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Covanta wins injunction against award of £1 billion waste project?

Scotland
01.10.2013
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On 26 September, the High Court delivered its judgment on Covanta's claim for an interim injunction to prevent Merseyside Waste Disposal Authority (MWDA) from awarding a major waste disposal contract to SITA.

The judgment, in which the Hon. Mr. Justice Coulson grants the injunction, highlights some important issues both for authorities and for any unsuccessful bidders when conducting major procurement projects. In particular, it highlights that where there is a serious issue to be tried, as was conceded by MWDA in this case, it is very unlikely that damages will be considered an adequate remedy and that further delay to an already lengthy process is unlikely to weigh heavily in the balance of convenience as to whether the award of the contract should be stalled further pending resolution of the challenge.

Key Facts

MWDA is a statutory waste disposal authority;
between July 2006 and April 2013, MWDA carried out a procurement process under competitive dialogue for a proposed 30-35 year Resource Recovery Contract with an estimated value in excess of £1 billion;
between December 2009 and June 2012 only two tenderers were involved in further dialogue following down-selection after evaluation of detailed solutions;
the deadline for final tenders was 22 June 2012;
in April 2013, MWDA announced their intention to award the contract to the successful bidder, SITA;
in their debriefing Covanta were told they scored better than SITA on the "financial criteria", but that they had been scored 0% for both the "legal and contractual" and "overall integrity" criteria (those aspects of their final tender being "fundamentally unacceptable"); and
on 15 May 2013, Covanta commenced proceedings against MWDA - as part of those proceedings, Covanta sought an interim injunction to restrain MWDA from entering into a contract with SITA.


Judgment

As the procurement was commenced prior to the implementation of the Remedies Directive, Mr. Justice Coulson applied the standard American Cyanamid test and did not treat the hearing as one for the lifting of automatic suspension (which it would have had to do if the procurement had been commenced after 20 December 2009).



Considering the arguments of the parties he addressed the three legal tests as follows:


1.
 Is there a serious issue to be tried?

This had been conceded by MWDA and Mr Justice Coulson noted that:
'It may seem, at least at first sight, a curious result that six years of procurement process (including two and a half years of intensive dialogue between authority and tenderer) can lead to the authority’s rejection of important aspects of that tender in so firm a manner as occurred here. That suggests that something, somewhere, went very wrong with the tender process. Of course, the issue as to what that was, and the nature of any and all warnings given by MWDA during the process, about the matters to which they ultimately objected, can only be resolved at the trial.' (para. 37)

He noted further that a key argument for MWDA at trial would be limitation (time-bar) and the argument that Covanta had known, or at least ought to have known, that aspects of its bid would be fundamentally unacceptable to MWDA when it came to evaluating the final tenders. The argument would be that time had been running on the limitation period before final tenders were even submitted. Any challenge on that ground would therefore now be out of time (proceedings only having been raised after Covanta was informed that it had not been appointed preferred bidder).
2. Would damages be an adequate remedy?

Having considered a number of the recent cases on this point, Mr. Justice Coulson concluded that the concept of the adequacy of damages has been modified so that the court must assess whether it is just, in all the circumstances, for the claimant to be confined to a remedy of damages.

In the context of projects such as these it would be very difficult to work out what Covanta's actual rate of return might have been. The court would also have to consider each of the alleged breaches of the rules and assess the extent to which they could have been considered to impact on each of the competing bids.
3. Balance of convenience?

Mr. Justice Coulson was not persuaded by MWDA's arguments:

a) that Covanta had now considerably reduced the scope of its UK operations following SITA being appointed preferred bidder for this contract - this amounted to MWDA relying on what Covanta alleges was MWDA's own failure to carry out the tender process properly.

b)
 That there would be significant implications were contract award to be further delayed - Mr. Justice Coulson concluded that an additional nine month delay until April/May 2014 was not significant in the context of a process that had already taken six years, there being no real explanation as to why there had been such significant delays in the process already (including 10 months between submission of final tenders and announcement of preferred bidder).

Also highlighted was that if an injunction was not granted and Covanta was successful at trial then Covanta's financial claim, with estimated loss of profit in the order of £160 million, would probably be larger than MWDA would be able to meet and would ultimately mean taxpayers having to pay for the service twice over.

Comment

Unless MWDA can show that Covanta were aware, or otherwise ought to have been aware, that their final tender would have been 'fundamentally unacceptable' it is difficult to understand why they have not conceded that the competitive dialogue they ran was defective. If the case does now proceed to trial we can expect some useful guidance as to the proper running of a competitive dialogue tender process.



Even if it does not proceed to trial, this interim judgment on the injunction will have serious ramifications for the way that authorities run a competitive dialogue. Across the various disciplines, authorities will need to be clear in their own minds what matters could lead to rejection of a tender. If there is any information received from bidders that would likely offend in respect of those matters then authorities will need to consider advising bidders before dialogue closes and make it clear that should bidders persist at final tender with those points then their tender could be rejected. Finally, there needs to be a proper record and authorities need to make sure that this information is conveyed to bidders in writing.


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