Utah’s no-bid contracts guided by personal contacts, CEO suggestions

In the war on COVID-19, Utah has doled out more than $84 million in no-bid contracts and supply orders outside the normal purchasing process designed to promote transparency, fairness and competition among businesses.

These procurement shortcuts were necessary during the pandemic, officials argue, to cope with the urgent need for protective gear, shattered supply chains and intense international competition over precious medical equipment.

Still, lawmakers and whistleblowers are increasingly demanding answers about how the state awarded lucrative contracts and stewarded taxpayer dollars during the emergency.

“We don’t know who’s calling the shots, who’s bringing in the connections,” said Rep. Andrew Stoddard, D-Midvale. “That’s my No. 1 [concern] is we’re spending taxpayer dollars without any accountability, and I think that’s something every Utahn deserves because these are huge amounts of money.”

In the absence of competitive bidding processes, public records show that personal recommendations and CEO suggestions guided state officials as they formulated a coronavirus response plan and hunted down critical supplies.

A technology executive steered the state to a company that would become one of its primary suppliers of masks, gloves and gowns during the pandemic, according to emails obtained through a public records request. Business leaders also had a heavy hand in shaping the state’s TestUtah.com initiative — and later landed multimillion-dollar contracts to launch and run it.

As the need for no-bid contracting subsided earlier this month, state officials last week returned to a more normal way of doing business and began taking stock of their recent purchasing blitz.

Utah Public Safety Commissioner Jess Anderson says it’s “easy to be the critic when you’re outside the arena” and argues the state’s procurement strategy was an essential component of the state’s battle against the pandemic.

“For us to be able to attack this as quickly and swiftly as we were able to is definitely going to help us, and it has helped us get ahead here in the state of Utah,” said Anderson, who’s leading the state’s unified command for the coronavirus response. “We have other states now reaching out to us saying, ‘How did you do it?’”

Where the money went

With increasing calls for transparency in state COVID-19 spending, officials this past week cracked open many of their purchasing records for public inspection.

According to these documents, the state has spent more than $108 million overall as part of its response to the coronavirus pandemic, much of it under an emergency rule that allows it to bypass standard purchasing processes.

So far, the state has ordered more than $66.2 million in personal protective equipment and testing supplies through these shortcuts, according to its pandemic spending portal. The Governor’s Office of Management and Budget has also inked no-bid contracts and agreements worth up to $18.1 million for consultants, screening and testing initiatives, a coronavirus dashboard and a contact tracing application, according to a breakdown provided by the state.

Purchases made outside of the normal rules range from a few hundred thousand dollars spent at Alpine Distilling — a Park City-based liquor manufacturer that supplied the state with hand sanitizer — to $26 million ordered from The HB Group, a Herriman-based design production and development company that sourced face masks and shields from China.

The latter company is poised to make the most money off the state outside of the normal purchasing process. Future Stitch, a company that operates out of California and China, is slated to get the second most, around $18 million, to import masks and personal protective gear.

A third major supplier is the Utah Manufacturers Association, which is filling a $6.5 million order for a state initiative to provide free protective masks to residents across the state.

Those three together account for about three-quarters of the money the state has committed to protective gear and testing so far.

State leaders anticipate much of their spending associated with the pandemic will be offset by federal funding approved under the federal Coronavirus Aid, Relief and Economic Security (CARES) Act and other programs.

Christopher Hughes, the state’s director of purchasing and general services, said the emergency shortcuts were vital during the pandemic. The regular routine of accepting bids and scoring vendors would’ve cost weeks that the state could ill afford in the scramble for medical supplies, he said.

As state leaders began making purchases outside the normal guardrails, they posted an emergency request for personal protective equipment online and invited vendors to submit their purchasing guide for review to Hughes directly. Officials also created a Google Form that allowed businesses to offer their information and accepted cold calls from people trying to sell supplies.

More than 1,000 vendors from across the globe responded through those channels, Hughes said.

