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Procurement in a nutshell – Government settles EnergySolutions procurement litigation

In a written ministerial statement of 27 March 2017, Energy Secretary Greg Clark announced the settlement of the damages claim which had been brought against the Nuclear Decommissioning Authority (NDA) by EnergySolutions and Bechtel.

In a previous update, we outlined the judicial note of caution sounded to CAs following the NDA’s flawed tender process.

This week’s post considers the further fall out from the litigation, reinforcing the lessons to be learned by CAs.

High Court – “fudged” tender process

EnergySolutions and Bechtel bid, as part of a consortium, for a £6.1 billion contract to decommission the UK’s Magnox reactors.

Following the evaluation exercise, the contract was awarded to Cavendish Fluor Partnership (Cavendish) by a margin of 1.06% in the scores.

EnergySolutions and Bechtel claimed damages for the way in which the NDA ran the procurement process.

An extremely detailed judgment of the High Court established the liability of the NDA for what was described as a “flawed” procurement exercise which amounted to “manifest error” on the part of the NDA, involving the manipulation of the scoring system and the deliberate destruction of notes pertaining to the evaluation exercise.

Supreme Court appeal

Prior to the settlement announcement, the Supreme Court had heard the NDA’s appeal. It issued its judgment on 11 April 2017.

The judgment answered interesting questions concerning the entitlement of claimants to receive damages, which we will consider in next week’s update.

The Supreme Court’s decision would not have been in the NDA’s favour, making it likely that the settlement decision is much less of a blow than if the level of damages had been determined by the court.

Costly settlement

A settlement payment was reached between the NDA and EnergySolutions of £76.5 million plus £8.5 million of costs. The NDA agreed a settlement payment, including costs, of approximately £12.5 million with Bechtel.

As further fall-out from the case, the NDA has decided to terminate its contract with Cavendish in September 2019, only five years into the original 14 year term.

It has been reported that, despite agreeing to the termination, this will make a dent in the annual revenue of Babcock International Group – the parent company of Cavendish – of £100 million in 2020/21.

Independent inquiry

An independent inquiry has been established by the Department for Business, Energy and Industrial Strategy to investigate what went wrong in the procurement process, as well as how matters were handled by the NDA during the original complaint by EnergySolutions and in the subsequent litigation.

The inquiry’s terms of reference indicate that some individuals may pay a price professionally, with the remit of the inquiry including recommendations as to whether any disciplinary proceedings should be initiated.

Why is this important?

This procurement challenge provides a clear example to CAs of how costly the impact can be where procurement exercises are affected by unlawful conduct. It also serves as a reminder of the potential reputational damage which can result.

The negative publicity garnered in such circumstances might affect the ability of CAs to attract the participation of strong competition in its procurement exercises and, in turn, hamper the provision of high quality in its provision of public services.

How can I find out more?

If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

This page may contain links that direct you to third party websites. We have no control over and are not responsible for the content, use by you or availability of those third party websites, for any products or services you buy through those sites or for the treatment of any personal information you provide to the third party.

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