early plants, no one really knows what’s there as old records are incomplete and employees have long retired. In some cases, the biggest issue is not deciding how to tackle a particular task, but deciding exactly what it is that has to be dealt with. All of this is not helped by the fact that many facilities are prototypes, built to test the feasibility of different technologies.

“A big problem is that there are so few procurement models for difficult decommissioning projects, because each job is so different,” says Priestland. “Lessons learned can’t easily be deployed elsewhere and this tends toward more traditional forms of contracting.”

The UKAEA has understood this and is looking at teaming and partnerships. Stephen White, its director of business improvement, says: “We have recognised that past transfer of risk against fixed-price contracts is not appropriate. We’ve started to move towards an alliancing approach for difficult projects, getting contractors on board early to work through the design together and get better allocation of commercial risk.”

If the technical challenges were not enough, the nuclear industry is – rightly – subject to intense regulatory scrutiny and this has a strong impact on what is allowable in terms of supply chain management. The regulators insist on clear lines of accountability and the need for the site owner to retain the attributes of an intelligent customer with effective safety and project management capabilities. This has tended to discourage innovative contracts. Moreover, the industry is subject to different regulators, separately responsible for site safety and environmental protection, and which often have different and sometimes conflicting priorities.

For these and other reasons, the government decided that a radical approach was needed to cleaning up the nation’s nuclear mess. Last July, it published a white paper proposing the creation of a new national body, the Nuclear Decommissioning Authority (NDA), to take overall charge of decommissioning all of the state-owned civil nuclear facilities, and make greater use of the private sector. The enabling legislation has been put before Parliament, and the NDA is then expected to be established in mid-2005. Meanwhile, a small group within the DTI is trailblazing new supply chain strategies in order to inject greater competition, control costs and accelerate projects. Called the liabilities management unit (LMU), it comprises DTI staff, secondees from BNFL and the UKAEA, and embedded support from Bechtel, which brings US experience of nuclear clean-up projects.

“The UK nuclear clean-up market has been perceived as largely closed and one of the things we’re trying to do is provide greater openness and transparency and promote greater competition, particularly at the top of the supply chain,” says Doris Heim, head of the LMU’s contracts group.

The NDA will take responsibility for all civil nuclear legacy sites and will offer them out to management contractors under government-owned, contractor-operated-type arrangements. The model is still being developed but could be based on a successful operation at the Atomic Weapons Establishment (AWE), where the original 10-year, £2.2 billion contract to a private consortium has recently been extended by a further 15 years.

“We envisage that the NDA will set the site operator contracts, which will provide for it to review the suppliers’ books, processes and procedures,” says Heim. “However, we will not micro-manage everything they do, but we will want to ensure consistency across various sites, and fairness in subcontracting work packages.”

For the first time, there will be a central organisation promoting a UK-wide approach. “I think the NDA will save the taxpayer a lot of money and get more things done without in any way compromising on safety,” adds Heim.

Safety will be crucial. Interestingly, the green lobby has been supportive of this new strategy, not least because it will accelerate clean-up projects. However, Railtrack’s contracts fiasco looms large in the public consciousness and the LMU and NDA face a stiff challenge convincing people that safety will not be compromised.

“It’s important to recognise that the UK nuclear industry has an excellent safety record,” says Terry Selby, deputy director of the LMU. “We are committed to maintaining and indeed improving safety performance, and one way will be ensuring a comprehensive prequalification process with only those contractors that can demonstrate unequivocally an excellent safety and environmental performance track record being considered.”

Priestland believes the NDA’s central role will be crucial in ensuring that contractors deliver on safety. “One of the great problems with Railtrack was the lack of clarity between it and the rail maintenance contractors, especially where responsibilities overlapped. What I believe will happen in the liabilities management arena is that all of the partners in the supply chain will work towards the same broadly based work programme with clear, shared objectives. The NDA will, through its choice of site management contractors and the commercial arrangements, ensure this happens.”

Certainly there is no evidence from the West or the AWE that privatisation erodes safety. In fact, it’s the opposite as contractors recognise that, in this market, there is no future for anyone who compromises in this critical area. In addition, the regulators will inevitably have some say in the NDA’s procurement arrangements. One of the LMU’s key tasks is to work with the regulators to ensure the new arrangements are acceptable from a safety and environmental viewpoint.

The LMU’s other role is to better establish the nature and scale of the national clean-up challenge and its cost, develop strategies for contracting and procurement, and produce a national “baseline plan” for clean-up. This plan is crucial to delivering a consistent approach to clean-up and encouraging public and governmental confidence, and the first edition will be produced this summer. Updated annually, it will define for each site the scope, cost and schedule, tying in national priorities, funding, supply chain, research and development, local resource availability, and legislation. Under this plan, each site will have its own near-term work plan, looking three to five years ahead, and will include key performance indicators that will be used to monitor contractors’ performance, especially on safety and environmental grounds. This will provide the industry’s first proper road map and give suppliers much greater visibility of potential business than in the past.

