Tuesday, April 27, 2021

Comptroller Stringer Investigation: City Lost $1.86 Million in Failed Effort to Purchase Ventilators During the COVID-19 Pandemic


Investigation shows how the City, having suspended contracting rules early in the pandemic, ignored early warning signs and pre-paid $8.26 million for 130 ventilators that it never received

Global Medical Supply Group LLC exploited the City’s public health emergency with a high-pressure sales pitch and false assurances, never delivered any ventilators, and failed to return $1.86 million of City tax money

Mayor’s suspension of City procurement rules exposed taxpayers to risk of fraud, waste, and abuse

Comptroller recommends emergency procurement procedures to enable the City to quickly purchase what it needs, while reducing risks of waste and fraud

Today, New York City Comptroller Scott M. Stringer released the findings of an investigation into the City’s full prepayment of $8.26 million to Global Medical Supply Group LLC (Global) in an unsuccessful attempt to purchase 130 ventilators during the initial COVID-19 surge in March 2020. Comptroller Stringer’s investigation found that Global, a business formed less than two weeks before the City’s prepayment, never delivered any ventilators and, even after protracted negotiations and litigation, failed to return $1.86 million of City taxpayers’ money—nearly a quarter of the City’s payment.

“Our investigation found that the City lost nearly $2 million on lifesaving equipment that it never received,” said Comptroller Stringer. “I am again calling on the City to immediately restore City procurement rules to protect taxpayers from abuse by unreliable vendors and from costly mistakes. While the pandemic took us by surprise, there is no excuse not to learn from our misfires going forward. If we fail to heed these findings and take sensible measures to safeguard taxpayer dollars for the next emergency, then the City will once again let New Yorkers down.”

Comptroller Stringer’s investigation found that City procurement officials at the Department of Citywide Administrative Services (DCAS), Mayor’s Office of Contract Services (MOCS), and other agencies were able to arrange the prepayment of $8.26 million to Global 36 hours after receiving its unsolicited proposal—with no price competition, no goods delivered, no security, no meaningful assessment of Global’s business history and reliability, and no signed contract—because the Mayor had issued an emergency executive order suspending City procurement laws and rules for COVID-19-related purchases. Global sent much of the City’s money to a bank account in China maintained by Global’s supposed ventilator supplier—a trading company that exported shoes—compromising the City’s ability to trace and recoup the remainder of what it is owed through the U.S. legal system.

In this case, with key procurement safeguards removed, City employees—pressed to acquire scarce items quickly for emergency use—were extraordinarily vulnerable to exploitation by unscrupulous actors and to mistakes and omissions that the rules might have prevented.

The investigation identified three factors that led to the City’s monetary loss: Mayor de Blasio’s March 2020 executive order suspending City procurement rules without substituting other controls; Global’s exploitation of the City’s emergency need for ventilators with a high-pressure sales pitch and false assurances of immediate delivery; and obvious warning signs of Global’s untrustworthiness that City officials missed or disregarded.

Comptroller Stringer’s investigation of the City’s payment of $8,261,500 to Global revealed the following:

