1 1 2 3 SENATE/HOUSE OF REPRESENTATIVES 4 THE 21ST LEGISLATURE 5 INTERIM OF 2001 6 7 8 9 JOINT SENATE-HOUSE INVESTIGATIVE COMMITTEE HEARING 10 OCTOBER 5, 2001 11 12 13 14 Taken at the State Capitol, 415 South Beretania, 15 Conference Room 325, Honolulu, Hawaii commencing at 16 1:13 p.m. on Friday, October 5, 2001. 17 18 19 20 BEFORE: MYRLA R. SEGAWA, CSR No. 397 21 Notary Public, State of Hawaii 22 23 24 25 2 1 APPEARANCES: 2 3 Senate-House Investigative Committee: 4 Co-Chair Senator Colleen Hanabusa 5 Co-Chair Representative Scott Saiki 6 Vice-Chair Senator Russell Kokubun 7 Vice-Chair Representative Blake Oshiro 8 Senator Jan Yahi Buen 9 Representative Ken Ito 10 Representative Bertha Kawakami 11 Representative Bertha Leong 12 Representative Barbara Marumoto 13 Senator Norman Sakamoto 14 Senator Sam Slom 15 16 Also Present: 17 Special Counsel James Kawashima 18 Gary M. Slovin 19 20 21 22 23 24 25 3 1 I N D E X 2 3 WITNESS: KAREN ERHORN 4 EXAMINATION BY: PAGE 5 SPECIAL COUNSEL KAWASHIMA.................6 6 VICE-CHAIR SENATOR KOKUBUN...............50 7 VICE-CHAIR REPRESENTATIVE OSHIRO.........52 8 SENATOR BUEN.............................60 9 REPRESENTATIVE ITO.......................66 10 REPRESENTATIVE KAWAKAMI..................68 11 REPRESENTATIVE LEONG.....................73 12 SENATOR SAKAMOTO.........................75 13 REPRESENTATIVE MARUMOTO..................85 14 SENATOR SLOM.............................89 15 CO-CHAIR REPRESENTATIVE SAIKI...........100 16 CO-CHAIR SENATOR HANABUSA...............102 17 SPECIAL COUNSEL KAWASHIMA...............123 18 SENATOR SAKAMOTO........................124 19 VICE-CHAIR OSHIRO.......................128 20 REPRESENTATIVE MARUMOTO.................130 21 CO-CHAIR SENATOR HANABUSA...............132 22 23 24 25 4 1 P R O C E E D I N G S 2 CO-CHAIR REPRESENTATIVE SAIKI: Good 3 afternoon. I'd like to call to order our Joint 4 Senate-House Investigative Committee to investigate 5 the State's efforts to comply with the Felix Consent 6 Decree. I'd like to take a roll call. 7 CO-CHAIR SENATOR HANABUSA: Co-Chair 8 Saiki? 9 CO-CHAIR REPRESENTATIVE SAIKI: Here. 10 CO-CHAIR SENATOR HANABUSA: Vice-Chair 11 Kokubun? 12 VICE-CHAIR SENATOR KOKUBUN: Here. 13 CO-CHAIR SENATOR HANABUSA: Vice-Chair 14 Oshiro? 15 VICE-CHAIR REPRESENTATIVE OSHIRO: Here. 16 CO-CHAIR SENATOR HANABUSA: Senator Buen? 17 SENATOR BUEN: Here. 18 CO-CHAIR SENATOR HANABUSA: 19 Representative Ito? 20 REPRESENTATIVE ITO: Here. 21 CO-CHAIR SENATOR HANABUSA: 22 Representative Kawakami? 23 REPRESENTATIVE KAWAKAMI: Present. 24 CO-CHAIR SENATOR HANABUSA: 25 Representative Leong? 5 1 REPRESENTATIVE LEONG: Here. 2 CO-CHAIR SENATOR HANABUSA: 3 Representative Marumoto? Senator Matsuura is excused. 4 Senator Sakamoto? 5 SENATOR SAKAMOTO: Here. 6 CO-CHAIR SENATOR HANABUSA: Senator Slom? 7 SENATOR SLOM: Here. 8 CO-CHAIR SENATOR HANABUSA: Co-Chair 9 Saiki, you have the floor. 10 CO-CHAIR REPRESENTATIVE SAIKI: Thank you 11 very much. Members, we just have one witness on our 12 agenda today. This committee subpoenaed Karen Erhorn 13 who I believe is seated at the table. We'd like to 14 administer the oath at this time. 15 CO-CHAIR SENATOR HANABUSA: Ms. Erhorn, 16 do you solemnly swear or affirm that the testimony 17 you are about to give will be the truth, the whole 18 truth and nothing but the truth? 19 KAREN ERHORN: I do. 20 CO-CHAIR SENATOR HANABUSA: Thank you 21 very much. 22 Members, we will be following the usual 23 procedure. We will begin the committee's questioning 24 by way of our legal counsel followed by all of you. 25 If you have any questions, the ten-minute rule as to 6 1 the committee members will be instituted. 2 Mr. Kawashima. 3 SPECIAL COUNSEL KAWASHIMA: Thank you, 4 Madam Chair. 5 EXAMINATION 6 BY SPECIAL COUNSEL KAWASHIMA: 7 Q. Please state your full name and address. 8 A. Karen Marie Erhorn. My home address is 9 254 Kaha Street, Kailua, Hawaii. 10 Q. And ma'am, who is your employer? 11 A. Pacific Resources for Education and 12 Learning. 13 Q. And what position do you hold at Pacific 14 Resources for Education and Learning? 15 A. I'm the chief financial officer. 16 Q. Ma'am, so that we don't have to say that 17 over and over again, I don't anyway, your 18 organization has an acronym PREL, does it not? 19 A. Yes, it does. 20 Q. And I also note that you have your 21 counsel Mr. Slovin with you today? 22 A. Yes, sir. 23 Q. As you have a right to do. Now, in your 24 position, ma'am, as chief financial officer, can you 25 briefly tell us what your duties and responsibilities 7 1 are? 2 A. My responsibilities entail the financial 3 reporting and recording of financial transactions for 4 PREL including their tax, contract compliance, 5 internal controls, establishing and maintaining, some 6 risk management, cash management, most any other 7 areas that touches the financial transaction. 8 Q. All right. And how long have you served 9 in that capacity with PREL, ma'am? 10 A. I've been with PREL for about seven 11 years. 12 Q. And before that may I ask with whom you 13 served? 14 A. Before that I was at home basically 15 taking care of my daughter, and before that -- and at 16 one time I owned a travel agency, part-time owner of 17 a travel agency. 18 Q. All right. Now, as the chief financial 19 officer for PREL, ma'am, are you responsible for the 20 processing of payments that PREL makes to someone who 21 is subcontracted with PREL? 22 A. Yes. 23 Q. For example, if a subcontractor with PREL 24 incurs an expenditure and sends an invoice to you, 25 you would be the one to review it at least ultimately 8 1 be possible for reviewing that invoice and 2 determining whether or not, as you say, it complied 3 with the contract that was involved and then to 4 approve payment? 5 A. My responsibility would be to determine 6 that the invoice was properly processed and reviewed 7 by those in PREL as well as myself as processing and 8 finalizing the invoice. 9 Q. Thank you. Now, perhaps you might assist 10 us, ma'am, by giving us background on what PREL is. 11 A. PREL is a non-profit 501-C3 corporation 12 established in the State of Hawaii whose board of 13 directors consists of the chief state school officers 14 of the region we serve as well as constituent members 15 of parents, teachers, business members and community 16 members. 17 The region we serve includes Hawaii, 18 American Samoa, Guam, Federated States of Micronesia, 19 the Common Wealth of Northern Mariana Islands, 20 Republic of Palau and Republic of the Marshall 21 Islands. 22 Q. I see. And how long, ma'am, has PREL 23 been in existence? 24 A. I think last year we celebrated 10 years. 25 Q. Congratulations. 9 1 A. Thank you. 2 Q. Now, PREL in the course of its work does 3 contract with the Department of Education, the Hawaii 4 state Department of Education, does it not? 5 A. It has, yes. 6 Q. Does it have, for example, contracts 7 without telling me specifically what they are, does 8 it presently have contracts with the State of Hawaii 9 Department of Education? 10 A. I'm sure we do, yes. 11 Q. As far as presently the nature of how 12 many contracts -- I understand we didn't prepare you 13 for this, but could you tell me how many or give me 14 an estimate of how many such contracts you might have 15 right now current? 16 A. I don't think more than five. 17 Q. Now, is it a usual practice if we might 18 just focus on the State of Hawaii Department of 19 Education not only the existing about five contracts, 20 but contracts you've had in the past, is it a normal 21 practice to utilize the services of subcontractors? 22 A. My familiarity with each Department of 23 Education contract -- I'd like to answer that broadly 24 that yes, we do often have contracts in which we use 25 subcontractors. I can't remember the other contracts 10 1 with the Department of Education which we would have, 2 but I'm not sure. 3 Q. I see. In the ones that you do recall 4 that you utilize the services of subcontractors, 5 ma'am, is there a policy or procedure that your 6 company follows in identifying which organizations or 7 people would qualify first of all to be a 8 subcontractor and then go through another policy or 9 process whereby ultimately a person or an 10 organization is actually selected to be the 11 subcontractor in that job? 12 A. I think a lot depends on the way it was 13 initiated. PREL is a federal contractor and grant 14 holder primarily. So much of my experience I would 15 be relying relates to that experience, and the way we 16 process transactions and enter into grant and 17 contracts with the federal government. 18 Often times with the federal government 19 they do -- we put in proposals that have specified 20 contractors of partners or collaborators that we use 21 to do a program of work, and often times this is at 22 the federal government's -- we propose with these 23 people and they're part of our work, and then the 24 subcontract ensues once we're given the award. 25 So there are those instances in which, 11 1 yes, they're established up front. There are other 2 instances which it might not be. 3 Q. All right. I'm not sure if you're aware 4 of this, ma'am, but the reason we subpoenaed you here 5 today was to ask you some questions about specific 6 contracts that I think you're aware of that, ma'am. 7 A. Yes. 8 Q. And I'd like to ask you questions about 9 them, but before I do, is it a typical situation 10 where you might enter into a contract with the 11 Department of Education, for example, yet have that 12 contract funded not necessarily by the State of 13 Hawaii but by the federal government? 14 A. I can't say we've had very many contracts 15 with the Department of Education; so if you're 16 talking about the specific ones, probably unusual 17 because I don't think the others were or at least 18 they didn't specify where the funding came from. 19 Q. All right. 20 A. So I wouldn't know. 21 Q. In other words if, in fact, the funding 22 came from impact aid, that would be -- your 23 understanding would be that it was federal funds, 24 right? 25 A. Right. 12 1 Q. And maybe we ought to clarify, ma'am. 2 What we're saying is that the federal government 3 provides impact aid to the State of Hawaii Department 4 of Education who then uses those funds to fund, for 5 example, a contract with an organization like PREL 6 which is what happened in this case, right? 7 A. Yes. 8 Q. All right. Now, let me ask you then, 9 ma'am, in terms of contracts of this nature, you, of 10 course, are involved in the process in reviewing them 11 before anyone at PREL in a position of authority to 12 do so signs these contracts? 13 A. Yes. 14 Q. So that you have at least some 15 familiarization with the terms of the contract, do 16 you not? 17 A. Yes. 18 Q. These types of contracts, yes? 19 A. Yes. 20 Q. And normally in the case of contracts 21 like the one we're talking about, are you also 22 responsible for reviewing or having someone else make 23 sure that the people involved with the contract 24 comply with the terms of the contract? 25 A. As far as -- yes, yes. 13 1 Q. All right. Would it be fair to say, or 2 if you could identify them since you know what they 3 are, and we're going to have them marked as exhibits 4 for everyone to look at, but you have familiarity 5 with the terms of these contracts we're talking 6 about, do you not? 7 A. Yes. 8 Q. Were you involved with the negotiations 9 that ended up in these contracts being signed? 10 A. Yes. 11 Q. All right. So that I'm going to have the 12 court reporter hand you first of all what we've 13 marked as Exhibit 1 to this legislative hearing and 14 will you briefly describe that document to us, ma'am? 15 A. It's an agreement for non-bid services 16 from the State of Hawaii to PREL for our assistance 17 on the Felix consent decree compliance work. 18 Q. And just so we know what we're talking 19 about for the other members of the committee, we're 20 talking about a document that's entitled "State of 21 Hawaii Agreement for non-bid Purchase of Goods and 22 Services." It has an effective date of August 15, 23 2000, and it is between the Department of Education 24 and PREL; is that correct? 25 A. Correct. 14 1 Q. And then let me have the reporter hand 2 you what we're going to mark as Exhibit 2 for the 3 purposes of this Joint Senate-House Investigative 4 Committee hearing and ask you to identify that. 5 A. This is a copy of a fax that I sent to 6 someone at Hawaii State Department of Education as 7 requested -- upon their request which is a copy of 8 PREL's contract with Kaniu 1 referred to as Na Laukoa 9 Program and the modification thereto. 10 Q. All right. 11 A. And extension. 12 Q. So again, it's a shorter document with 13 this fax transmittal page under your organization's 14 letterhead addressed to Ms. Laurel Johnston who is, 15 as you know, with the Department of Education? 16 A. Correct. 17 Q. And it comes from you, and it's 18 transmitting a copy of a contract that is between 19 PREL and it says Kaniu, I guess, Roman I and Hawaii 20 Limited Liability Company. Am I correct? 21 A. Correct. 22 Q. And then Exhibit 3 is a shorter document. 23 Will you identify that for us? 24 A. This is an internal document that PREL 25 uses whenever a contract is developed, and it's 15 1 called "Worksheet for preparation of Contracts, 2 Memorandum of Understanding, et cetera." 3 Q. All right. Now, you also are familiar 4 with that document, are you not? 5 A. Yes. 6 Q. Now, if I might ask you -- before I go 7 on, I meant to ask you a few other questions, ma'am. 8 Other than to your conversations with 9 your attorney, ma'am, which are privileged, have you 10 been contacted by anyone from the Department of 11 Education or any representative of that person 12 regarding your testimony today? 13 A. No. 14 Q. No one from the Department or appearing 15 to represent a member of the Department has discussed 16 any matters related to these exhibits that we 17 produced today, that we've marked today, has that not 18 happened? 19 A. That has not happened. 20 Q. All right. Now, if we might look at 21 these two exhibits, ma'am, Exhibit 1, then, the 22 thicker document is the actual contract between the 23 DOE and PREL, is it not? 24 A. Yes. 25 Q. And it is in an amount of $2,320,611.00? 16 1 A. Correct. 2 Q. And it is, as we can see from the face 3 page, funding that would be provided by impact aid 4 which we understand to be federal funds? 5 A. Yes. 6 Q. And it also on the first page indicates 7 that the agreement is a procurement expenditure of 8 public funds for goods and services and that it goes 9 on to describe the fact that it was considered exempt 10 from the state procurement laws and such because of 11 an order issued by the United States District Court 12 for the District of Hawaii; is that correct? 13 A. Correct. 14 Q. And it has an order issued pursuant to 15 the Felix vs. Cayetano consent decree also it appears 16 to say, right? 17 A. Right. 18 Q. And you understand that the State of 19 Hawaii does have specific procurement laws that apply 20 to contracts of this nature? 21 A. Yes, I understand that, yes. 22 Q. Without knowing -- I'm not asking you, 23 ma'am, the exact provisions of the law just generally 24 because PREL does from time to time contract with the 25 State of Hawaii whether it be the Department of 17 1 Education or otherwise, you know that there are 2 specific procurement laws by which people who 3 contract with the State are governed? 4 A. Yes. 5 Q. All right. Now in this case, though, you 6 understood that these procurement laws didn't apply 7 to this transaction? 8 A. Correct. 9 Q. Now, do you recall going back to the 10 point in time of the summer of 2000 what the 11 circumstances were under which PREL, in fact, 12 contracted with the State of Hawaii Department of 13 Education for this contract that we've identified as 14 Exhibit 1? 15 A. (Witness nods head.) 16 Q. You're nodding your head. Take as long 17 as you like. 18 A. I was not -- let me try to say. In 19 August we were advised or became aware -- at least I 20 became aware. I can't speak for others -- of the 21 desire for the State of Hawaii Department of 22 Education to secure PREL's services for assistance on 23 the Felix consent decree. 24 At that time PREL followed its normal 25 procedures to review and go through some of the -- 18 1 execute the contract. 2 Q. Sure. Do you recall what your 3 involvement was, though, in the steps that led up to 4 the signing of this contract? 5 A. I participated on a team that PREL put 6 together as it does for all contracts that come up. 7 We put together a team of individuals who are 8 familiar with the consent area that services are 9 being requested or specialists in that. 10 Some planning and evaluation personnel 11 assisted and our management assisted, and I provide 12 the contractual and financial information or review 13 of a contract. So we've met, and there were 14 discussions about this work. 15 Q. All right. There was no formal bid 16 process with this contract, was there? 17 A. No, there was not. 18 Q. There were discussions for people on the 19 Department of Education's side on the one hand and 20 PREL on the other hand as a result of which this 21 contract was entered into? 22 A. Correct. 23 Q. Who was it under the DOE's side, ma'am, 24 that represented the department in these 25 negotiations? 19 1 A. Dr. LaMehieu. 2 Q. Dr. LaMehieu himself? 3 A. Yes. 4 Q. Was there anyone else to your 5 recollection that was involved in that -- in those 6 discussions? 7 A. If I can go back and qualify it a little 8 bit, I had contact with Dr. LaMehieu but probably no 9 doubt were others involved but I really don't know. 10 Q. I see. I understand what you're saying. 11 What you're saying is you as the PREL representative 12 negotiated with Dr. LaMehieu as the DOE 13 representative? 14 A. But the negotiation on PREL's behalf was 15 also not just me. It was also a team that was doing 16 it. 17 Q. I see. 18 A. And they may have talked to other people 19 and engaged others, but Dr. LaMehieu was the one I 20 talked to. 21 Q. All right. Would it be fair to say, 22 ma'am, that you were the person of the highest 23 administrative position at PREL who negotiated with 24 the State on this contract? 