MSPV Alert 2 - March 25, 2024

House Resolution: H.R. 7401 Contract Our Veterans Act of 2024

House Resolution: H.R. 7401    Contract Our Veterans Act of 2024

The National Defense Authorization Act of 2024 raises the government-wide goal of awarding contracts to service-disabled veteran-owned small businesses from 3 percent to 5 percent.  There is no goal for awarding contracts to veteran-owned small businesses. H.R. 7401 would establish a veteran-owned small business goal in the Department of Defense (DoD) of 5 percent of contract awards to veteran-owned small businesses.

H.R. 7401 also provides DoD with a mechanism to reach these goals similar to the special authorities provided to the Department of Veterans Affairs (VA) known as “VETS First”. Under VETS First, VA is authorized to set-aside” contract opportunities with competition restricted to veteran and service-disabled veteran-owned small businesses. The result of VETS First at VA has been an exponential rise in contract awards.  Prior to VETS First VA awarded approximately 3 percent of total contract dollars to service-disabled veteran-owned small businesses. In FY 2022 VA awarded 15 percent of contracts to service-disabled veteran-owned small businesses.  In FY 2022, DoD awarded just 2.2 percent of contract dollars to service-disabled veteran-owned small businesses.

VETS First at DoD has the potential to provide billions of dollars more of contract opportunities to veteran and service-disabled veteran-owned small businesses. This would greatly increase the number of veteran and service-disabled veteran-owned small businesses working with DoD which greatly increases the nation’s defense industrial base. VETS First would also increase by thousands the number of veteran jobs as veteran-owned small businesses hire veterans at greater rates than any other business type in the United States. DOD spends billions training active-duty service men and women. VETS First allows the nation to take advantage of their skill sets after military service in support of the nation’s defense.

MSPV Alert 1 - March 11, 2024

WELCOMING NEW MEMBERS TO SDVMPG

A Message From Toby Calvo, Board Member (fomer President) ...

A Message From Brian Kaunas, Vice President ...

A Letter from Scott Denniston, Executive Director ...

VA’S MEDICAL/SURGICAL PRIME VENDOR PROGRAM OPERATIONAL CHALLENGES

Introduction:Talking points paper to discuss ongoing issues with current VA MSPV program and expectations of problems to follow MSPV Gen – Z contracts when awarded.  SDV-MPG members met with Senate and House Veterans Affairs Committees majority and minority staffs in June 2023.

VA’S MEDICAL/SURGICAL PRIME VENDOR PROGRAM

OPERATIONAL CHALLENGES

April 2023

Our members continue to face challenges with the MSPV program. We polled our membership and the following four categories consistently inhibit their ability to succeed. We hope this document will provide a guide for our discussion moving forward.

1. LACK OF COMMAND STRUCTURE:

• Responsibility for program resides in 3 different VA areas:
  • SAC for Distribution Contract
  • VHA Office of Acquisition for BPA management
  • VHA field structure for BPA operations
  • VHA field structure for implementation
• No mechanism in place to resolve conflicts/issues for VA field staff, prime vendors or suppliers.

2. POLICY/TRAINING:

• No established policy on:
  • Agreements between Distributors & Suppliers
  • BPA pricing
  • Establishment of PVONs
  • Usage of MSPV contract
  • Establishment of CORE item list
  • Preferences for SDVOSBs
• No training on policy and operations
• Confusion by VA staff as to evaluating price increase requests
• Confusion by VA staff as to hierarchy of contract vehicles

3. MANAGEMENT TOOLS/OVERSIGHT/COMPLIANCE

• VA lack IT tools to manage the program
• VA consistently overestimates quantities of products required
• VA doesn’t know what it buys from what sources nor what price
• No way to adjudicate disputes between distributors and suppliers
• Prime vendors do not order from BPA holders
• Prime vendors levy “bogus” fees on suppliers
• Prime vendors do not pay suppliers timely
• Drop shipments not regulated
• “Bogus” deductions on invoices by distributors
• Open market purchases not consistent with VETS First
• Prime vendors do not show proper prices on screens for VA ordering personnel
• Sales data from VA and prime vendors is inconsistent
• PV items purchased off contract at higher prices

4. PRICING/PRODUCT ADDITIONS

• Inconsistent processing of pricing requests
• No replacement of BPAs for DAPA cancelations
• No adding of new or replacement products or varying units of measure
• No adding of products if not ordered via prime vendor program
• Use of IPT teams has stopped the process
• VA staff reaching out to manufacturers encouraging them to bypass SDVOSB suppliers
• No committed volume
• Price comparisons to contracts with differing terms and conditions
• Use of tiered evaluation to compare all offeror’s prices to obtain the lowest possible price.

