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National Contract Bid Strategy Considerations

To fulfill its critical mission of providing excellent healthcare to millions of veterans across the United States effectively, the Department of Veterans Affairs (VA) utilizes a network of various contract types, including a unique category known as National Contracts. These contracts provide a standardized acquisition approach to obtaining the most common pharmaceutical products. Understanding the following three factors is crucial for pharmaceutical manufacturers (or resellers) to develop and execute a successful National Contract bidding strategy.



Factor 1: Length of Contract


Unlike the Federal Supply Schedule (FSS) contracts, which are also established and managed by the VA, National Contracts are separate, independent contracts awarded for a one-year base period with four, one-year option periods. This extended lifespan provides product stability for VA patients, pricing stability for the VA health system, and ordering stability for the successful pharmaceutical manufacturer. While exercising contract options is solely at the discretion of the VA based on its internal analysis of needs, almost all National Contracts run for the full five-year duration. The VA rarely chooses to recompete during the intended five-year cycle unless a new competitor comes to the market that could potentially offer an even greater cost savings. When a pharmaceutical manufacturer is developing its National Contract bid, it should anticipate the contract will run for the full five years.


Factor 2: Type of Commitment


Product availability is paramount under National Contracts and these contracts include a clause to protect the VA from non-availability scenarios. If the VA is forced to purchase the same product from another vendor due to the awardee's inability to supply it, the awardee is obligated to either issue a credit or directly reimburse the VA for the difference in cost. The intent of this clause is to incentivize the successful pharmaceutical manufacturer to maintain sufficient stock and prioritize its VA National Contract commitments. A pharmaceutical manufacturer must take into consideration the inherit costs associated with balancing the product availability demands of a successful National Contract bid with its other, pre-existing contract volume demands.  



Factor 3: Expected Discount


National Contracts awarded to a single pharmaceutical manufacturer become the solitary provider of that specific product for the entire VA system. When crafting National Contracts, the VA takes into account the estimated quantities of each product based on current ordering volumes as well as potential ordering volume increases anticipated over the five-year time period. In exchange for this market exclusivity and the anticipated high volume of purchases, the VA expects bidders to provide meaningful and substantial discounts relative to their current FSS price (and not in comparison to the pharmaceutical manufacturer’s wholesale acquisition cost (WAC)).


Grasping the full range of nuances when formulating a VA National Contract bid strategy can be daunting, especially when it is the first time a particular class of products is up for bid. Pharmaceutical manufacturers can best position themselves for a successful bid and successful contract performance by developing a fully informed strategy prior to submitting a bid.

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