25 A. I'd like to say so, but no, I was not. 20 1 Q. I see a Don Burger signed the contract 2 also? 3 A. Don Burger, no, his name is not on the 4 contract. 5 Q. You're right. I think his name is on one 6 of the worksheets, perhaps? 7 A. Right. Don Burger was the program 8 manager. 9 Q. Sure. I think Mr. or Dr. Kofel, 10 K-O-F-E-L signed on behalf of PREL? 11 A. Correct. 12 Q. Was he involved with the negotiations 13 also? 14 A. He was familiar with it. I'm not sure if 15 he was around at the time that some of the 16 conversations were going back and forth. 17 Q. Okay. This -- then it would have been, 18 of course, standard procedure for Mr. Kofel as the 19 president and C.E.O. of PREL to sign on behalf of 20 PREL? 21 A. Definitely. He did sign the contract. 22 Q. But you did the negotiations, though? 23 A. Only part of it. I participated in it. 24 There were conversations with others, and you see the 25 chief program officer there is -- also participated. 21 1 Q. Who would that have been? 2 A. Dr. Tom Barlow. 3 Q. I'm sorry? 4 A. Dr. Tom Barlow. 5 Q. Barlow? 6 A. Yes. 7 Q. All right. Now, in looking at the 8 contract, ma'am, without going into very specific 9 detail, you understand that the department was 10 looking for services related to what they call 11 targeted technical assistance? 12 A. Correct. 13 Q. And after your working was put together 14 and discussed, what was being asked for in terms of 15 services from PREL, PREL felt confident that it could 16 provide the services in this area of targeted 17 technical assistance? 18 A. Yes. 19 Q. And if I may ask, ma'am, looking at what 20 was required under this contract, would it be fair to 21 say that PREL and PREL alone without the assistance 22 of any other organization or person or subcontractor 23 or they could be all the same, that PREL had the 24 people with the skills and ability to handle this 25 contract alone? 22 1 A. That's probably way beyond my ability 2 about the skills of others. I can volunteer that 3 PREL normally collaborates and works with others as a 4 team on a major piece of work. So we have very few 5 federal programs in which PREL is just doing it 6 itself. 7 Q. I see. 8 A. It's normal for us to have another 9 organization whether it be a university or other 10 assistance provider to participate. 11 Q. And how do you -- if I might ask you 12 generally, ma'am, how do you go about, then, 13 identifying this organization or institution or 14 person that you are going to have work in conjunction 15 with you to fulfill the terms of the contract? 16 A. Again, it goes back. Many times it's in 17 our bid with the federal government to say that or 18 somebody will advise us of someone like the federal 19 government primarily, but the selection of 20 subcontractors when it has to do with a technical 21 area in education I'm generally not -- I'm not one of 22 those making those decisions. 23 Q. You do have knowledge, though, ma'am, in 24 this case of these two contracts, Exhibits 1 and 2, 25 you do have knowledge as to how the subcontractor was 23 1 selected though, don't you? 2 A. Yes, definitely. 3 Q. And what I might ask you to do if you 4 might look at these contracts side by side look at 5 first Exhibit 1 and then Exhibit 2. If you thumb 6 through Exhibit 1 maybe three quarters of the way 7 through, there is a page entitled "Scope of 8 Services." 9 A. Yes. 10 Q. You're familiar with that, are you not? 11 A. Yes, I am. 12 Q. And what those two pages do is they -- 13 maybe more than two. What those four pages do is 14 define the work that PREL would need to complete to 15 comply with the terms of that agreement. 16 A. Correct. 17 Q. And then if we look at Exhibit 2, then, 18 ma'am, the contract -- the subcontract I guess we 19 might call it between PREL and Na Laukoa which was 20 entered into after Exhibit 1 of course and the scope 21 of services we see the exact same four pages? 22 A. Correct. 23 Q. In fact, I could be wrong, but there is 24 not a word that is different in the four pages 25 entitled "Scope of Services" in Exhibit 1 with the 24 1 four pages entitled "Scope of Services" in Exhibit 2? 2 A. They are the same document. 3 Q. And so that if we look at either one of 4 them, let's look at Exhibit 1 first what the scope of 5 services does, then, is it already tells us that Na 6 Laukoa is involved in the contract? 7 A. Correct. 8 Q. And am I to understand, then, the way 9 this came to you -- to you meaning PREL -- was that 10 someone in the Department of Education wrote up 11 agreement 1 of course without the handwriting and 12 presented it to you with a section entitled "Scope of 13 Services" as is exactly contained in Exhibit 1? 14 A. I think Exhibit 1 was a joint effort 15 where we helped develop those scope of services based 16 on what we perceived their needs were and then went 17 back and forth where additions and whatever went. 18 Q. All right. However, this scope of 19 services that would be contained in both agreements 20 as far as the naming of Na Laukoa is concerned -- 21 A. Yes. 22 Q. -- that was not PREL's doing though, was 23 it? 24 A. No, it was part of the contract. 25 Q. Well, when you say no, it was part of the 25 1 contract, am I to understand, ma'am, that when the 2 scope of services section was negotiated in Exhibit 1 3 which then became the exact same thing in Exhibit 2, 4 that essentially PREL was told that Na Laukoa would 5 be named in this section to be involved with that 6 contract? 7 A. Yes, we took the contract with the 8 understanding that Na Laukoa absolutely would be a 9 partner or a subcontractor in the project. 10 Q. And the knowledge you got that Na Laukoa 11 would absolutely be a subcontractor on the contract 12 that information was provided to you by Dr. LaMehieu, 13 was it not? 14 A. Correct. 15 Q. And directly and specifically from 16 Dr. LaMehieu, was it not? 17 A. As far as I know. 18 Q. Now, were you aware, ma'am, at this point 19 in time that even prior to your negotiations with 20 Dr. LaMehieu that Dr. LaMehieu had attempted to get 21 the State Department of Education to contract 22 directly with Na Laukoa for pretty much the same 23 services that your contract provides for? 24 A. Yes, I've heard that, yes. 25 Q. You've heard that. What I'm asking you 26 1 is did you know when you were negotiating it? 2 A. Yes, yes. 3 Q. And how did you obtain that information? 4 A. I think it was explained to us in a 5 meeting when the history of this work was presented, 6 and I think it was a meeting with the Department of 7 Education personnel. 8 Q. Not Dr. LaMehieu? 9 A. He was there too. 10 Q. And did -- strike that. And in this 11 meeting with the Department of Education personnel, 12 do you recall who they were? 13 A. No, I don't. 14 Q. And do you recall what information was 15 imparted to you by the Department of Education 16 personnel? 17 A. No, but it sounded similar to what you 18 were mentioning earlier that there was a history 19 behind -- 20 Q. I see. 21 A. -- where we were coming to. 22 Q. Well, maybe I'd ask you this way, ma'am. 23 At the time that you were negotiating for this 24 contract and before you signed it, any time before 25 you signed it on behalf of PREL you and Dr. Kofel, 27 1 were you aware that personnel in the Department of 2 Education, fairly high administrative personnel, were 3 against Na Laukoa being involved in any way in this 4 type of contract? 5 A. Personally, no. 6 Q. You came to learn that later of course? 7 A. Yes. 8 Q. But at that time you had no knowledge 9 that there were specific complaints made by not only 10 those in the Department of Education but also the 11 Department of Health as to the ability of Na Laukoa 12 to provide the type of services and the quality of 13 services that were required? 14 A. No, I didn't have any personal knowledge 15 of that. 16 Q. All right. And by the way, if you know, 17 ma'am, I'm not trying to have you answer questions 18 you don't know about, but did you understand that a 19 contract such as this because it was being funded by 20 Federal Impact Aid would avoid the scrutiny of the 21 state legislature because it was federal funds versus 22 state funds? 23 A. No, I did not know that. 24 Q. And do you know, ma'am, at the time you 25 negotiated this contract that because of the manner 28 1 in which this contract was entered into, in other 2 words, with PREL as opposed to Na Laukoa that the 3 Board of Education which would have had to supervise 4 I should say approve this type of contract would not 5 practically know that the contract, in effect, had 6 provided for a substantial part of work to be done by 7 Na Laukoa, not PREL. Were you aware of that? 8 MR. SLOVIN: Excuse me. That's a very 9 long complex question. Perhaps you can break it up 10 because it also assumes that she understands the 11 working relationships between the board and its 12 authorities with respect to contracts. 13 SPECIAL COUNSEL KAWASHIMA: That's well 14 taken. Let me rephrase that. 15 Q. (By Special Counsel Kawashima) Are you 16 aware of the relationship between the Board of 17 Education and the Department of Education with regard 18 to the entering into of contracts? 19 A. No, I'm not. 20 Q. All right. That makes it easy. Now, so 21 that now we look at this contract that Dr. LaMehieu 22 requires that Na Laukoa be involved in the contract, 23 did they, in fact, provide services -- did Na Laukoa 24 provide services? 25 A. Yes. 29 1 Q. And what type of services did Na Laukoa 2 provide? 3 A. I think it's somewhat described in that 4 attachment, and I'll try to explain it. They were -- 5 let me think because I'm not on the program side; so 6 I'm trying to say. 7 MR. SLOVIN: Let me just interpose. You 8 have subpoenaed Don Burger who's a program manager, 9 and I think Karen Erhorn will try to answer the best 10 as possible, but he's probably in a better position 11 to give you more information on that. 12 KAREN ERHORN: Definitely. 13 SPECIAL COUNSEL KAWASHIMA: I understand. 14 That. We actually have tried to have Mr. Burger 15 appear here for reasons, I'm sure good and valid, 16 reasons he was not able to be served. 17 MR. SLOVIN: He was in Saipan at the 18 time. 19 SPECIAL COUNSEL KAWASHIMA: Good reason. 20 Q. (By Special Counsel Kawashima) But, 21 ma'am, just to the best of your ability we appreciate 22 it if you can, we may or may not have the time to 23 have Dr. Burger come here. 24 A. Na Laukoa provided some mental health 25 side component, knowledge and experience and capacity 30 1 that PREL -- that's not our expertise is more on 2 education. They provided personnel to individual -- 3 to oversee some of the, in fact, all of the technical 4 assistance coordinators and to fulfill the services 5 as outlined in the attachment. 6 Q. What mental health services, do you know 7 what type of services they were, ma'am? 8 A. No, I don't. 9 Q. Not at all? 10 A. I know it had to do with children and 11 something after school help that they had done before 12 and probably are still doing. 13 Q. With children? 14 A. I would assume, but I don't know. 15 Q. All right. All right. How about the 16 technical assistance coordinators, by whom were they 17 hired by the way? 18 A. PREL was -- they were contracted for by 19 PREL as outlined in the attachment work. There was a 20 whole process followed for soliciting and engaging 21 these technical assistance coordinators of which Na 22 Laukoa participated. 23 Q. And to what extent did they participate? 24 A. They were part of the team to help 25 solicit, you know, there was an advertisement that 31 1 were not technical assistance coordinators and they 2 help review the r�sum�s, made selections, 3 recommendations, et cetera. 4 Q. In your mind, ma'am, from what you know 5 about the contract and only what you know, did it 6 appear that what PREL ultimately was doing was to be 7 training the personnel from Na Laukoa as to the 8 requirements of the contract or things that had to be 9 done under the contract? 10 A. I think PREL naturally does that, and we 11 do it with almost all -- it's not unexpected. 12 Capacity building is part of our forte so to speak. 13 So we did -- we do that with everyone we work with in 14 certain areas. We certainly did it with Na Laukoa 15 and -- but in other areas I don't -- probably not 16 when it comes to the program side. 17 Q. Well, on the side of obtaining technical 18 assistance coordinators and by the way these types of 19 technical assistance coordinators were a very 20 important part of this contract, were they not? 21 A. Yes. 22 Q. On that side, ma'am, in terms of the 23 soliciting and obtaining and hiring of these 24 individuals, as you say they provided assistance, did 25 they not? 32 1 A. Yes. 2 Q. But that type of assistance that they 3 provided, ma'am, PREL would have been quite capable 4 of providing those services themselves without the 5 assistance of anyone from Na Laukoa; is that correct? 6 MR. SLOVIN: Mr. Kawashima, I think the 7 problem that I'm concerned about here is you have 8 subpoenaed Don Burger who is scheduled to testify 9 next Friday who is pretty clearly based on the 10 qualifications that he's in a much better position to 11 answer that kind of question. 12 SPECIAL COUNSEL KAWASHIMA: Well -- 13 MR. SLOVIN: Ms. Erhorn will help as much 14 as possible. What I am concerned about is that you 15 won't get a clear picture of what actually occurred. 16 SPECIAL COUNSEL KAWASHIMA: No, I 17 understand that we intend to get as clear a picture 18 as possible, Mr. Slovin, but I believe that she was 19 going to answer the question, and I think she can to 20 the extent of her knowledge. And I'm not attempting 21 to get her to say something she doesn't know about, 22 first of all; or second, to get her to say anything 23 that might contradict Mr. Burger. I really am not. 24 But I think she has some knowledge in this area which 25 is a fairly ministerial area I might say in terms of 33 1 hiring technical assistance coordinators. We're not 2 talking about high level -- 3 MR. SLOVIN: Well, it's not ministerial. 4 I think that's one of the concerns. I'm not 5 objecting to your asking the question, but I just 6 think that the way the question is being asked -- and 7 it's not an unfair question -- but it's really being 8 asked to the chief financial officer who doesn't have 9 the same program involvement in this that Mr. Burger 10 does. 11 SPECIAL COUNSEL KAWASHIMA: I understand. 12 I appreciate that, but I think she also testified 13 earlier, Gary, that she has knowledge of these 14 contracts by virtue of her position in terms of 15 making sure there's compliance; and by virtue of 16 that, would have a bit of information and knowledge 17 about the contract that perhaps someone in a lower 18 administrative position might not have, and that's 19 all I'm asking. 20 MR. SLOVIN: Okay. 21 SPECIAL COUNSEL KAWASHIMA: Just to the 22 extent that she knows. 23 KAREN ERHORN: What was the question? 24 Q. (By Special Counsel Kawashima) Ma'am, 25 don't ask me to ask it again. 34 1 A. I think it was could PREL have recruited, 2 solicited, engaged those -- 3 Q. Just alone without necessarily having any 4 assistance from anyone from Na Laukoa. 5 A. At the time -- there was a lot of 6 manpower needed at the time. We didn't anticipate -- 7 that was not in our contract to do that work. That 8 was the recruitment as you'll see as No. 1 in the 9 contract of the management team. That was their 10 responsibility. 11 When you found that it wasn't happening, 12 then it was into each benchmarks -- and like I said 13 Don Burger can talk a lot better about this -- it 14 became a real race to start engaging that -- start 15 engaging in the solicitation and recruitment. And 16 whether we could -- I think technically at any point 17 in time we probably could do that, yes. Given the 18 circumstances under that time frame, I'm not sure I 19 could say yes. 20 Q. Well, the contracts provided for Na 21 Laukoa to be paid under your subcontract a certain 22 amount; is that correct? 23 A. Correct. 24 Q. And that amount was what, ma'am, do you 25 recall? 35 1 A. I think the contract with Na Laukoa was 2 around $688,000. I can look right here and see it. 3 Q. Yeah. I see a figure of $688,245? 4 A. Correct. 5 Q. Total contract amount that Na Laukoa paid 6 to -- I'm sorry, PREL paid to Na Laukoa pursuant to 7 these two agreements? 8 A. PREL has not paid that to Na Laukoa. 9 That was the contract amount. 10 Q. Was that amount paid? 11 A. No. 12 Q. Why not? 13 A. This is a cost reimbursement contract, 14 and also you'll see we're also holding back, like, 15 $40,000 and we intend to do so at some point in time. 16 Q. All right. When you say cost 17 reimbursement, what you're saying is that the 18 appropriate paperwork hasn't been provided yet for 19 you to pay it all other than the $40,000? 20 A. Correct. They'd have to submit invoices 21 with the cost, they get approved and then upon that 22 we make payment or final payment. 23 Q. In fact, this contract that was entered 24 into with Na Laukoa in the year 2000 for a period I 25 believe that went through June 30, 2001 of this year. 36 1 That contract has been extended, has it not? 2 A. Correct. 3 Q. And it has been extended by that letter 4 from Laurel Johnston to you up to and including 5 August 31 of this year? 6 A. Correct. 7 Q. Has that contract been completed, then, 8 to your knowledge and recollection? 9 A. Completed? We have not extended it, but 10 we intend to or we're expecting to. 11 Q. Whose decision was it to extend that 12 contract? 13 A. To extend it to August 31? 14 Q. Yes. 15 A. Again, it was a joint decision of 16 primarily the program people I guess. 17 Q. Well, let me ask this: Whose decision 18 was to include Na Laukoa in the process of this 19 contract extension of being involved in the contract 20 extension? 