SUMMARY: As described above, the MSPV program is broken. No one person or office has total responsibility. VA has no accurate and consistent data to know what VA is purchasing, from whom or by what mechanism.VA data, when available is flawed. VA field personnel want to buy from sources they know and trust will provide them with the products they need when they need them. Prime vendor does not meet their needs or the needs of our veterans. Each VA facility seems to have its own policy. The MSPV formulary is losing products at an alarming rate as suppliers can’t afford to provide products at a loss. VA does not recognize the impact of inflation on suppliers and only cares about “lowest possible price”. We hope that by raising these issues we can create a functioning MSPV program and help service disabled veteran suppliers stay in business.

The Non-Manufacturer Rule Waiver (NMR) 52.219.33 The Impact to SDVOSBs and Other Small Businesses

SDV-MPG History

The SDV-MPG has been in existence since June, 2016. We formed as a result of the U.S. Supreme Court decision in the Kingdomware case and VA’s announcement of the development of a medical/surgical prime vendor program. Our goal was to insure that SDVOSBs would  play a part in the MSPV program. From 2016-2021 we were under the umbrella of the National Veteran Small Business Coalition (NVSBC). As a result of decisions made by the new leadership of the NVSBC it was determined to be in our best interest to leave the NVSBC and form our own organization, thus the formation of the SDV-MPG in January, 2022. We have 22 member firms, all VA/CVE verified SDVOSBs.  Over the past 10 months we have engaged VA at all levels; headquarters, VHA and the SAC as to our  concerns regarding the current prime vendor contract as well as the draft RFP for the upcoming MSPV distribution contracts.  We have also briefed staff of the Senate and House Veterans Affairs Committees as to our concerns as they have learned of the program’s failures through various GAO reviews over the past several years. We have responded to all RFI’s on the upcoming contracts and have provided VA with 19 recommendations VA must implement in order for the MSPV program to work for the SDVOSB community. Most of the recommendations center around VA’s failure to administer the MSPV contracts once awarded, and VA’s failure to hold the prime vendor distributors accountable to the terms and conditions of their contracts. Unfortunately the prime vendors are very adept at manipulating the program to their advantage by not assigning PVONs, substituting products, not timely paying suppliers, placing unnecessary administrative burdens on suppliers and establishing separate contractual vehicles to monopolize open market purchases that rightfully should  go to SDVOSBs under VETS First. We are also working with both VA and DLA to establish reasonable criteria and timeframes for giving Economic Price Adjustments for products on BPA,s DAPA’s, etc. The level of inflation in healthcare products as well as prime vendors unilaterally raising distribution costs are both making it hard for SDVOSB suppliers to stay in business.

I would encourage you and other SDVOSB medical product suppliers concerned about these issues  to engage and join  with the SDV-MPG membership to level the playing field for all SDVOSB suppliers in working with both VA and DLA. Myself and any of the SDV-MPG Bard members are happy to talk with you and others at your convenience. We believe there is strength in numbers and the more voices we have the better for all of us.

Remember the SDV-MPG is the only organization run by veteran small business owners for veteran small business owners in the medical products, supplies and equipment arena. All leaders are fellow veteran and service-disabled veterans! 

Please join us!

SDV-MPG CONCERNS WITH PRICING OF PRODUCTS FOR VA’S MSPV PROGRAM

Introduction: Provided to VA MSPV staff to highlight the issues facing SDV-MPG members brought on by VA’s failure to timely and reasonable deal with BPA price increase submissions.

SDV-MPG CONCERNS WITH PRICING OF PRODUCTS FOR VA’S MSPV PROGRAM

February 2023

BACKGROUND: Almost 3 years ago, VA negotiated and awarded Blanket Purchaser Agreements (BPAs) for products to be provided to VA through VA’s MSPV program. Most of the BPAs were awarded to SDVOSBs. Awards were based on “fair and reasonable” pricing in a competitive bidding process. To develop their bid price suppliers used their latest manufacturer’s price, added markups to cover business expenses, MSPV program costs (specific to the MSPV program) and a modest profit. Over the past three years, due to COVID demands and high inflation rates, product prices have risen, in some cases substantially. Price changes after award are now based against other government contract pricing, which in many instances is years old and does not reflect the added costs incurred as a result of the MSPV program. As a result, many BPA holders cannot deliver to prime vendors and VA without incurring losses on each delivery.

