Taken before the Committee of Public Accounts
on Monday 26 November 2012
Rt Hon Margaret Hodge (Chair)
Mr Richard Bacon
Amyas Morse, Comptroller and Auditor General, and Marius Gallaher, Alternate Treasury Officer of Accounts, gave evidence. Jill Goldsmith, Director, NAO, Gabrielle Cohen, Assistant Auditor General, NAO, and George Last, Senior Analyst, NAO, were in attendance.
REPORT BY THE COMPTROLLER AND AUDITOR GENERAL
Managing risk reduction at Sellafield (HC 630)
Examination of Witnesses
Witnesses: John Clarke, Chief Executive Officer, Nuclear Decommissioning Authority, George Beveridge, Deputy Managing Director, Sellafield Limited, Phil Wynn Owen, Acting Permanent Secretary, Department of Energy and Climate Change, and Mark Higson, Office for Nuclear Development, Department of Energy and Climate Change, gave evidence.
* * * * *
Q1 Chair: Can I start by saying a thank you both to Sellafield Limited and the NDA for hosting us today? I think we all felt we learned a lot from our very short visit. Perhaps a shared view is we do not know what our predecessors were doing for 30 years, not getting their brains around the issues that we are now talking about today, and I think they should all be blamed for that. . . .
* * * * *
Q2 Chair: . . . Of the 14 projects that the NAO looked at, how many of those are on time?
John Clarke: The majority are not. I think there are only three.
Q3 Chair: How many are on time?
John Clarke: Three are on or ahead of schedule out of 14.
Q4 Chair: Three out of 14, so of course you want the right decision, but you want that taken in a properly speedy manner and that does not appear to be the case.
John Clarke: We always have to balance the sense of urgency with the sense of making sure it is done correctly. I am not trying to defend the fact that all projects have not achieved what they set out to achieve.
* * * * *
Q13 Chair: Mr Wynn Owen, do you want to comment on the spiralling cost and the robustness of the plan, as the ultimate accounting officer?
Phil Wynn Owen: Yes. It might just be worth revisiting the fact that it is clearly not satisfactory that the costs and the timescales continue to extend, but there are some mitigating factors. The NAO Report itself pointed out there are many activities at Sellafield that are unique, which makes it very difficult to benchmark whole project costs and timescales.
Q14 Chair: I accept it is a scary thing, trying to get rid of nuclear waste in a safe way, but we look at unique projects every day. We do not think that is an excuse for not having proper project management, control of costs and control over time delivery. I have to tell you that. . . .
Q18 Chair: Yes, but they have spent a load of money on that so far. That is money wasted almost, is it not?
Phil Wynn Owen: Looking forward, it is still £400 million saved and they have also saved £600 million by cancelling the planned evaporator E project, which is no longer needed.
Q19 Chair: How much have they spent on those two projects to date, just to get it clear?
John Clarke: On the highly active storage tanks, I think we have spent £43 million.
Q20 Chair: So that is money wasted, and on the other one?
John Clarke: It is £43 million that we had to spend, because at the time that we were spending it we believed the likelihood was that we would need those tanks. We could not get agreement from the regulator to remove those tanks from the plan until we could prove, together with Sellafield Limited, that we had adequate arrangements in place to make sure that we could safely handle the material that those tanks deal with without the need for new investment. Only when we could give that confidence to the regulator and get their agreement could we stop that project. So I do not believe that was wasted money. We did the minimum work necessary, which did cost £43 million, I grant you, but we were able to stop that project well before we got into the really big spend of the hundreds of millions of pounds that that project would have been, so there was a net saving of £400 million. But you cannot stop projects until you are absolutely clear that is the right thing to do.
. . .
* * * * *
Q40 Austin Mitchell: First of all, I want to thank you for the tour this morning, because it gave us a great opportunity to hold a hearing here in civilisation and outside London, which I am very grateful for. But I think it was a cunning plot to make us more sympathetic to your situation and the Nuclear Decommissioning Authority, because it showed us, I think, what a huge job you have there. It is something that seems to me like a cross between science fiction and a nuclear slum—perhaps the biggest nuclear slum in Europe. There is a huge problem in clearing that up and what worries me is that you have a very difficult job in controlling the costs. The three members of the consortium, the troika, whatever you call them, are all capitalist organisations. They have to make a bob or two. How do we know and how does the taxpayer know that they are not overcharging us for their services? . . . Now, how are we to stop the taxpayer being ripped off in that situation where the Authority is not in a position to fully control the costs of the consortium?
