Contractors are making millions with little oversight due to Gov. Abbott’s border ’emergency’

HEBBRONVILLE — Gov. Greg Abbott’s border crackdown is producing a private contractor bonanza, showering tens of millions of dollars on staffing companies, technology firms and builders, including one business that sold Texas hundreds of millions of dollars worth of unreliable COVID tests.

None of the contractors are going through a formal solicitation process, potentially raising costs for a border security program that is already eating up more tax dollars than advertised.

The company that sold the state the costly, questionable COVID tests, Gothams LLC, also got a $43 million “emergency” purchase order in January to build and staff a state-run migrant detention center in Hebbronville in Jim Hogg County, just east of Laredo near the U.S.-Mexico border, records obtained by the Houston Chronicle show.

The company’s owner, a soldier-turned-Silicon Valley entrepreneur, disputes that the COVID tests were faulty but says that Gothams eventually pulled them to appease the U.S. Food and Drug Administration.

As with the COVID deals, Gotham’s latest government deal to build the migrant detention center and the border purchases are being awarded without the burden of formal bidding by the Texas Division of Emergency Management, or TDEM, which falls under the management of the Texas A&M University System.

There were no formal contracts for the hundreds of millions spent on COVID tests, and there aren’t any for the border outlays either, according to TDEM. Officials are purchasing millions of dollars at a time in goods and services, sometimes tens of millions, using simple 30-day purchase orders.

Making it all possible: Abbott’s monthly renewal of his disaster declaration along parts of the southern border, allowing him to suspend normal contracting procedures that officials say slow the response but that critics say drive up costs and promote cronyism. Same goes for the COVID-related purchases.

“He’s just abusing emergency powers at this point,” said state Rep. Mary Gonzalez, D-Clint, who represents a border district and is vice-chair of the House Appropriations Committee. “When we’re spending this amount of taxpayer dollars, it’s important for us to honor our constituents with transparency and accountability.”

TDEM acknowledged Abbott’s ongoing emergency border security orders allow the agency to “go direct to vendors without a formal solicitation or bid process,” but in answers to written questions from the Chronicle, officials said they informally reached out to eight companies for the Hebbronville facility. Only Gothams “met the full requirements of the bid,” the agency said.

The Chronicle asked to see all its border security proposals from private companies but the agency has so far declined to release them — including building plans and “professional resumes” that were submitted to the agency.

‘The price won’t be as effective’

The Gothams detention center contract is at the center of Abbott’s plan to expand his year-old border initiative, known as Operation Lone Star. Citing a spike in illegal border crossings under the Biden administration, the governor has deployed thousands of state troopers and National Guard soldiers to the border, where they have apprehended and turned over to federal authorities more than 200,000 migrants since last March, according to state figures.

More controversially, Abbott ordered state authorities to arrest migrants for allegedly trespassing on private property, a state misdemeanor charge that allows Texas officials to jail migrants without running afoul of legal precedent that largely prevents states from enforcing federal immigration law.

The so-called “catch-and-jail” scheme has faced a number of setbacks since it began last July, initially overwhelming county criminal justice systems that were unprepared for the deluge of arrests. Amid the early chaos, hundreds of migrants were released on cashless pretrial bonds after sitting in jail for weeks without being formally charged or appointed an attorney, both apparent violations of state law that defense attorneys said were continuing as of last month.

Since then, reports have emerged that the Guard was late in sending paychecks to soldiers stationed at the border, among numerous other issues that culminated in Abbott’s move last month to replace the head of the military department.

With counties unequipped to process the “catch-and-jail” arrests, Texas officials have spent millions of dollars cobbling together a patchwork system of courts and jails devoted to the task. Most of the work has been performed by hand-picked firms paid to build booking facilities, convert state prisons into jails and transport arrestees to the state-run lockups, according to records obtained by the Chronicle.

During a two-month span last summer, as the trespassing arrests began, TDEM doled out at least 12 non-competitively bid purchases for Operation Lone Star costs, collectively worth up to $45 million. Roughly half the cost of the purchases, which have not previously been reported, went toward setting up and staffing a tent booking facility in Del Rio, a border city about 150 miles west of San Antonio near the epicenter of the “catch-and-jail” operation.

Inside the tent, located next to the Val Verde County jail, migrants arrested on state charges are processed, given virtual hearings before a magistrate judge and held for up to 48 hours, before being sent to one of two state-run lockups.

By January, as state officials were gearing up to expand the “catch-and-jail” operation farther south, TDEM enlisted Gothams to build and operate a second processing center an hour east of Laredo in Hebbronville — the main population center in sparsely populated Jim Hogg County.

A TDEM purchase order for the Hebbronville facility estimates the tab will come out to $43.2 million, covering construction, setup costs such as IT equipment installation, and a year of staffing and operating the facility. The projected cost is nearly double that of the Del Rio facility, which was built and set up by at least three separate companies, according to TDEM records.

By February, Gothams had finished construction and opened the facility to start processing detainees — less than a month after TDEM signed off on the purchase order.

