Jordan Allred, Deseret News
The University of Utah did not follow state procurement laws when awarding a $10 million contract to NantHealth to sequence 1,372 genome samples from the Utah Population Database, a legislative audit concludes.

SALT LAKE CITY — The University of Utah did not follow state procurement laws when awarding a $10 million contract to NantHealth to sequence 1,372 genome samples from the Utah Population Database, a legislative audit concludes.

The objective of the Heritage 1K project, also called the H1K, was to understand the genetic basis of 25 different conditions such as autism and breast cancer.

The Heritage 1K project was made possible by a $12 million gift to the university by Dr. Patrick Soon-Shiong, a billionaire physician, who according to published reports is owner of NantHealth. Most of the grant was to be used for sequencing and $2 million for analysis of data, according to the audit.

The audit was conducted at the request of legislative leaders over questions of the propriety of sequencing being performed by a company owned by the donor. It does not specifically name Soon-Shiong, his company or university officials.

“While this audit does not examine improprieties on the part of the donor, it does raise concerns with the lack of a competitive bidding process to award the contract and the resulting inefficient use of the donation,” it states.

During a meeting of the Audit Subcommittee of the Legislative Management Committee late Tuesday evening, House Speaker Greg Hughes raised concerns that it wasn't until after the university received first payments of the gift that the donor asked that NantHealth be the sole provider of the sequencing.

If others could provide the same quality and deliver in a like time frame, it is hard to justify why the donor's company was the only that could perform the sequencing, Hughes said. Some could have performed it for less money, he said.

"The worry is, that's just trying to Cinderella slipper something for one person or one entity," Hughes said.

Liz Winter, general counsel for the University of Utah, said many issue could have been avoided had the university sought competitive bids for the sequencing from the start.

"I think in the excitement about the benefit it promised for scientific discovery, people just didn't pay close enough attention to the requirements of the procurement code and what should have happened," Winters said.

"What should have happened is the purchasing department should have been brought in right at the front to help guide the team and go through different options for the team and that would have resulted in an early RFP (request for proposals) to send this out."

Hughes questioned why there was not greater concern at the university when many national publications were questioning the arrangement between the U. and NantHealth.

Winter said the situation was "unusual because of the level of the people who were negotiating it. Typically, their teams will have people working with the purchasing department in putting those together."

The audit, performed by the Utah Office of the Legislative Auditor General, said Utah code requires a competitive procurement for contracts such as Heritage 1K.

“Because the H1K project cost $10 million, far more than the $50,000 threshold, the U of U should have conducted a competitive procurement process. The university believes it did not need to conduct a competitive procurement because it was an allowable exception to the competitive process,” the audit states.

After consulting with legislative attorneys and the director of Utah Purchasing and General Services, “we do not believe the process met the sole source requirements found in the Utah code."

The H1K gift agreement did not specify a service provider. If a provider had been identified as a condition of the gift, competitive bidding would not be required, the audit says.

“Because the request to use his company was a not … a condition of the donation, it did not meet the exception requirements of state code,” the audit concluded.

The audit further found that the cost of the sequencing does not appear to have been negotiated.

Dr. Vivian Lee, former dean of the School of Medicine and senior vice president of Health Sciences, “who negotiated the gift, stated that the gift specified 1,000 samples and the donor gave $10 million, so that works out to $10,000 per sample. (Lee) also stated that the university allowed the donor to set the price because it was his business and he knew more about the cost than they did,” the audit states.

But auditors found the university paid an excessive amount for sequencing. Comparable facilities would have charged the university “substantially less than the $10,000 sample rate negotiated with the donor’s company or the $7,289 that was ultimately charged."

One facility charged a $2,900 sample rate — "one-third of the price negotiated with the donor's company," the audit states.

“A lower rate would have allowed university scientists to sequence and analyze many more of the reported tens of thousands of genomes at the U of U. These genomes cannot be sequenced unless there is funding to do so,” the audit states.

The audit notes that "public scrutiny regarding the validity of the process led to this audit."

The audit refers to one article that "accused the University of Utah of essentially laundering funds for the donor's company." Auditors collected 11 articles that questioned the validity of this process, the document states.

In March, the health news website STAT News report raised ethical questions about the gift to the U., which was made in September 2014, alleging Soon-Shiong "gave away millions, then steered the cash back to his company."

In other news coverage, including a Los Angeles Times story, Soon-Shiong said reports that his research foundations made grants that benefited his for-profit entities were "maliciously false."

In the midst of conflict between the university and the Huntsman Cancer Foundation this spring, Huntsman Cancer Institute benefactor Jon M. Huntsman Sr. questioned Lee's part in accepting Soon-Shiong's donation on behalf of the university.

At the time, Huntsman was highly critical of Lee for her role in terminating Huntsman Cancer Institute CEO Mary Beckerle. Beckerle was quickly reinstated after public outcry by staff and community members.

Lee stepped down from her administrative positions and U. President David Pershing announced he was moving up the timeline of his planned retirement. Pershing said he will stay on until his successor is selected.

On a positive note, the audit said the sequencing resulted in scientific advancement and generated other grants.

“University scientists have used data generated during the H1K project to obtain $7.6 million in new money and up to $43.7 million in furthered research,” the audit states.

H1K sequencing brought about significant advancements in scientific research, including five published papers, three abstracts, one clinical physician report and the identification of 34 gene mutations.

According to a NantHealth news release, "the landmark project" was to "focus on researching the genetic causes of 25 conditions, including breast, colon, ovarian, and prostate cancers, amyotrophic lateral sclerosis (ALS), chronic lymphocytic leukemia, autism, preterm birth, epilepsy, and other hereditary conditions."

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In a written response to the audit, Dr. Lorris Betz, interim senior vice president for health sciences, wrote that the university is “committed to compliance with the Utah Procurement Code and will work diligently to implement the recommendations in the report.”

In a detailed response, the university stated it has undertaken a “renewed effort” to educate faculty and staff regarding the requirements of the procurement code, including sole source designation, competitive bidding and other issues of compliance.

“These efforts include written and in-person education, as well as adding specific educational modules in its research administration training series,” the written response said.