Naturally, the incumbent site owners, BNFL and the UKAEA, are restructuring themselves to meet the private-sector competitive threat and to remain the “supplier of choice”.

“We have to change from being an owner-operator to a contractor and that’s a different way of working than before,” says Mark Morant, managing director of BNFL Alfa, a group within BNFL set up to shadow the NDA. BNFL has transferred its assets and liabilities on to Alfa’s “books” and Alfa has established contracts with the various BNFL business units to manage these.

“After 12 months of operating them, we can see that they’ve been a powerful change dynamic on our sites to get them focusing on what a management and operations contractor will have to manage,” he says.

“We are pushing more emphasis on our fee structure to legacy-based work. This is getting sites to think about how they target their resources and improve performance across all areas.”

BNFL’s contract model is primarily a cost-plus/incentive-fee arrangement. Morant adds: “We typically have 50 incentives in our contracts to enable business units to earn more fees, aligned with a target cost that is subject to pain and gain sharing. But the trick is not to drive target costs into areas where you are going to threaten quality and delivery of work.”

BNFL’s current financial woes, and the government’s recent decision to shelve plans to part-privatise it, are unlikely to affect these arrangements because the radioactive hulks will need to be decommissioned come what may.

The UKAEA’s slice of the liabilities pie is far smaller than BNFL’s, and it has already made significant use of subcontractors. Nevertheless it has launched its “Project Challenge” to align its planning and programme management more closely with the NDA’s expected requirements.

“Our objective is to be so good that the NDA decides that, for our sites, it doesn’t need to go for competition,” says Stephen White.

The UKAEA sees a continuing role for private-sector firms and it is looking at alternative options, including using private finance initiatives. It is considering one at Harwell, Oxfordshire, for waste management services and one at Dounreay, Scotland, for a new waste store.

“The threat in the white paper that says ‘if you don’t measure up, you’re out’ has focused our mind on radical new ways of working,” he explains.

At the site-operator level, the regulatory regime demands that for any transfer of site management to the private sector, the skills and experience of the incumbent workforce are retained to ensure continuing safety. As was the case at the AWE, the new contractor will only introduce a few new faces, and these mostly to the senior management team. But it will be vital that they have the right skills, not just in nuclear operations but knowing how to work with the regulator, how to motivate the workforce, and how to bring in process and supply chain improvements as well as innovation.

Until now, most of the LMU’s attention has been directed towards potential “tier one” suppliers. So where does that leave the majority of contractors – the bidders for major support contracts and specialist services?

The supply market for “tier two” and below is pretty well established, but the general feeling among contractors is that in future it will be more driven towards teaming and alliances. The LMU intends tier-one contracts to be structured to promote more private-sector involvement than hitherto. “We want a supply chain that is vibrant right the way down and will ensure that SMEs and local suppliers are well represented,” says Terry Selby of the LMU. “But both we and the supply chain need to think further about strategies and where companies want to position themselves and with whom.”

With the opening up of the market some two years off, there is much to be done. As for the future, no one doubts the size of the challenge. This is why competition for operating sites will happen progressively, starting with the straightforward ones to test the market and models. “In five years’ time, I think we will see the emergence of more key suppliers positioning themselves to enter the tier-one market,” says Morant.

He also sees the US as a possible indicator of how things will develop. “There you’ve got a small number of key players that are prime contractors. They normally team and partner with each other on one site but also compete to win at further sites.” This is an indication of the geographical direction from which much of the tier-one competition may come, but may also be a pointer to how the two incumbents may position themselves.

It’s an exciting time in the nuclear clean-up world. Decommissioning has always been the poor relation in the marketplace. But when you look at the spend profile and the importance for our own safety as well as future generations’, successful, economically sound and safe nuclear clean-up is essential.

Moreover, the events of 11 September 2001 emphasised the urgency of making sure these facilities are safe. The new market heralded by the NDA will give this task a real focus, and generate opportunities for current and prospective suppliers.

Chris Kaye has specialised in nuclear services supply chain management for more than 20 years. He is currently director of Corbis Consulting ([email protected])

THE CLEAN-UP PROCESS

• Nuclear decommissioning begins after a plant, which has finished operating, is decontaminated to remove surface radioactivity, and non-radioactive equipment and buildings are demolished. This can take up to five years.

• The route taken next depends on whether the facility contains loose nuclear material such as liquids and sludges – typical of the early research and development plants – or whether the radioactivity is part of the building structure, such as the steel components of the cores of power plants. The former need to be cleaned up as soon as possible to make the contents “passively safe”. The latter are made weatherproof and then put under care and maintenance for up to a century to allow the radioactivity to decay, enabling them to be demolished by relatively conventional techniques.

• Early clean-up, which can take from five to 20 years depending on the size of the task, requires a lot of remote operation to protect workers from radiation, and often structural strengthening of old buildings to enable the heavily shielded and complex equipment to be used safely. The resulting waste is packaged into drums, usually after solidification in cement, and stored in specially engineered buildings until it can be disposed of.