Federal agencies turn to untested suppliers for big PPE contracts

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Nearly one out of every five Covid-19-related federal contracts for $1 million or more went to companies that had never won a contract with the federal government before the crisis broke out, according to a CNN analysis of procurement data. While some of the first-time contractors have substantial experience in the Personal Protective Equipment industry, others are small firms with no record of producing or procuring medical equipment, CNN found. 

The vendors who’ve won multi-million dollar deals range from a California firm whose previous products include a vodka bottle with an LED screen, to an Ohio tampon manufacturer that has shifted part of its production line from menstrual products to face masks, to a company registered by a former Trump administration deputy White House chief of staff less than two weeks before it was awarded its first contract.

Already, some have failed to deliver: two of the seven largest contracts given to companies that were new to federal contracting have been canceled after the suppliers didn’t deliver promised respirator masks. And questions remain about the quality of equipment delivered by other vendors, including the company formed by former Trump administration aide Zachary Fuentes.

While federal agencies generally don’t pay in advance before supplies are delivered, having to cancel a contract and find a new, more reliable supplier can delay desperately needed goods, experts say.

Experts in contracting and former federal officials who spoke to CNN say that the problems plaguing the PPE procurement effort are unprecedented — and that delays by the Trump administration to secure equipment exacerbated the issue. Joe Jordan, a former administrator of the office of federal procurement policy in the Obama administration, said that “it’s no surprise that mistakes are going to be made” as the government struggled to lock down protective equipment after the pandemic had already caused demand to surge worldwide.

He said it was concerning that some large contracts were awarded to companies that “clearly didn’t have what they were saying they were going to deliver and were essentially selling a promise.”

“Those are the contracts where you have to be spending extra time to do due diligence,” Jordan said. In some cases, he said, that “appears to be missing from this effort.”

The White House declined to comment about that criticism.

3M N95 particulate filtering face mask are seen at a store in East Palo Alto, California, United States on January 26, 2020.

In addition to the contracts with untested companies, federal agencies have also signed massive deals with more mainstream suppliers like mask manufacturer 3M. But equipment from those vendors may take months to arrive, leaving agencies to scramble for other suppliers.

Federal officials say they’re doing the best they can in the face of an unprecedented shortage. But some lawmakers are ringing the alarm bells about canceled contracts. Rep. Bennie Thompson, a Mississippi Democrat who chairs the House Committee on Homeland Security, blasted the Federal Emergency Management Agency earlier this month, saying the agency “has a history of awarding contracts for critical goods and services to companies that ultimately can’t deliver what they promise.”

The agency “must do better vetting companies during this pandemic,” he said in a statement. “The health and safety of our first responders depends on obtaining a sufficient quantity of these essential N95 masks and other personal protective equipment.”

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A handful of the first-time contracts have gone to firms run by people who have donated to or worked for President Donald Trump, including a $3.24 million deal for masks awarded to Fuentes’ company, Zach Fuentes LLC. The contract with the Indian Health Service was to deliver 1 million KN95 masks to five hospitals in and around the hard-hit Navajo Nation.

IHS spokesman Josh Barnett said that 247,000 of the masks delivered by Fuentes’ company are “non-medical” masks that the agency has accepted but decided not to use in a surgical environment — although the contract never specified that the company would provide medical masks.

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Fuentes — who told CNN last week that he was motivated to get involved in the PPE effort after his parents were diagnosed with Covid-19 — said that he had fulfilled the contract and was willing to exchange the masks if the agency isn’t satisfied.

“We gave them exactly what they ordered, and we offered multiple times, anything you want us to change out, we’ll change out,” Fuentes said. “Our first priority is to help these guys.”

Fuentes said he wasn’t referred to the contract by anyone at the White House and didn’t think that connection helped him get the opportunity.