21 A. The work still called -- continued 22 through June. Our contract with the State Department 23 of Education went through September 1. We drafted -- 24 Na Laukoa is just till June we just did. And so when 25 the work continued in the summer, they continued as a 37 1 partner in the summer. 2 Q. By whose choice? 3 A. Our choice. 4 Q. And was this another matter to your 5 knowledge that was directed to PREL by Dr. LaMehieu? 6 A. No, I don't remember any discussion on 7 that. 8 Q. You don't remember any discussion you had 9 with Dr. LaMehieu on that? 10 A. No. 11 Q. Although in the first instance it was 12 Dr. LaMehieu who specifically instructed PREL that Na 13 Laukoa would be a part of that contract? 14 A. Asked PREL to participate in the contract 15 with Na Laukoa, yes. 16 Q. In other words, to your knowledge, ma'am, 17 if PREL had not agreed to include Na Laukoa as a 18 subcontractor to this Exhibit 1, in all likelihood 19 PREL would not have received that contract? 20 A. I really don't know. 21 Q. Was Dr. LaMehieu at that time in August 22 of 2000 a member of the board of directors of PREL? 23 A. In August of 2000, correct. 24 Q. He had been a member of the board of 25 directors of PREL for sometime before that though? 38 1 A. Correct. 2 Q. And the fact that he was a member of the 3 board of directors of PREL and then awarded this 4 contract to PREL caused some consternation among the 5 public, did it not? 6 A. It appears to have, yes. 7 Q. There were newspaper articles written. 8 I'm not suggesting anything was wrong on PREL's part, 9 but I am saying that there were complaints voiced 10 publicly by a number of people and organizations, 11 were there not? 12 A. A number in the public? 13 Q. Yes. 14 A. Yes, I read those articles. 15 Q. You read those articles. Well, you know, 16 interestingly one of those articles, ma'am, out of 17 the whole Advertiser when it discussed or I should 18 say reported this matter indicated that the Board of 19 Education after considering Dr. LaMehieu's being a 20 member of your board -- and again, I'm not suggesting 21 anything wrong on PREL's part -- but ruled that 22 Dr. LaMehieu should no longer be a member of your 23 Board of Directors. Were you aware of that? 24 A. Yes. 25 Q. And in that very same article dated 39 1 May 13, 2001 in quotes that the reporter obtained 2 from Dr. LaMehieu in terms of what Na Laukoa had done 3 or could do with regard to this contract we're 4 talking about, Dr. LaMehieu was quoted as saying, 5 "They -- meaning Na Laukoa -- "have never done this 6 before. That's the true statement. But here's an 7 important thing to realize, if you only give 8 contracts to people who have done it before, then no 9 one new will ever learn to do it and the Big Island 10 will never have the capacity." 11 Now, were you aware that Na Laukoa had 12 never done this before, "this" meaning what the 13 contract Exhibit 1 called for before you entered into 14 that contract? 15 A. I remember hearing that statement, yes, 16 yes. 17 Q. Thank you. You remember hearing that 18 statement. Were you aware, though, before you 19 entered into the contract which was before the 20 article was written, that Na Laukoa had never done 21 that before? 22 A. I'm sorry. I think I heard Dr. LaMehieu 23 say that before too that this was -- and that's one 24 of the requests he had of PREL was to help mentor a 25 Native Hawaiian organization and to grow capacity on 40 1 the Big Island. So all was clearly understood before 2 we entered into the contract. 3 Q. So when you entered into this contract, 4 then, part of the contract was for you, PREL, to 5 train the people at Na Laukoa to some degree, right? 6 A. To build capacity as best. 7 Q. And to train them to do the job that they 8 were supposed to do under that contract, right? 9 A. There's a lot of areas of training. 10 Q. Sure. 11 A. I'm not sure -- they certainly had -- and 12 again this goes to the program's side -- but they 13 certainly had personnel there who were capable to do 14 it, to do the work. 15 Q. You know that from the program side? 16 A. Pardon? 17 Q. Do you know that from the program side 18 you're saying? 19 A. Yes. 20 Q. So you have some knowledge of the program 21 side then? 22 A. I know some -- I've seen r�sum�s, and 23 they looked good. 24 Q. I'm not criticizing you, ma'am, but is 25 that the extent of your knowledge of the program side 41 1 having seen r�sum�s? 2 A. No. Of course I've sat in some meetings, 3 and I have more knowledge on that but. 4 Q. Sure. Well, what do you think 5 Dr. LaMehieu was referring to, then, when they say 6 they, Na Laukoa, have never done this before, never 7 done what before? 8 A. The way I read it never administered a 9 large contract. 10 Q. And so that part of your contract, then, 11 would require PREL to train Na Laukoa as to how to 12 administer a large contract? 13 A. That's the way I read it. 14 Q. All right. And that's part of what PREL 15 was paid to do to train Na Laukoa to do that? 16 A. That's part of what we were tasked to do 17 which is again fairly normal with what we do almost 18 on a daily basis. 19 Q. Do you understand, ma'am, that with 20 regard to the carrying out of this contract in terms 21 of whether it be program or administrative work that 22 essentially in the end PREL did all the work and all 23 Na Laukoa provided was essentially secretarial 24 services? 25 A. Absolutely not. 42 1 Q. What did they do, then, specifically that 2 you're aware of other than secretarial services and 3 other than assisting in locating and hiring technical 4 assistance coordinators? 5 A. Their responsibility was with the 6 technical assistance coordinators to oversight 7 review, manage, answer their questions, help schedule 8 them get into doors. I mean, that was quite a few 9 TACs to administer. 10 Q. I understand what you're saying as to 11 what their responsibility should have been. What I'm 12 asking you, ma'am, is did they specifically carry out 13 those responsibilities? 14 A. As far as I know, yes. 15 Q. Well, when you say as far as you know -- 16 MR. SLOVIN: Well, we already indicated 17 that she's not the program person who monitors this. 18 SPECIAL COUNSEL KAWASHIMA: That's why 19 I'm asking if she's answering the question as if she 20 knew. 21 Q. (By Special Counsel Kawashima) Do you 22 know if they carried out these responsibilities on 23 the program side or not, ma'am? 24 A. Yes. 25 Q. Tell me what they did specifically then? 43 1 Ma'am, if you don't know, please tell me. 2 A. I really don't. I did not attend those 3 meetings. I was not part of the management team 4 meetings. I did not attend the TAC meetings, but I 5 know those things were held, and all the processes 6 were held. But I didn't attend the meetings to be 7 able to say specifically what they said at the 8 meeting or what they did. 9 Q. Sure. In terms of what happened in those 10 meetings, who participated in them, who really, for 11 example, ran the meetings, and whether or not Na 12 Laukoa and their personnel had any part of carrying 13 out that meeting you don't know that, do you? You 14 have to answer. 15 A. No. 16 Q. All right. And as far as whether or not 17 Na Laukoa did the tasks that they were required to do 18 under the contract, in terms of program you do not 19 have the ability to answer those questions, do you? 20 A. I think Dr. Burger would be much better. 21 Q. Sure. You were not involved in the 22 program side? 23 A. Yes. 24 Q. All right. Were you contacted by any 25 Department of Education personnel about this contract 44 1 with the department before you signed it other than 2 Dr. LaMehieu? 3 A. I can't remember anyone else. 4 Q. And oh, let me get back to one thing. 5 When you had that discussion -- those discussions 6 with Dr. LaMehieu, you among others at PREL that 7 ended up in the entering into of agreement of this 8 agreement Exhibit 1, did he ever mention the name of 9 a person named by the name of Dr. Golden? 10 A. I've heard the name. Whether it was 11 mentioned at that time, I really couldn't remember. 12 Q. Do you know Dr. Golden yourself? 13 A. Yes, yes. Well, no, I've never met. I'm 14 sorry. I just heard the name. 15 Q. Sure. Thank you. And did Dr. LaMehieu 16 mention to you or tell you or anyone else at PREL at 17 that time whether or not there had been a discussion 18 with Dr. Golden, Robert Golden there had been 19 communications, written communication back and forth 20 where Dr. Golden opposed, vehemently opposed 21 contracting with Na Laukoa to provide these types of 22 services? 23 A. I understand that that happened, and I 24 did hear about that personally later on after the 25 contract was executed. 45 1 Q. I see. 2 A. But I personally did not beforehand. 3 Q. You did not. You did not personally hear 4 that beforehand from Dr. LaMehieu? 5 A. No. 6 Q. Who did you hear it from later, ma'am? 7 A. Sometime afterwards we heard -- and I 8 don't even know if this is factual about some 9 lawsuit, and maybe Bob Golden's name was associated 10 with it. 11 Q. Was there the name of an Albert Yoshii 12 also? 13 A. Yes. 14 Q. And that's what you heard? 15 A. Yes. 16 Q. There was another individual who opposed 17 that contract with Na Laukoa and ultimately became a 18 subcontract with PREL? 19 A. Yes. 20 SPECIAL COUNSEL KAWASHIMA: Thank you, 21 ma'am. No further questions. 22 CO-CHAIR SENATOR HANABUSA: Members, 23 instead of starting and then taking a break, we will 24 take the break for the court reporter at this time 25 and we ask that you return in a minute -- I mean, 46 1 five minutes. When I say minute, you'll probably 2 come in five minutes; so we'll be taking a recess at 3 this time. 4 (Recess from 2:00 p.m. to 2:10 p.m.) 5 CO-CHAIR SENATOR HANABUSA: Members, back 6 in session. Before we proceed, Ms. Erhorn, this is 7 the first time that the committee has had a witness 8 represented by counsel, and what I'd like to remind 9 the committee members and also Mr. Slovin is that the 10 committee has enacted rules as permitted and as 11 required under Chapter 21 of the Hawaii Revised 12 Statues. 13 Specifically Rule 3.1 the witness's 14 counsel may advise the witness as to his or her right 15 subject to reasonable limitation which the committee 16 may prescribe to prevent obstruction of or 17 interference with the order and conduct of the 18 hearing. And if there is an issue as to whether your 19 testimony is required, it is the Co-Chairs who will 20 either order you to answer or not to answer. 21 So, Members, since we've never been faced 22 with this situation before, I'm calling our rules to 23 your attention. You've never had a witness with an 24 attorney present. So we should all understand what 25 the parameters of both the witness's rights, the 47 1 attorney's rights and your rights are. 2 So remember the ultimate decision as to 3 any question as to the relevancy relies with your 4 Co-Chairs and then you as the committee depending on 5 how that goes will have the decision as to if, for 6 example, it would be necessary to compel the 7 testimony by going to court or any further action. 8 So review your rules and with that we 9 will continue. Mr. Kawashima I understand has some 10 other questions. 11 SPECIAL COUNSEL KAWASHIMA: Thank you. 12 Q. (By Special Counsel Kawashima) I'm 13 sorry, ma'am. I forgot to ask you a few more. I 14 notice from Exhibit 2 that there is a budget summary 15 that Na Laukoa provided breaking down the items that 16 or items for which they would be seeking payment 17 and/or reimbursement. You see that, don't you? 18 A. Yes, I do. 19 Q. I assume PREL keeps accurate records of 20 all payments made to Na Laukoa as in the case of this 21 subcontract? 22 A. Yes. 23 Q. You do have those records? 24 A. Yes. 25 Q. Would you agree to or through your 48 1 counsel provide copies of those records through this 2 committee at your earliest convenience? 3 A. Yes. 4 Q. Thank you. Do those records show how 5 much Na Laukoa was paid or reimbursed for travel, for 6 example? 7 A. Yes. If I could explain, there's a 8 $230,000 advance up front and then after that they 9 invoiced and paid against that advance. So we do 10 have their invoices. 11 Q. How about for that first $200,000, 12 though, do you recall if any backup pay, any receipts 13 or anything of that nature was paid to justify that 14 $200,000? 15 A. No, that's a typical type of advance that 16 is given on contracts at least in our experience 17 between with the federal government. The Department 18 of Education advance PREL funds, and we in turn 19 advance funds to Na Laukoa to initiate the contract 20 and the work. 21 Q. I understand. But is there some manner 22 or form of accountability, though, for those 23 $200,000? 24 A. Definitely, definitely. 25 Q. And what is it? 49 1 A. Well, the amounts paid and you compare 2 the amounts paid whether it be through an advance or 3 through payment of an invoice against the total 4 amount of the invoice is the detail. So it might be 5 different. It might pay one and invoices might be 6 more; invoices might be less. 7 Q. But the amount of the $230,000 advance 8 would be accounted for in some fashion, though? 9 A. Absolutely. 10 Q. All right. And then last area in terms 11 of the travel expenses that were estimated to be 12 $116,576 for travel interisland which to some extent 13 would seem justified but also to the mainland, do you 14 know what that travel was for to the mainland for Na 15 Laukoa? 16 A. There was no mainland travel. 17 Q. I notice under the budget portion, 18 though, to which is attached some sheets you see 19 where they have section such as personnel, travel and 20 so forth? 21 A. Yes, yes. 22 Q. You see where under travel for staff it 23 says to the mainland for observations? 24 A. I'm sorry. I answered your question 25 incorrectly. I was referring to the billings. I 50 1 think that was some plan initially in the contract 2 that personnel would look, go to some other school or 3 complex or departments of education and see how 4 they're operating. And that's just a mainland visit 5 to look at other departments of education. 6 Q. You say that never took place? 7 A. No, it did not. 8 Q. And do you know why it never took place? 9 A. I guess they felt it wasn't necessary. 10 SPECIAL COUNSEL KAWASHIMA: All right. 11 That's all I have. Thank you. 12 CO-CHAIR SENATOR HANABUSA: Thank you 13 very much. We will begin with Vice-Chair Kokubun 14 followed by Vice-Chair Oshiro. 15 VICE-CHAIR SENATOR KOKUBUN: Thank you, 16 Madam Co-Chair. 17 EXAMINATION 18 BY VICE-CHAIR SENATOR KOKUBUN: 19 Q. Ms. Erhorn, I wanted to talk about 20 Exhibit 2 a little bit and just to help me. Now, 21 that's dated fairly recently September 12 informing 22 the DOE with the assistance of Laurel Johnston that 23 there is a modification for the time period for the 24 contract, correct? 25 A. This exhibit and documents were presented 51 1 to the department as requested. They had requested a 2 copy of the contract, and we provided a copy of the 3 contract along with the modification. 4 Q. Okay. And that modification request to 5 extend the time period came from who? 6 A. Na Laukoa requested it, PREL reviewed it 7 and PREL did it. 8 Q. Okay. So the extension you indicated the 9 extension was granted in time without any 10 accompanying appropriation or allocation funds? 11 A. No. You're correct, there's no 12 additional funds necessary. 13 Q. Okay. We had a previous witness Debra 14 Farmer who was here, and she indicated that the 15 contract for Na Laukoa was actually extended until 16 October. Are you familiar with that at all? 17 A. I'm not familiar with Debra Farmer saying 18 that. Am I familiar with the contract for Na Laukoa 19 being extended to October? Yes, there's a request in 20 for us to extend the contract to October. 21 Q. And the approval is still pending? 22 A. It's still pending. 23 Q. With respect to that extension, was there 24 any appropriation among your allocation of money? 25 A. No, it would be a no cost extension. 52 1 Q. You're not aware that additional monies 2 that may be provided maybe you have another source 3 other than the PREL contract for that extension? 4 A. No, no. It would come out of our 5 contract. 6 VICE-CHAIR SENATOR KOKUBUN: Okay. 7 That's all. 8 CO-CHAIR SENATOR HANABUSA: Thank you. 9 Representative Vice-Chair Oshiro followed by Senator 10 Buen. 11 VICE-CHAIR REPRESENTATIVE OSHIRO: Thank 12 you, Co-Chair Hanabusa. 13 EXAMINATION 14 BY VICE-CHAIR REPRESENTATIVE OSHIRO: 15 Q. I just wanted to get some clarification 16 on the partner in process that you had talked about 17 earlier. I think when Mr. Kawashima was initially 18 asking you about how you determine who PREL will 19 subcontract with, I think you had said something 20 about sometimes the federal agency may advise or 21 there may be outside experts giving advice; is that 22 correct? 23 A. When we're proposing on a major piece of 24 work, yes. 25 Q. Okay. And then -- but in the end it's 53 1 somebody actually you said someone else other than 2 you but someone at PREL would actually do some kind 3 of assessment as to who a proper subcontractor would 4 be? 5 A. Yes. 6 Q. Okay. But later on in your questioning, 7 I do recall you saying that you attended a meeting 8 where you -- essentially Superintendent LaMehieu said 9 that the subcontractor was going to be Na Laukoa; is 10 that correct? 11 A. Yes. 12 Q. Okay. And do you recall approximately 13 when this meeting was? If the contract was entered 14 into according to the date of it on August 15, 2000, 15 do you recall about when this meeting occurred? 16 A. It was close to that time, and it was -- 17 if I put it in context, the normal meeting in which 18 we were going over the scope of services and what was 19 to be expected as I remember it. 20 Q. So when you folks were meeting to 21 negotiate this contract, was there a lot of dispute 22 over the terms of the contract or was it fairly 23 smooth going? 24 A. It was smooth. 25 Q. Do you happen to remember about how long 54 1 before the contract was entered? Was it one week or 2 two weeks or is there any kind of estimate you can 3 provide? 