$200 Million of Your Money Wasted
State procurement squanders cash and delays services
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For most people, government is simply the sum of the services it provides: security and safety, for example, in the form of police and fire departments; education, in the form of schools and libraries; and transportation, in the form of roads, harbors and airports. Citizens can measure their government by how effectively it provides those services.
Businesses, though, often see another side of government. That’s because the state government relies on private contractors and consultants to provide many of these services. Contractors design and build the state’s schools and highways; consultants manage everything from state hospitals to social services. Indeed, government is the largest single customer of Hawaii businesses, spending more than a quarter of the state’s $7 billion budget on contracted goods and services. With billions at stake, clearly another measure of government is how efficiently and fairly it procures those services. And yet, by almost any measure, the state’s procurement process is broken.
The easiest way to gauge how dysfunctional the system has become is to glance through reports from the state auditor’s office. In department after department, report after report, procurement practices are found wanting. Indeed, many of the most prominent controversies faced by the state government in recent years have been procurement failures at heart: Two 2009 audits criticize the Department of Business, Economic Development and Tourism for flouting procurement laws by awarding a contract to a firm with ties to the department’s director rather than higher-ranking competitors. The latter DBEDT audit goes so far as to recommend the director’s removal.
Similarly, audits of the state Department of Education, University of Hawaii, Highway Administration, Department of Land and Natural Resources and Hawaii Tourism Authority have all found improper and incompetent procurement conduct. Most of these reports received considerable publicity when they were released, bringing a period of greater scrutiny for the agencies, but they failed to generate more general interest in procurement. Taken together, though, the auditor’s reports and a collection of related decisions by the Office of Administrative Hearings and the U.S. Circuit Courts suggest the state’s procurement difficulties are more widespread (and costly) than any single scandal.
Recent Cases of Wasteful Procurement
Photo Courtesy: Google Phase II of the widening of the Big
Contract No. 1: Widening of Queen Kaahumanu Highway
State Agency: Department of Transportation
Summary: In 2006, the state Legislature appropriated $40 million to widen part of Queen Kaahumanu Highway on the Big Island from two to four lanes. In December 2007, the state Department of Transportation issued a notice to bidders for a design/build contract for Phase II of the project, from Kealakehe Parkway to Keahole Airport Road, with an estimated cost of $60 million. In January 2008, DOT awarded the contract to the low bidder, Goodfellow Bros. Inc. Almost immediately, Kiewit Pacific Co., one of the other two qualified bidders, protested the award, claiming the Request for Proposals was ambiguous and Goodfellow’s bid was nonresponsive to the RFP. So, DOT rescinded the award and again put the contract out for bid. The next December, DOT again awarded the contract to Goodfellow. This time, Hawaiian Dredging, the other qualified bidder, protested that, among other things, the Goodfellow bid failed to meet the basic terms of the RFP. DOT denied the protest, and Hawaiian Dredging appealed to the Office of Administrative Hearings at DCCA. On April 3, 2009, the hearing officer found the Goodfellow bid “unresponsive” and ordered the contract to be re-bid again. This December, DOT issued a new RFP for the project, while simultaneously appealing the OAH ruling to the Circuit Court.
Findings: The inability of DOT engineers and contracting officials to write a clear, unambiguous request for proposals, or to effectively deal with the confusion of contractors during pre-bid consultations, resulted in at least a four-year delay in the highway project, greatly frustrating Kona residents. Also frustrated are the bidding contractors, who presumably all acted in good faith. All have incurred legal fees, lost time and the costs of proposal development. For taxpayers, the costs include lost time and manpower due to repeated procurements, plus extensive legal costs. It’s still unclear when construction will begin.
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