VA awards $187M contract for pharmaceutical preparations to McKesson Corporation, a sole-source award

Contract Overview

Contract Amount: $187,072,060 ($187.1M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2012-06-01

End Date: 2012-06-30

Contract Duration: 29 days

Daily Burn Rate: $6.5M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: PHARMACEUTICALS

Place of Performance

Location: MURFREESBORO, RUTHERFORD County, TENNESSEE, 37130

State: Tennessee Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $187.1 million to MCKESSON CORPORATION for work described as: PHARMACEUTICALS Key points: 1. The contract value of $187 million over its period of performance suggests a significant volume of pharmaceutical products procured. 2. As a sole-source award, the absence of a competitive bidding process raises questions about potential overpricing and value for money. 3. The contract's duration of 29 days is unusually short for a contract of this magnitude, suggesting it may be a bridge or task order. 4. The award to McKesson Corporation, a major pharmaceutical distributor, indicates a reliance on established supply chains for critical medical supplies. 5. The 'NOT COMPETED' status highlights a lack of market exploration for potentially more cost-effective solutions or alternative suppliers. 6. The fixed-price contract type aims to provide cost certainty, but the lack of competition limits the government's ability to negotiate favorable terms.

Value Assessment

Rating: questionable

Benchmarking the value of this $187 million contract is challenging without knowing the specific pharmaceutical products and quantities. However, sole-source awards often carry a premium due to the lack of competitive pressure. Comparing this to similar large-scale pharmaceutical procurements, especially those that were competitively bid, would likely reveal a higher per-unit cost or less favorable overall pricing for this contract. The short duration also makes it difficult to assess long-term value.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning the Department of Veterans Affairs did not solicit bids from multiple vendors. This approach is typically used when only one vendor can provide the required goods or services, or in urgent situations. The lack of competition means that the government did not benefit from the price discovery and potential cost savings that a competitive bidding process would typically provide.

Taxpayer Impact: Taxpayers may have paid a higher price for these pharmaceuticals than they would have under a competitive contract. The absence of competition limits the government's leverage to negotiate the best possible price, potentially leading to less efficient use of taxpayer funds.

Public Impact

Veterans will benefit from the timely availability of necessary pharmaceutical preparations through the Department of Veterans Affairs. The contract ensures the supply of pharmaceutical products essential for medical treatment and healthcare services provided by the VA. The geographic impact is nationwide, as VA facilities across the country will likely receive these pharmaceuticals. The contract supports the pharmaceutical supply chain, indirectly impacting jobs within the manufacturing and distribution sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition may lead to higher costs for taxpayers.
Sole-source awards can reduce transparency in pricing.
Short contract duration raises questions about strategic sourcing.
Reliance on a single vendor could create supply chain vulnerabilities if not managed carefully.

Positive Signals

Ensures continuity of essential pharmaceutical supplies for veterans.
Award to a major distributor like McKesson suggests established reliability.
Fixed-price contract provides cost predictability for the VA.

Sector Analysis

The pharmaceutical manufacturing and distribution sector is a critical component of the healthcare industry, characterized by high regulatory standards and significant market concentration among a few large players. Federal spending in this area is substantial, driven by the needs of agencies like the Department of Veterans Affairs, Department of Defense, and others. This contract, valued at $187 million, represents a significant procurement within this sector, likely focusing on bulk purchasing of essential medications. Comparable spending benchmarks would involve analyzing other large-scale pharmaceutical contracts awarded by federal agencies, considering factors like product type, volume, and contract type.

Small Business Impact

This contract does not appear to involve a small business set-aside, as it was awarded to McKesson Corporation, a large publicly traded company. There is no information provided regarding subcontracting plans for small businesses. The impact on the small business ecosystem is likely minimal for this specific award, as it leverages the capabilities of an established large-scale distributor rather than fostering opportunities for smaller specialized firms.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Veterans Affairs' contracting and procurement offices. Accountability measures would include performance monitoring against contract terms and delivery schedules. Transparency is limited due to the sole-source nature of the award, making it harder for the public to scrutinize pricing. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

Department of Defense Pharmaceutical Contracts
Federal Supply Schedule (FSS) Pharmaceutical Programs
National Institutes of Health (NIH) Research Grants
Centers for Medicare & Medicaid Services (CMS) Drug Spending

Risk Flags

Sole-source award lacks competitive pricing.
Short contract duration for a large value.
Limited transparency on specific products and pricing.
Potential for overpayment due to lack of competition.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $187.1 million to MCKESSON CORPORATION. PHARMACEUTICALS

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 $187.1 million.

