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$200 Million of Your Money Wasted

State procurement squanders cash and delays services

(page 4 of 4)

Who’s to Blame

One expert with strong views on Hawaii’s procurement mess is Terry Thomason, education chair of the Hawaii Procurement Institute, and an attorney specializing in public contracts at the law firm of Alston Hunt Floyd & Ing. (Thomason and other AHFI attorneys represent Election Systems & Software in its dispute with the Office of Elections.) Thomason divides Hawaii’s procurement troubles into three categories. There are a few “bad eggs,” he acknowledges, officials like the state’s former chief elections officer who operate in bad faith. The second kind of procurement problem, and more common, Thomason says, is like the airport official, “kind of a slow thinker – they don’t know how to do it correctly, so they give out periodic payments. But 99 percent of these are honest mistakes.” However, according to Thomason, the greatest cost to taxpayers is the third category: the state’s piecemeal approach to contracting.

“Scan the state procurement office Web site,” Thomason says, “and you will see a multitude of contracts for minor construction/repair/maintenance. For instance, you will see DOE projects for schools that include individual contracts for roofing, plumbing, painting, etc. Often, these requirements are at the same school or schools in the same area. All of those contracts were competed separately through the entire solicitation process – with potential for protests on each requirement – and separate contract awards for each.” For each procurement, he says, time is needed to issue the solicitation, perform evaluations, award a contract and resolve any protests. Each repetition, each delay adds to the cost of the project.

“It’s inefficient,” Thomason says. “It’s mowing the grass with scissors.”


Better Ways

He points out that there are much more effective ways to handle procurement. Federal contracting officers at Pearl Harbor or Schofield Barracks routinely use techniques like multiple-award-task-order contracts or indefinite-delivery/indefinite-quantity contracts to speed up procurement. “Army and Navy contracting agencies anticipate that requirements will arise,” Thomason says. MATOC or ID/IQ contracts allow them to issue solicitations in advance, even before money is appropriated, so projects can get started as soon as the need arises. With the state, that’s just the beginning of the process.

What’s more, Hawaii’s slow, incremental approach to procurement may cost the state federal money. For example, our inability to quickly award contracts for projects may be behind our poor ranking in spending federal stimulus funds – a Congressional panel ranked Hawaii 48th out of 50 states. The state’s procurement system simply can’t get contracts out the door quickly enough. For Thomason, this is particularly galling. “We should be the fastest,” he says. “We’re a tiny little state with a very defined area. And we have experts down the road who are doing many different types of contracts, more of them, and faster.”

The costs of our broken procurement system are enormous. Consider just our three case studies: millions of dollars wasted in legal fees and delayed work at the Queen Kaahumanu Highway widening; more than $25 million nearly squandered at the Office of Elections; $1.3 million spent on nothing at Honolulu Airport. At that rate, procurement looks like a primary cause of our budget shortfall. Thomason believes this waste amounts to 10 percent to 20 percent of our spending. “Are we out of money?” he asks. “I don’t think we are. If you just look at the things that are done repeatedly, you think, ‘Wait a minute; we could easily save 10 percent here.’ I think our budget for contracts is in excess of $2 billion a year. Just 10 percent would be more than $200 million. That would make breathing a lot easier for budget negotiators down at the Legislature.”

State Sen. Norman Sakamoto, who is interested in procurement issues, believes Thomason’s estimates are reasonable. “I would say 20 percent is high,” he says. “But if we look at global costs, I’m comfortable with 10 percent. It’s certainly more than a couple percent.”

There’s no sign, though, that the state is prepared to make changes. To begin with, the understaffed State Procurement Office (SPO), which should be the center for innovation and reform, has a very narrow definition of procurement. State procurement officer Aaron Fujioka likes to point out that procurement technically takes place in a very short window, usually 30 to 90 days. Strictly speaking, he says, procurement is simply the process of announcing an invitation for bids or a request for proposals, the steps used to select among bidders, and the rules for identifying winning bids. “People think the process is this big,” Fujioka says, his arms outstretched, “but really only this part is procurement,” he adds, bringing his hands close together. For instance, he says, the beginning of the process – writing accurate and unambiguous requests for proposals – is outside the scope of procurement. That’s planning. Likewise, making sure contractors fulfill their obligations in a timely manner is not procurement. That’s project management.

