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Feds Spend Billions On COVID-19 Contracts, Often Without Fully Competitive Bidding

Originally published on June 15, 2020 11:47 am

When nurses and doctors across the country were struggling to treat coronavirus patients without enough protective gear, and the federal government was scrambling to find those supplies, Quedon Baul saw an opportunity.

His three-person company in McKinney, Texas, distributes medical supplies but didn't have much experience with face shields. Still, he landed two government contracts worth up to $20 million to deliver the personal protective equipment. He couldn't meet the first deadline, so he found subcontractors to do the job.

"You get an opportunity, you take it," Baul says. "It wasn't my first rodeo, but it's certainly my first big rodeo."

The U.S. government has granted contracts worth as much as $25 billion as it races to address the COVID-19 public health crisis. NPR reviewed a database of thousands of contracting actions and found more than 250 companies that got contracts worth more than $1 million without going through a fully competitive bidding process.

Some of the companies, such as Baul's, had little or no experience with personal protective equipment. Others had never worked in the medical field at all. Contractors also included a company that imported vodka and a school security consultant.

Sixteen of the companies had only registered to do business with the government for the first time this year. And at least three companies formed just days before they obtained the contracts, NPR found.

These companies often acted as "middlemen," obtaining the medical supplies from other manufacturers, some in China, records show. That meant they were competing with federal agencies, state governments and local health systems trying to buy the same equipment on the global market.

Government procurement experts say federal officials were trying to move quickly to deliver desperately needed personal protective equipment. But they question the need to turn to contractors who have never worked with the government before and lacked experience making or delivering the protective gear.

"Giving business to people who don't have experience is something you don't want to do in an emergency," says Joshua Schwartz, a professor of government contracts law and co-director of the Government Procurement Law Program at George Washington University's School of Law.

After years of planning for pandemics, the federal government should have been better prepared – and acted earlier, experts say.

Instead, in the scramble to find supplies, the government streamlined the competitive bidding process and may not have done proper vetting, says Juliette Kayyem, a former assistant secretary at the Department of Homeland Security. She says the Federal Emergency Management Agency and other agencies signing these contracts should not be relying on "new players in the arena" during a crisis.

"We wake up in March and realize we have massive community spread and no capability to protect our first responders," says Kayyem, now an expert on disaster preparedness at the Harvard Kennedy School. "That, in the end, did not have to be. ... FEMA was always behind the eight ball from the beginning."

For many entrepreneurs, this was a chance to get Americans the protective gear they needed and, while they were at it, make a buck. The government needed masks, face shields and other equipment, and it needed them fast.

When Baul, the Texas entrepreneur who runs a company called Reliable Sales & Services LLC, learned that the government was issuing contracts for firms to deliver personal protective equipment, he wanted to make sure he got one.

"When this pandemic hit, we didn't want to leave it to chance that they would sift through hundreds of applications and somehow find ours," Baul says. "I sent an email to someone I knew and asked them, 'Can you make sure they don't forget about RSS?' and they said yes."

Baul wouldn't say whom he emailed in the federal government. In early May, his company got the contracts, which were "not competed," from FEMA to provide face shields.

He says his suburban Dallas operation distributes "a little bit of everything," including IV fluid catheters. But he also acknowledges that 90% to 95% of his business was not related to personal protective equipment before the COVID-19 outbreak.

The agency wanted the equipment in 10 days, and Baul knew he couldn't deliver on time. He says he got an extension, subcontracted the work to other companies around the country, and was able to deliver 300,000 face shields.

"We didn't have a choice," he says, referring to the subcontractors. "They wanted them assembled. That's not our business model."

A spokesperson for FEMA says the agency has a "rigorous vetting" system.

"FEMA does not enter into contracts unless it has reason to believe they will be successfully executed," agency spokesperson Lizzie Litzow says. "However, a company not being able to deliver is always a risk."

Another company that didn't deliver on time is Medea Inc., a California-based firm whose ventures have included importing vodka. The company has no experience in personal protective equipment, but got a $48.8 million contract that was "not competed" from FEMA in May to supply KN95 respirator masks.

