tom mcgovern and chris hicks newcastle university business school

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© Dr. Christian Hicks and Dr Tom McGovern

An analysis of the impact of the restructuring of the UK civil

nuclear industry on tier 1 and tier 2 suppliers

Tom McGovern and Chris Hicks

Newcastle University Business School

http://www.staff.ncl.ac.uk/presentations/QIK.ppt

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UK Civil Nuclear Industry• Main challenge is the decommissioning of existing plant• The current estimated cost is £72bn (2006) over a 25 year period.• Nuclear Decommissioning Agency (NDA) formed under the Energy

Act 2004.• NDA took ownership of 85% of civil nuclear assets and liabilities on

1st April 2005. The remainder resides with British Energy.• Assets include 20 civil nuclear installations comprising 39 reactors,

5 fuel reprocessing plants, 3 fuel fabrication plants, 1 enrichment plant and 5 nuclear laboratories.

• 50% of the 20 sites will be put out to competition by 2008, it is likely that new international companies will compete, which will increase the skill base.

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Structure of the Industry

Key: NDA – Nuclear Decommissioning AgencyHSE – Health and Safety ExecutiveEA – Environmental AgencyOCNS – Office for Civil Nuclear Security

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Site Licence Company (SLC)

• Owned by a parent for the duration of the contract.• SLCs are first tier suppliers to the NDA.• BNFL parent to SLCs: British Nuclear Group (Sellafield)

ltd., Magnox Electric ltd. and Springfields Fuels ltd.

• UKAEA parent to SLCs: Dounreay, Harwell, Windscale,

Winfrith and the JET facilities at Culham.

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Site Licence Companies• The Life Time Plan (Life Cycle Baseline) contains details

of the scope, schedule and cost of decommissioning and clean up for each site.

• The Near Term Work Plan (NTWP) is the first 3 years of the Life Time Plan.

• The NTWP is the basis of the contract between the NDA and the SLC.

• The SLC uses the NTWP to monitor the schedule and cost of work carried out.

• The contractors are paid their allowable costs and fees against performance targets.

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Research Methodology• In depth case studies at two SLCs and two suppliers

prior to the formation of the NDA.• Semi-structured interviews with 7 managers involved in

tendering, project and contract management and supplier monitoring.

• Interviews with the SLCs were of 6 hours duration. The interviews with suppliers were of 3 hours duration.

• The purpose of the interviews was to identify how the supply chain was responding to the restructuring of the nuclear industry.

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Site License Company A• Power generation ceased in December 2006.• Management has fundamentally reviewed operations and strategy.• Targets set for safety, cost, output and head count.• Contractors now invited to draw up detailed specifications.• Moving towards ‘bundled contracts’ where a supplier delivers many

services, which increases efficiency and reduces costs.• Single facility management company appointed to supply catering,

cleaning and scaffolding. Technical services also bundled and outsourced.

• Two suppliers deliver 80% of outsourced work.• Contractors monitored in terms of a traffic light system based upon

KPIs. This formed the basis of a supplier development initiative.• Nuclear risk resides in the NDA; non-nuclear risk is passed down

the supply chain.

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Site License Company B

• Power generation ceased in 1989.• Management of specification same as SLCA• Contractors evaluated in terms of a KPI system, but not

traffic lights.• Cross functional teams formed that include staff from

suppliers.• Contractors given functional specifications.

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Tier 2 Supplier A• Originally an OEM to the Central Electricity Generating Board (CEGB).• Set up as a regionally based company to match the structure of the

CEGB.• Strategy to develop long term partnerships and it has acquired

companies with nuclear capabilities.• Competencies include design, operations, maintenance and

decommissioning.• Functional specifications allow the company to offer the client several

options.• Clients require fixed price contracts and discourage extras.• Found KPI systems time consuming.• New industry structure with long term contracts reduces risk and reward.• Scarcity of Suitably Qualified and Experienced Personnel is the major

strategic problem.

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Tier 2 Supplier B• Company strategy based upon customer and operational

excellence.• Service include facilities management, asset management,

mechanical services, management of process plant and civil engineering.

• Aim is deliver the NTWP as cost effectively as possible to enable more work to be brought forward and attract future work.

• Strong focus on bundling of services to reduce overheads and increase the utilisation of staff.

• Focus on partnerships including open book accounting.• Nationalised industry still prevalent in SLCs – seek ‘intellectual

sponsors’, who are receptive to the new business model.

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Conclusions• NDA has introduced a new competitive environment in the nuclear

industry.• The aim is to minimise the cost of decommissioning and

dramatically reduce the time required.• 50% of SLC contracts will be put out for tender by 2008 – this is a

major driver of change. Competitive benchmarking is now possible.• New business models have been developed including the:

– bundling of services to reduce costs;– use of KPI measurement of suppliers;– implementation of supplier development models based upon

KPIs;– incentive to complete work at minimum cost to bring additional

work forward within the NTWP.

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Conclusions• A shortage of Suitably Qualified and Experienced Personnel is a

major problem. NDA is seeking to expand the skill base by attracting in companies from outside the industry and well as encouraging supplier development within the industry.

• The industry is likely to become more competitive when more companies own Site Licence Companies.

• The new industry structure appears to be successfully reducing costs and the duration of decommissioning activities.

tom mcgovern and chris hicks newcastle university business school

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