Abbvie Ltd v The NHS Commissioning Board (NHS England)

The Claimant, AbbVie Ltd, is a manufacturer of pharmaceutical products. The Defendant, the NHS Commissioning Board (NHS England), is the statutory body with responsibility for, amongst other things, procuring drugs for use in the NHS. In 2018, the Defendant commenced a procurement exercise (“the Procurement”, sometimes labelled the “strategic procurement”), pursuant to the competitive dialogue procedure, for the award of up to three public contracts for the supply of Hepatitis C (“HCV”) treatments and related elimination initiatives. This is the largest procurement for drugs ever undertaken by the Defendant and is worth up to about £1 billion over a period of up to five years. The Procurement is still ongoing having reached stage two of three stages. The contracts are due to commence in April 2019.

The Claimant complains about two specific aspects of the rules governing the Procurement, which it says amount to a breach of the duty of equal treatment and/or are otherwise unlawful:

The Claimant invites the Court to declare that the two main tender documents, the Invitation to Participate in Dialogue (“ITPD”) and the Invitation to Submit Final Tenders (“ISFT”), are unlawful in these respects and to order that they be set aside, pursuant to reg. 97 of the Public Contract Regulations 2015 (“PCR”). This would require the Defendant to re-issue the tender documents and seek further bids.

The Defendant denies that there is any unequal treatment or that the Procurement is unlawful. It contends that a bidder that is only able to provide drugs appropriate for part of the market is in a different position from a bidder who can supply the whole market, and that, in those circumstances, the application of the DPM for the purposes of assessing bids does not involve treating like situations differently. Alternatively, the Defendant contends that if there is any unequal treatment, such treatment is justified as a means of adopting a “whole market approach”, which facilitates threeway competition and maximises the health benefits achievable from the Procurement.

As to the UAM, the Defendant says that the Claimant’s complaint is concerned more with the content of the contract rather than the procedures for their procurement, and that, as such, it falls outside the scope of the PCR. Even if the complaint is within scope, it is said that this is a case where the same rules are applied to all bidders and there is therefore no unequal treatment. Finally, it is said that fixed fees are justified in any event as a means of encouraging suppliers to invest in and adopt effective initiatives for the elimination of HCV.

The fact that the Procurement is ongoing means that the actual bids and the Defendant’s analysis and assessment thereof must remain confidential in order to preserve the integrity of the tendering exercise. In this open judgment, I shall not refer to confidential material insofar as it is possible to do so. There is a Confidential Annex to the judgment which contains sensitive information, and which is not to be published.

Perhaps unusually in a case where the challenge is to the tender design rather than to the actual assessment decisions made by the contracting authority, I have heard from a number of witnesses. The Claimant called one witness, Mr Neil Pumford, the

The Defendant called three witnesses. The first of these was Mr Peter Huskinson, the National Commercial Director for Specialised Commissioning for the Defendant. Mr Huskinson was the senior responsible officer for the Defendant in relation to the procurement of the new generation of treatments for HCV. Mr Huskinson was clearly very knowledgeable about HCV, the treatments available for the disease and the aims and objectives of the Procurement. However, he had an unfortunate tendency to provide long, rambling answers to questions during cross-examination, and often strayed off the point. The Claimant attacks his evidence as being “extremely evasive”. Whilst the manner of giving evidence was less than satisfactory, in my judgment Mr Huskinson was not being deliberately evasive or attempting to hide or avoid revealing the truth. Mr Huskinson was evidently very keen to defend the whole market approach and the DPM to which he had become closely wedded in the past year or so, and this keenness did, on occasion, make it difficult for him to step back from the detail and to refrain from being defensive in his evidence. I shall address some of the Claimant’s specific criticisms of Mr Huskinson’s evidence below, but I should say at this stage that, notwithstanding those criticisms, I regarded him also to be a witness of truth.

The Defendant’s second witness was Mr Mark Perkins, who is the Procurement Lead engaged by the Defendant to run the Procurement. Mr Perkins’ evidence was considerably less prolix than that of Mr Huskinson. However, he too is criticised for allegedly not providing a full or proper answer to questions about an internal email in which he proposed looking for a means of excluding one of the Claimant’s products from the Procurement. I shall deal with Mr Perkins’ evidence in this regard below. However, as with Mr Huskinson, and notwithstanding the Claimant’s criticisms, I found Mr Perkins also to be a witness of truth.

The Defendant’s final witness was Dr Sebastian Moritz. Dr Moritz is the Managing Director at TWS Partners Limited (“TWS”). He is an economist specialising in Game Theory and Auction Theory and the application of those theories in the context of procurement and supply chain management. TWS advised the Defendant as to the design of the Procurement and, relevantly for present purposes, as to the inclusion of the DPM. His witness statement was supplemented by a series of calculations which sought to demonstrate that the DPM did not ‘systematically disadvantage’ the Claimant in the Procurement. The Claimant subjected those calculations to a detailed attack in cross-examination in an attempt to show that, amongst other things, Dr Moritz had attempted to “fiddle” the figures in order to assist his client. I shall deal with the particular criticisms and challenges to Dr Moritz’s evidence below, but I should make clear at this stage that I reject the suggestion that Dr Moritz was seeking to “fiddle” the figures or that he was attempting to do anything other than assist the Court in its understanding of the operation of the DPM.

HCV is a cancer-causing infectious virus. It is spread through infected blood which may be as a result of sharing needles, transfusion of unscreened blood, or unprotected sex. Those at risk of becoming infected by HCV include some of the most disadvantaged in society, such as those who inject drugs, who are homeless or who are in prison. HCV is a serious disease which presents a major public health threat. According to the World Health Organisation (“WHO”), there are an estimated 71 million people chronically infected by HCV worldwide resulting in around 400,000 deaths per year. As at 2015 there were approximately 160,000 people in England who were chronically infected, with an additional 5,000 becoming infected each year. HCV-related deaths in England doubled in the years 2005 to 2014.

Although the symptoms of HCV infection are initially mild, in the longer term, those infected suffer from liver damage. In 30% of those infected, liver damage progresses to cirrhosis (severe liver damage). The disease may then progress further so as to

Up until a few years ago the only available treatments for HCV were complex and prolonged. Side-effects were numerous and severe, and many patients required sophisticated medical support to complete the therapy. Even for those patients who could endure the lengthy treatment the success rate was variable. On top of all that, the available drugs were very expensive. More recently, pharmaceutical companies have developed a new type of treatment, namely, direct acting anti-virals (“DAAs”), which are highly effective in curing HCV infection more quickly and with fewer side effects. Whilst DAAs are also relatively expensive, they are becoming increasingly affordable. DAAs present health services with the opportunity to eliminate HCV as a major public health concern. “Elimination” in this context has been defined by the Defendant (consistently with the WHO of definition elimination) as treating 80% of the chronic cases. WHO has set a target of 2030 to achieve this. The Defendant announced its intention for England to be the first country in the world to achieve that goal and to do so by 2025 at the latest.

The various categories of HCV patients can be placed into three key “Patient Groups” based on which one of the six HCV genotypes (“GT1 to GT6”) by which they have been infected, namely:

The market for HCV treatments can be divided up into corresponding segments. Thus, the GT1/4 patient group is referred to here as ‘Market Segment 1’ (“MS1”); and the GT2/3/5/6 patient group is referred to as ‘Market Segment 2’ (“MS2”).

There are three suppliers of DAAs: the Claimant, Merck Sharp & Dohme (“MSD”) and Gilead Sciences, Inc (“Gilead”). They currently supply the following drugs relevant to this procurement:

As the table above shows, all three suppliers have treatments suitable for the GT1/4 (ND) patient group, i.e. MS1. However, only Gilead and the Claimant have treatments suitable for all genotypes where patients have not developed decompensated cirrhosis. These “pan-genotypic” drugs have been developed fairly recently, with Gilead’s

As at 2015, it was estimated that about 160,000 people in England were infected with HCV. The average price per patient of HCV treatments available at that time was in excess of £20,000. The cost of treating the entire infected population would therefore have been around £3.2 billion. Patient treatment target figures published by the National Institute for Care and Health Excellence (“NICE”) of around 10,000 patients per annum in 2016/17 rising to 15,000 patients by 2020 and beyond, would have

The Commercial Medicines Unit (“CMU”) runs procurement exercises to try and reduce the cost of the thousands of different branded and generic medicines used by NHS England. The structure of the CMU procurements, whereby all qualifying drugs were awarded a place on a framework, meant that, in effect, there was little competition to get onto the framework. Some competitive pressure was introduced with the implementation of a rate card system into CMU tenders in 2016. These rate cards directed clinicians towards prescribing particular medicines from the ones available, subject of course to contrary clinical indications requiring a different prescription. Compliance with the rate card was encouraged by means of a reduced payment from NHS England to the relevant hospital where there was non-compliance with the rate card recommendations.

The CMU commenced its first HCV–focused tender in around May 2017 with a proposed contract start date of 1 September 2017. This tender incorporated several new requirements. These included the requirement that suppliers provide a single price per drug (i.e. differential pricing for different patient groups was prohibited); and to provide a flat price per drug (i.e. volume discounts were precluded). Gilead’s new pan-genotypic DAA, Epclusa, became available around this time (April 2017). Gilead at this time had a monopoly on pan-genotypic DAA treatments and therefore faced no competition in setting the price of its new drug, which was correspondingly relatively high.

In order to facilitate the inclusion of new treatment options and greater competition, particularly in MS2 (which at that stage was supplied only by Gilead), the Defendant worked with the Claimant to enable its new treatment to be included in the CMU tender subject to the Claimant achieving market authorisation and in advance of NICE guidance being issued. As a result of this cooperation, the Claimant’s drug, Maviret, was made available from 1 September 2017, over 7 months earlier than might otherwise have been the case. As might be expected with the introduction into the market of an additional pan-genotypic treatment from the Claimant, the CMU tender did result in substantial reductions in the price of Gilead’s pan-genotypic drug. The rate card recommendations resulted in a very significant shift in market share as between the three suppliers. (Further findings in Confidential Annex).

Supplier feedback following the CMU tender suggested that the “winner takes all” approach of these tenders was leading to significant volume uncertainty for suppliers, big swings in usage, challenges for production and supply, and disincentives for suppliers to invest in case-finding (i.e. identifying patients in need of treatment).

