Desperate to combat coronavirus, thousands of COVID-19 contracts went to vendors accused of defrauding the government.
A San Diego ventilator manufacturer agreed to pay more than $37 million in January to settle a civil lawsuit alleging it defrauded the federal government through illegal kickbacks to suppliers, admitting no guilt.
For these firms, the accusations were no barrier to getting more lucrative federal contracting work. Nothing in federal law prohibits it as long as they are considered “responsible” and aren’t suspended or debarred from doing business with the government. A company with a scar in its background can resolve the government’s claims while denying wrongdoing, which is what happened in the case of the San Diego company.
USA TODAY combed through more than 1,600 COVID-19 contracts with no competitive bids awarded through May 18 to vendors from 15 states, including the largest and some of those that have experienced the worst coronavirus outbreaks: Alaska, California, Georgia, Florida, Louisiana, Illinois, Maryland, Massachusetts, Michigan, New Jersey, New York, Oklahoma, Rhode Island, Texas and Washington.
Beyond False Claims Act allegations, USA TODAY found vendors that faced claims of racketeering, securities fraud, bribery, negligence, breach of fiduciary duty and contract violations. Stryker got government work related to the coronavirus, including more than $11 million to supply defibrillators, chest compression systems and hospital beds for the Department of Veterans Affairs and other agencies.
Golden State did not respond to a request for comment; representatives for Stryker and Afognak said they take government compliance seriously. Grassley predicted that COVID-19 contracts would cost taxpayers far more money in the long run because fraud is not weeded out of the system upfront. The rush for supplies could fan another wave of whistleblower and fraudulent purchasing cases years from now.
Congress reduced the number of contracts that receive additional vetting by shifting the benchmark at which transactions require not just competition but more notification and increased oversight by individual agencies. In March, the threshold for “micro purchases” was raised from $10,000 to $20,000 for domestic purchases and the “simplified acquisition threshold” from $250,000 to $750,000.
Providers from all over the world sought many of the same products. Traditional suppliers quickly were tapped out, and bidding wars created a cottage industry of third-party brokers holding out for the highest price. Government purchasers from Florida to California scrambled to fulfill orders for N95 masks, hand sanitizer and other personal protective equipment.
Vendors can be liable for up to three times the damages, plus about $23,000 in penalties for every claim. The whistleblowers, typically former employees or competitors with intimate knowledge of the deals, are entitled to as much as 30%. “There is no connection between what was being looked into as part of that investigation and the government contract we have to provide ventilators,” ResMed spokesman Jayme Rubenstein said, referring to the contract in March for $32 million.
Accusations and penalties no barrier to government moneyMany False Claims Act cases are settled despite a denial of wrongdoing, as was the case with ResMed. The company made millions in unlawful payments to doctors, hospitals and foreign officials through offshore subsidiaries in return for contracts to provide medical equipment, the lawsuit alleged. Stryker settled with the SEC for more than $13 million.
The companies settled their cases with the government for more than $1 million combined. Both have COVID-19 contracts with the VA. Stryker is a major player in federal procurement, earning nearly $66 million in government obligations in fiscal year 2019. It received more than $11 million through late May from the VA for 48 orders related to the coronavirus.
“That’s especially important for companies that have already shown a willingness to defraud the public,” he said. When presented with details of the COVID-19 contracts, a representative for the VA said 21 of the agency’s 27 no-compete orders from Stryker, Alliant and others that faced similar federal fraud claims have been fulfilled. The remaining six are scheduled for delivery in the near future.That includes $150,000 awarded to Florida-based Pelican Sales, which sells tactical gear for use by the military and police during riots. The company was among three vendors that got a combined $2.
Second chance can lead to the ‘riskiest transactions’Financial mistakes made in a rush for supplies and equipment can take years for the government to claw back – if it’s ever able. Some companies are fighting cases from decade-old contracts awarded during other emergencies. Despite those disputes, the federal government continues to turn to AECOM, awarding the company more than $200 million in contracts related to the coronavirus. The work ranged widely, from housekeeping to architecture and hospital construction, federal records show.
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