Atomic Weapons Establishment management contract to be terminated?

A 25 year contract to manage the government laboratory where the UK's nuclear weapons are designed and built may be terminated by the Ministry of Defence (MoD) as a result of poor performance, safety concerns, and project management failures.

The MoD contract for management of the Atomic Weapons Establishment with AWE Management Ltd  (AWEML), a three-way joint venture between the military contractor Lockheed Martin and engineering consultancy Jacobs, both US-based, and Britain's Serco Group, is currently under review by MoD amid concerns over “spiralling costs and overruns”, according to the Sunday Times newspaper.

AWE is currently wrestling with delays on flagship projects for the construction of new facilities needed to comply with modern safety standards and allow the construction of a successor to the UK's current Trident warhead.  Project Pegasus, an enriched uranium components plant which is currently under construction at AWE Aldermaston, and Project Mensa, a facility for assembling and disassembling warheads at AWE Burghfield, are both currently “on hold” following a series of design problems, project management failures, and regulatory setbacks.  AWE has also been the subject of enforcement action by safety and environmental regulators on a number of occasions over the past few years.

The AWE contract is known to have been under close scrutiny recently by senior MoD procurement executives.  A report prepared in September 2013 by a special team set up to review difficulties with projects at AWE has been passed to Bernard Gray, Chief of Defence Materiel, and Mr Gray's diary for 2014 indicates that he has been heavily involved in meetings to discuss the AWE investment programme, including two 'follow up meetings' and a series of regular quarterly review meetings.

AWEML was awarded a 10-year contract to run the AWE Aldermaston and Burghfield sites in 2000, which was later extended to run until 2025.  Around £1 billion per year is budgeted to be spent at AWE for the rest of this decade, split roughly equally between revenue (running costs) and capital (construction).

Last year the Nuclear Decommissioning Authority scrapped a similar contract for operation of the Sellafield nuclear reprocessing plant with Nuclear Management Partners as a result of poor performance and failure to meet contract targets.  

The AWE contract is not likely to be scrapped until early next year according to the Sunday Times.  The government are thought to be considering options for AWE's future operation as part of a broader review of the MoD 'nuclear enterprise'.  The AWE contract is costed and managed over a series of five year tranches, and the current tranche is set to end in 2017 – the likely exit date for the AWEML consortium if a decision is made to end the contract.

Shares in Serco Group dropped by 5% in value following publication of the Sunday Times report.  The AWE contract is said to be one of Serco's largest contracts, bringing an estimated revenue of around £1.5 billion to the company over the period 2012 – 17.  Questioned about the future of the AWE contract Rupert Soames, Chief Executive of Serco Group, said at the company's recent Annual General Meeting that shareholders would have to “wait and see” what happens to the contract when MoD announces the result of the review of the nuclear enterprise.

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