4 A. It couldn't have been much more than two 5 weeks before. 6 Q. Okay. And at that meeting do you recall 7 anyone -- you said that there was Department of 8 Education personnel and yourself from PREL? 9 A. Yes. 10 Q. Okay. Was there anybody else from PREL 11 that was also present at this meeting? 12 A. Yes. 13 Q. Who else was that? 14 A. Dr. Burger was there, Dr. Barlow was 15 there, Dr. Hammond was there, I think. 16 Q. Okay. And besides the DOE personnel and 17 the people from PREL, do you know if there was any 18 other people there such as somebody from Na Laukoa? 19 A. I really can't remember. 20 Q. Okay. And at that meeting do you recall 21 if there were any questions raised as to why Na 22 Laukoa was going to be the designated subcontractor? 23 A. PREL certainly discussed taking on or 24 working in collaborating with Na Laukoa and certainly 25 asked questions about it and about them and we got -- 55 1 so it was collaborative too. It wasn't -- I don't 2 think as specific as you might say. 3 Q. But there were some discussions as to why 4 Na Laukoa was being the designated contract 5 subcontractor? 6 A. Definitely, definitely. 7 Q. And according to Exhibit 2, the 8 subcontract actually got entered into on September 6 9 of 2000; is that correct? 10 A. Correct. 11 Q. Okay. So there actually wasn't a 12 significant time either between the time that PREL 13 was contracted with this Department of Education and 14 the time that PREL subcontracted with -- 15 A. Correct. 16 Q. -- Na Laukoa. I also had another 17 question regarding Exhibit 3 and that's the worksheet 18 for preparation of contracts, memorandums of 19 understanding, et cetera. Who is in charge of 20 preparing this document? 21 A. Whenever a program wants to enter into a 22 contract with whoever, programs generally, personnel 23 will initiate this form. 24 Q. Okay. So who is it at PREL that actually 25 prepares this form? 56 1 A. This form is prepared. We have many 2 programs; so this form is prepared by many people. 3 In this specific instance it was by Don Burger. 4 Q. Okay. So when the -- under the first 5 section of determination of contractor when it says, 6 "Directed by Hawaii DOE to use Na Laukoa program to 7 work on to provide technical assistance to Felix," 8 that was actually written by Mr. Burger? 9 A. I would assume so or a secretary helped 10 him prepare it; but yes. 11 Q. Okay, okay. And I also had another 12 question. So I see there that the total for the 13 subcontract is $688,245; is that correct? 14 A. Correct. 15 Q. Okay. But I assume to recall the 16 contract with the Department of Education between 17 Department of Education and PREL was actually for 18 $2,320,611.00? 19 A. Correct. 20 Q. What is the justification for the 21 difference in the contract and the subcontract 22 pricing? 23 A. Well, PREL performed services for this 24 work, and that's for PREL services. 25 Q. Okay. And I guess that sort of gets me 57 1 to my next question which is the scope of services 2 for attachment one. So you are familiar with this 3 document, the scope of services? 4 A. Yes, I am. 5 Q. Okay. I see under the first part that 6 there is something called a Felix consent decree 7 management team which consists of DOE and Department 8 of Health personnel; is that correct? 9 A. Yes. 10 Q. So this management team is exclusively 11 made up of just essentially the state people? 12 A. As I understand, yes. 13 Q. Okay. And in looking at the actual 14 duties or what the management team is required to do, 15 I don't see anything specifically requiring them to 16 train the actual TACs or to train the Na Laukoa 17 program. Do you recall if there was anything like 18 that? 19 A. No, I don't see it, no. 20 Q. So if someone came -- an earlier 21 testifier came in and said that she ended up having 22 to actually train the Na Laukoa Program and she was 23 on the management team and that was just what she 24 understood she had to do, as you look through the 25 scope of services that's something that's beyond what 58 1 is in this contract for this scope? 2 A. Depends what training it is. It just 3 depends on what it is you're talking about as far as 4 training. So being familiar with state operations, 5 being familiar with whatever, they have to be -- 6 people have to be familiar with -- you would expect a 7 management team or any organization to help with the 8 consultants. 9 Q. Okay. But if the actual training had to 10 more or less hypothetically of course because you 11 don't actually know what happened, but hypothetically 12 if the training actually had to do with the substance 13 of the work let's say in actually teaching these 14 people how to essentially perform their functions as 15 technical assistance coordinators in the IDEA or 16 under Chapter 56 Administrative Process, that's the 17 type of training that had to be provided substantive. 18 That isn't necessarily listed in the scope of 19 services though? 20 A. Probably not. I don't know. 21 Q. And when I look under the description for 22 what PREL was supposed to provide under the scope of 23 services, I don't really see them having any duty to 24 train the TACs or the Na Laukoa Program either on the 25 substantive issues that I just talked about; is that 59 1 correct? 2 A. I don't see the word "train." 3 Q. Okay. So earlier when Mr. Kawashima was 4 talking, I recall him using the word "training" when 5 he was questioning you, and I was a little confused 6 because it seemed that he was talking about this 7 statement you had heard that Na Laukoa had never done 8 this before. And later on in further clarification 9 you said they had no knowledge of how to administer a 10 large contract; is that correct? 11 A. I said my interpretation of some of that 12 was that their experience in administering a large 13 contract like this, but I really didn't know that. 14 Q. Okay. Okay. It's just because later on 15 he asked you about the duty of PREL to quote, unquote 16 "train" Na Laukoa and you said that you believed that 17 there was some kind of quote, unquote "training" that 18 was involved? 19 A. We often times mentor most every 20 organization we come as other organizations mentor 21 us; so that was definitely a component of this. 22 Q. Okay. But again, the training you're 23 talking about isn't really the substantive part of 24 this? 25 A. No. 60 1 Q. It's more the administrative or the 2 implementation part of it actually? 3 A. The administrative. 4 Q. Okay. Okay. I'm sorry. Getting back to 5 the scope of services, so basically the scope of 6 services specifically lays out the responsibilities 7 of the management team, the responsibilities of the 8 TACs, the responsibilities of Na Laukoa and the 9 responsibilities of PREL, but therein I don't really 10 see anyone designated with the responsibility to 11 train Na Laukoa as to what they are to do. Is that 12 correct? 13 A. I think you're correct. There is no 14 training. 15 Q. Would the general assumption be sort of 16 that they know what they're supposed to do so no one 17 really needs to train them how to do it; is that 18 correct? 19 A. Yes. 20 VICE-CHAIR REPRESENTATIVE OSHIRO: Okay. 21 Thank you. I have no further questions. 22 CO-CHAIR SENATOR HANABUSA: Thank you, 23 Vice-Chair Oshiro. Senator Buen followed by 24 Representative Ito. 25 SENATOR BUEN: Thank you, Co-Chair 61 1 Hanabusa. 2 EXAMINATION 3 BY SENATOR BUEN: 4 Q. Ms. Erhorn, I believe you had said that 5 Na Laukoa provides technical services and mental 6 health to children? 7 A. As I understand, yes. 8 Q. Okay. In Exhibit 2, Attachment 3 budget 9 summary, there is a cost itemization of personnel, 10 $162,400; fringe benefits, $45,472; travel and 11 there's supplies, contractual and under others you 12 have facilities, meetings and conferences, printing 13 and duplication, communication and other services and 14 then you have the total direct costs and indirect 15 costs. 16 Can you explain or identify, give us some 17 kind of brief explanation of these items. I don't 18 see anything in here as Na Laukoa providing technical 19 services. Is it somewhere in here that I don't see 20 as providing technical services? 21 A. The document you're looking at is just a 22 budget and it doesn't give the explanation associated 23 to, let's say, the personnel that are listed there or 24 the travel or whatever. 25 This is the budget to go with the scope 62 1 of services. So this is Na Laukoa's budget for their 2 personnel and whatever to provide the services and 3 the scope of work. 4 Q. Is there anywhere in any of the exhibits 5 that has been provided that would explain that? 6 Would they -- I would think that Na Laukoa would 7 provide a statement of expenses to be paid. 8 Now, is there any, as a C.F.O. for PREL, 9 would you have that kind of information in here? 10 A. Yes, in the contract itself that was just 11 the budget. We don't pay off of budget. We'll pay 12 off of invoices in the contract and one of the -- 13 Q. Where can I find that in the exhibit? 14 A. I think it's 3.5 in the contract. 15 Q. So that would be pay Na Laukoa Program 16 $688,245 and then -- is that correct? 17 A. As follows, yes. 18 Q. As follows. Other than that, it doesn't 19 give me -- it doesn't tell me anything in detail of 20 this. Is there anything more? 21 A. This is your budget, your estimate before 22 the work begins; so I understand it's perhaps not 23 explanatory of the cost actually incurred. 24 Q. And you -- PREL has paid out how much to 25 date to Na Laukoa? 63 1 A. I think the number is around $450,000. 2 Q. Okay. In paying that amount out, Na 3 Laukoa would give you a statement of expenses to get 4 paid. Did you have anything like that that would 5 explain the technical services the mental health 6 followed? 7 A. We receive their invoices to which 8 explain -- which lays out the costs that they have 9 incurred, the services being performed. There's 10 other documents for that, too, that program people 11 look at when they approve the invoice. 12 Q. Okay. 13 A. There is a monthly report that they 14 provide so that people -- program people review that, 15 look at the invoice and then we'd process it. 16 Q. I see. So have you seen that? 17 A. Yes. I don't review them per se, but I 18 do see them. 19 Q. Can you provide that to the committee, to 20 the Co-Chair's? 21 MR. SLOVIN: Sure. 22 SENATOR BUEN: The other question that I 23 have -- 24 MR. SLOVIN: Could you tell us what -- so 25 you only want monthly reports related to Na Laukoa? 64 1 Is that what you're asking? You're asking all of the 2 monthly reports related to Na Laukoa services? Is 3 that what you want? 4 SENATOR BUEN: Can that be provided? 5 MR. SLOVIN: Yes. 6 Q. (By Senator Buen) As far as the $40,000 7 in the final payment to Na Laukoa now, that is -- I 8 understand that 2.6 provides billings to PREL for 9 reimbursement of costs incurred to date not to exceed 10 contract price and the $40,000 will be withheld until 11 satisfactory completion of the work. How is that 12 $40,000 arrived at? 13 A. That was just my guess when we did the 14 contract that I would say we were going to withhold 15 that amount. 16 Q. Okay. So what is the definition of 17 satisfactory completion of work? 18 A. It's like with any other expenditure PREL 19 does particularly with their services. The people 20 who are engaged in those services review them and 21 approve an invoice or approve the expense. 22 Q. So there's some criteria that you have 23 to -- 24 A. That the work -- the goods were received 25 and the services were performed. 65 1 Q. I have just one more question. You may 2 have answered it already, but when Counsel or when 3 Mr. Kawashima had asked you about the travel expenses 4 to the mainland, the visiting advisors did you say 5 that didn't take place or was that something else on 6 mainland travel? 7 A. I don't believe -- 8 Q. Didn't that take place the visiting 9 advisors to -- 10 A. I don't believe I've noticed that in the 11 billings. 12 Q. In the Exhibit No. 2 attachment page 3 on 13 the bottom other travel you have visiting advisors 14 and there is a cost of $3,600, lodging and then air 15 travel, $4,800. 16 A. Uh-huh. 17 Q. You have staff, number of staff or trips 18 you have six there. Did this take place? 19 A. The term cost this is a budget or 20 expected cost, but it would not be cost. 21 Q. Okay. I understand. 22 A. So this is the budget they anticipated 23 that the program work would require. 24 Q. Do you know if this had taken place? 25 A. Whether the mainland travel took place, I 66 1 don't believe it did because I don't remember seeing 2 it in the invoice. 3 SENATOR BUEN: Thank you. I have no 4 further questions. 5 CO-CHAIR SENATOR HANABUSA: Thank you. 6 Representative Ito followed by Representative 7 Kawakami. 8 REPRESENTATIVE ITO: Thank you, Madam 9 Co-Chair. 10 EXAMINATION 11 BY REPRESENTATIVE ITO: 12 Q. Good afternoon. 13 A. Good afternoon. 14 Q. You know, under attachment 3, you know, 15 you have over here charter school coordinator. And 16 what does a charter school coordinator do? 17 A. I really don't know. 18 Q. You don't know? 19 A. No. When the contract was developed, 20 you'll see the list there's 15 complexes and there's 21 some charter schools that were listed there. Charter 22 schools we never got. There was an anticipation that 23 some work would be performed with the charter 24 schools. I'm not sure that the clarity or the 25 direction was provided to give those services. 67 1 Q. The charter schools are the ones located 2 on the Big Island? 3 A. They're some of the ones located. There 4 are other complexes on the Big Island too. I think 5 the charter schools are on the Big Island. I don't 6 know. 7 Q. Do you know the names of the charter 8 schools? 9 A. It's just attached to the contract where 10 they have the list of the 15 complexes, and then 11 there's some charter schools there like Connections. 12 I think these are charter schools. I'm really not -- 13 and some other ones, Waters of Life. 14 Q. You know, we're having some problems with 15 that charter school and usually the charter school 16 have their own budget, you know, to do whatever that 17 needs to be done because they allocated per people 18 allocation; so that's the reason why I'm asking why, 19 you know, the charter school's included. 20 A. There's some consideration whether they 21 were subject to requirements, the Felix and the 22 compliance. 23 Q. Okay. You know on Exhibit B it states 24 personnel cost $174,420. Is this what a one-person 25 pay the salary it makes $174,000? 68 1 A. Oh, no, no, no. 2 Q. What's that? 3 A. That would be just the cost of the 4 personnel that would be working on this job 5 whether -- many personnel. 6 Q. Oh, many personnel. It's not one then? 7 A. No. 8 Q. Okay. You know PREL, you folks do a lot 9 of good work in research. 10 A. Thank you. 11 Q. Are you folks going to get all these 12 materials and documents and put it into a book form 13 and share this with the rest of the Department of 14 Education? 15 A. We certainly hope so. There's a lot of 16 learning that's gone on and it's a fact that we want 17 to do. It's our intent. 18 REPRESENTATIVE ITO: Thank you very much, 19 Madam Co-Chair. 20 CO-CHAIR SENATOR HANABUSA: 21 Representative Kawakami followed by Representative Leong. 22 REPRESENTATIVE KAWAKAMI: Thank you very 23 much, Co-Chair Hanabusa. 24 EXAMINATION 25 BY REPRESENTATIVE KAWAKAMI: 69 1 Q. I'd like to start by asking you what are 2 your responsibilities as a C.F.O? 3 A. My prior responsibilities anything with 4 the fiscal aspects of PREL, financial reporting, 5 recording, internal controls, contractual, some risk 6 management, cash management. Those are my primary 7 duties and responsibilities. 8 Q. So actually all of the monies were 9 controlled through you? 10 A. They go through me, yes. 11 Q. Then let me go on to say now Dr. LaMehieu 12 was a member of the board and everybody knew this? 13 A. Uh-huh. 14 Q. Was there at no time any question raised 15 about a conflict of interest because he was 16 presenting this contract for the Department? 17 A. If I can explain a little bit further, 18 PREL holds the Regional Educational Laboratory 19 contract with the U.S. Department of Education. As a 20 Regional Education Laboratory, the federal government 21 U.S. Department of Education requests and almost 22 requires us to have this broad participation on our 23 board, and the Chief State School Officer sits on the 24 board of each educational laboratory in the nation 25 for each of the states that they serve. So it was 70 1 common practice. In fact, now is -- we're the 2 exception and the reason for it is common practice. 3 Q. So other chief executive officers, 4 et cetera, from other states sit on the board as 5 Dr. LaMehieu, do they make the presentations when 6 they want a certain group or organization to get a 7 contract? 8 A. It's not unusual for the chief state 9 school officers to ask for PREL's assistance 10 particularly in educational services in a variety of 11 forms. 12 Q. In this case -- 13 A. Just a variety of forms. 14 Q. Thank you. In this case, he made the 15 total presentation for Na Laukoa? 16 A. We were in contact with Na Laukoa before 17 we entered into the contract. 18 Q. No, but I'm asking that specific when 19 that meeting was held to put this contract forward, 20 who did the presentation? 21 A. There was a meeting in which it was a 22 discussion group; so it wasn't like a presentation. 23 I'm thinking like a training with boards and stuff. 24 We just all sat down at the table and talked, and it 25 was with Dr. LaMehieu. 71 1 Q. Okay. But who was making the 2 presentation? Somebody must have been giving the 3 data, et cetera, why they were going to be good at 4 it, why they would, you know, you need to hire them, 5 et cetera? 6 A. Dr. LaMehieu. 7 Q. Okay. That's what I wanted to know. 8 A. Sorry. 9 Q. The management team according to the 10 scope of services met monthly with PREL. Am I 11 correct? 12 A. Correct. 13 Q. And these were held every month? 14 A. As far as I know, yes. 15 Q. Okay. Were you at those meetings? 16 A. No, I was not. 17 Q. You're not privy to the information? 18 A. It's not my area where I spend my time. 19 If I wanted to look in it, I probably could. But 20 it's not -- I do not participate in them. 21 Q. What I was trying to get at is if there 22 were complaints and those kinds of things came 23 through at that management meeting and you had to pay 24 a contract and you weren't -- you're just going to 25 pay it you don't know? 72 1 A. Oh, no. I do not pay a contract any 2 payment without the program person responsible 3 directly working with whatever it happens to be that 4 signs off that says yes, it's appropriate to pay. 5 Q. Okay. But you take their word for it? 6 A. Yes. 7 Q. Okay. So who's double checking or who's 8 monitoring that kind of thing before payment is made? 9 A. The program person. 10 Q. Before you sign off? 11 A. The program person signs off, the program 12 manager. 13 Q. And that program manager is whom? 14 A. Dr. Burger. 15 Q. Dr. Burger. And his name has come up 16 several times, okay. Let's see. The technical 17 assistance coordinators, okay, there was one for each 18 of the complexes; so you had 15 complexes. You had 19 one per? 20 A. I'm pretty sure that's the way it worked 21 out. 22 Q. That's the way it worked, okay. And 23 those were all hired by you people with the consent 24 of DOE or? 25 A. Okay. 73 1 Q. So those names were given to you from 2 DOE? 3 A. There was an extensive process in place 4 for the selection, identity, recruitment and 5 selection and qualifications, and everything having 6 to do with those technical assistance coordinators 7 which involved the management team which was DOH, 8 PREL, Na Laukoa. It was the whole team effort. 9 Q. The last question I wanted to ask did 10 Mr. Yoshii sit on this management team as the 11 personnel director for the DOE? 12 A. I don't believe he did. 13 REPRESENTATIVE KAWAKAMI: Okay. That's 14 all I want to know. Thank you very much. Thank you. 15 CO-CHAIR SENATOR HANABUSA: Thank you. 16 Representative Leong followed by Senator Sakamoto. 17 REPRESENTATIVE LEONG: Thank you, Chair 18 Hanabusa. 19 EXAMINATION 20 BY REPRESENTATIVE LEONG: 21 Q. I just have a question, couple of 22 questions. As you're chief financial officer, had 23 you before this contract was instituted had you heard 24 anything about Na Laukoa, had you had any concerns 25 about it? 74 1 A. I didn't know anything particular about 2 Na Laukoa, but that's not unusual for when a contract 3 comes up. I may not know something about the various 4 contractors we work with. The questions were asked, 5 the consideration was given about engaging into a 6 contract with Na Laukoa just like we would have the 7 questions and consideration given for any contractor. 8 So there was consideration saying do we know these 9 people and why don't we do it. 10 Q. And so as far as the contract when as far 11 as understanding the accomplishment of this group, 12 you felt comfortable in awarding them the contract? 13 A. From my perspective, I have no problems 14 also walking away from a contract. If it doesn't 15 work, we have been known to not discontinue it. 16 Q. What would make you want to walk away 17 from such a contract, what would be some evidence? 18 A. We have had contracts with let's say 19 educational institutions in which perhaps our point 20 of view or their timeliness or some other 21 collaboration effort, and this again goes back to 22 programs makes the decision, not me. 23 They might say no, we don't want to 24 continue this. This isn't fruitful for all of us, 25 and there's a variety of reasons. We do it 75 1 infrequently, but certainly I always have the 2 contention. It's not a problem if we have to. 3 Q. In your previous testimony, and I just 4 wanted clarification on it, did you -- were you able 5 to delve into some of these and find out whether the 6 success of the program, whether everything was 7 working all right according to what your scope was? 8 A. Regarding PREL's contract and services? 9 Q. Yes. 10 A. Yes. 11 Q. And also as related to Na Laukoa? 12 A. Yes. Delve into, I'm not sure. I read a 13 lot of -- things came across, but I didn't 14 participate in any of those meetings. 15 Q. I just want to know that because the 16 contract was so large is that how much involvement or 17 how do you know how positive it is? 18 A. I've heard lots of positive things about 19 the results of this contract; so from that 20 perspective it sounds good, and I didn't hear the 21 negative. 22 REPRESENTATIVE LEONG: Thank you. Thank 23 you, Chair. 24 CO-CHAIR SENATOR HANABUSA: Thank you 25 very much. Senator Sakamoto followed by 76 1 Representative Marumoto. 2 SENATOR SAKAMOTO: Thank you. 3 EXAMINATION 4 BY SENATOR SAKAMOTO: 5 Q. I have a number of questions. Most of 6 them deal with your area of expertise of the 7 contracts, the money; so it's, I guess, in looking at 8 the documents that you provided, the DOE contract 9 with PREL, the $2.3 million dated August 28 a few 10 days after that the Na Laukoa contract $688,000 dated 11 September 6 both 2000. So their contract about 12 30 percent of the general contract? 13 A. Correct. 14 Q. On the budget summary that's in your 15 contract PREL, under contractual it lists -- includes 16 $612,307 for Na Laukoa. Why is it different from the 17 $688,000? 18 A. I don't know. I think that at that time 19 there were budgets and estimates put down, and I 20 really don't know where that number came from, but it 21 probably was an earlier budget. 22 Q. Okay. And so that's already $76,000 23 different. And in looking at your other worksheet 24 document, their contract is $688,000 is cost 25 reimbursement plus 17 percent overhead, plus 77 1 4.167 percent GTE; so does that mean 688 plus 17 plus 2 4.167? 3 A. No, it's to a maximum of 688. 4 Q. I was just looking at your worksheet; 5 so -- 6 A. Oh, the worksheet probably -- the 7 contract is a better document to look at than the 8 worksheet. 9 Q. Okay. So this may be erroneous? 10 A. Yes. 11 Q. Because your contract includes overhead, 12 includes tax? 13 A. Yes, it does. 14 Q. So hopefully that's wrong; so it's not 15 688, plus, plus? 16 A. It's not. 17 Q. On your budget summary, you have 18 personnel costs of $174,000 and other costs. On 19 their budget summary it has personnel costs of 20 $162,000 and other costs. 21 Can you explain the -- is it duplicative, 22 is it parallel? 23 A. The cost for Na Laukoa's budget is for Na 24 Laukoa's staff and their activities. 25 Q. Okay. 78 1 A. PREL's budget is for PREL's staff and 2 PREL's activities. 3 Q. Okay. 4 A. And so the personnel number would cover 5 the cost of PREL personnel participating in the 6 project. 7 Q. Okay. And I'm a general building 8 contractor and if I hire subcontractors, normally the 9 contract that I issue to them would be different than 10 the contract that the owner issues to me. But in 11 this specific case, it looks like the contract you 12 issued to your subcontractor is identical to the 13 contract the owner issued to you or the other 14 parties. So why is that? 15 A. It was done on purpose. It was to 16 provide -- to make sure there was a clear 17 understanding of everyone's role in this project and 18 rather than just perhaps excerpt the pieces that just 19 had to do with Na Laukoa, we wanted to show them the 20 whole responsibilities of all the parties. And so 21 instead of doing that, it was easier just to take the 22 same contract, scope of services and put it in there. 23 Similarly the scope of services for 24 PREL's contract includes work for the management 25 team, you know. This scope of service is pretty 79 1 broad. 2 Q. So as the work progressed with the 15 3 complexes plus a number of charter schools, I heard 4 you say earlier perhaps none of the charter schools 5 were addressed before? 6 A. Charter schools was a question throughout 7 the contract, and it's better Dr. Burger could 8 explain what that question was and what was provided. 9 Q. Okay. Of the 15 complexes since the 10 general PREL and the sub Na Laukoa had the same scope 11 of work, how was that divided from September through 12 June and then subsequently through August? 13 A. The scope of work for PREL was different 14 than the scope of work for Na Laukoa. 15 Q. Okay. How did you segregate if they were 16 doing their part and you were paying their part? 17 A. Na Laukoa would submit progress reports 18 like we were talking about earlier. PREL -- maybe 19 you can ask the question again. 20 Q. Okay. Maybe Dr. Burger or whoever else 21 whether PREL had 1 through 6 and Na Laukoa had 7 22 through 15 or in terms of who did what? 23 A. Well, PREL had its own under D is PREL's 24 responsibilities. So PREL, for example, contracted 25 with the TACs, PREL contracted with Na Laukoa. We 80 1 monitored the performance of TACs and Na Laukoa 2 Program. We helped develop procedures with Na 3 Laukoa, helped interface with school complexes, 4 et cetera, and approve payments to TACs. So that 5 PREL had 13 steps as outlined on that scope of 6 services. 7 Q. But that's the same, yeah. 8 A. I understand. I understand. 9 Q. Well, another point, then, or another 10 area that maybe you can clarify. I guess in the past 11 a previous testifier seemed to indicate maybe 12 salaries of $117,000 were paid or some high amount. 13 On the budget from Na Laukoa on their 14 preliminary breakdown, they list lead coordinator, 15 full-time equivalent for two months $14,000; so 16 that's $7,000 a month. And they list for the Phase 2 17 ten months lead coordinator 1.01 full-time FTE which 18 I'm not sure and then $84,000. So is that two lead 19 coordinators because you only had nine months so the 20 1.01 is a nine-month person and a three-month person? 21 A. I think that's where it was anticipated. 22 Again, we went across -- payments was according to 23 what they actually spent. 24 Q. Okay. 25 A. So the budget sometimes was different. 81 1 Q. Okay. So if they send a billing in for 2 lead coordinator instead of $46.00, $67.00, they sent 3 a billing in for $32.00 or $89.00 so be it. This was 4 just for some guesstimation? 5 A. Right. Best estimate at the time as to 6 what the cost might be. The personnel change, like 7 in PREL sometimes the personnel change, cost rates 8 change, other things change. 9 Q. Then whether a full year was paid at 10 $170,000 to a person, can you sort of clarify what 11 indeed did occur because that was a previous issue? 12 A. No one was -- we have not been billed 13 $170,000 that's a number for an individual, no. The 14 billings have been significantly less for Na Laukoa's 15 personnel. 16 Q. Okay. On theirs on the contractual on 17 their estimate it says Phase 1 advisor or advisors, 18 45 days at $800 a day. Phase 2 advisors, 190 days at 19 $800 a day. Who's that advisor? 20 A. I'm not sure what was anticipated at the 21 beginning of the project that there might be some 22 services needed of some advisors to provide some 23 services. Again, we had -- go ahead. 24 Q. I'm sorry. I guess I'm not clear. 25 There's PREL, there is Na Laukoa and now you mean so 82 1 they may not know something so instead of coming back 2 to PREL which had 70 percent of the contract they 3 would scurrilously hire somebody for $800 a day as a 4 sub sub? 5 A. I can tell you they didn't. 6 Q. They didn't? 7 A. They did not because early on in the 8 contract most any subcontracting would be done by 9 PREL. So this was anticipated by somebody at the 10 beginning of the project that these might be services 11 needed and whether PREL was to provide it or Na 12 Laukoa would be. 13 Q. Well, help clarify, you know, as a 14 general and sub subs again that we work with, the 15 owner or the architect or the lawyer for the owner 16 doesn't want duplication of overhead, and it's -- so 17 if every time you subcontract you add in overhead and 18 profit, you end up with a big stack of bills as 19 opposed to less tiers. 20 So can you address their overheard on top 21 of your overhead because you're percentaging on their 22 percentage what was done to reduce cost? 23 A. Our percentage was not on top of their 24 percentage. We're not billing any percentages on top 25 of their contract amount, and it wasn't budgeted as 83 1 such. Does that answer it? 2 Q. Well, I guess when I look at your budget 3 summary it goes down direct cost from personnel on 4 down including contractual which includes PREL. It 5 goes to total direct cost $2,051,000. Then it says 6 direct/indirect overhead cost 19.75, $269,000. So 7 I'm not interested in profit. I'm just trying to 8 clarify what we've paid and where we're paying. 9 A. I'm sorry. I may have misinterpreted 10 your question. If you compute that indirect and 11 overhead on that number, it doesn't work out at 19.75 12 of the total. It's 19.75 of the total less the 13 amount of Na Laukoa contracts. So there is no -- 14 it's not top and top of others. 15 Q. Then the presentation could have been -- 16 A. Yes. 17 Q. -- PREL's work direct and indirect, 18 subcontractual x-amount total cost? 19 A. Correct. 20 Q. So there wouldn't be a duplication of at 21 least overhead? 22 A. Yes. 23 Q. So when you bill the DOE, they don't -- 24 you bill directly, here's Na Laukoa's cost with their 25 backup billings? 84 1 A. When I bill the DOE, PREL bills the DOE. 2 Q. Yeah, PREL. When PREL bills Na Laukoa 3 say $8,000 for my lead coordinator for month six, you 4 receive their bill so you attach it to your cost 5 reimbursement bill to the DOE? 6 A. No. 7 Q. No. 8 A. We just -- PREL submits a billing to the 9 DOE. We do not submit documentation of other costs 10 that we might have incurred whether it be 11 subcontractors. 12 Q. Well, then maybe you can clarify. The 13 compensation contractor shall be compensated in a 14 total amount not to exceed the $2,320,000 including 15 approve costs incurred and taxes. Is it a cost-plus 16 contract or is it lump sum but cost to be paid as the 17 costs are incurred and ending up with a lump sum? 18 A. I'm not totally sure. Let me explain. 19 PREL operates almost all our work is based on a cost 20 work basis where it's just primarily cost in which is 21 the basis for our billings. 22 When we receive this contract, I wasn't 23 sure but PREL was going to treat it the same way as 24 we have any other contract which is on a cost basis. 25 And for that reason we have not billed the Department 85 1 of Education the total contract price. It's because 2 we're billing based on cost incurred. Did that help? 3 Q. Well, as a contractor, we sometimes do 4 get $2.3 million not to exceed and we bill cost plus 5 basis. But I'm not clear in your case and -- well, 6 I'll leave the other questions to our other members. 7 So who's going to clarify if it is indeed lump sum or 8 cost plus not to exceed? 9 A. The issue for PREL -- and I can just say 10 for PREL -- PREL will bill based on costs incurred 11 and will not bill more than the contract and may bill 12 less than the contract because that's just the way we 13 will do it. We just wouldn't do it any other way. 14 Q. And Na Laukoa's contract was extended. 15 Was PREL's contract extended? 16 A. Yes. 17 Q. With the same date ending August? 18 A. No, our initial contract went through 19 September 1, 2001, and we have an understanding that 20 the contract extended to October 31, PREL's contract. 21 Q. So it continues on? 22 A. Yes, till October 31. 23 Q. And Na Laukoa effectively is done even 24 with the extension? 25 A. Na Laukoa's contract with PREL was 86 1 extended through August 31. We will execute -- we 2 intend to execute an extension until October 31, but 3 I am awaiting certain information quite formally 4 before we formally execute that. 5 Q. With the same guaranteed maximum cost? 6 A. Absolutely. 7 SENATOR SAKAMOTO: Thank you. Thank you, 8 Chair. 9 CO-CHAIR SENATOR HANABUSA: Thank you. 10 Representative Marumoto followed by Senator Slom. 11 REPRESENTATIVE MARUMOTO: Thank you, 12 Madam Chair. 13 EXAMINATION 14 BY REPRESENTATIVE MARUMOTO: 15 Q. I might have missed this information 16 earlier, but does PREL have other contracts with the 17 Department of Education here in this State? 18 A. Yes, PREL has had other contracts and 19 some may still be in effect. 20 Q. Do you generally work with a person whose 21 job is to administer these contracts? 22 A. Most of the contracts come through 23 programs and many times it's a school that calls us 24 that needs technical assistance. So it will come 25 from a school or a district to provide specific 87 1 services. 2 Q. A school on its own can request or has 3 the funding to develop a contract with you? 4 A. Many of these are PO's, but I don't know. 5 But it is the school -- the school requests -- the 6 request come in often times from the school or a 7 district. 8 Q. Anyway, would there be any other 9 contracts that would be drawn directly with the 10 superintendent that you know of? 11 A. I can't remember. Most of the contracts 12 like there have only been a few. 13 Q. There have only been a few -- 14 A. I'm sorry. I didn't mean to interrupt. 15 When you say with the superintendent -- 16 Q. Directly written with the superintendent? 17 A. Generally there was one recently. There 18 was a PO for some data entry services or assistance 19 to the schools. There was some scoring. 20 Q. That was negotiated directly with the 21 superintendent? 22 A. No, it wasn't. It was negotiated with 23 perhaps people in this office. I'm not sure who the 24 personnel and their titles are. 25 Q. Who had assigned the contract? 88 1 A. That was issued through a purchase order 2 to PREL, and I don't remember who signed it. 3 Q. Isn't it more the usual course of 4 business to work with someone who is empowered to 5 negotiate these contracts like, for instance, 6 somebody like Mr. Golden for special education 7 contracts? 8 A. I really don't know. That's -- most of 9 this would come through programs. 10 Q. Okay. Let's see. If I understand 11 Senator Sakamoto right, PREL got two-thirds of the 12 $2.3 million on this particular contract before us? 13 A. The bill -- that's the contract amount. 