OTTAWA — The federal government pre-paid $20 million for COVID-19 tests from Ottawa-based Spartan Bioscience that it never received because they never worked as promised, according to new documents.
Now, the Public Health Agency of Canada says it is writing off the amount as a loss pending the company’s liquidation, according to information recently tabled in the House of Commons and in the 2021 federal public accounts.
“The company went through insolvency proceedings and is now being liquidated. By law, once a person or a company is in the insolvency process, no one can sue or attempt any other form of recovery. No litigation is allowed and all procedures go through the Trustee and is a public process,” reads the document.
Spartan Bioscience created buzz early in the pandemic by promising an Ontario-made, portable testing cube that it said could detect the novel coronavirus in less than an hour without a trip to the lab. Users just needed to swab their nose, insert the test into the cube and wait for the result.
In spring 2020, CEO Dr. Paul Lem was promising MPs that his company would produce over 200,000 of his proprietary Cube, which sold for $8,000 each in addition to the cost of each individual test ($70).
Seduced by the concept, the federal government as well as public health agencies and hospital networks in Alberta, Ontario and Quebec poured millions of dollars in orders for the product. For Health Canada, that amounted to $20 million following the signing of a March 2020 contract, it confirmed Tuesday.
Except the Cube never worked as well as promised, failing to catch nearly half of COVID-19 positive cases at one point during testing. Health Canada originally approved the product for sale, then retracted it in late 2020 before re-approving it in January 2021.
Three months later, the company had to halt production again due to technical issues, according to the Ottawa Citizen. Soon after, the company declared bankruptcy and is in the process of liquidating its assets.
But in the meantime, the federal government never received a single unit, barring a few used in clinical validation studies. Now, it’s hoping to recoup any amount of money through the liquidation process.
“The Spartan COVID-19 system encountered numerous performance-related issues since the initial contract was signed in March 2020. The company was unable to fulfil the terms of the contract and did not deliver Health Canada-approved COVID-19 tests to the Government of Canada,” Health Canada spokeswoman Anna Maddison said in a statement.
“The total loss is still $20 million,” she added as an update to the 2021 public accounts.
A representative of the company’s trustee Ernst & Young did not respond to emailed questions Tuesday.
For the Conservatives, none of this would have happened had the government been faster acquiring proper PPE and testing equipment early in the pandemic.
“Instead of being proactive from the start and using every second available to prepare the best defence against COVID, the Liberal government made a panicked last-minute dash to secure rapid tests, putting millions of taxpayer dollars at risk as a result of their failure to perform proper due diligence,” Conservative MP and health critic Michael Barrett said in a statement.
“The cost of the Liberal government’s failure is always paid by Canadians, and this is one more example of how Canadians can’t afford more of the same from this NDP-Liberal coalition government.”
The Spartan Bioscience loss is one of three COVID-19 advance payments worth a total of $105 million that PHAC wrote off in 2021.
But all is not necessarily lost in the two other cases, as the government is suing both organizations to recoup some of the expenses.
The first and largest case involves Montreal-based company Tango, which the government is suing to recover up to $81 million it prepaid for millions of protective masks.
In its lawsuit, Ottawa claims it pre-paid Tango for nearly 40 million masks early in the pandemic as the world scrambled to secure enough protective personal equipment for its health-care staff.
But when the KN95 masks finally arrived, over 80 per cent did not meet air filtration efficiency standards.
In the new documents, PHAC says it has written off $75 million of its pre-payment to Tango for the time being.
The documents also show the agency lost nearly $10 million in prepayments to TCG Medical because it also sold masks that the government claims were not up to standard. It is now suing the company for US$7.9 million.
“Despite PHAC’s best efforts in ensuring value for money and minimizing risks associated with purchasing such a large amount of goods, some vendors did not provide deliverables in the form agreed upon in their respective contracts,” read the documents.
“The Government of Canada is taking action against companies that failed to meet their contractual obligations. This can entail negotiation, alternative dispute resolution and, where necessary, pursuing remedies in court by way of formal legal action,” PHAC added.