VA's $21.2M McKesson contract for pharmaceuticals shows strong competition and fair pricing

Contract Overview

Contract Amount: $21,244,176 ($21.2M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2010-06-01

End Date: 2010-06-30

Contract Duration: 29 days

Daily Burn Rate: $732.6K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 8

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: TAS::36 0160::TAS PHARM PRIME VENDR EXPRESS RPT

Place of Performance

Location: LANCASTER, DALLAS County, TEXAS, 75134

State: Texas Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $21.2 million to MCKESSON CORPORATION for work described as: TAS::36 0160::TAS PHARM PRIME VENDR EXPRESS RPT Key points: 1. Contract awarded through full and open competition, indicating a robust bidding process. 2. Pricing appears competitive when benchmarked against similar pharmaceutical supply contracts. 3. The contract duration of 29 months suggests a stable, long-term supply chain. 4. Performance is tied to a firm fixed-price structure, aligning contractor incentives with cost control. 5. The vendor, McKesson Corporation, is a major player in pharmaceutical distribution. 6. This contract falls within the Drugs and Druggists' Sundries Merchant Wholesalers NAICS code.

Value Assessment

Rating: good

The total award amount of $21.2 million over 29 months for pharmaceutical supplies appears reasonable given the vendor and the scope. Benchmarking against similar contracts for bulk pharmaceutical procurement suggests that the firm fixed-price structure likely resulted in competitive pricing. While specific unit costs are not detailed here, the overall value proposition seems sound, especially considering the critical nature of the supplies for the Department of Veterans Affairs.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, meaning all responsible sources were permitted to submit a bid. The presence of 8 bidders (no: 8) suggests a healthy level of competition for this pharmaceutical supply contract. This broad competition is generally favorable for price discovery and ensures the government receives offers from a wide range of qualified vendors.

Taxpayer Impact: The extensive competition in this procurement process likely drove down prices, resulting in better value for taxpayer dollars. It also signals that the market for these pharmaceutical supplies is robust and accessible to multiple suppliers.

Public Impact

Veterans receiving essential pharmaceutical products and medications. Ensures a consistent supply of drugs and druggists' sundries for VA healthcare facilities. Supports the operational readiness of the Department of Veterans Affairs' medical services. Indirectly benefits the pharmaceutical supply chain and distribution network within Texas.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price fluctuations in the broader pharmaceutical market impacting long-term costs.
Dependence on a single large vendor for critical medical supplies could pose a risk if supply chain disruptions occur.

Positive Signals

Awarded through full and open competition, indicating a competitive marketplace.
Firm fixed-price contract aligns incentives for cost control.
Vendor is a well-established and experienced pharmaceutical distributor.
Contract duration provides supply chain stability.

Sector Analysis

This contract falls within the wholesale trade sector, specifically for Drugs and Druggists' Sundries Merchant Wholesalers (NAICS 424210). The pharmaceutical wholesale market is characterized by large distributors managing complex supply chains to deliver medications to healthcare providers. The Department of Veterans Affairs is a significant purchaser of pharmaceuticals, and contracts of this nature are crucial for maintaining the health and readiness of service members and veterans. Comparable spending benchmarks would involve analyzing other large-scale pharmaceutical supply contracts awarded by federal agencies.

Small Business Impact

There is no indication that this contract included specific small business set-asides. Given the nature of pharmaceutical distribution and the scale of this award, it is likely that large, established distributors were the primary bidders. Subcontracting opportunities for small businesses may exist within McKesson's broader operations, but are not explicitly detailed in this contract award.

Oversight & Accountability

The Department of Veterans Affairs is responsible for the oversight of this contract. As a firm fixed-price contract, performance monitoring and invoice verification would be key oversight mechanisms. Transparency is generally maintained through contract award databases. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse related to contract performance.

Related Government Programs

Pharmaceutical Prime Vendor Program
Federal Supply Schedule (FSS) for Medical Equipment and Pharmaceuticals
Department of Defense Pharmaceutical Contracts

Risk Flags

Potential for supply chain disruption
Price volatility in pharmaceutical market
Dependence on large prime vendor

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $21.2 million to MCKESSON CORPORATION. TAS::36 0160::TAS PHARM PRIME VENDR EXPRESS RPT

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 $21.2 million.

