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Fear of litigation should not put off councils from waste procurement

Covanta’s announcement that it is to challenge the Merseyside Waste and Resource Authority’s decision to award its £1.2bn waste disposal contract to SITA has rightly made headlines but Eunomia’s Joe Papineschi says such legal action is the exception

Coming in the wake of Virgin Trains’ successful challenge to the West Coast Mainline franchise competition, it might lead you to think that public authorities routinely get into procurement disputes. Certainly, many of the local authorities I work with on waste procurement worry about litigation risk. But the reality is that the Covanta case is pretty exceptional, and procurement challenges in the waste sector remain rare.
Looking back over the last five years, Covanta’s is only the fifth high-profile case in which the fairly routine sound of sabre rattling has escalated into something more significant, the others being:

  • Morrisons against Norwich City Council (2009)
  • SITA against Greater Manchester Waste Disposal Authority (GMWDA) (2009)
  • Veolia against Thurrock Council (2010)
  • Natural World Products against Northern Ireland’s Southern Waste Management Partnership (SWaMP2008) (2012)

Of these, only the SWaMP2008 case actually resulted in a derailment of the procurement process. On legal advice the partnership decided to abandon its procurement rather than face the costs and uncertainty of legal action. Its position became difficult when the preferred bidder sought to add two new partners to the bid, who would become the main shareholders in the project - quite unusual circumstances.

Challenges are rare in part because contractors don’t like to be seen as litigious by potential clients.

Norwich was able to come to an agreement with Morrisons, although the fact that their chosen contractor Connaught subsequently went bust perhaps lent support to Morrisons’ contention that their bid was abnormally low. The other cases draw out interesting themes in the way that law and practice are developing in this field.

Challenges are rare in part because, although the stakes can be considerable, contractors don’t like to be seen as litigious by potential clients. I suspect that if they had a different outlook a lot more cases might be brought.

Veolia successfully obtained an injunction against Thurrock when the council opted to take its waste service in-house. But the company then decided that discretion was the better path and withdrew its challenge. The courts now allow automatic injunctions to prevent the award of a contract where there is a challenge, but having done so are loath to be implicated in causing spurious delay, so are more vigorous in ensuring that either a substantive case is made quickly or the injunction is lifted.

While the Covanta case may be causing some sleepless nights on Merseyside, local authorities should recognise the action for the exception it is

When SITA challenged the GMWDA’s award of a £4bn PFI waste disposal contract, it was so wary of reputational damage that a main board director wrote to every one of SITA’s local authority clients to reassure them that the action was quite exceptional. With nearly £100m damages at stake and a case sufficiently arguable to make it to court, it certainly wasn’t run of the mill.

In fact, SITA’s case (again, based on late changes to the preferred bid) was never decided on its merits. It was lost on a point of law, with the court ruling that it should have been brought within 3 months of GMWDA’s contract with Viridor Laing being signed, despite SITA’s argument that it did not have enough information at the time. Since 2011, the position has changed, and now most actions must be brought within 30 days of the date when the disgruntled bidder first knew, or ought to have known, of the breach.

These other cases show why the Covanta is so unusual. With the company looking to withdraw from the UK and obtain the best deal it can for its assets here, it can burn its bridges with impunity, knowing that the potential increase in the value of its portfolio if its Ince site remains in the running for the MWRA contract would fully justify its legal costs. So, while the case may be causing some sleepless nights on Merseyside, local authorities should recognise Covanta’s action for the exception it is.

Joe Papineschi, director, Eunomia Research & Consulting

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