Dungeness Nuclear Power Station in Dungeness, Kent.
© Gareth Fuller/PA

The government has been forced to pay £100m of taxpayers’ money to two US engineering companies after mishandling a £6.1bn contract to clean up 12 redundant UK nuclear power sites.

Ministers have admitted that the public procurement was “defective” as they announced an inquiry headed by Steve Holliday, former boss of National Grid.

The Nuclear Decommissioning Authority meanwhile announced it was terminating the contract to handle the clean-up operation in 2019, some nine years earlier than planned.

Labour said the payout showed “dramatic levels of incompetence” while the Scottish National Party described the situation as a “debacle”.

“This was a defective procurement, with significant financial consequences, and I am determined that the reasons for it should be exposed and understood; that those responsible should properly be held to account; and that it should never happen again,” said Greg Clark, business secretary.

In 2014, the 14-year contract to clean up 10 redundant “magnox” nuclear power stations and two research sites was awarded to international consortium Cavendish Fluor Partnership, a joint venture between Babcock International and US company Fluor.

Babcock said the decision to terminate the contract was prompted by changes to the scope of the work involved in cleaning up power stations including Sizewell, Hinkley and Dungeness, which were built in the 1960s and have reached the end of their lives.

The contract, which will now end in August 2019, was “materially different in volume from that specified in the NDA’s tender”, the company said. David Peattie, NDA chief executive, said the decision to terminate was “no reflection” on the contractors’ performance.

But Rebecca Long-Bailey, shadow business secretary, was sharply critical.

“British taxpayers who stand to lose nearly £100m should be asking themselves not just whether they are willing to put up with such ineptitude but also whether the government actually has a well thought-out and long-term nuclear decommissioning strategy,” she said.

Mr Holliday’s inquiry, which will produce an interim report in October, will look at how mistakes were made and by who, how the litigation was handled and whether the governance arrangements at the NDA are sufficient.

On Monday, the government announced it had settled with the two US engineering companies who had sued after losing their original bids. It will pay £85m to Energy Solutions and £12.5m to Bechtel.

Energy Solutions, an Utah-based company, had previously held the clean-up contract for the dozen sites. After losing the bidding battle it subsequently sold its nuclear services division to Atkins.

“These are very substantial costs and had the potential to rise much further if the case had proceeded to trial,” said Mr Clark.

In a statement to the stock exchange on Monday, Babcock noted that “last year a High Court judge ruled against the NDA in respect of its award of the Magnox contract.” This was the case brought by Energy Solutions, where the judge concluded the NDA had “manipulated and fudged” the tender process.

Joe Brent, an analyst at investment bank Liberum, said it was a “a surprise announcement” but noted that Babcock had estimated it would reduce sales by about £100m a year, less than 2 per cent of group turnover.

The government will now have to retender for the work. Robin Speakman of asset management company Shore Capital said that because of Babcock’s resources and record delivering such contracts, “we believe it highly likely they will be successful in bidding for a significant proportion of this future work”.

Babcock shares fell on the news, down 4.5 per cent in early trading at £8.77 before recovering.

Mr Clark said: “Taxpayers must be able to be confident that public bodies are operating effectively and securing value for money. Where this has not been achieved such bodies should be subject to rigorous scrutiny.”

Kevin Coyne, from the Unite union that represents workers at the 12 sites, said: “The whole contract process has been deeply flawed from the very start” and that the decommissioning work “should be taken back into public control where it should have been in the first place”.

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