U.S. Pays High Prices for Masks From Unproven Vendors

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APRIL 18, 2020

Protective masks hang in a decontamination unit at the Battelle N95 decontamination site during the coronavirus pandemic, Saturday, April 11, 2020, in Somerville, Mass. – AP Photo/Michael Dwyer

The federal government, scrambling to find N95 masks to protect health-care workers from coronavirus infection, has placed more than $110 million in mask orders at high prices with unproven vendors, according to a Wall Street Journal review of federal contracting data.

Of the more than 20 million N95 masks the government ordered for full delivery by the end of May, at least 80% were ordered from suppliers that either had never done business with the federal government or had only taken on small prior contracts that didn’t include medical supplies, according to the data.

Some of the vendors already have missed delivery deadlines or have backed out because of supply problems. The parent company of one supplier is in bankruptcy and its owners have been accused of fraud in lawsuits by multiple business partners.

The average price the government agreed to pay for masks from vendors offering quick delivery is close to $6 apiece, roughly six times the list price but in line with the current market rate. Most of the orders were placed with no-bid contracts, federal databases show. The government generally doesn’t pay for goods until they are delivered.

The Trump administration, under fire for its handling of the novel coronavirus pandemic, has signed more than $3 billion in pandemic-related contracts recently. That includes orders for 600 million N95 masks from major established producers like 3M Co. and Honeywell International Inc. for less than $1 each. Those orders stretch out until late 2021 but are starting to trickle in.

3M and other manufacturers are also selling many masks to hospitals through their normal distribution networks. Major vendors like these have previously been vetted and have shown their ability to deliver.

A Trump administration spokeswoman didn’t immediately respond to a request for comment.

Meanwhile, the N95 masks, which block 95% of very small particles, including droplets that may contain the coronavirus, are in short supply. That has spawned a marketplace full of middlemen, counterfeits and new entrants sensing large profits.

One of the companies trying to navigate this market is more than a week behind on its original April 8 contractual deadline to deliver 785,000 N95 masks for about $7 each, including shipping and distribution costs, to the Department of Veterans Affairs.

The company’s president, Bernard Wright Jr., was posting messages on LinkedIn as recently as a few days ago, seeking masks from people claiming to have them. “I am looking to procure 3M N95,” he wrote last week. “Needs to be in stock in the US.”

The VA has a face mask shortage and is only providing N95 masks to some workers, the Journal reported. “It’s late. I know it’s late. But there are things I just can’t control,” Mr. Wright said in an interview. “The VA is not happy with the speed of how things are going.”

VA Secretary Robert Wilkie, when asked about the contract Friday, said, “I’m not going to comment on any particular case,” adding that he updates the Federal Emergency Management Agency regularly with the department’s needs.

Mr. Wright said his firm, Wright Consultants & Associates LLC, usually gets contracts to renovate government hospitals. He signed the $5.5 million contract with the VA on April 1. He said he thought it would be simple to buy masks through his normal network of suppliers. Instead he has been stymied by sellers that don’t really have high-quality masks or who jack up the price, he said.

“It’s a market that has been infiltrated by a lot of fraudulent activities and fraudulent personnel,” he said.

He said his firm is buying only 3M masks that are in the U.S. Mr. Wright said he recently found a supply and is now working to get them delivered to his warehouse.

The Justice Department on April 10 arrested a Georgia man on charges that he attempted to sell the VA millions of nonexistent masks and other protective gear. Investigators said they are pursuing similar cases against others.

Many local governments and hospitals also are turning to unconventional suppliers and paying rich prices for masks amid the coronavirus pandemic. New York City has cut deals with about 15 companies to supply face masks, according to city contracting data. Two-thirds of them have no recent history of working with the city.

Market players say demand is so brisk that being even a few minutes late with payment can result in products going to somebody else.

“The mask comes at 9 o’clock off the truck. At 9:10, in about 10 minutes, it’s gone. Like crack and cocaine,” said Mohamed Shafeek, a mask broker in Miami who claims to have facilitated the sale of more than four million masks this week alone.

In some ways, the deals are normal: Lawyers make contracts and set up escrow accounts for funds. In the current crisis, however, mask sellers typically provide buyers with a “proof of life” video that shows their warehouse, the date and the goods, Mr. Shafeek said.