The Hebbronville processing center sits next to the Jim Hogg County jail inside a cavernous white tent structure, enclosed by a chain link fence lined with barbed wire and translucent panels.

TDEM expected the Hebbronville facility to cost more in part because it’s larger and sturdier than the one in Del Rio. However, one vendor that didn’t get the work, Global Justice Solutions, proposed building and maintaining the Hebbronville center for one year for a price of $5.2 million, according to company consultant Wayne Gondeck. A similar line item on Gothams’ purchase order came to $12.5 million.

Global Justice Solutions was one of two firms that helped build and set up the Val Verde processing center but failed to secure any work on the Jim Hogg facility. TDEM said Gothams was the only vendor to submit a proposal that met specifications from the Texas Commission on Jail Standards.

A way around competitive bidding

In most cases, state law requires agencies to purchase goods and services by soliciting bids, then awarding the contract to the vendor who provides “the best value” for Texas. But Abbott waived that requirement last May, when he declared a disaster along the southern border.

In his disaster order, Abbott suspended state contracting rules that “would impede any state agency’s emergency response that is necessary to protect life or property threatened by this declared disaster.”

Texas’ emergency management laws give the governor broad power to decide when a disaster declaration is warranted and place few checks on his ability to perpetually extend it. Since last May, Abbott has renewed his border declaration every 30 days, as required by law, a total of 10 times. He has also renewed his statewide COVID disaster declaration 25 times since he first issued it in March 2020, keeping the order in place continuously for more than two years.

The state’s emergency laws help agencies and local officials quickly respond to storms and pandemics when they cannot afford to wait for the competitive bidding process to play out over weeks or months, said DeWight Dopslauf, the purchasing agent for Harris County.

Harris County skirted competitive bidding, Dopslauf noted, when buying generators after Hurricane Harvey and masks in the early days of the COVID pandemic. Still, Dopslauf said he rarely opts against soliciting bids for contracts that are eligible, because the process harnesses the market to find the best value, based on objective measures like qualifications and cost.

“You’re going to get the best price for your quantity, for the services you’re needing, because you’re not just going out to anybody who’s available to provide a service for you. There’s multiple competitors,” Dopslauf said. “A lot of times on the emergency declaration, the price won’t be as effective as it would be when you’re going through a competitive bid process.”

For that reason, Dopslauf said his team even uses competitive bidding, when possible, during disaster declarations. One tactic involves hiring vendors ahead of time through so-called “contingency contracts,” which kick in under certain emergency conditions.

The detention center contract marks the second time that TDEM has invoked Abbott’s emergency declaration to award a contract to Gothams without going through a formal solicitation process.

Beginning early in the coronavirus pandemic, Gothams sold Texas more than $400 million worth of COVID testing services using a controversial test from Curative Inc. In January 2021, the U.S. Food and Drug Administration flagged the test for producing a “risk of false results, particularly false negative results.” The FDA stopped short of recommending the test be discontinued but six months later the agency revoked its emergency use authorization at Curative’s request.

Curative Inc. is still providing tests and testing services, including in Texas, but not with the discontinued test it developed at the outset of the pandemic, the company says.

The Gothams CEO, Matt Michelsen — who described himself as an early investor in and “operator” of Curative — defended the start-up company’s original oral fluids tests as better than invasive nasal swab tests. He said the FDA action was motivated by nothing more than “political nonsense.”

“The test was superior but we caved to the FDA,” Michelsen said in a brief phone interview with the Chronicle. “It should have been a scientific test, not a political test.”

‘Not involved’

Abbott’s office ignored several specific questions from the Chronicle, instead issuing a written statement saying he is “not involved” in state agency contracting while blasting President Joe Biden, saying his “dangerous open border policies have created an ongoing crisis along our southern border.”

“Governor Abbott took immediate action to secure our border, launching Operation Lone Star, deploying Texas National Guard soldiers and DPS troopers, and issuing a disaster declaration to surge critical resources and personnel to protect Texans in border communities,” said Abbott spokeswoman Renae Eze.

Democratic state Sen. Nathan Johnson of Dallas criticized the use of emergency powers to allocate dollars that lawmakers approved spending months ago.

“I have a real problem with this never-ending series of emergency orders that permit the executive branch to bypass minimally burdensome procurement procedures,” Johnson said. “Particularly when the Legislature has already addressed the issue and appropriated funding.”

TDEM has inked purchase order deals for more than $88 million related to border security since June of last year, when the Val Verde processing facility was built, records show. Other non-competitive purchases went for inmate phone service, translators, diesel generators, software and transportation.

TDEM says it would take too long to subject the purchases to competitive bidding.

“A formal solicitation would take several months to develop, post, review, select and negotiate,” the agency said in its written response. “During disaster responses, time is of the essence. Due to the declared border disaster, the need for the processing center was immediate because of the thousands of apprehensions.”

The questions about the emergency border security buying spree come as Operation Lone Star blows through its multi-billion-dollar budget, forcing Republican leaders to pull from other state agencies to keep the operation going.

Last year, state lawmakers set aside nearly $3 billion for border security over the two-year budget cycle that began last September, more than triple the prior spending level. That includes funding for Operation Lone Star and $1 billion for construction of a wall along parts of Texas’ southern border. Last year, the Texas Facilities Commission used competitive bidding to pick the firms that would design and build the wall and oversee the project.

But less than five months after he signed the spending bill into law, Abbott — with joint approval from four other state leaders — was forced to transfer about $480 million from the Department of Criminal Justice and two other agencies to support the continued cost of keeping thousands of National Guard soldiers stationed along the border.

Matt Michelsen

The Gothams founder, an Army Ranger turned hedge fund manager, had a long and sometimes colorful history in California venture capital circles before setting up shop in Austin. On the Gothams website, Matt Michelsen describes himself as an “early investor in 17 companies across the technology, intelligence and consumer sectors — each with billion dollar outcomes.”

The companies aren’t named, and Michelsen and Gothams did not respond to the Chronicle’s request to provide them. On his LinkedIn page Michelsen also lists himself as an advisor to publicly traded software and analytics company Palantir Technologies and Austin-based venture capital fund 8VC.

One company he famously founded a decade ago and led as CEO — Backplane — sprang from a conversation with rapper 50 Cent and soon led to a partnership with singer and actress Lady Gaga.

The company drew millions from venture capital firms with its plans for a new platform connecting celebrities and brands to their fans. But the company burned through the cash without much to show for it and went belly up in 2016, according to published reports.

Michelsen started Gothams LLC in 2019 and declared in Texas business filings that it first started operations in the state on April 30, 2020, the date on TDEM’s first purchase order for the first batch of Curative tests it bought, records show.

Gothams described its business purpose in corporate filings as “contracting with state and federal governments for technology development and manufacturing.” The company website now calls Gothams a “full-service emergency response team” offering services ranging from “staffing and operations to construction and logistics.”

One thing that remains unclear almost two years after Gothams’ first sale of Curative’s now-discontinued tests to Texas: the depth of Michelsen’s own managerial and financial stake in the testing company.

On the Gothams website, Michelsen lists himself as “executive chairman” of Curative. Until recently he also bragged he was responsible for “developing a little-known COVID detection company into the massive test provider it is today.” This week, amid the Chronicle’s inquiry, the word “developing” was knocked down to “supporting” on the Gothams website.

For its part, Curative said it “partnered” with Gothams for logistics and contracting support but declined to discuss Michelsen’s role and financial involvement with the company.

“Curative is a private company and does not disclose financial information,” said Curative spokesman Pasquale Gianni. TDEM would not say if the agency knew about Michelsen’s financial stake in Curative, whether it saw a conflict of interest there or why the state needed Gothams acting as the middle-man supplier.

After selling roughly half a billion dollars in COVID tests and testing services to state government, Gothams LLC has since pivoted to the newest state emergency and quickly became the largest single recipient of TDEM’s growing portfolio of border security projects since the non-competitive purchases began last summer, records provided to the Chronicle show.

‘Shorthanded’ local authoritiesAbbott has touted more than 13,000 criminal arrests under Operation Lone Star, while highlighting the volume of weapons and fentanyl seized under the initiative. An investigation by ProPublica, The Texas Tribune and The Marshall Project found that some arrests and drug seizures cited by state officials lacked any discernible ties to the border or Operation Lone Star.

The investigation also found that trespassing cases make up about 40 percent of arrests under the border initiative, more than any other charge. The arrests take place in some of Texas’ least-populated counties, which operate modest criminal justice systems that lack the manpower to handle such high volumes of arrests.

Thus, the processing centers are a key part of keeping Abbott’s border initiative afloat, allowing state officials to handle court paperwork, send arrestees before a magistrate judge for a virtual hearing, and temporarily detain them until they are transported to one of two state prison-turned-jail facilities.

Local officials in Jim Hogg County, an area controlled by Democrats that is home to some 5,000 residents, say state troopers have provided much-needed relief in handling the surge of migrants passing through the area.

Reyes Espinoza, chief deputy of the Jim Hogg County Sheriff’s Office, said his agency last year saw a notable spike in calls from residents reporting property damage — including cut-down fencing — believed to be caused by migrants passing through town. Those reports have dropped off since DPS troopers began patrolling the area as part of Operation Lone Star, Espinoza said last week.

“It’s another tool for us. We get some more manpower out here, and it helps us tremendously, because as it is, we’re shorthanded,” Espinoza said, noting the sheriff’s office typically employs a dozen deputies but has just six currently on staff.

House Speaker Dade Phelan said he, too, had experienced the border crisis firsthand, telling reporters last week that his family ranch near the border had been broken into four times in the last year, a departure from the relative tranquility in past years.

“I’ve seen it with my own two eyes, and it’s not getting any better,” the Beaumont Republican said. Still, the speaker said spending procedures are “something we’ll look at” to ensure border security dollars are spent wisely.

“We want to make sure every dollar is spent in a very respectful manner,” he said. “That there’s transparency. And there’s oversight.”