The nuclear new-build programme has a lot to offer, as long as you can navigate the regulatory and contractual minefield surrounding it
Nuclear new-build presents an irresistible opportunity. But an opportunity is rarely without risks, and consultants, contractors and suppliers need to be aware of these when entering into appointments and construction contracts. A key distinguishing feature of work in the nuclear new-build sector is that it requires a deep understanding of the regulatory, consenting and licensing regimes that affect the design, construction and operating phases.
Construction risks in most projects are well understood, particularly those of price and time certainty. But where one sits in the price certainty equation is even more important in new nuclear projects, given the room for overrun.
If the employer is looking for price certainty and the main contractor or program delivery manager is seeking to flow down that price certainty to subcontractors or subconsultants, then those contractors or consultants need to assess the risks of the price changing or being exceeded. For example, if target cost arrangements are in place, what is the upside or downside in that model as far as the consultant, contractor or supplier is concerned? Cost certainty is largely dependent, for example, on whether a fixed price contract or construction management is used. Participants need to be aware that being bound to a price or time may not be sensible when one is not in complete control.
The lack of control is owing to the fact that nuclear regulators or the government can force changes in standards of workmanship, testing and buildability. Whether such changes will be treated as orthodox changes in law will be a negotiating point, but it is clear that whether you are a contractor, subcontractor or consultant, they may lead to delay, disruption and greater costs.
One needs to be especially aware of the funded decommissioning programmes the employer is required to submit as a precondition to starting work. Proper due diligence of the approved programme is essential. Further, the fact the approved programme may be modified under a request from the secretary of state may lead to further variations.
Matters that are normally an employer’s risk may switch to be risks for the supply side
The nuclear directorate is currently approving certain reactor designs under the generic design assessment process, and there is uncertainty over whether the French or US design codes can conform to UK requirements. The directorate is keen to ensure the design that is approved is constructed commensurate with those approvals. This has a significant impact in terms of the quality management and testing regimes the supply chain will need to employ. Understanding what was approved is key.
Many believe insurance and nuclear do not mix. However, the insurance industry has expressed a keen interest in providing insurance to contractors, consultants and suppliers involved in the sector. Such insurance may, however, lead to another tier of monitoring and assessment. Insurers will be keen to understand that the consultant’s liability is ring-fenced and not increased by its actions in dealing with the regulators, government or other consultants.
Equally, performance bonds and guarantees will be a concern. Bondsmen will be keen to ensure that the scope covered by the bond is not inadvertently increased during the design, construction or operating phase by an increased involvement in the consenting or approvals process.
Opportunities in the nuclear sector are significant. Success, however, will turn on whether participants are informed and fully understand the risks associated with a heavily regulated sector. Matters such as variations, changes and cost overrun, which are normally an employer’s risk may, owing to the regulated nature of the sector, switch to be risks for the supply side. Participants eager to work in the nuclear sector therefore need to carry out a proper and thorough risk analysis. Such risk analysis can only be carried out when one has an informed, proper and deep understanding of the regulation involved. Only once such risks have been understood can participants decide to square them away contractually or make full and proper provision for them.
Hamish Lal is head of construction at the London office of Jones Day