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Head of the National Audit Office Sir John Bourn today reported to Parliament on the propriety of the Department of Health’s award of a contract to PowderJect Pharmaceuticals to supply smallpox vaccine. The report also covers the procedures followed by the Department in purchasing emergency supplies of smallpox and anthrax vaccine; and the Department’s general procurement arrangements for a range of other vaccines including Measles, Mumps and Rubella (MMR) and influenza.

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The award of the smallpox contract

The NAO had found no link between personal donations to the Labour Party by the Chief Executive of PowderJect Pharmaceuticals and the award to the company by the Department of Health of the contract to supply smallpox vaccine.

In order to establish the propriety of the award in April 2002 of the smallpox vaccine contract to PowderJect, the Office had examined the events leading to the award. The appointment of PowderJect, linked with the Department’s decision not to reveal details of the procurement to the public, had raised concerns among some suppliers, in Parliament and in the media that the award of the £32 million contract was linked to donations to the Labour Party by the Chief Executive of the company. Two personal donations, each of £50,000, had been made by the Chief Executive, the second of the donations on 11 January coinciding with the smallpox procurement exercise.

As well as examining relevant documents and email exchanges between the Minister’s office and officials, the NAO questioned senior officials, including the Deputy Chief Medical Officer, about this matter. This confirmed that the Minister and officials had not been aware of the donations until 18 February 2002 when the submission recommending the award of the contract to PowderJect was delivered to the Minister’s office. Following a request from the Minister, the Permanent Secretary of the Department examined and subsequently endorsed the officials’ recommendation.

The crucial factor which led to the award of the contract was that PowderJect Pharmaceuticals was the only company which could supply the required new cell-derived Lister strain of the vaccine within the required timescales. PowderJect had an exclusive partnership with Bavarian Nordic for the supply of the Lister strain. Because of this partnership, Bavarian Nordic had declined to deal directly with the Department. The Department did not approach Impfstoffwerke Dessau-Tornau, the manufacturers of the vaccine, directly because it knew that the company was a subcontractor of Bavarian Nordic.

The procurement of smallpox and anthrax vaccines

The NAO’s examination of the procurement of smallpox and anthrax, where emergency supplies were required as a countermeasure to bio-terrorism, found that the Department had followed special procurement routes. For anthrax vaccine the Department contracted with its agency, the Centre for Applied Microbiology and Research, which was already producing the vaccine. And for emergency supplies of smallpox vaccine in 2002 the Department used exemptions available within EU rules on grounds of national security to conduct a confidential procurement process.

Although the confidential procurement arrangements allowed the Department to select a supplier without open competition, it tested the market by exploring with a number of companies whether they could meet its requirements. Competitor companies were, however, critical of the transparency of the procurement process: on the grounds that the bidding companies had to base their proposals on limited information on procurement criteria, timescales, contract scope and the strain of the vaccine.

The Department of Health is currently assessing the three bids received as part of the procurement process to acquire further supplies of smallpox vaccine. The procurement was advertised in the Official Journal of European Community in October 2002. The Department’s reasons for publicising this procurement, rather than seek an exemption, were that the national security issues would not be compromised, on the grounds that the first procurement of smallpox vaccine was now in the public domain. Also the procurement supplies were less urgent and a more transparent process was desirable.

The procurement of vaccines for the national immunisation programme

Regarding the procurement by the Department of Health of other, ‘routine’ vaccines, the NAO concludes that the Department complied with appropriate EU procurement regulations, encouraged sufficient competition and evaluated tenders fairly.

There are, however, a limited number of supplying companies worldwide and, for some vaccines, the supplier is in a near-monopolistic position. This makes it difficult to ensure there is sufficient competition for each contract and there is a risk of relatively higher prices. The small number of suppliers, coupled with the complexity of manufacturing processes, has resulted in shortages in the supply of many vaccines; and the Department has had to manage this risk in the case of Measles, Mumps and Rubella (MMR), Bacillus Calmette-Guérin (BCG for Tuberculosis), and Haemophilus influenzae type b, Diphtheria, Tetanus and wholecell Pertussis (Hib/DTwP) to avoid interruptions to its national childhood and contingency immunisation programme.

The Department’s strategy to deal with potential supply shortages, which can risk the immunisation programme leaving children without protection against potentially lethal disease, has been to award the contract to supply vaccine to more than one supplier. However, there is also a need for the Department to take a proactive, long-term approach to address the threat of supply shortages for some vaccines.

The NAO also recommends that the Department give greater priority to strengthening its general procurement arrangements and that it look at ways, such as its website, to make more widely available the process of vaccine procurement and the criteria required for contract award. The Department should also develop protocols in relation to procurements addressing specific threats. This should include guidance specifying when the national security over-ride should be considered. This would increase public and supplier confidence in the Department’s arrangements and introduce greater transparency.

"On the basis of investigation into the first procurement of smallpox vaccine by the Department of Health, we found no link between the personal donations to the Labour Party by the Chief Executive of PowderJect and the award to his company of the contract to supply the vaccine.

"However, even where national security dictates that the Department of Health cannot follow normal procurement procedures, the Department must still be as transparent as possible. There must be robust protocols for the special procurement procedures which are to be followed so that the Department can demonstrate that it has acted properly and fairly.

"Regarding shortages in the supply of vaccines, the public health consequences may be very serious indeed. The Department faces a challenge in ensuring vaccine supplies where the number of suppliers is diminishing and some suppliers enjoy a near monopoly, resulting sometimes in increased prices. The Department should define its long-term strategy for ensuring adequate vaccine supplies as a complement to its short-term handling arrangements to deal with vaccine shortages."

Sir John Bourn


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