White House Deputy Chief of Staff Zach Fuentes returns to the White House August 13, 2018.
The deal with Fuentes was the second-largest Covid-related contract awarded by the Indian Health Service. Fuentes’ company was registered in Delaware just 11 days before winning the contract in mid-April, according to state corporation records. The contract was first reported by ProPublica.

Barnett, the IHS spokesman, said the agency received quotes for masks from six vendors, and Fuentes’ firm was “chosen based on cost per mask and delivery terms.” The federal database lists the contract as being non-competitive, but Barnett said that is a mistake.

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While the contract Fuentes signed with the IHS was for $3.49 per KN95 mask, his company proactively reduced the price to $3.24 per mask, Barnett said.

KN95 masks are a type of respirator mask manufactured to Chinese standards, and the Food and Drug Administration has said that KN95 masks made by some companies are not appropriate to be used in the US. The FDA did not respond to a question about whether the masks from the Chinese companies that sourced Fuentes’ masks were approved.
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Fuentes told CNN he was able to procure the masks thanks to a business school classmate with extensive experience in medical supplies and textiles in Asia, who’s serving as a consultant for his company. Fuentes said his company’s policy is to not exceed a profit margin of about 15 to 20% on PPE contracts, and the firm is also working with a nonprofit to donate equipment to medical workers.

“We want to conduct our business in an ethical way,” he said. “We don’t want to do what other people are doing and take advantage of people who are vulnerable.”

He also said his company sent IHS samples of their products in advance to make sure they met the agency’s specifications.

Fuentes said he was not referred to the IHS opportunity by any White House official and he didn’t think his company got the contract because of his history working for the President. He said the fact that he’s registered as a service-disabled veteran minority-owned business may have helped him win the contract, and that he had previous experience in government contracting from his service in the Coast Guard.

Fuentes, who served under former chief of staff John F. Kelly, previously faced controversy during his White House tenure. The New York Times reported in December 2018 that Fuentes had talked to officials at the Department of Homeland Security about a program that would have allowed him to retire early from the Coast Guard, and the department had pressed Congress to reinstate the program. The White House didn’t comment about the allegations at the time. But the program ended up not receiving congressional approval, and Fuentes told CNN that he medically retired from the Coast Guard after being diagnosed with multiple sclerosis.

His company also received a much smaller contract for $13,100 to supply 10,000 N95 masks to a federal prison. A federal Bureau of Prisons spokesperson said that while the company had not met the “expected delivery date” of May 15, the agency has “given the high demand for N95 masks during this unprecedented time, mutually agreed to receive the product in the near future.”

Some new suppliers fail to deliver

CNN’s analysis covered more than 18,000 original contracts in the Federal Procurement Data System that were marked as related to the government’s response to Covid-19 since mid-March.

Of the about 550 contracts for $1 million or more, 105 went to companies that had no record of winning a federal contract before the beginning of 2020 — almost one in five. Altogether, about 12% of the more than $13 billion awarded in Covid-related contracts as of Tuesday morning went to firms that were newcomers to federal procurement, when contract modifications and cancellations were taken into account.

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Several of the companies that have no record of past contracting are subsidiaries of companies that have worked with the government, and others may have done so under a previous name. In addition, Department of Defense contracts are only made public after a delay, so the analysis doesn’t necessarily cover all federal spending related to the pandemic.

Many of the largest first-time contracts so far this year have been for masks and other PPE, and went to companies that have no connection to the medical equipment industry and ultimately failed to deliver. Many of the contracts were awarded without a competitive bidding process, which is allowed for urgently needed supplies. It’s unclear what kind of vetting the firms went through before winning the contracts.
Members of the Connecticut Army National Guard distribute Personal Protective Equipment (PPE), April 2, 2020, New Britain, Connecticut.
In one of the highest-profile flops, the Department of Veterans Affairs had to cancel a $35.4 million deal for N95 masks it had signed with Federal Government Experts LLC — which, ironically given its name, had never won a previous federal contract. The company’s founder invited a ProPublica reporter to fly with him on a rented private jet to pick up the masks — only to find that his supply had failed to come through.

The VA terminated the contract and referred it to its inspector general for investigation, a spokeswoman said. No money and no masks changed hands, she said. The company did not respond to a request for comment.

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The company also won a $3.5 million contract with FEMA for masks, which was reduced to $1.8 million earlier this month, as well as a couple other deals for less than $50,000. The agency did not respond to a request for information about whether that contract was successfully completed.

This month, FEMA canceled a $55.5 million contract for N95 masks with Panthera Worldwide LLC, a Virginia company that had previously only won a small training contract in 2016 while operating under a different business name. The firm’s parent company, which owns a security training facility in West Virginia, filed for bankruptcy protection last year, and the case is ongoing. Its owners have also faced multiple lawsuits accusing them of fraud, which they have denied. The company did not respond to a request for comment.

A FEMA spokesperson said the agency had reviewed Panthera’s proposal and concluded the firm would be able to fulfill the contract, but decided to cancel it after the company missed a delivery deadline that had already been extended.

Surgical masks are delivered to an Oregon Department of Administrative Services warehouse to help in the response to the COVID-19 pandemic. The masks were provided by Health and Human Services in partnership with FEMA.
Both the Federal Government Experts and Panthera deals were not subject to a competitive bidding process, according to the federal database. The government had agreed to pay the companies more than $5 per N95 mask, without specifying the manufacturer. That’s significantly higher than the list price charged by 3M, which ranges between $0.68 and $3.40 depending on the model, according to its website.

The Wild West of the PPE market

The problems with those contracts could have been avoided, experts say, if the Trump administration had moved more quickly to order supplies earlier in the year from more established suppliers as the pandemic started to spread — instead of waiting until the PPE market devolved into a Wild West free-for-all.

“Given how awfully late the White House came to recognize the epidemic, it was too late for orderly and competitive purchases,” said Charles Tiefer, a University of Baltimore law professor who studies government contracting. “The businesspeople who sell PPE to the government, particularly the middlemen who are in it for the immediate profit, can expect confidently to make a bundle — if not a killing.”

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Other first-time suppliers that fell through include a $14.55 million contract for N95 masks from the VA to Bayhill Defense, a Pennsylvania company run by a 30-year-old former star defensive back on the University of Pittsburgh’s football team. The company’s website lists products such as guns and even tanks and helicopters, but there’s no record in the federal database of it previously winning any contracts. It also advertises supply chain and logistics services.
The VA awarded the company the mask contract on April 20 without competitive bidding and canceled it on May 7, according to procurement records. The company’s president, Andrew Taglianetti, did not respond to requests for comment, and the VA declined to comment on why the contract was canceled or what price per mask the company was charging.
There are also signs that federal agencies may not be coordinating with each other when they deal with the same firms. Just two days after FEMA awarded a $5.8 million contract to deliver protective equipment for Puerto Rico to Gladius WPTB, LLC — a company that had no record of winning contracts before this year and no online presence — the VA canceled an earlier $495,000 contract it had signed with the same company for reusable gowns. Nine days later, FEMA canceled its own contract.

The company is registered in Florida and listed a Texas address on its contract, although a spokesperson for the Texas Comptroller said it had forfeited its right to transact business in the state in 2018 after failing to pay franchise taxes. The federal agencies and the company did not respond to requests for comment about the deals.

The VA said in a statement that contract terminations were normal before and during the coronavirus crisis.

“During this time of unprecedented global demand for PPE, VA must cast a wider net in order to ensure that we’re meeting our supply needs,” said Christina Noel, a spokesperson for the agency. “These efforts continue to be successful.”

While federal contracts are often canceled when agencies decide they no longer need the services or supplies agreed upon, it’s rare for them to be terminated “because the contractor did not do what they said they would do,” said Jordan, the former Obama administration official.

Failing to fulfill a contract doesn’t mean a company acted improperly, especially in the highly competitive global PPE market. Last month, the VA also canceled most of a $14.7 million order for N95 masks from Ohio tampon and pad company Aunt Flow. Claire Coder, the company’s founder and CEO, said their Chinese supplier had been unable to export masks it had planned to sell her.

“All of their N95s were going to the Chinese government, and that included ours,” Coder said. Instead, they are now using part of their supply line to produce surgical masks, and ended up selling the VA about 250,000 of those.

Newly minted PPE moguls

At least one other first-time vendor, Tennessee medical supply firm AvMEDICAL, is led by a recent Trump donor. According to Federal Election Commission data, Troy Mizell, the company’s CEO, gave a total of $85,500 to the President’s joint fundraising committee and the Republican National Committee on February 20, about a month before his company received the first of more than 20 contracts from the VA for surgical masks. Those contracts have totaled more than $13 million.

But while AvMEDICAL had never won a federal contract before, it was spun off in January from AvKARE, a medical supply company with a long record of working with the feds. Mizell said his political donations were “totally unrelated” with winning the contracts. The company is currently importing masks from China and plans to start manufacturing them in Tennessee in the coming months, he said.

The largest single Covid-19-related contract to a company that had no history supplying the federal government went to Parkdale Advanced Materials, a North Carolina textile company that FEMA awarded nearly $532 million for medical gowns. (A related company, Parkdale America, did receive one previous contract for $13,770 in 2013.) The contract was first reported by Courthouse News.
Vice President Mike Pence visited Parkdale’s Monroe, North Carolina. headquarters in March 2019 and gave a speech to employees, promoting Trump’s trade policies and bashing Democrats for focusing on the Russia investigation. Pence now chairs the White House’s coronavirus task force.

“We have had no contact or interaction with Vice President Pence since his visit,” said Cheryl Smyre, a Parkdale executive, in an email. She said the company’s contract “has put thousands of employees back to work and help bring back online idle capacity in our industry.”

Other first-time contractors run the gamut from entrepreneurs to more established businesses.

Earlier this month, FEMA signed a $48.8 million contract for unspecified PPE from Medea Inc., a wholesale and tech company in the San Francisco Bay Area. The firm’s previous business ventures include Medea Vodka, a brand featuring bottles adorned with a personalizable LED display — which won endorsements from celebrities like Shaquille O’Neal — and a tech subsidiary that makes bracelets with LED screens.
Boxes of personal protective equipment (PPE) is delivered to a warehouse to be distributed by the Oregon Army National Guard. The shipment was coordinated by FEMA to deliver supplies stored in Dubai by USAID.

The CEO, Brandon Laidlaw, did not respond to requests for comment about how his company got into the PPE business. A FEMA spokesperson declined to answer questions about the contract’s terms and specific prices of equipment.

Overall, Jordan, the former Obama official, said that the federal government should do more to centrally coordinate PPE purchases and give more support to individual contract officers trying to vet critically important purchases.

“Contracting officers are trying to do the right thing, but this has clearly been a failure in leadership,” he said. “You move quickly and mistakes are made, okay, but let’s learn from them and not repeat them.”

How we reported this story

CNN downloaded a list of federal contracts related to the Covid-19 response from the General Services Administration’s Federal Procurement Data System. To find vendors who had not previously won contracts with the federal government prior to 2020, we used each vendor’s name and DUNS number — a unique identifier of businesses — to query FPDS for contracts signed on or prior to December 31, 2019.

We defined new vendors as companies that hadn’t won a previous contract either under the same name or the same DUNS number. For our analysis of contracts worth $1 million or more, we focused on original contracts and excluded modifications that increase or reduce contract amounts. Department of Defense contracts are only made public after a delay, so the analysis doesn’t necessarily cover all federal spending related to the pandemic.

CNN’s Sergio Hernandez contributed to this report.

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