* * * * *
Q45 Austin Mitchell: Can you tell us is the active search for a geological storage facility going on? Are you likely to find one or is it just a pious hope? I remember the efforts of Nirex in the 1980s, when they came to Grimsby and tried to persuade us that a nuclear dump would be for the good of our health and people tended to disbelieve this for some reason. It is going to be a very difficult one to persuade anywhere to take a geological dumping site, is it not? Have you found one?
Phil Wynn Owen: Not yet, no, but on your first question about the timescale, I agree 2040 seems a long time away and the Department has asked the NDA to review current plans and advise the Government on options for potential optimisation within the programme that could bring the timescale forwards.
Q46 Chair: What are you looking at?
Phil Wynn Owen: That is why we have asked the NDA to review current plans and come forward with a tighter timetable, if that is credible.
Chair: I thought the NDA was passing the buck back to you.
Q47 Ian Swales: Whenever we hear these very long timescales, one of my questions is: so what is happening this month, next month, the following month, next year? Sadly, I think the real answer is nothing through most of that period. So the real question is: given the issues we have all seen firsthand, is 2040 the quickest you think you can deliver that and are you working on a pace that says we need this and we need it quickly? Is it genuinely going to take 28 years from now, working at your fastest pace, to deliver it?
Phil Wynn Owen: On the long timescale, as I said, we are asking the NDA to see if they can bring the timetable forward.
Q48 Chair: To what? One of you must have in your brain by when.
. . .
Q49 Ian Swales: When you hear numbers like 2040, that is just the definition of the long grass, as far as I am concerned. If the progress is as you indicate, it is not going to take another 27 years to dig a hole in the ground, test it and use it.
. . .
John Clarke: To Mr Swales’s point, we do have now a generic design for a repository and a generic design system safety case approved for a repository, but it can only be generic at this point until we know the location and geology.
Q57 Chair: It is a bit daft, because in 15 years’ time all technology will have moved on and no doubt you will be designing something completely different.
John Clarke: It will have to move on to be specific to the geology. It is generic by its very nature at the moment because we do not have a site.
Ian Swales: I do understand the risks, but there is a company right now wanting to build a factory in my constituency. They are going to put a mine that is 1,400 metres deep into the North Yorkshire moors and they are getting on with it; it is going to be done in a couple of years. I think we have probably said enough, but it just beggars belief; as I say, to me, 2040 is the definition of the long grass. It is past all of our careers and I think that feels like the objective of a lot of this sort of discussion—sorry, most of our careers.
Chair: Most of our lives.
Mr Bacon: Austin will be just getting into his prime.
Ian Swales: A lot of this is about value for money, our Committee, and long timescales usually mean piles of money as well and that is something that concerns us.
Chair: Yes, absolutely.
* * * * *
Q64 Chair: I wanted to come back on the company itself. You have 16 top executives from NMS working on Sellafield.
George Beveridge: That is correct, yes.
Q65 Chair: Between them, last year, they cost £11 million.
George Beveridge: Yes, there is £11 million in our accounts. There was a charge of about £1 million from the previous year, so the cost for 2011–12 is about £10 million.
Q66 Chair: That is a lot of money for 16 people.
George Beveridge: It is a big figure, but it is the cost of providing those people into the business.
Q67 Chair: How much do they all earn?
George Beveridge: We are a private company. There are lots of private companies that do work for the Government; they do not all necessarily disclose their—
Q68 Chair: Well, increasingly, our view, I have to tell you really toughly, is that, though you may be a private company, you are working off the taxpayers’ pound and it is therefore of interest to us to make sure that the taxpayer is not being ripped off. Therefore we have an interest. When you see a figure of £10 million or £11 million for 16 people, you question whether it is value. At £11 million, it averages to £690,000 per person. That is an average. Maybe there are some secretaries in there, I do not know. It sounds like a lot of money at the top. Who is your top earner? What does your boss earn? He chose not to come today, but I would like to know what he earned.
