Department of Veterans Affairs Updates Pharmaceutical Federal Schedule Supply

Merle M. DeLancey

The Department of Veterans Affairs (“VA”) National Acquisition Center (“NAC”), which administers the VA Federal Supply Schedule (“FSS”) Program, has already had a busy year. Among other procurement streamlining activities, the NAC currently is in the process of refreshing all nine (9) of its FSS solicitations to incorporate the most recent regulations and provide updates and clarifications.

Last month, the NAC updated the open and continuous Solicitation for Pharmaceuticals—Schedule 65 I B Pharmaceuticals FSS contract. The NAC issued Mass Modification 0006 and Solicitation Refresh 8. The Modification and Refresh update and incorporate procurement regulations and update or clarify FSS Program policy changes since the last refresh in February 2014, as amended. Refresh 8 applies to all companies submitting FSS proposals (for new contracts and renewals) after June 21, 2018. The Mass Modification is a standard bilateral modification to existing FSS terms and conditions, which the NAC is requesting manufacturers sign and return by July 30, 2018.

While companies submitting proposals for a new FSS contract or renewal should carefully review these documents in their entirety, several updates/changes are worth noting:

  • Restrictions on Confidentiality Agreements—the Mass Mod includes FAR 52.203-19 which prohibits contractors from requiring their employees to sign confidentiality agreements waiving the employees’ rights to report waste, fraud, or abuse related to government contracts. Contractors/offerors are required to certify that they do not limit the ability of their employees to report waste, fraud, or abuse to appropriate government officials. The clause also applies to agreements between prime contractors and subcontractors and must be flowed down.
  • Data Security—the Mass Mod adds two clauses related to safeguarding data: (1) FAR 52.204-21 setting forth the basic/minimum safeguards a contractor is required to implement to protect “federal contract information”; and (2) FAR 52-224-3 which requires contractors to provide privacy training to their employees so they safely handle Personally Identifiable Information (“PII”). Again, if the applicable contract involves federal contract information or PII, these clauses must be flowed down.
  • Timely Payment of Small Business Subcontractors—FAR 52.242-5 requires most prime contractors to “self-report” to the relevant contracting officer all reduced or untimely payments to their small business subcontractors within 14 days of when the payment was due, and to provide the reason for the reduced or untimely payment.
  • Clarification of Most Favored Customer Definition—under the proposed pricing disclosure format, the definition of Most Favored Customer (“MFC”) has been fleshed out. Previously, MFC was defined as “the commercial customer who receives the best upfront discounted price.” The new definition adds that the best upfront discounted price must be a “guaranteed” price and that “conditional” discounts such as prompt payment discounts and annual rebates based on reaching a sales threshold are not included when determining the best upfront discounted price.
  • Trade Agreements Act Compliance—the Mass Mod and Refresh emphasize that, in order to obtain an FSS contract, a company must include in its proposal non-Trade Agreements Act (“TAA”)-compliant products as other end products. Subject to certain requirements contracting officers may make individual non-availability determinations including that the applicable company make all of its covered drugs available for sale on its FSS.
  • Reduced Pre-Award Audit Threshold—the dollar threshold for a mandatory pre-award audit by the VA Office of Inspector General has been reduced from an estimated five million dollars in FSS annual sales to three million dollars per year.
  • FSS Sales and the Prime Vendor Program—the Mass Mod and Refresh include multiple references to inform vendors the applicability of certain clauses to the Prime Vendor (“PV”) Program. For example, the documents make clear that sales under an FSS contract to a PV must be reported as FSS sales and for which a contractor must pay industrial funding fee.

In addition, the NAC recently announced the creation of a “Tiger Team” to quickly review and implement pharmaceutical price reduction modifications submitted by companies. The fast turnaround by members of the Tiger Team has decreased the average price reduction modification processing time from 33 days to five days. This allows the VA to access the most recent and lowest pharmaceutical prices. Further, it saves administrative time and dollars by minimizing the necessity for credits and rebills.

Current FSS contractors are subject to Refresh 8 and will be required to execute a bilateral modification by the end of this month agreeing to the terms of the Mass Mod. Any company seeking or considering an FSS contract will be subject to the Mass Mod and Refresh 8. It is imperative that you review all of the added, revised, and updated procurement regulations to ensure FSS compliance.