14 PREL's contract amounts for $2.3 million. 15 Q. Of which $688,000 went to Na Laukoa? 16 A. Those are the budgets, and those are the 17 contracts. Those are not the payments. 18 Q. So the rest ostensibly goes to your 19 organization? 20 A. If we incur the cost and we bill them and 21 they're accepted, yes. We have not billed -- I guess 22 I get confused when you say it went to PREL. PREL 23 has not billed for the full contract amount. 24 Q. Okay. 25 A. And may not. 89 1 Q. May not. Well, it seems to me from 2 looking at the scope of services that there isn't 3 that much for PREL to do to warrant billing 4 $1.6 million. You contract the TACs to do the work 5 and in fact it says here the school complexes shall 6 drop the plan. So it's some nice work if you could 7 get it. 8 A. I can tell you that the work that PREL 9 provided was very extensive and included in 10 $1.6 million are all the payments to the TACs which 11 is a good portion of it also. So all the 15 service 12 providers, technical assistant service providers came 13 out of that, our contract. 14 Q. I see. 15 A. So it wasn't just PREL personnel. In 16 fact, most was not. 17 Q. Okay. So the TACs are separate from Na 18 Laukoa? 19 A. They are subcontractors of PREL. We 20 entered into contracts with these individuals. 21 Q. Okay. I see. How much went to the TACs, 22 would you happen to know offhand? 23 A. I should. It's a number I should have 24 right offhand, but it was a good portion of the -- 25 oh, I know. If you go to the difference primarily in 90 1 the budget which we have a line item for contractual 2 $688,000 is Na Laukoa and primarily most of the rest 3 are technical assistance coordinators. 4 I think there was other items on the 5 budget having to do with, again, a thought that 6 perhaps there might be other assistance needed either 7 PREL participated with other regional educational 8 laboratories that might have some assistance that 9 could be provided, but most of the difference were 10 the TACs. 11 REPRESENTATIVE MARUMOTO: Okay. Thank 12 you. I think we have a lot more questions for the 13 program person. 14 KAREN ERHORN: Yeah, I think so. 15 CO-CHAIR SENATOR HANABUSA: Senator Slom. 16 SENATOR SLOM: Thank you, Madam Chair. 17 EXAMINATION 18 BY SENATOR SLOM: 19 Q. Ms. Erhorn, you said that PREL has been 20 around for 10 years now. How long have you been with 21 PREL? 22 A. About seven years. 23 Q. And how long have you been the C.F.O.? 24 A. I've had the title for, I think, two 25 years. Before that I was director of finance. 91 1 Q. And prior to PREL what was your financial 2 experience? 3 A. My initial financial experience was I was 4 with 11 years with Coopers & Lybrandt. I left 5 Coopers & Lybrandt as a manager in their audit 6 division -- excuse me, in their consulting division 7 but I also was a manager in the audit division. 8 Q. Thank you. This question about the 9 superintendent's position on the board of directors, 10 you had mentioned that it actually was a request but 11 not a demand by the federal government. Is that 12 correct, is that a fair statement? 13 A. Yes, I don't think the federal government 14 can make it happen. 15 Q. Right. And how many members are there on 16 your board? 17 A. Approximately 20. 18 Q. Is the superintendent ex officio or is he 19 a voting member? 20 A. No, voting member. 21 Q. He's a voting member. Are the directors 22 paid in any way? 23 A. No compensation is provided. 24 Q. No compensation, no fees? 25 A. No. 92 1 Q. And subsequently when did the 2 superintendent resign his board position? 3 A. I think it was July, or I don't know the 4 exact date. 5 Q. Of this year? 6 A. I think so. 7 Q. But as you mentioned previously, there 8 was an indication and an understanding of at least a 9 possible or potential conflict of interest? 10 A. Between who? 11 Q. Between having the superintendent or the 12 chief educational officer on a board who specifically 13 makes recommendations to that board and to the 14 organization for purchase? 15 A. The information -- it's so normal for the 16 regional educational laboratories to have that. I 17 guess maybe perhaps we don't think of it in that 18 terms. We think of it more as an opportunity for the 19 state to get the services of a regional educational 20 laboratory and help direct their work of a regional 21 educational laboratory to assist the state. 22 Also our annual report has a footnote 23 disclosure regarding that which talks about that too. 24 Q. Okay. I'm a little confused on the time 25 line here. I thought that when Mr. Kawashima had 93 1 first asked you if you were aware of any criticism 2 about Na Laukoa that you said that it was after the 3 contract had been signed and some period afterwards. 4 But then I thought that when 5 Representative Oshiro had asked you basically the 6 same kind of question you mentioned that there was 7 discussion at that meeting about it and possible 8 criticism. Could you clarify that for me? 9 A. I'd be happy to. The response to the 10 first question I thought was a response to did I know 11 about some lawsuit or something more serious that 12 Mr. Golden and Mr. Yoshii and that's where I did hear 13 about that after the contract was entered into. 14 The first when we talked about I was 15 trying to convey that when we take a contract with 16 any subcontractor we do have a discussion about their 17 participation, their background, whatever to say make 18 a decision among us, are we going to do that and, you 19 know, does that answer? 20 Q. Well, I think the first -- the initial 21 question didn't really have anything to do with the 22 lawsuit or anything else. It was basically did you 23 have any knowledge or was there any reason for you to 24 believe that there was criticism or that there might 25 be a potential problem with Na Laukoa? 94 1 MR. SLOVIN: At the time of the contract? 2 SENATOR SLOM: Prior to signing the 3 contract, yes. 4 KAREN ERHORN: I think the discussions 5 were and I think somebody quoted what Dr. LaMehieu 6 had said and I think it's what I've heard too that we 7 did know the history that Na Laukoa was considered 8 and involved earlier but I don't know anything 9 specific, but definitely there was probably some 10 concern. 11 Q. (By Senator Slom) On your Exhibit 3 the 12 worksheet for preparation of contracts, under the 13 area of determination of contractor it says sole 14 source and it says attach r�sum�. What were the 15 contents or what were the contents of that r�sum� 16 that was attached? 17 A. I didn't have a r�sum� attached except 18 perhaps we did of -- and I don't know for a fact, but 19 I know we looked at the r�sum� of Dr. Alameda from Na 20 Laukoa. 21 Q. But does the r�sum� usually if it's a 22 sole source contract does that refer to a person or 23 does it refer to the organization that you're 24 subcontracting with? 25 A. Generally this refers to a person. We do 95 1 sole contracts with an individual. We always -- and 2 r�sum� would refer to a person. 3 Q. And you're not sure whether or not there 4 was a r�sum� attached to this as required by your 5 worksheet? 6 A. I can't remember. This was not with a 7 person. So they probably didn't even think about 8 doing it. When we contract with an individual, we do 9 require a r�sum�. 10 Q. About how long after the contract was 11 signed did you really begin hearing about or becoming 12 aware of the serious criticisms that occurred? 13 Within a couple of weeks or longer? 14 A. I can't remember. It had to do with that 15 lawsuit that I heard about. 16 Q. You didn't hear anything prior to 17 information about the lawsuit? 18 A. Nothing specific, no. 19 Q. Okay. And when you did hear about the 20 lawsuit and the seriousness of it, what, if anything, 21 did you do? 22 A. As I understood -- I don't know the 23 particulars of the lawsuit, and I didn't know whether 24 the lawsuit had to do with the qualifications of Na 25 Laukoa particularly. I thought it had to do with 96 1 some personnel action of Dr. LaMehieu that probably 2 Na Laukoa was connected in there for some reason, but 3 I didn't research the lawsuit to know. 4 Q. Because I think you had responded to 5 Representative Kawakami in terms of what you do and 6 one of the things you mentioned was risk management 7 as a function. So you didn't after hearing this or 8 becoming aware of it you didn't explore it or 9 research it further? 10 A. We certainly have had discussions, and we 11 found no reason on the contract that we were working 12 on to have a problem. 13 Q. Okay. I'm a little troubled as was 14 Senator Sakamoto about the differences in the 15 numbers. I note that looking at Exhibits 1 and 16 Exhibit 2, your subject summary is dated August 28, 17 2000 and the Na Laukoa is just five days later or 18 eight days later on September 5, and yet there seems 19 to be a wide discrepancy in a number of the 20 individual components. And I think you testified 21 that some of those things may have been mistakes in 22 terms of the numbers? 23 A. What was the going discrepancy that was 24 brought up was this 617,000 versus the 688. 25 Q. Well, no, I believe he went over specific 97 1 items like personnel. You had $174,420 and Na Laukoa 2 had $162,400. Right down the line the numbers are 3 different. 4 A. They're different budgets. If I can 5 explain here. 6 Q. Yeah. 7 A. PREL's budget the 174 is for PREL 8 personnel to provide the services under this 9 contract, and PREL's budget includes all the 10 technical assistance coordinators. That does not -- 11 Na Laukoa's budget was for anticipated cost for Na 12 Laukoa Program that would be incurred. So they 13 wouldn't agree. 14 Q. Okay. This $2.3 million total budget is 15 that -- how does that compare with other budgets that 16 you've worked with in the past other programs? Is it 17 high or low or average or what? 18 A. It's probably about average. 19 Q. About average. And you had testified 20 earlier that to date you have paid approximately 21 $450,000 to Na Laukoa? 22 A. Correct. 23 Q. Leaving them a balance of about $238,000 24 of which $40,000 would not be paid until final 25 completion; is that correct? 98 1 A. Correct. 2 Q. Okay. So when you were asked questions 3 about mainland travel, you said that you had not 4 received any disbursements for mainland travel, but 5 there's still approximately $238,000 less; so is it 6 possible that mainland travel and other items might 7 appear in those disbursements? 8 A. I don't think that they would. Na 9 Laukoa's Program of work was reviewed by PREL and 10 directed by PREL in many respects. Unless PREL said 11 yes, we agree, go ahead, you need to take a mainland 12 trip, then we would. 13 Q. But I didn't think you were watching 14 their activities that closely. That's why I'm a 15 little confused. 16 A. Well, in the scope of services our 17 requirement is to monitor Na Laukoa Program just like 18 monitor the TAC and we monitor them just as we do any 19 subcontractor. 20 Q. And is that your function or Dr. Burger's 21 function? 22 A. It is Dr. Burger's function for this 23 contract to monitor. 24 Q. Okay. You also mentioned that in terms 25 of the $1.6 million that is the portion for PREL that 99 1 you have not billed for that amount to date. How 2 much has PREL billed? 3 A. PREL has billed $1,850,000. 4 Q. Excuse me? 5 A. $1,850,000. 6 Q. I thought that your share was 7 $1.6 million? 8 A. Our billings include all our payments to 9 Na Laukoa. 10 Q. I see. Okay. All right. But how much 11 would be for PREL, then, of that $1.8? 12 A. They take $450,000 out of that; so $1.4. 13 Remember that includes the technical assistance 14 coordinators. It's not just the PREL personnel. 15 Q. Okay. And in terms of the training you 16 said that it's not unusual that you do provide 17 training and so forth for the subcontractors. You 18 use the term several times quote, "to build capacity" 19 unquote. Could you define that for me? 20 A. Many of our federal government grants we 21 propose and they support us billing capacity in the 22 region we serve, and that's one of the roles I think 23 of the regional educational laboratory and other 24 grants. So we, unlike many other consultants -- 25 well, I think we work with our clients and our 100 1 constituents. We do not go in and generally just do 2 it ourselves. To build capacity, we work with them 3 to help train them so that they -- when we are gone, 4 they have the capacity to go forward. 5 Q. I see. And finally Ms. Erhorn, the 6 question was asked I think by Representative Kawakami 7 about how you knew that Na Laukoa was doing or had 8 been doing a good job, and I think your response was 9 you heard lots of positive comments about the 10 program. Who did you hear the positive comments 11 from? 12 A. I know the positive results of the 13 project. In my mind generally I look at the bottom 14 line to see the results as far as we get the monthly 15 progress reports from Na Laukoa and nothing to 16 believe otherwise. 17 Q. So basically your belief that they were 18 doing a good job was based on the reports that they 19 sent you? 20 A. Again, we work as a team. I didn't hear 21 anything otherwise. 22 SENATOR SLOM: Thank you, Ms. Erhorn. 23 Thank you, Co-Chair. 24 CO-CHAIR SENATOR HANABUSA: Okay. 25 Members, we will break for a short five-minute recess 101 1 and resume hopefully at 3:30. 2 (Recess from 3:24 p.m. to 3:35 p.m.) 3 CO-CHAIR SENATOR HANABUSA: Members, we 4 are reconvened. Co-Chair Saiki. 5 CO-CHAIR REPRESENTATIVE SAIKI: Thank you 6 very much. 7 EXAMINATION 8 BY CO-CHAIR REPRESENTATIVE SAIKI: 9 Q. Mr. Erhorn, I just have a few questions. 10 First of all, are you familiar with the Felix 11 monitoring team, the court monitor in particular Ivor 12 Groves? 13 A. I've never met him. 14 Q. Do you know if he was involved with the 15 contract that was awarded to PREL whether it's in 16 negotiations or through a selection of Na Laukoa? 17 A. I do not know. 18 Q. Are you familiar with someone named 19 Lenore Behar, Lenore Behar? 20 A. No, I'm not. 21 Q. Are you related to someone named Judith 22 Schrag? 23 A. No. 24 Q. You know, I just had another question 25 attached to both PREL's contract and to the 102 1 subcontract there is a scope of services. 2 A. Uh-huh. 3 Q. Do you know when was the scope of 4 services drafted? 5 A. In August. 6 Q. And that was before you had entered into 7 the contract -- before PREL had entered into the 8 contract with the DOE? 9 A. No, the scope of services was developed 10 in conjunction with the DOE. 11 Q. So I noticed that in the scope of 12 services Na Laukoa is specifically identified as a 13 recipient of a contract? 14 A. Yes. 15 Q. Has PREL contracted with any other entity 16 aside from Na Laukoa to deliver any of the services 17 required by this master contract? 18 A. Just the technical assistance 19 coordinators. 20 Q. Are those entities or individuals? 21 A. Individuals, right. 22 Q. So I guess because the scope of services 23 was drafted in conjunction with the drafting of the 24 master contract between PREL and DOE, it was pretty 25 clear to PREL that there was requirement that Na 103 1 Laukoa be subcontracted? 2 A. Yes. 3 Q. Do you know if PREL had not agreed to 4 subcontract Na Laukoa, do you know whether or not 5 PREL would have received this master contract? 6 A. No. 7 Q. You don't know? 8 A. No. Would have received this contract, 9 no. I don't know whether your question is -- if the 10 answer is whether do I know whether PREL would have, 11 no, I do not know. 12 Q. But based on your discussions with 13 superintendent or other DOE officials with respect to 14 Na Laukoa, do you have any understanding or 15 familiarness as to whether or not PREL would have 16 received the master contract if it had refused to 17 agree to subcontract Na Laukoa based on the 18 negotiations leading up to the master contract? 19 A. No, I don't know. 20 CO-CHAIR REPRESENTATIVE SAIKI: Okay. 21 Thank you very much. 22 EXAMINATION 23 BY CO-CHAIR SENATOR HANABUSA: 24 Q. Ms. Erhorn, I have some questions of you 25 as well. Prior to the contract that we're discussing 104 1 here today, has PREL done any work for the Department 2 of Education related to the Felix consent decree? 3 A. PREL's work with the Department of 4 Education in the past has been relatively small 5 purchase orders and some evaluation work primarily. 6 As far as work particularly with the Felix consent 7 decree, maybe periphery in special education we have 8 definitely provided some services. 9 Q. When you said your contracts with the DOE 10 have been small, when you use the word "small," what 11 do you mean? 12 A. I think most of them -- most of them have 13 been assistance to schools which are under PO's and 14 evaluation contracts which are evaluating generally a 15 federal program or assisting in the evaluation. 16 Evaluation contracts generally are higher than just 17 technical assistance to a school. 18 Q. It's our understanding from prior 19 testimony that the PO limit in schools were not very 20 high. It was like $25,000. Are we in about -- 21 A. Oh, definitely. 22 Q. So it's -- 23 A. Sometimes they were $1,500. 24 Q. Okay. So this is probably your largest 25 contract with the Department of Education? 105 1 A. Definitely. 2 Q. Prior to that with all of the various 3 other places for lack of a better description of 4 PREL's services, have you done anything relating to 5 IDEA compliance? 6 A. Probably Dr. Burger could answer because 7 somebody had -- if one of our contracts had done 8 that, he'd know which one it was. 9 Q. But as you sit here today nothing comes 10 to your mind? 11 A. IDEA compliance, no, nothing comes to 12 mind but I know Dr. Burger has worked with the 13 Department of Education on special education. 14 Whether it's IDEA or some other area, I'm not sure. 15 Q. Has Dr. Burger ever mentioned to you what 16 a particular contract is for the Felix consent decree 17 or the Felix vs. Cayetano? 18 A. No. I know we did this scoring 19 assistance recently which was to get in compliance 20 with some reading tests for some students, and I 21 think that was a periphery and it had something to do 22 with that contract. 