In deciding whom to buy from, the state considered each company’s history obtaining and exporting items from China, its relationships with factories and its local references. Purchasing experts also looked at pricing and the likelihood the vendor would actually be able to fulfill the order.

Throughout, the state has done its best to find good deals, Hughes said, sharing a cost comparison chart that shows Utah officials have paid less than average advertised prices for N95 masks, isolation suits and gowns, safety goggles and face shields.

Officials have canceled at least 10 coronavirus-related orders in cases when costs were too high, after finding better pricing or upon learning that the products weren’t going to arrive, Anderson said in a recent interview.

And they’re working with investigators to determine whether the state was price gouged on at least one purchase, in which officials paid $15 for testing swabs that usually go for $1.25 each.

“We have not seen that kind of a price or that high of a price before or since,” Anderson said. “And so, to me, that raises a lot of concerns.”

The Alliance for a Better Utah, a government accountability organization that advocates on progressive issues, has filed a price gouging complaint in a separate instance related to an $800,000 purchase for malaria drugs the state ultimately canceled. In that case, Draper-based Meds in Motion billed the state $40 per drug packet — a cost that appears to be in excess of what most customers pay for the drugs, the complaint stated.

A Utah Department of Commerce spokesman said he could not comment on the existence of any price gouging investigations related to state purchases, though the Division of Consumer Protection has filed a handful of citations in other instances in recent weeks.

Personal relationships, big contracts

State records show that at least two of the state’s major supplier relationships during the pandemic began with personal introductions. Close communication between a group of tech executives and state officials evolved into a multimillion-dollar partnership to produce the online TestUtah screening tool with mobile testing sites around the state.

In one case, Josh James, CEO of the American Fork software company Domo, put in a good word for a business co-founded by a longtime acquaintance named Taylor Shupe. Within a few weeks, the state had ordered $18 million worth of gloves, gowns, masks and more from the vendor Future Stitch.

“Josh recommended Future Stitch because of Taylor’s reputation and the company’s network of relationships producing, sourcing and shipping various products from China,” wrote Julie Kehoe, spokeswoman for Domo, which received its own no-bid contract to develop a $2 million coronavirus dashboard for the state.

A purchasing summary sheet circulated by the state explains that Future Stitch has leveraged its local connections in China to “secure the best deals for the State of Utah” and offers transparent pricing compared to other vendors.

The state also placed a $1.1 million order for isolation gowns from Standard Fiber, a California company recommended to officials by a Utahn, according to a summary sheet. The state’s document did not identify the resident.

Among the most controversial state purchases so far was an $800,000 order for hydroxychloroquine from a Utah pharmacist who had amassed the anti-malaria drug and was working behind the scenes with officials to distribute it statewide for coronavirus patients.

Utah Gov. Gary Herbert last month canceled the order from Meds in Motion amid questions about how the deal came about and a Food and Drug Administration recommendation against prescribing the drug for COVID-19 except in a hospital or clinical trial.

An internal review in Herbert’s office found some communication failures but no deliberate wrongdoing in the state’s handling of the contract, though the state auditor and at least one legislative committee plans to review the purchase.

Another state purchase that has raised some eyebrows was a contract for up to $6.35 million with mobile developer Twenty for the launch of Healthy Together, an app that tracks residents’ movements and aims to help public health workers trace where infected people crossed paths with other users.

A spokesman for the Governor’s Office of Management and Budget said Twenty is developing the app for $2.75 million and offering a year of maintenance and support at a rate of $300,000 a month. The contract also includes the development of public health and business portals, the spokesman added.

But Stoddard has argued the price tag on that purchase seems “extremely high,” based on his conversations with other software application developers.

Meanwhile, Taymour Semnani, owner and co-founder of the tech company Ferry, said he offered a free contact-tracing application to the state about a week after the state had signed its contract with Twenty.

Herbert said last week that he believes there are “legitimate questions” that have been raised “about various contracts that have been entered into by the state” but declined to give specifics.

The ‘Wild West’ of supply buys

In early April, state leaders made a troubling discovery: Their supply of testing swabs for COVID-19 was days away from depletion.

