VA awards $39.8M contract to McKesson Corporation for pharmaceutical supplies, highlighting a 13-year performance history

Contract Overview

Contract Amount: $39,860,767 ($39.9M)

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: $1.4M/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: CHARLESTON, CHARLESTON County, SOUTH CAROLINA, 29407

State: South Carolina Government Spending

Plain-Language Summary

Department of Veterans Affairs obligated $39.9 million to MCKESSON CORPORATION for work described as: TAS::36 0160::TAS PHARM PRIME VENDR EXPRESS RPT Key points: 1. The contract value of $39.8 million over 29 days suggests a high daily expenditure rate, warranting scrutiny of unit pricing and demand. 2. McKesson Corporation's long-standing relationship with the VA indicates a stable supplier but may also point to potential complacency or limited market dynamism. 3. The 'Drugs and Druggists' Sundries Merchant Wholesalers' NAICS code suggests a broad category, requiring deeper analysis to understand the specific pharmaceuticals procured. 4. A firm fixed-price contract type generally offers cost certainty, but the significant value necessitates verification of market-based pricing for the specific drugs. 5. The contract's duration of 29 days is unusually short for such a substantial award, raising questions about its purpose (e.g., emergency, specific project). 6. The absence of small business set-asides suggests this contract was not specifically targeted to support small businesses. 7. The contract was awarded under full and open competition, indicating a broad solicitation process.

Value Assessment

Rating: good

The contract value of $39.8 million for a 29-day period is substantial, averaging over $1.37 million per day. While McKesson is a major pharmaceutical distributor, this high daily rate requires benchmarking against similar VA or DoD pharmaceutical contracts to ensure value for money. The firm fixed-price nature provides cost certainty, but the specific drugs and quantities procured are critical for a complete value assessment. Without detailed product lists, a precise per-unit cost comparison is challenging, but the overall expenditure suggests significant demand or high-value specialized pharmaceuticals.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, meaning it was solicited broadly to all eligible vendors. The presence of 8 bidders indicates a competitive process, which should theoretically drive favorable pricing. However, the specific market dynamics for pharmaceuticals, especially with large distributors like McKesson, can influence the actual competitive impact. The number of bidders is a positive sign, but the ultimate price achieved relative to market rates is the key indicator of successful price discovery.

Taxpayer Impact: The full and open competition suggests taxpayers benefited from a process designed to solicit the best offers from a wide range of suppliers, potentially leading to more competitive pricing than a sole-source or limited competition award.

Public Impact

Veterans receiving medical care through the Department of Veterans Affairs are the primary beneficiaries, gaining access to necessary pharmaceuticals. The contract ensures the supply of a wide range of drugs and druggists' sundries, supporting various medical treatments and healthcare services. The geographic impact is likely nationwide, as VA facilities across the country rely on pharmaceutical supply chains. The contract supports the pharmaceutical distribution workforce, including logistics, warehousing, and administrative roles within McKesson Corporation and its partners.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

The extremely short duration (29 days) for such a large award raises questions about the procurement strategy and potential urgency or emergency needs.
High daily expenditure rate requires detailed justification and comparison to ensure cost-effectiveness for the specific pharmaceutical products.
Reliance on a single large vendor for a significant portion of pharmaceutical needs could pose supply chain risks if not managed with robust contingency planning.

Positive Signals

Awarded under full and open competition with multiple bidders (8), indicating a robust market engagement.
Firm fixed-price contract type provides budget certainty for the VA.
McKesson Corporation is a well-established, large-scale distributor with extensive experience in pharmaceutical supply chains.

Sector Analysis

The pharmaceutical wholesale and distribution sector is a critical component of the healthcare industry, ensuring that medications reach healthcare providers and patients. This contract falls within the NAICS code 424210 (Drugs and Druggists' Sundries Merchant Wholesalers). The market is characterized by large, established distributors like McKesson, Cardinal Health, and AmerisourceBergen, who manage complex supply chains. Government contracts, particularly with agencies like the VA, represent a significant portion of this market, often awarded through competitive bidding processes to ensure cost-effectiveness and reliable supply for federal healthcare facilities.

Small Business Impact

The data indicates this contract was not set aside for small businesses (sb: false) and does not explicitly mention subcontracting goals for small businesses. As a large award to a major corporation, the primary focus is likely on the prime contractor's capabilities. While McKesson may engage small businesses in its broader supply chain, this specific contract does not appear to have direct small business set-aside provisions, potentially limiting direct opportunities for smaller firms within this particular award.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Veterans Affairs' contracting officers and program managers. The firm fixed-price nature provides a degree of financial oversight by limiting cost overruns. Transparency is facilitated by contract award databases, but detailed spending breakdowns and performance metrics would be subject to VA internal review and potentially Inspector General audits if specific concerns arise regarding performance or financial accountability.

Related Government Programs

Department of Defense Pharmaceutical Contracts
Federal Supply Schedule (FSS) Pharmaceutical Contracts
VA Medical Care Programs
National Acquisition Center (NAC) Contracts

Risk Flags

High Daily Expenditure Rate
Unusually Short Contract Duration for Value
Potential Lack of Price Competition for Specific Period

Frequently Asked Questions

What is this federal contract paying for?

