AbbVie Limited v NHS England [2019] EWHC 61 (TCC)
The procurement
NHSE England sought to procure £1bn worth of treatments for
Hepatitis C. It adopted an
sophisticated methodology for evaluating bids and awarding contracts, informed
by ‘game theory’. A ‘whole market’
approach was taken: even though there
are different sub-markets for Hepatitis C drugs (with different types of the
disease requiring different treatments, and two out of the three suppliers
unable to supply treatments which are suitable for all of the disease types),
each bidder was required to submit a single bid for a share of the whole
market.
The claimant challenged the following two aspects of the
procurement.
(i) A “dummy price mechanism” (“DPM”) was used to assess bids. For evaluation purposes, a bidder was
allocated a nominal price for any part of the market which it was unable to
treat. This price (the dummy price) was
the lowest bid offered by other bidders for that part of the market. Contracts would be awarded for percentage
market shares, such shares to be achieved through “rate cards” directing
prescribers as to which treatments they should prescribe.
(ii) An unmetered access model (“UAM”) was used, by which each supplier
would be awarded, at the end of the procurement, a fixed fee, based on its forecast
of the number of treatments it would supply.
The fee would not (except in certain situations) vary, regardless of the
number of treatments which it subsequently supplied. Clinicians would be free to choose which
supplier’s drugs should be used.
The claimant’s
challenge
The claimant argued that these aspects of the procurement
breached, in particular, the duty of equal treatment in regulation 18(1) of the
Public Contracts Regulations 2015.
(i) The claimant argued that the
DPM gave an unfair advantage to bidders unable to supply part of the market as
compared to those that could. In
particular, it argued that the DPM ‘hard-wired’ such an advantage into the
procurement: for assessment purposes, a
supplier unable to supply part of the market would always be credited with the
lowest price offered by its rivals for that part of the market. In the case of one of three bidders, up to
50% of its evaluated price would be made up of the lowest price bid by other
bidders in the market segments it could not supply.
(ii) The claimant argued that the UAM was
inherently unfair because clinicians were bound to favour its own treatments and
those of a second bidder (treatments suitable for multiple genotypes of the
disease, without the need for additional treatments) over that of the third
bidder (whose treatment cannot treat all genotypes). The result, said the claimant, was that a
supplier with better drugs would end up supplying more treatments than the
nominal forecast underlying its fixed fee (so-called ‘unremunerated supply’); and
the supplier with the less effective treatment would end up supplying fewer
treatments than the nominal forecast underlying its fixed fee.
General
principles: equal treatment and the margin
of discretion
Choudhury J, dismissing the claim, gave important guidance
on contracting authorities’ ‘margin of discretion’ in the context of their duty
of equal treatment, setting out the following principles.
(i) The question of whether the equal treatment principle
has been breached must be considered in context, having regard to the general
purpose of ensuring the development of effective competition (§48).
(ii) Contracting authorities are afforded a wide
margin of discretion in designing and setting award criteria (§53).
(iii) A contracting authority does not necessarily
breach the equal treatment principle simply by selecting a scoring system which
could favour one bidder as compared with an alternative scoring system (§57).
(iv) The judge rejected the claimants’ argument
(citing Woods Building Services v Milton Keynes Council [2015] EWHC 2011
(TCC), Energy Solutions EU Ltd v Nuclear Decommissioning Authority [2016]
EWHC 3326 (TCC) and MLS (Overseas) Ltd v Secretary of State for
Defence [2017] EWHC 3389 (TCC)) that the question of whether there has
been a breach of the equal treatment duty is a “hard-edged question in respect of which a contracting authority is not
to be afforded any margin of appreciation”.
The judge held that the position is more nuanced than this. The authority will have a margin of discretion
at the first stage of the equal treatment analysis, that is, in determining
whether there is unequal treatment of like cases, or similar treatment of
un-like cases. If that were not the case then any difference in treatment would need to be objectively justified,
regardless of context, scale or purpose. That could not be correct (§§62,
65-66). However, the authority would
have no margin of discretion at the justification stage, if the claimant
succeeded in establishing that there was unequal treatment which fell to be
justified.
The dummy price
mechanism
The judge rejected the challenge to the DPM for the
following reasons.
First, it did not involve unequal treatment of
bidders in a comparable situation. The
equal treatment principle requires that comparable situations must not be
treated differently and that different situations must not be treated in the
same way (unless such treatment is objectively justified): Cases
C-21/03, C-34/03 Fabricom v Belgium
[2005] ECR I-01559. In this case,
bidders were treated differently: one
bidder was allocated a dummy price, and another was not. But two such bidders were not in a comparable
situation: one of them had drugs capable
of treating the whole market, whereas the other did not. The situation was analogous to one where a
contracting authority treats an incumbent differently from its competitors, in
order to try to level the playing the field (see e.g. Case T-211/17 Amplexor Luxembourg
Sarl v European Commission).
Since the DPM entailed differential treatment of bidders in relevantly
different situations, it did not breach the equal treatment principle (§§76 –
78).
Further, the alleged ‘hard-wiring’ of an advantage for
bidders who could not serve the whole market did not disclose unequal
treatment: the purpose of the DPM was
simply to enable the like-for-like comparison of bids’ value across the whole
market; it would not entail a supplier being given a market share which it was
unable to serve; and it did not prevent any bidder from winning the largest
market share available in the procurement (§85).
The exercise of comparing the level of market share which
the claimant was likely to achieve using the DPM with what it might achieve
under an alternative approach did not greatly advance its case on unequal
treatment. The fact that a bidder might
fare better than a rival under a particular model did not necessarily mean that
the model entailed a breach of the equal treatment principle (§§90 – 93).
In short, the choice of model in this case fell within the
wide discretion available to contracting authorities to choose award criteria
which suited their purposes.
Secondly, even if the DPM did involve unequal
treatment, it was justified. It was
designed to facilitate competition between suppliers across the whole market,
where suppliers would otherwise enjoy a monopoly or duopoly over certain segments
of the market. As such, it increased
competition. In those circumstances, it
was a proportionate means of pursuing NHS England’s legitimate aims,
namely: increasing competition; thereby
achieving greater value (lower prices and better treatment initiatives) from
bids; and thereby maximising the health benefits from the procurement.
The ‘fixed fees’ under
the unmetered access model
The challenge to the use of ‘fixed fees’ under the UAM was
also rejected by the judge.
The judge held that there was no unequal treatment because all
suppliers were, for this purpose, in a comparable position and subject to the
same rules. A difference of popularity
in the treatments offered by two competitors did not mean that the two were not
comparable for the purposes of a tendering exercise. The application of the same tender rules to
all suppliers, irrespective of competitive position, did not amount to unequal
treatment (§§155 – 156).
In any event, even if there had been a breach of the equal
treatment principle, any discriminatory effect would be modest and thus
relatively easy to justify; and the fixed fees were justified as a
proportionate means of achieving the legitimate aim of encouraging suppliers to
make greater investments in treatment initiatives, by providing them with
greater assurance that their revenues would be stable (§178).
Jason Coppel KC and Joseph Barrett of 11KBW (instructed by CMS
Cameron McKenna Nabarro Olswang LLP) acted for the claimant.
Patrick Halliday of 11KBW (instructed by Blake Morgan LLP) acted for the defendant.