Many experts believe the SPO should take a more expansive view of procurement. State auditor Marion Higa argues that, because of the principles involved – creating a level playing field for contractors and getting good value for the taxpayers’ dollars – procurement should extend down to the departments and agencies writing RFPs. “He (Fujioka) is correct in that it’s not within his jurisdiction, per se; but as SPO, shouldn’t he also be promoting that the key here is how you spec out your acquisition?”

Others point out that the SPO has not done a good job conveying the importance of procurement laws to state employees. State Rep. Blake Oshiro (also an attorney at Alston Hunt Floyd & Ing) notes that government officials continually complain that the process is difficult and cumbersome. “You have to wonder if they know what the Procurement Code is supposed to accomplish,” he says. “Fairness, openness, competition. My guess is they don’t.” The result is widespread contempt for the norms of government procurement.

The irony is that Hawaii’s procurement law, patterned after the American Bar Association’s model code adopted by 27 states, is flexible and more than adequate. What’s lacking is the leadership to enforce existing rules and develop new approaches. Instead, the state seems to be moving the other way. Last year, the Legislature passed laws that limit the ability of companies to protest contract awards – a key check on procurement misbehavior. Perhaps worse, insiders say, the SPO is circulating draft legislation designed to “simplify and streamline” the procurement process by eliminating basic safeguards, like requiring pre-bid conferences and cost analyses.

The SPO’s perspective will likely be emphasized this month when a legislative task force recommends centralizing procurement once again in that office.

Given this trend, it’s hard to ignore the impression that procurement is a dirty word among state officials. Yet, at its roots, procurement law is simply about ensuring a fair playing field and getting good value for the taxpayers’ dollar. In fact, as Terry Thomason puts it, “A dynamic procurement system is the very measure of good government.”


Seven Steps to Better Procurement

  1. Develop a fulltime, professional procurement staff in all departments: For most staff, state procurement is now an added responsibility to their usual duties.
  2. Make salaries of procurement professionals competitive with private industry: You get what you pay for.
  3. Recentralize supervision of procurement in the State Procurement Office: Decentralizing, which was meant to expedite the process, resulted in waste and fraud.
  4. Remove exemptions from state procurement code: Far from promoting autonomy, granting exemptions from the code to certain agencies exposes them to litigation, waste and fraud.
  5. Encourage, rather than discourage, reasonable protests of contract awards: A lively, expeditious protest system is our most effective way to check misconduct and inefficiency in the solicitation process.
  6. Educate, educate, educate: And not only about Hawaii procurement laws, but about innovative procurement practices in the federal government and elsewhere. Remain open to novel or mainstream procurement innovations.
  7. Invest time and resources in acquisition planning: Up-front planning will make for a smooth process during the formation and administration of a contract.
Source: Danielle Conway. professor of Law at the University of Hawaii, and Director of the Hawaii Procurement Institute

Hawaii Business magazine invites you to comment on our articles and the issues they raise. Comments are moderated for offensive language, commercial messages and off-topic posts and may be deleted. Some comments may be chosen for inclusion in the magazine on the Feedback page.

Old to new | New to old
Feb 18, 2010 04:02 pm
 Posted by  Moravecglobal

Activity, food prices are hurting visitors

A tourism executive said, "We haven't seen such revenue and visitor declines in Maui since we've been keeping records."

A fresh sign of the woes are being unleashed by a Maui economy mired in boom-time pricing marketing and the Great Recession.

Those vacationing on Maui are, unfortunately, not finding ways to reduce their restaurant and activities expenses once here. Visitor confidence in finding reasonably priced activities and restaurants in Lahaina/Kaanapali is exceptionally low.

Next year will not be any better than this year if the needs of visitors cannot be met.

Milan Moravec


Apr 7, 2010 01:45 am
 Posted by  konalady

Kona road projects are obstructed by a lack of political will to accomplish much from Hilo or Oahu. A County level audit revealed many discrepancies in bidding processes and no rhyme or reason in how projects are scheduled.
Regulatory changes to prevent corrupt and/or incompetent practices would be most welcome. As long as department positions are filled by cronies and relatives, there is little hope of changes. Political nominees & candidates reflect a muscial chairs process. Exasperating.

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