ISSUE: VA cannot sustain a viable prime vendor program with a vendor community which loses money. Over the past three years, since the award of the BPAs, product price increases from manufacturers to suppliers range from 5 to over 20 percent. VA routinely rejects price increase requests if VA can find lower prices on another BPA, Federal Supply Schedule, or any other published price. Many times VA automatically rejects any price increase request over 5 percent with no consideration of actual expenses. VA gives no consideration to:

1. Age of the price being compared.

2. Additional cost of the MSPV program.

3. Overhead costs of running a business: salaries, rent, utilities, equipment, insurance, taxes, customer support, etc.

4. Requirements of FAR Part 15.404, “Price Fair and Reasonable Evaluation”, in conducting price evaluations.

The BPA process uses VA contracting officers spread around the country, none of whom have been provided any pricing guidance by VA headquarters staff and have not been trained on how to properly perform price evaluations in accordance with FAR Part 15.404.

SUMMARY: MSPV-Gen-Z will have little chance for success if FAR Part 14.404,” Price Fair and Reasonableness Evaluation” is not employed as BPA holders will not be able to continue to make products available to VA when sold at a loss. VA contracting officers must follow FAR guidance for conducting price analysis and not demand lowest published price, not establish an arbitrary price ceiling and be unreasonable in their reviews. VA headquarters needs to provide adequate training and guidance accordingly in the medical products arena to conduct price reviews.

QUESTIONS TO VA BASED ON RFP ISSUED ON JANUARY 3RD, 2023

Introduction: Questions submitted to VA MSPV  staff based on the release of the final RFP for MSPV Gen-Z.

QUESTIONS TO VA BASED ON RFP ISSUED ON JANUARY 3RD, 2023

1. The RFP addresses Organizational Conflicts of Interest (OCIs) by requiring respondents to self-identify any real or perceived OCI issues. The RFP further requires the respondents to develop and submit to VA a “mitigation plan” addressing the OCI issues. We understand VA has determined it either has, or will, provide “waivers” to any prime vendor who also holds BPAs under the MSPV program, namely Cardinal and Medline. As the proposals including any identification of OCI issues have not yet been submitted, under what authority and justification has VA provided waivers? We respectfully request copies of any waivers and justifications for the waivers VA has established. Also, what effect will Public Law 117-324; “Preventing Organizational Conflicts of Interest in Federal Acquisition Act”, signed on December 27, 2022, have on any current and future waivers granted to the prime vendors by VA?

2. The RFP does not address the issue of prime vendors leveraging their status as prime vendors to capture vast amounts of non-MSPV open market business which rightfully, in accordance with VETS First, should be competed amongst verified service-disabled veteran-owned small businesses. My letter to you of December 6, 2022, provided you with an example of a direct order to a prime vendor that rightfully should have been competed under VETS First. What plans, policies and oversight will VA establish to insure this does not continue to happen?

3. VA on current and past prime vendor contracts has opined it lacks authority to adjudicate conflicts between suppliers and prime vendors. We request a copy of the VA’s Office of General Counsel opinion which supports this position. How will VA under MSPV Gen-Z ensure each party is following their contractual obligations to maintain an uninterrupted supply of critical products to VAMCs? Will effective penalties be applied to prime vendors and restitution provided to suppliers harmed when prime vendors fail to comply with contract requirements by providing substitute products either on formulary or through open market purchases

4. We continue to object to VA’s position that MSPV suppliers are “subcontractors” to prime vendors. As explained in my December 6th letter, suppliers (BPA holders) do not meet the FAR definition of "subcontractor”. VA forces suppliers to work with specific VA selected prime vendors, establish “commercial agreements” with VA selected prime vendors and then VA ignores any issues caused by the actions of the VA selected prime vendors which then harms suppliers with no recourse. This puts suppliers in an untenable position which ultimately harms healthcare provided to veterans. We request a copy of the VA’s Office of General Counsel opinion which supports this position.

SDV-MPG LETTER TO Ashley Nguyen

Introduction: SDV-MPG letter to VA MSPV contracting officer on concerns raised by the publication of the draft RFP for MSPV-Gen Z.

