VA awards $46.9M contract for pharmaceutical supplies to McKesson Corporation, highlighting a long-standing relationship

Contract Overview

Contract Amount: $46,942,754 ($46.9M)

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: $1.6M/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: HINES, COOK County, ILLINOIS, 60141

State: Illinois Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $46.9 million to MCKESSON CORPORATION for work described as: TAS::36 0160::TAS PHARM PRIME VENDR EXPRESS RPT Key points: 1. The contract represents a significant investment in ensuring access to essential medications for veterans. 2. McKesson Corporation, a major player in pharmaceutical distribution, holds a substantial portion of the market. 3. The duration of the contract suggests a stable supply chain is prioritized. 4. Fixed-price contracts generally offer cost certainty for the government. 5. The award was made under full and open competition, indicating a broad market search.

Value Assessment

Rating: good

This contract award of approximately $46.9 million to McKesson Corporation for pharmaceutical supplies appears to be within a reasonable range for such services, given the scale and duration. While specific benchmarking against identical contracts is challenging without more granular data on the exact mix of drugs and services, McKesson is a dominant supplier in this space. The firm fixed-price structure provides cost predictability for the Department of Veterans Affairs (VA). The contract's value should be assessed against the VA's overall pharmaceutical spending and the criticality of uninterrupted drug supply for veteran healthcare.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, suggesting that multiple vendors had the opportunity to bid. The presence of 8 bidders (as indicated by 'no': 8) points to a healthy level of competition for this requirement. This competitive process is expected to drive more favorable pricing and terms for the government compared to sole-source or limited competition awards. The VA's approach indicates a commitment to leveraging the market to secure necessary pharmaceutical supplies.

Taxpayer Impact: A competitive bidding process helps ensure that taxpayer dollars are used efficiently by driving down costs and encouraging vendors to offer their best value propositions.

Public Impact

Veterans across the nation will benefit from consistent access to necessary prescription medications. The contract ensures the supply of drugs and druggists' sundries, crucial for medical treatment. The geographic impact is national, covering all VA facilities requiring these supplies. The contract supports the pharmaceutical supply chain workforce, including logistics and distribution personnel.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in future contract renewals if competition diminishes.
Dependence on a single large contractor could create supply chain vulnerabilities if not managed proactively.

Positive Signals

Awarded through full and open competition, indicating a robust market engagement.
Firm fixed-price contract provides cost certainty for the duration.
Long-term contract suggests a stable and reliable supply of critical medications.

Sector Analysis

The pharmaceutical wholesale and distribution sector is a critical component of the healthcare industry, responsible for the timely and efficient delivery of medications from manufacturers to healthcare providers. This contract falls within the Drugs and Druggists' Sundries Merchant Wholesalers (NAICS 424210) category. The market is characterized by a few large, dominant players like McKesson, Cardinal Health, and AmerisourceBergen, who manage complex logistics and extensive product portfolios. Government contracts, particularly with agencies like the VA, represent a significant portion of this market due to the large patient populations served.

Small Business Impact

While this contract was awarded under full and open competition, there is no explicit indication of a small business set-aside. Large prime vendors like McKesson often have extensive subcontracting programs. Analysis would be needed to determine if small businesses are participating in the supply chain through subcontracting opportunities related to this award. The scale of this contract typically favors large distributors, but opportunities may exist for specialized logistics or niche pharmaceutical providers.

Oversight & Accountability

The Department of Veterans Affairs has established oversight mechanisms for its contracts, including performance monitoring and compliance checks. The contract's firm fixed-price nature simplifies some aspects of financial oversight. Transparency is generally maintained through contract award databases. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse related to this contract.

Related Government Programs

Department of Defense Pharmaceutical Prime Vendor Program
Federal Supply Schedule (FSS) for Pharmaceutical Products
National Acquisition Center (NAC) Contracts

Risk Flags

Long-term contract with a single dominant supplier
Potential for price escalation in future renewals
Supply chain vulnerability risk

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $46.9 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 $46.9 million.

What is the period of performance?

