Affirmation of Dummy Price Mechanism and Fixed Fee Structures in Public Procurement: Abbvie Ltd v. NHS England

Introduction

The case of Abbvie Ltd v. The NHS Commissioning Board (NHS England) ([2019] EWHC 61 (TCC)) addresses significant issues in the realm of public procurement, specifically concerning the procurement of Hepatitis C (HCV) treatments by NHS England. Abbvie Ltd, a pharmaceutical manufacturer, challenged the procurement rules implemented by NHS England, arguing that certain mechanisms within the procurement process violated the principles of equal treatment and fairness as mandated by the Public Contract Regulations 2015 (PCR).

The procurement in question was notable for being the largest ever undertaken by the Defendant, valued at approximately £1 billion over five years. The litigation focused on two primary aspects of the procurement rules: the Dummy Price Mechanism (DPM) under the Revenue Capped Model (RCM) and the fixed fee provisions under the Unmetered Access Model (UAM).

Summary of the Judgment

Mr. Justice Choudhury presided over the case, delivering a judgment that ultimately dismissed Abbvie Ltd's claims. The court examined whether the DPM and the fixed fee provisions in the RCM and UAM respectively breached the duty of equal treatment as outlined in Regulation 18(1) of the PCR, and if so, whether these breaches were objectively justified.

The court concluded that:

• The application of the DPM under the RCM did not amount to a breach of the equal treatment principle.
• Even if a breach were found, the DPM was objectively justified as a proportionate means to achieve legitimate aims.
• The fixed fee provisions under the UAM did not breach the duty of equal treatment.
• Were any breach identified, the fixed fee provisions were similarly found to be objectively justified.

Consequently, Abbvie Ltd's claim was dismissed, affirming the lawful use of both the DPM and fixed fee structures in the NHS England procurement process.

Analysis

Precedents Cited

The judgment extensively referenced key legal precedents to underpin the principles of equal treatment and the discretionary power of contracting authorities in procurement processes:

• Cases C-21/03, C-34/03 Fabricom v Belgium: Established that equal treatment requires comparable situations not to be treated differently unless objectively justified.
• Case C-243/89 Commission v Denmark: Highlighted situations where contractors may not be in a comparable position, such as with incumbent providers.
• Case T-211/17 Amplexor Luxembourg Sarl v European Commission: Confirmed that certain differential treatments do not breach equal treatment if they are neither arbitrary nor excessive.
• Case C-448/01 EVN AG v Wienstrom GMBH Austria: Affirmed the autonomy of contracting authorities in setting award criteria within the bounds of Community law.
• Healthcare at Home Ltd v The Common Services Agency [2014] PTSR 1081: Emphasized the role of a reasonably well-informed and normally diligent tenderer in interpreting procurement documents.
• C-496/99 Commission of the European Communities v CAS Succhi di Frutta SpA [2004]: Reinforced that contracting authorities cannot unilaterally alter contractual terms post-award without proper authorization.

Legal Reasoning

The core of the court's reasoning rested on whether the procurement mechanisms used by NHS England violated the equal treatment principle and, if so, whether such violations were justified. The court assessed the DPM and fixed fee provisions against the standards set by the PCR and relevant case law.

• Dummy Price Mechanism (DPM) in RCM:
  • The DPM was designed to impute prices for bidders unable to supply certain market segments, ensuring comparability.
  • Abbvie Ltd argued that this mechanism unfairly advantaged MSD by guaranteeing it the lowest price in a particular segment.
  • The court found that MSD was in a different competitive position due to its inability to supply the full market, and the DPM was a legitimate method to facilitate a whole market approach without creating artificial advantages.
  • Even if the DPM conferred some advantage, it was deemed proportionate and necessary to achieve the procurement's legitimate aims.
• Fixed Fee Provisions in UAM:
  • The fixed fee system aimed to provide financial certainty and encourage investment in elimination initiatives.
  • Abbvie Ltd contended that this system could compel suppliers to treat more patients than committed without additional remuneration.
  • The court recognized that while there was a risk suppliers might exceed commitments, the fixed fee arrangement was a standard procurement method addressing known procurement challenges.
  • Mechanisms within the UAM, such as reimbursement rules and disqualification provisions, mitigated the risks of unrealistic bids, ensuring fairness and proportionality.

Impact

This judgment has significant implications for public procurement practices, especially in the pharmaceutical sector:

• Affirmation of Procurement Flexibility: The court upheld the discretion of contracting authorities to design complex procurement models tailored to specific market conditions and objectives.
• Legitimacy of Equal Treatment Considerations: It reinforced that equal treatment does not necessitate identical treatment for bidders in inherently different competitive positions.
• Encouragement of Whole Market Approaches: The ruling supports the use of mechanisms like the DPM to foster broader competition and achieve public health objectives without breaching legal principles.
• Benchmark for Future Cases: Future litigations involving procurement mechanisms will likely reference this judgment when assessing the fairness and legality of similar procurement strategies.

Complex Concepts Simplified

Conclusion

The judgment in Abbvie Ltd v. NHS England reaffirms the rightful discretion of public authorities in designing procurement processes that balance competition, cost-effectiveness, and public health objectives. By upholding the legality of the DPM and fixed fee structures, the court recognized the necessity of tailored procurement mechanisms in complex markets like pharmaceuticals. This decision underscores the importance of context-specific evaluations in procurement law and provides a clear precedent that similar mechanisms, when appropriately justified, comply with legal standards of fairness and equality.