Medea vodka bottles on display during in 2012.
Bennett Raglin / WireImage/Getty Images

The deadline for Medea to deliver the personal protective equipment was June 1, but the company missed that date, according to Litzow. The agency extended the delivery date until June 19. FEMA did not comment on whether Medea has delivered any protective gear so far.

Brandon Laidlaw, CEO of Medea, did not return four phone messages seeking comment on the delay.

Laidlaw's company has been sued by a New Jersey finance company, alleging that Medea knowingly "misrepresented the existence of bona fide purchase orders," which cost the finance company more than $1 million, according to court records. The case is pending in U.S. District Court in Massachusetts. Medea denies the allegations in court filings.

NPR found a repeated pattern of companies with no experience in personal protective equipment having to subcontract out to partners. Both companies then get a cut.

"We supply, we don't manufacture," says Andrew Camacho, general manager of C6 Tactical Corp. "We're just the middlemen."

C6 Tactical distributes uniforms. The Florida company landed a $2.2 million personal protective equipment contract that was "not competed" with the Bureau of Alcohol, Tobacco, Firearms and Explosives. Camacho says, "This is the first of this scale for this company doing PPE."

Camacho says he works with subcontractors in Europe, Canada and Israel, though not China. Asked why the government doesn't go directly to overseas manufacturers, Camacho says it's about perception.

"They want to keep the business in the U.S.," he says. "The government doesn't want to show that they bought from China, especially during the trade wars."

Camacho says he signed a nondisclosure statement with his company saying that he would not discuss the specifics of the contract, including whether it delivered the personal protective equipment. A spokesman for the ATF did not return a call Monday seeking comment.

Other contractors are finding the supplies in the United States.

"I saw this as an opportunity for me to continue to provide something to first responders," said Art Gordon, a retired federal law enforcement agent.

Several years ago, Gordon started Secure Our Schools, a Maryland company that offers security consulting and other services. The company had never delivered personal protective equipment before, but FEMA awarded it a contract worth nearly $2.8 million that was "not competed."

Gordon did have experience with federal contracting and a friend in the medical supply business. Gordon says he found a manufacturer in Minneapolis that was able to repurpose its factory to make face shields.

"We did our homework," he says. "We picked a reputable medical supply company to work with, and we made sure we had the delivery chain and everything we could possibly think of."

Gordon says he was able to deliver 1 million face shields at a "reasonable" price to the government, though he declined to say how much his company made from the deal.

NPR also found 16 companies that first registered to do work for the government this year and three that were created recently.

Fillakit LLC started as a company on May 1, according to state and federal records. Seven days later, the company landed a $10.2 million contract with FEMA to provide COVID-19 test kit supplies, including swabs. In an interview with NPR last month, Paul Wexler said he headed the company.

"It's a feel-good FEMA story," he said.

In 2013, Wexler was fined $2.7 million after the Federal Trade Commission sued him and a debt relief company he owned in Florida, court records show. The judge found that he used questionable Internet and telemarketing tactics to get cash-strapped consumers to pay his company to get them credit card interest rates as low as zero percent.

When contacted again by NPR about the Fillakit contract, Wexler said he has "nothing to do with the company."

"I have no comment; there is no story," he said, before hanging up on a reporter.

Kira Doyle, a Florida lawyer listed in state and federal records as a manager at the company, did not return a phone call seeking comment.

FEMA contracted with Fillakit after reviewing its quote and "contractor assurance statement" that it could deliver.

"Fillakit was determined to be a responsible offeror," Litzow said. "Nothing was found that would render this company ineligible for award."

Litzow says that the company is under contract to provide 4 million "units." It has provided 1.19 million units as of May 28, she says.

Another brand-new business that landed a contract was launched by a former White House aide to President Trump, Zachary Fuentes.

Zachary Fuentes, then a deputy chief of staff in the Trump administration, goes to board Marine One in 2018.
Carolyn Kaster / AP

His company, Zach Fuentes LLC, received a $3.5 million contract to provide masks he sourced from China to the Indian Health Service, less than two weeks after it was formed.

