Connecticut COVID testing company got paid after breaking contract with state
This story has been retracted.
Sema4, the Stamford-based health care technology firm that provided COVID testing services for the state of Connecticut since the beginning of the pandemic, was paid nearly $3 million after it dropped out of its contract last December, about half-way through its term — even though the state could have stopped payments.
The state’s one-year contract with Sema4 for COVID testing, signed in July 2021, explicitly allowed the state to withhold payments if the contract was breached.
The state Department of Public Health paid Sema4 about $102,000 in January, before Sema4 stopped conducting tests on Jan. 31, state payroll records show. The payments were for tests collected from the state’s testing sites and processed at the company’s Branford lab between September and December 2021.
The rest of the $2.99 million for work through the end of January was billed and paid in March and April, culminating with the last large payment of $2.1 million at the end of April, records show.
Sema4 was paid $95 per specimen collected — the same as the other contractors hired during that time frame.
DPH officials have not explained why they decided not to hold Sema4 in breach of the contract or why they didn't withhold any of the payments made in March and April.
A spokesman for the state Attorney General's office said it did not review the contract because it was a "master contract" originally bid through the Department of Administrative Services.
'Dear Client ...'
On Dec. 15, 2021, as the omicron variant of COVID-19 was interrupting holiday gatherings and on its way to becoming one of the more widespread variants, Sema4 sent an unsigned email to the state Department of Public Health informing the agency that it was discontinuing its COVID-19 testing services, even though it had initially agreed to do the work through the spring.
The email was addressed to “Dear Client” and explained why it was exiting the contract. The CT Mirror recently obtained a copy of the contract and the email through a Freedom of Information request that was filed in December.
The 61-page contract that Sema4 officials and DPH signed in July did contain breach of contract language that would have allowed the state to withhold payments to Sema4.
The contract states that if the "client agency" determines that the contractor has breached the contract, then the "client agency may withhold payment in whole or in part for any amounts due pending resolution of performance issues.”
The contract did not contain any clause allowing Sema4 to exit the contract early. It does contain a clause allowing Sema4 to terminate the contract if it presents to the state a reason in writing why it believes the state breached the contract.
In the email to DPH announcing its decision, Sema4 did not allege that the state breached the contract, only that the company felt it was time to return to its core mission performing genomic testing. The contract with the state was supposed to last until June.
'Best regards, Sema4'
Sema4's email to state officials stated that it had “answered the call to enter the COVID-19 testing business” right after the pandemic began in March 2020, but now it was time to return to its core business: genomic testing.
“In a short period of time, we proudly invested in resources to establish an end-to-end testing solution that helped address the acute need for greater capacity of accurate and accessible testing,” the email said.
“Today, while the pandemic is still present in our lives, circumstances related to testing are very different now than in early 2020. Nationwide lab capacity for COVID-19 testing has dramatically increased, vaccines and treatments are available, and there is broader acceptance of other testing options. We therefore believe now is the appropriate time to dedicate our resources to Sema4’s core mission: transforming healthcare by using artificial intelligence to enable the delivery of precision medicine as the standard of care.”
The email goes on to say Sema4 would stop testing as of Jan. 15, 2022 and lists an email address that DPH officials can use if they have any questions. The email is not signed by anyone from the company, instead ending with “Best regards, Sema4.”
'We respect their business decision'
When DPH officials announced that Sema4 was getting out of the contract, there was praise for their assistance and no mention of any possible concerns about the contract being terminated.
“We appreciate all the work Sema4 has done throughout the pandemic to help build the state’s testing capacity. We respect their business decision and are in the process of identifying vendors from the master contract who can take on the work,” DPH spokesman Christopher Boyle said in a statement released on Dec. 17.
The Mirror has asked DPH officials if they have since reviewed the contract any further and why they decided to not withhold any payments, as the contract allowed.
"DPH accepted the email from Sema4 as the written notice pursuant to the contract and negotiated that Sema4 stay on until Jan. 31, 2022," Boyle said in an email.
The timing of the Sema4 pullout was an extra challenge for the state, as it was in the middle of a COVID spike that created a significant need for testing capacity that the state no longer had in place.
Sema4 operated 15 of the state's 23 testing centers, from Kent to Stonington and from Stamford to Killingly.
Sema4 agreed to extend its testing work until the end of January to allow the state time to find replacement contractors. The extra two weeks got the state through the heaviest testing times without having to close sites. State officials hired replacement contractors to take over for Sema4 through the end of the contract in June.
Overall, Sema4 was the second-highest earner under the one-year contract. Quest Diagnostics has earned $23.9 million as of this week, according to state records.
Quest laboratories processed many of the COVID testing samples from across the state and from other agencies such as the Department of Correction.
The other two laboratories that physically ran testing sites — Wren Laboratories of Meriden and Genesys Diagnostics of Wallingford — earned $1.3 million and $520,680, respectively, records show.
Investors in Sema4
The company’s contracts with the state have come under scrutiny because Annie Lamont’s venture capital firm, Oak HC/FT, is an investor. Annie Lamont is married to Gov. Ned Lamont. Oak HC/FT invested twice in Sema4, which has received millions of dollars from the state to perform COVID testing.
The CT Mirror reported in November that Oak HC/FT invested in Sema4 twice — first in August 2019, after Gov. Dannel P. Malloy’s administration awarded the company two start-up loans, and a second time in July 2020, two months after the Lamont administration signed a $17.2 million contract with Sema4 to provide COVID testing.
Later that year, DPH awarded Sema4 a second no-bid contract, worth an additional $8.4 million, to administer COVID tests in long-term care facilities.
Lamont’s critics have said that the governor, who recused himself from state transactions with companies in which his wife is invested, should have barred Sema4 from providing COVID testing; they also question whether the Lamonts will eventually profit from their investment in Sema4. The Lamonts have pledged to donate any profits they make to charity.