By this stage, the Defendant had already commenced developing its new strategic procurement (the Procurement) with the objective of, amongst other matters, reducing the average cost per treatment, capping the total cost of treatments to the Defendant, creating incentives for suppliers to identify patients, and developing a mechanism that would encourage more patients to be identified and treated earlier during the term of any contract. The last of these objectives has the obvious consequence of reducing the impact of HCV by reducing the duration of patients’ pain and suffering and also reduces the number of people becoming infected due to the shorter time during which infections may be transmitted. Given the overarching aim of eliminating HCV, it was apparent that the Procurement would potentially be the last substantial tendering exercise in respect of HCV drugs.

Before the Procurement was ready, there was a need for a further procurement to bridge the change from the CMU style procurements to the strategic procurement. The Bridging Tender, as it was known, was published on 22 December 2017 with a view to contracts commencing on 1 April 2018. The Bridging Tender required suppliers to submit offers for two different models, with the model offering the best value to the Defendant being adopted. The first model was similar to the previous CMU tender. The second model introduced a number of new features, including the introduction of a market share award rather than a ‘winner takes all’ approach. The purpose of this was to encourage and maintain a healthy, sustainable and competitive market with multiple participants. Under this model, each supplier would be awarded a market share (either 65%/25%/10% or 55%/30%/15%). Furthermore, the Bridging Tender introduced a mechanism whereby the Comparison Price, i.e. the score by which bids were ranked, reflected the value offered across all market segments within the overall market, and not just the prices bid for individual drugs. The Bridging Tender resulted in further reductions in the average price per treatment for MS2. It is therefore apparent that with just two procurement exercises, the price per treatment for MS2 had fallen very substantially. (Further findings in Confidential Annex).

This background to the Procurement, and in particular these substantial reductions in prices, led the Claimant to challenge some of the Defendant’s assumptions about the market prior to going into the Procurement. The relevance of these challenges is somewhat limited given the nature of the issues I have to determine, and were not developed to any significant extent in oral submissions. Notwithstanding that, I deal with some of them very briefly out of deference to the amount of evidence adduced in relation to them:

On 23 April 2018, the Defendant released the ITPD in respect of the Procurement. It was a condition of participation that a bidder had at least one DAA for the treatment of HCV in its portfolio. That condition meant that there were only three potential bidders, namely, the Claimant, MSD and Gilead.

The Procurement is undoubtedly complex in its structure. The tender rules provided for the award of up to three contracts for the supply of HCV products and related HCV elimination initiatives (i.e. the provision of various services and related investments by which the pharmaceutical companies would seek to identify HCV patients to treat). The maximum duration of the awarded contracts is to be five years. There is an overall annual funding envelope for the awarded contracts of up to £190m per year.

Bidders were required to formulate and submit bids on no fewer than four different bases. The Defendant would then review all of the different proposals received and choose on which (if any) of the four bases it wished to proceed to award contracts. The Defendant also expressly reserved the right not to award any contracts at all pursuant to the Procurement if the bids submitted did not provide better value than current arrangements. The meaning of “better value” in this context is considered further below.

The four bases on which bidders were required to formulate and submit tenders result from the combinations created by two different pricing models and two different pricing structures. As mentioned above, the two pricing models are referred to as the Revenue Capped Model (“RCM”) and the Unmetered Access Model (“UAM”). The two different pricing structures are Price per Drug (“PPD”) and Price per Supplier (“PPS”).

Under RCM, bidders compete to be awarded contracts entitling them to provide treatments in respect of an allocated ‘market share’ of the HCV patient population i.e. an allocated percentage of the entire HCV patient population. The Defendant can award up to three contracts, with the largest and most valuable contract (the Gold Lot) representing the largest allocated market share and the smallest and least valuable contract (the Bronze Lot) representing the smallest allocated market share.

Bids under the RCM are based on one of two pricing structures, PPD and PPS. Under PPD, bidders were required to submit an offer price for each individual treatment that they proposed to provide. Thus, if the Claimant decided to make them available in the Procurement, it would submit a price for V&E and a price for Maviret. Under PPS, bidders were required to submit a single ‘blended’ offer price in respect of all of the treatments they proposed to provide. Thus, the Claimant would be required to formulate a composite (or blended) price in respect of V&E and Maviret.

The offer prices submitted by the bidders (under both pricing structures) would then be subject to various adjustments, to take account of (in particular) the elimination initiatives proposed and the investments in elimination which the bidder proposed to make, in order to produce a “Comparison Price”. The Comparison Prices would then be ranked, in order to determine bidders’ market share allocations.

The market share allocations under RCM are calculated by reference to the average Comparison Price as between the three bidders and the deviation between the three. This means that the greater the average Comparison Price, the greater the spread between the market shares that will be allocated.

The market share allocations are given effect in the NHS by the use of a ‘rate card’ system, whereby clinicians are issued with instructions regarding which HCV treatment they are required to prescribe in respect of each genotype. NHS bodies are incentivised to comply with the rate card system by funding arrangements (known as CQUIN) whereby they are subject to reductions in additional funding if the rate card recommendations are not complied with in a stipulated proportion of the cases they treat.

For the purposes of ranking the bids, the Defendant has adopted a tender rule in the Procurement which provides that a bidder that cannot provide a treatment that treats a particular patient group (also referred to herein as “market segment”) will be credited for the purposes of the evaluation with the lowest price at which any other bidder in the Procurement has tendered in respect of that market segment. This is the DPM. This is further described in Appendix 6A to the ITPD as follows:

“1.14

TREATMENT SCOPE ADJUSTMENT FOR RCM – ONE PRICE PER DRUG

1.14.1

In order to equitably compare the Comparison Price between a Bidder whose offered treatments cover the full spectrum of Patient Groups and a Bidder whose offered treatments do not cover the full spectrum of Patient Groups, the Comparison Price must be adjusted for the treatment scope.

1.14.2

The Authority will use a Dummy Price approach to achieve this adjustment.

1.14.3

The Dummy Price approach means that any gaps in one Bidders offering are filled by the best available Comparison Price from another Bidder.

1.14.4

This is explained by the hypothetical example below:

	Market Segment I: x%	Market Segment II 100-x%	Comparison Price formula (if X equals 90%)
Supplier A	1000	1300	90% * 1000+10%*1300 = 1030 GBP
Supplier B	1100	1200	90%*1100+10%*1200 = 1110 GBP
Supplier C	1200	n/a	90%*1200+10%*1200 = 1200 GBP

…

The figure in bold in the table is the Dummy Price imputed to supplier C. In practice, the DPM is directed to the position of MSD and the Claimant, neither of whom could supply the whole market. MSD is only able to supply MS1 and the Claimant is unable to supply the small percentage of patients who have decompensated cirrhosis. The

There are two amounts or “Pots” of funding available under RCM: Pot 1, which is worth £77.5m and Pot 2, which is worth up to £112.5m. Bidders are paid for each successful treatment actually supplied, at the prices they bid, until the Pot 1 fund is exhausted; and further treatments beyond that are remunerated via Pot 2.

RCM entails a ‘Whole Market Approach’. The Whole Market Approach, according to the Defendant, means that suppliers compete by each submitting a single bid for a share of the whole market for HCV treatments. The Whole Market Approach may be contrasted with the Separated Market Approach, which involves separate competitions for separate Patient Groups. The Claimant does not expressly challenge the use of the Whole Market Approach by the Defendant, but does contend that the Defendant has not been clear about what this approach entails, and that, in any event, it cannot provide a justification for the DPM. I shall return to that contention below.

It should be noted that, the ITPD expressly provides that under RCM:

“If a Supplier wins a Lot that includes more market share than they can serve, then [the] difference will be distributed amongst the other Lots proportionally to the market share of those Lots. Therefore, the maximum market share per supplier will be limited to the % of patients a supplier’s product(s) can cure.” (Footnote: ⁴)

Under UAM, suppliers bid on the basis of the number of patients they commit to cure in return for a share of an annual Pot 1 sum of £73m. That sum is allocated to the three bidders, according to the ranking of their bids, in ‘fixed fees’ of £37m, £22m and £14m for the Gold, Silver and Bronze lots respectively. The bidders’ collective forecast is used to determine the number of patients associated with Pot 1. Suppliers are required to provide an unlimited number of Pot 1 treatments as and when required by clinicians, who have free choice as to which supplier’s drugs they may prescribe. Once suppliers have collectively treated more patients than the Pot 1 number, further treatments are remunerated via the Pot 2 bonus pot, worth up to a further £117m.

The ITPD further recognises that the inclusion of non-price factors in the Procurement will mean that the biggest market share will be assigned to the best supplier overall and not just the supplier with the most attractive commercial offer on price procured per patient under RCM, or number of cured patients under UAM, respectively. That is to say, the best bid does not necessarily mean the ‘cheapest’ bid (in terms of the lowest price in RCM or largest number of cured patients in UAM).

The OJEU notice in respect of the Procurement was published on 19 April 2018 and the ITPD provided to bidders on 23 April 2018. Bidder briefings were held between 2and 4 May 2018. On 17 May 2018, the Claimant wrote to the Defendant raising concerns about the methodologies used in the RCM and the UAM. The Claimant issued its Claim Form on 18 May 2018 and filed its Particulars of Claim on 5 July

The relevant duties imposed on contracting authorities are set out in Part 2 of the PCR.

Regulation 3(1) provides:

“This Part [i.e. Part 2] establishes rules on the procedures for procurement by contracting authorities with respect to public contracts”.

The principal duties relevant to the claim are set out in Regulation 18 in Part 2, which provides:

“18.

— Principles of procurement

(1)

Contracting authorities shall treat economic operators equally andwithout discrimination and shall act in a transparent and proportionate manner.

(2)

The design of the procurement shall not be made with the intentionof excluding it from the scope of this Part or of artificially narrowingcompetition.

(3)

For that purpose, competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators.” (Emphasis Added)

The EU principle of equal treatment is thus clearly reflected in Regulation 18(1). The requirements of that principle were set out in Cases C-21/03, C-34/03 Fabricom v Belgium [2005] ECR I-01559, where the ECJ said as follows:

“…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.”

Prof Arrowsmith in her text, The Law of Public and Utilities Procurement, Volume 1, 3^rd Edition, states at para 7-11, that in deciding which situations are ‘comparable’ in applying the Fabricom definition:

“… It is necessary to have regard to the purpose of equal treatment inthis context. In general, this is to “ensure the development of effectivecompetition”, leading to the selection of the best bid. Thus, it is submitted, the principle generally forbids different treatment of entities in a comparable competitive position. This approach to equal treatment, as articulated in the previous edition of the present book, was expressly endorsed in domestic law by Briggs J in the High Court in Azam v Legal Services Commission, concluding that all potential bidders need to be given access to substantially the same information. Similarly, all bidders will, for example need to be given the same opportunities (for example, to clarify or amend bids) and to be subject to the same rules (such as the same qualification requirements and time limits).…” (Emphasis Added)

The words in quotations in that extract are derived from Case C-243/89 Commission v Denmark [1993] ECR I-03353 at paragraph 33. It is clear, therefore, that the question of whether or not there has been a breach of the equal treatment principle is to be considered in context and having regard to the general purpose of ensuring the development of effective competition.