George Beveridge: I thought we had agreed with the Committee that I would come today, but anyway. In the accounts, the cost of providing the highest paid director for 2011–12 was just over £1.2 million.
Q69 Chair: And how many people earn around £1 million?
George Beveridge: Well, that is a cost; it is not a salary.
. . .
Q78 Chair: I find it very difficult to justify out of taxpayers’ money.
John Clarke: We operate in a competitive market and that is what we have to pay.
Q79 Chair: Let me go on, because out of that reachback costs are £17 million and that we worked out is about £270,000 per person, accepting that that is overall costs including, no doubt, private healthcare, pensions, relocation, what have you.
Mr Bacon: Dog-walking service.
Chair: Dog-walking service. These are shocking, shocking figures for a poor economy here in the north-west.
George Beveridge: With reachback, you have to look at the other side of the ledger as well and the benefits that reachback brings. It is a cost and it is a significant cost and it is not a reflection on our workforce. As I said, we have an excellent workforce, but there are some gaps that we need to plug to bring the level of performance at Sellafield up to that that we see amongst our peers. . . .
* * * * *
Q115 Austin Mitchell: I just want to follow up Meg’s point, because it is an important one. When it comes to jobs and contracts you are like a whale in a jam jar in this area in terms of the prospects you can give to the area. From paragraph 1.12, of the £986 million spent on subcontractors in 2011–12, I see that just over half went on professional services, such as technical design and modelling. When I went around Whitehaven yesterday, I did not see all that many nuclear design shops, just as I did not see any wine bars, restaurants, Starbucks or pizza places where I could get something to eat. In fact, the pub I went into had even run out of crisps. Clearly there is a search for occupation and work in Whitehaven, but both Copeland Council and the County Council have complained that subcontractors, local small businesses, find difficulty in accessing contracts at Sellafield. Why is that?
George Beveridge: We have set up a framework to work with local authorities and other partners to try and increase the visibility of work that is available at Sellafield. . . .
* * * * *
Q125 Mr Bacon: It may be that even in his extensive Australian vocabulary—schemozzles and doozies—he cannot find words adequate to describe the mess that is up here. That may be one of the things that is worrying him. But what I find difficult to understand is that you have said there are some projects here, within the NDA portfolio, that the Major Projects Authority is looking at. So there are things within the NDA portfolio deemed suitable for the oversight by the Major Projects Authority and yet we heard from Mr Clarke earlier that the NDA’s number one priority is Sellafield. That is what it lives and breathes for, in a sense, in terms of its priorities and, within that, these cleanup projects, and yet the MPA is not there.
John Clarke: The MPA or its forerunner, the Office of Government Commerce, did overview the competition for Sellafield. . . .
* * * * *
Q133 Mr Bacon: Mr Beveridge, I am sorry, I should have really directed that question to you. How is your reachback deployment strategy going?
George Beveridge: I think it is going very well.
Q134 Mr Bacon: That slightly reminds me about that question that that Star Trek person asked about the thing that nobody understood in nuclear fission. No, no, I will not go there. But you would say that, wouldn’t you?
* * * * *
Q142 Ian Swales: Can I just come back quickly on this? Just to be clear, was the £1.4 billion offered in the contract at the start or is that something that has emerged later?
George Beveridge: No, the £1.4 billion was the result of all our initiatives in the tender. So everything we put forward, everything that could possibly be achieved, added up to £1.4 billion in today’s money value.
Q143 Ian Swales: So it was part of the original tender.
George Beveridge: Yes, it was, but also part of the original tender was a commitment to deliver a minimum of 80% of that.
John Clarke: 80% is purely a minimum performance standard that enables the contract to be rolled into the second period.
Q144 Ian Swales: So that number was effectively asked from all bidders.
George Beveridge: No. The model with 80% was there, but it was up to bidders to put forward what their total number was.
Q145 Chair: Are you going to achieve £1.4 billion by the end of next year?
George Beveridge: We are projecting to achieve just slightly over 80% of that.
Q146 Chair: It just seems a very weird way of doing the business. Either they offer £1.4 billion or they do not. They offer—
George Beveridge: £1.15 billion.
Chair: It is completely daft.
Ian Swales: Well, I can see in a shopping list of possibilities you may not hit them all.