Contract ModelsTerms and Conditions

Joyce Matthews

September 2003

LMU Tier 1 Supplier Forum

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On What Basis Was the Model Recommended?

No direct precedents but AWE was close Looked at many industries Intent:

– Build on successes– Learn from failures

Desire to maximise performance, best balance risk

No contract can solve all conceivable issues

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Precedents Vs NDA Sites- How Comparable Is the Context?

CTRL AWE North Sea Devon-port

US DoE

Length of programme ☓ ☓ ☓ Scale of risks/ uncertainty () UK Nuclear regulations ☓ ( )☓ ( )☓Mix of projects vs operations ☓/() ☓ +Mix of dismantling vs construction ☓ ☓/() ☓ ☓ +

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Objectives for NDA Contracts Provide incentives for excellent site operator performance

(all dimensions) Provide ability to recognise and deal with poor

performance Allow opportunities for the best companies/skills to be

utilised for each task/ siteWhile: Ensuring ongoing safe performance Maintaining existing regulatory regime Providing NDA overall strategic direction/ control Maintaining licensee ability to fulfil licensing requirements

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What Was the Resulting Recommendation?

Based on a consolidation of best experience: Single site/single contract approach Strategic direction for each site determined by NDA Contractor defines key activities and detailed

outputs for NDA approval Performance-based cost reimbursable contracts Incentivisation structured around achievement of

clear milestones

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Contract Structure

Competed contracts – likely to be 5 yrs. in duration – options to extend for excellent performance – terminate early for poor performance

Overall scope and schedule developed from the LCBL and the NTWP.

Long term objectives (from the baseline) supported by shorter term milestones – with incentivisation to improve cost/schedule/methodology

Open book accounting

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Contract Pro-forma Documents

Skeleton contract to be reviewed by commercial lawyers

Consultation with Regulatory subgroup regarding certain terms and conditions

Draft terms to be published for industry\stakeholder comment before year end

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Initial Arrangements

It is anticipated that NDA formation will require contracts in place to discharge its duties; expected to begin April 2005

It is also anticipated that, due to site licensing and resource constraints, initial contracts will be with incumbents

Initial contracts will be of varying lengths dependent on NDA schedule to compete

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Competitive Schedule

NDA will set competitive schedule based on the overall programmatic strategy as defined by the national LCBL.

Competitive schedule will require multiple approvals.

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NDA

Site licensee

contractCorporate

Headquarters

Initial Contracts

Subcontracts

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NDA Contracting Strategy- Competition and Award Process (1)

Multi disciplined teams prepare tender and contract documents and do bid evaluations

Industry and regulator comments will be sought on draft tender documents

Pre-agreed evaluation criteria used to determine tender selection and contract award

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Evaluation Criteria Past performance

– Same or similar scope– Quality of product or service– Safety record– Timeliness of performance– Business practices and relations– Past performance of key personnel proposed

Technical approach– Decommissioning/ clean-up/ operating activities– Efficiency proposals– Baseline improvement– innovation

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Evaluation criteria continued Project management approach

– Safety approach– Planning/Organising– Managing internal resources and subcontractors– Staffing plan\skills retention– Transition process – Reporting tools and approaches– Resolving problems– Corporate commitment

Key personnel– Including technical knowledge AND proven ability to lead change

Overall Best Value includes cost realism and fee proposals

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NDA Contracting Strategy- Competition and Award Process (2)

Regulatory involvement at various steps, e.g. past safety performance

Transition arrangements to achieve transfer of contract from one contractor to another will be clearly specified

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Transition – What Is It?

How long does it last? What does it involve? How many people? Cost

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NDA

contract

Ownership

CorporateHeadquarters

Competed contracts

M&O/SPV

SiteLicensee

Subcontracts

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Typical replacement

following Competition

Middle Management

Site workers Sub contractors

SeniorManagement

Illustrative Licensee Structure

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What Is This Special Purpose Vehicle Company?

Relatively small, efficient, highly capable organisation Leadership: strategic, operational, regulatory

knowledge Technical/business management: i.e. intelligent owner

capability Commitment to provide needed improvements,

including backing of additional corporate resources if needed

Proactive: Ability to solve/prevent problems in a timely manner

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What Might a Special Purpose Vehicle Company Be?

If the qualifications can be met – the market place will create appropriate competitive structures– Large companies teamed with small– Single experienced firms– Onsite experience teamed with specialist companies– Incumbents with other firms– Local with non-local– Alliances of smaller firms

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Roles and Responsibilities

Prime Contractor / Site Operator- Plan and Schedule the Work

- Cost Effective Work Execution

- Compliance with Regulatory Requirements

- Implementation and Maintenance of an effective Supply Chain

- Ensuring exemplary Safety Performance

NDA sets overall strategy,approves systems and procedures, monitors performance

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Contract arrangements to ensure world class safety performance

Evaluation of contractor safety performance prior to selection

Inclusion of relevant legislation and agreed milestones in contract conditions

Option to terminate contract on the basis of unsafe or other unacceptable performance

NDA Contracting Strategy – Contractor Safety Management

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LMU Proposed Contract Pro-Forma

It is planned that around Dec 2003 the

pro-forma will be posted on the LMU website.

www.dti.gov.uk/nuclearcleanup