Contract Management

Until last year, the Defense Department (DOD) had been procuring its anthrax vaccine from the Michigan Biologic Products Institute, a facility owned by the State of Michigan. This the only biologic facility in the country licensed by the Food and Drug Administration (FDA) to produce the vaccine. In 1997, FDA cited many manufacturing problems that could have led to the revoking of the facility's license. The State of Michigan sold the facility to the BioPort Corporation after production was shut down in early 1988. DOD, concerned about the potential loss of anthrax production, has made significant investment in renovating the facility. However, BioPort has experienced delays in completing its renovation and production of the vaccine is about five months behind schedule. Because of the delays, the company now faces a serious cash flow problem. GAO believes that the cash flow problem is due to the company's inability to achieve its overly optimistic business plan. To deal with its cash flow problem, Bioport requested--and DOD approved--the sale of 70,000 doses to other customers before meeting its contractual requirements with DOD. The company has also asked DOD for advance payments and has proposed increasing contract prices. DOD officials are considering what steps, if any, should be taken to resolve BioPort's cash flow problems.

GAO noted that: (1) DOD has made a significant investment in renovating BioPort's biologic facility to meet the military's requirements for anthrax vaccine; (2) however, BioPort has experienced delays in completing its renovation efforts, and, as a result, production of the vaccine is about 5 months behind schedule; (3) because of the delays, the company has not received the revenues it expected and now faces a serious cash flow problem; (4) the cash flow problem, GAO believes, is due to the company's inability to achieve its overly optimistic business plan; (5) in response to its cash flow problem, BioPort requested--and DOD has authorized--the sale of 70,000 doses to other customers before meeting its contractual requirements with DOD; (6) in addition, the company has proposed several actions to resolve its financial problems, including asking DOD for advance payments and increasing contract prices; and (7) DOD officials are considering what actions, if any, should be taken to resolve BioPort's cash flow problem.