Of course, it is not the case that any difference between two contractors, however minor, would render them not comparable. In the procurement context, where 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. The difficulty of applying the equal treatment principle in the procurement context in a mechanistic or automatic way was highlighted by Prof Arrowsmith, at para 7-015 of her book:

“It needs to be emphasised that very often the equal treatment principle as described above cannot be applied automatically. In deciding whether firms should be considered in a comparable position in a particular case and/or in deciding what differences in treatment of such firms can be considered as justified, the CJ is frequently making policy decisions on how to balance the principle of equality of treatment and the policy consideration behind it with other goals of the procurement process and also with the interests of national authorities in deciding how those interests should be pursued. The existence of such a principle and its extensive scope under the procurement directives gives rise to both considerable uncertainty in the law and a very wide potential for the CJ to restrict the discretion of national authorities in implementing national public procurement objectives in all aspects of procurement procedures.”

One area where the ECJ has accepted that contractors may not be in a comparable position is where, in a re-tendering exercise, one of the bidders is the incumbent provider: see e.g. Case T – 345/03 Europaiki Dynamiki v Commission. The

A more recent example of the European Court applying the equal treatment principle to ‘neutralise’ what might otherwise be regarded as a competitive advantage is Case T-211/17 Amplexor Luxembourg Sarl v European Commission. In that case, upon which the Defendant places particular reliance, an incumbent (Amplexor) challenged, as a breach of equal treatment, a 3% funding allowance for new tenderers to finance take-over costs in the transition phase of the contract being procured; whereas the incumbent (Amplexor) would receive only 0.3%. The General Court held that the financial adjustment in question was lawful. Treating tenderers in different positions differently in this way was likely to encourage the development of healthy and effective competition between tenderers and ensure the broadest possible competition. By contrast, an absence of any remuneration during the transition phase would run the risk of deterring tenderers other than the incumbent contractor from participating in the relevant market. (Footnote: ⁵)

Regulation 67 concerns the criteria by which contracts are to be awarded. It provides:

“67.

— Contract award criteria

(1)

Contracting authorities shall base the award of public contracts on the most economically advantageous tender assessed from the point of view of the contracting authority.”

There can be little doubt that contracting authorities are afforded a wide margin of discretion in designing and setting award criteria. As Professor Arrowsmith states at para 7-195 of her book:

“Another issue is the extent to which the directive restricts the freedom to choose, or not to choose, particular award criteria for contracts, or to choose the weightings that are attached to each criterion. Since the choice of award criteria reflects the decision on what to buy, in the sense of how to allocate national financial resources between benefits such as quality of services, environmental benefits, etc., and it is not a concern of the directive to regulate these matters, it seems clear that the choice and weightings, etc. are not in principle constrained by the directive.”

Caselaw confirms that approach: In Case C-448/01 EVN AG v Wienstrom GMBH Austria [2003] ECR I-14527, at paragraph 39, the ECJ stated:

“… provided that they comply with the requirements of Community law, contracting authorities are free not only to choose the criteria for awarding the contract but also to determine the weighting of such criteria, provided that the weighting enables an overall evaluation to be made of the criteria applied in order to identify the most economically advantageous tender.”

The Court in EVNwent on to state, at paragraph 53, that the award criterion in that case - a requirement that a contractor supply energy which was produced from renewable sources - could not be regarded as unlawful “simply because it did not necessarily serve to achieve the objective pursued” by the contracting authority (i.e. increasing electricity produced from renewable energy sources). The ECJ’s refusal to interfere with an award criterion even where its application did not result in the stated objective being achieved is a measure of the wide margin of discretion enjoyed by contracting authorities when setting award criteria.

The same is reflected in domestic authority. As explained in Lion Apparel Systems Ltd v Firebuy Ltd [2007] EWHC 2179 (Ch);[2008] Eu. L.R. 191 at paragraph 93, the choice of methodology is:

“…a matter of evaluation by the procuring authority. The court can interfere with the decision of the procuring authority, if the decision is manifestly wrong. The fact that one scoring system favours one bidderas compared with an alternative system does not, ipso facto, make itmanifestly wrong. There must be something else wrong with the system before the court could reach the conclusion that it is manifestly wrong.” (Emphasis Added)

It is clear, therefore, that 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. As set out in Lion Apparel above, award criteria are a matter of choice for the contracting authority. That choice will reflect its views about what it considers valuable. If, as a result, a bidder is more or less likely to win, and another more or less likely to lose, that does not in itself entail any breach of the equal treatment principle.

The final regulation to mention at this stage is Regulation 91 (1) under Part 3, PCR, which concerns remedies. That provides that a breach of duties owed under Part 2:

“is actionable by any economic operator which, in consequence, suffers, or risks suffering, loss or damage.”

It is appropriate at this stage to deal with some arguments made as to the margin of appreciation in the context of assessing whether there has been a breach of the equal treatment principle. The Claimant submits that there is no margin of appreciation available to the Defendant at all in this regard. It relies upon a trio of recent procurement cases in the domestic context. The first is Woods Building Services v Milton Keynes Council [2015] EWHC 2011 (TCC) in which Coulson J said as follows:

“8.

Unlike other allegations commonly made during procurement disputes, such as whether or not a manifest error has been made in the evaluation, a breach of the transparency obligation does not allow for any “margin of appreciation”: see para 36 of the judgment of Morgan J in Lion Apparel Systems Ltd v Firebuy Ltd [2007] EWHC 2179 (Ch).

2.2

Equal Treatment

9.

The duty of equal treatment requires that the contracting authority must treat both parties in the same way. Thus ‘comparable situations must not be treated differently’ and ‘different situations not be treated in the same way unless such treatment is objectively justified’: see Fabricom … Thus the contracting authority must adopt the same approach to similar bids unless there is an objective justification for a difference in approach.

10.

Morgan J’s observation in Lion Apparel, noted above, is equally applicable to the duty of equality: again, when considering whether there has been compliance, there is no scope for any ‘margin of appreciation’ on the part of the contracting authority.”

This was followed by Fraser J in Energy Solutions v Nuclear Decommissioning Authority [2016] EWHC 1988 (TCC) at paragraph 276; and by O’Farrell J in MLS (Overseas) v Secretary of State for Defence [2017] EWHC 3389 (TCC) at paragraphs 63-80. It is notable, however, that the principal allegations in Woods (and indeed the other cases) were based on manifest error, and not specifically on a breach of the equal treatment principle. To the extent that, in Woods, there was a consideration of the breach of the equal treatment principle, it was said as follows (after setting out an extract from cross-examination in that case which suggested that the assessor had penalised one of the bidders):

“74.

I consider that this answer was an admission of breach of the duties of both transparency and fairness. The expression “penalise” might have been shorthand but its meaning was clear: it meant giving Woods a lower mark than EAS. Because of these failures, there is therefore no question of any margin of appreciation...”

Thus, having concluded that there was a breach of the duty of fairness (or equal treatment) the authority was not afforded any margin of appreciation to explain away its treatment.

However, the question of whether there has been a breach of the duty of equal treatment in the first place is, in my judgment, somewhat more nuanced than the Claimant’s stark proposition that this is a “hard-edged question in respect of which a contracting authority is not to be afforded any margin of appreciation”. It is helpful to be reminded of what Morgan J said in the Lion Apparel case at paragraph 36:

“If the authority has not complied with its obligations as to equality, transparency or objectivity, then there is no scope for the authority to have a margin of appreciation as to the extent to which it will or will not comply with its obligations.” (Emphasis Added)

That suggests that the margin of appreciation is to be denied to the authority once a failure to confer equal treatment has been established.

The Defendant also relies upon three authorities in support of its contention that in analysing whether there has been a breach of the equal treatment principle, the court should permit a certain degree of deference to the decision-maker and its choice of counter balancing measures. The first two are the Supreme Court’s decision in R (Lumsdon) v Legal Services Board [2016] AC 697, and the decision of Green J (as he then was) in Gibraltar Betting and Gaming Association Ltd v Secretary of State for Culture, Media and Sport [2015] 1 CMLR 28. In both these cases there is a reference to a “measure of discretion” to be afforded to national authorities when applying the proportionality test. However, the context of those decisions was somewhat different from the procurement context before me and, on this issue at least, I found them to be of limited assistance. The Defendant’s third case was the Amplexor decision referred to above. That was a decision of the General Court in the procurement context where it was argued that a financial adjustment of 3% made to benefit a non-incumbent provider, as opposed to a 0.3% adjustment for the incumbent, amounted to a breach of the equal treatment principle. In concluding that there was no such breach, the court said as follows:

“In any event, it must be held that the threshold of 3% does not appear to be arbitrary or excessive. This threshold reflects the experience of the contracting authority acquired in previous years. In that regard, it is clear from the file that the applicant had itself benefited from a period of compensated resumption following a call for tenders in 2012 which gave rise to the contract it executed at the time of the launch of the invitation to tender. However, as the Commission explains, without being contradicted in that regard by the applicant, the amount collected as such was used as a basis by the Commission for settling the 3% threshold for the price of recovery for contractors in the context of the call for tenders at the issue in this case.”

It is clear from that decision that the court did not conclude that the mere existence of differential treatment gave rise to a breach of equal treatment principle which had to be objectively justified. In deciding that the differential treatment was neither

“arbitrary nor excessive” the court was clearly first considering whether the differential treatment fell outside the margin of discretion available to the authority.

In my judgment, the approach in Lion Apparel, which was followed in the decisions in Woods, Energy Solutions, and MLS, whereby the margin of appreciation is to be denied if there is a failure to confer equal treatment, is consistent with the approach in Amplexor. If that were not the case, and no margin of appreciation was afforded to the Authority, then any difference in treatment regardless of context, scale or purpose would fall to be objectively justified. That, in my judgment, cannot be correct.

However, if the difference in treatment falls outside of that margin and/or is considered to be ‘arbitrary or excessive’, then the Authority has no further margin of appreciation. The unequal treatment must be shown to be objectively justified and if it is not then the breach would be established. To the extent that the Defendant contends that the margin of discretion extends even to the stage of objective justification, I disagree.

