02 Nov 20. A Written Ministerial Statement has been laid today in Parliament announcing a change of operating model for the UK Atomic Weapons Establishment (AWE).
In 1993 the Ministry of Defence (MOD) entered into a Government owned Contractor operated arrangement with Hunting-BRAE whereby Hunting-BRAE operated the Atomic Weapons Establishment (AWE) on behalf of the Government. In 1999, following a competitive tender, a new 25-year contract was awarded to AWE Management Ltd (AWE ML).
On the 1 July 2019 the MOD triggered the Successor Arrangements clause with AWE ML to consider alternative viable management options ahead of the current contract expiration. Following an in-depth review, the MOD concluded that AWE plc will become an Arms-Length Body, wholly owned by the MOD.
The change in model will remove the current commercial arrangements, enhancing the MOD’s agility in the future management of the UK’s nuclear deterrent, whilst also delivering on core MOD objectives and value for money to the taxpayer.
The decision was taken in order to simplify and further strengthen the relationship between the MOD and AWE plc, enhancing the MOD’s ability to invest in the development of the workforce, technology and infrastructure, and therefore in the future of AWE plc.
The MOD recognises the achievements of everyone involved with AWE and thank AWE ML and its shareholders for their support in stewarding the organisation through crucial phases of delivery and planning. (Source: https://www.gov.uk/)
Investors Chronicle Comment: Serco – The Ministry of Defence (MoD) has cut short its 25-year contract to develop and maintain warheads for the UK’s Trident nuclear deterrent and will take it back in-house from June next year. Serco currently provides these services as part of the ‘Atomic Weapons Establishment’ (AWE) joint venture with Lockheed Martin (US:LMT) and Jacobs Engineering (US:J). AWE is expected to contribute £17m to the group’s underlying trading profit this year and Serco says despite the contract loss, its profit in 2021 will remain in line with analyst consensus. The shares are down 12 per cent in early trading.
BATTLESPACE Comment: Could this move be a prelude to a complete shake up of the UK’s nuclear weapons industry which is suffering from cost overruns and inefficient practices in certain areas. It is likely that as part of its restructuring that Roll-Royce will relinquish its marine nuclear propulsion segment to BAE which would integrate it into its Marine Division thus streamlining the Dreadnaught procurement process. Could the next stage be a complete takeover of Babcock, shorn of its helicopter segment which media reports that Private Equity is eying, by BAE Systems a move considered some years ago before Mike Turner became Babcock’s Chairman.