How McKinsey Is Making $ 100 Million (and Counting) Advising on the US Government’s Bumbling Coronavirus Response
For the world’s best-known corporate-management consultants, helping tackle the pandemic has been a bonanza. It’s not clear what the government has gotten in return.
In the middle of March, as the coronavirus pandemic was shutting down the country, McKinsey & Co., the giant management consulting firm, saw opportunity. The firm sprang into sales mode, deploying its partners across the country to seek contracts with federal agencies, state governments and city halls. Government organizations had been caught unprepared by the virus, and there was a lot of money to be made advising them on how to address it.
That month, a partner in McKinsey’s Washington, D.C., office, Scott Blackburn, got in touch with an old colleague. Deb Kramer had just been promoted to become an acting assistant undersecretary at the Department of Veterans Affairs, where Blackburn, whom McKinsey declined to make available for an interview, had held senior roles between 2014 and 2018. During that period, the two had overseen a major overhaul of the agency called “MyVA,” a project McKinsey had worked on as well. Blackburn had worked at McKinsey before going to the VA, and he returned to the firm afterward. He and Kramer were in touch repeatedly in the middle of March, according to a person familiar with the exchanges.
On March 19, Kramer made a highly unusual request: The VA, she said, needed to hire McKinsey within 24 hours. The VA runs a sprawling health care system that serves 9 million veterans, many of them older and plagued by chronic health problems, and typically takes many months to solicit and accept bids and vet bidders for a contract. The health system’s leadership wanted to sign a multimillion-dollar contract with McKinsey to spend up to a year consulting on “all aspects” of the system’s operations during the COVID-19 pandemic, Kramer told a VA contracting officer, Nathan Pennington. Pennington memorialized parts of the exchange in a public contracting document
“There is no time to spare,” the contracting document stated, “every day wasted by a lack of situational awareness down to the community level, and the inability to model scenarios and test alternative courses of action, increases the risk to the citizens of this nation, to include Veterans and our own employees.” The VA, the document observed, needed help with “life-and-death decision-making today.”
The exigent circumstances left no time to seek competing bids or to fully vet McKinsey’s proposal, Kramer argued. It was the only contractor she and her colleagues were aware of that could provide the required services without needing “ramp-up” time the VA couldn’t afford. Pennington conducted no market research and only a minimal review of the cost, “as there was no time,” he wrote. Kramer approved the $12 million price tag. The contract was signed on March 20.
That would turn out to be just a down payment for McKinsey. Ten days later, the Defense Health Agency was added to the VA contract
, upping its value to $22.5 million, and the week after, the Air Force hired McKinsey — also with a no-bid contract. The firm’s assignment for the Air Force was to serve on a task force developing a strategy to get defense contractors, many of them McKinsey clients, to produce medical supplies during the pandemic. To justify the $12 million value of that contract, an Air Force contracting document
cited what the VA had agreed to pay McKinsey. It did not mention the VA price tag’s largely unvetted nature. Finally, in early May, the DHA expanded the scope of McKinsey’s work, signing an additional contract
worth up to $6.1 million.
A VA spokeswoman, Christina Noel, said that the agency “adhered to all federal contracting laws” in hiring McKinsey and that “no-bid contracts can help provide VA the flexibility needed during this national emergency to deliver the services required to support clinical needs and save lives.” A DHA spokesman, Richard Breen, said McKinsey had “expertise needed and an existing contract with [the VA] for COVID-19 modeling support with a separate and distinct scope.” An Air Force spokesperson did not respond to emailed questions.
In a matter of weeks, McKinsey had extracted a total of $40.6 million in no-bid contracts out of its initial agreement with one federal agency. Continue Reading…