VA awarded McKesson Corporation $43.16M for pharmacy services in FY2015, a 29-day period

Contract Overview

Contract Amount: $43,157,561 ($43.2M)

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: $1.5M/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 23 FY 2015 SEP 1. 2015 TO SEP 30, 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 $43.2 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 23 FY 2015 SEP 1. 2015 TO SEP 30, 2015 CONTRACT VA797P-12-D-0001 Key points: 1. The contract represents a significant expenditure for a short duration, highlighting the critical need for pharmaceutical supplies. 2. Competition dynamics for this contract are crucial for ensuring fair pricing and access to essential medications. 3. Performance context is limited due to the short contract duration, making long-term value assessment challenging. 4. The sector positioning is within pharmaceutical preparation manufacturing, a vital component of healthcare delivery. 5. Risk indicators may include supply chain disruptions and potential price fluctuations for pharmaceuticals.

Value Assessment

Rating: fair

The awarded amount of $43.16 million for a 29-day period suggests a high daily expenditure for pharmacy services. Benchmarking this against similar, longer-term contracts for pharmacy prime vendors is difficult due to the unusual duration. Without more context on the volume of pharmaceuticals procured and the specific services rendered, a precise value-for-money assessment is challenging. However, the firm fixed-price structure provides some cost certainty.

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 had the opportunity to submit proposals. The presence of 5 bidders suggests a reasonably competitive environment, which should theoretically drive better pricing and service offerings. The specific details of the bidding process and the evaluation criteria would provide further insight into the effectiveness of this competition.

Taxpayer Impact: Full and open competition generally benefits taxpayers by fostering a market that encourages competitive pricing and innovation, leading to potentially lower costs for government procurement.

Public Impact

Veterans Affairs beneficiaries directly benefit from the timely and reliable provision of pharmaceutical medications. The contract ensures the availability of a wide range of pharmaceutical preparations essential for healthcare. The geographic impact is primarily within the regions served by the Department of Veterans Affairs facilities receiving these pharmaceuticals. Workforce implications include the personnel required for the distribution and management of these pharmaceutical supplies.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Short contract duration (29 days) may indicate a stop-gap measure or a specific, limited need, raising questions about long-term strategic sourcing.
High daily expenditure ($1.49M/day) warrants scrutiny to ensure efficiency and avoid potential overspending.
Lack of detailed performance metrics for this short period makes it difficult to assess contractor performance comprehensively.

Positive Signals

Awarded under full and open competition, suggesting a robust bidding process.
Firm fixed-price contract provides cost predictability for the government.
Multiple bidders (5) indicate a healthy level of market interest and potential for competitive pricing.

Sector Analysis

The pharmaceutical preparation manufacturing sector is a critical part of the healthcare industry, involving the production and distribution of medications. This contract falls within the broader category of healthcare services procurement. Comparable spending benchmarks would typically involve analyzing other large-scale pharmacy prime vendor contracts, though the short duration here makes direct comparison difficult. The market is characterized by significant regulatory oversight and the presence of major pharmaceutical distributors.

Small Business Impact

There is no indication that this contract included a small business set-aside. Given the nature of pharmaceutical prime vendor contracts, which often involve large-scale distribution and complex supply chain management, it is common for them to be awarded to larger corporations. Subcontracting opportunities for small businesses might exist within the broader pharmaceutical supply chain, but are not explicitly detailed in this contract award.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' procurement and program management offices. Accountability measures are inherent in the firm fixed-price contract type, requiring the contractor to deliver specified goods at the agreed price. Transparency is generally facilitated through contract award databases, though detailed operational oversight specifics are not provided. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Department of Veterans Affairs Pharmacy Services
Federal Supply Schedule (FSS) Contracts
Pharmaceutical Prime Vendor Contracts
Medical Materiel and Pharmaceutical Procurement

Risk Flags

Short contract duration
High daily expenditure

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $43.2 million to MCKESSON CORPORATION. EXPRESS REPORT: PHARMACY PRIME VENDOR NCO 23 FY 2015 SEP 1. 2015 TO SEP 30, 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 $43.2 million.

