Merck Sharp & Dohme received $1.48B for VFC vaccine in 2014, a definitive contract under full and open competition

Contract Overview

Contract Amount: $1,480,605,084 ($1.5B)

Contractor: Merck Sharp & Dohme LLC

Awarding Agency: Department of Health and Human Services

Start Date: 2014-04-01

End Date: 2015-03-31

Contract Duration: 364 days

Daily Burn Rate: $4.1M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 5

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: VSCCINE FOR CHILDREN (VFC) 2014

Place of Performance

Location: WEST POINT, MONTGOMERY County, PENNSYLVANIA, 19486

State: Pennsylvania Government Spending

Plain-Language Summary

Department of Health and Human Services obligated $1.48 billion to MERCK SHARP & DOHME LLC for work described as: VSCCINE FOR CHILDREN (VFC) 2014 Key points: 1. The contract value represents a significant investment in childhood immunization programs. 2. Full and open competition suggests a potentially competitive bidding process for this pharmaceutical supply. 3. The definitive contract type indicates a long-term agreement for vaccine provision. 4. Fixed-price terms provide cost certainty for the government. 5. The contract duration of one year aligns with typical vaccine supply cycles. 6. The award to a single contractor, Merck Sharp & Dohme, highlights market concentration for specific vaccines.

Value Assessment

Rating: good

The contract value of $1.48 billion for a single year of vaccine supply is substantial. Benchmarking this against other large-scale pharmaceutical procurements for childhood vaccines would be necessary for a precise value-for-money assessment. However, given the critical nature of the VFC program and the scale of procurement, the price appears to be within a reasonable range for a major pharmaceutical manufacturer. The firm fixed-price structure offers predictability, which is a positive indicator for cost management.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that all responsible sources were permitted to submit bids. The presence of 5 bidders suggests a healthy level of competition for this significant pharmaceutical supply contract. A competitive process generally leads to better price discovery and potentially more favorable terms for the government, as contractors vie for the award.

Taxpayer Impact: The full and open competition, with multiple bidders, likely resulted in a more cost-effective outcome for taxpayers compared to a sole-source or limited competition scenario.

Public Impact

Children across the United States benefit from access to essential vaccines through the VFC program. The contract ensures the supply of critical pharmaceutical products for public health initiatives. The geographic impact is national, covering all states, territories, and freely associated states. The contract supports the pharmaceutical manufacturing workforce and related supply chain jobs.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in future contract periods if competition diminishes.
Dependence on a single supplier for a critical vaccine could pose supply chain risks.
Ensuring equitable distribution and access across diverse geographic regions can be challenging.

Positive Signals

Successful execution of a large-scale, high-value contract demonstrates contractor capability.
Firm fixed-price contract provides budget certainty for the government.
Full and open competition suggests a robust market for vaccine procurement.
The contract supports a vital public health program, contributing to disease prevention.

Sector Analysis

The pharmaceutical preparation manufacturing sector is characterized by high R&D costs, stringent regulatory requirements, and significant market concentration among a few large players. This contract falls within the broader healthcare and pharmaceutical industry, which is a critical component of the US economy. Comparable spending benchmarks would involve analyzing other large government procurements for vaccines or essential medicines, which often run into hundreds of millions or billions of dollars annually.

Small Business Impact

The data indicates this contract was not set aside for small businesses, nor does it explicitly mention subcontracting goals for small businesses. Given the nature of large-scale pharmaceutical manufacturing, it is common for prime contracts to be awarded to large corporations. The impact on the small business ecosystem would likely be indirect, potentially through opportunities for smaller suppliers of raw materials or specialized services to Merck Sharp & Dohme, rather than direct subcontracting on this specific award.

Oversight & Accountability

Oversight for this contract would typically be managed by the Centers for Disease Control and Prevention (CDC), a component of HHS. Mechanisms likely include contract performance monitoring, quality assurance checks, and financial audits. Transparency is generally maintained through contract award databases and public reporting requirements. The Department of Health and Human Services Office of Inspector General (HHS-OIG) would have jurisdiction for investigating any potential fraud, waste, or abuse related to this contract.

Related Government Programs

Vaccines for Children Program
National Vaccine Injury Compensation Program
HHS Pharmaceutical Procurements
CDC Immunization Programs
Federal Supply Schedule (FSS) for Pharmaceuticals

Risk Flags

High contract value
Single awardee for critical supply
Dependence on specific manufacturer

Frequently Asked Questions

What is this federal contract paying for?

