June 2011 #1. The Hawai'i Procurement Code and The Public Interest.

Authorby Terry E. Thomason and Corianne W. Lau

Hawaii Bar Journal


June 2011 #1.

The Hawai'i Procurement Code and The Public Interest

Hawaii State Bar JournalJune 2011The Hawai'i Procurement Code and The Public Interest by Terry E. Thomason and Corianne W. LauThe Procurement Code(fn1) (the "Code") is one of Hawai'i's most controversial statutes. The media continually report on Code violations, and agencies complain about the Code's "complex" requirements. Each legislature reviews agency requests for exemption from the Code.(fn2)

This article addresses what the Code is intended to do and how selected provisions protect the public interest. It also discusses why legislative changes may not promote the pubhc interest.

Purpose Of The Code - Preventing Waste Of Public Funds

Procurement statutes regulate the expenditure of billions of dollars every year by federal, state, and local officials. Because of the human frailties of even our most dedicated public servants, these billions in taxpayer funds are always vulnerable to waste and abuse.

Like procurement statutes everywhere, the Code prevents waste and abuse of public funds. The Hawai'i Supreme Court explained:

The procurement code was enacted in an attempt to address real problems making daily headlines. The Code prescribes strict procedures ... for the purposes of (1) providing Taff and equitable treatment . . . ; (2) fostering broad-based competition ... while ensuring accountability, fiscal responsibility, and efficiency; and (3) increasing public confidence in the integrity of the system.(fn3)

Media Reports Of Waste And Abuse

The Court's reference to "real problems making daily headlines" was not made lightly. Hawai'i has a history of public officials spending taxpayer funds to benefit themselves and their friends. The media frequently reports these abuses . Over time, recurring reports of corrupt contracting erode confidence in government, and raise questions of whether officials can be trusted to spend taxpayers' dollars honestly.

As early as the mid-1800s, Hawai'i newspapers were reporting on corruption in which government officials awarded contracts to favored friends. [T]he Advertiser claimed continually that the ministry ... was corrupt in its awarding of contracts. By law, these were supposed to be open to public bid, but... they were awarded in private and without advertisement to "favorites" of the government. Charges of conflict of interest, which had been levelled at Gerrit Judd(fn4) in the forties and fifties, were now directed at the generation ... who followed Judd in office.(fn5)

The problems of the 1800s have continued to the current day. In August 2000, news reports announced that a Honolulu official had been convicted of kickbacks and related crimes arising from his manipulation of contract awards in the Ewa Villages relocation project . The official stole as much as $5.6 million dollars by awarding contacts to companies owned by his friends and family for work that was never done or was done at inflated prices.(fn6)

Reports of abuse of public funds in contracting have only increased in recent years. They include:

* a series of reports over two years detailing multimillion dollar kickback and bid-rigging schemes at the Honolulu Airport.(fn7) The bid-rigging scheme at the Airport was valued at about $4 million dollars in which Airport employees awarded small contracts to friends at inflated prices. The friends submitted faked quotes to obtain lucrative but fraudulent contract awards.(fn8) * a 2009 State Auditor's Report finding numerous procurement errors and sloppy purchasing practices within the Department of Business,Economic Development and Tourism ("DBEDT").(fn9) More than 40% of the sampled DBEDT purchases did not comply with procurement procedures.(fn10) * a State Senate Committee finding that DBEDT had manipulated the award of a contract to manage an investment fund valued at $8.7 million.(fn11) The Director awarded the contract to a contractor whose offer received the lowest score in the evaluation.(fn12) The City Prosecutor declined to prosecute(fn13) stating he found "plenty of evidence" of incompetence, but insufficient evidence for criminal charges.(fn14) * a 2009 Big Island newspaper report on questionable County contracts,(fn15) including an agreement to lease a bulldozer the County had previously sold. The County would operate and maintain the bulldozer at its own cost, just as if it still owned the equipment. However, the County paid an additional $12,725 per month to the new owner in rent .(fn16) Not surprisingly, the report questioned the wisdom of a "sale-lease back" deal that resulted in higher costs for no identifiable taxpayer benefit.(fn17) * a July 2010 newspaper article report that the Department of Transportation ("DOT") made illegal consulting contract awards;(fn18) paid $1.3 million to a contractor over nine years for a taxi monitoring system without the contractor ever making delivery of the system;(fn19) and leased a State building to a private firm only to sublease back its own building for an additional $876,000 per year.(fn20) The circumstances provided nothing to show DOT's $876,000 per year sublease payments benefited the public in any way.

Calls To Improve The Code And "Protect The Public Interest"

The continuing instances of questionable government contracting led to calls to improve the Procurement Code. The Honolulu Advertiser reacted by stating that:

[A]fter nearly two years and a lot of effort, including a state Senate investigation, the public interest deserves top priority in ongoing efforts to improve the complex procurement code.(fn21)

According to The Advertiser, DBEDT's violations:

... cast doubt, fairly or not, on DBEDT trustworthiness. That's unacceptable, especially since DBEDT handles millions of dollars in contracts ....

The Advertiser added:

Some policymakers are pushing to ... streamline the codee to save money and avoid unnecessary delays ... . Fair enough. But there needs to be a sensible balance between efficiency and protecting the public interest - after all, it's why the procurement code was created."(fn22)

The Honolulu Advertiser's belief that "streamlining" the Code must include "a sensible balancing between efficiency and protecting the public interest" tracks the Supreme Court's dis- cussion of the Code's basic purpose.(fn23) However, the legislature's task in balancing these interests is difficult.

Government "efficiency" is always in the "public interest." "Sav[ing] money and avoid[ing] unnecessary delays" also furthers the "public interest." To balance "efficiency" with the "public interest" in preventing corruption, the legislature must determine (1) whether the litany of contracting errors reported above was the product of a "complex procurement code," or (2) whether it was instead the product of willful misconduct or incompetence (as the City Prosecutor found in the DBEDT case).

"Streamlin[ing]" the Code will not cure criminal activity or incompetence. The government officials involved in the reported violations either misunderstood or ignored the Code as now written. Rewriting the Code will not necessarily make them understand the law better or pay more attention to the public interest. The number of violations indicates the Code's enforcement mechanisms are not sufficient to ensure that government officials obey the Code. Without effective enforcement, even a streamlined Code will not protect the public from corrupt officials bent on spending government funds to benefit themselves or the contractors they favor.

Structure Of The Code

And The Role Of

Selected Sections

The Code is not as "complex" as some say. If broken down into its separate parts, the Code provides a common-sense method of ensuring public funds are spent honestly. This summary is offered to suggest the Code may not need as much "streamlining" as some believe.

Enforcement Of the Code

Regardless of whether the Code is streamlined, the legislature's efforts to protect public funds will be for naught unless government...

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