Investigation: Big Newsom Donors — Including Blue Shield — Received No-Bid Contracts During COVID-19 Response

UnitedHealth has been good to Gov. Gavin Newsom. 

In 2018, the health care giant made two contributions to Newsom for over $58,000. In December 2019, it dropped another $31,000 into his reelection campaign. 

During the pandemic, Newsom turned to UnitedHealth to solve some of California’s most vexing challenges: COVID-19 testing and data tracking. The state awarded a no-bid contract worth up to $177 million to a UnitedHealth subsidiary to expand testing. In the months following, the state would award another $315 million in contracts to the company’s subsidiaries through an expedited bidding process. 

In December, UnitedHealth contributed $31,000 to Newsom’s reelection campaign, and another $100,000 to his ballot measure committee.

UnitedHealth and Newsom deny any wrongdoing. And while there’s no evidence to suggest either broke the law, government ethics experts say even the appearance of wrongdoing raises serious red flags and threatens to erode public trust — especially if there’s a pattern. 

A CapRadio investigation found an overlap of at least a half-dozen companies that made substantial contributions to Newsom and received no-bid contracts from the state, influential appointments, or other opportunities related to the state’s pandemic response. The contributions range from tens of thousands to hundreds of thousands of dollars. The contracts range from $2 million to over $1 billion — including the one awarded to Blue Shield for vaccine distribution made public Monday, worth up to $15 million.

To improve transparency, the state created a website that lists COVID-19 contracts worth $250,000 or more. Of the 100-plus contracts listed — many awarded with limited or no competitive bidding — CapRadio found the vast majority of those companies did not make major contributions to Newsom before or after.

But government ethics experts who reviewed CapRadio’s findings say that doesn’t ameliorate the concerns raised by the handful of companies that dumped money into Newsom’s campaign coffers and then received no-bid contracts.

The traditional bidding process allows a range of companies to respond to contract opportunities, in an effort to secure the most cost-effective proposal and avoid favoritism. During states of emergency, such as the pandemic, the government can skip this process. But experts say Newsom, who’s facing a recall effort, still needs to be vigilant about appearances of favoritism or conflicts of interest with donors.

“I really think that the governor has a tin ear in terms of receiving huge campaign contributions and providing sole-source contracts for corporations that were giving him these contributions,” said Bob Stern, a registered Democrat, former general counsel to the California Fair Political Practices Commission and principal co-author of the state’s Political Reform Act. 

He said the optics don’t bode well for Newsom. Stern compared it to the infamous French Laundry dinner in the fall, in which the governor dined with lobbyists at the uber-exclusive Napa Valley restaurant, and drew criticism for violating the spirit of his coronavirus guidelines.

Newsom’s office says the governor had to work quickly to acquire equipment and stand up life-saving services during the pandemic, and that political contributions did not factor into his decision making.

“The Governor’s Administration made the decision to enter into all contracts related to the COVID-19 response based on the best interests of the state and protecting health and welfare of all our residents,” Erin Mellon, spokesperson for the governor, wrote in an email. 

While government ethics experts emphasized that there’s no evidence of a quid pro quo or criminal wrongdoing in these examples, they expressed concern about Newsom handing over lucrative contracts to major donors on a no-bid basis. 

“The governor and his team needed to make more of an effort to explain to the people of California why these decisions didn't violate the public trust, and why his donors were given these opportunities,” said Dan Schnur, a professor of political communications at University of California, Berkeley and University of Southern California. He is a former GOP consultant and currently registered as no party preference.

Below is a breakdown of the major donors to Newsom who received no-bid contracts or other notable opportunities during the pandemic. 

Blue Shield of California

• 2018: Contributed $42,000 to Newsom
• July 2019: Contributed $31,000 to Newsom and $69,000 to Newsom’s ballot measure committee
• April 2020: Newsom appointed CEO to co-lead testing task force; 15 of 68 members are from Blue Shield
• November 2020: Contributed $200,000 to Newsom’s ballot measure committee
• February 2021: Awarded no-bid contract up to $15 million to lead state’s vaccine distribution.

In January, as California’s vaccine rollout stumbled, Newsom announced the state would hand over distribution responsibility to health insurance company Blue Shield, and with help from Kaiser Permanente. The move raised questions — in particular, how much it would cost and why those two companies were chosen. A letter of intent obtained by CapRadio confirms there was not a bidding process.

In an email, company spokesperson Mark Seelig wrote it will be an “at cost contract” and that “Blue Shield will not make any profit for its work.” He did not specify the dollar amount of the contract.

He adds that the testing task force was “vital to containing the pandemic.”

“A number of Blue Shield employees, including our CEO Paul Markovich, volunteered to help the state with its testing program,” Seelig wrote. 

While the positions were unpaid, the appointments conferred a measure of power to members of a single company. The Sacramento Bee first reported that Blue Shield made up nearly a quarter of the task force.

Blue Shield also contributed nearly $1 million to an independent committee backing Newsom’s 2018 gubernatorial run, according to the San Francisco Chronicle. 

UnitedHealth

• 2018: Contributed $58,400 to Newsom 
• December 2019: Contributed $31,000 to Newsom
• April 2020: Subsidiary OptumServe received $100 million no-bid contract to expand testing in California; later increased to $177 million
• August-October 2020: Subsidiaries received at least $315 million in contracts, through expedited bidding process, for COVID-19 data tracking and testing
• December 2020: Contributed $31,000 to Newsom and $100,000 to Newsom’s ballot measure committee

In April, Newsom touted the state’s partnership with UnitedHealth subsidiary OptumServe, which would set up testing sites in hard-to-reach and underserved communities.

“We know that communities of color are disproportionately affected by COVID-19,” Newsom said in a press release. “We must ensure that we are deploying testing equitably in an effort to reduce the higher death rates we are seeing in African American and Latino communities.”

Eric Hausman, spokesperson for UnitedHealth, says the contributions were not intended to influence the state’s decision making on contracts. 

“UnitedHealth Group, including its UnitedHealthcare and Optum businesses, has long considered the state of California to be an important partner in improving health care access, affordability and outcomes for all Californians, and our political contributions have been consistent for many years,” Hausman wrote in an email.

Stern, the government ethics expert, says Newsom was likely aware of the sizable contributions coming from UnitedHealth and other companies.

“If anybody gives [him] $100,000, the governor knows it — probably $20,000, the governor knows it,” he said. “You'll probably find thank you notes being sent out and maybe even phone calls from the governor.”

Newsom’s office denies any wrongdoing and claims the contributions had no impact on the state awarding contracts. 

Bloom Energy

• September 2018: Contributed $29,200 to Newsom
• December 2019: Contributed $31,000 to Newsom
• March 2020: Received  $1 million no-bid contract to refurbish ventilators, later increased to $2 million
• October 2020: Contributed $25,000 to Newsom

Bloom Energy is a San Jose-based clean energy company that specializes in high-tech fuel cells. 

In March, Newsom reached out to its CEO KR Sridhar and solicited the company to refurbish ventilators. The governor said a different service provider estimated a month turnaround to repair 200 ventilators; Sridhar indicated Bloom could do it quicker.

Days later, the state awarded Bloom the no-bid contract. Jennifer Duffourg, spokesperson for Bloom, says the company refurbished the ventilators at cost.

“There was no intention for, nor has there been, financial gain,” she wrote in an email.

The work was outside of the company’s manufacturing comfort zone, but that pivot earned Bloom widespread media coverage. 

Newsom amplified the exposure. He conducted one of his frequent COVID-19 afternoon press conferences at the manufacturing site and offered praise for the company. Afterward, his office put out a video of the governor touring the facility.

Gov. Gavin Newsom speaks during a press conference at the Bloom Energy on Mar. 28, 2020.  Bloom Energy is a fuel cell generator company that has switched over to refurbishing ventilators as more patients experience respiratory issues due to COVID-19.Beth LaBerge/KQED

Bloom’s chief executive returned the favor.

“There are wartime leaders and there are peacetime leaders,” Sridhar said at the press conference, turning to Newsom. “You’re a great peacetime leader, but you’re showing you’re an amazing wartime leader.”

BYD

• March 2018: President of manufacturer BYD contributed $20,000 to Newsom
• November 2019: President of BYD contributed $20,000 to Newsom
• April 2020: BYD received $990 million no-bid contract for masks, later extended by $316 million

As states scrambled to secure scarce protective equipment at the start of the pandemic, BYD contacted California officials and said it could churn out surgical and N95 masks at a rapid clip at its Chinese manufacturing sites.

The agreement — which many legislators first found out about from Newsom’s appearance on MSNBC — raised questions and controversy. For weeks, Newsom’s office refused to release the contract, despite requests from lawmakers and the press. 

In May, the company had to return about a quarter-billion dollars to the state for failing to meet a certification deadline for the masks. After delivering masks over the coming months, Newsom extended the contract in July for another $316 million.

BYD did not respond to a request for comment.

FivePoint 

• October 2018: Contributed $25,000 to Newsom
• April 2020: Newsom appointed FivePoint CEO Emile Haddad to the state’s Task Force on Business and Jobs Recovery.
• December 2020: Contributed $31,000 to Newsom

The state’s Task Force on Business and Jobs Recovery, made up of over 80 members, was responsible for recommending a plan to rebuild the state’s economy as California emerges from the pandemic. 

Stern, the former general counsel to the California Fair Political Practices Commission,  says appointing the CEO of a major donor to a task force is less concerning than awarding a no-bid or emergency contract to that company. 

Schnur, the professor of political communications, agreed that it doesn’t raise the same red flags.

FivePoint did not respond to a request for comment.

Pacific6 

• October 2020: Pacific6 executives contributed $34,000 to Newsom
• November 2020: Company contributed $10,000 to Newsom
• Jan 2021: Hospital operated by Pacific6 reopens, after final state inspection

In late 2019, the city of Long Beach leased the defunct Community Hospital to a partnership of several companies, including the investment group Pacific6.

The hospital shut down in 2018 because it sat on a fault line and the building wasn’t up to seismic standards. Then the pandemic offered an opportunity to expedite its reopening.

Early in the pandemic, as public health experts warned that the coronavirus could swiftly overwhelm California’s health care system, Pacific6 co-founder John Molina started to hustle. 

In mid-March, state lawmakers from the region wrote a letter to Newsom, urging him to allocate emergency funds to reopen the hospital. In a press release from the lawmakers, Molina thanked them “for coming together and cutting the red tape” to open Community Hospital within 48 hours. 

But its doors stayed shut, and the company says it did not receive emergency funds from the state. For months, the hospital waited on approval from the state to reopen, according to the Long Beach Post, which Pacific6 also owns. 

In December, the state completed its final inspection. Shortly after the new year, the hospital reopened to non-coronavirus patients. 

Pacific6 says the operating group invested more than $6 million to reopen the hospital.

Unlike other examples in this story, the company says the state did not award them any contracts. But government ethics experts say it raises similar questions about the timing of the state greenlighting the hospital’s reopening and the company contributing tens of thousands of dollars to the governor weeks earlier.

Pacific6 denies that there was any connection.

“There has never been any discussion linking our financial support [of Newsom] to Community Hospital’s reopening,” wrote Brandon Dowling, communications director for Pacific6, in an email.

He added that the company aims to “support policymakers who share our vision for the future of our state.”

Public Trust, Recall Looming

With a recall effort mounting against Newsom, observers say it’s critical for the governor to address the overlap between major contributors and companies receiving no-bid contracts or business opportunities during the pandemic. 

“The public's confidence in these contracts has to be maintained,” Stern said. “We have to be sure these contracts are being given because the company can do the job better than anybody else.”

Stern added that Newsom’s office should be more proactive about identifying potential appearances of favoritism toward major donors.

“There should be somebody in the governor's office monitoring this,” he said.

A sign promotes recalling Gov. Gavin Newsom at a Jan. 6 rally of Trump supporters at the California Capitol.Andrew Nixon / CapRadio

Schnur suggests another solution could be more legislative oversight of no-bid and fast-tracked contracts, even during emergencies. 

State officials note that a number of the emergency contracts inked during the pandemic could be reimbursed by the federal government.

The people behind the effort to recall Newsom say the governor is awarding contracts based on influence — not the best interests of Californians.

“Gov. Newsom is showing that he’s not transparent,” said Mike Netter, co-founder of the California Patriot Coalition, one of the groups leading the recall effort. He added, “This is a really bad look to the people of California [who] expect honesty and transparency from their government.”

The recall campaign has seen a recent uptick in large contributions. In the last month, venture capitalist Chamath Palihapitiya contributed $100,000 and Beverly Hills real estate developer Geoff Palmer contributed $150,000.

Schnur suggests the overlap between major donors to Newsom and emergency pandemic contracts may not have a significant impact on the recall, unless clear wrongdoing can be proven.

“If there is a direct line between any of these entities and the problems that the state has had in meeting its obligations to the people of California, then it becomes a pretty strong argument” for the recall campaign, Schnur said.

If such a connection can’t be made, Schnur adds, it’ll be just another arrow in the recall campaign’s quiver of criticisms.