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Covid-19 Contracts Worth $18 Billion Largely Noncompetitive

July 30, 2020, 6:44 PM

Federal agencies have obligated $17.8 billion in contracts, more than half of which were noncompetitive, to respond to the Covid-19 pandemic as of June 2020, with four departments and agencies accounting for 85% of obligations, according to a GAO report.

The Department of Health and Human Services, Department of Defense, Department of Homeland Security, and Department of Veterans Affairs have issued $15.1 billion in contracts, the Government Accountability Office said in a report issued Wednesday.

Agencies have obligated about $2.1 billion in contracts for biomedical research and vaccination development, the GAO said.

Of the $17.8 billion, 53% or $9.4 billion in contracts have been awarded without competition, the GAO said.

More than two-thirds of the $9.4 billion–about $6.9 billion–involved noncompetitive awards using the unusual and compelling urgency exception to full and open competition requirements, the GAO said.

“There are some eye-popping figures in this GAO report, such as how 91% or about $5.5 billion for medical and surgical equipment weren’t competed,” said Charlotte R. Rosen of Odin, Feldman & Pittleman PC in Reston, Va.

Overall, only about 39% of obligations for goods were competed compared to about 61% of obligations for services, she said.

It is unclear why HHS, DOD, DHS, and VA didn’t use the vast array of pre-existing federal ordering vehicles for medical equipment and supplies that allow for some level of competition, she said.

Those vehicles are designed to provide speed and a path to competitive and discounted pricing, she said.

Many of the new non-competitive awards included blanket purchase agreements and indefinite-delivery, indefinite-quantity contracts, not just orders issued on an urgent and compelling basis, she said.

The GAO says obligations on these new contracts were competed less frequently than obligations on preexisting contracts. About 34% of obligations on newly awarded contracts were competitive compared to about 72% of obligations on preexisting contracts, she said.

“So, not only have these lead agencies been awarding billions of dollars non-competitively, they have also set up new ordering vehicles under which they run far fewer competitions. They appear to have set up a framework to continue placing COVID related orders with noncompetitive pricing for the foreseeable future,” she said.

A 53% noncompetitive rate in the report, however, doesn’t seem too far from the norm, said Nathaniel Castellano of Arnold & Porter Kaye Scholer LLP in Washington.

DOD has consistently struggled to compete more than 50 percent of its contracts, he said.

“That federal agencies responding to the undeniable urgencies created by Covid-19 would fall below DOD’s average competition rate does not seem particularly remarkable,” he said.

It will be interesting to see whether future reports analyze the GAO’s bid protest statistics and decisions concerning challenges to contracts awarded without full and open competition during this period, said James J. McCullough of Fried, Frank, Harris, Shriver & Jacobson LLP in Washington.

The report indicates a “huge spike” in acquisitions starting in mid to the end of March, he said.

“Given the 100 day period for resolution of GAO protests and the lag time in public release of GAO decisions due to Protective Orders, we are probably just about to see whether there has been any uptick in such protests. Also, there are a lot of GAO decisions dismissing protests that are unpublished,” he said.

Several Tools

The GAO described the multiple contracting techniques available to agencies, including undefinitized contract actions under the CARES Act that became law in March.

This technique allows contractors to begin work before reaching a final agreement with the government on all contract terms and conditions.

DOD reported about $850 million of its obligations on undefinitized contract actions for goods and services like alternate care facilities to treat patients and N95 respirator production, the GAO said.

DOD and HHS are also using Other Transaction authority, which allows companies to provide certain agencies with prototypes and research services.

DOD has reported obligating $235 million for production and prototype other transactions, including research into the use of antibodies against the virus, the GAO said. The GAO found one other transaction involving HHS worth $47.7 million, it said.

HHS has also used Defense Production Act authority, which agencies can use to require private companies to prioritize fulfilling government contracts.

HHS prioritized at least eight contracts to produce more than 150,000 ventilators for $2 billion by the end of 2020, the GAO said.

For additional legal resources, visit Bloomberg Law In Focus: Coronavirus (Bloomberg Law Subscription).

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com

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