California Gov. Gavin Newsom’s $1 billion deal with a Chinese company to produce protective masks during the height of the COVID-19 pandemic has soured, as the masks failed to meet national safety and health standards.
The deal has been a source of controversy and confusion among legislators since Newsom announced it on April 7, without sharing details of the contract to state lawmakers.
Newsom’s office finally revealed an amended contract to lawmakers on May 6 after the company responsible for providing the masks, BYD (Build Your Dreams) Auto Co., was forced to return half of the initial $495 million down payment, because the masks they delivered failed to get the approval of the National Institute for Occupational Safety and Health (NIOSH).
A redacted copy of the amended contract obtained by The Epoch Times shows that the company has until the end of the month to comply by delivering masks that pass the certification standards, or they must return the other half of the money.
“Gov. Gavin Newsom’s $1 billion deal with BYD China is crumbling,” Assemblyman Kevin Kiley (R-Rocklin) said in a May 6 tweet. “Predictably the N95 masks failed a test from the National Institute for Occupational Safety and Health, forcing California to seek a refund.”
The contract is for a total of 300 million N95 masks, at a cost of $3.30 per mask.
On May 6, the contract was amended to extend the deadline for NIOSH approval to May 31 from April 30. If BYD can’t get NIOSH approval by then, the amended contract gives the company until June 5 to refund the remaining $247.5 million to the state.
Brian Ferguson, the deputy director for crisis communication and public affairs for the Governor’s Office of Emergency Services, told The Epoch Times on May 8 that the masks didn’t fail a test, but rather did not pass certification yet.
“There is a provision in our contract that protects the taxpayers of California, that if that certification was not received by May 1, 50 percent of what was put in the escrow account would be released back to the state,” Ferguson said. “So that’s the $247.5 million.”
“The contract was structured in such a way to try to have pretty firm standards for the state to make sure that … we’re getting the product we asked for,” he said. “The state will not pay or release any funds for masks that don’t meet the stringent health and safety guidelines.”
A Controversial Deal
Since Newsom went on MSNBC’s “Rachel Maddow Show” on April 7 to announce the deal, it has been met with bipartisan skepticism.
Assemblyman Kiley (R-Rocklin) told The Epoch Times on May 2 that the lucrative contract was handed to the Chinese company BYD without bidding and shrouded in secrecy. Both Democrats and Republicans have been asking Newsom for answers—and the contract—ever since.
The Los Angeles Times reported that the first shipment of 3 million surgical masks arrived April 25 and were received into the state warehouse on the next day.
“To date, the state has only released funds for masks that they have received,” Ferguson added. He said that “these are surgical masks,” and that approximately 15 million of these have arrived so far.
“What we do know is that he [Newsom] did something very unusual, which was to wire $500 million up front. That’s not the way it usually works for a state contract,” Kiley said.
“So not only did he hide these negotiations from the Legislature, he actually then on his own, unilaterally, took the very unusual step of sending them $500 million before we had received a single mask in return,” he said.
Newsom previously had said the $1 billion deal is for 200 million masks per month—150 million N95 masks and 50 million surgical masks—in a contract that runs until the end of June. But he had not revealed the precise cost per mask until releasing the contract.
Newsom emphasized in the Maddow interview that he used California’s “purchasing power” to get a good price. He said he hopes to have enough to meet California’s needs and even export some to other Western states.
Ferguson said that there was a time when the state was doing smaller orders, and the masks were much more expensive.
He added, “Which is why they actually viewed the BYD contract as important, because it gave us more certainty—both in terms of what’s being received, and it was at a much lower price point than what was being paid elsewhere on the market.”
In Los Angeles, Mayor Eric Garcetti announced April 28 that U.S.-based company Honeywell Corporation will provide the city with 24 million N95 masks for $0.79 each. He noted in his press briefing that such masks can sell for up to $13 each with the current demand.
On May 8, Kiley said in a tweet: “Gavin Newsom paid BYD China $3.30 per mask. Eric Garcetti paid Honeywell $0.79 a mask.”
The Honeywell plant shifted from building aircraft engines to producing N95 respirator masks to supply the Strategic National Stockpile for health care and emergency services workers. President Donald Trump toured the Honeywell International Inc. aerospace facility in Phoenix, Ariz., on May 6, at the outset of National Nurses Week.
BYD’s Ethics Questioned
Kiley called BYD “disreputable.” It made headlines in 2018 when the electric buses it sold to Los Angeles failed and many officials deemed them low-quality.
BYD President Stella Li responded at the time in an interview with Clean Technica: “As with any groundbreaking technology, issues do arise in manufacturing and performance and BYD aggressively responds and manages these issues.”
Rep. John Garamendi (D-Sacramento), who helped draft legislation last year banning the purchase of BYD electric buses, spoke to Vice about the PPE purchase: “What is our government doing? They may very well flood the market with substandard devices and people will be relying on them as though they are of satisfactory quality, and that is bizarre.”
Newsom said at his daily press conference on April 13 that all PPE delivered by BYD will be required to meet federal standards. The FDA announced an emergency authorization in April to allow the company to import its masks.
Kiley remains concerned. “This company has a lot of problems. There are the ties to the Chinese Communist government. There are ties to forced labor practices.”
Vice reported on April 11 that BYD has used the forced labor of Uyghurs, a religious minority group, at alleged state-run re-education camps in China. BYD has denied the claims and, on April 27, it filed a defamation lawsuit against Vice Media.
In an April 27 media release, BYD stated: “BYD is one of the world’s largest producers and suppliers of electric vehicles including electric cars, buses, trucks and forklifts as well as protective masks, and many other important and useful products. The company will supply the State of California with $1 billion worth of masks to protect its nurses, doctors, caregivers, first responders and others during and after the COVID-19 global pandemic.”