What is the period of performance?

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

What was the specific need or justification for a contract with such a short duration (29 days)?

The provided data indicates a contract duration of 29 days, from September 1, 2015, to September 30, 2015. This unusually short period suggests it may have been an interim solution, a bridge contract to cover a gap while a longer-term contract was being finalized, or a specific, time-bound requirement for pharmaceutical supplies. Without further documentation or context from the Department of Veterans Affairs, the precise reason for this short duration remains speculative. It is possible that it was a delivery order against a larger indefinite-delivery/indefinite-quantity (IDIQ) contract, or a task order for a specific project with a defined endpoint. The high value ($43.16M) for such a short period warrants further investigation into the specific circumstances surrounding its issuance.

How does the per-diem cost of this contract compare to typical VA pharmacy prime vendor contracts?

The awarded amount for this 29-day contract was $43,157,560.82. This translates to a daily expenditure of approximately $1,488,192. This daily rate is exceptionally high when compared to typical pharmacy prime vendor contracts, which often span multiple years and serve a broader range of facilities. For instance, longer-term contracts might have daily costs that are a fraction of this amount, even if their total value is significantly higher due to the extended duration. The high per-diem cost for this short period suggests either an extremely high volume of pharmaceuticals procured, a specific urgent need, or potentially an inflated price for the services rendered during that limited timeframe. A direct comparison is difficult without knowing the exact scope of services and the specific formulary covered.

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

McKesson Corporation is a major pharmaceutical distributor and has a long-standing relationship with the Department of Veterans Affairs (VA) as a prime vendor. The VA has historically relied on large distributors like McKesson to ensure the timely and efficient delivery of pharmaceuticals to its network of medical centers and clinics. While this specific contract was for a short duration in FY2015, McKesson has been a consistent awardee of significant VA contracts for pharmacy services over many years. Analyzing McKesson's overall performance history with the VA, including any past issues related to delivery, pricing, or compliance, would provide a more comprehensive understanding of their reliability and value as a contractor for the department.

What are the potential risks associated with relying on a single large vendor like McKesson for critical pharmaceutical supplies?

Relying heavily on a single large vendor like McKesson for critical pharmaceutical supplies presents several potential risks. Firstly, there is the risk of supply chain disruption; if McKesson experiences internal issues (e.g., labor disputes, distribution center problems, cyberattacks) or external shocks (e.g., natural disasters affecting their facilities), it could lead to shortages of essential medications for VA facilities. Secondly, a lack of robust competition over time could potentially lead to less favorable pricing, as the vendor may have less incentive to offer the most competitive rates if alternatives are limited. Thirdly, dependence on one vendor can reduce the VA's flexibility in adapting to new pharmaceutical products or changing healthcare needs. While McKesson is a reputable company, diversification of suppliers or strong contractual safeguards are crucial to mitigate these risks.

How does the firm fixed-price contract type influence the risk allocation between the VA and McKesson?

A firm fixed-price (FFP) contract type, as used here, places the primary risk of cost overruns on the contractor, McKesson Corporation. This means that McKesson is obligated to provide the specified pharmaceuticals and services for the agreed-upon price, regardless of their actual costs incurred. If McKesson's costs for acquiring and distributing the drugs are higher than anticipated, their profit margin will decrease, or they could even incur a loss. Conversely, if their costs are lower than expected, their profit will increase. For the VA, the FFP contract offers price certainty and predictability, making budgeting easier. The main risk for the VA under an FFP contract is that the contractor might be incentivized to cut corners on quality or service to protect their profit margin if costs escalate unexpectedly, although quality assurance clauses in the contract aim to prevent this.

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: $43,157,561

Exercised Options: $43,157,561

Current Obligation: $43,157,561

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline