The National Audit Office has revealed that the permanent secretary of the Department for Transport warned that the ministry’s no-deal Brexit contracts were likely to face legal challenge before it reached a £33m settlement with Eurotunnel.
Last December, the department contracted two ferry companies to run extra crossings across the English Channel and the North Sea in the event of a no-deal Brexit to ensure the UK does not lose access to its supply of medicines and other critical goods. A third contract with Seaborne Freight, which owned no ferries, was scrapped after it emerged that the company would not be able to deliver the services it promised.
DfT invited only a handful of companies to participate in an emergency procurement procedure without an open tender, prompting Channel Tunnel freight operator Eurotunnel to take action against the department arguing that the contracts had been awarded in a distortive and anticompetitive manner. This led to DfT agreeing a £33m out-of-court settlement with the firm.
Now the National Audit Office has said DfT perm sec and accounting officer Bernadette Kelly warned there was a "high likelihood" of such a challenge over the contracts, and that it was likely to succeed.
In a memorandum produced for the Public Accounts Committee, the NAO said Kelly “weighed the risk of legal action against the risk of not securing additional capacity”.
The report said Kelly recognised the department was taking forward a “novel and exceptional proposition”, and a formal review of the project before the contacts were agreed concluded that a negotiated process without prior publication carried much greater legal risk than a more typical – but accelerated – procurement process. It said that if a challenge was raised it was likely to be successful.
“In October 2018, prior to initiating the procurement, the department had recognised that there would be a high risk of legal challenge to government intervention, including a risk that Eurotunnel might challenge its approach,” the NAO report stated.
Kelly’s review estimated that the cost of any legal remedies to the department would not exceed £20m.
“The accounting officer was aware that a successful challenge to the procurement could lead to delay or cancellation in the implementation of contracts, and that an alternative remedy to an injunction would be damages,” according to the NAO. “The department informed us that the accounting officer discussed the timing of a potential challenge with her advisers prior to the procurement decision, and was advised that a trial was unlikely to occur before 29 March 2019.”
The department assessed that it was unlikely to successfully defend a challenge to its procurement of freight capacity, according to the NAO.
“While the department had judged that it could argue its reason for proceeding was ‘extreme urgency’ it thought a court was unlikely to accept that this complied with regulation rules,” according to the briefing.
Although the department confirmed to CSW that the ferry services commenced on 29 March, with tickets for the first two weeks released for sale following the extension to the Brexit process, the two remaining ferry contracts have since been cancelled as the government reviews all its preparedness plans following an extension to the Article 50 exit process to October.