California has a $1 Billion Contract for PPE with BYD, a Company Controlled by the Chinese State

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But regulatory hangups have it waiting for the goods.

Build Your Dreams (BYD) is reapplying for U.S. regulatory approval to ship N95 face masks to California and hopes to get certification for them locked in by late May or early June, reports Caixin Global. BYD had signed a $1 billion contract April 7 with the state of California for 300 million N95 masks and another 100 million surgical masks – personal protective equipment (PPE) for healthcare workers dealing with COVID-19 patients – but the company couldn’t get certification from the feds for the medical-grade N95s by April 30. Per the conditions of the contract, it had to refund to the state half of the approximately $500 million advance payment.

And if BYD doesn’t secure certification for the N95 masks by May 31, it will have to pay back the other half of the advance.

But wait: BYD? The automaker? A $1 billion contract for medical equipment?

Yes, BYD, the electric car manufacturer with deep ties to the Chinese government; recently well known in the United States for using its California assembly plant as a workaround to the Buy America rules attached to federally funded transit procurement; also well known (by me) for its commercial featuring “What’s Eating Gilbert Grape” star Leonardo DiCaprio … that BYD got a $1 billion contract from the state of California for PPE. It makes PPE now; as China grappled with the initial coronavirus outbreak, BYD built at government request a face mask factory in one of its industrial parks there.

As has been well-documented, there aren’t a lot of places in the United States making PPE like face masks (and the federal government ignored warnings from one of the few places that does). The Trump administration has declined to use the powers of the Defense Production Act to organize supply chains and calm the PPE market, and has instead largely left it to states to find supplies for themselves. The president’s son-in-law made it very clear to everyone last month: Stop asking for supplies from the national stockpile, because they’re not for you.

Anyway, this free-for-all has predictably created a market full of grifters and ridiculous stories.

Do tell!

Okay, sure, I will! Maryland was able to get some medical supplies from South Korea basically because the governor’s wife knows a guy. It hid the COVID-19 tests at an undisclosed location because it thought the feds would seize it, like they seized a bunch of face masks purchased by a county government in south Florida. Illinois was able to get some out of China by handing some dude a $3.4 million check in a McDonald’s parking lot off I-55. And California, in a scramble to shore up supplies for its huge population, sent a $500 million wire transfer a supplier called Blue Flame for 100 million masks – but clawed it back after the company’s own bank alerted state officials that Blue Flame had only opened an account the day before. The firm had been founded only in March by two Republican political operatives with no professional experience in medical supply procurement. "I have relationships with a lot of people," one of these masters of the universe told Politico at the onset of his new business venture. 

Anyway, after that deal unsurprisingly fell through, California instead cut a deal with BYD for twice as much.

Why BYD?

Well, the company with its new production facility has a lot of manufacturing capacity. It says it can crank out 5 million masks a day and has distributed them around the world. And, of course, it’s a good public relations move:

“It's not a coincidence that (an) actor that's taken a little bit of a beating in the U.S. is one of the ones that's positioned as a part of this epidemic relief effort. The Chinese strategic logic is that some of these state champions can benefit from the PR of contributing through epidemic relief and after the crisis be in a position to sort of cash in that goodwill.” Nate Picarsic, Horizon Advisory

The size of the deal, though, raised a lot of questions. The Gavin Newsom administration was initially reluctant to explain the details, saying that doing so would tip its buyer’s hand in a fiercely competitive market. But California lawmakers and the press were unconvinced, and after more badgering the state released them. Gov. Newsom defended the slow-walk, saying "we negotiated a pretty good price in the middle of all this. I hope you'll consider those price points that we were able to negotiate, up against where the market was." Newsom also said that BYD’s N95 masks would arrive soon, saying certification had simply been delayed.

But the federal body responsible for certification corrected the governor a few days later, saying it wasn’t but delayed but denied. A spokeswoman said “the review of the documentation provided to (National Institute for Occupational Safety and Health) for the design, manufacturing and quality inspection of the device was concerning.”

Which leads us up to this week

So will BYD be able to live up to the agreement? A spokesman says they’re confident they’ll get their N95 masks up to snuff, and they’re reapplying for the necessary certifications.

The company certainly has reason to get it right: If it misses another deadline it will have to refund millions to California, and that in turn could make it lose other business as well. The Wall Street Journal reported last week that another huge contract to a Japanese company is contingent on BYD securing U.S. certifications.

California, meanwhile, really needs those masks. Even as the virus lingers, the state is going through a phased economic reopening. And a pandemic-induced budget shortfall is causing the state to make some hard allocation choices that could potentially be deadly.

Whether BYD delivers or not, the federal government should call up American companies like Prestige Ameritech in Texas, place a huge order and and get it to start up all of its production lines.