Bill Childs, a lawyer for 3M, said vendors have flocked to government contracting agents because “that’s where the money is.” 3M has filed lawsuits against prospective mask sellers, accusing them of trying to sell to government officials at high prices while pretending to be associated with 3M.

One of the largest federal mask contracts went to a small Virginia company, Panthera Worldwide LLC, which has no history in the mask business and some red flags in its owners’ backgrounds.

In a no-bid contract, Panthera agreed to provide 10 million N95 masks to the Federal Emergency Management Agency for $55.5 million, promising delivery by May 1, according to federal contracting data.

Panthera’s parent company is in bankruptcy. Its two owners have been accused of fraud in lawsuits by business associates—which the owners deny—and both had IRS tax liens filed against them in 2018 for alleged unpaid taxes.

“I’m flabbergasted that a contract of that size went to these guys,” said Douglas Kahle, a Virginia attorney suing the company’s owners for fraud on behalf of a business associate. “It’s hard to imagine the government did any sort of due diligence or vetting.”

James V. Punelli, a Panthera co-owner, said the entity supplying the masks isn’t in bankruptcy and has a successful history as a government contractor. He called the fraud allegations “false and frivolous” and said a lawsuit filed in 2018 was settled “to our satisfaction” on confidential terms.

“We had a very reliable, high-quality source of these surgical masks through our DoD contracting relationships and we will provide these masks before May 1 for certain,” he said. He said the company won’t discuss sourcing details, but will make a partial shipment to FEMA next week.

FEMA said it has the supplier’s word that the masks are genuine. “No advance payments have been made” to Panthera, a FEMA spokeswoman said. “Payment will not be made until FEMA receives, inspects and accepts the shipment of masks.”

As for due diligence, the spokeswoman said FEMA followed standard federal rules for acceptable contractors, and found no issues with Panthera. Among those rules: Contractors are supposed to have “a satisfactory record of integrity and business ethics” and “adequate financial resources to perform the contract,” according to federal contracting regulations.

Panthera’s parent company operated a security-training facility in West Virginia that had some small federal contracts, according to government contracting databases, but ran into financial trouble and filed for bankruptcy last year.

Panthera Worldwide, the entity that won the big FEMA contract, is listed in federal databases as having one prior federal contract, for which it was paid $50,000.

Panthera has told FEMA the masks are in the process of being shipped from the Netherlands, the spokeswoman said. Panthera’s contract was reported earlier in the Washington Post.

A $14.7 million VA contract for two million N95 masks was canceled earlier this month, after the first-time federal contractor said its Chinese supplier backed out.

Claire Coder, chief executive of the contractor, a menstrual-products firm called Aunt Flow Corp. in Columbus, Ohio, said her supplier informed customers in late March that exports were being blocked by the Chinese government.

“We called the VA and let them know immediately,” Ms. Coder said. “That was our rise-and-fall in the N95 mask business.” She said the VA modified the contract to buy 250,000 lower-tech surgical masks from her company for 96 cents each, delivered Wednesday. Similar surgical masks typically sold for less than 20 cents each before the pandemic, but prices for those also have surged.

The largest N95 mask contract given out by the VA, for an initial $35.4 million, was signed at the end of March with a two-year-old company that operates out of a small office in a Washington suburb.

Federal Government Experts LLC agreed to provide the VA six million masks for $5.90 apiece by April 25, with potential for another five million masks at the same price at a later date, for a total of $64.9 million, according to federal contracting data.

“I’m getting ready to step on a Boeing 737 to bring the masks to the VA,” said CEO Robert Stewart Jr., reached by phone on Thursday, where he said he was at the Port of Los Angeles about to go through customs. “I’m looking at a few million masks right now.”

According to Mr. Stewart’s resume, he was a Pentagon contracting official for many years, until leaving for the private sector in 2018.

Federal contracting data shows Mr. Stewart’s company also has a deal to provide FEMA with $3.5 million of N95 masks. The company isn’t listed in government databases as having any prior federal contracts before the Covid-19 pandemic.


Courtesy/Source: The Wall Street Journal

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