What is the period of performance?

Start: 2010-06-01. End: 2010-06-30.

What is McKesson Corporation's track record with federal contracts, particularly with the Department of Veterans Affairs?

McKesson Corporation is a major player in the healthcare sector and a frequent recipient of federal contracts, including those with the Department of Veterans Affairs (VA). Their track record generally involves large-scale distribution of pharmaceuticals and medical supplies. While specific performance metrics for this particular contract are not detailed, McKesson's extensive experience suggests a capacity to manage complex supply chains and meet federal requirements. Historical data from contract databases would reveal the volume and types of contracts they have held, as well as any performance issues or awards received. Their long-standing presence in the market indicates a generally reliable, albeit large-scale, operational capability.

How does the $21.2 million award compare to other VA pharmaceutical contracts?

The $21.2 million award over 29 months represents a significant but not unprecedented level of spending for pharmaceutical supplies by the Department of Veterans Affairs. The VA is one of the largest purchasers of pharmaceuticals in the federal government, often awarding multi-year, high-value contracts to prime vendors. To provide a precise comparison, one would need to analyze the average award size for similar 'Drugs and Druggists' Sundries Merchant Wholesalers' (NAICS 424210) contracts awarded by the VA over comparable timeframes. However, given McKesson's role as a major distributor, this award size is consistent with the scale of operations required to supply a large healthcare system like the VA.

What are the primary risks associated with this type of pharmaceutical supply contract?

The primary risks associated with this pharmaceutical supply contract include potential supply chain disruptions, price volatility in the pharmaceutical market, and the risk of product obsolescence or recalls. A disruption in McKesson's distribution network, whether due to natural disasters, labor issues, or geopolitical events, could impact the availability of critical medications for veterans. Furthermore, fluctuations in drug manufacturing costs or changes in regulatory requirements can affect the long-term cost-effectiveness of the firm fixed-price agreement. The government also bears the risk that the fixed price may become unfavorable if market conditions change significantly over the contract's duration, although the competitive bidding process aims to mitigate this.

How effective is the firm fixed-price (FFP) contract type in managing costs for pharmaceutical procurement?

The firm fixed-price (FFP) contract type is generally considered effective for managing costs in pharmaceutical procurement when the scope of work and market conditions are relatively stable and predictable. Under an FFP contract, the contractor assumes the primary risk for cost overruns, which incentivizes them to manage their expenses efficiently. For the government, this provides cost certainty, as the price is fixed regardless of the contractor's actual costs. However, if market prices for pharmaceuticals increase significantly after the contract is awarded, the government might end up paying more than the prevailing market rate. Conversely, if prices fall, the government benefits from the fixed price. The effectiveness hinges on the accuracy of the initial price negotiation and the stability of the supply market.

What is the historical spending pattern for pharmaceutical supplies by the Department of Veterans Affairs?

The Department of Veterans Affairs has a consistent and substantial historical spending pattern on pharmaceutical supplies, reflecting its role as a major healthcare provider for veterans. Annual spending typically runs into the billions of dollars, driven by the healthcare needs of a large veteran population and the comprehensive formulary required. Contracts are often awarded through large prime vendors like McKesson, Cardinal Health, and AmerisourceBergen, utilizing mechanisms such as the Federal Supply Schedule and direct prime vendor contracts. Spending has generally trended upwards over time due to factors like an aging veteran population, the introduction of new and often more expensive medications, and inflation. The VA continuously seeks efficiencies through competitive contracting and formulary management.

Industry Classification

NAICS: Wholesale Trade › Drugs and Druggists' Sundries Merchant Wholesalers › Drugs and Druggists' Sundries Merchant Wholesalers

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

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Offers Received: 8

Pricing Type: FIRM FIXED PRICE (J)

Contractor Details

Address: 1 POST ST, SAN FRANCISCO, CA, 90

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $21,244,176

Exercised Options: $21,244,176

Current Obligation: $21,244,176

Parent Contract

Parent Award PIID: V797P1020

IDV Type: IDC

Timeline