DfT warned of high legal risk ahead of Brexit ferry contracts

The UK Department for Transport (DfT) was warned there was a “high likelihood” of a legal challenge before it embarked on an accelerated procurement process to commission extra ferry freight capacity for a no-deal Brexit, according to the National Audit Office (NAO).

In a report the NAO said advice from an accounting officer declared “if a procurement challenge was raised it was likely to be successful”.

In the event there was such a legal challenge from Eurotunnel, which was settled out of court with a £33m payment to Eurotunnel.

The NAO said the DfT’s procurement of additional freight capacity took 23 days, from invitation to tender (ITT) to signing contracts, compared to an estimated minimum time of 45 days had there been public notification of the procurement. The DfT approached nine operators under non-disclosure agreements, who were then issued with ITTs. Three bids were received. The contracts have since been cancelled.

The report said the DfT was advised a trial associated with a legal challenge was not likely to occur before 29 March 2019 – the original Brexit date – which would mean it would take place either when an exit deal had been agreed, and the extra ferry capacity would have been cancelled already, or a no-deal Brexit had taken place.

In this scenario there would be an urgent need for capacity and the DfT thought it unlikely a court would cancel the contracts. The DfT calculated its financial losses associated with remedies to a legal challenge would be no more than £20m.

In the event the court agreed for a trial to begin on 1 March, following requests by Eurotunnel for an expedited trial, which “significantly altered the department’s assessment of the risks it faced”.

The NAO said the DfT, faced with the risk of the contracts being cancelled ahead of Brexit and not enough time to procure extra freight capacity that did not also risk legal challenge, decided to settle with Eurotunnel.

In agreeing the £33m settlement, the DfT had estimated that finding extra ferry and air freight capacity, alongside the use of military vessels, would cost between £40m and £97m. Eurotunnel’s claim for damages amounted to around £80m. Both sides agreed to pay their own costs, and the DfT’s legal costs were £1m.

“The accounting officer judged that the risk of a court issuing a declaration of ineffectiveness was too great given the potential consequences for the ability of government to move critical goods in the event of a no deal exit, given the approach agreed by ministers including ensuring the unhindered supply of ‘category one’ goods including medical supplies into the UK,” said the NAO.

Separately, P&O Ferries has launched legal proceedings against the DfT’s settlement with Eurotunnel.

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