The big case of 2013: Covanta v Merseyside Waste Disposal Authority

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The High Court’s decision [1] in October to grant Covanta an injunction suspending the procurement of a long-term high-value waste disposal contract could mark a turning point for procurement challenges in the UK. Up until now, the courts have been loathe to grant injunctions, instead preferring to award damages to the unsuccessful bidder. The Covanta case may signify a change in approach, or it may be a one-off decision dependant on its particular facts.

The facts were not that unusual. In 2006 Merseyside Waste Disposal Authority (MWDA) began a procurement process for a new waste disposal facility. The contract is expected to last 30-35 years and cost over £1 billion. Seven years of competitive dialogue later, MWDA appointed SITA as its preferred bidder. Covanta, the unsuccessful bidder, were surprised to find out that, despite over six years of competitive dialogue, MWDA had given two out of the five key elements of Covanta’s tender zero marks and described them as “fundamentally unacceptable”. Covanta claimed that there were manifest errors in the procurement process and sought an injunction to prevent MWDA entering into the contract with SITA.

The procurement had been going on so long that the applicable rules were not Regulation 47G of the Public Contracts Regulations 2006 (as amended) (the automatic suspension remedy), but the usual American Cyanamid principles (named after the case that first set them out) for granting an injunction. In reality, the two sets of rules are similar so the same test applies. Under the general American Cyanamid principles, when deciding whether or not to grant an injunction the court must consider:

  • If there is a real issue to be tried (normally there will be, but of course remember there is a very short time period to bring a claim – 30 days from when the claimant knew or ought to have known of the relevant breach of the procurement rules)
  • If damages are an adequate remedy
  • Whether the balance of convenience lays in favour of granting or refusing the injunction.

The first limb was satisfied but the second two were not. The court decided that damages were not an adequate remedy for either party, but particularly not for Covanta, as it was too difficult to quantify Covanta’s loss due to the numerous breaches that Covanta were alleging.

The balance of convenience lay in favour of granting the injunction, because the procurement was a major contract involving a large sum of money and it was in the public interest to make sure that public authorities comply with procurement legislation. In this case, a further delay of seven to nine months (which is the expected timescale for an expedited hearing of the case to take place) would have a “modest” impact in the context of a seven-year procurement process and the fact that the contract was for 30-35 years. Interestingly, the court also said that if it did not grant an injunction, so that the contract was awarded to SITA, but Covanta successfully challenged the award at trial, MWDA would not have the resources to meet Covanta’s claim, putting more burden on tax payers.

So, in this case, a long, complex, procurement and a high-value contract meant that an injunction was granted. This might be the exception to the rule, but Covanta took a gamble and it paid off. They have now reached a confidential settlement with MWDA.

This case is a warning for local authorities embroiled in long and complex procurements that the appointment of a preferred bidder might not be the end of the process and that the risk of an injunction being granted may now be higher. The moral of the story is, as ever, to be as transparent as possible about the evaluation process so that any potential claims can be flushed out at the earliest stage, avoiding the authority being held to ransom over the threat of an injunction from an unsuccessful bidder.

[1] Covanta Energy Ltd v Merseyside Waste Disposal Authority [2013] EWHC 2922 (TCC) (Covanta)