VA Probe of McGaw Finds No Fraud Contracts: Irvine-based firm will again be able to provide intravenous solutions and equipment to military hospitals.
The Department of Veterans Affairs has cleared McGaw Inc. of allegations that it rigged a $130-million bid to renew a contract to provide medical supplies to federal hospitals, the company said Tuesday.
The notice from the VA, McGaw’s biggest customer, clears the way for the company to again receive a contract to provide intravenous solutions and equipment to VA and other military hospitals over the next five years, said spokesman Lawrence Watts.
“We are delighted by the results of the VA’s investigation,” James M. Sweeney, chairman and chief executive of Irvine-based McGaw, said in a statement. “They are a highly valued customer . . . it was a top priority for us to retain their business.”
Wall Street reacted positively to the announcement, sending McGaw shares up 62.5 cents to $10.625 in heavy Nasdaq trading of 301,000 shares, more than 10 times the company’s normal trading volume.
“This eliminates the single biggest risk for the company,” said Vivian Wohl, analyst with Robertson Stephens & Co., an investment bank in San Francisco. “Investor attention was focused on this, and now it can focus on more positive things about the company.”
The original contract, which McGaw won in 1988, had generated $128 million in revenue for McGaw. The contract expired in October, but McGaw has continued to supply products to the VA under the terms of the contract.
The contract renewal was put on hold in a preliminary ruling in July after the VA received a protest from rival bidder Baxter Healthcare Corp. in Deerfield, Ill.
Baxter alleged that the winning bid McGaw submitted in May did not follow proper guidelines. The news sent McGaw stock plummeting 21% to $9.25 a share in trading on July 26.
Baxter bid $132 million compared to McGaw’s $129.4 million. Baxter described McGaw’s bid as “materially and mathematically unbalanced”; that is, that McGaw rigged its bid so that it would receive more money in the early years of the five-year contract. As a result, Baxter claimed the McGaw bid would initially cost the government more money than the Baxter bid.
Federal guidelines require that bid prices in multiple-year awards be directly related to production costs. But McGaw contended that it could cut prices in later years because of expected production efficiency.
The VA audited McGaw’s records over the past six months and concluded in a letter dated Dec. 13 that the company could indeed expect to reduce its costs and therefore curb prices in the latter part of the contract, Watts said.
Baxter officials did not return calls for comment. “We would much rather not have gone through this thing,” Watts said.