That contract drew the attention of Rep. Gerry Connolly, D-Va., at a House Oversight Committee briefing in May. Connolly called the contract "suspicious" and followed up with a letter this month to the inspector general's office at the Department of Health and Human Services, asking for an investigation into media reports questioning whether the masks Fuentes ended up supplying were the correct products.

"If these reports are true, this is yet another case of rampant and reckless self-dealing perpetrated by officials in this Administration," Connolly wrote.

In a statement to NPR, the Indian Health Service says it awarded the contract under "urgent and compelling authority" after getting quotes from six vendors. The agency says the masks Fuentes supplied are registered medical devices but aren't Food and Drug Administration-approved for use in health care settings by health care workers.

"The IHS is considering its options regarding the masks. None of the masks have been distributed or used," the agency says.

Fuentes tells NPR he'd welcome an investigation. He says there had been a misunderstanding about the products he supplied.

"I have nothing to hide," Fuentes says, "We didn't do anything wrong. We acted ethically and with integrity."

Fuentes says he did not benefit from his time in the White House in getting the contract, but that he did benefit from having some experience with federal contracting in the military. He also says he is working with someone who has experience in the medical field.

When asked why a federal agency wouldn't go directly to a Chinese supplier rather than having a U.S. company buy masks from China and resell them to the government, he says, "I think part of it has to do with a lack of overall access. ... We had access."

Also, he says, "The government obviously tries to work as much as possible with small businesses and disadvantaged businesses."

Some contractors pointed out that their contracts were structured so that they only get paid if they deliver.

"I'm obviously approaching it as an entrepreneur, because there's an opportunity," says Bobby Bedi, a California entrepreneur. "But we only get paid if I deliver on those contracts. If I don't deliver, I don't get paid."

Bedi has been a businessman for 25 years in the real estate, information technology and restaurant sectors. He saw an opportunity to make face masks as the pandemic hit.

He had never done business with the federal government. But he started a new company, VPL Medical Inc., in April, and within a couple of weeks had contracts that were "not competed" and worth up to $21 million.

"I have some friends of mine here locally who do tons of business with China, and they said, 'Hey, we can find product for you out there,' " Bedi says. "And that's how it just started."

Bedi says he has delivered products made in China to the Department of Veterans Affairs and plans to manufacture personal protective equipment in the United States.

Other contractors with no prior experience with personal protective equipment also say they were able to make the right connections.

"We were more about the mission than making a quick buck," says Geoff Perkins, co-founder and president of the Concourse Federal Group, a company based in Alexandria, Va., that received more than $2 million in coronavirus-related contracts.

The company has been working as a federal contractor for a decade. Perkins, an Air Force veteran, says it has several different lines of business, including supplying medical equipment to hospitals and clinics.

Concourse had never delivered personal protective equipment before. But Perkins says a longtime business contact at the VA called him and asked if the company might be able to help find scarce supplies, including surgical masks and hand sanitizer.

"They're in crisis mode," Perkins says. "So we quickly moved into crisis mode to try to help them the best we could."

Perkins says connections in China enabled the company to deliver nearly 2 million masks in a matter of weeks, at a markup to the government of just 5%.

According to Perkins, there are good reasons why federal procurement officers might turn to middlemen such as his company, rather than doing business directly with suppliers overseas.

"We put our own money at risk," Perkins says. "We need to pay for these surgical masks before the government pays us."

VA press secretary Christina Noel said in an email that if a vendor doesn't deliver, the agency does not pay any money. And Noel defended the VA's use of contractors who had never delivered personal protective equipment before.

"During this time of unprecedented global demand for PPE, VA must cast a wide net in order to ensure that we're meeting our supply needs," she said.

But procurement experts caution that Concourse Federal Group may be the exception rather than the rule.

"In some ways, that's a promising story because the guy ultimately delivered," says Kayyem of the Harvard Kennedy School. "But for every guy like that, there were probably a dozen that couldn't."