Billionaire Warren Buffett’s Berkshire Hathaway owns 25 percent of BYD.
Ke Li, the president of BYD’s California subsidiary and the person who signed the contract, is listed as a Newsom campaign donor, according to a recent CalMatters article.
He is also listed in the contract as the authorized representative for Good Healthcare Product Solutions LLC, the seller listed on the purchase order.
“He donated $40,000 when Newsom was running for governor, so that adds a whole other level of questionability here, because the governor is awarding this massive no-bid contract secretly to a company with ties to one of his major political campaign supporters,” Kiley said.
Newsom Scrutinized for How He Announced Deal
Newsom announced the deal on MSNBC’s Rachel Maddow Show on April 7, to the dismay of some state legislators.
“That’s how we all learned about this deal—not from him telling the Legislature about it,” Kiley said. “And when he went on Rachel Maddow, he actually made it seem like this was a California company.”
Newsom initially introduced the deal as occurring “through a consortia of nonprofits and a manufacturer here in the State of California.”
When Maddow asked Newsom to confirm if the masks were going to be manufactured in California, Newsom told her: “No, they will be manufactured overseas, but they were sourced through a California manufacturer and a consortium of nonprofits.”
As the conversation continued, he said the manufacturer is “in Asia.”
“He tried to slip it in saying that he secured the masks through a manufacturer in California when actually it was just a subsidiary that provided the reference to the company in China,” Kiley said. “So, it just shows the lack of candor with which the governor has approached this whole situation.”
Two days later, Sen. Holly Mitchell (D-Los Angeles), who chairs the Joint Legislative Budget Committee wrote a letter to Newsom’s Director of Finance Keely Martin Bosler requesting details of the deal. Bosler had sent a letter to Mitchell and other budget committee members on April 7 outlining the deal, but without the specifics of the contract.
Mitchell conveyed her support of the deal but requested transparency from the Newsom Administration.
“I understand the Administration feels the need to act quickly due to the worldwide demand for masks and other PPE,” Mitchell wrote in her April 9 letter.
“However, I request that the Administration provide the [committee] the full details of the contract including the performance standards required of the vendor and the manufacturer, the price per mask, the quality standards the masks are required to meet (such as those established by the National Institute for Occupational Safety and Health), the production and delivery timelines, and the efficacy of the technology utilized to clean the masks that will be reused.”
“In light of the massive spending commitments,” Mitchell asked the administration to establish within days a webpage listing the state’s inventory of personal protective equipment (PPE) and other medical equipment, and showing where these items have been distributed.
Assemblyman Phil Ting (D-San Francisco), vice chair of the committee has also raised questions about the deal, Kiley said.
“[They] have both raised some very big questions about the deal and are not at all happy with it. [They] complained that they were not told about it; they learned about it on national TV,” Kiley said. “And so there’s been a lot of skepticism.”
Marc Ang, president of the Chinese American Citizens Alliance (CACA), Orange County lodge, blasted Newsom over the deal.
Ang said preference should have been given to an American company at a time when trade relations with China are strained and foreign supply lines are unreliable.
“Going with a preferred dealer without bidding it and without going through the [state] Assembly and the state Senate to approve this is really bad optics. Why would you push a specific vendor? Why would he push something that’s not made in America? I have a real issue with that,” Ang told The Epoch Times. “It reeks of profiteering. These are bad optics in times when we’re looking for leadership.”
Newsom’s choice to act alone without informing state legislators is “almost dictatorial,” he said. He blamed politicians from former presidents Bill Clinton to Barack Obama for making deals with China that he said “have sold out our interests.”
His lodge has been strongly critical of the Chinese Communist Party’s (CCP’s) role in the pandemic. A statement released by senior member, Betty Tom Chu, on March 31 encourages Americans to acknowledge “the truth about the PRC [People’s Republic of China’s] unacceptable actions against its own people (including the arrest of doctors and scientists who were warning about the dangers of the Wuhan virus).”
Ang said of the mask deal, “I certainly believe that it should be America first.”
Even if companies, such as 3M, can’t keep up with the demand for N95 masks, other American companies could step in and start producing them, Ang said.
“If a car manufacturer can easily start making masks, can any of our idle businesses here in California start making masks? Why not them?” Ang pondered. “I would rather see that account go to an American company, actually a Californian company. Why does the deal have to go through China?”
Kiley said, “There certainly seems to be a lot of options, and none of those were available for us to consider because the governor did this secretly and unilaterally.”
Senate Budget Hearing
At a Senate Budget and Fiscal Review Special Budget Subcommittee on COVID-19 Response meeting on April 16, Mitchell said the state is “essentially working on a new budget” for the May Revision, which is slated for May 14.
Sen. John Moorlach (R-Costa Mesa) asked about the BYD deal at the hearing: “With more than 90 percent of pharmaceuticals being manufactured now in China, I’m just curious, why would we want to also buy facemasks from China? Why can’t we find a producer and encourage them in the state of California to make the masks?”
“We have been working on that as well,” said Tina Curry, chief deputy director for the Governor’s Office of Emergency Services. She said local solutions were not available soon enough.
“We needed to find a more rapid solution,” she said at the budget hearing.
Curry said there is such high demand for the masks, that the state wanted to make sure it had a “dedicated supply line.”
Sen. Jim Nielsen (R-Tehama) expressed doubts the masks would be delivered at all.
“I must emphasize that’s a big deal, and many of us are going to be very insistent at seeing the terms of that contract. I must confess, I have not much confidence in it being delivered as suggested for a whole lot of reasons,” Nielsen said at the hearing.
Ensuring timely delivery of the masks is “really, really important,” he said.
Now that the company has missed one deadline by failing to deliver acceptable masks, BYD has until the end of May to comply—or return the remaining $247.5 million down payment.