UPDATE 3-UK picks Babcock and Fluor for 7 bln stg nuclear decommissioning

Mon Mar 31, 2014 11:31am EDT

* One of largest UK public contracts ever put out to tender

* Estimated savings of at least 1 bln stg over 14 years

* Babcock shares climb as much as 7 percent (Adds background, updates share price)

By Li-mei Hoang and Brenda Goh

LONDON, March 31 (Reuters) - Britain awarded a 7-billion-pound ($11.65 billion) contract to manage the decommissioning of nearly half its nuclear sites to engineering contractors Babcock and U.S. group Fluor in one of the largest UK government contracts ever put out to tender.

The 14-year deal covers some of Britain's oldest nuclear power sites include Hinkley, Sizewell and Dungeness.

Britain has moved to outsource large swathes of its public sector services over the last 30 years, a practice which has been heavily criticised in recent months after contractors such as G4S and Serco were found to have overcharged the government on contracts.

Among the services the government has recently attempted to outsource include its defence equipment buying arm, a process which collapsed after one of the only two bidders left in the competition pulled out.

Britain's public services market is estimated to be worth up to 50 billion pounds, according to the UK's National Audit Office, second only in size to the U.S. market.

The Nuclear Decommissioning Authority (NDA) said the contract would cover 12 of Britain's 25 nuclear sites and should bring a saving of at least 1 billion pounds from the previous contract, handled by EnergySolutions for the past 14 years.

The U.S. group had bid jointly with U.S. engineering sector peer Bechtel for the new deal and said it would now "evaluate its options" without giving any further details.

Shares in Babcock were the biggest gainers on the FTSE 100 Index, trading 4.6 percent higher by 1412 GMT having risen as much as 7 percent.

Numis Securities analyst Mike Murphy said the deal would be worth more than 170 million pounds a year to Babcock, representing over 4 percent of group revenue after adding sales from the soon to be acquired helicopter transport services firm Avincis.

"(This) cements their position as one of the UK's premier critical engineering support services group," Murphy said.

"Babcock have got such a tremendous reputation with the government in terms of delivering and I think that is the important thing at the end of the day," he said.

Aside from EnergySolutions and Bechtel, Babcock and U.S. group Fluor beat two other groups: Serco, Areva and CH2M Hill, and Amec, Atkins and Rolls-Royce in a two-year-long bidding process.

Sources familiar with the situation said that at least one of the losing consortiums was looking at its legal options to challenge the decision.

Cavendish Fluor, the joint venture between Babcock-owned subsidiary Cavendish Nuclear and Fluor, will be formally awarded the contract - pending legal approval - on Sept. 1, after a ten-day mandatory standstill and a five-month transition period.

"Cavendish Fluor Partnership bring a successful track record and extensive nuclear experience that will bring enormous benefits to the decommissioning and clean-up programme," NDA Chief Executive John Clarke said.

Although the government is focused on building new nuclear plants, Britain's old stations and nuclear research sites will remain sizeable employers as companies such as Babcock are hired to clean up radioactive materials over decades.

The GMB union, which represents energy workers, said it would be seeking urgent talks with the partnership and that it was still "extremely concerned" that Britain had no strategic direction for nuclear. (Reporting by Li-mei Hoang, Brenda Goh and Karolin Schaps; editing by Louise Ireland and Keiron Henderson)

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