Questionable contracts could spur change in emergency powers

Lawmakers are probing billions of dollars in no-bid state contracts and spending since the COVID-19 pandemic hit Tennessee, trying to rein in sole-source agreements that stuck the state with a raw deal.

Sen. Todd Gardenhire, chairman of the Fiscal Review Committee, estimates the Department of Education alone entered more than 760 contracts totaling $1 billion from March 2020 through May 2021, based on information provided by Fiscal Review staff. 

More $9 million of that went to New York-based TNTP for reading programs, a company that employs the husband of Education Commissioner Penny Schwinn. She sought approval through the state Central Procurement Office in advance and promised to distance herself from the deal. But some lawmakers still called it a conflict of interest.

Using funds from the federal CARES Act, the governor’s Unified Command Group also entered contracts or spending agreements totaling $742 million on everything from $25 million with Jones Lang LaSalle for enhanced janitorial services to $25.8 million with Horne LLP to handle disbursement of CARES Act funds. 

Another $160 million contract was inked with Cross Country Staffing for COVID alternate care sites, though the state spent only $4.1 million on that agreement. 

Gov. Bill Lee’s executive order enacting the state of emergency allowed departments and agencies to enter contracts without taking bids or going through normal procedures in an effort to expedite work and speed the supply line as Tennesseans sought everything from personal protective equipment to COVID-19 test kits.

Gardenhire, a Chattanooga Republican, has been calling Lee Administration department heads before the committee to have them explain why sole-source contracts are necessary, including instances when they didn’t provide information to Fiscal Review staff in a timely manner under Senate rules.

For example, Tennessee Department of Correction Commissioner Tony Parker, even though he is retiring, is supposed to come before the panel next week to explain why a contract for parolee GPS bracelets is being amended just three weeks before the contract runs out.

At a Fiscal Review meeting in June, Gardenhire called for a negative recommendation of a Department of Education literacy screening contract with NCS Pearson Inc.. It is a major piece of the Legislature’s effort to help children rebound from lost school time in the pandemic. But the department failed to provide the Fiscal Review staff with a breakdown of costs until the night before the meeting.

The Department of Education already held two contracts with NCS Pearson totaling more than $143 million to administer the TNReady test. Education officials said they were rushed to get the contract breakdown to Fiscal Review leaders but needed contract approval in an effort to provide school districts with literacy screening before the end of July.

Ultimately, the committee approved the contract but not without sending a message that proposed contracts are to be submitted to Fiscal Review staff 60 days before they’re finalized, based on Senate rules. State law requires at least 40 days.

The genesis of the problem

When the pandemic hit in March 2020, Tennessee found itself woefully short of supplies, especially for personal protection equipment and COVID-19 testing. Gardenhire believes vendors took advantage of state departments looking to act quickly and failing to go through “the normal safeguards.”

During a December Fiscal Review Committee, Department of Health officials acknowledged being rushed to sign contracts within 24 hours because vendors were willing to drop them and go to another state. 

“What I’m trying to accomplish is in the future what does the Legislature need to do to make sure that even under a pandemic-type emergency we have guardrails in place to protect the millions that we have and that things are done right?” Gardenhire says.

His investigation of the state’s no-bid contracts could be the “impetus,” he says, for an amendment to Tennessee’s Emergency Powers Act, which enabled the Lee Administration to enter sole-source contracts without going through normal protocol.

The State Comptroller’s Office is auditing the contracts awarded under the governor’s emergency authority, and results are to be made public this fall through March 2022, spokesman John Dunn said.

The effort to bring greater accountability to no-bid contracts goes all the way to the top of legislative leadership.

“Lt. Gov. (Randy) McNally continues to be concerned about sole-source contracts and has been in close contact with Sen. Gardenhire on this issue. While it could be dangerous to slow down this process during an emergency, he believes there can and should be due diligence. Even in an emergency, immediate reporting and maximum transparency needs to be a priority,” said spokesman Adam Kleinheider.

The governor’s Unified Command Group entered no-bid contracts and spending agreements worth three-quarters of a billion dollars during the 14-month time frame, records show. Some of those have proven to be embarrassing to the state.

The state spent $8.3 million with North Carolina-based sock manufacturer Renfro Corp. for masks that were given away to Tennesseans early in the pandemic. But the porous material didn’t meet CDC guidelines, and it was later revealed they were treated with Silvadur 930, a pesticide designed to eliminate foot odor. 

The Health Department halted distribution until the EPA said they were safe because the concentration of the pesticide on the treated face masks was minimal.

The state inked a $13.5 million contract with a Hickman County company, Pale Horse, for personal protective equipment, paying $2.55 per N95 mask while some vendors were paid just 54 cents per mask. Metro Nashville Councilman Robert Swope, state director of former President Donald Trump’s 2016 Tennessee campaign, was managing partner.

The state was set to buy $165,000 worth of hospital gowns from Sexton Furniture Manufacturing Co., owned by Republican state Rep. Jerry Sexton at a rate of $5.50 per gown, about double the amount other vendors were charging. The purchase order was later canceled.

Despite red flags raised by Health Department officials, Commissioner Lisa Piercey inked a $26 million contract with Utah-based Nomi Health, at the behest of the governor’s chief of staff, for PPE and test kits that turned out to be no good. The state, however, wound up paying nearly $6 million for services and goods, even though the equipment was stored at its warehouse and possibly never used.

Some of the items were veterinarian gloves used for animal breeding, not typical medical gloves. Piercey told Fiscal Review members the department was shocked when it saw what was delivered but had little recourse other than to try and get out of the deal.

Gardenhire believes it was a situation in which state departments were flooded with federal money in the midst of the pandemic and rushed to purchase equipment without asking tough questions. 

That made vendors salivate at the prospect of easy money.

“I think it was just a train wreck happening, and I’ll bet you if we look across the country it happened in almost every state,” Gardenhire says.

State Sen. Heidi Campbell, a Nashville Democrat who serves on the Fiscal Review Committee, is digging in on the matter as well. She is harsher on the Lee Administration and its shortcomings on several purchases and contracts, saying many of them went to companies without experience.

Campbell contends “personal interest” was a factor in some of the contracts.

“I think it’s a situation where the state got overloaded with a lot of federal money and made some very questionable decisions about how to spend some of it,” Campbell says.

Gov. Bill Lee’s office did not respond to questions when asked whether the governor has concerns about the no-bid contracts.

Tennessee remains under a partial state of emergency, mainly to allow the National Guard to assist in COVID-19 vaccinations.