It spurred a “Herculean effort of scouring the world over for the swabs,” Anderson said, and at one point that search appeared to end in China. The state chartered a flight to the country to bring back the swabs — but at the last minute learned the supply had gone to a higher bidder.

“That was what we faced as people or states were outbidding each other, these wars of trying to get product,” the public safety commissioner recounted. “So it ended up that we were back with nothing.”

Eventually, the state was able to find 100,000 swabs in Chicago through a contact in Sen. Mitt Romney’s office. But they came at a steep price — $15 each instead of the normal $1.25 per swab.

It was a tough call, but “it got us down the road,” Anderson said. “It was a critical time. It was in those weeks of criticality. We had to keep the testing going; we had to keep those things moving. And if we would have delayed at all, we [would have been] several weeks behind because we would have run out of swabs.”

Hughes says that’s just one example of the “Wild West” state officials encountered in the international rush for medical supplies.

At one point, Utah had a shipment of isolation gowns packed and ready to carry across the sea from China. Then, he said, officials learned a multinational corporation had “commandeered” the entire vessel for its own goods, leaving Utah’s gowns stranded.

Factories were also unpredictable, Hughes said, agreeing to produce goods for Utah and then suddenly breaking their word to supply customers who were willing to pay more. But Hughes said Utah decided early on that it didn’t want to enter the panicked fray.

“We didn’t want to get into a bidding war," he said, “and be known as the state that was always willing to raise the price.”

‘Taxpayers deserve transparency’

State law currently allows the head of purchasing to forgo standard processes when doing so would avoid a lapse in critical government services, mitigate a circumstance that would have a negative impact on public health or safety or to protect the legal interests of a public entity.

The procurement unit is required to ensure purchases are made with “as much competition as reasonably practicable.” After the emergency is over, it’s required to prepare a written document explaining the conditions that made the purchases necessary.

But after the controversies and questions about state purchases in recent weeks, some Democrats are fighting for changes to the emergency procurement rules that they say would still recognize the need for expediency while also promoting greater accountability.

Stoddard has already filed a bill for the 2021 session — though he hopes it could be considered sooner, in one of the Legislature’s upcoming special sessions — that seeks to rein in the executive branch’s powers to make purchases during an emergency. He wants to see more consideration made for the type of emergency and the type of need in making purchases, or requirements for more accountability when no-bid contracts are made.

Officials should have to explain “why it came about, why that company and why that price,” he said. “That’s my frustration is all these no-bid contracts were made, [but] we still can’t figure out who entered into the contracts, why that company was picked and how the price was settled on.”

Stoddard said he’s also looking to other states to see if there are models Utah could follow.

Hughes said the National Association of State Purchasing Officials (NASPO) recently issued a survey asking about emergency procurements and no-bid contracts; when he inquired about the results, NASPO told him all 16 responsive states had at one time entered into no-bid contracts as a result of COVID-19.

Rep. Suzanne Harrison is preparing a related bill requiring state agencies to keep written records and data about purchases made during a crisis. Under her proposal, this information would be accessible to lawmakers and the public.

“We need to tackle this pandemic head-on, both from a public health and economic standpoint,” Harrison, D-Draper, wrote in a Facebook post. “But taxpayers deserve transparency and accountability for how their money is being spent.”

As state epidemiologist Dr. Angela Dunn has warned of a second wave of the coronavirus in the fall to coincide with the flu season, state officials say they’ll be better prepared to meet the pandemic head-on — if it comes — than they were this spring.

Officials have been pulling aside 12% to 15% of all the products they’ve ordered into a stockpile to ensure they don’t have to spend millions more in no-bid purchases during a time of panic, Anderson said.

“We have several professionals who are telling us that what we’ve seen so far is going to pale in comparison to what this fall will be,” he said. And while the public safety commissioner doesn’t expect the state will have quite the 90-day supply it’s hoping for, “it will be a significant, significant amount to get us through several weeks.”

“More than anything, I want to be prepared,” he said later, “…and have a little bit too much than not enough.”