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Four Officials Ejected at Health Agency; DOD Contracts Disrupted

July 22, 2019, 8:46 AM

The Department of Health and Human Services has suspended four officials and abruptly canceled acquisition services for the Defense Department and other agencies as part of an ongoing review, sources tell Bloomberg Law.

HHS Program Support Center Director Allen Sample and Financial Management Director William McCabe were walked out of the agency’s Bethesda, Md., office and placed on leave with pay in April.

Two other career contracting officials—Head of Contracting Activity Patrick Joy and Supervisory Contract Specialist Donald Hadrick—were suspended under the same terms in June, the sources said. The moves came amid a review of the unit’s operations and retained earnings that started after Sample and McCabe were suspended.

In at least two instances, department leaders cited a lack of confidence in the suspended employees’ ability to lead before walking them out of the building, according to two current support center employees familiar with the situation. They spoke on condition of anonymity because of concerns about retaliation.

Sample, McCabe, Joy, and Hadrick declined to provide a comment for this story.

In mid-June, the center also put an end to its operations serving all of its non-HHS government customers, citing a lack of authority.

The HHS Program Support Center, called the PSC, offers its services across the administration, to the HHS and 19 other federal agencies. Its responsibilities include overseeing federal building design and construction, administering grants, performing accounting services, and processing payments. The PSC administers some $1.6 billion in federal contracts per year. The DOD is its biggest customer.

The decision to halt services for the Departments of Defense and Homeland Security, along with other outside departments, could leave other agencies scrambling to ensure that ongoing contracts are properly completed.

“HHS is currently conducting a review of its financial systems and processes in an effort to improve PSC operations and strengthen transparency,” an HHS spokeswoman told Bloomberg Law.

“HHS has determined to limit contracting on behalf of DOD and other agencies while HHS assesses whether it is in a position to meet other agencies’ contracting requirements,” the spokeswoman said.

Three support center employees told Bloomberg Law they’re concerned that political appointees brought in by the Trump administration are using the review to clean house at the support center. The HHS spokeswoman declined to comment on “personnel matters.”

Contracts in Limbo

Until mid-June, when it abruptly canceled its services, the PSC managed about 250 contracts for other federal agencies in exchange for a fee, according to Bloomberg Government data. Those contracts include several IT, telecom, and research and development services for other agencies like the DOD.

Pentagon spokeswoman Elissa Smith declined to comment, referring inquiries to the HHS.

John Tenaglia, deputy assistant director for acquisition at the DOD’s Defense Health Agency, told Bloomberg Law his agency is “exploring options to replace the PSC’s services.”

“Because of a limited number of current contracts, we expect this action to have limited impact on DHA’s contracting efforts, but we are working to identify any pending DHA requirements currently in progress,” Tenaglia said in an emailed statement.

The Defense Health Agency was one of many Defense and government agencies that used PSC services, he said.

“The impact of not executing the contract requirements, which are critical to the Department of Defense’s mission, is immeasurable and completely intolerable,” a separate support center employee told Bloomberg Law.

Leadership Shuffling

The PSC review came after leadership changes in Assistant Secretary for Administration Scott Rowell’s office, which oversees the unit. That included bringing in James Simpson, a retired general who previously ran the Army’s Contracting Command.

Catherine Bird, an HHS lawyer now serving as Rowell’s principal deputy, raised questions about whether the support center is legally authorized to administer contracts for other agencies. She raised that concern shortly after joining the agency in 2017, according to sources.

The center was established under former HHS Secretary Donna Shalala during the Clinton administration, citing a provision of the Public Health Service Act that created an agency service supply fund.

Bird is currently awaiting Senate confirmation after being tapped by President Donald Trump to serve as the Federal Labor Relations Authority’s general counsel. Her nomination has been criticized by government employee unions who say Bird helped jam through new restrictions on HHS employee rights without going through the mandatory collective bargaining process.

Contracts Dropped

Melissa McAbee, a service center official, June 14 told the Defense Department and a number of civilian agencies that her unit was canceling procurement work indefinitely. The announcement came about a month after HHS leadership told center employees to stop talking to those customers, according to the two PSC employees.

Acquisition workers are currently required to use a template for communication, a current employee said. Previously, they were allowed to speak to other agency officials freely.

“As the result of an internal review that is ongoing, PSC has determined that it does not have the policies, procedures, or internal controls necessary to conduct assisted acquisitions for agencies outside of HHS,” McAbee said in the notices. She’s acting head of contracting activity.

One contract at risk of being affected by the decision to cut off acquisition services is a $468 million Army deal with Bowhead Integrated Support Services LLC for armored military vehicles and power generator maintenance, one of the support center employees said. That contract with the Letterkenny Army Depot in Chambersburg, Pa., is set to expire in 2021.

Nora Zubia, a spokeswoman for Letterkenny, told Bloomberg Law the depot doesn’t anticipate any impact.

Meanwhile, the four suspended PSC officials continue on paid administrative leave. Garey Rice, who previously worked as a financial officer in HHS Secretary Alex Azar’s office, has been named the center’s acting director.

To contact the reporters on this story: Madison Alder in Washington at malder@bloomberglaw.com; Chris Opfer in New York at copfer@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Andrew Childers at achilders@bloomberglaw.com