As to objective justification, the principles are well-established in that it must be shown that the treatment amounts to a proportionate means of achieving a legitimate aim. There is a dispute between the parties as to whether the aims in this case are “purely economic”. The Claimant submits that if they are then such aims cannot justify any breach of the equal treatment principle. Reliance is placed upon the decision of the CJEU in C-322/01 DocMorris NV [2003] ECR I-14887:

“122.

Although aims of a purely economic nature cannot justify restricting the fundamental freedom to provide services, it is not impossible that the risk of seriously undermining the financial balance of the social security system may constitute an overriding general-interest reason capable of justifying a restriction of that kind…”

I shall return below to the question of whether the aims in question are indeed “purely economic” so as to invoke that principle.

The parties have agreed a list of issues. Broadly speaking there are two main issues in respect of both the RCM and the UAM:

A further issue under the UAM is whether the Claimant’s challenge falls within the scope of the PCR at all. I shall deal with each issue in turn in light of the findings of fact made above and having regard to the further findings and inferences to which I refer below.

The Claimant submits, in summary, that the DPM plainly gives rise to unequal and unfair treatment as between MSD on the one hand and the Claimant and Gilead on the other because MSD is always credited for the purposes of evaluating the bids with the lowest price bid in respect of MS2.

The Claimant submits that not only is this plainly in breach of the equal treatment principle, but that this was done entirely deliberately, with the help of TWS in order artificially to “accommodate” MSD by enabling it to compete across all patient groups when in reality it can only compete in respect of MS1. Dr Moritz’s calculations do not assist in this regard, says the Claimant, because he was considering whether or not the Claimant was ‘systematically disadvantaged’ (i.e. whether the Claimant was disadvantaged in every possible permutation of the assessment mechanism) rather than whether there was unequal or unfair treatment, and, in any event, the calculations are based on inaccurate assumptions and failed to show what Dr Moritz claims.

The Claimant submits that this is not a case of different cases being treated differently because all three bidders are similarly situated in that they are all bidders competing to be awarded contracts in the same procurement (designed specifically with them in mind), having satisfied the Defendant’s qualification requirements, including, in particular, that of having a DAA in their portfolio. The only reason that the Claimant is not in a similar position to MSD is because of the way in which the Defendant has chosen to structure the evaluation. The Claimant submits that it cannot be right that the Defendant can, in effect structure the tender in a way which creates an inequality and then rely upon that inequality as something which renders the bidders not comparable. Finally, it is said that if the Defendant were to be permitted to apply a DPM in this context then it could have any DPM no matter how unfair.

The Defendant starts from the premise that this is not a situation where like cases are being treated differently. It submits that the Claimant and MSD are in different positions by reason of MSD’s inability to supply treatments for MS2. The DPM is no more than a means to compare the relative economic value of each of the suppliers’ bids on a like-for-like basis. The whole market approach, which the DPM facilitates, is designed to ensure effective competition as it enables tripartite competition where otherwise there would only be a sole supplier for the decompensated cirrhosis sector and just two suppliers for MS2. Whilst there is differential treatment of MSD to an extent, by the application of the DPM, this does not mean that the Claimant and/or Gilead are deprived of the opportunity to achieve a bid lower than MSD’s Comparison Price and thereby win the Gold Lot. The Claimant’s attack on Dr Moritz’s analysis does not actually demonstrate that the DPM unduly disadvantages the Claimant, or unduly advantages MSD.

The first question is whether MSD was in a comparable or different position to that of the Claimant. In my judgment, MSD’s position was not comparable to that of the Claimant in this context. I say that for the following reasons:

If the respective positions of MSD and the Claimant are not alike, the question then is whether there has been a breach of the second aspect of the equal treatment principle, which is that bidders in different situations must not be treated in the same way. The Claimant submits, in the alternative, that there is a breach of the principle in this regard in that the same evaluation methodology has been applied to all three bidders. However, it seems to me that the way in which the Procurement operates is to impute to MSD the lowest price for MS2 but not to impute any such price to a bidder offering

As MSD and the Claimant are not comparable as far as MS2 is concerned, there is no prima facie breach of the equal treatment principle in the application of differential treatment in the form of the DPM. However, the Defendant does not have free rein in this regard. It cannot apply any differential treatment it desires if such treatment is arbitrary or excessive, is intended to unduly favour one bidder over another and/or does not enable the Defendant to determine the most economically advantageous tender: see Reg 18(3) and Reg 67, PCR and Amplexor. The Claimant submits that the DPM was deliberately introduced in order to favour or “accommodate” MSD unduly notwithstanding its inability to service MS2.

The word “accommodate” has been fixed upon by the Claimant as a result of an email sent by Mr Huskinson to Mr Perkins and others (and copied to Dr Moritz) on 2 March 2018. In this email, in which Mr Huskinson makes suggestions and raises queries about a forthcoming slide presentation about the proposed procurement, he said as follows:

“The other point I think I need to ensure we cover is how the tender accommodates MDS [sic] only being able to supply 45% of patients maximum (it might be inferred that they are purely a silver vs bronze candidate no matter how good their response)”

The Claimant contends that the language used in this email and the chronology, which demonstrates that the DPM was first raised about a week later on 9 March 2018, compel one to infer that the Defendant, with the aid of TWS, deliberately set out to structure the Procurement so as to favour MSD unduly and to “target” the Claimant. Reliance is also placed upon an email sent by Mr Perkins a few weeks earlier on 31January 2018 in which he asks Mr Graham Foster whether there were:

“any criteria that [the Defendant] could use to exclude AbbVie 2D/3D from the procurement that would also not exclude other more attractive treatments?”

The reference to “AbbVie 2D/3D” in that email is to the Claimant’s non-pan- genotypic MS1 product, V&E. The Claimant submits that Mr Perkins’ email is indicative of a certain hostility towards the Claimant and a mindset to pursue any means, including unlawful ones, to achieve the objective of inducing further price reductions in respect of Maviret and favouring MSD.

I reject the Claimant’s submissions as to the effect of, or the inferences to be drawn from, these emails. Dealing first with Mr Perkins’ email:

I turn now to Mr Huskinson’s email, which is the subject of particular ire on the Claimant’s part:

The Claimant also submits that irrespective of intention, the way in which the DPM works means that it is “hard wired” to confer an unfair advantage on MSD to the detriment of the Claimant. Whether or not the DPM does build in an unfair advantage in this way is the next question to be considered.

The Claimant submits that the DPM “hard wires” an advantage for MSD into the RCM, because it results in MSD always receiving the benefit of the lowest price bid submitted in respect of MS2. The Claimant makes a series of points in support of the submission. It is convenient to set each of these points out (in italics) as they appeared in the submissions, followed in each case by my conclusion:

The TWS Calculations

It was put to Dr Moritz by the Claimant that his team “fiddled with the market shares” by, in particular, using a specific market share split in the examples 3a and 4a that: (a) was not consistent with the other examples; and (b) was used specifically to try and identify a “black swan” or exceptional situation where the Claimant would not be disadvantaged as a result of the DPM. The Claimant sought to rely on its reworked calculations which were based on a consistent set of market share assumptions for the separated market approach comparison. Dr Moritz rejected the accusation of fiddling.

In my judgment, the accusation that Dr Moritz “fiddled” the calculations to produce the desired results is unfounded:

In any event, whatever the outcome of the various calculations, it seems to me that the exercise of comparing the level of market share achieved under the RCM (using the DPM) with what might be achieved under the separated market approach, does not greatly assist in determining whether there has been a breach of the equal treatment principle. The RCM is an example of a whole market approach. That is, by definition, different from the separated market approach. The fact that a bidder might fare better than a rival under a particular model does not necessarily mean that that model entails a breach of the equal treatment principle: seeLion Apparel Systems Ltd v Firebuy [2007] EWHC 2179 (Ch) at paragraph 93. The choice of model falls within the wide discretion available to contracting authorities to choose award criteria which suit their purposes. An alternative comparator model, which is closer to the RCM but without the DPM, would be the Bridging Tender. The parties agree that the Bridging Tender was another instance of a whole market approach. It is instructive that the Claimant fares better in terms of market share under each of Dr Moritz’s worked examples than it did under the Bridging Tender.

The better analysis, in my judgment, is not by reference to whether the Claimant would fare better or worse than under another model, but whether under the particular model used by the Defendant it was placed in a position where it could either not win the Gold Lot or not beat MSD. Such an outcome could be said to be restrictive of competition and therefore in breach of Regulation 18, PCR. The calculations from both sides, such as they are, clearly demonstrate that the Claimant could win gold and could beat MSD notwithstanding any apparent advantage conferred on the latter by the use of the DPM. Whether or not the Claimant did do so would depend on the prices which it chooses to bid. Mr Pumford accepted that that would be the case whilst maintaining that MSD would still have an advantage.

“Q. If we think about the prices in this hypothetical situation, if we look at your GT3 price, which if you go down the left-hand column, GT2, 3, 5, 6 and go across to AbbVie is £100 in this example, if instead of £100 you had bid, say, £91, that would bring your total down to 64, from 73, and you would already be in silver as opposed to bronze position. So, it just shows, doesn't it, that AbbVie was the master of its own fate. It could win, or win better, by simply lowering its prices as against its competitors?

A. My Lord, what I would say is that the arithmetical model that Mr Moser states is almost certainly correct. However, we would say that - I agree that the difference in price between Epclusa and Maviret and the difference in price between Viekirax and Exviera and Zepatier will overall dictate who gets the silver or bronze in this example. But I would say that because of the way the lowest price is working, it distorts and creates unfairness to AbbVie in terms of it gives greater chance for MSD to win than it does to AbbVie. We have to guess where those two prices are, and of course it is a sealed envelope but it is a bid.

Q. But that is in the nature of competition, isn't it, Mr Pumford? You have to guess and you have to try and put in the most competitive price. That is the idea, isn't it?

A. My Lord, certainly it is the nature of competition that we have been bidding and trying to come up with reasonable prices over the last three years. It's an ongoing function of the market.

…

MR MOSER: 96. Yes. Thank you. (To the witness) It would be better actually if we start at page 514. It is an email, so it goes backwards. I am not going to read it out now, although if it is felt more helpful, my Lord, then obviously people will have to pop out for a moment. There is an email here from Jerome Bouyer, on 514. For the avoidance of doubt, he is the general manager, UK - yes? A. That is correct, my Lord.

Q. And he says what he says there. You are copied in on this email. You see what he says in the last paragraph on page 514? A. Yes.

