VA awards $40.6M for pharmacy services, McKesson Corporation secures contract for September 2015

Contract Overview

Contract Amount: $40,635,273 ($40.6M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2015-09-01

End Date: 2015-09-30

Contract Duration: 29 days

Daily Burn Rate: $1.4M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 5

Pricing Type: FIRM FIXED PRICE

Sector: Healthcare

Official Description: EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 16 FY 2015 SEP 1, 2015 TO SEP 31, 2015 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 $40.6 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 16 FY 2015 SEP 1, 2015 TO SEP 31, 2015 CONTRACT VA797P-12-D-0001 Key points: 1. Contract value represents a significant investment in pharmaceutical supply chain management for the VA. 2. Full and open competition suggests a robust bidding process, potentially leading to competitive pricing. 3. The contract duration of 29 days indicates a short-term need or a bridge to a longer-term solution. 4. The primary awardee, McKesson Corporation, is a major player in the pharmaceutical distribution industry. 5. This award falls within the Pharmaceutical Preparation Manufacturing sector, highlighting the VA's reliance on specialized suppliers. 6. The contract's fixed-price nature provides cost certainty for the government. 7. The absence of small business set-aside indicates the scale and nature of the requirement likely favored larger entities.

Value Assessment

Rating: good

The contract value of $40.6 million for a single month of pharmacy services is substantial. Benchmarking this against similar, longer-term pharmacy prime vendor contracts for the VA would be necessary for a precise value-for-money assessment. However, given the fixed-price nature and full competition, it suggests a determined effort to secure services at a competitive rate for the period. The award amount appears to align with the scale of national pharmacy operations.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The 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 competitive environment, which typically benefits the government by driving down prices and encouraging innovation. This level of competition is generally favorable for price discovery and ensuring the government receives fair market value.

Taxpayer Impact: Taxpayers benefit from the competitive bidding process, which aims to secure the best possible pricing for essential pharmaceutical supplies and services, thereby optimizing the use of public funds.

Public Impact

Veterans will benefit from uninterrupted access to necessary pharmaceuticals through efficient supply chain management. The contract ensures the delivery of pharmaceutical preparations, supporting the VA's healthcare mission. Services are likely to have a national impact, supporting VA medical centers and clinics across the country. The contract supports jobs within the pharmaceutical distribution and logistics sectors, including those employed by McKesson Corporation.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Short contract duration (29 days) may indicate a temporary solution or a gap-filling measure, potentially leading to future re-competition and associated administrative costs.
Reliance on a single large vendor for a critical service like pharmacy prime vendor raises concerns about long-term dependency and potential price increases in future contracts if competition diminishes.

Positive Signals

Awarded under full and open competition, suggesting a robust and fair bidding process.
Firm fixed-price contract provides cost certainty and protects the government from cost overruns.
The awardee, McKesson Corporation, is a well-established entity with significant experience in pharmaceutical distribution, implying a lower risk of performance issues.
The contract value, while substantial, is for a defined period, allowing for reassessment and potential adjustments in future procurements.

Sector Analysis

The pharmaceutical preparation manufacturing sector is critical for national health infrastructure, encompassing the production and distribution of medicines. The VA's spending in this area is substantial, reflecting the healthcare needs of a large veteran population. This contract fits within the broader category of healthcare logistics and supply chain management, where major distributors play a pivotal role. Comparable spending benchmarks would involve analyzing other large federal contracts for pharmaceutical distribution services, particularly those awarded by agencies like the Department of Defense and the General Services Administration.

