Energy Solutions v Nuclear Decommissioning Agency
The Government has announced this week that the NDA is terminating the contract it entered into after a flawed procurement in 2012. The original tender resulted in a 14 year contract being awarded in September 2014 to the Cavendish Fluor Partnership (CFP) - a joint venture between the Cavendish Nuclear (a subsidiary of Babcock International) and the US company Fluor Inc.
The Energy Secretary, Greg Clark MP, made a public statement which you can read in full here which sets out that:
- it is now clear to the NDA that there is "a significant mismatch between the work that was specified in the contract as tendered in 2012 and the work that actually needs to be done";
- the scale of the additional work which needs to be done is considered by the NDA to amount to a "material change to the specification on which bidders were invited in 2012 to tender";
- CFP has consented to the termination of the agreement, which will end in 2019 after 5 years rather than the full 14 years anticipated.
As part of this process, the NDA has settled outstanding litigation against it brought by Energy Solutions and Bechtel in relation to the 2014 Magnox contract award. This comes after the NDA was found by the High Court in the high profile judgment of 29 July 2016 (see link here) to have wrongly decided the outcome of the procurement process.
The original judgment in Energy Solutions v NDA
You will remember that this judgment was particularly critical of the NDA and its handling of documents and disclosure in particular. The Court considered that the approach taken by the NDA was, or appeared to be, motivated as much by trying to make the NDA immune from challenge as it was to ensure that there could be no grounds for challenge in the first place.
The Court noted that:
- serious consideration appeared to have been given to restricting the keeping of contemporaneous records of evaluation, to prevent the creation of any evidence which would be disclosable in any future litigation. However, as the Court commented, had the evaluation process been performed in accordance with the NDA's obligations under the Regulations, disclosure of any records would have presented no danger to the NDA - they would simply constitute an audit trail of the NDA's collective decision making in accordance with the tender.
- it was extremely worrying that any public authority (or its advisers) could contemplate adopting a policy that involved routine destruction of contemporaneous documents, given the express obligations of transparency on public authorities under the Regulations and the wider court rules.
Greg Clark's statement earlier this week makes it clear that the NDA has now withdrawn its appeal against the judgment of July 2016. It is now clear that the entire exercise has cost the NDA a significant sum. The settlement payments alone amount to sums of £76.5m plus £8.5m of costs going to Energy Solutions and £12.5m in total going to Bechtel.
The public statement concludes by indicating that an independent inquiry into the conduct of the 2012 procurement process will be headed by Steve Holliday, the former Chief Executive of National Grid. The scope of the inquiry will be very wide and Mr Clark makes express reference to possible disciplinary proceedings for those found to be at fault.
The Energy Solutions v NDA litigation provided clear learning points for anyone involved in procurement processes, whether for bidders or contracting authorities/utilities, given the Court's robust indications that contracting authorities are to be firmly held to account in their treatment of bidders, and should be able to evidence at every stage steps taken in any decision making process.
The high sums paid out by the Government as part of this settlement show that, where contracts to be let for significant sums, the level of damages claimed and any associated litigation costs can be substantial for any contracting authority, as can the reputational impact of any findings of fault. Equally, challenging a procurement process as an unsuccessful bidder can be highly beneficial if clear and substantial errors have been made. For example, Energy Solutions has achieved a financial settlement covering both damages and legal costs, prompted an independent inquiry, and may also have an opportunity to be involved in any new tender in 2019 when the current contract comes to an end.
We will report further when the findings of the Holliday inquiry are published, as there may yet be further lessons to be learned from Energy Solutions v the NDA.
Partner, Head of Commercial Disputes and Co-Head of Healthcare Sector
Co-Head of Healthcare
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