Court provides guidance on equal treatment in procurement

NHS England has been found not to have breached the principle of equal treatment in the procurement of Hepatitis C treatments.

05 February 2019

Introduction

Two weeks ago, the High Court delivered a judgment in relation to the procurement of Hepatitis C treatment. AbbVie Ltd (the 'Claimant') sought a declaration of ineffectiveness on the basis that NHS England, as contracting authority, ('Authority'), had breached the principle of equal treatment subject to Regulation 18 of the Public Contract Regulations 2015 ('PCRs'). The Claimant asserted that the Authority breached this principle by using two pricing methodologies throughout the tender procedure that unfairly prejudiced against them.

The High Court held that NHS England was not in breach of the PCR as the pricing methodologies did not breach the principle of equal treatment. In reaching its decision, the Court also held that just because alternative pricing methodologies could have placed the Claimant in a better position, this by itself did not mean that the methodologies in question breached the principle of equal treatment.

The key question when considering an authority's obligation to treat bidders fairly and equally is whether the procurement documents had effectively impeded the Claimant's ability to compete fairly in the tender – something which the Court found was not the case. In such circumstances Authority was afforded a margin of appreciation to choose the most suitable model against the objective sought as long as that did not breach the principles of transparency, non-discrimination and equal treatment.

The Facts

The Authority issued a tender for the procurement of drugs for treatment against Hepatitis C virus ('HCV'). HCV has different biological strands for which, until recently, different drugs were needed. This effectively divided the market into different segments: MS1 and MS2. All three tenderers, Merck Sharp & Dohme ('MSD'), Gilead Sciences, Inc ('Gilead'), and Abbvie as Claimant developed drugs that could specifically be applied as treatment in MS1. However, Gilead and the Claimant had also recently developed drugs that could be used as effective remedies for both MS1 and MS2, while Gilead's drug could further tackle a third complication of HCV in MS2.

In order to promote competition amongst the market incumbents, the Authority decided to use a model which allowed all three to compete for a segment of the total HCV market (i.e. MS1 and MS2 separately, rather than a combined requirement for an HCV treatment that covered both) as opposed to applying a "winner takes all" approach for the market as a whole.

The latter approach would have effectively excluded MSD from the process as MSD would have been unable to compete for a drug that treated both MS1 and MS2. The Authority preferred this approach in order to maintain a healthy, sustainable and competitive market with multiple participants and ensure a lower price for the drugs procured.

The Claimant challenged this approach along with the two pricing methodologies which allocated the relevant market shares as breaching the principle of equal treatment:

  • Relevant Capped Market (RCM): through this methodology, each participant would be allocated a fixed percentage of the total market share. Each participant would have to provide prices for both MS1 and MS2 by using two different pricing structures. A comparative price would then be derived for each participant flowing from those pricing structures and the market share would then be allocated using this comparative price. Since MSD could not provide a price in relation to MS2, it was allocated a 'dummy' price in order to determine its comparative price. This dummy price was based on the lowest submitted price between Gilead and the Claimant for MS2. The Claimant contended that this method and the requirement of the 'dummy' price flowing from it breached the principle of equal treatment by treating MSD differently to other tenderers. By extension, the Claimant contended, MSD received an unfair advantage.
  • Unmetered Access Model (UAM): through this methodology each bidder would commit to providing a minimum number of treatments for a pool of patients in return for a fixed payment (3 available contracts for £37m, £22m, £14m). This however, did not put a ceiling on the total treatments the supplier would ultimately provide to the pool since, when prescribing for that pool of patients, clinicians would be able to choose the preferred drug. This meant that a supplier could potentially go above the anticipated volume originally agreed without further remuneration.

As a result, the judgment then focused on whether either of the two pricing methodologies breached the principle of equal treatment without an objective justification.

RCM and the Dummy Price Methodology – Tenderers in non-comparable situation

The Court firstly appreciated that there was in fact different treatment between MSD and the other two tenderers insofar as the final price for MSD was determined using the dummy price. This however did not breach the principle of equal treatment since MSD and the other two tenderers were not in a comparable situation (paras.76-78). The Court then went on to consider whether the differential treatment was:

  • arbitrary or excessive;
  • intended to unduly favour one bidder over another; and/or
  • did not enable the Authority to determine the most economically advantageous tender (para.78).

It concluded that none of these conditions were satisfied for the purposes of the dummy price. In reaching this conclusion, the Court looked at the tender document and as whole and not isolated evidence that taken out of context could show intend to unduly favour a tenderer (para.82(vi)).

In any event, the Authority would have been able to depart from the principle of equal treatment since they sought an objectively justifiable aim – which was to increase competition at best price and treat tenderers as 'like for like' given that only Gilead would be able to put forward a drug that cared for all HCV cases. It did so through proportionate means. The key question in such a case is whether the method impeded on the Claimant from winning an award that they would have otherwise been able (objectively) to achieve (para.91).

UAM – Tenderers in comparable situation

The Claimant contended that by virtue of their drug's popularity, clinicians were more likely to prescribe their drug than they were to prescribe MSD's. This meant that the Claimant was potentially exposed to providing larger supplies of their drug than originally anticipated without further remuneration and hence were in non-comparable situations to MSD.

The Court reassessed the principle of equal treatment against this second methodology and found that for the purposes of this methodology, the different tenderers were in a comparable situation. The advantage which the Claimant believed they had by reason of their more popular product was a difference in competitive position and the application of the same tender rules to all suppliers, irrespective of competitive position, did not amount to unequal treatment.

Importantly, earlier on the Court had also stated that different contractors will, almost of necessity, be in different competing positions, an approach to comparability based on 'any' difference would mean that no two contractors would ever be regarded as being in a comparable position (para.49). Therefore, whether these competitive differences will place the tenderers in incomparable situations will be based on the context. In the RCM, MSD's inability to service a particular share of the market did give rise to a material difference between its position and that of the others for the purposes of assessing the value of its bid across the whole market. Under UAM, however, there was no fixed market share and no controls on prescribing the drug which rendered the competitors comparable (para.156).

Comment

This is a useful case for authority's and bidders alike to understand the Court's approach to determining whether bidders have been treated equally.

The case usefully compares the difference between how an Authority has the discretion to determine its own requirement and the need for bidders to be treated equally. In short, the Court has confirmed the principle that an authority has wide discretion to choose its award criteria. In doing so, it must adhere to the core principles of fairness, transparency, non-discrimination and proportionality, and may only deviate from those principles if there is an objective justification to do so. To understand whether a justification is objective is fact and market specific. Award criteria will not be deemed unlawful simply because a tenderer would have been better off if alternative criteria were chosen.

How can Burges Salmon help?

If you have any questions on the issues raised in this article, please contact Patrick Parkin or your usual Burges Salmon contact.

Article written with the support of Paschalis Lois.

Key contact

Patrick Parkin

Patrick Parkin Director

  • Healthcare
  • Procurement and State Aid
  • Commercial

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