Small Business Impact

The contract was not set aside for small businesses, which is common for large-scale, national-level procurements requiring extensive infrastructure and logistical capabilities. McKesson Corporation, the awardee, is a large business. While there's no direct subcontracting requirement specified here, large prime vendors often engage small businesses for ancillary services, though the primary focus of this contract is likely on the core distribution services provided by the prime.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' contracting officers and program managers. Accountability measures are inherent in the firm fixed-price contract type, which obligates the contractor to deliver specified goods and services at an agreed-upon price. Transparency is facilitated through contract award databases like FPDS. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

VA Pharmacy Benefits Management (PBM)
Federal Supply Schedule (FSS) contracts for pharmaceuticals
Department of Defense TRICARE Pharmacy Program
General Services Administration (GSA) Schedules

Risk Flags

Short contract duration may indicate a need for further analysis of long-term strategy.
High single-month award value warrants scrutiny for cost drivers and necessity.
Potential for vendor lock-in if future contracts are not competitively re-awarded.

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $40.6 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 16 FY 2015 SEP 1, 2015 TO SEP 31, 2015 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 $40.6 million.

What is the period of performance?

Start: 2015-09-01. End: 2015-09-30.

What is McKesson Corporation's track record with the VA for similar pharmacy prime vendor 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 for these services over many years. Their extensive experience in managing large-scale pharmaceutical distribution networks, including those for government agencies, suggests a proven capability. However, a detailed review of past performance evaluations, any past disputes, or contract modifications would be necessary to fully assess their specific track record on VA pharmacy prime vendor contracts beyond this single award.

How does the $40.6 million award for a 29-day period compare to typical monthly spending for VA pharmacy prime vendor services?

An award of $40.6 million for a 29-day period translates to a daily rate of approximately $1.4 million. This figure appears exceptionally high for a single month, suggesting it might represent a significant surge in demand, a specific high-value procurement, or potentially encompass a broader scope than just routine distribution for that short period. Typical monthly spending for national pharmacy prime vendor services can vary widely but often falls within a range that, when annualized, reflects the VA's overall pharmaceutical expenditure. Without more context on the specific services covered and the period's demand drivers, direct comparison to average monthly spending is challenging, but this figure warrants further investigation into its drivers.

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

The primary risks associated with relying on a single large contractor for critical pharmaceutical supply include potential disruptions due to the contractor's internal issues (e.g., labor strikes, IT failures, financial instability), reduced negotiating leverage for the government leading to higher prices in future contracts, and a lack of competitive pressure to drive innovation or efficiency. Furthermore, if the contractor faces supply chain disruptions themselves, it can have a cascading effect on the government's ability to procure essential medicines. Dependence on one entity also concentrates risk, making the system more vulnerable to systemic failures originating from that single source.

What is the typical duration and value of VA Pharmacy Prime Vendor contracts?

VA Pharmacy Prime Vendor contracts are typically awarded for longer durations, often spanning multiple years (e.g., 5 years) with options for extension. The total contract values are usually in the hundreds of millions or even billions of dollars over their full term, reflecting the vast scale of pharmaceutical needs for the entire VA healthcare system. The contract referenced here, with a value of $40.6 million for only 29 days, is highly unusual in its short duration and specific award amount. It may represent a specific delivery order against a larger indefinite-delivery/indefinite-quantity (IDIQ) contract, a bridge contract, or a specialized, short-term requirement rather than a standard multi-year prime vendor agreement.

How does the 'Pharmaceutical Preparation Manufacturing' NAICS code relate to the services provided under this contract?

The NAICS code 325412, 'Pharmaceutical Preparation Manufacturing,' primarily covers establishments primarily engaged in manufacturing pharmaceutical preparations (e.g., medicines, vaccines, vitamins) from purchased pharmaceutical ingredients and from bulk or processed forms of drugs. While McKesson Corporation is a major distributor, their role as a 'prime vendor' often involves managing the supply chain from manufacturers to end-users (VA facilities). The classification might reflect the nature of the products being handled or potentially the scope of services that could include some level of repackaging or preparation, though the core function is distribution. It's important to note that large distributors often operate across multiple NAICS codes depending on the specific activities undertaken.

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

Offers Received: 5

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: $40,635,273

Exercised Options: $40,635,273

Current Obligation: $40,635,273

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline