California pays $3.30 per coronavirus mask with China deal

BYD is a Chinese auto manufacturer that is making protective gear during the coronavirus crisis.

May 6, 2020 12:36 PM PT

SACRAMENTO — Advisors to Gov. Gavin Newsom agreed to pay Chinese electric car manufacturer BYD $3.30 for each mask the company made under a coronavirus response contract totaling almost $1 billion that has been kept under seal for the past month.

But invoices, emails and other documents obtained by The Times suggest the deal was still in the process of being vetted by state officials when Newsom suggested it was complete during a national TV broadcast on April 7.

The price per mask was revealed in a document provided by the California state treasurer’s office, which was responsible for the release of the funds. However, it lists only the sale of coveted N95 masks, those considered to provide the most protection, and not the cost of traditional surgical masks BYD has also sold to the state.

BYD has so far shipped only the less expensive surgical masks, with the first of them arriving late last month.

The Governor’s Office of Emergency Services refused Monday to provide the contract, insisting in a letter to The Times that the document is exempt from disclosure under the California Public Records Act. Members of the Legislature have also been stymied in their attempts to see the contract, though Newsom administration officials promised they would provide access once the deliveries of masks are complete.

Newsom abruptly shifted course on Wednesday, promising that the BYD contract will soon be released and blaming government attorneys for why that hasn’t happened sooner.

“A lot of these contracts haven’t been made public as quickly as we would like them to be,” he said during a midday briefing streamed online. “And you, the public, deserve that information. And you’ll be getting that very, very soon.”

Documents obtained from the office of State Treasurer Fiona Ma through a records request include an April 7 invoice from Global Healthcare Product Solutions, a subsidiary of BYD, for “N95 face masks” with a per-unit price of $3.30. It stipulates that the state will pay half of the total cost of the deal — $495 million — in advance of the first 150 million masks being delivered. In all, the invoice notes 300 million N95 masks will be delivered by the time the contract ends.

“All sales are FINAL. We do not accept any returns or exchanges,” the invoice says.

The cost of personal protective equipment during the early weeks of the global pandemic has fluctuated wildly, with healthcare professionals and government officials scrambling to find the gear while ensuring those supplies aren’t pilfered by outside actors. States have also complained of supplies being commandeered by the federal government. Newsom administration officials have told lawmakers those kinds of fears are why they have kept the terms of the contract confidential.

Newsom said Wednesday he welcomed public scrutiny of the costs.

“We negotiated a pretty good price in the middle of all this,” he said, 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 overseas.

He said 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 range from 63 cents to $3.40, depending on the model. It’s unclear what the equivalent type of N95 mask BYD is producing for California. 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.

Emails obtained through a records request show state officials notified the state treasurer’s office that there was a 90% chance of a large personal protective equipment deal April 6.

The next day, April 7, the invoice was apparently sent to state officials by BYD and Newsom went on a national TV show that night to announce the deal. His administration quickly sent notification of the expense to the Joint Legislative Budget Committee.

On April 8, Thomas Todd at the California Department of Finance emailed the treasurer’s office saying 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),” Todd wrote. “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.”

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.

In all, Newsom administration officials have said the agreement with BYD will produce 200 million masks per month through the end of June. The N95 masks, expected to total 150 million of that amount, must still first be approved for effectiveness by the National Institute for Occupational Safety and Health. BYD’s Girardot said on Wednesday that the process may be delayed until the end of May.

The governor on Wednesday called it a “little bit” of a delay, though it could mean the sought-after masks arrive more than a month late.

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