The Department for Transport has agreed to pay £33m to Eurotunnel over the ministry’s bungled no-deal Brexit ferry contract.
Ministers agreed the out-of-court settlement after being sued by the Channel Tunnel operator, which accused them of handing out “secretive” contracts.
In December, DfT awarded contracts worth £108m to three ferry companies in a bid to expand lorry freight capacity in the event of a no-deal Brexit.
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However, it was left embarrassed after it emerged one of the firms, Seaborne Freight, had no experience of operating ferries and owned no ships.
The £13.8m agreement was scrapped earlier this month after the department admitted the firm would “not reach its contractual requirements”.
Eurotunnel argued that the contracts, which had been awarded under emergency procurement procedures without an open tender, had been awarded in a distortive and anticompetitive manner and in breach of public procurement law.
DfT said its "accelerated procurement process" was justified because of the extreme urgency of the situation when it became apparent that the UK could leave the EU without a withdrawal agreement.
But Eurotunnel argued this defence could not apply because the date of the UK's departure from the bloc was decided two years ago when Article 50 was invoked on 29 March 2017. It said the situation's urgency was down to DfT's failure to plan for a no-deal Brexit in time to sign the contracts under normal rules.
DfT and the train operator have now reached an out-of-court deal, in which Eurotunnel also committed to improving security and traffic flowon its services to transport medicines and other vital goods to the UK in the absence of a Brexit deal.
Grayling insisted the deal struck with Eurotunnel would ensure the Channel Tunnel is ready for a “post-Brexit world”.
“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,” he said.
“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.”
Speaking on the case, Andrew Dean, co-head of the law firm Clifford Chance's UK government practice and a former civil service lawyer, said the government’s defence that procurement shortcuts were justified by extreme urgency would “need to clear a very high bar in court".
Before the settlement was agreed, Dean said: "Specifically they must prove three things. First, that the course of action was strictly necessary; second, that the time limits for running a full procurement process could not have been complied with; and third, that the extreme urgency was brought about by events the government could not have foreseen, and was not in any event brought about by circumstances attributable to the government. We know the courts interpret these tests strictly so the government will need three silver bullets to shoot down this case.
"It is ironic that, in preparing for Brexit, the government now finds itself in court because of what are ultimately EU public procurement laws, one of the EU rules cited during the leave campaign as an example of unnecessary ‘red-tape’."