REPORT TITLE:
Contract and Procurement Fraud


DESCRIPTION:
Provides law against contract and procurement fraud; imposes
penalties.

 
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THE SENATE                              S.B. NO.           1391
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO CONTRACT AND PROCUREMENT FRAUD.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Section 708-800, Hawaii Revised Statutes, is
 
 2 amended by adding eighteen new definitions to read as follows:
 
 3      ""Benefit" means advantage, profit, fruit, privilege, gain,
 
 4 or interest.  Benefit can be made directly to a person or entity,
 
 5 or indirectly to an entity, associate, or person in the line of
 
 6 consanguinity, or affinity.
 
 7      "Bid" means an offer by an intending purchaser to pay a
 
 8 designated price for property which is about to be sold at
 
 9 auction or an offer to perform a contract for work and labor or
 
10 supplying materials or goods at a specific price.
 
11      "Bidder" means one who makes a bid or one who offers to pay
 
12 a specified price for an article offered for sale at a public
 
13 auction or to perform a certain contract for a specific price.
 
14      "Bid price" means the amount specified in a bid as the
 
15 amount for which the bidder will perform the work or buy the
 
16 property.
 
17      "Bid rigging" means a collusion between bidders competing
 
18 during the bidding process so that one or more bidders will
 
19 benefit from the awarded bid.
 

 
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 1      "Bid rotation" means collusive bidding when two or more
 
 2 prospective bidders exchange information on contract
 
 3 solicitations, taking turns at submitting the low or high bid.
 
 4      "Bid suppression" means collusion of one or more bidders
 
 5 agreeing with at least one or more bidders to refrain from
 
 6 bidding or agreeing to withdraw a submitted bid or the act of
 
 7 fabricating bid protests, or to coerce others not to deal with
 
 8 nonconspirators who submit bids.
 
 9      "Collusion" means an agreement between two or more persons
 
10 to defraud a person or entity of their rights by the forms of
 
11 law, or to obtain an object forbidden by law or a secret
 
12 combination, conspiracy, or concert of action between two or more
 
13 persons for fraudulent or deceitful purpose.
 
14      "Competitive bidding" means bids that are submitted as the
 
15 result of public notice and advertising of an intended sale or
 
16 purchase.
 
17      "Conflict of interest" means an unethical relationship with
 
18 public officials and fiduciaries and their relationship to
 
19 matters of private interest or gain to them or a clash between
 
20 public interest and private interest and the private pecuniary
 
21 interest of the individual concerned.
 
22      "Contract" means an agreement between two or more persons
 
23 which creates an obligation to do or not to do a particular
 

 
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 1 thing.
 
 2      "Contractor" means a person who, in the pursuit of any
 
 3 independent business, undertakes to do a specific piece of work
 
 4 for another, using their own means and methods without submitting
 
 5 themself to their control in respect to all its details, and who
 
 6 renders service in the course of an independent occupation
 
 7 representing the will of their employer only as to the result of
 
 8 their work and not as to the means by which it is accomplished.
 
 9      "Defective pricing" means a price that results when a person
 
10 or entity fails to disclose accurate cost or pricing data in a
 
11 price proposal, resulting in an increased contract price or a
 
12 deviation from a regulated price schedule established by a
 
13 regulatory agency of this State or a county.
 
14      "Participate" means to receive or have a part or share of,
 
15 to partake of, experience in common with others or to have or
 
16 enjoy a part or share in common with others.
 
17      "Phantom bid" means the formulation, creation, or
 
18 fabrication of a bid from non-existing entities or persons for
 
19 the purpose or giving the appearance of vigorous competition.
 
20      "Procurement" means the act of obtaining, attaining,
 
21 acquiring, bringing about, or effecting goods and services that
 
22 are obtained through a bidding process.
 
23      "Product substitution" means the substitution of contract
 

 
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 1 specified materials, goods, products, or services in quality or
 
 2 quantity.
 
 3      "Subcontractor" means one who takes a portion of a contract
 
 4 from a principal contractor or another subcontractor or one who
 
 5 has entered into a contract, express or implied, for the
 
 6 performance of an act with the person who has already contracted
 
 7 for its performance."
 