December 6, 2022

BY EMAIL: [email protected]

Ashley Nguyen, Contracting Officer, 36C10X

Strategic Acquisition Center – Frederick

Department of Veterans Affairs

5202 Presidents Court, Suite 103

Frederick, MD 21703

           Re:  MSPV-Gen Z Draft RFP.

Dear Ms. Nguyen:

I hope you and your team had an excellent Thanksgiving holiday. 

As you know, the undersigned has the privilege of serving as the Executive Director of the Service Disabled Veteran Medical Products Group (SDV-MPG), a not-for-profit industry group that represents numerous medical product suppliers that are owned and controlled by Service Disabled Veterans (SDVs).  The mission of the SDVMPG is to advocate on behalf of service-disabled veteran and veteran owned small businesses.  In particular, we are focused on ensuring that VA procurements for medical products, equipment, and supplies comply and conform with the Veterans First Contracting program requirements under which the VA is obligated to provide procurement preferences to SDV-owned businesses where appropriate.  We are very pleased that we have been able to have an open and transparent dialogue with VA leadership and procurement officials, to specifically include you and your team, related to promoting opportunities for SDV-owned firms in support of the VA’s Medical Surgical Prime Vendor (MSPV program).  No less than eleven of our member companies currently hold one or more MSPV supply Blanket Purchase Agreements (BPAs) with the VA through which the VA is committed to sourcing medical products for distribution under the MSPV program.  The SDVMPG and its member companies very much look forward to continuing to build on this success for the benefit of both the VA and veteran-owned small businesses.

The purpose of this letter is to identify our remaining significant concerns related to the statement of work and solicitation requirements that the VA recently announced that it proposes to use to award nationwide IDIQ contracts with large business distributors under the MSPV-Gen Z program.  Previously, we had identified concerns set forth in prior draft RFPs issued by your office.  We fully acknowledge that the current draft RFP for MSPV-Gen Z posted on November 18, 2022, addresses and resolves some of our prior concerns.  For that, we very much thank you and the VA leadership.  Unfortunately, there remain three unresolved and core concerns that have not been ameliorated by the current Draft RFP.  This letter addresses those concerns in detail and provides suggestions for resolving the concerns.  Our goal is to be an effective partner to the VA in arriving at a rational and legally sustainable procurement approach for MSPV-Gen Z.  Please note, however, that we are sharing these statements of concern with the key Congressional committees that have oversight over VA operations to ensure that they have an opportunity to consider these concerns as well.  In addition, due to the gravity of these concerns identified, we are prepared to seek appropriate legal relief if our concerns are not resolved.  We very much hope that will not be necessary. 

Member Companies Affected by Our Concerns

The following member companies of the SDVMPG hold supply BPAs with the VA in support of the VA’s MSPV programs are as follows:  1) AvMedical, LLC, 2) Americare, LLC, 3) Global Procurement Supply, Inc., 4) TrillaMed, LLC, 5) Marathon Medical, LLC, 6) L-1 Enterprises, LLC, 7) Academy Medical, LLC, 8) QB Medical, LLC, 9) Pro-Alliance, Corp.; 10) Stay Safe Solutions, Inc. and 11) RC Consolidated Services, LLC.  Each of these companies is authorized to supply products for distribution through the MSPV-Gen Z distribution contracts and will be adversely affected or prejudiced if the VA does not address the concerns identified herein.  Each of these companies has authorized me to submit this letter on their behalf.

Statement of Concerns

Our outstanding concerns fall into three somewhat overlapping categories:

1. The VA is perpetuating fundamental Organizational Conflicts of Interest (OCIs) that arise when MSPV distributors are also permitted to act as MSPV suppliers under the MSPV.

2. The VA is permitting MSPV Distributors to prejudicially leverage their Prime Vendor status to capture vast amounts of non-MSPV open market medical supply orders without any competition and without evaluating whether those orders should be set aside for or awarded to SDV-owned firms.

3. The VA position that MSPV product suppliers are bona fide subcontractors to the MSPV Distributors is invalid and must be rectified. The VA may not throw its small and SDV-owned business suppliers into the wolf’s den by forcing the suppliers to resolve all their MSPV business issues with a Government agent that has a profit motive to deny them business opportunities and deny them payments they are owed.

