Galliford Try had signed a pre-construction agreement to deliver the £28m facility, to be built beside the A2 in Kent, near to the villages of Guston and Whitfield.
The 11 hectares site was to be used to carry out customs checks and physical inspections of goods entering and leaving the country.
HM Revenue and Customs said that the planned introduction of extra Inland Border Facilities post-Brexit checks were constantly under review to make sure they provided value for money.
“The proposed site at Dover was part of this review, and after looking into the amount of cross channel traffic and the necessary associated checks, a decision has been made not to progress with the site.
“The review showed that the existing facilities have enough capacity to deal with the flow of traffic and therefore a new site was not necessary.
“This decision will see a saving of around £120m – the anticipated cost of developing and running Dover IBF for the intended duration – and allow the funds to be utilised elsewhere.”
The statement said that the decision to not build the Inland Border Facility did not mean that this asset is no longer required by government.
Department for Transport was now exploring alternative options for its development to ease pressure at the border, given issues with disruption on the strategic road network in Kent and at the ports.
Alongside Dover, the decision has also been made to close the Birmingham and North Weald IBF sites ahead of schedule. These IBF sites were introduced on a temporary basis to support customs checks when the UK first left the EU.
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