Contract Models Terms and Conditions Joyce Matthews September 2003 LMU Tier 1 Supplier Forum

2 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

3 Precedents Vs NDA Sites- How Comparable Is the Context? CTRLAWENorth SeaDevon- port US DoE Length of programme Scale of risks/ uncertainty ( ) UK Nuclear regulations ( ) ( ) Mix of projects vs operations / ( ) + Mix of dismantling vs construction / ( ) +

4 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/ site While: Ensuring ongoing safe performance Maintaining existing regulatory regime Providing NDA overall strategic direction/ control Maintaining licensee ability to fulfil licensing requirements

5 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

6 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

7 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

8 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

9 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.

10 NDA Site licensee contract Corporate Headquarters Initial Contracts Subcontracts

11 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

12 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

13 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

14 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

15 Transition – What Is It? How long does it last? What does it involve? How many people? Cost

16 NDA contract Ownership Corporate Headquarters Competed contracts M&O/SPV Site Licensee Subcontracts

17 Typical replacement following Competition Middle Management Site workersSub contractors Senior Management Illustrative Licensee Structure

18 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

19 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

20 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

21 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

22 LMU Proposed Contract Pro-Forma It is planned that around Dec 2003 the pro-forma will be posted on the LMU website.