Q. What he says there is right, isn't it, as a matter of strategy. That is how that would be won?

A. My Lord, it's correct that if we bid lower for both Viekirax and Exviera and for Maviret, then that would give us the best opportunity obviously to win gold.

Q. But again, don't you agree it is entirely within the power of any of the three bidders to offer a lower price, isn't it?

A. My lord, it's correct that bidders can obviously bid any price that they would like into either model of price per supplier or price per drug. The table there is to try and illustrate that it was helping MSD versus Gilead in that example.

Q. As a matter of general observation (it is not really a question) I think we agree that these tables, like most of the tables that have been produced for the price comparison, they don't take into account the effect of the elimination solution - the other aspect of the comparison prices. That is right, isn't it?

A. My Lord, that is correct. These are based on drug prices.”

Mr Pumford’s analysis, as he accepts, is based solely on drug prices and not the important elimination solutions which the Defendant was keen to secure. In fact, as it has transpired, the elimination solutions and levels of elimination investment have varied very dramatically as between the three bidders. (Further details are in the Confidential Annex).

It is correct to note that Dr Moritz stated that if there are 99 cases out of 100 in which MSD was favoured and only one in which the Claimant was favoured that would disprove unequal treatment. I accept the Claimant’s submission that Dr Moritz is incorrect in construing potentially unequal treatment so narrowly. However, as I have said above, it is the analysis of the position under the RCM that is most relevant. Based on the results of that analysis, it does not appear that MSD would, as a result of the DPM, win gold in a preponderance or even a majority of cases as compared to the other bidders. The outcome will depend, as it should, on the bids made by each supplier. In those circumstances it seems to me that the claim of unequal treatment is not made out.

If I am wrong about that and there is a breach of the equal treatment principle, the question is whether the differential treatment is objectively justified as being a proportionate means of achieving a legitimate aim. I shall consider that question next.

If, contrary to my conclusion above, there is a breach of the equal treatment principle then it is for the Defendant to show that its treatment was objectively justified; that is to say, that the application of the DPM in this context amounted to a proportionate means of achieving a legitimate aim. I start by considering whether the Defendant was pursuing a legitimate aim.

The Defendant submits that its aims were as follows:

The Claimant contends that the Defendant cannot rely on those aims because they were not the ones relied upon in the Defendant’s pleaded case. It further contends that the only pleaded justification was the need to ensure that the Claimant and Gilead do not charge excessive or very high prices for their drugs by exploiting their duopoly or monopoly positions. The Claimant submits that the Defendant has enlarged upon its aims without seeking permission to amend its case, and has done so because of the legal obstacles it would face in having to rely on a purely economic justification.

I can deal with the pleading point briefly. Whilst the Defence does make reference to the need to avoid excessive or very high prices (see e.g. paras 4 and 52(iii) of the Defence), a fair reading of the whole of the Defence shows that the reduction of costs (or the avoidance of excessive prices) was clearly not the only aim being pursued:

Para 52 of the Defence states as follows:

“Secondly, insofar as the RCM methodology does entail any prima facie discrimination, such discrimination is objectively justified and therefore unlawful.

i)

On the basis of the Defendant’s chosen “whole market” approach, it follows that some mechanism must be found for coping with bidders who supply a substantial part, but not the whole, of the market. An imputed price is an obvious way to solve this problem.

ii)

There is no presumption in favour of an approach restricted to individual Patient Groups or genotypes.

iii)

Alternatively, if there were such presumption, the Defendant is in any event entitled to take a “whole market” approach to the procurement in order to ensure that excessive prices are avoided by facilitating tripartite competition for all Patient Groups, and/or to reflect the fact that elimination initiatives are inherently Patient Group-neutral and that pan-genotypic drugs can treat different Patient Groups: see paragraph 19 above.

iv)

The imputation of the “best available Comparison Price” to a bidder which is unable to supply drugs for all Patient Groups is an appropriate proxy for the consequences of that bidder’s tender for the Defendant’s purchase of drugs for Patient Groups which such a bidder cannot treat. It is rational to assume that, if the Defendant purchases such a bidder’s drugs in order to treat the Patient Group which it is capable of treating, then it will purchase the best value drugs available from other suppliers in order to treat the remaining Patient Groups.

v)

The use of the “best available Comparison Price” in this way is part of the overall mechanism for encouraging lower prices.”

One sees from the underlined word in paragraph 52(iii) that the Defendant is not relying solely upon the aim of ensuring that excessive prices are avoided. Furthermore, even within paragraph 52 (iii), there is a reference to the facilitation of tripartite competition and the elimination initiatives. This sub-paragraph alone therefore articulates at least the first two of the aims relied upon by the Defendant as set out above.

Paragraph 52 (i) of the Defence also refers to the choice of the whole market approach. The Defendant’s reasons for adopting a whole market approach are more extensively set out in paragraph 19 of the Defence (which is expressly crossreferenced at the end of paragraph 52(iii)). That paragraph refers to, amongst other things, the aim of making drugs more affordable, the increased competition that would result from a whole market approach, and the benefits of a procurement for HCV drugs and elimination initiatives. Thus, paragraph 52 when read, as intended, in conjunction with paragraph 19, articulates the first, second and third of the aims now relied upon.

Paragraphs 52(i) and (iv) of the Defence set out the rationale for using the DPM on a lowest bid price basis. The DPM is further explained in paragraph 25 of the Defence. Taken together, these paragraphs clearly articulate the fourth aim relied upon by the Defendant, which is to ensure that bids are assessed on a “like-for-like” basis.

The Claimant objects to the Defendant’s reliance upon the aim of increasing the health benefits for HCV patients on the basis that this is something new and not mentioned in the pleadings. However, it cannot be forgotten that this is a procurement by or for an authority that exists for that very purpose. It is implicit that an increase in competition, a potential reduction in costs and improved elimination solutions will assist in achieving the aim of maximising health benefits. The Defence does mention the aim of eliminating HCV. The benefits of elimination are also set out in the ITPD at 2.1.21:

“With the financial commitment on offer from NHS England, the right response to this procurement from industry, and the collective efforts of all stakeholders, England can be the first country in the world to seize this once in a generation opportunity to eliminate a major disease –while improving the lives of hundreds of thousands and saving money for its health system.”

Taking these matters together, it is my view that the failure to state, in terms, the aim of maximising health benefits in the Defence cannot sensibly be a reason for denying the Defendant the right to rely upon it.

There is one further point to address before leaving the pleading point: the Claimant in its Reply pleaded that it would rely upon the content of the Defence as an admission that the justification was reducing the cost to the Defendant. The Claimant highlights the fact that there was no answer to that Reply and no attempt to amend the Defence. On that basis it submits that, “it is therefore common ground between the parties that NHSE’s objective is that of reducing cost.” I see no ‘common ground’ at all in the circumstances. For reasons already set out, it is clear that cost was not the only justification relied upon. But in any case, an unanswered assertion in a Reply cannot be taken as an admission.

For these reasons, I conclude that the Defendant is entitled to rely upon its four aims as set out. This is not a case where the Defendant is relying solely upon financial reasons to justify its actions. It is, therefore, unnecessary to consider whether the Claimant is right to say that unequal treatment in a procurement exercise cannot be justified on “purely economic grounds”. The Claimant did not seek to suggest that the Defendant could not include cost savings as one of several aims. Indeed, such a suggestion, if it had been made, would be difficult to sustain, since an authority that had several aims, of which cost reduction was only one, could not be said to be relying on aims of a “purely economic nature” (Footnote: ⁸).

The Claimant does, however, contend that whatever might be said or not said in the pleadings, the “real justification” (Footnote: ⁹) for the Defendant’s actions was the desire to avoid being charged excessive prices. I do not accept that that is the Defendant’s real justification. Mr Perkins and Mr Huskinson both gave extensive evidence supporting the aims articulated above. Much of that evidence went unchallenged, particularly in Mr Perkins’ case.

The Claimant clearly takes umbrage with the suggestion that it has at any time charged excessive prices, and it took Mr Huskinson to task for suggesting otherwise. This line of questioning (which also aimed to demonstrate that the Defendant’s affordability concerns had diminished due to the substantial savings already made through the CMU and Bridging Tenders, and that the elimination target could be met with prices already achieved) appeared to me to be something of a side-wind in this case. There is insufficient evidence before this court to make any findings as to whether prices were excessive or otherwise, not least because of Mr Pumford’s coyness as to the manufacturing costs involved. What can be inferred perhaps, based on Mr Pumford’s evidence, is that prices have not reduced to a level of unprofitability for the Claimant. Moreover, it was not unreasonable for the Defendant to assume, as it clearly did, that there were further reductions to be achieved. As such, and given the requirement for the Defendant to obtain the “most economically advantageous tender” (Regulation 61, PCR), there seems to me to be nothing remotely improper or inappropriate in the Defendant seeking to re-procure, increase competition and achieve further reductions with a view to maximising health benefits. A further reduction in prices in combination with improved elimination strategies may well result, as Mr Huskinson stated, in the elimination target being achieved even more quickly than anticipated. It is axiomatic that the sooner HCV is eliminated the fewer

In my judgment, the four aims articulated above are legitimate aims for this authority to pursue.

The next question to consider under objective justification is whether the use of the DPM is a proportionate means of achieving those aims. This involves considering the following issues:

The Defendant’s case is that the DPM is suited to the stated aims for the following reasons.

The Claimant submits that the DPM is not a suitable means of obtaining lower prices and that the evidence does not demonstrate that lower prices would be achieved. The Claimant says that the Defendant’s case amounts to no more than assertion, an example of which appears at paragraph 66 of the Defendant’s submissions, in which it states, “the critical element of these points [showing that DPM is suited to the stated aims] is the DPM’s encouragement of superior bids through enhanced competition.” In oral submissions, Mr Coppel invited me to read “superior bids” in that extract as meaning “lower prices”. I decline that invitation, because the Defendant’s submissions in the immediately preceding paragraph make it clear that superior bids incorporate both “lower prices and/or superior elimination solutions”. The reference

The Claimant submits that the likelihood was that a further procurement would result in further reduction in prices in any event irrespective of the procurement model used. However, that submission once again seeks to diminish the importance which the Defendant clearly placed on the elimination solutions. Whilst the Bridging Tender did invite elimination solutions as well, it is clear from the evidence that this Procurement has already proved to be far more successful in that regard than any previous exercise, both in terms of the level of investment offered and the solutions devised. Mr Huskinson’s evidence was that he had:

“…been delighted and overwhelmed at some of the innovation that I’ve seen through these responses in quality, with amazing tools that actually help to flag it in every GP practice in the country, patients who will be needing to be diagnosed in the future, through to partnerships with major high street pharmacy chains, through to partnerships with the major drug treatment services, all put in place with great clarity. So, both qualitatively my Lord and in sheer money terms, I think we have an overwhelming sense, my Lord, that the strategic procurement will do what we aspire to do and go way beyond it…”

The Claimant submits that there is simply no evidence to support the contention that the DPM was in any way responsible for superior bids. It highlights the fact that there was no modelling or analysis of how the DPM would operate in practice done prior to the launch of the procurement.

