VA's Pharmacy Prime Vendor contract awarded to McKesson Corporation for $24.3M in FY2016

Contract Overview

Contract Amount: $24,265,237 ($24.3M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2016-09-01

End Date: 2016-09-30

Contract Duration: 29 days

Daily Burn Rate: $836.7K/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 22 SEPTEMBER FY2016

Place of Performance

Location: SAN FRANCISCO, SAN FRANCISCO County, CALIFORNIA, 94104

State: California Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $24.3 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT:PHARMACY PRIME VENDOR - NCO 22 SEPTEMBER FY2016 Key points: 1. The contract represents a significant portion of the VA's pharmaceutical spending. 2. Competition dynamics for this large contract are crucial for ensuring fair pricing. 3. Performance context is key to understanding the value delivered by McKesson. 4. The sector positioning highlights the VA's reliance on major pharmaceutical distributors. 5. Risk indicators may include supply chain disruptions and price volatility. 6. The fixed-price nature of the award provides cost certainty.

Value Assessment

Rating: good

The award of $24.3 million for a one-month delivery order appears to be a standard operational expenditure for a prime vendor contract of this nature. Benchmarking against similar large-scale pharmaceutical distribution contracts within the federal government would provide a clearer picture of value for money. The firm fixed-price structure suggests that pricing was determined at the time of award, offering predictability for the VA.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple bidders were likely considered. The presence of five bidders suggests a reasonably competitive environment for this critical pharmaceutical supply contract. A robust competition level generally leads to better price discovery and potentially more favorable terms for the government.

Taxpayer Impact: Taxpayers benefit from the competitive bidding process, which aims to secure the best possible pricing for essential pharmaceuticals and reduce overall program costs.

Public Impact

Veterans nationwide benefit from the consistent availability of pharmaceuticals through the VA's healthcare system. The contract ensures the supply of a wide range of pharmaceutical preparations to VA medical facilities. The geographic impact is nationwide, supporting all VA medical centers and clinics. Workforce implications include the logistics and administrative personnel required to manage and distribute these medications.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases in subsequent contract periods if competition diminishes.
Reliance on a single prime vendor could create supply chain vulnerabilities.
Ensuring consistent quality and efficacy of pharmaceuticals distributed.

Positive Signals

Awarded through full and open competition, indicating a competitive market.
Firm fixed-price contract provides cost certainty for the awarded period.
The Department of Veterans Affairs has a structured process for managing such critical contracts.

Sector Analysis

The pharmaceutical distribution sector is characterized by large, established players and complex supply chains. Federal contracts for pharmaceuticals are substantial, reflecting the government's role as a major healthcare provider. This contract fits within the broader category of medical supplies and logistics, where efficiency and reliability are paramount. Comparable spending benchmarks would involve looking at other large federal prime vendor contracts for medical supplies.

Small Business Impact

While this contract is with a large corporation (McKesson), the analysis of small business participation would typically occur at the subcontracting level. It is important to assess whether McKesson has robust subcontracting plans that include small businesses, particularly in areas like logistics, specialized delivery, or administrative support. The impact on the small business ecosystem depends on the extent to which they are integrated into the supply chain.

Oversight & Accountability

Oversight for this contract would fall under the Department of Veterans Affairs' procurement and program management offices. Accountability measures are embedded in the contract terms, including delivery schedules and quality standards. Transparency is generally maintained through contract award databases, though specific performance metrics may be internal. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

Department of Defense Pharmacy Contracts
Federal Supply Schedule (FSS) Pharmaceutical Contracts
VA Medical Supplies and Equipment Contracts

Risk Flags

Supply Chain Vulnerability
Price Volatility Risk
Dependence on Single Source (at delivery order level)
Regulatory Compliance

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $24.3 million to MCKESSON CORPORATION. EXPRESS REPORT:PHARMACY PRIME VENDOR - NCO 22 SEPTEMBER FY2016

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 $24.3 million.

What is the period of performance?

Start: 2016-09-01. End: 2016-09-30.

What is McKesson Corporation's track record with the Department of Veterans Affairs for pharmaceutical prime vendor contracts?

McKesson Corporation has a long-standing relationship with the Department of Veterans Affairs as a prime vendor for pharmaceuticals. They have historically been awarded significant contracts to supply medications to VA medical facilities nationwide. Their track record includes managing complex distribution networks and ensuring timely delivery of a vast array of pharmaceutical products. While specific performance metrics for each contract period are not publicly detailed, their continued awards suggest a satisfactory performance history in meeting the VA's requirements for reliability, product availability, and adherence to regulatory standards. However, like any large government contractor, they may have faced scrutiny or reviews regarding specific aspects of their operations or pricing in the past.

How does the $24.3 million value of this one-month delivery order compare to historical VA pharmaceutical spending?

The $24.3 million value for a single month's delivery order under the Pharmacy Prime Vendor contract indicates a substantial operational expenditure. To contextualize this, it's essential to compare it with the total annual spending on pharmaceutical prime vendors by the VA. If this represents a typical month, the annual expenditure would be in the hundreds of millions of dollars. Historical data shows that the VA's pharmaceutical spending has been consistently high, often exceeding several billion dollars annually when all contract types and programs are considered. This specific delivery order, while large for a month, aligns with the scale of the VA's overall pharmaceutical procurement needs, reflecting the significant demand from its extensive veteran population.

What are the primary risk indicators associated with this type of large-scale pharmaceutical distribution contract?

Primary risk indicators for this contract include supply chain disruptions, which could stem from manufacturing issues, transportation problems, or geopolitical events affecting drug availability. Price volatility is another risk, particularly if the contract has mechanisms for price adjustments or if market prices fluctuate significantly. Dependence on a single prime vendor, even with competition at the award stage, can create a systemic risk if that vendor experiences operational failures. Furthermore, ensuring the integrity and quality of the pharmaceutical supply chain, preventing counterfeits, and maintaining cold chain integrity for sensitive medications are ongoing risks. Regulatory compliance and potential changes in pharmaceutical regulations also pose risks that require continuous monitoring and adaptation.

How effective is the full and open competition process in ensuring value for money for the VA's pharmaceutical needs?

The full and open competition process is generally considered effective in ensuring value for money for the VA's pharmaceutical needs. By allowing all responsible sources to submit bids, it fosters a competitive environment that drives down prices and encourages innovation in service delivery. The VA's solicitation process typically includes detailed specifications for product availability, delivery timelines, and quality standards, allowing bidders to compete on both price and performance. The presence of multiple bidders, as indicated by the five bidders for this contract, suggests that the market is sufficiently robust to support competition. This competitive pressure incentivizes contractors to offer competitive pricing and efficient logistical solutions to win and retain these lucrative contracts, ultimately benefiting taxpayers.

What are the potential implications of this contract on the broader pharmaceutical market and small businesses?

This contract, awarded to a major player like McKesson, reinforces the dominance of large distributors in the federal pharmaceutical supply chain. For the broader pharmaceutical market, it signifies consistent demand from a major government purchaser. For small businesses, the implications are mixed. While they may not directly compete for the prime vendor contract itself, opportunities can arise through subcontracting. A prime vendor like McKesson might engage small businesses for specialized logistics, regional distribution, or support services. However, the concentration of such large contracts with a few major corporations can also create barriers to entry for smaller distributors seeking to establish themselves in the federal space. The VA's policies on small business subcontracting are crucial in determining the extent of positive impact on the small business ecosystem.

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: $24,265,237

Exercised Options: $24,265,237

Current Obligation: $24,265,237

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline