Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Sign up for our Bankruptcy newsletter
You must correct or enter the following before you can sign up:
Thank You!
Law360 (April 7, 2020, 6:54 PM EDT) -- Puerto Rico's financial oversight board is saying the island's government broke the law guiding the territory's restructuring when it made now-canceled deals for 1 million COVID-19 test kits without board permission.
In a letter sent to Gov. Wanda Vázquez Garced on Monday, the Financial Oversight and Management Board said despite having permission to spend emergency funds on pandemic response, the government failed to follow proper procedure when it agreed to $40 million in contracts for the test kits without prior board review.
"These elements of the procurement process are particularly critical during a state of emergency to ensure that critical resources are used efficiently and effectively. This state of emergency does not present grounds to disregard fiscal governance, accountability and internal controls," it said.
The letter cited media reports that the government had placed $40 million in orders for rapid COVID-19 test kits with a number of contractors, with $38 million of those orders being placed with Apex General Contractors.
"Based on press reports, we understand that the agreement was canceled since the shipment did not arrive on the agreed upon date, but not before the government made an advance payment of $19 million," it said.
The letter said the board was not consulted on the contracts, which it said was a violation of the Puerto Rico Oversight, Management and Economic Stability Act requiring the government to seek prior board approval for any contracts worth $10 million or more.
The 2016 law established the board and allowed the island government's 2017 filing for court-protected restructuring to deal with $70 billion in debt.
In the letter, the board said while it has authorized the government to spend $787 million on emergency measures for the pandemic, purchases made with those funds must follow "corresponding due process" and that a legal analysis could find the contracts were null and void.
The letter said the government needed to respond by Wednesday to confirm the contracts had been canceled and the money returned. In an email Tuesday, the board said it had not received a reply but that the funds have been returned.
Representatives of the governor's office did not immediately respond to requests for comment Tuesday.
Last month, the board asked the Puerto Rican bankruptcy court to adjourn proceedings in the insolvency case until at least mid-May to give the government time to respond to the pandemic and assess its economic impact.
--Editing by Michael Watanabe.
For a reprint of this article, please contact reprints@law360.com.