The Defendant relies upon the evidence of Dr Moritz as to how the DPM would operate in practice. He accepted that no modelling or analysis had been done, but maintained that it was not necessary to do so:

“Q. Dr Moritz, both Mr Huskinson and Mr Perkins have told the court that to their knowledge no detailed analysis was done as to the likely effects of the dummy price mechanism in this procurement before the procurement started. Can you confirm that, please?

A. My Lord, I can't confirm that statement because the dummy price has been used by us before in a number of occasions and would even consider to be part of the core expertise of TWS. We have used it in hundreds of procurements before for large organisations in Europe. So, the answer is clearly no, it was not invented at the 11th hour, as suggested before when I listened to the evidence of Mark Perkins and Peter Huskinson earlier.

…

A. So, we haven't done any specific modelling but there are two reasons why it was not required. The dummy price is the conceptual question of how the ensure comparability when it comes to the awarding of the gold lot and this was conceptually explained to Mark Perkins. It was not personally me but I reconfirmed that with my colleague, Dr Christian Paul. So, there was no need of modelling something which is obvious and is the conceptual answer to a conceptual question.”

In my judgment, the fact that no modelling was done does not, in the circumstances of this case, undermine the Defendant’s contention that the DPM was suited to the aim of increasing competition and producing superior bids. Whilst modelling may in certain situations be desirable, it is by no means a necessary prerequisite in respect of every element of a potential procurement model. The DPM in this case was considered by Dr Moritz to be a “4^th level of detail” within the context of the larger whole market approach of the RCM. The DPM is not the procurement model but a small part of it. Furthermore, the DPM, according to Dr Moritz, is a standard device used in many other procurements. I have already stated above that I accept Dr Moritz’s evidence in this regard. It appears to me that the DPM is, for Dr Moritz at least, a sort of ‘boilerplate’ technique used to address the situation where, in a procurement designed to confer market shares, not all bidders in a proposed procurement can supply the whole market. The introduction of a standard or boilerplate technique would not automatically require extensive or any modelling to be done. The Defendant, having a wide discretion as to selection of award criteria, could reasonably rely on the specialist expertise of Dr Moritz in accepting that the DPM would help in achieving the desired aims in the situation it faced.

The Claimant invites me to exercise caution in accepting the evidence of Dr Moritz and the proposition that the Defendant was entitled to act on his specialist advice. Part of the reason for this is the absence of modelling, which I have already considered above. A further reason, submits the Claimant, is that Dr Moritz has, by simply importing the DPM from other unevidenced procurements, acted contrary to one of his own ‘golden rules’, revealed during cross-examination, which is that one cannot simply transpose something from one model to another:

“Q: Now, the Claimant’s assumptions for its calculation, they actually reflect what has happened in the procurement more closely than yours, do they not?

A. It is suggesting that, but in my view as an economist and someone who specialises in game theory market design, it is a completely flawed argumentation because if there is one conclusion of marketdesign, my Lord, then it is the question that there is not the one marketand the one model, and whenever you are trying to copy and pastesomething from an existing market into another environment you willnecessarily not get the ideal result because it must be tailored to aspecific situation. So just by saying a model worked in a differentenvironment under different circumstances makes it a good, perfect orexcellent fit for another environment is a completely flawed argument,it is not supported by anything that research does in the market designsphere” (Emphasis added)

Mr Coppel fairly acknowledged that Dr Moritz’s answer as there set out was given, not in the context of whether it was appropriate to import the DPM from another procurement, but in the different context of the suitability of using actual bid prices submitted for the RCM (which is a whole market approach) in an analysis of the comparative market share achieved under a separate market approach. It seems to me that the difference in context is highly significant. It is one thing to transpose a particular type of procurement model or part thereof into a different type of model; but it appears to me to be something quite different to import a ‘boilerplate’ technique used in another whole market procurement. I accept that Dr Moritz did not provide any actual evidence of the other procurements in which the DPM was used. But it is quite clear from the nature of the DPM that it would have no place in a separate market approach and would only be likely to have been used in other whole market scenarios in which one or more participants was unable to supply the whole market.

I therefore do not consider that Dr Moritz broke his own rules or undermined his evidence that it was logical to solve the issue in the RCM by importing the DPM used in previous procurements.

A similar failure to have regard to context gives rise to the Claimant’s further argument that the limited documentary evidence pertaining to the introduction of the DPM is actually contrary to the Defendant’s case that the DPM is likely to produce superior bids. On 9 March 2018, TWS gave a slide presentation which included reference to the DPM. This was the first documented occasion on which DPM was discussed. The slide presentation is entitled “NHS Strategic Procurement Tender – Remaining Questions”. The presentation identifies remaining questions in respect of the Procurement one of which was “How to price per drug vs price per supplier”. The

Two options are then set out: the first option is to “divide into 2 markets” (i.e. a separated market approach); and the second option was to “create a dummy quote”. The second option contains a table showing how the DPM would work to produce a Comparison Price in a 3-supplier market where one supplier does not supply 55% of the market.

The Claimant submits that this demonstrates that the Defendant had in fact been advised that the effect of incorporating the DPM into the PPD methodology would be to achieve “virtually the same goal” as conducting a procurement based on competition by patient group segment. Dr Moritz was asked about this slide:

“Q. Well, that is very interesting, Dr Moritz, but I am sure you understand the point of my question, which is that these two options (separate market/whole market with dummy price) were said to virtually achieve the same goals?”

A. They would achieve both the procurement and the awarding of business to suppliers, but achieving fundamentally different objectives. The option 1 here is looking at separate markets and ask the question, how do we deal with the problem that we can't directly compare suppliers? The same thing we do in option 2. So, they achieve the same thing, answering the question, how we deal with the problem that suppliers are not directly comparable? To that extent they are virtually comparable, but they are not comparable when it comes to solving the problem under a whole market approach because option 1 is fundamentally contradicting the philosophy of the strategic procurement.

Q. So, where this advice says that these two models can virtually achieve the same goals, your position is, what it meant was that these two models achieve fundamentally different objectives? I thought you just said to me that these two options achieve fundamentally different objectives?

A. They achieve the same goal to the extent that I need to establish comparability across suppliers which are not directly comparable. To that extent, absolutely correct, these two things do exactly the same, but in the broader context of the strategic procurement, option 1 needs to be disregarded because it's fundamentally contradicting the objective of the strategic procurement. And then only one option is actually left, and we wanted to have an open discussion with NHS England at that point in time to say, "Anything changed? Do we still go for a fullblown whole market approach? And, if so, we need to discuss what we are doing, but only option 2 leads itself to a solution of the problem."

Dr Moritz’s evidence makes it clear that the “same goals” being referred to were the procurement goals of involving and comparing 3 bidders. However, the separated market approach would not achieve the additional objectives of the Defendant as would be the case under the RCM/whole market approach. To that extent, the reference to achieving “virtually the same goals” is somewhat opaque and inapt because it was intended to refer only to some and not all of the Defendant’s goals. It is perhaps also significant that the word “virtually” was used, which would tend to denote that there is not a precise correspondence between what is achieved by each option. Based on the entirety of the Defendant’s evidence, including that of Mr Huskinson and Mr Perkins as to what they understood Dr Moritz to be saying, I am satisfied that Dr Moritz was not intending by this slide to say that the DPM would make no difference in the sense submitted by the Claimant.

Finally, in this regard, the Claimant submits that one cannot take at face value the Defendant’s assertion that, as a matter of basic economic theory, greater competition should yield superior bids. It might be thought that it is a matter of common sense that having three players in a procurement would engender greater competition than if there were only one or two players. However, even if that common-sense proposition is not correct, the Defendant’s assertion is not unsupported by evidence. Dr Moritz has explained both in his witness statement and in the course of his cross-examination how the DPM operates so as to incentivise better bids: see paras 85(ii) and 91 above.

The Defendant’s position is further supported by a hypothetical example provided by Mr Pumford in his evidence:

This hypothetical example illustrates how the DPM incentivises the Claimant and Gilead to offer competitive prices for MS2 because, if one of them fails to beat the other’s MS2 prices, then, when bids are assessed, it will:

Mr Pumford accepted in cross-examination that if the Claimant had bid £91 (instead of £100 as in his example) for MS2, then it would have beaten MSD. (Footnote: ¹⁰) This demonstrates how the DPM facilitates competition between the Claimant and MSD across the whole market, such that the price which the Claimant bids in MS2 is affected by its competition with MSD.

The Claimant’s internal correspondence demonstrates that it was well aware of how the DPM worked and what would have to be bid to have a chance of winning the Gold Lot (albeit that in the same email the writer questioned the lawfulness of the mechanism). (Further details are in the Confidential Annex). Did the DPM go beyond what was necessary to achieve those aims?

The Claimant contends that the DPM went beyond what is necessary to achieve any legitimate objectives because it sought to solve a problem, namely that of excessive pricing, which did not exist; the expressed aims could have been achieved through the use of a mechanism similar to that of the Bridging Tender; and the DPM could have been structured so as to use an imputed price based on the average or highest bids rather than the lowest bid.

As to the first of these points, namely that there was no problem with high prices, the Claimant is viewing the Defendant’s aims too narrowly. As stated above, the reduction of cost was not the only aim; it was one of several. Furthermore, the Defendant was not required to cease looking for means to reduce costs further just because earlier tendering exercises had achieved substantial reductions; the Defendant was entitled to continue seeking further reductions and elimination solutions with a

As to the second point, namely that the Defendant’s aims could have been achieved through the use of the Bridging Tender methodology, the evidence was that the Bridging Tender was considered to be inferior in a number of ways, as Dr Moritz explained:

“A. Absolutely, yes. My Lord, you want me to give a bit of the background first on what we tried to do with the strategic procurement, which was designed, as it were, from Peter Huskinson and Mark Perkins, to design a population based approach that ensures that we have a level playing field for all of the suppliers competing in that procurement, proper tri party procurement, and awarding market shares to those three suppliers across the entire market. That was the overall intention.