23 Q. When you say recently, is that after the 24 PREL/Na Laukoa contract? 25 A. I think it was in May of this year. 106 1 Q. This year. Thank you. Do you know a 2 person by the name of a Kaniu Kinimaka-Stocksdale 3 prior to the PREL/Na Laukoa contract? 4 A. No, I didn't. 5 Q. In your discussions with Dr. LaMehieu 6 over this contract that we're discussing here today, 7 did Dr. LaMehieu ever represent to you that he was a 8 very good friend of Kaniu Kinimaka-Stocksdale? 9 A. I don't remember him saying that. 10 Q. In the review of your contract looking -- 11 this is Exhibit 1 -- the standards of conduct 12 declaration that's attached to the State of Hawaii 13 form, it just happens that the contractor is was 14 originally circled and then crossed out. This is No. 15 1, "A legislator or an employee or a business in 16 which a legislator or an employee has a controlling 17 interest." And there's an asterisk next to that. 18 Do you know why is may have been circled 19 and then crossed out? 20 A. No, I don't. 21 Q. You've executed contracts like this 22 before with the State of Hawaii? 23 A. Not many. I perhaps -- I don't remember 24 many. I do remember an evaluation contract that was 25 over a limit that required that. 107 1 Q. Has PREL as an entity, a corporate entity 2 established any kind of policy given the fact that 3 you have on your board employees of various states 4 and whether it's Guam and whatever else that you 5 would be very careful or watch the conflict of 6 interest by the statements like this, do you have a 7 policy on that? 8 A. I'm pretty sure we have a conflict of 9 interest of policy that the board has established, 10 but I can't remember it offhand. 11 Q. You testified, I believe, to Senator 12 Slom's question that no fee is even paid to your 13 board members. 14 A. Correct. 15 Q. So they don't have directors' fees, any 16 kind of reimbursement for travel, anything like that? 17 A. We do pay for their travel to attend 18 board meetings. 19 Q. Are your board meetings always held in 20 Honolulu? 21 A. No. Because our boards are made up of 22 constituents from throughout the region, the board 23 meeting moves from each locale. Sometimes it's in 24 Chuuk, sometimes it's in Ponape, American Samoa, 25 wherever. 108 1 Q. So say let's take Dr. LaMehieu, for 2 example, if he goes to any of these meetings, his 3 travel, would he be given a per diem? 4 A. Yes. 5 Q. So that would come from PREL? 6 A. Yes, it would. 7 Q. I notice the last page is a tax clearance 8 application, and this is standard for anyone doing 9 business with the State of Hawaii and/or receiving 10 federal grants. Is this something that you attached 11 to all your contracts? 12 A. No, it's only with the State. The State 13 every once in a while will alert us we need this, and 14 I don't know the requirements of it but when they ask 15 for it, we get it. 16 Q. Did anyone ask you for a tax clearance 17 for Na Laukoa? 18 A. No. 19 Q. Do you know if you needed to provide a 20 tax clearance for Na Laukoa as a subcontractor to 21 you? 22 A. No. 23 Q. You're not aware of that? 24 A. No. 25 Q. In dealing with your other grants, 109 1 federal grants, have you had to provide tax 2 clearances for your other subcontractors? 3 A. No. 4 Q. You have not. Because most of your money 5 are federal funds, are there specific types of forms 6 that you must complete for the federal government? 7 A. To get payment? 8 Q. Yes. 9 A. No. 10 Q. Not at all? 11 A. No. 12 Q. So how do you get paid from them? 13 Invoicing them? 14 A. We have a large contract in which we do 15 invoice, and it's monthly invoices we do provide and 16 that's on our regional educational laboratory 17 contract. On our others, all our grants, those are 18 on a GAP system which we go on the Internet, the web 19 and we draw down against our contract or excuse me, 20 against the grant and it gets wired to our account. 21 Q. In this particular contract which really 22 involves federal impact aid monies and basically 23 federal money, did the DOE inform you that there are 24 certain kinds of procedures you must follow to 25 receive the monies? 110 1 A. No, no. 2 Q. So you handled it like you did that other 3 big contract, you would invoice the DOE? 4 A. We invoiced it according to the payment 5 terms, invoicing payment terms in the contract. 6 Q. The Phase 1, Phase 2 and so forth? 7 A. Somewhat, yes. 8 Q. I'm looking at your Exhibit B of that 9 contract with the State, and I'm just curious because 10 there was a comment made in a prior testimony. The 11 $2,320,611.00 is the total contract amount, correct? 12 A. Correct. 13 Q. And the contractual amount which you said 14 includes the TACs, the technical assistance 15 coordinators as well as Na Laukoa is about 16 $1,683,000, correct? 17 A. Correct. 18 Q. And the difference is just under 19 $700,000, correct? 20 A. Correct. 21 Q. The $700,000 which is the difference is 22 actually the monies that went to PREL, correct, or 23 could go to PREL? 24 A. The difference -- all the non-subcontract 25 stuff, yes, contractual stuff. 111 1 Q. So you mentioned that you've already 2 billed or received about $1,850,000; is that correct? 3 A. Correct. 4 Q. Out of that, how much money is to PREL, 5 not the subcontracting amount? 6 A. I can get you that information. I have 7 to go back to the cost records to figure it out to 8 give you an accurate number if you don't mind. 9 Q. Okay. That's fine. But you said that 10 you've paid Na Laukoa about $450,000; is that 11 correct? 12 A. That's correct. 13 Q. Do you have any recollection as to how 14 much -- what's the neighborhood of payments you made 15 to the technical assistance coordinators? 16 A. It's a very easy number to get in our 17 accounting system. It's significant. It's got to be 18 over half a million dollars, but I don't have it 19 right now. I'd have to go look it up specifically. 20 Q. That's fine. Do you know if you have -- 21 in essence, when I say you, I mean PREL -- has been 22 paid most of the, if not all of the personnel cost, 23 the fringe benefits, travel, supplies, other, this 24 category called other, and the indirect overhead 25 costs and the total direct costs, have you been paid 112 1 most of this amount here, do you remember? 2 A. The $2.3 million? 3 Q. No, the categories other than the 4 contractual, have you received that? 5 A. We billed $1.8 million of which includes 6 Na Laukoa and the TACs and the difference is $2.3 7 minus $1.8 equals $500,000 difference we haven't 8 billed. 9 Q. You haven't billed. I know you haven't 10 billed, that's right. And Na Laukoa is due about 11 230-something? 12 A. Well, when you say due, their contract 13 amount is that amount. Whether they ever get it is 14 another question. 15 Q. Have they made a demand upon you or upon 16 PREL for that 200 and some odd thousand dollars? 17 A. Oh, no, no. They just submit invoices 18 like the contract calls for. 19 Q. They have not submitted any invoices to 20 reflect that amount? 21 A. No. 22 Q. So you are withholding under the terms of 23 the contract $40,000, correct? 24 A. Yes. 25 Q. And that's money that they have already 113 1 earned per se? 2 A. They have already billed. 3 Q. They have already billed for that. So 4 right now if you were to pay them, it would be an 5 additional $40,000; is that correct? 6 A. Yes. 7 Q. Are there still things ongoing that would 8 or could result with Na Laukoa billing the difference 9 which would be almost $200,000? 10 A. I can't imagine, no, and I doubt -- no. 11 My answer is no. 12 Q. So as we sit here today, then, the -- I 13 guess the responsibilities of this contract and the 14 creation of the TACs that that's over, it's been 15 completed? 16 A. Through October 31. It's still ongoing. 17 Q. And after that it's over? 18 A. Yes. 19 Q. So if it's still ongoing, Na Laukoa no 20 longer has any role. Is that why they would not be 21 billing anything from when they last billed to now? 22 A. Na Laukoa I expect a billing for 23 September. We have not gotten a billing for 24 September. It's pretty close afterwards. They had 25 billed through August, and further services in 114 1 October I expect we'll probably get a billing. 2 Q. So it could be more than the $450,000 3 that you've been billed for today? 4 A. Correct. 5 Q. And you don't know what that amount is? 6 A. We have a budget. We have an estimate. 7 We anticipate it. We have a ballpark. 8 Q. Excuse me. What is the estimate? 9 A. I think the estimate is like 500 and some 10 thousand, $600,000 in total. 11 Q. In total. So till the end of October? 12 A. Correct. 13 Q. So Na Laukoa out of the 680-some odd 14 thousand could end up with about $600,000 at the end 15 of October? 16 A. Correct. 17 Q. Is that correct. I was just kind of 18 curious what is capital L-A-N capital W-A-N cost? 19 A. Local area network, wide area network 20 cost. 21 Q. Okay. And your indirect/overhead cost of 22 19.75 you've already explained that that's not a 23 double billing. It's a substantial amount of money 24 though it's $269,000. What is that? Is that like 25 what we call administrative overhead? 115 1 A. Again, I'll have to refer to our federal 2 contracts and grants. Under the federal contracts 3 and grants, we negotiate or are required to negotiate 4 an indirect rate with the federal government in which 5 we must apply to federal work, and the intent is that 6 the federal government we would never bill the 7 federal government more than we would bill anybody 8 else. 9 So it is a rate -- an indirect rate is 10 established to determine the amount of cost for those 11 kind of indirect costs, and indirect costs are 12 generally payroll, reception, human resources, 13 accounting, those kind of costs that are very hard to 14 directly charge to a grant; so the difference between 15 a direct charge which is a direct benefit person 16 serving on and somebody processing a payroll check. 17 So the indirect rate is the method that we use and we 18 are required to use. 19 Q. So if I'm hearing you correctly, the 20 reason it's 19.75 is because you've told the federal 21 government that you will charge 19.75 to everyone? 22 A. No, excuse me. I'm sorry. There is an 23 indirect rate, and I rarely tell the federal 24 government anything. This is negotiated. They 25 review all our costs, and they determine it on an 116 1 annual basis what your indirect rate will be for the 2 next year. They give you a provisional rate, and 3 then they also give a final rate. So it's an ongoing 4 process and it's definitely a negotiation. 5 Q. Did you hire any additional staff as a 6 result of this contract which would fall in the 7 indirect overhead cost that you can think of now? 8 A. Yes. 9 Q. For this specific contract with the 10 Department of Education? 11 A. Is your question regarding my unit or is 12 it regarding the program's side? 13 Q. The program's side. The total cost, 14 whatever would fall into indirect/overhead cost? 15 A. Oh, indirect, excuse me. Yes, we did a 16 lot of tempts we used and a lot of my time was spent 17 on it. 18 Q. And your time would not be attributed to 19 personnel or any of the other categories? 20 A. Very little of it. Almost all my time is 21 an indirect. 22 Q. Indirect? 23 A. Correct. And everyone in my unit is an 24 indirect. 25 Q. Is an indirect cost. But then you have 117 1 other contracts at the same time, correct? 2 A. Oh, yes. 3 Q. So other federal contracts are also being 4 assessed the 19.75? 5 A. The 19.75 has a component of indirect 6 cost plus a fee. So the indirect costs are being -- 7 are applied to all federal contracts and grants, yes, 8 and this one also has a fee component. 9 Q. What's the total amount you can give me 10 your best guesstimate if that's what it comes down to 11 that PREL receives today in a year for indirect and 12 overhead costs for all your grants? 13 A. I do know the number. I'm trying to -- 14 it is kind of a competitive advantage our indirect 15 rate, but our number is I think it's about 16 $1.2 million or $1.4 million somewhere around there. 17 Q. And that's indirect/overhead cost? 18 A. Correct, and that includes our Board of 19 Directors' costs. Our government's costs. 20 Q. Your government? 21 A. Well, we call the Board of Directors 22 governments. 23 Q. Oh, I see. 24 A. Kind of parallel. 25 Q. Oh, that's for their per diems and things 118 1 like that? 2 A. Correct, and their ward books, any costs 3 that the board might incur. 4 Q. That's interesting. Part of the contract 5 require DOE/DOH supervisors, and that's part of this 6 scope of service. I think they call themselves the 7 management team. Do you remember that? 8 A. Oh, definitely, yes. 9 Q. Do you remember who made up the 10 management team? 11 A. I know I've seen a list, but I don't 12 know. I never attended the management team meeting. 13 As I understand, the management team was in effect 14 before the contract was in effect. 15 Q. And did PREL have to compensate any of 16 the management team members? 17 A. No. 18 Q. Okay. Do you know if Dr. Burger knew 19 Dr. LaMehieu before Dr. LaMehieu became a member of 20 your Board of Directors? 21 A. No, I don't know. 22 Q. You don't know? 23 A. No. 24 Q. You said something very interesting and I 25 think this was in -- I mean, response to questions by 119 1 Dr. Slom. Dr. Slom was asking you about the fact 2 that they appeared to be -- I'm sorry, Senator Slom. 3 He'll pay me for that. 4 That there were concerns about Na Laukoa 5 and this was something that you had discussed, and it 6 was earlier in the process before the contract, I 7 believe, was entered into. Did I recall that 8 correctly? 9 A. Yes, I think so. 10 Q. What were the concerns? 11 A. We didn't know them. We weren't as 12 familiar with them. 13 Q. Do you do or does PREL do, as a matter of 14 course, some kind of preliminary investigation like 15 checking references, who they work for, you know, how 16 successful they have been in the conclusion of their 17 contract. Is there some kind of procedure like that 18 in PREL's contracting process? 19 A. Maybe perhaps not as formal as that but, 20 yes, the consideration is given. 21 Q. And do you know if PREL did something 22 like that when it came to Na Laukoa? 23 A. I think there were questions asked and 24 answers received that were sufficient for it. 25 Q. Do you remember who asked those 120 1 questions? 2 A. It was part of our team of Dr. LaMehieu 3 primarily. 4 Q. So Dr. LaMehieu asked questions about Na 5 Laukoa? 6 A. Excuse me. No, part of PREL's team ask 7 the questions. 8 Q. Okay. And they ask the questions of 9 Dr. LaMehieu? 10 A. Correct. 11 Q. Did PREL ask for like a r�sum� of jobs 12 that Na Laukoa did prior to the decision to enter to 13 contract with them? 14 A. I don't remember that. I don't remember 15 that, no. 16 Q. Who makes the final decision that PREL 17 will enter into the contract? 18 A. It's a joint decision. As you see on the 19 contract worksheet, we all have to sign off on that, 20 and we all have our aspects to provide to it. 21 Q. Is that Exhibit 3? 22 A. Correct. 23 Q. If you would look at Exhibit 3, there's 24 some handwritten notes and it says note and it goes 25 on. It looks like KE at the end. Is that you? 121 1 A. Correct. 2 Q. Can you read that to me? 3 A. I'm pretty sure I can. I said, "Note: 4 Reviewed and okay'd by Tom." And I probably had the 5 date, and I can't even read my date. 6 Q. 8/30/00. Who is Tom? 7 A. Tom Barlow is our chief 8 financial officer -- excuse me, chief operating 9 officer. 10 Q. And with this approval, the contract can 11 be entered into? 12 A. Correct. 13 Q. It doesn't need the board's approval? 14 A. PREL's board of directors -- all the 15 contracts are presented to the board of directors. 16 I'm trying to think. Anyway, it's presented to the 17 board. I can't remember if we presented it as 18 information only or as ratification, but -- oh, no. 19 This one would have been a revenue contract, and it 20 is for the ratification. 21 So it is presented to the board. Not 22 prior to because sometimes our board meetings are 23 only three times a year. So it may have been 24 subsequent. 25 Q. For ratification by the board? 122 1 A. Yeah. 2 Q. And do you recall if Dr. LaMehieu also 3 voted on a ratification of this contract? 4 A. I don't know. I don't know if he 5 attended that meeting or which meeting it was. 6 Q. I kept this PREL publication that you 7 sent to me, and I think you have it there and this is 8 one dated April, 2001 and one of the inside articles 9 is PREL and Na Laukoa assist HIDOE -- I think it's 10 Hawaii DOE -- to comply with Felix consent decree. 11 A. Yes, that's what we have. 12 Q. That's what you have, right. And is this 13 your newsletter? 14 A. It's one of our newsletters, yes. 15 Q. And how many times a year is this 16 published? 17 A. I think updates might be sometimes two, 18 sometimes three, sometimes four. 19 Q. So it's not like it comes out every 20 quarter or something? 21 A. I think it was designed to come out 22 quarterly, but I think we cut back perhaps on doing 23 it less frequently. 24 Q. It says -- and I don't know if you know 25 this because I notice you were not one of those who 123 1 wrote it -- do you review any of this? 2 A. No, I don't review it. 3 Q. Have you even read it? 4 A. I've scanned it, but I sometimes don't 5 read them. 6 Q. I was just curious because one of the 7 statements is Na Laukoa and PREL have complimentary 8 skills in the field of education, and one of the 9 statements you made previously was that PREL had the 10 skill in education and Na Laukoa apparently had the 11 skill in mental health. That was your understanding, 12 correct? 13 A. Correct. 14 Q. So do you know if Na Laukoa had developed 15 any skills in education? 16 A. I don't know whether that article was 17 supposed -- no, I don't know. 18 Q. It's basically like a PR piece? 19 A. It's an informative piece. To that we 20 try to inform our constituents what we are doing and 21 what we're engaged in, and we're very proud of the 22 work we've done and the process we've gone through. 