Bradford Council has applied for a judicial review of the Government’s 11th hour decision to withdraw cash from a £300 million contract to deal with household waste which has left its – and Calderdale Council’s – plans in tatters and cost the authorities £5m.

The councils said they had no prior consultation or notice of the DEFRA decision in February, which came only weeks before the contract was due to be signed with consortium, Pennine Resource Recovery, which had expected to start construction of an energy-from-waste plant in Bowling Back Lane, Bradford, within months.

The councils are seeking a reconsideration on “lawful and properly informed ground and/or compensation for the significant and avoidable financial loss that has been suffered”.

It comes weeks after officials, including Bradford Council leader David Green, visited Lord de Mauley, the parlimentary under secretary of state at DEFRA, to get answers.

Coun Green yesterday said he was still waiting for answers.

The credits of £62.1m from DEFRA had been vital to the affordability of the scheme, essentially subsidising the capital costs of the project.

The plant was expected to process 193,000 tonnes of waste per year and would have diverted most of Bradford’s and Calderdale’s waste away from landfill, and provided enough electric power to heat 20,000 homes, as well as dramatically increasing recycling rates for both local authorities.

Bradford Council said it was now known DEFRA was reviewing its support for the waste project last November, and costs of £2.7m could have been saved if the councils had known about the review at that stage.

Coun Green said: “We think DEFRA’s decision is very detrimental to Bradford and Calderdale, not only to the local economy, but also to the environment, as well as leaving both councils with the major problem of how to get rid of our waste in future.

“If DEFRA does not change its stance, we will probably have to write off all the money we have spent, about £5m.The withdrawal of the waste PFI credits means we do not now have the long-term solution of the waste treatment plant to deal with increasing future landfill costs when our current interim contract runs out. This is why we feel we have no choice but to challenge DEFRA’s decision legally.”

The review process could take 12 months and the interim waste contract is in place until 2017.

The councils said that they have examined the prospects of continuing without credits, but the loss of Government funded PFI credits would “make it far too expensive or expose both councils to an unacceptable financial risk”. The Government funding was worth more than £120m over the 25-year lifetime of the project.

A DEFRA spokesman said: “We are investing £3.6 billion in 29 waste infrastructure projects. This will reduce the amount of waste sent to landfill, promote recycling and stimulate economic growth. We now expect to have sufficient infrastructure in England to enable the UK to meet the EU target.

“Consequently the decision has been taken not to fund Bradford and Calderdale and the other two remaining projects. This does not necessarily mean the three projects will stop.”