Contractor sues Bradford council for £40m over contract – and others may follow suit if it wins

Carillion is suing Bradford council in west Yorkshire for more than £40m in unrealised profit after a successful bid for a £1.2bn outsourcing contract was cancelled after the deal was scrapped.

The action, brought in the High Court, could be a test case for contractors that have lost out after projects were abandoned.

It has particular significance for PFI projects, which are increasingly at risk of being axed or scaled back.

A £711m hospital PFI project in Leicester, for instance, where a consortium made up of John Laing, Laing O’Rourke and Serco was preferred bidder, was abandoned by the client last week. It is understood that John Laing is considering legal action to recover its bid costs.

Carillion’s 20-year contract, for the refurbishment and facilities management of the council’s property portfolio, was withdrawn in February amid controversy over the bidding process.

Carillion, which was appointed preferred bidder in 2005, is suing for the profit it believes it would have made from the deal. Alternatively, it is seeking compensation for its costs.

In the writ Carillion says it has incurred substantial costs and suffered losses as a result of the council’s decision not to proceed to financial close.

This is a fertile field for claims, including on abandoned PFI schemes

Carillion says the chief executive of the council telephoned to congratulate the firm after it was appointed preferred bidder. Days later the project was suspended when a local newspaper raised concerns over the bidding.

The writ says a district auditor’s report was critical of the council but made no criticism of bidders. Carillion says it is not aware of any suggestion of impropriety on its part.

However, in February the council allegedly informed Carillion that the project had been abandoned on the grounds that the process was “tainted” and that it “wished to draw a line under things”.

One lawyer said: “This is a fertile field for claims, including on abandoned PFI schemes. A claimant would need to show that it had lost profit because of errors made in the procurement process by the client.”

Carillion won the scheme ahead of Bradford 21, a joint venture of Mapeley and Accord. Land Securities Trillium pulled out.

Michael Bowness, the interim head of legal services at Bradford council, said: “Carillion has made a claim against the council for compensation and the council is defending that claim.”