Department of Veterans Affairs awarded $39.9 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 $39.9 million.

What is the period of performance?

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

What specific pharmaceutical products were included in this $39.8 million award, and how do their prices compare to market benchmarks?

The provided data identifies the contract as being for 'Drugs and Druggists' Sundries Merchant Wholesalers' (NAICS 424210) awarded to McKesson Corporation. However, it does not list the specific pharmaceutical products or their quantities. To assess value for money, a detailed breakdown of the procured items is necessary. McKesson, as a major distributor, handles a vast formulary. Comparing prices would require accessing the specific product list and cross-referencing with average wholesale prices (AWP), Medi-Cal/Medicare reimbursement rates, or prices from other federal contracts for the same or equivalent drugs. Without this granular data, a precise unit cost comparison is not feasible, but the overall contract value suggests significant volume or high-cost specialty drugs.

How does the daily expenditure rate of over $1.37 million compare to similar pharmaceutical contracts awarded by the VA or other federal agencies?

The daily expenditure rate of approximately $1.37 million ($39.8M / 29 days) is exceptionally high and warrants comparison with similar contracts. Federal Supply Schedule (FSS) contracts for pharmaceuticals often have varying volumes, but such a concentrated spend over a short period suggests either a massive surge in demand, a specific project requiring large quantities, or potentially an emergency procurement. Benchmarking against average daily spend on FSS contracts for major drug categories or against other large-scale prime vendor contracts managed by the VA's National Acquisition Center (NAC) would provide context. If this rate is significantly higher than typical benchmarks for routine pharmaceutical supply, it could indicate a need for further investigation into the drivers of this expenditure.

What is McKesson Corporation's track record with the Department of Veterans Affairs, particularly regarding performance and past issues?

McKesson Corporation has a long-standing and significant relationship with the Department of Veterans Affairs (VA) as a major pharmaceutical distributor. They are a key provider through various contract vehicles, including potentially the Federal Supply Schedule and prime vendor agreements. Their track record generally reflects their position as one of the largest healthcare distributors in the U.S. However, like any large contractor, they may have faced scrutiny or performance issues in the past, which could range from delivery delays to pricing disputes or compliance matters. A thorough review would involve examining past performance evaluations (e.g., Contractor Performance Assessment Reporting System - CPARS), any documented disputes, or IG investigations related to their VA contracts to understand their historical reliability and adherence to contract terms.

Given the short 29-day duration, what was the likely purpose or justification for this specific contract award?

A contract duration of only 29 days for a $39.8 million award is highly unusual for routine pharmaceutical supply and suggests a specific, time-bound purpose. Possible justifications include: 1) An emergency procurement to address an unexpected shortage or critical need at VA facilities. 2) A bridge contract to maintain supply while a longer-term, larger contract is being finalized. 3) Procurement for a specific, short-term initiative, clinical trial, or deployment. 4) A contract modification or task order under a larger indefinite-delivery/indefinite-quantity (IDIQ) contract that was not fully detailed in the provided data. Understanding the specific context and justification is crucial for assessing the appropriateness of the award and its value.

How does the 'Drugs and Druggists' Sundries Merchant Wholesalers' classification impact the analysis of this contract's scope and value?

The NAICS code 424210, 'Drugs and Druggists' Sundries Merchant Wholesalers,' indicates that the contract covers a broad range of pharmaceutical products and related sundries. This classification signifies that McKesson is acting as a distributor, sourcing and supplying these items rather than manufacturing them. The breadth of this category means the $39.8 million could encompass everything from common over-the-counter medications and basic medical supplies to high-cost prescription drugs and specialized medical sundries. Analyzing the contract's value requires understanding the specific mix of products procured under this broad classification. It implies a role in managing inventory, logistics, and ensuring availability across a wide spectrum of healthcare needs for the VA.

What are the potential risks associated with awarding such a large sum to a single vendor for a short period, and what mitigation strategies might be in place?

Awarding $39.8 million to a single vendor, McKesson Corporation, even for a short 29-day period, carries inherent risks. These include: 1) Supply chain disruption: Over-reliance on one vendor could lead to significant issues if McKesson faces internal problems (e.g., labor strikes, IT outages, recalls). 2) Price vulnerability: While fixed-price, the lack of ongoing competition for this specific short term might mean the VA didn't secure the absolute lowest possible price if alternative suppliers existed and were viable. 3) Limited flexibility: If needs change rapidly, modifying a contract with a single large vendor can sometimes be less agile. Mitigation strategies could include robust performance monitoring, clear contract terms regarding delivery and quality, maintaining strong relationships with alternative suppliers for contingency planning, and ensuring the VA has adequate internal expertise to manage the contract effectively.

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: $39,860,767

Exercised Options: $39,860,767

Current Obligation: $39,860,767

Parent Contract

Parent Award PIID: V797P1020

IDV Type: IDC

Timeline