California taxpayers didn’t lose money in high-priced mask deal, state’s top emergency official says

California
A worker at a Honeywell International factory in Phoenix, Arizona, produces N95 masks on May 5, 2020. (Brendan Smialowski / AFP / Getty Images)

A worker at a Honeywell International factory in Phoenix, Arizona, produces N95 masks on May 5, 2020. (Brendan Smialowski / AFP / Getty Images)

California’s top emergency official defended the state Monday over failed, high-priced deals for personal protective equipment, saying taxpayers haven’t lost money and that the state was doing its best amid a worldwide mad dash for gear during the coronavirus pandemic.

“Given the thousands of commodities vetted, the tremendous pressure to source, and the significant amount of vendors we were dealing with, there were ultimately just a few that required us to either cancel the contract or seek reimbursement,” Mark Ghilarducci, director of the state’s Office of Emergency Services, said during an oversight hearing before state Assembly lawmakers.

“Not one dime — not one dime — of taxpayer dollars has been lost,” he continued.

California has spent roughly $2.2 billion on 180 contracts for personal protective equipment such as face masks, shields and gowns without a competitive bidding process, state officials said. Several of the deals for face masks were canceled after money had been wired, prompting lawmakers to call an oversight hearing on the contracting process amid the coronavirus. Ghilarducci called the contracts outliers and said the state has enhanced its vetting process on such deals.

Two state deals facing scrutiny are with the Chinese electric vehicle manufacturer BYD and a firm called Blue Flame Medical LLC, created by two former political operatives, both for face masks. The state has been refunded part of its money, $247 million, in the BYD deal due to delayed federal certification of the masks, though the state expects they will eventually pass.

In the case of Blue Flame, the deal made in March collapsed within hours, and the state got back $456 million it wired in advance. In a third deal, the state paid Bear Mountain Development Co. LLC nearly $800 million for surgical masks and face shields, but then cancelled the deal, the Los Angeles Times reported.

“Fraud and abuse has been rampant,” Assemblywoman Cottie Petrie-Norris, a Democrat, said to kick off the hearing. “These incidents have raised questions about the robustness of our vetting protocols from state contracts in this emergency.”

Democratic Assemblyman Adam Gray said the administration would face scrutiny for both acting too quickly and not acting fast enough. He said it was not his goal to chastise or condemn the administration’s actions but to bring “sunshine and public transparency.”

In the BYD case, Ghilarducci said a paperwork issue led to the certification delay by the National Institute for Occupational Safety and Health. The state expects the certification will pass next month and California will still get the hundreds of millions of tight-fitting N95 masks it ordered. The company has already shipped tens of millions of looser-fitting surgical masks under the deal.

The collapsed Blue Flame deal attracted even more questions. The state wired nearly half a billion dollars to the company in a rare move of paying upfront before goods are received. Then, the bank flagged the transaction as suspicious, and the deal was cancelled later that day. Ghilarducci said the company and its offer had “appeared to be legitimate.” Ethan Bearman, the lawyer listed on Blue Flame’s California business registration filing, could not immediately be reached for comment.

Ghilarducci said the bank’s flag of the transaction demonstrates the state’s system of checks and balances. But Gray, the Democratic assemblyman, suggested the state shouldn’t have needed the bank to catch a suspicious transaction.

The state has since implemented a more robust process for vetting the massive amount of offers it gets for protective gear amid the pandemic. Since early April, more than 7,700 offers for equipment have flowed through a state contribution portal, Ghilarducci said. All requests go to a vetting group, which includes multiple subgroups to examine the businesses and the deals they are offering. The state also works closely with federal authorities such as the FBI, he said.

While lawmakers asked pointed questions on the deals, several involved in the hearing said they understood the pressure the state has been under to secure gear that can save lives.

“It’s easy to be a Monday morning quarterback, in the sense of laying blame at folks’ doorsteps,” Gray said. “The reality is people’s lives are on the line … A certain amount of risk is appropriate in acting quickly.”

Helen Kerstein, a fiscal and policy analyst overseeing emergency services in the Legislative Analyst’s Office, said it’s been difficult for lawmakers to get information about contracts Gov. Gavin Newsom’s administration is signing in a timely manner amid the pandemic. The administration’s need to act quickly can weaken “guardrails” the Legislature would normally have in place, she said.

“You really have big budgetary implications for the state, too, if something goes awry,” she said.

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