Discussion

1. The VA is perpetuating fundamental Organizational Conflicts of Interest (OCIs) that arise when MSPV distributors are also permitted to act as MSPV suppliers under the MSPV program.

It was recently confirmed that two of the VA’s current Prime Vendors, Cardinal and MedLine, simultaneously hold MSPV Supply BPAs to offer their own branded products to VA facilities through the MSPV Program.  In other words, on the one hand, they are supplying medical products to the VA, and on the other hand, they are providing distribution and supply chain management services to the VA in relation to their own products.  In short, they are completely at liberty to order products from themselves.

But the problem is far greater than that.  The Prime Vendors not only provide distribution services, they also perform supply chain management services to the VA facilities they support.  As part of those supply chain management services, they are authorized to work with the facilities to determine which supplies will comprise the facilities’’ “Core List’ of products.  The “Core List” products are those products that will be stocked by the Prime Vendor on a recurring basis for delivery to each VA customer.  While VA facilities may also order other products (i.e., “Non-Core List” products) from time to time, the frequency of the ordering of those products is far less certain.  Indeed, products that are not listed on a facility’s Core List are unlikely to be ordered by that facility on any material basis.  Consequently, only those MSPV Suppliers whose products are maintained on a facility “Core List” are likely to get any meaningful business.  It is therefore very problematic that the Prime Vendors have been empowered by the VA’s MSPV-GEN Z SOW to directly engage with VA facilities to construct that facility's “Core List.”  Clearly, they have a strong profit motive for ensuring that their own branded products are maintained on the “Core List” to the exclusion of their competitors’ products.

This arrangement violates FAR Part 9.5 regarding Organizational Conflicts of Interest (OCIs).  OCIs are broadly defined in the FAR to include situations where a prospective contractor possesses either an unfair competitive advantage in the procurement of supplies or services or will maintain divided loyalties in performing their contractual obligations.  One such example of an OCI is ‘the existence of conflicting roles that might bias a contractor’s judgment.”  FAR 9.505(a)(1).  Here, a Prime Vendor that is authorized to supply its own products through the MSPV-GEN Z program will maintain divided loyalties and reside in a conflicting role where it is empowered to construct or assist in constructing a VA facility “Core List” of supplies.  Yet the RFP specifically puts such a Prime Vendor is precisely that conflict role.[1]  This is improper.  As FAR explicitly states, “contracting officers shall analyze planned acquisitions in order to – (1) identify and evaluate potential organizational conflicts of interests as early in the acquisition process as possible; and (2) avoid neutralize or mitigate significant conflicts of interests before contract award.”  FAR 9.504(a).  This has not occurred with respect to the MSPV-GEN Z draft procurement.  It is therefore incumbent on the VA to assess and negate the fundamental OCI that arises from a Prime Vendor’s ability to propose and deliver its own branded products before continuing with this procurement.  We offer suggestions for how this problem should be addressed below.

Special Note:  We understand that the VA issued an OCI waiver during the previous MSPV 2.0 procurment (which has since been abandoned) to specifically authorize Prime Vendors to serve in dual roles as both MSPV suppliers and MSPV distributors.  See Owens & Minor Distribution, Inc., B-418223.5 et. al., February 3, 2021.  This waiver was not publicized as part of that procurement.  We request that you inform us whether the VA has issued a similar OCI waiver, or intends to issues such a waiver, with respect to the planned MSPV-Gen Z procurement. We also request that we be provided a copy of any such OCI waiver to enable us to understand and assess how the VA believes it is or would be in the VA and the taxpayer’s interest to allow MSPV distributors to operate with clear conflicts of interest.

2. The VA Permits MSPV Distributors to leverage their Prime Vendor status to capture vast amounts of non-MSPV businesses on a sole-source, non-competitive basis. This prejudices SDV-owned businesses that are entitled to both the opportunity to compete for such business and a preference in the award of such orders.

The purpose of the MSPV Distribution program is to designate medical product distributors (i.e., Prime Vendors) that are capable of performing and empowered to perform distribution and supply management services to those supplies that are authorized for procurement under the MSPV Program.  Those supplies have been identified by the VA through a separate competitive process where the VA determined that the offered products were desirable for sourcing purposes by teams of VA clinicians/health care experts and that the prices offered for the products are fair and reasonable.  Those supplies have been captured in a series of BPAs awarded by the VA to many suppliers, comprising approximately 74,000 SKUs as of November 2022.  The supplies listed on these BPAs and the MSPV Supply List, are the only supplies that the Prime Vendors are authorized to order for and deliver to VA medical facilities.  Indeed, the VA’s current draft SOW makes clear that Prime Vendors may not offer, order, or deliver supplies under the MSPV-Gen Z prime contract that are not included in the MSPV Supply List.

