Ducks (Not) in a Row – VA Agrees to Take Corrective Action in Transitioning MSPV 2.0 Requirements to DLA

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The U.S. Department of Veterans Affairs (“VA”) Medical Surgical Prime Vendor (“MSPV”) 2.0 Program (discussed previously here and here) has yet to make it off the ground, but in March 2021 the VA announced plans to eliminate the program by September 2023 and instead purchase from the Defense Logistics Agency’s (“DLA”) separate MSPV catalog. The VA and DLA MSPV programs are how the VA and DLA (separately) purchase most of their medical, surgical, and laboratory equipment for care centers across the country (and abroad, in the case of DLA). The VA and DLA have been exploring the possibility of consolidation since at least January 2019, but many vendors relied on the VA’s representations that it would not make any decisions on potential consolidation until at least 2025. So when the VA informed stakeholders of its new September 2023 target, Medline Industries, Inc. (“Medline”), one of the prime vendor awardees under the VA’s MSPV 2.0 Program, responded by filing a bid protest at the U.S. Court of Federal Claims. On May 28, 2021, the VA and DLA decided to take corrective action, asking the Court for six months to re-evaluate the issues raised by the protest. It seems that the government did not have all of its ducks in a row prior to announcing the targeted transition.

In the motion asking for the six-month stay, the agencies acknowledged that there was a “lack of analysis in the record to support the planned transfer to DLA.” The Court of Federal Claims has yet to issue an order staying or dismissing the protest – a hearing is scheduled for June 4 – but the Court likely will remand to the agencies as requested. Whether this will meaningfully change the timeline for the transition is yet to be seen, but it certainly will give the VA and DLA a chance to look at things more closely than maybe they have thus far. And it also undoubtedly will give the policy makers time to assess whether consolidation is something that the VA truly wants to (or even should) do and, if the decision is to proceed with the consolidation, to build a better record with which to withstand another protest. In the request to stay Medline’s protest, the agencies also explained that Veteran Integrated Service Network (“VISN”) 20 (covering Idaho, Oregon, and Washington), which was transferred to DLA in 2020, would remain with DLA, and the ongoing VISN 6 transfer (covering North Carolina and Virginia) would continue to completion. According to the Government, unwinding these in-process transfers would jeopardize patient safety by disrupting the supply of necessary medical products.

The transition to DLA would follow a long and uphill effort by the VA and its vendors to move from the current MSPV-Next Generation (“MSPV-NG”) Program to the new MSPV 2.0 program. After years of preparation, the VA issued the MSPV 2.0 prime vendor solicitation in September 2019, eventually awarding prime vendor contracts to two companies, including Medline, in October 2020. These vendors have not yet begun performance because the VA is currently operating under bridge contracts from the MSPV-NG Program. While waiting to begin performance on MSPV 2.0, Medline learned that the VA planned to move forward with transitioning the requirements to DLA, effectively cutting Medline’s base 3-year contract short by a year or more (the contract, including options, was expected to run 9 years and was valued in excess of $10 billion).

Medline’s April 8, 2021 protest at the Court of Federal Claims alleged that the inter-agency acquisition by the VA from DLA’s MSPV Program is illegal for three primary (and persuasive) reasons:

  1. The VA and DLA have failed to develop the required business case analysis and Determination and Finding (“D&F”) for the transition as required by The Economy Act, 31 U.S.C. § 1535, and FAR Subpart 17.5;
  2. DLA’s non-competitive award of the VA’s requirements to the existing DLA contracts violates the Competition in Contracting Act (“CICA”), 41 U.S.C. § 3301; and
  3. The proposed modification to the DLA contracts incorporating the VA’s new requirements would drastically expand their scope and volume in violation of CICA, resulting in an improper “cardinal change” to the DLA contracts.

Medline most recently filed a Motion for Judgment on the Administrative Record – a record that all VA and DLA vendors would probably love to see – further arguing the Administrative Record supports Medline’s allegations that VA and DLA have gone completely rogue, flouting the requirements of the Administrative Procedure Act (“APA”), FAR 1.602-2, FAR Subpart 17.5, CICA, and The Economy Act (among other authorities). Medline’s motion shines a spotlight on the opaque way the VA has decided on and messaged the abandonment of the VA’s MSPV 2.0 program and the transition to the DLA’s MSPV program over the past several years – something we have blogged about previously, as well. Unsealed on May 26, 2021, the motion details various unflattering pieces of the Administrative Record showing internal concern at both the VA and DLA about the ethics and legality of the transition. The Administrative Record included internal communications questioning whether the VA can ethically award MSPV 2.0 contracts for up to 9 years with the simultaneous intention of cancelling them in less than 2 years (which might breathe new life into the often-cited but rarely followed U.S. Court of Claims decision in Torncello v. United States), in addition to considering questions like whether increasing the scope of DLA vendors’ contracts to cover the move is legal in the first place. Notably absent from the Administrative Record, as later acknowledged by the agencies, was a D&F supporting the inter-agency acquisition as required by FAR Subpart 17.5 and The Economy Act, or even a documented rationale for abandoning the VA’s MSPV program and instead rapidly transitioning the program to DLA.

Medline’s motion also highlights the practical and technical barriers of a complete transition to DLA by 2023 – one being that only 58,366 of the 93,000 products to be included on the VA’s MSPV product list are currently available through the existing DLA MSPV contracts. Other concerns include that: (i) the VA’s VISN regions do not align with the DLA’s prime vendor regions, raising questions as to whether there could be gaps in veteran service; and (ii) the DLA prime vendors have not yet agreed to the scope and volume change required to support the VA, making the whole transition doubly premature. Presumably, these are some of the issues that the VA and DLA will attempt to iron out in the next six months. And presumably these are some of the issues that the policy makers will have to sort out in deciding how the VA will best deliver on its mission to support our nation’s veterans.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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