SRCL, which since December 2017 has been known as Stericycle, has lost its legal case against NHS England.
SRCL, a supplier of waste management services, challenged the outcome of an auction held by NHS England last year for the provision of clinical waste services to GPs and pharmacies across Cumbria and the North East of England. The contracts were for services covered by a Framework Agreement.
The auction was an online, or e-auction, administered by the Crown Commercial Service, with commercial operators appointed to the Framework - which included SRCL - invited to submit the most competitive bid to secure contracts.
SRCL was the main incumbent supplier and although it was successful with some of the contracts under Waves 1-5 of the e-auction, the court notes state that the company was not content with the prices it was achieving. It was revealed that SRCL wrote to NHS England in an attempt to persuade it to abandon the auction approach.
“There is no doubt that the lucrative business model that SRCL had previously enjoyed was no longer achievable as a result of the auction process. This was obviously a concern for SRCL. It attempted, through correspondence directly to NHSE, to persuade NHSE to abandon this approach. NHSE was not interested in doing so. NHSE took the view that it had been paying far higher than was commercially justified for the disposal of its clinical waste historically, and that it could achieve greater benefits for the public purse by conducting these auctions amongst the different bidders.”
Total revenue paid to SRCL by NHS England was revealed as £4,336 million, which earned SRCL a gross profit in excess of 50%. “This hardly looks like value for money for NHSE, and it is little wonder that the Framework Agreement and auction process was initiated in order to try and achieve better value for money for NHSE.”
During the disclosure process SRCL was also required to provide copies of presentation material it had used whilst planning its strategy for future auctions. These slides revealed SRCL had considered options, including: “We need to create a compelling event,” and “benefit the competition but hurt NHSE.”
The term “hurt NHSE” is one that Judge, Mr Justice Fraser singled out, saying: “I find that the intention behind that term plainly governed the approach adopted by SCRL.”
Legal challenge
SRCL challenged the award of the Wave 6 contract to HES, claiming that if the NHS had price-checked this winning bid it would have shown that it was not possible to fulfil the commitments made in the quality section of the tender evaluation. It attempted to demonstrate that the HES bid was abnormally low.
There were several points of contention raised by SRCL in this action. Among the most significant were:
SRCL challenged the use of a pyrolysis plant located in Scotland, owned by HES, as a means of disposing of the incineration-only waste. SRCL’s case stated that the disposal methodology had to be approved by the Environment Agency and said that the use of pyrolysis and the fact the plant is based in Scotland meant the bid did not meet this criteria.
SRCL also challenged the financial basis of the contract and attempted to show that insufficient margin had been allowed for profit for the company and to allow sufficient rates to be charged for some items in the contract – for example, the waste that must be incinerated. SCRL based these calculations on its own commercial ‘gate rate’ – the cost of using its incineration facility, which is £500 - £600 per tonne – but as HES is using its own facility, these rates do not necessarily equate.
Assumptions were also made over the desired gross profit margin and overheads.
Judge, Mr Justice Fraser, dismissed the SRCL challenge that the HES bid was an abnormally low tender. “This attack was, in large part if not exclusively, based on how much lower these bids were than SRCL's own bid. That was proposed as a benchmark. That bid could only, on SRCL's case, be seen as competitive because the gross profit margin included within it was so much lower than its existing gross profit margin. Further, the very sizeable gross profit margin currently being achieved by SRCL on the incumbent contract is integral to its whole strategy of bidding (or more accurately, not bidding competitively) in the Wave 6 auction, and attempting to persuade or prevent NHSE from holding such auctions. The existing gross profit margin of both SRCL and other incumbents is what drove NHSE to initiate the Framework Agreement and the auction process for services across England in the first place.”
Confidentiality request
The draft judgement was submitted to both parties (SRCL, now trading as Stericycle and NHS England) on July 20, 2018, at which point Stericycle requested that some ‘confidential’ material be removed from the publicly available document and placed in an appendix that would remain confidential.
Specifically, this material relates to Stericycle’s gross profit margin on its incumbent contract, its revenue, and the slides setting out its strategy for the Wave 6 auction, including the direct quotes: “create a compelling event,” and “hurt NHS England.”
The Judge dismissed this request and ruled that there was nothing “classically confidential” in this material and that it was in public interest for these matters to be included and publicly available.
NHS England response
In a media statement, Simon Stevens, Chief Executive of NHS England said: “The NHS has to be a wise steward of taxpayers’ money, and sometimes that means taking on vested interests.”
He added: “This case was a striking example where taxpayers were being asked to pay over the odds for a much needed service in order to fill the coffers of a private company. So we welcome the common sense judgement by the courts in favour of the NHS.”
The full transcript of this case can be read here:
