Hamish Lal The final part of our series on the nuclear decommissioning sector looks at the kind of risks the industry is grappling with today – including that the money will run out
The nuclear decommissioning industry is becoming increasingly familiar with certain claims and disputes. For example, there are problems with the giving of notices under clause 61.3 of NEC3, with waste minimisation targets and with target cost arrangements when the works information is not as the tier-two contractor expected.
Last year we had the case of Education 4 Ayrshire vs South Ayrshire Council, which dealt with the PFI sector. The case highlighted how clauses dealing with giving notice of a delay or compensation event can act as a bar to entitlement to extension of time. In this case a contractor was held to be too late in giving notice even though the employer was aware of certain issues that caused the delay.
It is often the case that a contractor fails to give notice within the eight-week period and the project manager also omits to notify the compensation event (for example, because the PM did not know that the compensation event would in fact cause delay or additional cost). Reasons why contractors fail to give notices are numerous and can vary from indecision to only deciding to make a “claim” when the project is nearing completion.
In the decommissioning sector it is NEC3 clause 61.3 that attracts most attention where tier-two contractors argue that the clause does not bar entitlement because the project manager “should have notified the event but did not”, whereas the tier-one contractors will argue that the notice was provided outside of eight weeks of the contractor becoming aware of the event and the project manager could not have notified (because he was not aware of the impact on the tier-two contractor).
Perhaps the most understandable issue for dispute is the one that occurs when the waste being removed is not the same as the waste characterisation details provided by the tier-one contractor in the site or works information. Tier-two contractors do not, understandably, expressly agree to take all the risks associated with “unforeseen waste” or for the accuracy of waste characterisation details. This means that adjudicators need to decide complex factual, technical and high value disputes not just in terms of whether something is a compensation event but (typically) also in terms of the impact on the waste minimisation incentive and the overall target cost model. It is sometimes said this is such a complex sector that it is not feasible to fully characterise waste and that the tier-one contractor is therefore putting the risk of assessment, management and retrieval on the tier-two contractor. Then if it does cost more to complete the work, it is the “specialist” tier-two contractor that bears the overrun. This commercial context argument is said to be the key when interpreting tier-two contracts. Some may seek to argue that the tier-two contractor misrepresented its expertise to win the contract.
those not working on high hazard projects are now prejudiced and there is much anxiety about future funding
Change in procurement strategy?
Given the above problems, many now question whether tier-two contracts should separate out the design and/or waste characterisation process from the actual physical removal. Many consider that a front-end engineering design (FEED) approach (where planning and design happen early in the project when it is more open to influence and less expensive to change) would benefit all parties, not least because the tier-two contractor has a more refined understanding of the nature of the waste and because the incentive or target cost should be more realistic. Procurement on this basis would effectively mean that the tier-two contractors operate under a cost-reimbursable regime unless and until the scope of work and target cost can be agreed on. Problems persist since now the argument is that the tier-two contractor is not properly incentivised, may not innovate and may just draw out the process causing delay and adding to costs.
Others in the industry are exploring the role of alliancing and partnering as a means to better share risk and illustrate the existence of incentives during the FEED/waste characterisation stages. However, this is not straightforward and questions remain: How many parties will be in the alliance? Will the tier-one contractor allow tier-three contractors to be in the alliance? What is the measure of success or at what stage can a tier-two target cost be fixed? What would be the respective percentages in “gain-share” and “pain-share”?
The Nuclear Decommissioning Authority has “slowed” spending and has focused on the so-called high hazard waste. This means that those not working on high hazard projects are now prejudiced and there is much anxiety about future funding. It has been suggested that slowing the rate of decommissioning leads to an ultimate rise in the costs paid by the public. Is it too soon to be talking of nuclear decommissioning being carried out and funded by the private sector akin to the PFI model?
Hamish Lal is head of construction at Jones Day