Brexit: Chris Grayling was warned he would face legal payouts over no-deal ferry contracts

Ministers insist now-scrapped deals were ‘extremely good value’

Chris Grayling was warned he faced a multimillion-pound legal payout over the sourcing of no-deal Brexit ferry services, the spending watchdog has revealed.

The transport secretary was also told specifically that Eurotunnel might object to the controversial procurement exercise, the National Audit Office said. Analysts believed a challenge was probable and “likely to be successful”.

The predictions came true when, three months after Mr Grayling awarded contracts for the services, the Department for Transport (DfT) paid £33m to Eurotunnel in a settlement following a High Court challenge.

The company argued it had been unfairly overlooked for plans to add extra freight capacity in the event of a no-deal Brexit.

However, Mr Grayling’s department is now being sued by P&O Ferries, which has complained that the payment to Eurotunnel put it at a competitive disadvantage.

Mr Grayling awarded contracts worth a total of more than £100m to three firms – Brittany Ferries, DFDS and Seaborne Freight – last December.

The government announced earlier this month that all of them were being scrapped, at a cost to the taxpayer of £50m.

The DfT said its usual procurement process was abandoned due to “reasons of extreme urgency brought about by events unforeseen by the contracting authority”.

Mr Grayling has faced calls to resign over the fiasco, which saw a contract handed to Seaborne Freight despite the company having never run a Channel service.

Ministers said the scrapped contracts represented “extremely good” value for taxpayers.

Transport minister Baroness Vere of Norbiton said: “These contracts were an important insurance policy to ensure the continued movement of medicines and other essential goods.”

A government spokesman said: “The government received legal advice and carefully considered the legal risk at all stages of the procurement.

“Our priority was to ensure critical supplies including medicines for the NHS could enter the country in the event that we left the EU without a deal on 29 March.

“The cross-government decision to reach agreement with Eurotunnel protected vital freight capacity, ensuring critical supplies, including medicines for our NHS, could enter the country in the event of disruption at Dover.”

Additional reporting by PA