Department of Health and Human Services awarded $1.48 billion to MERCK SHARP & DOHME LLC. VSCCINE FOR CHILDREN (VFC) 2014

Who is the contractor on this award?

The obligated recipient is MERCK SHARP & DOHME LLC.

Which agency awarded this contract?

Awarding agency: Department of Health and Human Services (Centers for Disease Control and Prevention).

What is the total obligated amount?

The obligated amount is $1.48 billion.

What is the period of performance?

Start: 2014-04-01. End: 2015-03-31.

What is the historical spending trend for the Vaccines for Children (VFC) program over the last decade?

Analyzing historical spending for the VFC program reveals a consistent and significant federal investment in childhood immunizations. While the specific contract data provided is for 2014, broader VFC program spending has generally trended upwards over the last decade, reflecting increased vaccine costs, expanded immunization schedules, and sustained demand. For instance, annual federal outlays for the VFC program have often been in the range of $3-5 billion in recent years, though this figure encompasses multiple vaccine types and manufacturers. The $1.48 billion for Merck's specific vaccine in 2014 represents a substantial portion of the overall VFC budget for that year, highlighting the importance of this particular vaccine's inclusion in the program.

How does the firm fixed-price (FFP) contract type impact risk for both the government and the contractor in pharmaceutical procurement?

A Firm Fixed-Price (FFP) contract structure, as used in this $1.48 billion VFC vaccine award, places the primary risk of cost overruns on the contractor (Merck Sharp & Dohme). The government agrees to pay a set price, regardless of the contractor's actual costs incurred. This provides the government with significant budget certainty and protects against unexpected price increases. For the contractor, the risk lies in accurately estimating all costs associated with production, delivery, and any unforeseen challenges. If their costs exceed the fixed price, their profit margin shrinks or they may incur a loss. Conversely, if they manage costs efficiently, their profit margin is protected. This structure incentivizes the contractor to be highly efficient and cost-conscious.

What are the implications of awarding a definitive contract for vaccine supply, as opposed to other contract types?

A definitive contract, like the one awarded to Merck Sharp & Dohme for VFC vaccines, typically signifies a more formal and often longer-term commitment compared to simpler agreements like purchase orders. For vaccine supply, this suggests a structured, multi-year relationship or a significant single order with defined terms and conditions. It implies a higher level of planning and commitment from both the government and the contractor. The 'definitive' nature can provide greater assurance of supply stability for the government and a more predictable revenue stream for the contractor, facilitating long-term production planning and investment. It often involves more detailed specifications, delivery schedules, and quality requirements.

Given the $1.48 billion award value, what is the potential market share Merck Sharp & Dohme held for this specific vaccine within the VFC program in 2014?

Determining Merck Sharp & Dohme's exact market share for this specific vaccine within the VFC program in 2014 based solely on this $1.48 billion award is challenging without knowing the total VFC program expenditure for that year and the proportion allocated to this particular vaccine. However, the $1.48 billion figure represents a substantial procurement. If this contract covered the majority of the VFC program's need for this specific vaccine, Merck would have held a dominant market position for that product within the program for that contract period. The VFC program procures numerous vaccines, and the total annual budget often exceeds $4 billion. This single contract suggests it was for a high-demand or high-cost vaccine, making Merck a key supplier.

What are the typical performance metrics and quality assurance measures for pharmaceutical contracts like this one?

Pharmaceutical contracts, especially those for critical public health programs like VFC, are subject to rigorous performance and quality assurance measures. Key metrics often include on-time delivery rates, adherence to specified storage and handling conditions (cold chain integrity), product quality (purity, potency, absence of contaminants), and compliance with Good Manufacturing Practices (GMP). The government, through agencies like the CDC, typically conducts inspections of manufacturing facilities, reviews batch records, and may perform product testing. Contractual clauses often stipulate remedies for non-performance, such as penalties for late delivery or requirements for product replacement if quality standards are not met. Ensuring the safety and efficacy of the vaccine is paramount.

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

Solicitation ID: 2014N15784

Offers Received: 5

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Parent Company: Merck & CO., Inc. (UEI: 054554290)

Address: ONE MERCK DRIVE, WHITEHOUSE STATION, NJ, 08889

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

Financial Breakdown

Contract Ceiling: $3,001,020,600

Exercised Options: $3,001,020,600

Current Obligation: $1,480,605,084

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Timeline