From procurement to construction: Key risks and challenges in SMR deployment in the UK

Overview

In June 2025, the UK Government announced its "10 Year Strategy" which outlined its plans for infrastructure investment in which nuclear is expected to play an important role in the UK’s future energy system by providing predictable low-carbon power.¹  As the UK’s current fleet of nuclear plants reaches the end of its life (four of the UK’s five nuclear plants could come offline by 2030), the UK Government has announced significant investment in nuclear energy, including allocating over £2.5 billion over the Spending Review 2025 period to develop one of the first Small Modular Reactor (SMR) programmes in Europe.²

On 10 June 2025, Great British Energy – Nuclear (previously known as Great British Nuclear) announced Rolls-Royce SMR as the preferred bidder to develop and deploy a fleet of SMRs in England and Wales as part of the UK's first SMR programme.³

In recent times, global interest in nuclear power has seen a significant resurgence, driven by the imperative for countries to meet their net-zero goals by 2050. Nuclear energy offers a viable base load replacement to less energy efficient technologies, such as coal, and provides many advantages, including longevity, low life cycle carbon emissions and rapid transition capabilities. In the UK, there is evidence to suggest that it will be unable to achieve its targets, in a cost-effective manner, without nuclear. 

Forecasts published by the International Energy Agency, point towards there being a peak in global nuclear power generation during 2025, mainly due to the increased output as a result of commercial operations of new nuclear power plants beginning in Europe, China, India and Korea, as well as the restart of Japanese plants which have been on hold following the 2011 Fukushima disaster. In the UK, life extensions for the Torness and Heysham 2 reactors are set to contribute to the nation's 2030 clean power targets.

SMRs are considered to be a key part of this "nuclear renaissance" and the UK Government is set to make a decision on its investment plans in the Autumn budget, including private investment funding models such as the nuclear Regulated Asset Base model. 

This article provides an overview of construction issues and dispute resolution considerations to be taken into account when establishing the contractual and legal framework for new SMR projects. 

What are the benefits of small modular reactors? 

As discussed in our previous blog post on managing construction disputes on SMR projects in Southeast Asia, SMRs offer several potential advantages, including: 

• enhanced safety features; 
• reduced capital costs; 
• suitability for deployment in remote locations; 
• flexibility and scalability due to their smaller size, allowing for deployment in various locations; 
• supporting a more distributed energy generation network that can be tailored to local needs and expanded incrementally; and
• significantly reduced construction times and costs due to offsite/factory manufacturing and on-site assembly.

While not yet widely considered commercially viable, SMRs are viewed as a vital element in the UK's strategy to meet its 2050 net-zero targets. They have the potential to serve as a complementary energy source to more intermittent renewable sources like wind and solar, ensuring grid stability, and in particular, helping to achieve the goal of 24 GW of nuclear power capacity by 2050. Their potential applications are diverse, with proposals even suggesting their installation in data centres for zero-carbon electricity.

However, despite the promising outlook and technological advantages, the procurement and construction phases of SMR projects introduce a unique set of legal challenges and risks that require careful consideration.  The projects will also be "first of a kind" (FOAK) and increased construction costs and delays ought to be expected, meaning that achieving a balanced legal framework from the outset will be important.  As the UK accelerates its efforts to incorporate SMRs into its energy strategy, stakeholders will have to quickly navigate a complex web of legal challenges and risks. 

Construction Issues and Associated Risks 

While there are two SMRs currently in "commercial operation" (in China and Russia), SMRs are generally considered FOAK projects. The novelty of SMR designs means that they are often untested, which can lead to design uncertainty and ultimately construction, commissioning and operation risk. The typical issues we would expect are: 

• Offsite procurement and fabrication issues: SMRs have been promoted as offering significantly reduced construction times and costs compared to their traditional counterparts. This is mainly due to the factory/yard manufacturing which lowers the exposure to certain construction interruptions such as adverse weather conditions, and provides a more stable environment, which can reduce constructability issues and translate into higher quality workmanship. While this can offer a reduction in risk in some respects, offsite fabrication is not insulated from procurement and supply chain issues.  There can also be delays arising from pre-commissioning and commissioning activities carried out offsite.
• Installation issues: as noted above, a key characteristic of a SMR is that they are fabricated off site, and then subsequently transported to site for assembly, installation and integration with the existing equipment.  On site installation can still be affected by weather, adverse ground conditions and other typical construction issues. Installation also poses practical challenges, including interface management, precise alignment of modules, complex integration of various systems, and commissioning of the modules once installed. 
• Regulator issues: There are various regulatory frameworks within which these projects are constructed. At the international level, nuclear energy is governed via numerous conventions, including the Convention on Nuclear Safety and the Vienna Convention on Civil Liability for Nuclear Damage. In the UK, the relevant statutory instruments include Part 3 of the Energy Act 2013 (which established the Office for Nuclear Regulation) and the Nuclear Installations Act 1965. These instruments raise critical legal considerations around risk allocation and liabilities within construction contracts – for example, the interaction between regulatory requirements for SMR operation and contractual terms providing for partial taking over and the transfer of care and custody of parts of the plant.  Understanding national laws as they pertain to nuclear activities is crucial in managing these risks. 