Now, the Bridging Tender features certain elements of that and we heard that before. It awarded market shares across the entire market to the three bidders. That is correct and that is a feature of the whole market approach. Actually, the reverse order, it was actually the case that this was backwards integrated into the Bridging Tender, as we heard before, but the characteristics would identify it as a whole market approach.

However, what it doesn't identify as a whole market approach is the way how the competition worked in the Bridging Tender. In the Bridging Tender it was not a proper tri party competition and a level playing field for all of the suppliers. Why? Because in the Bridging Tender the performance of suppliers was measured against historic weighted prices per market segment. So, suppliers were measured by the contribution of absent savings that they contribute to the outcome of that procurement, which was for the Bridging Tender absolutely fine to try to level the playing field and provide an incentive to suppliers to get prices closer to each other.

But for a procurement, a strategic procurement, which was designed as an end of life procurement, as I would call it, meaning the last major procurement for a specific demand in a market, it does not help it look at relative improvements compared to what we have seen in the past. I should make that decision on the basis on the right absolute level and if I want to compare bidders on the absolute level I have the necessity that I need to be able to compare them and that necessitates the need it for a mechanism that ensures comparability and the dummy price is doing that and this is why the dummy price was not needed in the Bridging Tender but was one means to establish a ranking of suppliers in the strategic procurement.”

The Bridging Tender had the major shortcoming, as the Defendant saw it, of ranking bids according to the cumulative price reduction offered against previous prices in a particular market segment. The Defendant sought, in this “end of life procurement”

The Claimant submitted that Dr Moritz’s assertions about the DPM facilitating the assessment of bids were meaningless and/or difficult to comprehend. Dr Moritz’s methodology is undoubtedly complex and somewhat counter-intuitive. However, I do not find that they are meaningless or incomprehensible. The DPM does enable a comparison on a like-for-like basis because once the dummy price is imputed to MSD for MS2, all three bidders become comparable. The Claimant contends that this fails to create true competition because MSD simply gets a “leg-up” in respect of MS2. As to this, Dr Moritz said as follows:

“Q. But what you've done with your dummy price mechanism is you have added MSD to the market, but MSD isn't truly competing in market segment two, is it? You are just giving it the lowest price?”

A. I'm not saying that they're competing on market segment two. What I'm saying is they're competing, as anyone else in the competition, for a share of the overall elimination of hepatitis C in the UK, and this is the definition of our market. We are not talking about market shares. That they are limited to market share number one is absolutely natural because of the product portfolio, but this is not what they are bidding for. They are bidding for a share of elimination. Peter Huskinson explained at length why it is worthwhile to having them in there because it's much broader than the drugs that they are providing. They are providing elimination initiatives which also help the other bidders, and therefore it's not limited to a pack of drugs that relate to genotypes 1 and 4. It has to do with their contribution to the elimination of hepatitis C.”

That evidence, which I accept, highlights that the RCM is a competition for a share of the overall or whole market and that each supplier is valued for both its products (which may not cover the whole market) and for its elimination initiatives (which would be relevant to the whole market). MSD does not get an unfair “leg up” in respect of MS2 because MSD will not in fact be supplying its product to that segment.

The Claimant’s final suggestion was that DPM went further than it needed to by imputing the lowest price bid to MSD rather than the average or highest. Once again,

That evidence suggests that imputing anything other than the lowest price could result in a bidder who contributes more by way of elimination solutions being awarded a smaller market share. Given that a key objective of the Procurement was to maximise health benefits (including by identifying and treating more patients) it was not unreasonable for the Defendant to regard that as “illogical”.

A further point made by the Claimant in seeking to demonstrate that the DPM goes beyond what is necessary is that the DPM does not in fact result in drugs being purchased at the lowest prices. The possibility that drugs within a segment might not be purchased at the lowest price was expressly contemplated in the ITPD. This highlights the importance attached by the Defendant to elimination solutions and does not, in my judgment, indicate that the DPM was disproportionate.

The Defendant submitted that insofar as the DPM disadvantaged the Claimant the extent of that disadvantage is relatively modest both in terms of how likely it was to arise and in terms of its severity. The evidence is clear that even if MSD got a ‘leg-up’ by reason of the DPM:

Based on that evidence, the Defendant is correct, in my judgment, to say that any disadvantage to the Claimant caused by the use of the DPM is limited.

The Claimant contends here that the Defendant could have achieved its objectives either by adopting the Bridging Tender model or by using the highest or average price for the DPM instead of the lowest price. Both of these points have already been addressed above, the Defendant having established that neither of those options would have been as suited to achieving its legitimate aims.

For all of the reasons above, I consider that if there was unequal treatment the Defendant would have discharged the burden of establishing objective justification. The DPM used in the RCM is a proportionate means of achieving a legitimate aim.

A further agreed issue is whether the DPM is “otherwise unlawful as (a) contrary to general principles of transparency, non-discrimination and/or proportionality, (b) as distorting, narrowing and/or undermining competition, and/or (c) as having been adopted in manifest error.”

The Claimant’s allegations in these respects were not developed to any significant extent in its pleaded case. The Defendant’s contention that these aspects of the Claimant’s case are “vague” and/or “unexplained” therefore has considerable merit. These points were not developed in oral submissions either, the focus being on unequal treatment and objective justification. The Claimant’s case on manifest error appears to be based on the contention that the DPM confers an inbuilt advantage on MSD and could result in it winning the Gold Lot even where its Comparison Price is not the best within a particular segment. However, for reasons already explained, the Defendant has, not unreasonably, opted to take a whole market approach, which means, as set out in the ITPD, that the best bid does not necessarily mean the ‘cheapest’ bid. The “inbuilt advantage” point has already been addressed above. The Claimant’s case on manifest error adds little and is not made out.

The claim under Regulation 18, PCR is based on the email from Mr Huskinson containing the reference to accommodating MSD. For reasons already discussed, I find that there was no intention unduly to favour MSD or disadvantage the Claimant and/or Gilead.

Under UAM, as discussed above, suppliers bid on the basis of the number of patients they commit to cure in return for a fixed share of an annual ‘Pot 1’ sum of £73 million. Once the Pot 1 treatment targets are achieved by all bidders, further treatments are remunerated via the Pot 2 bonus pot, worth up to a further £117 million. The Defendant’s rationale for offering the fixed fees under Pot 1 of UAM was to provide financial certainty for suppliers and to avoid the “feast or famine” pattern of outcomes which some bidders had complained about following previous tendering exercises.

Clinicians are free to prescribe whatever treatments they wish under UAM and are not bound by any rate card restrictions. The Claimant contends that this, in conjunction with the fixed fee, creates a problem in that a bidder with a pan-genotypic treatment which is popular with clinicians will end up having to treat substantially more patients than it has committed to treat in return for its Pot 1 fixed fee. The Claimant says that in a free prescribing environment, MSD is likely only to secure about 8% of treatments. However, if MSD were to win the Bronze Lot, it would secure a fixed fee of £14 million, which represents 19% of the total Pot 1 sum. That, says the Claimant, demonstrates the inherent unfairness of the UAM. The Claimant further contends that, based on its understanding of the Defendant’s stated requirement that bids provide better value than those produced by the Bridging Tender, a bidder in MSD’s position would have to commit to treat a much larger number of patients than it could possibly hope to achieve, with the result that other bidders would have to treat substantially more than their committed numbers in order to make up the shortfall.

The Defendant contends that there is no unequal treatment in that the same rules are being applied to all bidders, that the Claimant’s concerns about MSD committing to an unrealistic number of treatments are unfounded and based on a misunderstanding of the nature of the bids expected, that the Claimant has demonstrated no loss so as to give rise to an actionable claim, and that if there is any unequal treatment, the same is clearly objectively justified.

Before dealing with the specifics of the Claimant’s claim under UAM and the

The Claimant submits that there is no such limitation on the scope of the duty of equal treatment. The duty applies in respect of the design of the Procurement, as referred to in Regulation 18, and plainly encompasses all terms and conditions set out in the procurement documents. These would include terms contained in proposed contractual documents. If that were not so, submits the Claimant, then a contracting authority could readily circumvent its procurement obligations by the device of including objectionable tender rules as contract conditions. Furthermore, if the Defendant were correct that the PCR do not apply to the terms of contracts then there would be no obstacle to a contracting authority making changes to the proposed terms after the contract has been awarded. However, the ECJ has expressly decided that authorities are not free to make such changes: see C – 496/99 Commission of the European Communities v CAS Succhi di Frutta SpA[2004] ECR I-3801 at paragraphs 117 to 121.

In my judgment, the Claimant’s submissions are to be preferred:

For all of these reasons the Defendant’s jurisdictional argument is rejected.

I turn then to consider the specific challenges to the UAM.

The Claimant submits that the UAM gives rise to unequal and unfair treatment in that a bidder with a more popular treatment will end up having to treat substantially more patients than it is committed to treat in return for its Pot 1 fixed fee. The Claimant describes the risk of this happening as the risk of “unremunerated supply”. That description is somewhat inapt, in my judgment, because the fixed fee ensures that the supplier will always receive some remuneration. The risk is that it may end up having to supply more treatments in return for that fixed fee than its commitment. However, it seems to me that that is the very nature of any fixed fee arrangement, whereby the supplier accepts the risk of a reduced level of profit in exchange for the certainty of a fixed sum.

The principle of equal treatment is breached, as set out above, if comparable situations are treated differently or if different situations are treated in the same way unless such treatment is objectively justified. The Claimant submits that there is a difference between the Claimant and MSD in this case that requires different, proportionate, responses from the Defendant in formulating the tender rules. The Defendant submits that this is a case where the same rules apply to all bidders and there is no breach of the equal treatment principle.

In my judgment, it is quite clear that this is a situation where all suppliers are in a comparable position and are subject to the same rules. The Claimant’s contention that its position is not comparable to that of MSD for the purposes of the UAM is based on the differing popularity of the treatments which each is able to supply. However, that difference in popularity does not mean that the two are not comparable for the purposes of a tendering exercise in a free prescribing environment. Were that not so then in any situation where one bidder had a competitive advantage over another, the tender rules would have to account for that difference in order not to fall foul of the equal treatment principle. That cannot be the correct approach. As stated by Prof Arrowsmith at 7-13 of her book:

“… To characterise distinctions based on differences in competitive position as prima facie prohibited and requiring justification is inappropriate given that the very objective of national procurement procedures is to choose the most competitive bid – it would be odd to characterise the selection of one tenderer above another based on price, for example, as involving different treatment of comparable situations and needing justification.”

