VA pharmacy prime vendor contract awarded to McKesson Corporation for over $82.7 million in FY17

Contract Overview

Contract Amount: $82,727,955 ($82.7M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2017-06-01

End Date: 2017-09-30

Contract Duration: 121 days

Daily Burn Rate: $683.7K/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 10 FY17 JUN 1, 2017 TO SEP 30, 2017 CONTRACT VA797P-12-D-0001

Place of Performance

Location: SAN FRANCISCO, SAN FRANCISCO County, CALIFORNIA, 94104

State: California Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $82.7 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 10 FY17 JUN 1, 2017 TO SEP 30, 2017 CONTRACT VA797P-12-D-0001 Key points: 1. The contract represents a significant expenditure for pharmaceutical preparation manufacturing within the VA. 2. Analysis of value for money requires benchmarking against similar prime vendor contracts and market prices for pharmaceuticals. 3. Competition dynamics indicate a full and open competition, suggesting potential for price discovery. 4. Risk indicators may include supply chain vulnerabilities, drug price fluctuations, and contractor performance history. 5. Performance context is limited to a 4-month period (FY17 Q4), making long-term trend analysis difficult. 6. The contract positions McKesson Corporation as a key supplier within the healthcare sector for the VA.

Value Assessment

Rating: fair

The awarded amount of $82.7 million for a 4-month period suggests a substantial contract value. Benchmarking against other VA prime vendor contracts or similar federal procurements for pharmaceuticals is crucial to assess value for money. Without comparative data on per-unit drug costs or overall contract efficiency, a definitive value assessment is challenging. The firm-fixed-price nature provides cost certainty but may not fully capture potential savings from volume discounts or market fluctuations.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple bidders had the opportunity to submit proposals. The specific number of bidders is not provided, but this procurement method generally fosters a competitive environment, which can lead to more favorable pricing for the government. The agency's approach to competition is a positive indicator for price discovery and efficient use of taxpayer funds.

Taxpayer Impact: Full and open competition typically results in better pricing for taxpayers by encouraging multiple vendors to offer their best terms and prices.

Public Impact

Veterans across the nation benefit from timely access to necessary pharmaceuticals. The contract ensures the supply of a wide range of pharmaceutical preparations to VA medical centers. Services are delivered nationwide, supporting the VA's mission to care for veterans. This contract supports jobs within the pharmaceutical manufacturing and distribution sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases on pharmaceuticals over time.
Dependence on a single prime vendor could create supply chain risks.
Ensuring consistent quality and availability of all required medications.

Positive Signals

Awarded through full and open competition, suggesting competitive pricing.
Firm-fixed-price contract provides cost certainty for the period.
Supports a critical healthcare need for veterans.

Sector Analysis

The pharmaceutical preparation manufacturing sector is a critical component of the healthcare industry, characterized by high R&D costs, stringent regulatory oversight, and complex supply chains. Federal spending in this area is substantial, driven by the needs of agencies like the Department of Veterans Affairs and the Department of Defense. McKesson Corporation is a major player in pharmaceutical distribution and services, indicating this contract aligns with established market positions. Benchmarking against other large-scale pharmaceutical distribution contracts would provide further context on the scale of this award.

Small Business Impact

The provided data does not indicate any specific small business set-aside provisions for this contract. As a prime vendor contract of this magnitude, it is likely that McKesson Corporation, a large business, is the primary awardee. However, analysis of subcontracting opportunities for small businesses within the pharmaceutical supply chain would be necessary to fully assess the impact on the small business ecosystem.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' contracting officers and program managers. Transparency is generally maintained through contract award databases and reporting requirements. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse related to the contract's execution.

Related Government Programs

VA Federal Supply Schedule (FSS) contracts
DoD Pharmaceutical Prime Vendor contracts
Other agency pharmaceutical procurements

Risk Flags

Potential for price volatility in pharmaceutical markets.
Supply chain risks associated with single-source dependency.
Contract duration is short, limiting long-term performance assessment.
Need for ongoing monitoring of contractor performance and compliance.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $82.7 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 10 FY17 JUN 1, 2017 TO SEP 30, 2017 CONTRACT VA797P-12-D-0001

Who is the contractor on this award?

