Nuclear decommissioning contracts: the legal and commercial issues

A fundamental aspect of the UK Programme of Decommissioning and Waste Management is the desire of the Nuclear Decommissioning Authority to achieve more for less. This requires the use of ‘incentives’ and target-cost arrangements. This paper examines the role and use of the NEC3 Engineering and Construction Contract and the Institution of Chemical Engineers Burgundy-Book conditions of contract. Questions are now arising about how incentives-based contracts/target-cost contracts actually work in practice. How do they provide an incentive and allocate the risk of cost/time overrun? What are the problems that are leading to disputes? These questions are addressed, as well as exploring the specific areas that contracting parties should now consider before signing up to an incentives-based or target-cost contract. The paper concludes by examining the desire in the industry to use ‘hybrid contracts’ that incorporate elements of fixed price, or longer-term target plus fee (for workstreams or sites where analysis of risks is required or where work needs to be better understood and characterised).