GAO Says Most Of $17.8B In COVID-19 Deals Not Competitive

By Daniel Wilson
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Law360 (July 29, 2020, 9:10 PM EDT) -- Federal agencies have awarded more than $17.8 billion in contracts for critical items needed to address the COVID-19 pandemic, more than half of which were awarded without competition, the U.S. Government Accountability Office said Wednesday.

The bulk of contracts for those critical goods and services as of mid-June, around $11 billion worth, or 62% of the total dollar value, were for items to either treat patients or protect health care workers, such as ventilators, personal protective equipment and N95 respirators, according to the GAO's report.

"Contracts play a key role in federal emergency response efforts, and ... contracting during an emergency can present a unique set of challenges as officials can face a significant amount of pressure to provide critical goods and services as expeditiously and efficiently as possible," the GAO said.

The U.S. Department of Health and Human Services was the biggest agency spender, having awarded $8.94 billion in COVID-19-related deals, followed by the U.S. Department of Defense at just under $3 billion in contracts, according to the report.

The departments of Homeland Security and Veterans Affairs were responsible for $1.68 billion and $1.47 billion in coronavirus contracts, respectively, and the four agencies collectively accounted for about 85% of critical federal response deals by dollar value, the GAO said.

There were 6,200 vendors awarded coronavirus response deals, with $5.1 billion worth, or 29%, going to small businesses, while $5.6 billion of the deals went to just 10 companies, the watchdog said.

Philips Electronics North America Corp. was the biggest single contract awardee, winning 57 deals worth $702.7 million, while other top-10 awardees included General Motors Co., Janssen Pharmaceuticals Inc. and clothing giant Hanesbrands Inc., according to the report.

Across all 42 agencies to have awarded coronavirus response deals as of mid-June, $9.4 billion of pandemic-related contract obligations, or 53%, were awarded noncompetitively, the GAO said.

Although agencies are supposed to use "full and open" competition when awarding contracts, there are exceptions, such as when there is only one source available to meet a particular need, or when circumstances are considered particularly urgent.

And the majority of the noncompetitive COVID-19 deals, about $6.9 billion worth, were reported by agencies to come under an exception for "unusual and compelling urgency," the GAO said. Medical and surgical equipment deals were most likely to have been awarded without competition, with about 91%, or $5.5 billion, of related contracts awarded in sole-source deals.

The watchdog did not make any recommendations to agencies, although it noted that it had previously found that the use of competition even during urgent situations, and even if that competition was only limited, "increases the potential for quality goods and services at a lower price."

The GAO had been tasked with reviewing federal contract spending related to COVID-19 as part of the massive Coronavirus Aid, Relief, and Economic Security, or CARES, Act stimulus bill, and its report is the first under that mandate, it said. 

It said its future work will include looking at how agencies have planned and managed those contracts; how they have used the contracting flexibilities provided by the CARES Act, including Section 3610 of the bill; and how they have used the Defense Production Act, or DPA.

Section 3610 allows agencies to reimburse contractors for the costs of keeping their workforce in a "ready state" if unable to work due to COVID-19, while the DPA gives the president broad powers to act in support of the national defense, including providing funding to expand the production of materials and services or to compel companies to accept and prioritize federal contracts.

--Editing by Abbie Sarfo.

For a reprint of this article, please contact reprints@law360.com.

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