The obligated recipient is MCKESSON CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of Veterans Affairs (Department of Veterans Affairs).

What is the total obligated amount?

The obligated amount is $82.7 million.

What is the period of performance?

Start: 2017-06-01. End: 2017-09-30.

What is McKesson Corporation's track record with the VA for similar pharmaceutical contracts?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs, frequently serving as a prime vendor for pharmaceuticals. Historical data indicates they have been awarded numerous contracts and delivery orders over many years, often through competitive bidding processes. While specific performance metrics for past contracts are not detailed here, their continued success in securing large federal contracts suggests a generally satisfactory performance history. However, a deeper dive into past performance evaluations, any disputes, or contract modifications would provide a more comprehensive understanding of their track record with the VA.

How does the value of this contract compare to similar pharmaceutical prime vendor contracts awarded by the VA or other federal agencies?

The awarded amount of approximately $82.7 million for a 4-month period (FY17 Q4) translates to an annualized run rate of roughly $248 million. This figure is substantial and aligns with the typical scale of major pharmaceutical prime vendor contracts. For context, other large federal agencies like the Department of Defense also award multi-billion dollar contracts for pharmaceutical supplies annually. Comparing this specific contract's value to the average value of similar VA prime vendor contracts over comparable periods, adjusted for inflation and scope, would be necessary for a precise benchmarking. The firm-fixed-price nature also influences its comparability to contracts with different pricing structures.

What are the primary risks associated with this contract for the VA?

Key risks for the VA in this contract include potential drug price inflation, supply chain disruptions affecting the availability of critical medications, and contractor performance issues. Dependence on a single prime vendor, even one as large as McKesson, can create vulnerabilities if the contractor faces operational challenges or if market competition for certain drugs diminishes. Ensuring compliance with all regulatory requirements and maintaining the quality of pharmaceuticals delivered are also ongoing risks. Furthermore, the firm-fixed-price structure, while providing cost certainty, might limit the VA's ability to benefit from sudden market price drops.

How effective is the full and open competition process in ensuring value for money for this type of contract?

Full and open competition is generally considered the most effective method for ensuring value for money in federal procurements, including large pharmaceutical contracts. It allows multiple qualified vendors to compete, driving down prices and encouraging innovation. For this McKesson contract, the fact that it was awarded under this mechanism suggests that the VA sought competitive bids, which should have led to a more favorable price. However, the ultimate value for money also depends on the specific evaluation criteria used, the clarity of the solicitation, and the level of competition (i.e., the number of responsive bidders). Without knowing these details, it's presumed to be effective but not guaranteed.

What has been the historical spending trend for VA pharmaceutical prime vendor contracts over the last five fiscal years?

Historical spending on VA pharmaceutical prime vendor contracts has generally trended upwards over the last five fiscal years, reflecting increasing healthcare needs of the veteran population and rising pharmaceutical costs. While the specific data for this report only covers a 4-month period in FY17, broader VA spending patterns show significant investments in pharmaceutical procurement. This upward trend is influenced by factors such as an aging veteran population, the introduction of new and often more expensive medications, and inflation. Analyzing aggregated data from VA's Federal Procurement Data System (FPDS) or similar sources would provide precise figures on total spending and year-over-year changes for these types of contracts.

Are there any specific performance metrics or KPIs associated with this contract that indicate its effectiveness?

The provided data summary does not include specific performance metrics or Key Performance Indicators (KPIs) for this contract. Typically, large federal contracts, especially for critical services like pharmaceutical supply, include detailed performance standards related to delivery timeliness, order accuracy, product quality, customer service, and potentially cost-containment measures. The effectiveness of this contract would be assessed against these predefined metrics. Without access to the contract's statement of work or performance clauses, a definitive evaluation of its effectiveness is not possible based solely on the award data.

Industry Classification

NAICS: Manufacturing › Pharmaceutical and Medicine Manufacturing › Pharmaceutical Preparation Manufacturing

Product/Service Code: MEDICAL/DENTAL/VETERINARY EQPT/SUPP

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: ONE POST ST, SAN FRANCISCO, CA, 94104

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $82,727,955

Exercised Options: $82,727,955

Current Obligation: $82,727,955

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline