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. 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 that come to mind are:
- Morrisons against Norwich City Council (2009)
- SITA against Greater Manchester Waste Disposal Authority (GMWDA) (2009-11)
- Veolia against Thurrock Council (2010)
- Natural World Products against Northern Ireland’s Southern Waste Management Partnership (SWaMP2008) (2012)
Procurement swamp
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. You can understand their thinking: the position had certainly become difficult when the preferred bidder, Quinn Group Limited sought to add two new partners to the bid, who would become the main shareholders in the project, and to substitute in a related company, Quinn Manufacturing Group Limited, to take its own place. These were certainly quite unusual circumstances, and ones which could easily have swayed a court to see the change as an unlawful improvement to the bid.
The Norwich case never came to court, and did not delay the start of the substantial integrated services contract, which covered council housing repair and grounds maintenance as well as waste. The challenge was specifically related to the waste element of the contract, but Morrisons’ threat to seek an injunction was lifted when the company reached an agreement with the council. The chosen contractor, Connaught, subsequently went into administration, giving Norwich the headaches of dealing with local job losses and finding new contractors in short order. This might perhaps give credence to Morrisons’ contention that Connaught’s waste bid was abnormally low.
Limited briefs: legal action in waste procurements remains rarer than you might think. Photo from Nordisk familjebok, via Wikimedia Commons
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, without its substantive arguments being heard. 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.
Limited appeal
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 also never decided on its merits. It was finally lost in 2011 on a point of law, when the High Court dismissed the company’s appeal, agreeing with a 2010 ruling that the case should have been brought within 3 months of GMWDA’s contract with Viridor Laing being signed. SITA’s argument was that this limit should be extended as it did not have enough information at the relevant time. Interestingly, since 2011 the position has changed: 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, in response to a European Court ruling that it was unlawful to base time limits on the date when a contract is signed.
These other cases highlight why the Covanta challenge is so unusual. Covanta is in the rare position of having already decided to withdraw from the UK and is interested only in obtaining the best return it can for its assets here. It can therefore burn its bridges with potential UK clients with impunity. No doubt, this has helped it to reach the decision to launch its challenge in a timely way, as has the scale of the prize on offer. The potential increase in the value of its portfolio if its Ince site remains in the running for the MWRA contract would fully justify the risk of any legal costs.
However, Covanta’s circumstances are very different from those facing other waste contractors. No matter how disgruntled they may be with a particular decision, the reputational and legal risks of a challenge seem typically to outweigh the potential benefits in all but the most cut and dried cases. So, while the case may be causing some sleepless nights on Merseyside, local authorities should comfort themselves that legal challenges to basically well-organised procurements remain unlikely – and should recognise Covanta’s action for the exception it is.
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