This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its January 2019 decision in Abbvie Ltd v. The NHS Commissioning Board (NHS England), the UK High Court of Justice – Technology and Construction Court rejected a challenge launched by a pharmaceutical manufacturer based on allegations of biased specifications and evaluations. The dispute dealt with a bidding process for the acquisition of Hepatitis C drugs. The first ground of complaint challenged the government’s use of a “dummy price mechanism” that imputed costs in the price calculations onto bidders who could not provide products in certain categories, thus giving those bidders an advantage over suppliers who could provide those products. The second ground of complaint challenged the “unmetered access model” that established flat fee payment structures for treating a defined block of patients. The complainant challenged this payment structure as being unfair to certain suppliers by forcing them to supply more treatments than agreed to at no additional compensation.
The Court noted that UK law, which is based on European standards, requires that all bidders be treated equally without discrimination, and prohibits the artificial narrowing of competition:
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 and without discrimination and shall act in a transparent and proportionate manner.
(2) The design of the procurement shall not be made with the intention of excluding it from the scope of this Part or of artificially narrowing competition.
(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, 3rd 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 in this context. In general, this is to “ensure the development of effective competition”, 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 Court then cited two leading European Court of Justice (ECJ) cases that have applied these principles in the context of incumbent advantage:
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 “inherent de facto advantage” of an incumbent provider over other providers was accepted as putting the incumbent in a different position such that differential treatment intended to neutralise the advantage enjoyed by the incumbent did not amount to a breach of the equal treatment principle. However, there are limits to that principle in that, according to the same case (at paragraph 76), the advantage can only be neutralised to the extent that to do so is technically feasible, economically acceptable, and does not infringe the rights of the existing provider or a tenderer connected with that provider.
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.
The Court noted that contracting authorities are afforded a wide margin of discretion in designing and setting award criteria, and that the adoption of a scoring system that favours one bidder over another does not automatically breach the fair bidding rules:
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 Court ultimately accepted the government’s arguments, which maintained that the scoring structures were established to enhance, rather than detract against, competition by making it possible for more bidders to submit bids. With respect to the unmetered access model (UAM) calculations, the Court concluded that the fact that one product may prove more popular than another did not undermine the equal treatment principle for the purposes of the tendering process:
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.
The Court therefore ultimately rejected the complaint.
As this case illustrates, while government institutions are provided significant latitude in the structuring of their evaluation criteria, they also remain subject to challenge against allegations of bias in those criteria and must ultimately defend their evaluation rules if challenged on those rules by competing suppliers.