Unfortunately, the VA has left its back door completely open.  While the VA’s procurement documents prohibit Prime Vendors from ordering non-MSPV Supply List supply items (i.e., open market items) under the terms of the MSPV-Gen Z contract, there is no prohibition or mechanisms in place that prevents Prime Vendors from sourcing and supplying medical supply to the VA facilities they service as Prime Vendors on an open market basis.  Indeed, one Prime Vendor, in particular, maintains both a Prime Vendor account (PV Account) which each facility that it services as a Prime Vendor, as well as a separate non-prime vendor account for the same facilities (Non-PV Account).  See Exhibit 1 hereto.  The existence of the Non-PV Accounts then enables the Prime Vendor to accept direct orders from that same facility for non-MSPV supply items without any competition.  The order simply gets issued directly to the Prime Vendor.  An example of one such order appears at Exhibit 2 hereto.  If you search for this order on SAM.gov you will find that no solicitation of any kind was ever issued to solicit this order, which is valued at $96,650, which is well above the micro-purchase threshold of $10,000 where no competition is required.  The direct placement of this order to the Prime Vendor clearly violates the Competition in Contracting Act (CICA), as well as the Veterans First Contracting Program as the VA made no effort to determine whether the supplies included in this order were available at fair and reasonable prices from SDV businesses.

We believe this order is one of many hundreds of unlawful, non-competitive direct orders made by VA facilities to a Prime Vendor for the simple reason that the Prime Vendor is there in their facility providing supply management support services, and has put in place Non-PV accounts through with they can readily perform and bill for the ordering and delivery of a vast amount of open market suppliers.  This is plainly unlawful and is highly prejudicial to our member companies who in many instances can supply the open market items at fair and reasonable prices.  It is therefore incumbent upon VA to lock this back door and take action to ensure that no future direct open market orders are perpetuated.  We provide specific recommendations for rectifying this situation below.

3. MSPV Suppliers are not bona fide subcontractors and may not be viewed as or treated as such for purposes of the MSPV-GEN Z program.

Under the FAR, a “subcontract” is defined as follows:

Subcontract means any contract as defined in subpart  2.1 entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders.

See FAR 44.101.

A “contract” under the FAR is further defined as follows:

Contract means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them.

We have requested on many occasions that the VA acknowledge whether MSPV Suppliers are deemed “subcontractors” for purposes of the MSPV Program.  The issue is significant because our member companies have frequently encountered situations where the Prime Vendors have disregarded and violated MSPV program requirements and the terms of their MSPV Distribution contracts to the prejudice of the suppliers.  Such violations include consistently refusing to assign PVONS to member companies to enable them to receive MSPV orders, short-paying them on MSPV orders, providing false or misleading chargeback reports of orders that have been placed and the prices owed for such orders, late payments, and in the case of one MSPV that has subsequently been liquidated through the U.S. Bankruptcy Courts, stiffing the suppliers on millions of dollars of orders for which the ordered supplies were delivered to the VA.  These outcomes are not acceptable, particularly in the case of SDV businesses that the VA is supposed to nurture and support.  In effect, the VA is using the Prime Vendors as a wedge and shield to render the VA in any way accountable for the failure of their Prime Vendors to perform their MSPV distribution obligations.[2] 

