Ministers to retake control of nuclear bomb manufacturer AWE
Posted: 2nd November 2020
From Sky News
Serco and Lockheed Martin will be stripped of their role developing warheads for Vanguard submarines, Sky News learns.
By Mark Kleinman, City Editor
Sunday 1 November 2020 16:57, UK
Sky News has learnt that the Ministry of Defence (MoD) will announce in the coming days that it intends to effectively renationalise management of the Atomic Weapons Establishment (AWE), which runs the Aldermaston factory in Berkshire.
The decision will come as a blow to Lockheed Martin, which holds a 51% stake in AWE Management, the outsourcer Serco and Jacobs Engineering, which own 24.5% each of the joint venture.
The three companies are now set to lose their grip on a lucrative long-term deal as soon as next year.
AWE plays a critical role in Britain’s defence, researching and developing the warheads which arm Britain’s fleet of Vanguard nuclear submarines.
The MoD handed a 25-year contract to outsource the work to the consortium in 2000, and it has proved a lucrative deal for the private sector companies.
Last year, AWE Management paid £82m in dividends to its shareholders, despite ongoing controversy over cost overruns associated with facilities upgrade projects.
The move to take the contract back into state control is expected to be confirmed in a written ministerial statement sometime this week.
A person close to the AWE deal said the decision “bore the fingerprints” of Dominic Cummings, Boris Johnson’s most senior aide, who has put pressure on the MoD to curb wasteful spending since last December’s general election.
The formal announcement is expected to refer to a desire to create more effective alignment between the priorities of the MoD and the AWE.
Under the plans to be announced this week, the contract will be brought back into public ownership by the middle of next year.
It was unclear this weekend whether and how much compensation the consortium would be in line for as a result of the early termination of the deal.
Serco, which is listed on the London Stock Exchange and which has been playing an integral role in the government’s coronavirus ‘test and trace’ contract, is likely to update investors on the situation in the next few days.
The outsourcing giant received roughly £20m of the dividends paid by AWE Management last year – a not immaterial sum to the company, which is run by Rupert Soames, the grandson of Sir Winston Churchill.
AWE Management has been plagued by a catalogue of problems, prompting the National Audit Office (NAO) to issue a series of scathing criticisms of it and the MoD earlier this year.
In particular, the public spending watchdog said, a new facility – called MENSA – to assemble and disassemble nuclear weapons had been beset by cost overruns amounting to hundreds of millions of pounds.
“It is disappointing to see that in their early days the Department made the same mistakes, also experienced by others, as were made more than 30 years ago,” the NAO said.
“To secure value for money, the Department should have managed the inherent challenges of these projects, such as not starting construction too soon and allowing some flexibility, as well as addressing the risk of not having a statutory role to agree cost-effective designs.”
In 2010, a fire at Aldermaston left one employee injured, while in 2016, the AWE contract was substantially amended following a government review.
The revised deal included scope for regular price reviews, while the ownership structure of AWE Management changed to give Lockheed Martin majority ownership.
Two years ago, AWE was fined £1m for failing to ensure the safety of its staff following a prosecution brought by the Office of the Nuclear Regulator.
The board of AWE Management is chaired by Ian Tyler, the former Balfour Beatty chief, while the company is run by the former Network Rail boss Iain Coucher.
An industry source said the move to ‘insource’ the contract was “not before time”.
“Many in the sector thought it would have been taken in-house before now.
“Given rising costs and the imminent defence review, it’s not a surprise.”
An MOD spokesperson said: “The MOD routinely evaluates and reviews all major contracts as they near their end date, and we will not comment on speculation.”
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