Within the frantic first weeks of the COVID-19 pandemic, three firms promised California officers that they may safe thousands and thousands of protecting masks in change for $1.6 billion in no-bid authorities contracts. Every effort ended badly for the state.
Two years later, lawsuits stemming from the failed contracts present a glimpse into the dealmaking — together with how California Controller Betty Yee, a two-term Democrat with no formal function within the contracting course of, labored behind the scenes to assist a pair of political operatives land a deal that turned out to be one of many state’s most flawed.
The $600-million contract with Blue Flame Medical LLC, a healthcare provides startup, was later flagged as a case of attainable fraud, and the state was pressured to claw again its large upfront fee. However Yee’s involvement with the trouble by no means turned public, even after the deal collapsed and state lawmakers demanded a full accounting of what had occurred.
Over the course of a pivotal week in March 2020, Yee offered Blue Flame’s co-founder withprivateadvice on learn how to negotiate an advance fee and discouraged him from disclosing how a lot the corporate would pocket from the deal, in response to textual content messages documented in a lawsuit involving the contract.
“I'll see to it that the wire occurs very first thing this morning,” Yee wrote to John Thomas, a longtime Republican strategist who based Blue Flame with GOP fundraiser Mike Gula, in a textual content message on March 26, 2020.
Hours later, the state wired Blue Flame a down fee of $457 million. The corporate’s inner data, disclosed as a part of a lawsuit, present that it stood to show a revenue of $134 million by charging the state 20% to 30% markups.
“Candy mom of God,” Gula wrote in an e-mail to Blue Flame’s lawyer after calculating the corporate’s potential windfall, one among tons of of paperwork included in a lawsuit the corporate filed towards its financial institution, Chain Bridge, for triggering the fraud issues. Chain Bridge then sued JPMorgan Chase, the state’s financial institution. In February, JPMorgan, one of many world’s largest banks, sued the state to get better its prices in untangling the deal.
Two different large COVID-19 masks offers additionally stay mired in lawsuits.
Court docket paperwork reveal that a settlement was reached between the state and Advoque Safeguard, a Santa Clara firm that did not ship many of the N95 masks it was contracted to make, whereas 10 million masks that did arrive had been later recalled for failing to satisfy federal filtration requirements. State officers mentioned the corporate, which faces three lawsuits stemming from its different masks offers, has but to make any of the agreed-upon funds.
In a 3rd case, Alabama firm Bear Mountain alleges that California officers improperly canceled an $800-million masks contract that was promoted by an influential Sacramento lobbyist.
The agreements had been amongst many no-bid contracts supposed to assist California officers rapidly purchase lifesaving provides, a course of allowed below Gov. Gavin Newsom’s proclamation of a state of emergency attributable to COVID-19.
“No-bid contracts are topic to all types of issues,” mentioned Larry Gerston, a political commentator and professor emeritus at San Jose State. “They're topic to silly issues. It's a must to surprise what number of issues we don’t find out about.”
Like many distributors that ended up securing a California authorities contract, Blue Flame regarded for inroads with political insiders. The corporate supplied money commissions and retainers to lobbyists, strategists and medical gross sales representatives, in response to data contained within the lawsuit.
Yee’s political fundraiser initially made the introduction to Thomas, in response to a deposition of Rick Chivaro, chief counsel to the state controller’s workplace. Court docket paperwork determine the fundraiser as Stephanie Day by day Smith, a Democratic political marketing consultant primarily based in San Diego County. The controller’s workplace and Day by day Smith declined to remark.
Because the state’s paymaster,Yeeis tasked with finishing up the ultimate particulars of spending taxpayer dollars. Her workplace points checks for the state of California and may increase issues about whether or not funds are being spent correctly. The job of vetting and deciding on who receives state contracts largely falls to a special California authorities workplace, the Division of Common Companies.
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However in a sequence of textual content messages written between March 20 and March 27, 2020, and made public within the Blue Flame lawsuit, Yee went out of her solution to advocate for the corporate — after Thomas started by telling her he had 100 million N95 masks on the Port of Lengthy Seaside that his firm might “transfer to you guys in the present day.”
Hours later, Thomas mentioned, “We’ve nearly offered all of this primary cargo,” however he promised that 100 million masks would arrive every week. Yee then mentioned she had made the governor’s workplace conscious of his provide. The following day, Thomas thanked Yee for her “assist birddogging this,” to which she responded by saying, “Obtained it. Will press governor’s of us.”
The textual content messages present that the state controller promised to step up her efforts to persuade Newsom’s workplace to make the deal after Thomas warned that California was dropping much more provides to faster patrons.
In his deposition final 12 months, Thomas mentioned Blue Flame didn't promote any of the 100 million masks he claimed to have on the port, regardless of what he had informed Yee.
In a single textual content message, Thomas puzzled whether or not he ought to disclose Blue Flame’s income to state officers as a manner “to ease everybody’s issues” about worth gouging. Yee, the gatekeeper to the state treasury, warned towards doing so.
“When you share information with State, it might ... grow to be a matter of public document and make headlines,” Yee texted Thomas. “If that is proprietary information, hold it that manner.”
As issues rose over the tempo of negotiations, Yee urged how Thomas ought to phrase his request to Newsom administration officers for Blue Flame to be paid upfront — telling him to take action “with out invoking my title.” Thomas took Yee’s suggestion, sending a near-verbatim request, textual content messages present.
“Prepayment is just not an issue for my workplace below the emergency declaration,” Yee assured Thomas in a single textual content, referring to Newsom’s COVID-19 order.
4 days after Yee urged a money advance, the state wired $457 million to Blue Flame’s financial institution, amounting to an upfront fee of 75%. “We received it!!! Thanks!!!!” Thomas texted Yee afterward.