What is the period of performance?

Start: 2012-06-01. End: 2012-06-30.

What specific pharmaceutical products were procured under this $187 million contract?

The provided data indicates the contract is for 'Pharmaceutical Preparation Manufacturing' (NAICS code 325412) and was awarded to McKesson Corporation by the Department of Veterans Affairs. However, the specific list of pharmaceutical products, their quantities, and their intended use are not detailed in the available information. This level of detail is crucial for a comprehensive understanding of the contract's scope and value. Without this, it's difficult to assess if the $187 million represents a fair price for the goods received. Further analysis would require accessing the contract's statement of work or associated documentation.

How does the $187 million contract value compare to historical spending on similar pharmaceutical preparations by the VA?

To compare this $187 million contract value to historical VA spending, we would need to analyze previous contracts for pharmaceutical preparations, ideally with McKesson Corporation or other major distributors, over a similar period. The provided data shows a contract duration of only 29 days, which is exceptionally short for a contract of this value. This suggests it might be a bridge contract or a specific task order rather than a multi-year procurement. If this $187 million was spent over just 29 days, it represents an extremely high rate of expenditure. A more typical multi-year contract for similar volumes would likely have a lower annual average. Without knowing the exact period of performance this $187 million covers, a direct historical comparison is difficult but the implied monthly burn rate is exceptionally high.

What are the potential risks associated with a sole-source award of this magnitude?

A sole-source award of this magnitude carries several risks. Firstly, the lack of competition means the Department of Veterans Affairs (VA) likely did not achieve the lowest possible price, potentially leading to inefficient use of taxpayer funds. Secondly, it reduces transparency in pricing, making it difficult to benchmark against market rates. Thirdly, it creates a dependency on a single contractor, McKesson Corporation, which could lead to supply chain vulnerabilities if the contractor faces operational issues. Finally, it misses opportunities to foster competition and innovation within the pharmaceutical supply market, potentially stifling the growth of other capable vendors.

What is McKesson Corporation's track record with the Department of Veterans Affairs and other federal agencies?

McKesson Corporation is a major pharmaceutical distributor and has a long-standing relationship with the Department of Veterans Affairs (VA) and other federal agencies. They are a frequent recipient of large federal contracts for pharmaceuticals and medical supplies. Their track record generally involves fulfilling large-scale supply chain needs. However, like many large government contractors, they have also faced scrutiny and occasional disputes related to pricing, product recalls, and compliance issues in the past. A thorough review would involve examining specific past performance evaluations, any significant contract disputes, and their overall history of meeting delivery and quality standards across various federal procurements.

Given the 'NOT COMPETED' status, what justification was likely provided for this sole-source award?

The justification for a 'NOT COMPETED' sole-source award typically falls under specific exceptions to full and open competition outlined in federal acquisition regulations. For pharmaceutical preparations, common justifications might include: 1) Only one responsible source is available (e.g., unique manufacturing capability, proprietary product). 2) An urgent and compelling need exists where competition is not feasible. 3) The contract is a follow-on to a previous competition where only one source could provide the necessary supplies. Given McKesson's role as a major distributor, it's plausible the justification centered on their established infrastructure and ability to meet immediate or specific supply needs for the VA, possibly related to a particular formulary or urgent requirement where soliciting bids would cause unacceptable delays.

Industry Classification

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

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

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

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

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

Financial Breakdown

Contract Ceiling: $187,072,060

Exercised Options: $187,072,060

Current Obligation: $187,072,060

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12C0022

IDV Type: IDC

Timeline