Maryland Gov. Larry Hogan’s administration has settled a multimillion-dollar contract dispute with a politically connected company that sold masks and ventilators to the state.
The state tried to cancel a contract with Blue Flame Medical in May after the state said the company was too slow to provide the $12.5 million worth of sought-after N95 masks and ventilators during the first wave of the coronavirus pandemic this spring.
The state and Blue Flame publicly disagreed about whether Blue Flame blew a deadline for providing the goods.
“Unfortunately, despite numerous requests for information and order status, Blue Flame Medical has yet to deliver any items under this order, or provide any pertinent data as to a pending shipment,” wrote Danny Mays, the state’s director of procurement, to Blue Flame at the end of April, two weeks after the masks and ventilators were due to arrive.
In May, the Republican governor blasted Blue Flame during a news conference, saying: “It is unconscionable that anyone would try to exploit this pandemic for profit or for personal gain.”
Blue Flame officials argued that they faced delays in getting the goods from China and promised to make good on the deal. They insisted they kept Maryland officials in the loop.
Blue Flame and the state eventually reached a settlement this fall.
Under the initial deal, the state was to buy 1.55 million N95 masks for $4.51 apiece and 100 Phillips Respironics Trilogy 100 ventilators for $41,000 apiece, according to state documents. It paid half the $12.5 million total cost upfront.
Under the terms of the Oct. 9 settlement, Blue Flame kept the initial $6.3 million payment, while the state kept 37 ventilators Blue Flame delivered in May and June and agreed it would accept 1.55 million masks, which the company delivered after the settlement was reached.
As part of the settlement, neither the state nor Blue Flame acknowledged any wrongdoing. Also, the state issued an “acknowledgment letter” this week confirming the successful delivery of the items.
“Blue Flame Medical is delighted to provide significant lifesaving supplies to the people and state of Maryland,” the company’s California-based attorney, Ethan Bearman, said in a statement Thursday. “Our core principle is to help the nurses, front-line workers, law enforcement and helpers in our country through this crisis, and these deliveries are in that great cooperative spirit.”
Nick Cavey, a spokesman for the state Department of General Services said in a statement that the agreement “brings greater value” than the original deal. The settlement was reached after negotiations involving Blue Flame, the governor’s top attorney and the Office of the Attorney General.
Blue Flame’s public dispute in Maryland — and a $609 million deal in California that collapsed — drew attention to the company’s founders, who had never worked in the medical supply field before the COVID-19 crisis.
Founders Mike Gula and John Thomas spent their careers doing political consulting and fundraising for Republicans, then shifted in March to the medical supply business as the coronavirus pandemic swept the country.
As states and hospitals rushed to buy personal protective equipment in a chaotic market, Gula and Thomas leveraged their political contacts to land deals.
Hogan’s director of federal relations, Tiffany Waddell, helped smooth their entree into Maryland. On March 29, she wrote an email introducing Gula to Ellington Churchill, secretary of the state Department of General Services.
“Please meet a good friend of mine, Mike Gula,” Waddell wrote in the email, which was among more than 100 pages of documents the state released to The Baltimore Sun in response to a Maryland Public Information Act request.
Waddell wrote that Gula had a “direct link” to a manufacturer in China who could provide supplies needed in the pandemic. Attached was an undated letter from the CEO of Hakim Unique Group in China, confirming a business relationship with Blue Flame, as well as a product list.
Less than an hour later, Churchill forwarded information about Blue Flame to multiple employees in his department, directing them to set up a conference call with Gula within 36 hours.
“He comes to us through the administration,” Churchill wrote in boldface.
Churchill has said that Blue Flame did not receive any special treatment in the state’s procurement process.
A couple of days later, Maryland and Blue Flame struck the $12.5 million deal. Maryland agreed to pay 50% upfront; Blue Flame had sought 75%.
Maryland’s attempt to cancel the deal came weeks after the state of California put the brakes on a $609 million deal with Blue Flame for 100 million masks. Blue Flame has sued its bank, alleging that the bank suggested to California officials that the company was a fraud. That litigation is pending in federal court.
Hogan asked Maryland Attorney General Brian Frosh to investigate Blue Flame, and The Sun reported in May that sources said the federal government opened an investigation. No criminal charges have been filed and Frosh’s office did not respond to a request for comment.