However the massive fee triggered a warning by Chain Bridge Financial institution officers of a possible rip-off, on condition that Blue Flame had opened its account with the financial institution the day earlier than. Amid the banks’ issues, state officers requested for the wire to be reversed just a few hours later.
With the deal in jeopardy, Thomas once more turned to Yee.
“Hello Betty, sorry to bug you however I've a difficulty that I want your assist with,” he wrote. “Are you able to name me when you have got a second?”
This time, the state controller — elected in 2014 and reelected in 2018 — didn’t instantly reply. The following day, she informed Thomas to as an alternative talk with state procurement officers and “please stop to maintain me within the loop; it isn't useful. ... You have got a credibility problem now that you could clear up. Good luck.”
In in search of to clarify Yee’s function, Chief Counsel Chivaro mentioned in a lawsuit deposition that “the controller was merely attempting to make sure that we had the face masks that we wanted and different PPE to guard the nurses and the docs that had been dealing with these COVID instances.
“Her job was to not vet Mr. Thomas in any manner, form or type,” Chivaro mentioned of Yee.
In a press release to The Occasions, Blue Flame officers positioned the blame on the fraud warning issued by Chain Bridge Financial institution.
“There isn't a doubt in our thoughts that Blue Flame Medical would have totally delivered all 100 million masks to California had it not been for the reckless and negligent actions of Chainbridge Financial institution,” the corporate mentioned in its assertion.
Different offers made within the early spring of 2020 to safe protecting masks had been additionally problematic.
In the future after the Blue Flame deal fell aside, California signed an $800-million contract with Bear Mountain, an organization led by former Alabama Atty. Gen. Troy King. That contract was canceled lower than six weeks later, after state officers mentioned the corporate did not ship many of the masks.
The deal was aided by Paul Bauer, a Sacramento lobbyist who, on the time, labored for the outstanding authorities relations agency Mercury Public Affairs — earlier than departing quickly after questions had been raised concerning the contract.
Bear Mountain executives alleged of their December 2020 lawsuit that the state abruptly canceled its contract with out warning and refused to simply accept thousands and thousands of masks they'd secured. The state has insisted that Bear Mountain missed its first deadline, then initially delivered simply 2% of what was required.
“Whereas COVID-19 ravaged the state, for weeks, Bear Mountain continued to overlook deadlines and the few deliveries it made fell far in need of its contractual obligations,” attorneys for the state wrote within the lawsuit.
“These had been large contracts for tons of cash,” mentioned Jon Coupal, president of the Howard Jarvis Taxpayers Assn. “It’s exhausting to Monday morning quarterback this, however it’s completely applicable to return and have a look at how a lot was spent and the decision-making course of.”
The Bear Mountain deal collapsed as Newsom was going through criticism over a fair bigger deal to buy masks: a $1-billion contract with China-based auto producer BYD. The corporate’s efforts had been beset with delays in April and Could 2020, leading to BYD having to reimburse the state $247.5 million after initially failing to acquire federal certification of its N95 masks.
Finally, BYD delivered, state officers mentioned; the corporate accounts for 85% of the 300 million N95 respirators California has bought so far.
“We had been having to sift by plenty of sketchy folks, however there have been good actors too, and the state got here out of it, for essentially the most half, in a great place,” mentioned Brian Ferguson, a spokesman for Newsom’s Workplace of Emergency Companies.
Within the case of Advoque, the corporate touted its California roots and its worth level, providing to fabricate practically 100 million N95 masks at $2.25 every — far under the $5 to $12 state officers had been paying others, as suppliers and middlemen cashed in on the worldwide scarcity.
However the deal rapidly faltered.
Advoque was alleged to ship 40 million masks by July 31, 2020, however solely 6 million arrived. On Sept. 10, firm officers alerted the state that there have been points with its masks. That they had failed federal filtration assessments, and the corporate’s certification was revoked, which means the masks might “now not be manufactured, assembled, labeled, offered, or distributed as a NIOSH accepted product,” in response to a press launch from Advoque on the time, referring to the Nationwide Institute for Occupational Security and Well being.
California officers issued a recall for the entire firm’s masks despatched to healthcare employees and important workers, who depend on the excessive filtration requirements for defense.
Advoque agreed in 2021 to repay $18.7 million to taxpayers. By final month, when the ultimate installment was due, the state had not obtained any cash from the corporate.
Resulting from Advoque’s “failure to make well timed funds, the state served a discover of default,” Monica Hassan, deputy director of the Workplace of Public Affairs on the Division of Common Companies, informed The Occasions.
In a press release, the corporate mentioned, “Advoque Safeguard is continuous to work with the State of California to succeed in an answer that's in the perfect pursuits of the State and its residents.”
Three firms are suing Advoque, alleging that they too had been offered defective N95 masks. Two of the lawsuits allege that Advoque paid thousands and thousands to its executives as an alternative of reimbursing clients. Some firms cited California’s large contract with Advoque as an impetus for their very own contracts.
“California’s deal to purchase $90 million price of Advoque’s N95 masks was a stamp of approval,” mentioned Joel Reese, a Dallas lawyer representing Titus Group Inc. in a case towards Advoque. “Now we're questioning how Advoque obtained that stamp of approval.”
4 months earlier than the Advoque deal fell aside, the identical query requested by Reese was raised by California legislators throughout a prolonged public listening to that examined the collapse of the Blue Flame contract. Prime state officers did their finest to clarify what occurred and why.
Yee’s function, nonetheless, was by no means talked about.
Occasions workers author Hannah Wiley and librarian Jen Arcand contributed to this story.
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