California officials justify renewing $1.7 billion contract with criticized COVID-19 testing lab

While the state has auto-renewed into a $1.7 billion contract with a previously problem-plagued COVID-19 testing lab, state officials still have a few options to consider moving forward – including termination – pertaining to future contract agreements.

On Nov. 1, the state quietly auto-renewed a $1.7 billion contract with operator PerkinElmer for the Valencia Branch Laboratory, a COVID-19 diagnostic testing lab that whistleblowers told CBS 13 Sacramento in February was plagued with problems. The whistleblowers alleged that lab techs were sleeping while processing COVID-19 tests and that COVID-19 test swabs were found in the bathroom.

The state began an investigation into the lab that spanned many months this year, and the results of the investigation were released Nov. 22 – eight months later than originally promised. Gov. Newsom had previously stated that this report would be available in mid-March, long before the contract with the lab would auto-renew Nov. 1.

Released last week, documents made public revealed the state was set to impose sanctions on the lab as of Oct. 21 for its failure to meet public health and safety requirements. But, on Nov. 10 – little more than a week after the state auto-renewed a contract with the lab – CDPH officials said the lab had corrected deficiencies and no sanctions would be imposed.

Over the course of its investigation into the lab, CDPH found:

The lab failed to “assess competency” for about 55% of total laboratory staff before they were allowed to process, test and report COVID-19 samples.The lab lacked a policy to guide the issuance of corrected results. Investigators found that the lab was changing test results days after notifying patients and did not alert patients of the change.The lab “had several incidents of lost, discarded, and invalidated specimens due to laboratory accidents, scanning errors, incorrect plates used and low volume.”

Additional documents released last week showed that CDPH sent a letter in February to Lab Director Adam Rosendorff, who was previously a lab director at Theranos, informing him that the “deficient practices” of the lab “pose immediate jeopardy to patient health and safety.”

CDPH visited the lab several times, addressing deficiencies found during inspections. The agency announced last week that all issues had been addressed at the lab and there was “no impact to the integrity of the tests processed at the laboratory.” A separate federal investigation into the lab remains ongoing, according to the Los Angeles Times.

Republican legislators criticized the report’s delay after the state had already moved forward with the contract renewal.

“It should not have taken 287 days for Californians to receive answers about this taxpayer-funded COVID testing lab,” Senate Republican Leader Scott Wilk, R-Santa Clarita, said in a statement on Nov. 22.

Wilk, whose district is the home of the Valencia Branch Lab, asked the state twice in October to halt the auto-renewal of the contract, given that the final report had not been released. Now that the report is out, the senator told The Center Square that the state should not have renewed this contract without renegotiating terms.

“These whistleblowers put their careers at risk to come forward because they saw the atrocities that were happening in the lab,” Wilk said. “I feel like they were committed to the public health of Californians, and their state government is not because I don't think [the contract] should have been renewed. And if it was renewed, there should have been additional safeguards. There should have been a reduction in costs, and none of those things happened.”

The terms contained in the lab’s contract appear to afford the state some flexibility should it choose to sever ties.

The contract says the state can cancel the agreement with the lab without cause after giving a 45-day notice. That timeline shortens to 30 days if the state finds “new and superior” COVID-19 diagnostic testing is commercially available or if comparable COVID-19 diagnostic testing has become available at a lower cost.

However, the terms also say the contract will automatically renew for two successive 12-month terms unless the state issues a notice to the contractor at least 90-days before the contract anniversary.

In a statement, CDPH told The Center Square that the state “was confident in the contractual language and its ability to terminate the contract and thus felt confident proceeding without the final report.”

CDPH on Friday did not give an indication as to whether or not the state is currently considering terminating the contract, but noted that the auto-renewed contract “is still in place under the same terms and conditions.”

The department also confirmed that the $1.7 billion outlined in the contract is the total amount payable, though the state “only pays as services are provided based on the laboratory’s testing capacity and actual test performed.” As of Nov. 2020, the state spent approximately $740 million on the lab, according to CDPH.