Chinese firm will reimburse $247.5 million in controversial mask deal, contract shows

SACRAMENTO —  Gov. Gavin Newsom released details on Wednesday of a secretive $1-billion deal to purchase protective masks from a Chinese electric-car maker that revealed the company must reimburse the state $247.5 million by the end of the week.

The release of the contract came amid growing questions over the administration’s refusal to provide details about the deal. Just two days earlier, officials had refused to divulge more information after The Times filed a Public Records Act request.

The repayment by BYD, through its U.S. subsidiary headquartered in Los Angeles, was attributed to a one-month delay in certification of the company’s N95 masks. Those masks may not be approved for effectiveness by the National Institute for Occupational Safety and Health until the end of May.

Newsom downplayed the setback during a coronavirus briefing earlier Wednesday, calling it a “little bit” of a delay and suggesting it was because the masks were a new product for the company to manufacture.

“All these things work out themselves,” he said.

The last-minute reimbursement, according to a new amendment to the contract, was agreed to because the original $495-million deposit by the state was contingent in part on some of the N95 masks being delivered in May.

On Monday, the Governor’s Office of Emergency Services rejected a request by The Times to disclose the contract, an agreement made between the state and BYD on April 7 and sought the next day under provisions of the California Public Records Act.

“Publishing the agreement now — before performance under the contract is complete — would introduce substantial and unnecessary risk to the state’s ability to secure necessary supplies,” Ryan Gronsky, an attorney with the Governor’s Office of Emergency Services, wrote in a letter to The Times.

It was unclear why the administration changed its decision.

The price tag of the contract is larger than previously stated. In all, the state agreed to pay BYD more than $1 billion for the masks. Most of the money, $990 million, was to purchase 300 million N95 protective masks over a two-month period at a cost of $3.30 apiece. The contract calls for an additional $54.9 million to purchase an additional 100 million surgical masks. The agreement gives the state the option of extending it beyond June 30, at the same price point.

“We negotiated a pretty good price in the middle of all this,” Newsom said Wednesday, noting inflated prices being paid by others in the early weeks of the crisis. “I hope you’ll consider those price points that we were able to negotiate, up against where the market was.”

Frank Girardot, a spokesman for BYD, said the per-mask price includes all taxes and duty fees plus the freight costs for air delivery. He said once those costs are factored in, the pre-shipping cost per mask to the state was $2.88.

“Our cost is fair,” Girardot said Wednesday. “There is nobody that can make this quantity, this fast.”

Sergio Fernandez de Cordova, the chairman of a New York media nonprofit group that is working with the government consulting firm Raymond Associates to secure better mask deals for government agencies, estimated the $3.30-per-mask price could be some 30 cents per mask higher than it’s costing the company to manufacture and ship the masks overseas.

He said that with the amount of money California can muster, the state could have propped up its own factories in the state, employed Californians out of work and made large quantities of similar masks for “easily under a dollar.”

“The state could have launched 190 new companies around this,” Fernandez de Cordova said. “Pandemic times lead to pandemic decisions, which are not usually well thought-out.”

Ken Curley, a retired Army colonel and president of Raymond Associates, questioned why the state didn’t go to a manufacturer such as 3M, which already makes N95 masks, to broker a better deal.

“The state has a lot of leadership, juice, money,” Curley said.

U.S. company 3M has said the list price for its most common N95 respirators ranges from 63 cents to $3.40, depending on the model. Last week, Los Angeles Mayor Eric Garcetti announced a deal with Honeywell for N95 masks that will cost the city 79 cents apiece — though most of the masks in that agreement won’t arrive until the summer and fall; the ones purchased from BYD were expected to arrive this month.

The Times first learned of the cost for each N95 mask through records obtained from the state treasurer’s office. But emails and other documents in that disclosure suggest the BYD deal was still in the process of being vetted by state officials when Newsom boasted about it during a national TV broadcast last month.

“We’re not waiting around any longer. And we’re no longer interested in the progress that we were seeing in the past,” the governor told MSNBC host Rachel Maddow on April 7.

The next day, Newsom’s budget office told the staff of state Treasurer Fiona Ma that the deal was all set.

“Per the governor’s announcement last night, this payment has become certain (pending 72-hour notification to the Legislature),” California Department of Finance analyst Thomas Todd wrote in an email. “The amount is now $495 million, and we will want to make the payment on Friday (the first day we can do so after the 72-hour notification).”

Following that email, officials at the treasurer’s office asked if the vendor had been vetted. Thomas replied that “they’re vetting the vendor as we speak.”

Nor was the deal finalized. On April 15, the contract between the state and BYD was modified. The documents provided by the Newsom administration late Wednesday show a change in the model number of the N95 masks being provided but no other information. BYD’s Girardot referred all questions to the governor’s administration, which could not immediately provide an answer.

BYD announced in March that it had shifted its manufacturing from vehicles to protective gear. Its U.S. subsidiary, headquartered in Los Angeles and long promoted by the state for its electric bus production, helped arrange the deal. Global Healthcare Product Solutions, the limited liability company set up by the company in March, shares the same address as BYD’s headquarters in L.A.

In describing the vetting process, Tabitha Stout of the Governor’s Office of Emergency Services told the treasurer’s office the state agency followed standard practices for contracting in an emergency and included Federal Emergency Management Agency contracting terms in the deal.

“During the initial engagement with the vendor, Cal OES confirmed that FEMA along with large medical supply companies vetted this manufacturer as well,” Stout wrote in an email April 9.

The refusal to release the contract was met with sharp criticism in recent weeks by members of the Legislature, who were informed of its existence just before Newsom mentioned the deal on MSNBC. .

“Many of us are going to be very insistent at seeing the terms of that contract,” state Sen. Jim Nielsen (R-Gerber), said during an April 16 hearing at which legislators voiced concerns with the administration’s secrecy over the deal. “And what is in the contract that ensures the deliverability, timely, is going to be really, really important.”

The governor’s advisors told lawmakers they feared the masks would somehow be diverted from California if they revealed too much. And Newsom insisted Wednesday that it was his administration’s attorneys, not him, who delayed the disclosure of the BYD agreement.

“I mean that I’m guilty of wanting to deliver and get this done, and to save lives,” he said. “At the same time, damn it, to be as transparent as I humanly can be to you, because you deserve it.”