23 Q. It says the publication was produced from 24 funds from the Office of Education and Research and 25 Improvement, OERI, the U.S. Department of Education 124 1 and under the Regional Educational Laboratory Program 2 and there is a contract number. 3 Are those basically your major sources of 4 funding, PREL's major sources of funding? 5 A. The Regional Educational Laboratory 6 contract is about a third or 30 percent of our 7 funding. Federal funds is probably at least 8 90 percent of our funding if not more if not 95 or 9 98. 10 Q. And it was your understanding that this 11 particular contract that we're talking about here was 12 actually funded federally as well with federal impact 13 aid? 14 A. Yes, it's different kinds of funds than 15 what we normally deal with. 16 CO-CHAIR SENATOR HANABUSA: Thank you 17 very much. I have nothing further. Is there any 18 follow-up questions, Mr. Kawashima? 19 SPECIAL COUNSEL KAWASHIMA: Just a 20 request, Madam Chair. 21 FURTHER EXAMINATION 22 BY SPECIAL COUNSEL KAWASHIMA: 23 Q. Ms. Erhorn, in addition to the documents 24 that you've agreed to provide through your counsel, 25 would you please provide for us the copy of the 125 1 minutes of the board meeting in which this agreement 2 Exhibit 1 was ratified and if there are any 3 proprietary matters, feel free to redact those. Any 4 privacy issues, feel free to redact those. All we're 5 concerned about is whether or not Dr. LaMehieu as a 6 member of the board of PREL approved this contract, 7 abstained from voting or whatever. Do you understand 8 my request? 9 A. Yes. 10 SPECIAL COUNSEL KAWASHIMA: Thank you. 11 CO-CHAIR SENATOR HANABUSA: Senator 12 Sakamoto. 13 SENATOR SAKAMOTO: Thank you. 14 FURTHER EXAMINATION 15 BY SENATOR SAKAMOTO: 16 Q. Just for my clarification. Maybe you 17 said it before but let me just clarify Na Laukoa's 18 contract you got $200,000 initially; in PREL's 19 contract you have, at least the way the contract 20 document states, $580,000 initially. 21 A. Correct. 22 Q. Then -- and because these are cost plus 23 or cost reimbursement contracts, then is it that Na 24 Laukoa would receive their $200,000 plus one dollar 25 after incurring $200,000 of expenses sent in or when 126 1 it is that they would receive the next dollar? 2 A. The process isn't necessarily established 3 right up front. They received it sometime -- I can't 4 remember when we paid some other bills, but we paid 5 some other bills also. 6 Q. Well, let me -- I guess the way I read 7 the contract if Na Laukoa or my subcontractor and we 8 had this kind of wording, I would have paid them the 9 $200,000 and until they gave me invoices for $240,000 10 I would not have paid them one more dollar because 11 the $40,000 they would have incurred but we would 12 have withheld until they performed satisfactorily. 13 Would that be the way it could be read or 14 should be read? 15 A. The performance of satisfactory 16 performance was always there. So when I looked -- if 17 we're talking just about the administrative side and 18 processing the invoice, yes, it could be looked at 19 that way. We -- I'm pretty sure I did not do it that 20 way. 21 Q. Okay. So at this point in time you've 22 paid them $450,000 or so you, you anticipate they'll 23 come up to $560,000 more so. When will you start 24 saying we now are capturing $40,000 and not pay? 25 A. They haven't been paid since April or I 127 1 think May; so we have not paid even though we 2 received invoices because now they're at the point 3 where they have expended more than we've advanced. 4 Q. Okay. Let me clarify. The $450,000 is 5 costs they incurred or amounts you've paid? 6 A. Amounts we've paid. 7 Q. Okay. So you've paid 450. With the 8 contract you have a right to hold 450 plus 40, 9 $490,000 bona fide costs. You have the right not to 10 pay them any more because the contract says you can 11 hold $40,000, right? 12 A. Right, right, right. 13 Q. So at some point I'm wondering that's my 14 question now as we are finishing the contract when -- 15 what is going to trigger you saying I'm holding this 16 $40,000 till some date and time? 17 A. Right now. 18 Q. Okay. So you will start to say? 19 A. We have said that and they submitted 20 invoices, and we have not paid those invoices because 21 we're at the end of the contract and this is the time 22 we've anticipated and planned that we would do in 23 review of all those invoices. 24 Q. So their billing might say $500,000 and 25 here's our backup or the backup we've previously sent 128 1 less $40,000, amount previously paid $450,000, now 2 due whatever that balance is? 3 A. Their invoices were just for that month's 4 expenses. 5 Q. Okay. So then you as the financial 6 officer would say -- 7 A. Yes, we'd do that. 8 Q. Cost to date $500,000? 9 A. Keep track. 10 Q. Validated invoices $500,000, paid to date 11 $450,000 meaning, potentially $50,000 due, less 12 $40,000 till completion, here's your check $10,000? 13 A. Yeah, I might do that. 14 Q. Okay. 15 A. Or I just might not pay them until I'm 16 totally satisfied. 17 Q. Second question. Almost done, Chair. 18 So the last question I guess when you 19 talk about not doing your overhead or your indirect 20 and overhead on Na Laukoa which is part of the 21 contractual, you're saying it was a sub. As far as 22 the tax, is there an indirect and overhead on them or 23 they are not indirect either? 24 A. No, the indirect and overhead is computed 25 on the tax. 129 1 Q. Just not on Na Laukoa? 2 A. Not just on Na Laukoa a significant 3 contract amount, yes. 4 SENATOR SAKAMOTO: Okay. Thank you. 5 CO-CHAIR SENATOR HANABUSA: Any other 6 follow-up questions? 7 VICE-CHAIR REPRESENTATIVE OSHIRO: Yes, 8 Chair. 9 CO-CHAIR SENATOR HANABUSA: Vice-Chair 10 Oshiro. 11 VICE-CHAIR REPRESENTATIVE OSHIRO: Thank 12 you, Senator Hanabusa. 13 FURTHER EXAMINATION 14 BY VICE-CHAIR OSHIRO: 15 Q. Just one more area of clarification. 16 Senator Hanabusa raised an interesting point. 17 Normally when somebody subcontracts essentially as I 18 understand that what they're doing is taking over 19 maybe part of the duties or obligations of the main 20 contractor and thereby, you know, you pay them their 21 share; is that correct? 22 A. Correct. 23 Q. Okay. And as I understand it, part of 24 the requirements by the State is that when they 25 contract with you, you need to have that tax 130 1 clearance certificate from the Department of Tax 2 which is the attachment you stated, correct? 3 A. That's what the State asked us for, and 4 we gave it to them. 5 Q. Okay. Okay. I was wondering on 6 Exhibit 1 if you could turn to page 3, paragraph 6 7 when it talks about the subcontracts and 8 assignments -- I'm sorry, page 3 of the general 9 conditions. 10 When it talks about subcontracts, it 11 says, "The contractor shall not assign or subcontract 12 any of the contractor's duties." It goes on, 13 "Unless" -- and then small ii says, "The contractor's 14 assignee or subcontractor submits to the State a tax 15 clearance to figure out from the Department of 16 Taxation." 17 So under this provision of the contract, 18 if you were to subcontract with somebody, they would 19 herein have to get a tax clearance; is that correct? 20 A. It appears to be. 21 Q. Okay. But interestingly enough because 22 the scope of this contract actually already included 23 Na Laukoa, in a way they never had to get this tax 24 clearance because you're not subcontracting any part 25 of your obligations because their obligation is 131 1 already part of the contract. Does that make sense? 2 So normally -- what I'm trying to say is 3 normally if you were to subcontract with somebody 4 let's say Na Laukoa was no part of this general 5 contract and you decided to subcontract with someone, 6 you would have to make sure that you comply with this 7 provision and make sure that they have a tax 8 clearance. 9 A. Uh-huh. 10 Q. But interestingly enough because Na 11 Laukoa is actually in this general contract and 12 you're not really assigning part of your duties to 13 them, they never had to get any tax clearance through 14 the State? 15 A. It sounds like a legal question. I just 16 don't know. We did not ask Na Laukoa for a tax 17 clearance. Perhaps it was an oversight. I'm not 18 familiar with the State contracting as perhaps I am 19 with federal contracting. 20 Q. Okay. But as far as you know -- 21 A. And that might make sense what you said, 22 yes. 23 Q. But as far as you know, Na Laukoa -- you 24 never required them to? 25 A. I never asked them for it, no. 132 1 VICE-CHAIR REPRESENTATIVE OSHIRO: Okay. 2 Thank you. 3 CO-CHAIR SENATOR HANABUSA: 4 Representative Marumoto. 5 REPRESENTATIVE MARUMOTO: Thank you. 6 FURTHER EXAMINATION 7 BY REPRESENTATIVE MARUMOTO: 8 Q. Just briefly I was looking at the front 9 of the contract and at the bottom it says money 10 available to this agreement pursuant to impact aid 11 and that's federal money. 12 Does that mean anything to you? Is it 13 more restrictions on that type of money as opposed to 14 private or state money? 15 A. PREL is very familiar with dealing with 16 federal funds and the requirements with federal 17 funds, and one of the requirements whenever PREL 18 enters into a contract or subcontract is this issue 19 of flow down of federal requirements where we 20 actually specify in our contract this comes from 21 grant from the federal government, how much and that 22 the subcontractor must comply with certain federal 23 requirements and compliance. 24 This contract does not have or does not 25 state any of those flow down requirements; so it may 133 1 be -- I'm not familiar. I have not dealt -- PREL 2 does not deal with impact aid, and federal grants and 3 contracts and monies all have different requirements 4 as I understand. 5 Q. So does it flow down any way even though 6 it doesn't specify? 7 A. I think you're required to put it in the 8 contract at least we are required to any time that we 9 give a subcontract a federal fund to specify these 10 are federal funds and these are the requirements that 11 must flow down to you. 12 Q. So why is it not in this contract? 13 A. I'm not familiar with impact aid, and if 14 that's -- those requirements follow impact aid funds, 15 I don't know. 16 REPRESENTATIVE MARUMOTO: Well, thank 17 you. We'll look into that. 18 CO-CHAIR SENATOR HANABUSA: Any other 19 follow ups? I have just one question. 20 FURTHER EXAMINATION 21 BY CO-CHAIR SENATOR HANABUSA: 22 Q. Do you do an audit at any time of your 23 subcontractors on a regular basis or part of your 24 procedure? 25 A. No, we don't audit. 134 1 Q. Are you auditing Na Laukoa at this time? 2 A. When I think of the work audit, I think 3 of a professional audit from a CPA firm. It's not in 4 our budget, and we are not going to engage an outside 5 auditor to. I don't think it's necessary. 6 Q. Well, let's not use such a restrictive 7 definition of audit. Do you or in terms of Na Laukoa 8 in particular, are you asking for backup materials 9 from them seeing whether what they have billed you is 10 actually for the work performed, are you doing any 11 kind of oversight or monitoring of that nature? 12 A. Absolutely. It's ongoing, and it has 13 been from the beginning. 14 Q. And through this monitoring or whatever 15 we want to call it, are you looking at the billing 16 and making decisions as to whether from the financial 17 part that it's properly billed, properly earned and 18 so forth? 19 A. Correct, we are. 20 Q. Someone asked you earlier about the 21 amount of money being paid to the -- I don't know 22 whether you want to call her the liaison or anyway, 23 Ms. Kaniu Kinimaka-Stocksdale, how do you know how 24 much money she's actually receiving? 25 A. By the billings. I know how much she has 135 1 billed PREL under this contract. 2 Q. So is there a line item for herself 3 personally? 4 A. Yes. 5 Q. And is there also a line item for things 6 like overhead or other items? 7 A. Yes. 8 Q. Do you audit when you go in and audit 9 using it very loosely, do you ensure or do you look 10 at their books and decide, in fact, that the 11 audited -- I mean, the amounts attributed to, for 12 example, overhead or other kinds of items are, in 13 fact, not being converted somehow to salaries or 14 anything like that which may increase the amount of 15 quote "income" she may be receiving off of this 16 particular contract? 17 A. We have not looked at the books, and I 18 don't know whether that would be necessary. We've 19 given them guidance on how you are to bill cost. The 20 cost is your payroll cost, your actual cost and cost 21 is based on the time you spend on this project 22 whether that time be 10 percent or 100 percent. 23 So we have been working with them on 24 their billings to prepare them in such a way that it 25 makes it very easy to see this which is -- PREL is 136 1 used to doing this and we're trying to pass that 2 experience on. 3 I don't have -- if that answers your 4 question. We haven't looked at your books, but you 5 can see how much times somebody is billing for you. 6 Q. So what you're actually doing is more 7 receiving -- ensuring that the paper route that comes 8 to you is in the form that's friendly to your 9 purpose? 10 A. That tells you what you're paying for. 11 Q. But there is no check between what the 12 paper reflects as coming to you and what's actually 13 done in terms of -- 14 A. Oh, there's -- no, there is a check. 15 PREL does not make a payment without knowing that the 16 services have been provided or the goods received. 17 That's again on the program side. They get all kinds 18 of working with Na Laukoa on a daily basis, they're 19 attending meetings, they get reports. All the normal 20 way whether they do it on a federal program or any 21 other of our subcontracts. It's the same procedures. 22 Q. So if Mr. Burger was to come before us, 23 he would be able to tell us what is done to ensure to 24 you that the work is actually performed on the 25 program's side? 137 1 A. Yes. 2 Q. Are you aware of whether any other 3 governmental entity is auditing Na Laukoa, have you 4 been contacted by anyone else? 5 A. No. 6 CO-CHAIR SENATOR HANABUSA: Thank you. 7 Anyone else? Thank you. Co-Chair Saiki? 8 CO-CHAIR REPRESENTATIVE SAIKI: Thank you 9 very much, Ms. Erhorn, for your testimony. That 10 concludes your testimony. 11 KAREN ERHORN: Thank you. 12 CO-CHAIR REPRESENTATIVE SAIKI: Members, 13 at this point we'd like to make a motion for your 14 consideration to go into executive session to discuss 15 three topics. First, the witnesses scheduled for 16 tomorrow's hearing. Second, to be briefed by our 17 counsel on the status of our investigation; and 18 third, to consider the issuance of further subpoenas, 19 potential further subpoenas. Is there any 20 discussion? If not, we'll take a role call vote. 21 CO-CHAIR SENATOR HANABUSA: Co-Chair 22 Saiki? 23 CO-CHAIR REPRESENTATIVE SAIKI: I. 24 CO-CHAIR SENATOR HANABUSA: Vice-Chair 25 Kokubun? 138 1 VICE-CHAIR SENATOR KOKUBUN: I. 2 CO-CHAIR SENATOR HANABUSA: Vice-Chair 3 Oshiro? 4 VICE-CHAIR REPRESENTATIVE OSHIRO: I. 5 CO-CHAIR SENATOR HANABUSA: Senator Buen? 6 SENATOR BUEN: I. 7 CO-CHAIR SENATOR HANABUSA: 8 Representative Ito? 9 REPRESENTATIVE ITO: I. 10 CO-CHAIR SENATOR HANABUSA: 11 Representative Kawakami? 12 REPRESENTATIVE KAWAKAMI: I. 13 CO-CHAIR SENATOR HANABUSA: 14 Representative Leong? 15 REPRESENTATIVE LEONG: I. 16 CO-CHAIR SENATOR HANABUSA: 17 Representative Marumoto? 18 REPRESENTATIVE MARUMOTO: I. 19 CO-CHAIR SENATOR HANABUSA: Senator 20 Sakamoto? 21 SENATOR SAKAMOTO: I. 22 CO-CHAIR SENATOR HANABUSA: Senator Slom? 23 SENATOR SLOM: I. 24 CO-CHAIR SENATOR HANABUSA: Co-Chair 25 Hanabusa is I. We're in agreement. 139 1 CO-CHAIR REPRESENTATIVE SAIKI: Thank 2 you, Members. We'll recess for 30 minutes. 3 (Recess from 4:22 p.m. to 5:20 p.m.) 4 CO-CHAIR REPRESENTATIVE SAIKI: Members, 5 I would like to reconvene our hearing and we just 6 have one last item which is the recommendation to 7 authorize the subpoena to be issued against Terry Lee 8 from the Department of Health. Is there any 9 discussion? If not, we'll take a roll call vote. 10 CO-CHAIR SENATOR HANABUSA: Co-Chair 11 Saiki? 12 CO-CHAIR REPRESENTATIVE SAIKI: Yes. 13 CO-CHAIR SENATOR HANABUSA: Vice-Chair 14 Kokubun? 15 VICE-CHAIR SENATOR KOKUBUN: I. 16 CO-CHAIR SENATOR HANABUSA: Vice-Chair 17 Oshiro? 18 VICE-CHAIR REPRESENTATIVE OSHIRO: I. 19 CO-CHAIR SENATOR HANABUSA: Senator Buen? 20 SENATOR BUEN: I. 21 CO-CHAIR SENATOR HANABUSA: 22 Representative Ito? 23 REPRESENTATIVE ITO: I. 24 CO-CHAIR SENATOR HANABUSA: 25 Representative Kawakami? 140 1 REPRESENTATIVE KAWAKAMI: I. 2 CO-CHAIR SENATOR HANABUSA: 3 Representative Leong? 4 REPRESENTATIVE LEONG: I. 5 CO-CHAIR SENATOR HANABUSA: 6 Representative Marumoto? 7 REPRESENTATIVE MARUMOTO: I. 8 CO-CHAIR SENATOR HANABUSA: Senator 9 Sakamoto? 10 SENATOR SAKAMOTO: I. 11 CO-CHAIR SENATOR HANABUSA: Senator Slom? 12 SENATOR SLOM: I. 13 CO-CHAIR SENATOR HANABUSA: Co-Chair 14 Hanabusa is I. It is authorized. 15 CO-CHAIR REPRESENTATIVE SAIKI: Thank 16 you, Members, and don't forget our next hearing is 17 tomorrow morning at 9:00 a.m. 18 (Hearing adjourned at 5:25 p.m.) 19 20 21 22 23 24 25 141 1 C E R T I F I C A T E 2 STATE OF HAWAII ) ) SS: 3 CITY AND COUNTY OF HONOLULU ) 4 I, MYRLA R. SEGAWA, Notary Public, State of 5 Hawaii, do hereby certify: 6 That on Friday, October 5, 2001, at 7 1:13 p.m., the hearing was taken down by me in 8 machine shorthand and was thereafter reduced to 9 typewriting under my supervision; that the foregoing 10 represents, to the best of my ability, a true and 11 correct transcript of the proceedings had in the 12 foregoing matter. 13 I further certify that I am not an attorney 14 for any of the parties hereto, nor in any way 15 concerned with the cause. 16 DATED this 22nd day of OCTOBER 2001, in 17 Honolulu, Hawaii. 18 19 20 21 ______________________________ 22 MYRLA R. SEGAWA, CSR No. 397 Notary Public, State of Hawaii 23 My Commission Exp: 1-27-2005 24 25