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

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

McKesson Corporation has a long and extensive history of contracting with the Department of Veterans Affairs (VA) and other federal agencies, including the Department of Defense and civilian agencies. They are one of the largest pharmaceutical distributors in the United States and globally. Their track record includes numerous prime vendor contracts, often awarded through competitive processes, to supply a wide range of pharmaceuticals and medical supplies. While generally considered a reliable supplier, like any large contractor, McKesson has faced scrutiny and occasional disputes related to pricing, product availability, and compliance in the past. However, their continued success in winning large federal contracts suggests a generally positive performance history and strong capabilities in meeting government requirements for pharmaceutical distribution.

How does the awarded amount of $46.9 million compare to historical VA spending on similar pharmaceutical supply contracts?

The awarded amount of $46.9 million for this specific contract (covering a 29-month period from June 1, 2010, to June 30, 2010, which appears to be a typo and likely represents a longer duration or multiple years) needs to be contextualized against the VA's overall pharmaceutical budget. The VA is one of the largest purchasers of pharmaceuticals in the federal government. Annual VA spending on pharmaceuticals can range in the billions of dollars. A single contract of this magnitude is significant but represents a portion of the total. To provide a precise comparison, one would need to analyze historical VA spending data for similar 'Drugs and Druggists' Sundries Merchant Wholesalers' (NAICS 424210) contracts, looking at both the total dollar value and the number of contracts awarded over time. This figure is substantial for a single contract but aligns with the VA's significant healthcare mission.

What are the primary risks associated with relying on a single large contractor like McKesson for pharmaceutical supplies?

Relying on a single large contractor like McKesson for pharmaceutical supplies presents several potential risks. Firstly, there's a risk of supply chain disruption; if McKesson faces internal issues (e.g., labor strikes, distribution center problems, cyberattacks) or external shocks (e.g., natural disasters affecting their facilities), it could lead to shortages of critical medications for veterans. Secondly, over-reliance can reduce the government's negotiating leverage in future contract renewals, potentially leading to price increases if competition is limited or less robust. Thirdly, there's a risk of vendor lock-in, making it difficult and costly to switch to alternative suppliers if performance issues arise. Finally, while McKesson is a large, established company, the concentration of such a critical supply function with one entity warrants careful monitoring and contingency planning by the VA.

What performance metrics or service level agreements (SLAs) are typically included in such VA pharmaceutical contracts to ensure quality and reliability?

Typical VA pharmaceutical supply contracts, including those with large distributors like McKesson, incorporate various performance metrics and Service Level Agreements (SLAs) to ensure quality and reliability. These often include requirements related to order fulfillment accuracy (e.g., percentage of orders delivered correctly), on-time delivery rates (e.g., percentage of orders delivered by the promised date/time), inventory management standards, product expiration date management (ensuring adequate shelf life upon delivery), and temperature control compliance during transport and storage. Contracts may also specify reporting requirements, such as regular performance reports and incident reporting for any stock-outs or delivery failures. Penalties or incentives may be tied to meeting or failing these SLAs, providing a mechanism for the VA to hold the contractor accountable for performance.

How does the 'firm fixed price' contract type influence the financial risk and cost certainty for the VA in this pharmaceutical contract?

The 'firm fixed price' (FFP) contract type is generally favored by the government when the scope of work is well-defined and risks are manageable, as it offers the highest degree of cost certainty. In this pharmaceutical supply contract, the FFP structure means that McKesson Corporation is obligated to provide the specified drugs and sundries at the agreed-upon price, regardless of their actual costs incurred. This shifts the financial risk primarily to the contractor. For the VA, this means that the total cost of the contract is known upfront, making budgeting and financial planning more predictable. It protects the VA from cost overruns due to contractor inefficiencies or unexpected increases in the contractor's labor or material costs. However, it also means the VA may not directly benefit from any cost savings the contractor achieves, and the initial price must be carefully negotiated to be fair and reasonable.

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: $46,942,754

Exercised Options: $46,942,754

Current Obligation: $46,942,754

Parent Contract

Parent Award PIID: V797P1020

IDV Type: IDC

Timeline