A £6 billion contract to decommission 12 redundant Magnox nuclear power sites has been scrapped and a government inquiry announced into its "flawed" tendering process.
The 14-year contract with Cavendish Fluor Partnership - a joint venture between Britain's Cavendish Nuclear and US company Fluor - was awarded in 2014 for the management and decommissioning of the UK's first fleet of nuclear power stations.
Energy Secretary Greg Clark said there was a "significant mismatch" between work specified when it went out to tender in 2012 and the work that actually needed to be done.
The scale of additional work was such that the Nuclear Decommissioning Authority (NDA) considered it would amount to a material change to the specification on which bidders were invited to tender, said the minister.
It was also revealed that the NDA has agreed to pay more than £100 million to settle outstanding litigation claims by Energy Solutions and Bechtel over the original contract award.
Mr Clark said: "While these settlements were made without admission of liability on either side, it is clear that this 2012 tender process, which was for a value of up to £6.1 billion, was flawed.
"The NDA has agreed settlement payments with Energy Solutions of £76.5 million, plus £8.5 million of costs, and with Bechtel of 14.8 million US dollars, plus costs of around £462,000 – approximately £12.5 million in total.
"These are very substantial costs and had the potential to rise much further if the case had proceeded to trial.
"I am therefore establishing today an independent inquiry into the conduct of the 2012 procurement process and the reasons why the 2014 contract proved unsustainable."
Mike Clancy, general secretary of the Prospect union, said: "This is an extraordinary situation given the scale and importance of the Magnox contract to the UK nuclear industry.
"The public, and our members, will want reassurance that the termination process and uncertainty over the future of decommissioning will not lead to standards deteriorating or the loss of UK expertise."
Unite national officer Kevin Coyne said: "The whole contract process has been deeply flawed from the very start. This was highlighted by the High Court case which ruled that the NDA had failed to treat all bidders the same when it awarded the 2014 contract to clean up the Magnox reactors
"As a result, failed bidders EnergySolutions and Bechtel now stand to be awarded almost £100 million in compensation – a bill that the long-suffering taxpayer will have to pick up.
"The other big losers will be the workforce which faces a reduction in their pension entitlements.
"Unite is currently consulting its 3,000 NDA members on a new pension package which will 'save' the Treasury £320 million – ironically, the compensation payments of nearly £100 million will eat up nearly a third of that sum.
"The workers will have reduced pension entitlements and other benefits because of this financial mess."