Corrupted: Contracts for Cronies and Con Artists

As stories of corruption and poor planning in the federal government’s pandemic spending continue to roll in, we’re reminded of something we wrote in the wake of a series of disasters that saw a troubled recovery effort. “You can’t outsource emergency response, nor can the nation simply wait for a disaster to strike before it gets its act together,” we wrote after the devastating 2017 hurricane and wildfire season.

Rushing to secure goods and services to combat the coronavirus, the government has awarded contracts to inexperienced companies with ties to the Trump White House, businesses with track records of misconduct, and companies producing goods unrelated to the ongoing public health crisis.

And while it’s certainly not the case that all contracts the government has given out have been problematic, far too many have been—and much of the money is going out the door without safeguards that protect taxpayer dollars from fraud, waste, and abuse. To some degree, it’s excusable for the government to have bungled a few contracts as it races to ensure the country has enough masks and other essential supplies amid a massive public health crisis. It was essential that the government contract for medical supplies quickly, and speed can lead to mistakes.

But mounting evidence—and our many years of experience as a federal contracting watchdog—leads us to believe that issues in the government’s pandemic contracting are widespread and, at least in some cases, entirely preventable.

At best, this erodes public trust in the process, and at worst, this practically invites corruption.

One of the first warning signs came in May when former high-ranking government scientist Rick Bright filed a whistleblower complaint containing disturbing allegations about the administration’s handling of the pandemic. Bright says that officials at the Health and Human Services Department pressured him “to award lucrative contracts based on political connections and cronyism.”

A few weeks later, NPR reported that the government awarded millions of dollars in contracts for personal protective equipment without competitive bidding—showing that the government apparently cast aside one of the best ways it has to ensure it gets the best value and the best price by soliciting proposals from several contractors. (The Government Accountability Office found in July that a total of $9.4 billion in pandemic contracts had not been competitively awarded.) What’s more, NPR found that some of the companies had little or no federal contracting or medical supply experience. One such company was owned by a former Trump White House aide.

And there are plenty more examples.

Friends in High Places

Unlike the rest of the country, a number of well-connected people have seen their fortunes rise dramatically during the pandemic thanks to profitable federal orders for essential supplies and services.

The aforementioned former White House aide, Zachary Fuentes, formed Zach Fuentes LLC in April. Less than two weeks later, his company won a $3.24 million Indian Health Service contract to provide respirator masks to Navajo Nation hospitals, where COVID-19 had hit particularly hard. Representative Gerry Connolly (D-VA) called the contract “suspicious” and asked the Department of Health and Human Services’ inspector general to investigate reports that Fuentes supplied unusable masks.

Congress is also looking into the administration’s $300 million advertising campaign to “defeat despair” about the pandemic. Subcontracts on the campaign were allegedly steered to a firm led by the longtime business partner of conspiracy theory-prone Health and Human Services spokesperson Michael Caputo. The ad campaign—planned as a series of public service announcements by celebrities intended to “inspire hope”—has reportedly become “a total mess.”

Another successful newcomer to the federal marketplace is Chris Garcia, who previously served the Trump administration as deputy director of the Minority Business Development Agency and was appointed to a White House advisory council this summer. Garcia founded Health Supply US this year and promptly scooped up $194 million in Defense Department contracts for disposable gowns.

Mathew Konkler, who has been a volunteer for Vice President Mike Pence and worked at the Pentagon during the George W. Bush administration, also landed a sizeable deal. He started BlackPoint Distribution Company in August 2019. Less than a year later, the company won its first federal contract: $2.4 million from the Bureau of Prisons to supply surgical gowns.

Looking the Other Way

In addition to favoring White House allies, federal contracting officials seem to be ignoring some companies’ checkered legal and performance histories.

An analysis byUSA Today found that, through late May, the government awarded nearly $500 million in pandemic response contracts to companies accused of defrauding taxpayers. Nearly half of that sum was awarded without a competitive process.

The article examines ResMed, which got a $32 million contract for ventilators in March. Just two months prior, the company had agreed to pay $37 million to settle a lawsuit accusing the company of defrauding the federal government. USA Today also cites Stryker Corporation, which won more than $11 million in contracts for defibrillators and other medical equipment. In 2018, Stryker paid $7.8 million to settle claims that the company bribed foreign officials. That was Stryker’s second strike for violating foreign bribery laws.

The nonprofit watchdog Good Jobs First found 69 federal pandemic contractors had paid $4.7 billion in fraud fines and settlements over the past decade, including Pfizer, McKesson, and Walgreens.

The government’s contracting carelessness is perhaps best exemplified by the case of JL Kaya. The Pentagon awarded the small company a $323 million contract for medical gowns. The government says it didn’t know that JL Kaya subcontracted with a company co-owned by Efraim Diveroli—the notorious “stoner arms dealer” who, after pleading guilty in 2009 to defrauding the Pentagon, was banned from federal contracting until 2025. (Diveroli’s lawyer told the New York Times that his client was permitted to work on contracts for commercial products and isn’t working with JL Kaya anymore.)

You Can’t Kill a Virus with a Fighter Jet

Last but not least, what would a contracting fiasco be without a little gravy for the defense industry?

In late March, as part of the main pandemic relief bill, Congress gave the Defense Department $1 billion to purchase medical equipment. But the Pentagon instead decided to funnel about two-thirds of that money to its beloved contractors for items completely unrelated to the pandemic: jet engine parts, body armor, and uniforms.

As the Washington Post reported, defense officials claim the spending decisions were guided in large part by a 2018 industry study, which had emphasized the need to prevent supply chain shortfalls to maintain the military’s ability to compete with China—a rather weak explanation given that the money was supposed to be used to “prevent, prepare for, and respond to coronavirus.” Congress specified that the funds were to be used to boost the national supply of personal protective equipment, which is still running short throughout the country.

And as the Project On Government Oversight (POGO) has long argued, the Pentagon has never demonstrated it truly needs such a bloated budget. It should be facing funding cuts, not misusing taxpayer dollars during a public health crisis.

Looking Ahead

We’ve been here before. Along with loss of life and livelihoods, natural disasters bring widespread waste and corruption as the government stumbles and fumbles through recovery. And we’re still in the middle of this one. While we haven’t had a national health crisis of this size since the 1918 influenza pandemic, many of the reforms POGO has pushed for in the wake of more recent disasters are applicable, and could go a long way toward helping ensure that the government awards recovery contracts responsibly.

As with hurricanes and wildfires, our government must accept that pandemics may well be our “new normal” and plan ahead accordingly. The government needs to get its act together, and fast.