The situation here is somewhat different from that pertaining to the assessment of bids in the RCM which involved the award of a particular market share in a controlled prescribing environment. There, 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 is no fixed market share and no controls on prescribing. Accordingly, the advantage which the Claimant believes it had by reason of its more popular product, is a difference in competitive position which does not need to be

The Defendant submits that the absence of unequal treatment is sufficient to dispose of this part of the claim. I agree. However, it is necessary to deal with a further aspect of the Claimant’s case in this regard based on the Claimant’s understanding that each supplier’s bid had to offer greater value than that supplier’s bid under the Bridging Tender. This has been referred to as the Claimant’s “value understanding”.

The value understanding, according to the Claimant, means that MSD would have to commit to a much larger number of patients than it could possibly hope to treat, thereby greatly increasing the risk that the Claimant and/or Gilead would be called upon to “plug the gap” and provide additional treatments for no additional fee. Such a bid from MSD would also mean that the collective treatment target for Pot 1 would not be met, with the consequence that Pot 2, and the potential for additional remuneration, would not be triggered.

It is first necessary to determine whether the Claimant’s value understanding is correct. There is no dispute that the tender required each bid to be compliant and competitive. There is, however, a dispute as to what was meant by a ‘competitive’ bid in the circumstances. The Claimant submits that a competitive bid can only mean one which offered better value than that bidder’s existing offer under the Bridging Tender.

The Claimant submits that the words “proposal” and “it” in that response can only be read as meaning that each bidder’s proposal must be competitive in the sense of delivering greater value than that bidder’s bid in the Bridging Tender.

The Defendant submits that the Claimant’s value understanding, based as it is on a single isolated response to a clarification question, is erroneous and inconsistent with what is said in the tender documents more generally. The Defendant relies on what actually transpired in terms of bids received, which, in its submission, clearly indicate that the other parties did not share the Claimant’s value understanding. Furthermore, the Defendant submits that the Claimant’s fear that MSD would, based on the said value understanding or otherwise, commit to treating unrealistically large numbers, is unfounded because of the existing mechanisms in the tender rules designed to prevent such unrealistic bids.

The test to be applied in construing tender documents is that one should adopt the construction which would be adopted by a reasonably well-informed and normally diligent (“RWIND”) tenderer: see Healthcare at Home Ltd v The Common Services Agency [2014] PTSR 1081 at paragraphs 8 to 12.

The RWIND tenderer would take account of the whole of the tender documentation. That includes the following:

The Claimant’s value understanding was not therefore one that would be adopted by the RWIND tenderer. Support for that conclusion is to be found in the fact that neither MSD nor Gilead placed bids, which reflected the Claimant’s value understanding. (Further details are in the Confidential Annex).

The Claimant’s fear that MSD would commit to treat an unrealistic number of patients was based on MSD adopting the same value understanding as the Claimant. Clearly MSD did not do that. But there were, in any case, mechanisms built into the tender which would have dissuaded MSD and other tenderers from putting in unrealistic bids. These may be summarised as follows:

These conclusions as to the Claimant’s value understanding and the rules discouraging unrealistic bids mean that the underlying premise of the Claimant’s primary case under this head, namely that it would have to plug the large gap created by MSD’s failure to meet its commitments, falls away.

The Claimant’s further contention is that MSD’s actual bid is likely to result in a price per treatment that far exceeds its Bridging Tender price and which cannot be said to be competitive or deliver better value. (This argument is considered in further detail in the confidential annex). In my judgment, the argument cannot be accepted.

The argument ignores the considerable importance attached by the Defendant to the elimination solutions. Given that ‘better value’ in this context is not defined solely by the raw price, it is quite clear that substantial elimination solutions might well result in the bids overall being deemed to provide better value than existing arrangements notwithstanding the fact that the price per treatment in respect of a particular bidder might be higher.

The Claimant considers the unfairness of the rules is demonstrated by the fact that MSD could, by winning the Bronze Lot, receive 19% of the Pot 1 sum in return for providing only 8% of the treatments. (Footnote: ¹²) However, if one were to assume that the remaining 92% of treatments were divided equally between the Claimant and Gilead, it would mean that the winner of the gold lot would receive 51% of the fee (37/73) for providing only 46% of treatments. Whilst the disparity is not as great, the calculation demonstrates that there will not be a precise match between the fixed fee for any particular lot and the number of treatments provided. The risk that one supplier may end up providing more or less than its committed treatment number is inherent in any fixed fee model. It is for the supplier to consider whether that risk is one worth taking

The Claimant also refers in its submissions to the considerable uncertainty associated with recovering a Pot 2 payment. That is not a pleaded ground of inequality and unfairness and there is no need to lengthen this judgment by considering it.

In conclusion, it is my view that the Claimant has not established that the provisions of the UAM give rise to unequal treatment. The situation is one where comparable situations are subject to the same rules and, in any event, the fundamental factual premise of the Claimant’s claim, which is based on its value understanding, is incorrect. As such, its claim under this head fails.

However, as with RCM, I go on to consider the question of objective justification in case my conclusions about unequal treatment are incorrect. Before doing so, I deal briefly with a broader point raised by the Defendant, and that is that even if there is any breach, it is not actionable by the Claimant within the meaning of Regulation 91, PCR because there is no loss.

Regulation 91 provides that a breach of duty is actionable by any economic operator which, in consequence, suffers, or risks suffering, loss or damage. The Defendant relies upon the absence of particulars in the Claimant’s pleaded case in this regard and further contends that insofar as the Claimant has suffered a risk of loss that risk has arisen because the Claimant chose to take a particular course of action that was not dictated by the tender rules. (Further details are in the Confidential Annex).

I agree that the Claimant’s pleaded case is somewhat vague on the issue of loss. However, I am satisfied that the Claimant’s case is tolerably clear in that it says it was forced to take a particular course of action by reason of the unlawfulness of the UAM methodology and has therefore suffered loss and damage, or the risk of loss and damage. The Procurement here is designed specifically not only to assess bids but also to influence their content. In those circumstances, the deviation by a bidder from a course that it might otherwise have taken had it not been for the impugned tender rule, and which results in a potential loss to that bidder, remains actionable within the meaning of Regulation 91.

The Claimant submits that the particular feature of the UAM methodology that gives rise to unequal treatment, and which requires objective justification, is the absence of any effective tender rule to address or mitigate the risk of unremunerated supply.

It is notable that in its Reply (paragraph 31), the Claimant did not seek to suggest that the Defendant was directing its case on objective justification to the wrong target. In any case, what needs to be justified is the unequal treatment in question. In this case the unequal treatment complained about by the Claimant is the risk that a bidder with a more popular treatment will have to treat substantially more patients than it has committed to treat in return for its Pot 1 fixed fee. Measures which might address or mitigate that risk would be designed to remove the inequality, but the absence of such measures does not create a further inequality that needs to be justified. I should also add that the agreed list of issues provided that the unequal treatment to be justified was the “fixed fee” provisions set out in the ITPD, and not the absence of tender rules to mitigate the risk of unremunerated supply.

In my judgment it is clearly the fixed fee system under UAM that falls to be objectively justified if it gives rise to unequal treatment.

Turning then to the Defendant’s case on objective justification, the Defendant (upon whom the burden would lie in this respect) relies upon the following:

Before concluding this section, I shall deal with one or two further arguments raised by the Claimant in the course of its submissions on objective justification:

The Claimant submits that the Defendant could have adopted mechanisms applicable to the RCM in the UAM in order to mitigate the “risks of unremunerated supply”. These mechanisms involve capping the market share allocation according to the ceiling of patients a bidder can treat, and allowing for a remunerated redistribution where a supplier wins a lot that includes more market share than it can serve. The Claimant’s case in this regard is set out in paragraph 13 of its Particulars of Claim.

This defence is dismissed in the Claimant’s Reply as speculation as to what bidders would do. However, having heard the evidence in this matter, I am satisfied that the assumptions as to what bidders should be able to estimate and the disincentives against making unrealistic commitments, are entirely reasonable and not speculative. In my judgment, the points made in paragraph 31(v) of the Defence provide a complete answer to the suggestion that these RCM mechanisms should have been applied to UAM. These mechanisms were simply not appropriate or necessary in the UAM. The fact that the Defendant did not apply them to UAM does not, therefore, affect the proportionality balance considered above.

The Claimant further complains that there is no comfort in the fact that there is a Pot 2 bonusunder UAM because that pot may never be triggered. The Defendant accepts that the Pot 2 bonus may not be reached but submits that the evidence demonstrates that it is very likely that it would be. There is a strong incentive to achieve the Pot 1 targets so as to trigger the entitlements under Pot 2. The Claimant’s belief that Pot 2 may not be triggered is largely based on its value understanding and belief that that would lead to unrealistically large bids which could never be met. For reasons already discussed, I consider that value understanding to be erroneous and the likelihood of unrealistic bids to be very low. In those circumstances, it is quite likely, in my judgment, that the bonus pot would be triggered. Payments from Pot 2 would of course further mitigate the limited additional costs that might be incurred in treating additional patients under Pot 1. This weighs in favour of the fixed fee model being a proportionate means of achieving the legitimate aim.

The Claimant submits that the system whereby suppliers that exceed their Pot 1 target will need to rebate the difference between the amount paid and the fixed fee, contravenes paragraph 2.7 of the PPRS policy requiring the Defendant to “seek to bring to an end initiatives by NHS commissioners (NHS England or clinical commissioning groups) to arrange for rebates to be paid by manufacturers to the commissioning body for the supply of medicines… to providers of NHS services in primary or secondary care.” This rebate mechanism is pleaded at paragraph 11 of the Particulars of Claim. Paragraph 31(i) of the Defence provides that, “The financial adjustments referred to in paragraph 11 are immaterial to the substance of the Claimant’s challenge, which is to the underlying fixed fee arrangements which those adjustments are designed to achieve.” That paragraph of the Defence is admitted in the Reply. In those circumstances, it would appear that the rebate mechanism itself is

However, even if I am wrong about that, the rebates in this case only apply in respect of any excess over a substantial fixed fee sum (unless the target number of patients is not reached). This is not a case, therefore, of rebates resulting in the supplier being left without any remuneration for a supplied product. It is not apparent to me that the mischief which the policy seeks to address is one that arises in the circumstances of the present case. In any event, the policy does not seek to prohibit rebates with immediate effect but notes that the Defendant “has agreed to seek to bring to an end” initiatives arranging for rebates. In these circumstances, even if this policy were relevant to the question of justification, I would regard it as a marginal factor which does not get near to tipping the proportionality balance the other way.

For the reasons set out above, my answers to the four issues identified above are as follows:

The Claimant’s claim must therefore be dismissed.