Copyright 2020 NPR. To see more, visit https://www.npr.org.

RACHEL MARTIN, HOST:

Think back to early spring. In March and April, doctors, nurses, hospitals all desperately needed masks. They needed face shields and other personal protective equipment - PPE. The U.S. government went to the market to get the medical gear, signing contracts worth $25 billion with hundreds and hundreds of companies. But did those contracts go to the companies with the best chance of delivering? NPR has looked into many of those contracts, and we are joined now by Cheryl W. Thompson of NPR's investigations team to talk about what she found out. Good morning, Cheryl.

CHERYL W THOMPSON, BYLINE: Good morning, Rachel.

MARTIN: OK. So, Cheryl, what contracts did you look at, and what were some of the key findings?

THOMPSON: We looked at a particular portion of all those contracts, ones where the government didn't require companies to go through a full competitive bidding process. More than 250 companies got contracts worth more than a million dollars - fit into that category. And my colleagues Joel Rose and Robert Benincasa and I reviewed those and then reached out to many of the companies listed to learn more. And one of the key findings is that many of these companies had almost no experience either manufacturing or delivering PPE, the personal protective equipment. It just wasn't their typical line of work.

MARTIN: OK. So no experience, and even so, they got multimillion-dollar contracts.

THOMPSON: Absolutely, they did. Some contractors had never worked in the medical field. One company was a school security consultant; another was a liquor importer. And that last one was a California contractor who imported vodka. That company got a $48 million contract from FEMA to supply KN95 respirator masks. I'm still waiting on an answer from the agency on what he has produced so far. But we also found many companies played the role of middlemen. They didn't make what the government needed, so they had to go find it, and it was often in China. And we also found that at least three companies formed just days before they got the contracts.

MARTIN: So why? I mean, aren't there rules in contracting that would require the government to pick companies with reliable track records?

THOMPSON: There are rules for contracting, for sure. And FEMA and other agencies do say they have a rigorous vetting process, and they look into companies with prior government contracting experience and other factors. But there's also a theory that, in a crisis, you just do what you have to do. Juliette Kayyem is a former official at the Department of Homeland Security, and she explains it this way.

JULIETTE KAYYEM: The theory is you go big or stay home. You just do a lot. Some of it may be mistakes; some of it may not. And then - but, you know, if it can solve the problem, no one's going to be mad at you.

THOMPSON: That's the theory, Rachel, but there's a price to pay - whether the government ends up paying too much or whether companies can't deliver.

MARTIN: And could you tell, Cheryl, whether companies were able to deliver, even given the lack of experience?

THOMPSON: Well, some did, some didn't. Or they couldn't deliver on time and needed an extension. And remember, Rachel, that this is - was at a time when it was urgent to get the equipment fast. So one example of someone who did deliver is Concourse Federal Group. That company got a $2 million contract with the VA to deliver things like masks and hand sanitizer. Geoff Perkins is the co-founder and president of that company.

GEOFF PERKINS: They're in crisis mode. We quickly moved into crisis mode to try to help them the best we could. Obviously, starting into a new business line, there's always a concern. Whether you're in a crisis like this or just normal, there's always unknowns - so, you know, is the PPE really going to get delivered on time, where we need it to be, of the right quality, of the right origin, etc.

THOMPSON: Perkins says, Rachel, that he only charged 5% above cost, but he delivered.

MARTIN: Right. So he did, but others didn't. What's the story with them?

THOMPSON: That's right. Others didn't, or either they were late. A number of companies we looked into had to request extensions. For example, I spoke to the owner of a three-person company in suburban Dallas who has two contracts worth up to $20 million to supply face shields. He had to bring in subcontractors to do the job, and he got FEMA to extend his delivery deadline. So the risk is that while a few companies without any prior experience can deliver, there are many, many more who won't.

MARTIN: Cheryl W. Thompson from NPR's investigations team. Thank you so much, Cheryl, we appreciate it.

THOMPSON: Thanks, Rachel. Transcript provided by NPR, Copyright NPR.