VA Pharmacy Prime Vendor contract awarded to McKesson Corporation for over $196 million

Contract Overview

Contract Amount: $196,042,940 ($196.0M)

Contractor: Mckesson Corporation

Awarding Agency: Department of Veterans Affairs

Start Date: 2014-06-01

End Date: 2014-06-30

Contract Duration: 29 days

Daily Burn Rate: $6.8M/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 VA760PPVFY2014JUN

Place of Performance

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

State: California Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $196.0 million to MCKESSON CORPORATION for work described as: EXPRESS REPORT PHARMACY PRIME VENDOR VA760PPVFY2014JUN Key points: 1. The contract represents a significant investment in pharmaceutical supply chain management for the VA. 2. Competition dynamics for this large-scale contract are crucial for ensuring cost-effectiveness. 3. Performance metrics and delivery timelines are key indicators of value for money. 4. The contract's duration and scope suggest a strategic approach to veteran healthcare needs. 5. Sector positioning highlights the VA's reliance on established pharmaceutical distributors.

Value Assessment

Rating: good

This contract, valued at over $196 million, appears to be a substantial award for pharmaceutical services. Benchmarking against similar large-scale prime vendor contracts within the federal government, particularly those serving large healthcare systems like the VA, is essential. While specific pricing details are not provided, the scale suggests potential for economies of scale. The firm fixed-price structure aims to provide cost certainty, but ongoing monitoring of unit prices and overall expenditure against projected needs will be critical for assessing true value.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple vendors had the opportunity to bid. With 5 bidders identified, this suggests a reasonably competitive environment for such a significant contract. A higher number of bidders generally leads to better price discovery and potentially more favorable terms for the government. The presence of multiple strong contenders implies that the VA likely received competitive proposals, contributing to a potentially strong value proposition.

Taxpayer Impact: Full and open competition for this contract is beneficial for taxpayers as it drives down prices through market forces and encourages innovation among bidders, ultimately leading to more efficient use of public funds.

Public Impact

Veterans across the nation will benefit from timely and reliable access to necessary pharmaceuticals. The contract ensures the continuous supply of a wide range of medications essential for veteran healthcare. Geographic impact is nationwide, supporting VA medical centers and clinics across the United States. Workforce implications include support for logistics, pharmacy technicians, and administrative staff involved in medication distribution.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases over the contract term if not managed effectively.
Dependence on a single vendor for a critical supply chain could pose risks.
Ensuring consistent quality and availability of all required pharmaceuticals.

Positive Signals

Awarded through full and open competition, suggesting competitive pricing.
Firm fixed-price contract provides cost certainty for the government.
Large contract value may indicate economies of scale and efficient distribution.

Sector Analysis

The pharmaceutical manufacturing and distribution sector is a critical component of the healthcare industry. This contract falls within the pharmaceutical preparation manufacturing subsector, focusing on the distribution and supply chain management of medications. The federal government, particularly agencies like the VA, represents a significant customer base for pharmaceutical companies. Comparable spending benchmarks would involve analyzing other large federal healthcare procurements for similar pharmaceutical prime vendor services, which often run into hundreds of millions of dollars annually.

Small Business Impact

While this contract is a large prime vendor award, analysis of subcontracting opportunities for small businesses is important. Prime vendors often engage small businesses for specialized services or to meet set-aside goals. The extent to which McKesson Corporation utilizes small business subcontractors will impact the small business ecosystem. Further investigation into subcontracting plans and performance would reveal the true impact on small businesses.

Oversight & Accountability

Oversight for this contract is likely managed by the Department of Veterans Affairs' procurement and program management offices. Accountability measures would include performance metrics, delivery schedules, and quality control standards outlined in the contract. Transparency is generally facilitated through contract award databases and reporting requirements. Inspector General jurisdiction would apply if any issues of fraud, waste, or abuse arise during the contract's performance.

Related Government Programs

VA Federal Supply Schedule (FSS) contracts
Department of Defense (DoD) pharmaceutical procurements
Other federal agency healthcare supply chain contracts

Risk Flags

Potential for supply chain disruption
Dependence on single large vendor
Ensuring consistent medication availability

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $196.0 million to MCKESSON CORPORATION. EXPRESS REPORT PHARMACY PRIME VENDOR VA760PPVFY2014JUN

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 $196.0 million.

