Competition Compliance Competition Compliance and and Procurement by the NHSProcurement by the NHS

David Marks

David.Marks@cms-cmck.com

020 7367 2136

Competition law

Procurement law – selling to the NHS

Competition lawCompetition law

Market definition The prohibitions Restrictive agreements Abuse of dominance Market studies

Market Definition Market Definition

Geographical Product

Restrictive agreements Abuse of a dominant position

in the UK or the EU

ProhibitionsProhibitions

Consequences of infringement Consequences of infringement

Commission and OFT – enforcement powers Fines Contractual invalidity Third party actions Bad publicity Money/time/stress Criminal sanctions (UK)

So compliance is important

Prohibition of restrictive agreements - Prohibition of restrictive agreements - Chapter I UK/Article 81 EC Chapter I UK/Article 81 EC

Any form of agreement between undertakings– including unwritten, informal or non-binding

understandings– including supply/vertical agreements – authorities look at economic reality and

practical operation – not just at text of agreement

Prohibition of anti-competitive Prohibition of anti-competitive agreements - Exemptionagreements - Exemption

Exemption available Benefits must outweigh detriments No pre-clearance

Examples of anti-competitive Examples of anti-competitive agreementsagreements Hardcore/serious

– price-fixing– market-sharing– export bans/limitations on parallel trade– collusive tendering

Not always serious– exchange of sensitive information– long-term exclusivity– exclusive territory/customer groups

De Minimis – a full “out”De Minimis – a full “out”

No “appreciable” effect on competition Non-competitors – individual shares up to 15% Competitors – combined shares up to 10% No hard core restrictions i.e.

– RPM– market partitioning

Abuse of a dominant position - Chapter Abuse of a dominant position - Chapter II UK/Article 82 EC II UK/Article 82 EC

Unilateral/No agreement with other undertakings required

Applies to companies in a strong market position

BUT dominance itself not prohibited – there must be an abuse

No exemptions

What is dominance?What is dominance?

Defined as the ability to act independently of competitors and other parties

No fixed market-share threshold – 35-40% = benchmark– 50 % = presumption of dominance

 Market definition the key

Pricing for dominant companies - Pricing for dominant companies - Examples of potential abuseExamples of potential abuse

Excessive pricing Predatory pricing Discriminatory pricing/other discriminatory

treatment Fidelity discounts Tying or full-line forcing Some refusals to supply

OFT power PPRS Distribution of medicines OFT considering others

Market Studies Market Studies

Procurement law – selling to the NHSProcurement law – selling to the NHS

Recap on procurement law Current Issues

ProceduresProcedures Principles of non-discrimination and transparency Directive 2004/18/EC – Public Supply Contracts

Regs 2006 Threshold for supplies and services - £90,319 OJEU advertisement Open or restricted (negotiation the exception) Pre-qualification on legal, financial and technical

standing only Choice for evaluation

– most economically advantageous tender (MEAT) or

– lowest price

Important FeaturesImportant Features

Frameworks Weighting of evaluation criteria

– contract notice or documents must state relative weighting

Standstill period– mandatory 10 days between award and

contract

FrameworksFrameworks

Maximum 4 years Same criteria at call off Call off with/without 2nd competition PaSA/NHSSC

– no purchase commitment– most favoured customer clauses– therapeutic specifications– price v. innovation?

Remedies - what goes wrong? e.g.Remedies - what goes wrong? e.g.

Change in specification Evaluation criteria misapplied Negotiation No competition at all Bid lost Conflicts of interest

RemediesRemedies

Choice of routes if breach identified– UK authorities– European Commission– court action

Has the contract been entered into?– standstill period– new remedies directive – set aside contract

in first 6 months Freedom of Information Act

Current issuesCurrent issues

Lowest price not whole life benefit Frameworks with subsequent price negotiation Clawback

– rebates sought by Trusts– linkage to future purchases

NHS Supply Chain

Competition Compliance Competition Compliance and and Procurement by the NHSProcurement by the NHS

David Marks

David.Marks@cms-cmck.com

020 7367 2136