No Go for GOCO: The UK Renationalises Its Nuclear Warhead Factory

Earlier this week, the UK Ministry of Defence (MoD) announced a significant change to the running of AWE (Atomic Weapons Establishment), where the UK’s nuclear warheads are designed, manufactured and maintained. In a written statement to Parliament, the MoD announced that the current commercial arrangements, under which AWE is government-owned but contractor-operated (GOCO), will be removed, and that AWE will become an arm’s-length body, wholly owned by the MoD. At this stage, not enough is known about the details of the new arrangement to be able to judge the nature and extent of the practical changes to AWE’s management and operation this will entail. But despite the well-publicised flaws of the existing arrangements, it is not self-evident that the MoD is equipped to make any future model work better than it has under the GOCO model. As such, the transition to new arrangements deserves scrutiny.

Although the MoD currently owns AWE’s sites and facilities, AWE plc – the company which employs the staff and operates the sites – is a private, wholly owned subsidiary of AWE Management Ltd (AWEML). AWEML is a consortium of Lockheed Martin (a 51% shareholder), Jacobs Engineering Group and Serco Group (each with 24.5%). The current contract for AWE’s management and operation, awarded to AWEML in 1999 after an initial stint under Hunting-BRAE, had been due to run until 2025. The MoD now anticipates that this will instead be wrapped up by the end of June 2021.

Government guidance recognises three main types of arm’s-length body. Of these three, the option that would tie AWE most closely to the MoD would be to make it an executive agency much like the Defence Science and Technology Laboratory, staffed by civil servants and legally part of the department, with the MoD setting policy and directly funding it from its central estimate. AWE could become a non-departmental public body (NDPB), staffed by public servants (not Crown employees, as civil servants are) with its own legal personality outside the Crown, with the MoD setting a strategic framework rather than dictating policy, and funding it via a grant in aid from the department’s budget, which would effectively mean imposing fewer detailed controls over day-to-day expenditure than for an executive agency. The final option would be to set AWE up as a non-ministerial department, which would entail significantly less political and delivery oversight than for the other two options and therefore seems an unlikely outcome.

The decision between executive agency and NDPB status will likely rest on whether the MoD prioritises the greater control of the programme and workforce integration offered by the former, or whether it wants to increase flexibility and streamline arrangements for private sector involvement in the future programme. No explicit information on this was released, but the government statement on Monday indicated that the new business model will ‘continue to draw on private sector specialist support to strengthen capability as well as playing a key role in managing capital projects and contracts’, which may indicate that the latter will be seen as more appropriate.

Persistent Problems

The management of the UK’s nuclear weapons complex has been the subject of a succession of bad headlines in recent years, most notably regarding the failure to deliver three key infrastructure projects – for assembling and disassembling warheads (Mensa), for handling enriched uranium components (Pegasus) and for conducting hydrodynamic-radiographic experiments (Hydrus) – on time and within budget. AWE plc was also prosecuted and fined £1 million in 2018 after admitting health and safety offences relating to an electrical incident in 2017, and the Office for Nuclear Regulation recently announced that AWE plc will again face prosecution for another electrical incident in 2019.

Although the MoD thanks AWEML for its ‘support in stewarding the organisation through crucial phases of delivery and planning’, the announcement represents a conclusion by the MoD and other central government departments that the GOCO model was not working. Complaints to this effect have been common among Whitehall officials, as well as current and former AWE staff, for some years. AWEML’s existing contract had already been renegotiated in 2016, ostensibly to provide the MoD with stronger tools to incentivise good performance and penalise slippages. But even after the contract renegotiation, a National Audit Office (NAO) report found earlier this year that the revised arrangements were ‘not well suited’ to the long-term and complex build projects that constitute the bulk of programme expenditure, and noted several MoD complaints about AWE, including failures to adequately oversee subcontractors. Addressing these commercial issues at the delivery end must therefore be a priority for the MoD.

Can They Get It Right?

The government’s decision comes at a crucially important time for the UK’s nuclear weapons enterprise, which, after a decision some 15 years in the making, is now gearing up to produce a replacement for the current Holbrook warhead. This, as we have both argued elsewhere, will be a serious challenge. Altering AWE’s management structure will necessarily mean disruption, but the government has evidently calculated that now is the time to act, while there is still time to change course and while some programme disruption resulting from the decision to proceed with a replacement warhead was inevitable in any case.

Yet if the government is confident in its diagnosis, finding the right prescription will not be easy. The problems with delivery of new nuclear weapons infrastructure cannot be laid solely at AWE’s door. The NAO was also particularly critical of the MoD’s management of programme requirements, and has previously noted the decay of nuclear expertise in the department, with heavy reliance on AWE staff seconded into MoD roles for provision of specialist knowledge and skills. One can also imagine that the repeated deferral by ministers of a decision on a future UK nuclear warhead (in the 2006 White Paper on the future of the UK’s nuclear deterrent this was expected to come in the 2010–15 Parliament), leaving aside the question of whether these deferrals were justified, has also contributed to some uncertainty in requirements and therefore to cost growth.

Renationalising AWE and setting it up as an arm’s-length body will not in itself solve these issues, but it could be a first step in the right direction, as long as the government has a clear sense of the advantages it believes are on offer from greater control, and a plan for how to achieve them. It may have suited both the MoD and ministers until now to let the bulk of the ire resulting from failings in the programme to date fall upon AWE and its private sector management, but this has not helped the MoD–AWE relationship. A better partnership will be required to make this new model work, and building a stronger shared culture will take significant effort and real change in the MoD as well as in AWE.

A More Open Nuclear Complex?

One side-effect of AWE becoming an arm’s-length body might be an overdue increase in transparency. It will become subject to the Freedom of Information Act, whereas the privately owned AWE plc is not, and it will also become more difficult to argue that certain financial details should be withheld on the grounds of commercial confidentiality. There will also be more direct accountability of MoD ministers to Parliament for its operations.

More broadly, the return of AWE to full public ownership, in the context of this year’s decision to develop a replacement nuclear warhead, makes scrutiny of the programme increasingly important. The NAO and the Public Accounts Committee will be best equipped to continue to monitor delivery schedules and budgetary matters, while it will fall to the Defence Committee to press government for a clear sense of the strategy behind current changes, and to establish benchmarks against which the current reorganisation can be judged. As a first step towards the latter goal, the Defence Committee could aim to conduct a post-appointment hearing with the chair of AWE’s new board in the early months of his or her tenure. For its part, the MoD needs to take seriously the skills gaps that the NAO has identified – on commercial skills, complex requirements management and specialist nuclear expertise – such that it can be a credible partner in the eyes of the AWE staff who are responsible for delivering the programme, and a more resilient and intelligent customer for AWE outputs.

Tom Plant and Matthew Harries

The views expressed in this Commentary are the authors’, and do not represent those of RUSI or any other institution.