  • The suspension of City procurement rules for COVID-19-related purchases, including rules requiring vendors to disclose their business histories and those requiring signed contracts for multimillion dollar purchases, exposed the City to risks of waste, fraud, and abuse.
  • Global exploited the City’s public health emergency with a high-pressure sales pitch and false promises of immediate delivery of 130 ventilators when the City was an epicenter of the first wave of the coronavirus pandemic and was publicly calling for 15,000 ventilators to help care for hospitalized patients at risk of death.
  • Global engaged in an intensive marketing campaign—including at least 28 phone calls, 149 texts, and 60 emails in a four-day period centered around a weekend—to convince City decision makers to pay the full $8.26 million price in advance for 130 ventilators that Global promised would be shipped immediately.
  • City officials ignored an early warning sign that Global’s assertions were unreliable, specifically, Global’s initial claim that it could “lock [the City] in” for “up to 20 million” brand-name, N95 respirator masks. A City official immediately alerted colleagues that the masks’ manufacturer had warned the City—just one day earlier—to be “wary” of “vendors claiming to have those types of numbers.”
  • The City advanced $8.26 million to Global, even after finding the company’s existence “tough to confirm,” as one City official noted at the time. With procurement rules suspended, Global was not required to disclose basic background information, including its business history, and City officials knew little about the new company.
  • The City also knew little about the company Global named as its “direct source” for the ventilators it offered to sell to the City. City officials reviewing Global’s proposal learned that its supposed source for the ventilators was a trading company that had previously exported footwear from China to a U.S.-based company. They found no evidence that it had ever dealt in medical equipment.
  • City officials lacked a clear understanding of Global’s relationship with the factory where it claimed to have secured ventilators. When City officials requested evidence of Global’s access to the ventilators it was offering the City, Global provided a few photographs and video recordings of unknown origin and publicly available information about the product. A City official later acknowledged that in retrospect the ventilators shown in a video Global sent to the City “could have been anyone’s vents.”
  • City officials missed two red flags in Global’s ventilator pitch—Global’s repeated, implausible claims that it could ship 20,000 brand name ventilators to the City from China at a rate of 1,000 per day, and Global’s far-fetched assertion that it had secured capacity for 80,000 of those ventilators at a single factory. Both claims were belied by public reporting at the time. The brand manufacturer later informed the Comptroller’s Office that its total production capacity in April 2020 (the month following Global’s ventilator proposal to the City) was less than 1,000 units per month.
  • The City lost $1,859,068.94 in the Global transaction, even after concerted efforts to recover the funds, including a recently settled legal action the City filed in the U.S. District Court for the Southern Direct of Florida. In June 2020, the City recovered $3,977,594.28 and, under the recent settlement, has received or will receive an additional $2,424,836.78 from Global and others involved in the transaction. Upon collecting the settlement amount, the City will have recovered $6,402,431.06 of its $8,261,500 payment to Global for the ventilators it never received and will have lost $1,859,068.94. The City has also obtained a judgment in that loss amount against Global. However, according to the settlement agreement, Global has informed the City that its liabilities exceed the value of its assets.

Comptroller Stringer recommended seven measures to enable the City to purchase what it needs to address emergencies, such as the COVID-19 pandemic, while mitigating the associated risks of fraud, waste, and abuse. The recommendations urge the City to:

  • Follow the City’s existing procurement rules, which already allow expedited emergency purchases, and amend them, if necessary, for additional speed and flexibility.
  • Institute dollar limits and additional safeguards to mitigate the inherent risks of prepayments that might be necessary in emergencies.
  • Develop a toolkit of resources for emergency procurements to help balance the need for speed with safeguards to prevent waste, loss, and abuse of City funds.
  • Develop an adaptable short form contract with standard provisions to protect critical City interests when emergency procurements are necessary.
  • Develop a short-form vendor-disclosure template to help expedite vendor responsibility determinations in emergency procurements.
  • Create a centralized clearinghouse for expedited vendor responsibility determinations that all City agencies can use for emergency procurements.
  • Develop guidelines for quick vendor responsibility determinations in emergency procurements.

Comptroller Stringer has repeatedly urged Mayor de Blasio to rescind Emergency Executive Order (EEO) 101, Section 2, which has suspended laws and regulations related to procurement in the City since March 17, 2020. Following two letters sent to the Administration in August and October of 2020 that yielded no response or action, Comptroller Stringer for the third time in March 2021 underscored the need to rescind the Mayor’s emergency suspension of procurement laws. The City Charter and the City’s Procurement Policy Board (PPB) Rules already provide for expedited emergency purchases but with safeguards and transparency mechanisms in place to protect the City’s interests. Under Mayor de Blasio’s emergency powers, the City has entered into 1,356 contracts totaling more than $6.1 billion in City funds since March 2020 without the crucial statutory oversight of the Comptroller’s Office.

To read Comptroller Stringer’s investigation of the City’s failed purchase of ventilators from Global Medical Supply Group LLC, click here.

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