What is the period of performance?

Start: 2014-06-01. End: 2014-06-30.

What is McKesson Corporation's track record with large federal pharmaceutical contracts?

McKesson Corporation has a long and extensive history of serving as a prime vendor for pharmaceutical distribution to various federal agencies, including the Department of Veterans Affairs and the Department of Defense. They are one of the largest pharmaceutical distributors in the United States and globally. Their track record includes managing complex supply chains, ensuring timely delivery of medications, and often participating in large-scale competitive bidding processes. While specific performance details for individual contracts are not always publicly available, their continued success in securing and performing on such significant federal contracts suggests a generally reliable operational capacity and a strong understanding of government procurement requirements. However, like any large contractor, they may have faced scrutiny or performance issues on specific contracts over time, which would require detailed review of past performance evaluations.

How does the awarded price compare to similar VA Pharmacy Prime Vendor contracts?

Comparing the awarded price of $196,042,939.94 for this Pharmacy Prime Vendor contract requires access to historical data for similar VA contracts. The VA typically awards multi-year prime vendor contracts to manage the distribution of pharmaceuticals to its vast network of medical centers and clinics. These contracts are often valued in the hundreds of millions of dollars annually due to the scale of veteran healthcare needs. To benchmark effectively, one would need to analyze the average annual value, contract duration, and scope of services for previous VA Pharmacy Prime Vendor awards. Factors such as the number of delivery points, the breadth of the formulary, and the specific services included (e.g., inventory management, specialty drug distribution) significantly influence the total contract value. Without direct comparative data for the specific performance period and scope, a precise value-for-money assessment is challenging, but the magnitude of this award aligns with the VA's substantial pharmaceutical expenditure.

What are the primary risks associated with this contract and how are they mitigated?

The primary risks associated with this large-scale pharmaceutical prime vendor contract include supply chain disruptions (e.g., manufacturing shortages, transportation issues), potential for price volatility if not managed under a firm fixed-price structure, and the risk of inadequate inventory management leading to stockouts or overstocking. Mitigations typically involve robust contract clauses requiring the vendor to maintain adequate inventory levels, contingency plans for supply chain disruptions, and performance metrics tied to delivery timeliness and order accuracy. The firm fixed-price nature of this contract helps mitigate price volatility for the government. Furthermore, the VA likely employs regular performance reviews and audits to ensure the contractor is meeting its obligations and to identify any emerging risks early on. The competitive nature of the award also incentivizes the contractor to perform well to secure future business.

How effective is the firm fixed-price contract type in managing costs for this pharmaceutical service?

The firm fixed-price (FFP) contract type is generally considered effective for managing costs in stable service environments where the scope of work is well-defined and risks are manageable. For pharmaceutical prime vendor services, an FFP contract provides the government with cost certainty, as the price is set at the time of award and does not typically fluctuate with the contractor's costs. This shifts the risk of cost overruns to the contractor. This structure incentivizes the contractor to control its own costs efficiently to maximize profit. However, if unforeseen market shifts or significant changes in demand occur, an FFP contract might become less advantageous if the contractor is unable to absorb increased costs, potentially leading to performance issues or requests for contract modification. For a service like pharmaceutical distribution, where demand can be relatively predictable and the scope of services is standard, FFP is often a suitable choice for cost control.

What is the historical spending pattern for VA Pharmacy Prime Vendor contracts?

Historical spending on VA Pharmacy Prime Vendor contracts has consistently been substantial, reflecting the significant pharmaceutical needs of the veteran population. Over the years, these contracts have typically been awarded to a few large, established distributors, with McKesson Corporation being a frequent awardee. Annual spending often ranges in the hundreds of millions of dollars, sometimes exceeding a billion dollars when considering multiple contracts or extended periods. This spending reflects the VA's commitment to providing comprehensive healthcare, including necessary medications, to millions of veterans. Trends in spending are influenced by factors such as the growth in the veteran population, the introduction of new and expensive pharmaceuticals, and evolving healthcare policies. The competitive bidding process aims to ensure that this significant expenditure delivers maximum value.

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: $196,042,940

Exercised Options: $196,042,940

Current Obligation: $196,042,940

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: VA797P12D0001

IDV Type: IDC

Timeline