The Department for Transport was warned that awarding a contract to Seaborne Freight to run extra ferry services across the Channel in the event of a no-deal Brexit would entail “significant risks”, a National Audit Office report has revealed.
A review by the spending watchdog also showed that DfT only received three bids for the ferry contracts, and that two out of the three operators that won contracts did not meet the department’s own criteria for bids.
The revelations were made in a memo to the Public Accounts Committee, which also disclosed that no formal assessment of Seaborne’s financial stability had been carried out.
The memo was published yesterday, just days after DfT scrapped its contract with Seaborne after the company’s main financial backer pulled out.
Mott MacDonald flagged “significant execution risks” in its assessment of Seaborne Freight’s bid for the DfT contract last year, the NAO said. The engineering consultancy was commissioned to provide “comfort to the department” that operators had the required technical capacity to run additional ferry services.
The department deemed Seaborne Freight a “high risk proposition” because, among other reasons, the company owned no ships – a fact that has prompted widespread derision of the procurement process.
Despite these findings, Seaborne was handed a contract in December worth £13.8m to run ferry services from the port of Ramsgate to transport goods in a no-deal Brexit scenario. Brittany Ferries and DFDS, which won contracts worth a total of £89m, both passed the technical assessment.
Mott MacDonald was one of three companies that carried out checks on operators bidding for the contracts in December. DfT spent £800,000 on these consultancy services, the note said.
The advisory firm Deloitte examined operators’ profitability, solvency and other measures of financial robustness. However, it said it lacked the information needed to carry out the standard tests on Seaborne because the company had only been incorporated in April 2017.
The law firm Slaughter and May assessed how the contracts dealt with commercial and legal risks, and carried out background checks on the three bidders. Seaborne Freight passed its “basic ‘blush’ test”, which was based on director searches and its filing history with Companies House.
DfT’s own assessment found that two of the three bids it received – all of which were ultimately successful – did not comply with the requirements it had set out in its invitation to tender. Seaborne failed because it was a new operator without a significant financial history, and DFDS because its bid did not include all of its costs.
“The department, considering the information it held on the bidders and the due diligence it had undertaken, decided to award contracts to all three bidders,” the NAO report said.
It said DfT’s accounting officer had judged the need for additional ferry capacity to be sufficiently pressing to justify awarding contracts. The officer concluded that failing to act could threaten access to critical goods in a no-deal scenario, and judged that the department had taken “reasonable measures” to ensure value for money.
Between the devil and the deep blue sea
The NAO report lays bare the limited choice facing the department when awarding the contracts. Having used emergency powers to skip an open tender process, DfT invited nine operators to bid for contracts but received only three bids.
The department had expected that enough companies would come forward to transport the equivalent of 25% of the goods usually shipped across the channel. Its final contracts only accounted for 11%.
“The department informed us that by early December operators were reacting to the increased risk of no deal and were less willing to provide more UK freight services,” the NAO said.
DfT’s objectives for its contingency planning, set last November, are to minimise the economic impact of a no-deal scenario and secure extra capacity allowing e it to prioritise the movement of particular goods.
When the procurement process closed in December, little more than three months before the UK was set to leave the EU, the department was left with few options to fulfil these objectives, the NAO report showed.
By this point, the government had estimated that in a worst-case scenario, the normal flow of goods across the Channel could be reduced by up to 87%.
The UK relies on these crossings to obtain time-critical products such as perishable goods, medicines and manufacturing components used in just-in-time supply chains, the NAO said. Nearly a quarter of goods travelling between the UK and EU – 22% – are transported via the Port of Dover and the Channel on ‘roll-on, roll off’ ferries.
In a bid to mitigate the risks of working with Seaborne Ferries, DfT added extra protections to the Seaborne contract. Conditions included several milestones that would enable it to track how work was progressing, and that the services would begin at the end of April rather than March, which the department deemed “more manageable and lower risk”.
CSW has approached DfT for comment.