COVID Feature: Poor Competition

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Hacking and criminal concept.A hacker in a secret hiding place is neon light.

Due process and proper procedure can often be overlooked or rushed through during a crisis. This seems to be the case with recent approvals of federal coronavirus contracts.

A team of USA TODAY journalists investigated 15 states that have been hit hardest by the pandemic including: Alaska, California, Georgia, Florida, Louisiana, Illinois, Maryland, Massachusetts, Michigan, New Jersey, New York, Oklahoma, Rhode Island, Texas, and Washington. These are the same states where they discovered millions of dollars in non-competitive awards to vendors that have previously been accused of fraud. (Now that’s a scary thought.)

Federal purchasers have awarded more than $16 billion in coronavirus contracts since the beginning of the pandemic. A company that has been accused by whistleblowers through the False Claims Act, but has not been found guilty of wrongdoing, is still eligible to be awarded contracts. (Talk about a bureaucratic loophole.)

The team of journalists used business registries, federal vendor documents, social media, court systems, criminal records, and Securities and Exchange Commission filings to investigate suspected vendors.

More than 6,100 vendors that were awarded COVID-19 related contracts had been accused previously of False Claims Act violations. These companies received more than $500 million in federal funding. (I wonder how that system works. The more violations you have, the more money you get awarded?)

The reason for this kind of oversight is because of the severity of the situation. The government was faced with a choice between being short on supplies during a medical crisis or procuring them by less than ideal methods. (I think most people would opt to have their lives saved by any means necessary.) This led to awarding single-source contracts without a competitive process. 

The competitive process normally serves as a significant check and balance to weed out vendors that have red flags or a bad track record. Companies are charged with proving that they are responsible and follow regulations.

Some of the vendors that were awarded COVID-19 contracts have previously been accused of advertising their products were made in America, when they were actually sourced from China and India. Contractors have also been accused of increasing prices and reselling products that were obtained at a lower cost. (These are only a few in the slew of violations contractors are accused of carrying out.)

One San Diego ventilator manufacturer was accused of defrauding the government by granting illegal kickbacks to suppliers. It settled the matter by paying $37 million in a civil lawsuit without admitting any wrongdoing. The company, ResMed, was awarded a $32 million COVID-19 contract two months after the lawsuit because of the urgent need for ventilators. These companies know that they can get away with defrauding the government by paying a settlement and still be eligible for new contracts and make a profit. (Why stop committing fraud if you’re going to keep being rewarded for it?)

Today’s Fraud of the Day comes from an article, “Hundreds of millions of dollars goes to COVID-19 contractors accused of prior fraud,” published by USA TODAY on July 7, 2020.

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.

Two months later, the U.S. Department of Health and Human Services awarded the same company, ResMed, $32 million for ventilators made in Australia to fight COVID-19. Despite that track record – and because of the urgent need for the machines – the manufacturer landed the contract with no competition.

 

 

 

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.