The Government has paid out £33m to settle a high court case with Eurotunnel over the Seaborne Freight ferry fiasco.
Eurotunnel was suing the Government following the award of contracts to Seaborne Freight - a 'start-up' UK company with no ships - and two other firms in a behind the scenes deal that took shortcuts on Government procurement.
The out-of-court settlement is combined with a deal with Eurotunnel to provide freight capacity for transit of medical supplies in the absence of a Brexit deal.
In a statement, the Government said: 'As part of the agreement, Eurotunnel has also withdrawn its legal claim against the government, protecting the vital freight capacity that the Government has purchased from DFDS and Brittany Ferries.'
Eurotunnel argued that the Government had breached public procurement rules by not putting the contracts out to tender. A Freedom of Information disclosure to Transport Network revealed that the DfT had also bypassed its own procurement processes.
Transport secretary Chris Grayling has repeatedly refused to reveal the legal advice behind the decision to keep the contract negotiations behind closed doors.
Under the original plans, the DfT hoped to secure extra ferry capacity in the event of a 'no-deal Brexit' to help keep vital supplies flowing including medicines.
Two well established ferry companies, DFDS and Brittany Ferries, were awarded contracts worth close to £100m, while Seaborne Freight was awarded a £13.8m contract paid out in event of the DfT using it's would-be capacity.
The Seaborne Freight contract subsequently had to be terminated after its Irish backers pulled out.
Mr Grayling, said in a statement: 'The agreement with Eurotunnel secures the government’s additional freight capacity, helping ensure that the NHS has essential medicines in the event of a no-deal Brexit.
'While it is disappointing that Eurotunnel chose to take legal action on contracts in place to ensure the smooth supply of vital medicines, I am pleased that this agreement will ensure the Channel tunnel is ready for a post-Brexit world.'
Details of a fiasco
A report from the National Audit Office lays bare the compromised nature of the procurement process behind the Seaborne Freight failure and wider ferry deals.
The NAO report shows that after failing to plan for the danger to disrupted freight capacity at southern ports in the event of no deal Brexit, the Government acted too late, failed to secure enough ferry capacity and took a high risk in commissioning Seaborne Freight.
The DfT spent approximately £800,000 on its external consultants: Slaughter & May; Deloitte; and Mott MacDonald over the deals.
It also would have had to supply up to £3m to Thanet Council to ensure Ramsgate could be operational, if the Seaborne Freight contract had gone ahead.
And the Government could still be on the hook for millions of early termination payments to Brittany Ferries and DFDS.
'The maximum early termination charge the Department would pay, which is if it cancelled all contracts ahead of 29 March 2019, is £56.6m,' the NAO said and despite the process being based around contingency planning, 'there is no provision for the start date to be delayed'.
On top of this, the DfT was required to fill up to 87% of the capacity needed for short crossings in the channel under a worst case scenario for disruption, the DfT only hoped to secure 25% and only managed to secure 11%.
Around 22% of goods travelling between the UK and the EU are transported by lorry on ‘roll-on roll-off’ (RORO) services through these short crossings of Port of Dover and the Channel Tunnel. This movement accounts for 89% of all UK RORO traffic.
These Channel crossings are 'relied on for the movement of time critical products such as perishable goods, medicines and manufacturing components used in just-in-time supply chains' the NAO said.
Countdown to failure
As late as July 2018, securing additional freight capacity was not one of the Department’s EU Exit projects.
In October 2018, the Government agreed a revised worst-case assumption that normal flow of goods could be reduced by up to 87% across the short Channel crossings, with the most severe disruption lasting for up to six months. The previous worst-case assumption had been significant disruption for around six weeks.
In November 2018, the DfT estimated the total cost to the UK economy of six months’ disruption without intervention would be £5.25 bn, while the benefit of its planned intervention would be around £1.3bn, at a total cost to government of £270m.'
The DfT approached nine companies but only the three successful firms put in bids - lower than expected.
These bids didn't come in until 14 December despite the DfT estimating that 'the lead time for new ferry services was three to four months'. In Ramsgate, 'putting in place what the Border Force requires at the port has a 14-week lead time'.
A sub-committee was used 'to make the investment decision due to the shortened timescales for approval' the NAO said.
Not only was the availability of ferry capacity on the global market diminishing, but also by this point the fears of no deal Brexit put more of a premium on the capacity DfT was buying.
The Department initially planned to purchase 20% of the additional capacity on routes. In the final contracts this was increased to:
• 83% for routes operated by Brittany Ferries (Bretagne Angleterre Irlande S.A.);
• 100% for routes operated by DFDS (DFDS A/S); and
• 50% for routes operated by Seaborne (Seaborne Freight (UK) Ltd).
Together the agreed routes provide extra freight capacity of around 11% of normal flows across the short straits. This fell short of what the Department expected to achieve through the procurement process. - around 25% was expected, the NAO found.