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$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


Phase II of the widening of the Big Island's
Queen Kaahumanu Highway is supposed to run between
Kona International Airport at Kealakehe Parkway.
But poor procurement has delayed the project
for two years.

Photo: Courtesy Google

Photo Courtesy: Google  Phase II of the widening of the Big
Island's Queen Kaahumanu Highway is supposed to run
between Kona International Airport at Kealakehe Parkway. But
poor procurement has delayed the project for two years.

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.

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

Lahaina

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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