This posture by the VA is not lawful. MSPV suppliers are not subcontractors because the suppliers are not “furnishing supplies or services for performance of a prime contract or subcontract.”  Instead, they are furnishing supplies in response to orders placed under BPAs awarded by the VA.  In placing those BPAs, the Prime Vendors are acting as agents of the VA, not as prime contractors.  Indeed, there is no prime contract in place between the suppliers and the Prime Vendors.  Furthermore, while the VA mandates that the Prime Vendors and the suppliers enter into commercial supply agreements, these agreements are not “contracts” because there is no “mutually binding legal relationship” between the Prime Vendors and the suppliers.  Indeed, these commercial supply agreements, which are consistently drafted by the Prime Vendors for their exclusive benefit, do not commit the Prime Vendors to order any amount of supplies from the suppliers.  They also grant the Prime Vendors the right to unilaterally change the prices that the Prime Vendors may pay the suppliers, to return products to the suppliers at the supplier’s cost for any reason, and to render payments to the suppliers at the Prime Vendor’s leisure.  In short, the commercial supply agreements are wholly illusory in nature, and cannot serve as the basis for holding that the suppliers act and serve as “subcontractors” to the Prime Vendors.  It's that simple.  We, therefore, require that the VA acknowledge that Prime Vendors are agents of the VA, that the VA will be obligated to pay for supplies ordered by the Prime Vendors as required by the BPAs and applicable law, that the Prime Vendors may not order product and then propose to return for any reason at the Suppliers’ cost (the Prime Vendor is being paid by the VA to manage this risk).  The failure to render this acknowledgment will result in a declaratory judgment action seeking a legal declaration that the MSPV-GEN Z program is a subterfuge designed to enable the VA to avoid its legal obligations to its bona fide suppliers.

Recommendations

We offer the following recommendations to rectify these concerns:

1. The VA must and should update VHA Directive 1761, entitled Supply Management Operations, to specify that VHA facilities may not place open market orders for non-MSPV supplies with Prime Vendors without complying with CICA and the Vets First Program requirements. All Non-PV accounts between Prime Vendors and ordering facilities must be eliminated.

2. The VA must and should provide for independent reviews above the facility level with respect to all open market medical supply orders exceeding the Micro-Purchase Threshold to ensure that CICA and Vets First Program requirements are being fulfilled for such open market orders.

3. The VA must either a) bar Prime Vendors from supplying their own products in support of the MSPV Program or b) ensure that Prime Vendors are not able to favor their products through the Program, specifically concerning the determination of “Core Products Lists” as the facility level. In this regard:

1. All Suppliers should have the opportunity to make the case for the inclusion of their products on a facility’s Core Products List. This will eliminate the unfair competitive advantage Prime Vendors have concerning their ability to offer their own products to VA customers.

1. The inclusion of a Prime Vendors' own branded or white label product on a facility’s Core Product List should be supported by a Determination and Finding that such inclusion is warranted to fulfill the facility's medical supply needs. These D&Fs should be rendered by the VISN Contracting Office that has contracting cognizance for that facility.

1. The VA should establish a separate “Backup” prime vendor for the specific purpose of processing all orders for products that are either the branded or white label product of another Prime Vendor. Back-up Prime Vendors should not be a Prime Vendor that is offering their own branded or white-label products through the MSPV Supply List.[3]

1. If a Prime Vendor declines to stock certain products on the Core List, or maintain a meaningful ordering basis for Non-Core List suppliers, those orders should likewise be referred to the Backup Prime Vendor.

4. If the VA has issued or has deterimed to issue an OCI waiver in accordance with FAR 9.503, the VA should publicize that determination for public and congressional comment.

5. The VA should specifically acknowledge that the Prime Vendors are agents of the VA and that all orders fulfilled by MSPV Suppliers based on Prime Vendor orders are binding commitments by the VA for which the Suppliers may look to the VA for recourse if the Prime Vendors fail to timely or properly perform their supply chain management functions.

Thank you for your consideration of this matter.

Sincerely,

[1]The draft RFP contains other instances where those Prime Vendors that supply their own branded products under the MSPV Products List will have a clear conflict of interest.  For example, the Prime Vendor may delay or neglect to assign a PVON to those suppliers that have BPAs to supply competing products, thereby delaying or preventing any orders to be place with those supplies.  Likewise, with respect to Non-Core Products, the Prime Vendor may simply decline to stock the competitors’ products, and then inform the facility that the product is not available and tender its own branded product as a substitute.   We have seen many occurrences of this situation under the current MSPV-NG Bridge program.

[2]Significantly, in the case of American Medical Depot (AMD), the now bankrupt prime vendor that caused substantial financial losses to our member companies, a VA OIG report found that the VA contracting and program office for the MSPV-Bridge program possessed ample information that AMD was in breach of its performance obligations, yet did not nothing to address or rectify the situation, thus causing our member companies large financial losses through sheer neglect.

[3]Back-up prime vendors were initially proposed under an earlier draft solicitation for MSPV-GEN Z.  We urge the VA to reinstate this approach.  It provides for greater supply chain elasticity, and will provide a hedge to prevent Prime Vendors from declining to stock the products of suppliers for their own financial interests.