Senate bill would make it more difficult to scrutinize government procurement, critics say

A bill, lying on Governor David Ige’s desk awaiting signature, aims to reform the state’s slow and cumbersome procurement process, with protests from lost bidders helping create new public roads, buildings and other much-needed needs Block infrastructure projects across the state.

However, critics say the measure, Senate Act 1329, goes too far and takes away the necessary oversight of how public agencies award multi-million dollar contracts to private bidders, creating a situation where backroom deals and corruption are more likely to occur .

Specifically, they point out a provision that would remove a $ 10,000 limit on the bond that losing bidders in Hawaii would pay when appealing a protest decision. If Ige signs the law, they would instead file a bond worth 1% of the contract value with no cap.

Bidders lose the bond if they lose their calling. Lifting the cap would prevent most local firms from appealing decisions on larger and more expensive contracts awarded by Hawaii’s public authorities, said Anna Oshiro, a local lawyer who frequently handles procurement cases. It would make appointments prohibitive, even if they were legitimate.

“This is very worrying. It removes any realistic oversight of decisions about protests in large-scale projects, ”said Oshiro, director of Damon Key Leong Kupchak Hastert. “The costs will just be too high.”

The more affordable bonds do not lead to frivolous appeals that flood the system, nor do they cause Hawaii’s procurement delays, Oshiro said.

She referred to records from the Department of Commerce and Consumer Affairs showing that the agency’s hearing officers have heard an average of five appeals per year over the past seven years. (The agency heard 16 such appeals in 2012, according to these records.)

Instead, it is often the state authorities’ own slow response in deciding on the initial bid protests prior to appeals that causes the delay, Oshiro said. SB 1329 also requests the authorities to make a decision within 75 days.

The state transport ministry has had to respond to at least 125 application protests since 2012. The agency reported that only seven of these protests went on to appeal, which is the move that triggers the bond commitment.

Nevertheless, the DOT strongly supports the removal of the bond cap. Those seven cases delayed hundreds of millions of dollars in projects, according to Assistant Director of the Highways Authority, Ed Sniffen.

“I am absolutely not against protests, and if we go wrong in our specifications … we are happy to correct them,” said Sniffen. “We just want to make sure that the projects, funding and improvements are not delayed due to unsubstantiated or frivolous claims.”

Earlier this month, however, a state judge sided with a company that appealed against DOT for a nearly $ 25 million road construction contract. Without the bond cap, the appeal would never have happened, Oshiro said.

“You want to try to move the process forward. I understand, “she said, but when it becomes more expensive to appeal,” it is not at all possible.

It’s an opaque provision, but it could have a big impact on future large-scale contract awards across the state, she added.

“It’s definitely going under people’s radar,” said Oshiro. “It may become a real problem and people won’t realize it until their hands are tied.”

Speed ​​vs. Transparency

How best to prevent bidding protests from slowing down the progress of urgently needed infrastructure improvements and other projects in Hawaii has been discussed “in great detail” in recent years, say local contractors.

Legislative leaders say they are trying to balance the need to speed up the islands’ often slow and cumbersome procurement process with adequate oversight and transparency.

“Government procurement has been a really difficult topic for many, many years,” said Rep. Sylvia Luke, chair of the House of Representatives’ prominent finance committee. It was among the last legislative committees to review SB 1329, and this is where the language that overrides the borrowing limit has been added.

“We basically did what the administrator suggested,” Luke said, referring to the Ige administration. “In their opinion, they thought this would spark a significant number of protests.”

A coalition of 19 airlines that serve Hawaii and whose fees fund local airport upgrades strongly supported the lifting of the bond cap and called supply protests “an obstacle to state growth.”

“The ability to contest an improperly placed offer is an important tool, but it should not be used arbitrarily or without risk to the company contesting the bid,” said the Airlines Committee of Hawaii in a statement on a separate bill who aimed to remove the cap.

Occasionally, Sniffen said, a company will protest against a procurement that it hasn’t even bid on. Protest-related delays in modernizing the islands’ roads, bridges, guard rails and other infrastructure have been a challenge – “and more recently,” he said.

“Delays in these projects only affect the system … and the money we can invest in the economy.”

Impression of a ‘Behind The Scenes’ deal

However, Oshiro cited a recent appeal in which a state judge found that state officials had violated procurement ethics laws, citing this as an example of why it is important to keep bonds affordable.

Without the $ 10,000 cap, the appeal would never have happened, she said.

Their customer, Maui Kupono Builders, initially received an almost $ 25 million contract from the DOT to rebuild and rehabilitate nearly 10 miles of the Kamehameha Highway near Wahiawa. However, the award was reversed after a competing bidder, Grace Pacific, protested.

Court records show that the dispute centered on whether Maui Kupono needed to list the trucking companies that were subcontracting materials.

Usually, the shipping companies are considered suppliers in the procurement process, Oshiro said. Nonetheless, the issue raised by Grace Pacific prompted DOT to revoke the award to Maui Kupono.

Maui Kupono appealed and the challenge went to the state’s First Circuit Court, where Judge John Tonaki sided with Maui Kupono earlier this month.

In his ruling, Tonaki said DOT violated state laws requiring “ethical public procurement” because its deputy director took a direct call from Grace Pacific’s president before the agency overturned its decision in favor of the company.

“These events gave the impression of a non-transparent deal behind the scenes, which is clearly to the advantage of Grace Pacific,” Tonaki wrote in his decision.

However, without Maui Kupono’s appeal and ability to afford the $ 10,000 bond, none of this would have come to light, Oshiro said.

Without the cap, Maui Kupono would have had to provide a $ 250,000 bond on the $ 25 million contract – and the company couldn’t do that, she said.

Sniffen said the DOT disagreed with Tonaki’s decision. “From our point of view, we obeyed the law,” he said. Pointing out a state law that allows authorities to settle protests by mutual agreement, he said DOT did so when speaking to Grace Pacific.

Still, local contractors said it was important to challenge agencies like DOT.

“We understand protests are a problem and slow the process,” Tim Lyons, president of the Subcontractors Association of Hawaii, wrote in a testimony earlier this year. The group represents nine local construction organizations.

“However, we think it’s important to remember that a protest is often a private contractor doing the government’s job; that is, to draw attention to some irregularities in the procurement process, ”Lyons wrote.