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Since the signing of the site management and operations contracts between the NDA and the site licensee companies on 1 April 2005, the NIA Commercial and Legal Issues Working Group has been pursuing the concerns of the supply chain and prospective Tier 1 contractors regarding the application of CT-15 and the "flow-down" provisions which the SLCs are obliged to include in sub-contracts of any tier.
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| Kevin Smith, NDA Suppliers Consultation Forum Co-Chairman |
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| Mark Richards, NDA Suppliers Consultation Forum Co-Chairman |
Since the signing of the site management and operations contracts between the NDA and the site licensee companies ("SLCs") on 1 April 2005, the NIA Commercial and Legal Issues Working Group (recently re-launched as the NDA Suppliers' Consultation Forum (the "Forum")) has been pursuing the concerns of the supply chain and prospective Tier 1 contractors regarding the application of CT-15 and the "flow-down" provisions which the SLCs are obliged to include in sub-contracts of any tier. Two issues have been of special concern: (1) liability for nuclear damage and (2) insurance arrangements under the new regime for both the liability of the SLC under the Nuclear Installations Act 1965 (as amended) ("the Act") and for conventional liabilities.
Nuclear Liability
Contractors to the SLCs are concerned not to be left in a position where they are exposed to any risk of liability for nuclear damage. However remote, such risk is uninsurable in the hands of contractors and not otherwise manageable by them.
The underlying principle behind the law in this area is the "channelisation" of liability for nuclear damage to the SLC. In other words, only the SLC can be liable in respect of damage to property or injury to person which arises as a result of any occurrence on the site involving nuclear matter (a "nuclear incident").
There are exceptions to this general rule. Most notable is that this exclusive liability regime does not operate in relation to damage to any property which is either itself a nuclear installation, or which is on site for the purposes of use in connection with the construction, operation or cessation of operation of a nuclear installation. This would include property of any contractors working on a nuclear licensed site.
What the law says is that, if any such property is damaged by a nuclear incident (except where the damage was caused intentionally) no person has any liability for that damage unless they have entered into a written agreement to incur such liability.
The aim of the CT-15 provisions is to create such a written agreement which imposes liability on the SLC for damage to any nuclear installation itself or any other property which is on site for use in connection with any nuclear installation. There are significant failings in the CT-15 drafting, including for example:
- the provisions do not mirror the terms of the Act, such that there are potentially certain types of damage which would not fall within the SLC's exclusive liability under the Act, nor within the scope of this written agreement;
- the preservation of the NDA's rights under the Contracts (Rights of Third Parties) Act could, together with any other provision in the contract which imposes any obligation on the contractor not to cause damage to NDA property, amount to a "written agreement" on the part of the contractor to incur liability for nuclear damage to the NDA's property which includes any damage to the existing facilities at the relevant site;
- the provisions only cover premises "occupied by" the SLC, which may not be the whole of the licensed site; and
- the provisions expressly exclude any damage which is attributable to any negligence or default of the contractor.
We are pleased to report that the NDA has now confirmed it had no intention to expose contractors to a third party rights claim or to terms that do not mirror the terms of the Act and that it will discuss appropriate amendment to CT-15 with the SLCs and ask the NIA to comment on the draft amendment
Insurance
Concerns were raised in three broad categories:
- with regard to contracts ongoing as at 1 April 2005 as to how the transition from BNFL to the new SLCs affected the insurances previously held by BNFL particularly as to material damage bearing in mind that NDA is now the owner of the physical assets;
- how the benefit of insurances held by NDA might be made available to contractors at Tier 2 especially as there is no privity of contract between the NDA and the supply chain; and
- how are insurances for nuclear damage now structured to take account of the facts that: SLC has the statutory liability and the statutory obligation to make adequate financial provision for that liability but NDA owns the assets and will be the party that suffers the loss as well as having control of SLC's ability to fund premiums through the allowable cost mechanism; and the written agreement to incur liability for nuclear damage to the nuclear installation itself or any other property which is on site for use in connection with the nuclear installation does not form part of the statutory insurance obligation.
We are also pleased to report that the NDA has now arranged a meeting on 21 October 2005 between a representative group of the Forum and the NDA, and its insurance and legal advisors with a view to providing an explanation of the position.
The minutes from that insurance meeting will be available in due course on the Forum's page of the NIA website at www.niauk.org.
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