Judgement on Covanta injunction published

Artist’s impression of SITA’s Teesside facility

The full judgement outlining a judge’s decision to grant incineration specialist Covanta an injunction preventing the Merseyside Waste Disposal Authority (MWDA) from entering into its resource recovery contract with rival firm SITA, has been published.

On 26 September, Judge Coulson granted Covanta an injunction preventing MWDA from entering into its contract with SITA, until a judicial review hearing had taken place.

The case came about after the MWDA (the statutory name of the Merseyside Recycling and Waste Authority (MRWA)) chose SITA SEMBCORP UK (SITA) – a consortium led by SITA UK – as preferred bidder for the 30-year Merseyside and Halton Waste Resource and Recovery Contract in April 2013.

The SITA bid included the construction of an energy-from-waste (EfW) incineration facility, comprising a plant capable of producing combined heat and power (CHP), at the Wilton International site in Teesside. 

Legal challenge

However, rival EfW company Covanta UK, the UK arm of American firm Covanta, lodged a legal challenge against the MRWA over its decision to award preferred bidder status to SITA SEMBCORP UK.

The legal challenge submitted by Covanta’s lawyers to the High Court in Leeds outlined concerns with MRWA’s decision process, saying it was ‘flawed’ and did not take into consideration the economic savings of the Covanta bid. Further, Covanta claimed that its bid – to build an incineration facility with Peel Environment (a subsidiary of the Peel Group) – was £200 million cheaper than the winning bid, and would offer better value to the local area, as the facility was to be built in Ellesmere Port. Indeed, in MWDA’s tender analysis for the financial criteria, which accounted for 40 per cent of the total score, Covanta scored 17.85 per cent against SITA’s 11.33 per cent.

Covanta had previously announced that due to its failure to obtain the contract, the UK-arm of the company would have to secure a buyer or partner to take over its operations or face making the ‘majority’ of its staff redundant. The company has said that its loss of profit is in the order of £160 million.

Judgement decision

At the High Court hearing last month, Judge Coulson ruled in Covanta's favour and granted an injunction preventing MWDA from entering into its contract with SITA until there has been a trial to hear Covanta's claim that the procurement process was legally flawed.

Speaking at court, Justice Coulson said that MWDA had properly accepted ‘for the purposes of the injunction application’ that Covanta's claim raised ‘serious issues to be tried’.

Specifically, Coulson pointed to the fact that MWDA’s tender evaluation had scored Covanta’s bid at zero per cent under both ‘legal and contractual’ and its ‘overall integrity’ criteria. Covanta alleged that ‘manifest errors’ occurred in the scoring of its tender and that, during six years of competitive dialogue, MWDA had failed to inform the company that important aspects of its tender were ‘fundamentally unacceptable’, and MWDA was thus in breach of its ‘duty to act transparently’.

In the full judgement document, Coulson said: “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.”

He went on to outline the arguments in favour of granting an injunction:

• ‘it is in the public interest that authorities such as MWDA comply with procurement legislation’;
•  due to Covanta’s business being directly affected by missing out on the contract, ‘damages [alone] would not be an adequate remedy’, and would likely see MWDA ‘customers’, largely taxpayers, having to pay; and
•  if Covanta did not obtain an injunction but were successful at trial, its financial claim would likely be ‘considerable’, and ‘much larger than MWDA have the resources to meet’.

He continued to judge that it was ‘unsurprising’ that Covanta had reduced its costs and overheads as a consequence of not getting ‘this major contract’, but as it was ‘ready and able’ to deliver the contract (should it be awarded to the company after any review), it did not ‘seem to be a point that MWDA [could] rely on as a factor in their favour on the balance of convenience’.

Injunction ‘involves the least risk of injustice’

Coulson concluded that as the procurement had ‘already taken six or seven years’, the delay caused by an injunction would only have a ‘modest’ impact on the environment. He added that although a delay could have an ‘adverse’ effect on SITA, the company officials had outlined that ‘whatever happens, they currently remain willing and keen to carry out this large contract’.

He said: “I consider that, whilst the environmental impact is plainly a factor to be taken into account in the balance of convenience, it does not alter my view that, in the round, a delay of nine months in the context of all the circumstances of this case does not support the refusal of the interim injunction and is, in the round, a further factor in favour of granting the injunction.

“I consider that the factors in favour of granting the injunction outweigh the factors in favour of refusing it. To put it another way, granting an injunction for what is a relatively short time in the context of this case, involves the least risk of injustice. Subject therefore to the provision of the guarantee in respect of the cross-undertaking in damages, I would grant Covanta the injunction sought.”

The trial is expected to be heard in the Rolls Building in late April/May 2014, with a judgement ‘about the end of June’.

Fiona Penhallurick, Managing Director, Covanta UK, said: “We are delighted that the judge found in favour of Covanta in granting the injunction against MWDA …

“The judgment also highlights how incomprehensible it is that after six years, and hours of dialogue with MWDA during the tendering process, two elements of our bid out of a total of five were scored at 0 per cent. The whole point of the competitive dialogue process is to ensure that the authority ends up with a choice between two excellent bids. We invested considerable time, money and effort in seeking to ensure we offered a bid that was intended to be not just acceptable but very attractive to MWDA.

“Our case is that MWDA went through the whole process without informing us that elements of our bid were not compliant. As a result we believe that this has delivered the people of Merseyside a less economic and less beneficial outcome.”

Overcapacity

The news comes amidst growing concern about residual waste treatment overcapacity in the UK, specifically of the mass-burn proposed by Covanta and SITA. In June, Defra withdrew £217.1 million of PFI funding for three incinerators, including the Merseyside Waste and Recycling Authority’s project, saying: “We now expect to have sufficient infrastructure in England to enable the UK to meet the EU target of reducing waste sent to landfill.”

Further, a 2012 report by waste management consultancy Eunomia claimed the UK could see ‘overcapacity of 6.9 million tonnes per annum’ by 2015/16, while the Global Alliance for Incinerator Alternatives (GAIA) has warned that some EU states, including the UK, have the capacity to burn ‘more than the non-recyclable waste generated’.

Read the full written judgment.