These issues can all lead to cost overruns and delay, which, if left unresolved, are likely to evolve into disputes. An example of this is the NuScale's Carbon Free Power Project in the United States, where the estimated costs of the project rose from approximately USD 3 billion to over USD 9 billion, ultimately leading to the project being cancelled. Contracts must be drafted clearly and carefully to ensure risks are managed in a way that protects principals at the same time as offering appropriate commercial incentives for contractors.

Dispute Resolution Mechanisms

As noted above, claims and disputes on SMR projects are unavoidable, similarly to any construction or energy project. The scope and complexity of these projects requires well thought out dispute resolution processes. 

There are a range of processes which can be used for the effective resolution of construction disputes arising on SMR projects, including the following: 

• Dispute Avoidance Boards: Dispute Avoidance Boards (DABs) are often used by parties to construction contracts to assist with early dispute prevention and resolution of disputes (particularly in the context of FIDIC and NEC contracts, which include DABs as part of the standard form dispute resolution process). The ability to appoint members to DABs with particular expertise and knowledge means that they could be very valuable in the context of nuclear projects. However, standing DABs are only helpful to the extent that parties use the appointed DAB throughout the life of the project (such as undertaking regular site visits and providing their advice and opinion on certain aspects of the project) to ensure that they are able to provide informed decisions when required when disputes do arise, as opposed to an ad hoc DAB that is established only when a specific disputes arises. An important consideration is whether obtaining a DAB decision should be a pre-condition to proceeding with other forms of dispute resolution such as, for example, arbitration. 
• Adjudication: In the UK, adjudication has long been a popular choice for parties to construction disputes due to its mandatory nature, but also because it can offer a quick and efficient resolution of disputes. Section 105(2) of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act) sets out a number of exceptions for certain operations which are not considered "construction operations" for the purposes of the Construction Act, and therefore are not subject to statutory adjudication. In particular, section 105(2)(c) provides an exception for disputes arising out of the assembly, installation or demolition of plant or machinery with respect to nuclear processing and/or power generation. It is likely that certain disputes involving SMRs might fall within this exemption, and so statutory adjudication in accordance with the Construction Act could not be used by the parties for resolving the dispute. However, the exemption in section 105(2)(c) is not all-encompassing (i.e., it only covers the "assembly, installation or demolition of plant and machinery or the erection or demolition of steelwork") and so disputes arising from other construction or delivery activities of SMRs may fall outside the exemption. In any event, the parties would still be able to agree to contractual adjudication. 
• Expert determination: Expert determination can also provide parties with a relatively quick, efficient and flexible route to resolving disputes, but is generally more suitable for issues of a discrete technical nature. An expert can be selected by both parties for their specific knowledge, which can be useful in the context of projects involving nuclear power where technical issues can frequently arise. However, there are certain limits to the expert determination process, including enforceability (i.e., there is no legal framework supporting the enforcement of an expert's determination in the way that a party can enforce an adjudicator's decision), limited grounds for appeal even where the expert’s decision contains errors, and general unsuitability for complex disputes involving multiple parties and complex legal and factual issues.
• Arbitration: Arbitration can be an attractive final and binding dispute resolution process for nuclear projects because it is inherently confidential and generally results in a faster determination of the issues in dispute than litigation, to the extent that there are limited avenues of appeal. Other advantages include greater flexibility in process and the ability to appoint an arbitrator or arbitrators who are experienced and knowledgeable in nuclear energy. Additionally, over 170 countries are signatories to the New York Convention, which means that parties to an arbitration are provided with legal certainty when looking to enforce an arbitral award in many jurisdictions. This includes a reduced risk of local courts refusing to enforce awards and limited grounds for the courts refusing enforcement of the award.

Conclusion

The deployment of SMRs presents a promising yet complex opportunity for the UK's energy strategy. As highlighted, SMRs offer numerous potential benefits, including enhanced safety features, reduced capital costs, and flexibility in deployment. However, the procurement and construction phases involve unique challenges and risks that necessitate careful legal consideration. The novelty of SMR designs, offsite fabrication issues, and regulatory frameworks are critical factors that must be addressed to mitigate potential cost overruns and delays. The use of effective and appropriate dispute resolution mechanisms, whether DABs and/or arbitration, will be essential to manage conflicts that may arise. By understanding and navigating these complexities, stakeholders can contribute to the successful integration of SMRs into the UK's energy landscape, ultimately supporting the nation's net-zero goals by 2050. 

1. https://assets.publishing.service.gov.uk/media/6853c5db99b009dcdcb73649/UK_Infrastructure_A_10_Year_Strategy_Web_Accessible.pdf 

2. https://assets.publishing.service.gov.uk/media/6853c5db99b009dcdcb73649/UK_Infrastructure_A_10_Year_Strategy_Web_Accessible.pdf, paragraph 4.28

3. https://www.gov.uk/government/news/rolls-royce-smr-selected-to-build-small-modular-nuclear-reactors