The Los Angeles Times is usually one of the biggest supporters of Barack Obama. The Times, however, has now broken a story that could seriously harm Obama and his quest for re-election. As the Times reports it, the Obama administration has awarded a contract for just under half a billion dollars to Siga Technologies Inc, a drug company controlled by billionaire Ron Perelman who also happens to be one of the largest donors to Obama. The contract is under attack both for what it is and for how it was awarded. First let's look at what was purchased: the contract is for an experimental anti-viral drug that would be used to treat people exposed to smallpox in the event that terrorists used that disease as a weapon. Small pox was eradicated in the early 1970's and there has not been a case world wide in all that time. That is why children no longer receive smallpox vaccinations at birth. There are two known repositories of actual smallpox in the world. One is held by the US government and one by the Russian government. Terror groups do seem to have any sample of the disease, but, of course, that does not guarantee that terrorists will be unable to obtain such samples. The US government does have adequate stockpiles of the smallpox vaccine to innoculate the entire population of the country. Such vaccination would prevent the spread of the disease and would cure anyone exposed to the disease less than four days earlier. The antiviral from Siga would be used to treat those exposed for more than four days. The question, of course, is whether in these tough times it makes sense to spend half a billion dollars to deal with such an unlikely situation.
Then comes the next question in this line. Does it make sense for the government to buy a drug like this which has only been tested on animals? Human testing is not possible since it would be improper to give a person smallpox just to test the drug. So one has to add in that the purchase from Siga may well be of a drug that has no effect or even that has serious side effects.
Then comes the questions about the way the contract was issued. The government first sought proposals from drug companies for the smallpox antiviral. After it got the proposals, however, the government decided to have a sole source procurement from Siga. For those who are not familiar with what this means, the government announced in advance that it would buy the drug only from Siga. So, before agreeing on a price or terms of sale, Siga knew it had the contract. This is a process very rarely used by the government since it leads to much higher costs and much better contract terms for the vendor than the normal competative bidding process used on 99% of all contracts issued by the government. The government justified using a sole source procurement by saying that only Siga could produce the drug in the requisite time, but there is at least one other company that claims it was excluded even though it could have met the timetable.
Using sole source procurement is bad enough, but then Obama went further. There were problems in the negotiations between the feds and Siga, principally over the profit margin that would be allowed to the company. Siga was seeking a margin in the area of 200%. That's right, 200%. In other words, for this contract, Siga wanted to make well over $300 million on a $500 million contract. That profit level is obscene! Indeed, given that Siga was getting a huge contract with guaranteed profits, a more normal level might be 20% or even 30% since this is for production of a drug. No one gets a 200% contract from the government. Indeed, the internal revenue code already establishes a tax on excess profits from most arms procurement contracts with the government to the extent that the profits exceed 12%. The tax is a complicated thing which is not worth explaining here; the key point, however, is that reasonable profit was set at 12% not the 200% sought by Siga.
The government negotiator rightfully refused to agree to the Siga request for obscene profits and it seemed that the contract was going nowhere. Of course, at that point, Siga complained to the White House. the LA Times does not tell us to whom the complain went, but it got a fast response. the White House arranged for the negotiator to be replaced with a much higher government official, presumably one who had been told what to do by Obama and his minions. After Siga got its new negotiator, agreement was reached on the contract. Siga is guaranteed a profit level of 180% on the contract.
So there you have it. Under Obama, the US is buying an untested drug that may actually kill people (who knows) for use in dealing with a possible smallpox terror attack. We are spending half a billion dollars of money borrowed from China even though we have a stockpile of smallpox vaccine big enough to give to every person in the country. The contract to supply the drug has been given to one of Obama's biggest supporters in a way that eliminates all possible competition. And, last but certainly not least, after interference from Obama's White House, the contract has been structured so that Siga will get a guaranteed profit margin of an incredible 180%.
This is much worse than Solyndra in my opinion. This is not incompetence by the federal officials; someone could go to jail for this. Indeed, since it is the LA Times that broke the story, I have to assume that the actual facts may be even worse. I hope Congessman Issa is paying attention.
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