Interserve's legal challenge to £2.8bn defence contracts dropped

Carillion’s joint venture with Amey was confirmed as the winner of three massive Ministry of Defence construction contracts after a legal challenge lodged by losing bidder Interserve to the contract award was dropped before it was heard in the High Court.

As Building first revealed in June, a joint venture between Carillion and Amey was awarded three Next Generation Estates Contracts (NGEC), which together are worth up to £2.8bn.

But that contract award was challenged in the High Court by losing bidder Interserve, which claimed that Carillion-Amey’s bid was “abnormally low”, “undeliverable” and that the competition for the work was not “fair”.

However, it is understood the case was dropped earlier this month, before it was heard in the High Court.

An Interserve spokesman said: “The legal challenge was resolved amicably between both parties.”

The legal challenge had prompted the Ministry of Defence’s estate arm, the Defence Infrastructure Organisation (DIO), to suspend the contract award process.

But last week, Carillion confirmed its JV with Amey had been awarded the three contracts: the £435m Regional Prime Central contract; the £265m Regional Prime South-west contract; and the £258m Regional Prime South-east contract.

The contracts are for five years, with the possibility of a five year extension and can rise up to 50% above the tender value depending on how much work is added to the programme - bringing the total value close to £1.4bn over five years and up to £2.8bn over 10 years.

However, this is significantly lower than the price stated in the original contract notice, which valued the three construction contracts up to £4.35bn (see box below).

In its defence, filed at the High Court and seen by Building, the DIO denied Interserve’s claims, saying that during the contract award process it was “assured as to the deliverability of Carillion-Amey’s tenders at the prices indicated”.

“There was no basis upon which the defendant could have rejected Carillion-Amey’s tender as being abnormally low,” the defence added.

The DIO’s defence added that Interserve’s bid was placed third in each of the contract races, and even had the Carillion-Amey bid been excluded, then Interserve “would still only have ranked second”.

The DIO this week declined to comment on the detail of the contract values or on Interserve’s legal challenge, other than to confirmed that the legal proceedings had “concluded”.

The latest three contract wins brings to five the number of NGEC contracts won by the Carillion-Amey JV after the firms won the Regional Prime Scotland and Northern Ireland and the National Prime Housing contracts earlier this year. The total value of the five contracts could be as much as £4.5bn.

Carillion chief executive Richard Howson, said: “[The] DIO set industry the challenge of providing added value to the military estate and by awarding us these five contracts providing UK wide coverage the offers we submitted have been recognised as generating demonstrable benefits.”

Mel Ewell, Amey chief executive, said: “This recent win allows us to add value by expanding the service, as well as sharing best practice and driving efficient ways of working across the defence estate.”