Procurement Preference

Provides a 15% preference to state resident bidders on state
agency contracts.  Requires all subcontractors hired by a
contractor to be a state resident subcontractor.  Provides that
if a contractor uses an unqualified nonresident subcontractor,
the contract shall be subject to appropriate remedies.

THE SENATE                              S.B. NO.           682
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that the lowest bid is not
 2 necessarily the best bid.  Tax dollars are sometimes better spent
 3 by offering bid preferences to state residents and companies as
 4 the money they receive will be recirculated back into the economy
 5 with a multiplier effect.
 6      Currently, public works projects are entered into with the
 7 lowest bidder.  Many out-of-state companies who employ only out-
 8 of-state workers, and who do not pay state taxes operate more at
 9 a lower cost.  However, state tax dollars are shipped out-of-
10 state without any benefits to state residents and companies.
11 State tax dollars can more wisely be spent in-state by offering a
12 bid preference to state companies.
13      The purpose of this Act is to promote economic development
14 and create more jobs for state residents and companies, by
15 increasing the preference for state contractors and
16 subcontractors on state public works projects.
17      SECTION 2.  Section 103D-1007, Hawaii Revised Statutes, is
18 amended to read as follows:
19      "[[]103D-1007[]]  Preference to bidders on state agency
20 contracts.(a)  The requirements in this section are in addition

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 1 to any other applicable requirements provided in this chapter.
 2      (b)  The preference in this section may not be used in
 3 combination with any other preference otherwise available to a
 4 bidder under state or federal law.
 5      (c)  In any contract for a public works project, a state
 6 agency shall award the contract to a bidder who [has filed all
 7 state tax returns due to the State and paid all amounts owing on
 8 such returns for two successive years] is a state contractor
 9 prior to submitting the bid; provided that the amount of that bid
10 is not more than [seven] fifteen per cent higher than the amount
11 bid by any competing contractor who [has not filed or paid all
12 applicable state taxes, and the amount of the bid by the state
13 tax paying bidder is $5,000,000 or less.] is not a state
14 contractor.
15      [(d)  In any contract for a public works project, a state
16 agency shall award the contract to a bidder who has filed all
17 state tax returns due to the State and paid all amounts owing on
18 such returns for four successive years prior to submitting the
19 bid; provided that the amount of that bid is not more than seven
20 per cent higher than the amount bid by any competing contractor
21 who has not filed or paid all applicable state taxes, and the
22 amount of the bid by the state tax paying bidder is more than
23 $5,000,000.]

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 1      (d)  In order to qualify for a state contract for a public
 2 works project using a preference under this section, a contractor
 3 shall agree to hire subcontractors who qualify as a state
 4 subcontractor.  Each subcontractor shall provide to the
 5 contractor written verification of eligibility as a state
 6 subcontractor.  Each contractor shall provide to the State
 7 written verification of the contractor's own eligibility as a
 8 state contractor and that of the contractor's subcontractors.
 9      (e)  If the contractor uses a subcontractor who is not a
10 state subcontractor, the contractor shall be subject to section
11 103D-707; provided that a contractor shall not be subject to
12 section 103D-707 and shall still be entitled to the preference if
13 the contractor fully exhausts all eligible, technically qualified
14 state subcontractors before hiring a subcontractor who is not a
15 state subcontractor.  If the subcontractor is not a state
16 subcontractor, then the contractor may substitute another state
17 subcontractor without obtaining a release from the disqualified
18 subcontractor and the disqualified subcontractor shall not have a
19 cause of action due to the substitution.
20      (f)  If a contractor:
21      (1)  Obtains a state contract using a preference under this
22           section;
23      (2)  Cannot hire a technically qualified state
24           subcontractor; and

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 1      (3)  Hires an out-of-state subcontractor;
 2 the fifteen per cent bid preference under subsection (c) shall be
 3 reduced by a percentage that the out-of-state subcontractor's
 4 contract amount bears to the total amount of the contractor's
 5 state contract.
 6      [(e)] (g)  If two or more [contractors who have paid state
 7 and county taxes or were required to submit a filing regarding
 8 state and county taxes] state contractors as defined in
 9 subsection (h) are bidding on a public works contract, [and those
10 contractors meet the criteria outlined in subsection (c) or (d),]
11 the state agency shall award the contract to the state contractor
12 among them who has submitted the lowest bid.
13      (h)  As used in this section:
14      "Hawaii state resident" means a person who has resided in
15 the State for more than two hundred days and must have paid the
16 immediately previous year's state resident income tax in Hawaii.
17      "State contractor" or "state subcontractor" means an entity
18 whose stockholders, owners, managers, and employees are composed
19 of one hundred per cent Hawaii state residents.
20      [(f)] (i)  If any federal statute or regulation precludes
21 the granting of federal assistance or reduces the amount of that
22 assistance for a particular public works project because of
23 preference awarded by this section, this section shall not apply

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 1 insofar as its application would preclude or reduce federal
 2 assistance for that work." 
 3      SECTION 3.  No later than twenty days prior to the convening
 4 of the regular session of the 2001 legislature, the comptroller
 5 of the department of accounting and general services shall submit
 6 a report to the legislature evaluating the preference structure
 7 of 103D-1007, Hawaii Revised Statutes, in general by providing
 8 data on contracts involving this preference.
 9      SECTION 4.  This Act does not affect rights and duties that
10 matured, penalties that were incurred, and proceedings that were
11 begun, before its effective date.
12      SECTION 5.  Statutory material to be repealed is bracketed.
13 New statutory material is underscored.
14      SECTION 6.  This Act shall take effect upon its approval;
15 provided that section 2 shall be reviewed by June 30, 2005.
16                           INTRODUCED BY:  _______________________