 8      SECTION 2.  Chapter 708, Hawaii Revised Statutes, is amended
 
 9 by adding a new part to be appropriately designated and to read
 
10 as follows:
 
11             "PART   .  CONTRACT AND PROCUREMENT FRAUD
 
12      "708-    Bid rigging in the first degree.(1)  A person
 
13 commits the offense of bid rigging in the first degree if the
 
14 person is an employee of a government agency and is involved in a
 
15 procurement process with competitive bidding in which that person
 
16 manages, supervises, controls, participates in, or is involved
 
17 directly or indirectly, and that person, with the intent to
 
18 defraud the government or another bidder:
 
19      (a)  Solicits two or more bidders to participate in a scheme
 
20           or conspiracy to obtain benefits;
 
21      (b)  Knowingly benefits by submitting a bid which that
 
22           person knows to have represented bid rotation, bid
 
23           suppression, or collusion;
 

 
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 1      (c)  Submits false information of bid price, defective
 
 2           pricing, phantom bids, or product substitution;
 
 3      (d)  Allows the winning bidder to subcontract with another
 
 4           competitive bidder that had lost a bid against the
 
 5           winning bidder in the same contract and for the same
 
 6           products or services; or
 
 7      (e)  Fails to disclose a conflict of interest with private
 
 8           interest with a bidder as dictated by the
 
 9           jurisdiction's ethics commission.
 
10      (2)  Bid rigging in the first degree is a class A felony.
 
11      708-    Bid rigging in the second degree.  (1)  A person
 
12 commits the offense of bid rigging in the second degree if, with
 
13 the intent to defraud another bidder, the person:
 
14      (a)  Solicits two or more bidders to participate in a scheme
 
15           or conspiracy to obtain benefits;
 
16      (b)  Knowingly benefits by submitting a bid which that
 
17           person knows to have represented bid rotation, bid
 
18           suppression, or collusion;
 
19      (c)  Submits false information of bid price, defective
 
20           pricing, phantom bids, or product substitution; or
 
21      (d)  Allows the winning bidder to subcontract with another
 
22           competitive bidder that had lost a bid against the
 
23           winning bidder in the same contract and for the same
 

 
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 1           products or services.
 
 2      (2)  Bid rigging in the second degree is a class B felony.
 
 3      708-   Bid rigging in the third degree.  (1)  A person
 
 4 commits the offense of bid rigging in the third degree if, being
 
 5 an employee of the government, the person wantonly and
 
 6 recklessly:
 
 7      (a)  Solicits two or more bidders to participate in a scheme
 
 8           or conspiracy to obtain benefits;
 
 9      (b)  Submits a bid rotation, bid suppression, or bid
 
10           collusion;
 
11      (c)  Submits false information of bid price, defective
 
12           pricing, phantom bids, or product substitution;
 
13      (d)  Allows the winning bidder to subcontract with another
 
14           competitive bidder that had lost a bid against the
 
15           winning bidder in the same contract and for the same
 
16           products or services; or
 
17      (e)  Violates, or disregard any administrative directives,
 
18           internal policies, written or verbal instructions
 
19           concerning documents involved in the bidding process.
 
20      (2)  Bid rigging in the third degree is a class C felony.
 
21      708-    Prima facie.  A person's status as an officer or
 
22 employee of a government agency is prima facie evidence that the
 
23 person knows the person's legal obligations with respect to
 

 
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 1 making payments and other dispositions.  If the officer or
 
 2 employee fails to account for his conduct upon lawful demand, or
 
 3 if an audit reveals a falsification of a bid, it shall be prima
 
 4 facie evidence that the officer or employee has intentionally
 
 5 committed bid rigging."
 
 6      SECTION 3.  This Act does not affect rights and duties that
 
 7 matured, penalties that were incurred, and proceedings that were
 
 8 begun, before its effective date.
 
 9      SECTION 4.  New statutory material is underscored.
 
10      SECTION 5.  This Act shall take effect upon its approval.
 
11 
 
12                           INTRODUCED BY:  _______________________
 

 
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