Virgin Orbit CEO Dan Hart first wondered if his satellite-launching company could help California build more ventilators on a Saturday morning in March while reading about shortages forcing doctors in other parts of the world to ration the lifesaving machines.
He reached out to a friend who knows Gov. Gavin Newsom personally. By about 8 p.m., after a flurry of emails, Hart was meeting with the state’s top emergency medical services official and a UC Irvine doctor working to develop a simplified version of the machine called a bridge ventilator.
Three days later, a team of Virgin Orbit engineers who normally design rockets had developed its first prototype. About two weeks into the project, Hart traveled to Sacramento to show the governor their design that relies on a windshield wiper motor.
Now, Hart says the state is paying the company to produce 600 bridge ventilators at an initial price of $2,000 apiece to help hospitals treat a surge in coronavirus patients.
The Virgin Orbit contract is just one of the deals the Newsom administration has struck with private businesses in the last few weeks on a rapid timeline and under intense pressure to secure lifesaving equipment, like used medical lasers, in an increasingly competitive market. The state is already spending more than $2 billion on coronavirus response, with most of that money going to private companies producing medical equipment and protective gear, according to Newsom’s finance department.
The pandemic has pushed Newsom to form new partnerships with businesses and tap existing private-sector relationships dating back to his days in San Francisco city government.
A former businessman himself, Newsom said his administration has been “very aggressive in reaching out to the private sector” for help and has praised companies like Virgin Orbit for “meeting this moment” by producing needed gear for the state. He says at least 350 manufacturers have told his administration they want to convert their facilities to produce hand sanitizer, protective equipment and other supplies.
In the meantime, there’s been little public scrutiny of the agreements the state has made to buy those products. The Newsom administration has denied lawmakers’ and journalists’ requests to see the state’s biggest contract — a $1 billion agreement with Chinese company BYD to make hundreds of millions of masks — saying that releasing details could jeopardize the shipments.
The administration has been slow to release other smaller contracts, too. It took two weeks for the administration to provide The Bee a contract showing the state is paying the Sacramento Kings basketball franchise $1.5 million to convert its old arena into an emergency hospital. Administration officials say they are still working to provide other contracts through a records request for a wide range of government contracts related to testing, ventilators and protective gear filed by The Bee more than a month ago.
“It’s more critical now than ever before for the Legislature to exercise its oversight authority,” state Sen. Jim Nielsen, R-Gerber, said during a budget hearing earlier this month. “Large contracts are being let, we don’t know what they’re all about, monies are being obligated, and our budget is also being affected.”
Concerns from lawmakers
The Legislature is responsible for overseeing the state’s expenditures, but lawmakers argue they have been sidelined during the pandemic. They passed a law giving Newsom authority to spend up to $1.1 billion on emergency response, but say they haven’t been given detailed information about how the administration is using the money.
Lawmakers have requested but not yet received a number of contracts from the administration, including those for two hospitals the state is spending $30 million to lease, Legislative Analyst Gabriel Petek said during an Assembly budget hearing last week.
They’ve raised the most concerns about the state’s nearly $1 billion contract with BYD.
Earlier this month, lawmakers gave Newsom permission to pay $495 million to a California-based BYD subsidiary up front as part of the deal, but asked that the administration provide them the full details of the contract.
After the money was wired, administration officials said they don’t plan to show lawmakers or the public the contract until they have “assurances” the masks will arrive. They’ve cited intense competition in the market and concerns that something could jeopardize the shipment if more details are released.
The administration will release the contract once all the supplies have arrived, Office of Emergency Services spokesman Brian Ferguson said Tuesday.
The $990 million agreement spans 2.5 months and will result in 200 million masks per month, administration officials have said. Lawmakers have requested the exact cost per mask, but the administration has declined to provide it publicly.
Some Republican lawmakers questioned whether the masks could have been purchased more cheaply if the administration had taken time to seek California manufacturers to produce them.
State contracts usually are subject to a competitive process. The administration didn’t solicit multiple bids for the contract because global mask shortages limited the state’s options, Mark Ghilarducci, the director of the governor’s Office of Emergency Services, told lawmakers at the Assembly hearing. He said the state still negotiated a “very good price.”
Lawmakers from both sides of the aisle said they wanted more information about the agreement.
“I find it particularly troubling that we’re talking about a $1 billion contract for resources that we don’t have details of,” Assemblywoman Christy Smith, D-Santa Clarita, said during the Assembly budget hearing. “That is a story that at some point needs to be told.”
In cases where it’s not possible for the administration to make contracts public, it should at least find a way to share them with lawmakers, said Dan Schnur, who formerly led the state’s political ethics watchdog commission and worked for former Republican Gov. Pete Wilson. Schnur pointed to the White House’s practice of sharing national security information with the top eight lawmakers in Congress to keep sensitive details secret while still allowing the legislature oversight of the executive branch.
“It seems to me that a similar approach could be set up on these contracts even if the governor’s office isn’t comfortable making the information public in real time,” he said. “A state level ‘gang of eight’ could be a way of providing oversight without compromising the purchase.”
Although it’s the Legislature’s job to push for more details about the contract as part of its oversight role, state Sen. Holly Mitchell said she ultimately trusts Newsom’s judgment surrounding the BYD deal.
“Is it ideal that they aren’t able to share the specifics of the contract with us? Of course not,” the Los Angeles Democrat told reporters earlier this month. “Do I understand the circumstances under which he made the decision he felt was in the best interest of California? I absolutely understand.”
New crop of government contracts
State government has worked closely with the private sector before, but the coronavirus outbreak has accelerated the pace.
“There was a new energy around public and private projects,” said Dr. Jessica Mega, co-founder and chief medical and scientific officer for Verily Life Sciences. “In some ways we’ve never really seen this kind of urgency.”
Verily is one of several companies the state is contracting with to provide diagnostic testing. Mega said the state was looking for a platform that could screen potential patients and connect them with testing on a large scale. As it turned out, Verily had been working on such a platform for several years prior to the pandemic.
The platform coordinates a patient’s whole testing experience, from the initial online screening survey to generating the personalized bar code labels for the testing samples, she said.
The state’s Department of Public Health has contracted with Verily to provide testing in several California counties, Mega said, including Santa Clara, San Mateo and Sacramento.
Other companies have changed their manufacturing processes or pivoted to provide different services to fill state needs.
One such company, Bloom Energy, struck a deal with the administration to refurbish hundreds of ventilators after the governor called for companies to help the state increase its stock, Newsom said.
The fuel cell company’s CEO, KR Sridhar, asked the governor for one broken ventilator and had a team of engineers repair it within 24 hours. Now it has deals with state governments in California, Delaware and Pennsylvania to repair the machines, said Bloom spokesman Justin Saia.
In a few days, Sridhar went from knowing “nothing about ventilators” to serving as the state’s go-to source for ventilator repair, Newsom said during a press conference at Bloom Energy last month.
Saia said he couldn’t give cost estimates for the ventilator refurbishment because it varies from machine to machine depending on how much work is required to repair it. Bloom is refurbishing the devices essentially at cost, Saia said.
“We’re not in this for financial gain,” Saia said. “We’re doing this because it’s the right thing to do.”
Virgin Orbit received federal approval for its bridge ventilators last week. Hart said its contract, which has yet to be made public, is with California’s Emergency Medical Services Authority.
The bridge ventilator work has allowed him to get some of his engineers back to work after Hart sent most of Virgin Orbit’s workers home because of coronavirus, he said.
“It’s been therapeutic for the whole team because the hardest part of this crisis is the feeling of helplessness and not knowing what to do,” Hart said. “It was a gift for us to get this idea.”
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