NUPHOENIX

Case Study 2 – OL3

Teollisuuden Voima Oyj (TVO) a Finnish nuclear power company owned by a consortium of power and industrial companies and the consortium Framatome-Siemens entered into an EPC contract to construct the then conceptual EPR (European Pressurized Reactor). Framatome who are based in Erlangen, Germany where part of the French nuclear company Areva and were responsible for the nuclear part of the NPP. Siemens, also based in Erlangen, were responsible for the non-nuclear part of the NPP.

The Construction Phase
The construction phase of the project commenced in August 2005, and the plant was expected to be ready in May 2009, but because of the breakdown in the relationship between the owner TVO and consortium Framatome-Siemens and the acute supply chain and project management problems this led to significant delays and cost increases and subsequently pushed commercial availability to May 2023. The supply chain issues were further compounded by the fact that the Finnish Nuclear Regulator (STUK) had grave nuclear safety concerns related to the first of a kind design of the NPP.
The construction phase, which was delayed for 10 years, was hampered by significant supply chain problems. As this was a first of a kind NPP and the fact that the consortium had not performed proper due diligence on the Finnish nuclear sector and the very strict regulatory requirements, the relationship between the owner and the consortium quickly deteriorated.

Insufficient Due Diligence
One of the first of the major problems that the consortium faced was that as there had been no activity in NPP construction in Europe for almost 30 years, the consortium soon found that many nuclear experts were no longer available due to death or retirement. Also, many suppliers were no longer experienced in nuclear safety and quality to the level required by the Finnish Nuclear Regulator, STUK.
It was highly problematic that the consortium and in particular Framatome being the nuclear partner, entered into a 2.5 Billion euro project without first exploring whether the nuclear experience was available regarding resources and suppliers. This demonstrates that at an early stage there was not a cohesive relationship between the manging units as it should have been one of the first activities to research the nuclear market to ensure that together with competent nuclear engineers, the supply chain was available to service such a megaproject.

Mismanagement of the Supply Chain
Also, from the outset it was soon apparent that the consortium had underestimated the size and quality of the project and procurement management teams that would be required for the project. At its peak the OL3 project contracted with over 1600 different suppliers who were located in twenty-nine different countries. Due to the inefficiency of the project and procurement management teams the coordination and management of the supplier network became fragmented as silos were created to separately deal with different batches of materials and equipment. Instead of working with project and procurement as one unit, it was fragmented to the point where many suppliers, their materials and equipment were rejected by STUK on the grounds that they did not fulfil the Finnish Nuclear Regulations (YVL Guides) due to safety and quality issues.
The result of the inefficient management of the supply chain, the OL3 project was subjected to major quality control issues on large and expensive components, such as the welding of the forgings for the main pressure vessel, defects in the millions of cubic metres of concrete that was poured, steel pipes were found to be flawed and because they did not meet the specified standards, had to be remanufactured many times over. The quality issues were a direct consequence of the inefficient working of the project and procurement management teams. Because of these teams working in silos, the was miscommunication between different silos and the correct quality and control measures required by STUK were not passes onto their suppliers.

Misjudgement of Material Availability
Another issue caused by inefficiencies was the bottleneck in major components such as the heavy forgings, which at the time could only be manufactured by Japan Steelworks and Mitsubishi Heavy Industries. The fact that the consortium had won contracts to construct other EPR’s in France and China concurrently, meant that the manufacture of the pressuriser vessel and its forgings, a major component, was severely delayed on all three projects. Other major components also suffered delays due to the orders from three different project and procurement teams who all wanted the same equipment. This is another example of a fragment procurement method, whereby it would have been a much more efficient to have centralised and integrated the procurement on all three EPR projects.

Missing Detailed Design
Lastly, and probably the most damaging to the supply chain management, was the fact that the engineering and detailed design of the conceptual NPP was incomplete at the commencement of the construction phase. The consortium completely miscalculated the amount of design work to be completed, and it became a case of suppliers not given enough or the correct specification to start manufacture, consequently this resulted in significant delays in the supply chain.

Lessons Learned and Outcome
The consortium never fully accepted that the inefficiencies in its project and procurement management was the real cause of the delays and subsequent budget overrun. They believed that they were caused by TVO by insisting on having a higher specification than had been allowed for in the scope of the original contract offer. Therefore, the consortium issued many multimillion euro claims against TVO who in return issued a counterclaim against the consortium of a similar value. The disputed claims were later heard by an arbitration tribunal who, found in favour of TVO.
The agreed financial compensation settles an International Chamber of Commerce (ICC) arbitration decision concerning the costs and losses caused by the delay of the project and is to be paid to TVO in two instalments. The parties therefore have agreed to withdraw all on-going legal actions related to the project, including the ICC arbitration. (World Nuclear News, Mar 18)