Report Title:

Procurement Contracts; Prevention of Abuse by Procurement Officials

Description:

Prohibits a state agency from entering into contracts where the employee making the procurement decision or the agency head has a financial interest with, or is a relative of, the bidder or offeror. Requires procurement and ethics training for procurement officers; requires chief procurement officers to establish standard operating procedures that includes an internal control system requiring prior approval from the administrator of the procurement office for all contracts over $100,000. Requires designation of a contracts and procurement officer for any governmental body that enters into contracts that exceeds in the aggregate $500,000 annually.

THE SENATE

S.B. NO.

1457

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO PROCUREMENT.

 

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

SECTION 1. The housing and community development corporation of Hawaii (HCDCH) receives approximately $25 million in federal funds per year to provide public housing for low-income individuals and families in Hawaii. In May, 2002, the United States Department of Housing and Urban Development (HUD) notified HCDCH that it suffered from serious deficiencies in the administration of its public housing program due to a failure to adhere to statutory requirements and program guidelines. In response to HUD's concerns, HCDCH drafted a corrective action work plan (CAWP) to address deficiencies in management and communication, staffing, compliance with federal guidelines, financial control, and information systems.

In August, 2002, HUD charged that the HCDCH executive director had violated federal conflict of interest rules when she awarded a sole source contract to Punaluu Builders, a business owned by her ex-husband with whom she had a continuing financial interest. While HCDCH has formally denied that the procurement of the $771,000 contract violated federal requirements, HCDCH officials have acknowledged deficiencies in documentation and record keeping related to the contract. HUD has since requested HCDCH to pay $771,000 to HUD's comprehensive grant program as reimbursement for unsupported costs arising out of the Punaluu Builders contract.

In September, 2002, HUD found HCDCH to be in violation of several federal regulations, including those pertaining to timely and sufficient procurement planning, full and open competition in the procurement process, appropriate procurement methods, sole source contracts, and ethics/conflict of interest. HCDCH responded to HUD's concerns by developing an action plan that involves a review of applicable federal and state laws, development of a procurement procedure checklist and mandatory procurement training program, and establishment of a contracts and procurement officer position.

Concerned by the gravity of the mismanagement allegations, the senate committee on commerce, consumer affairs and housing held an informational briefing on December 16, 2003, to review the charges made by HUD. The committee chair concluded that the criticisms of mismanagement were credible, and that corrective action by the legislature was in order.

SECTION 2. Section 84-3, Hawaii Revised Statutes, is amended by amending the definition of "financial interest" to read as follows:

""Financial interest" means an interest held by an [individual, the individual's] employee, an employee's spouse, an employee's ex-spouse, or dependent children [which is:] that consists of:

(1) An ownership interest in a business.

(2) A creditor interest in an insolvent business.

(3) An employment, or prospective employment for which negotiations have begun.

(4) An ownership interest in real or personal property.

(5) A loan or other debtor interest.

(6) A directorship or officership in a business.

(7) A joint venture interest in a business.

(8) A pecuniary interest in the profitability of a business owned by an employee's spouse, ex-spouse, parent, children including stepchildren and hanai children, parents-in-law, children-in-law, or business partner in a different venture.

The term includes the payment of, the obligation to pay, or the receipt of alimony or child support."

SECTION 3. Section 84-15, Hawaii Revised Statutes, is amended to read as follows:

"§84-15 Contracts. (a) A state agency shall not enter into any contract to procure or dispose of goods or services, or for construction, with a legislator, an employee, or a business in which a legislator or an employee has a controlling interest, involving services or property of a value in excess of $10,000 unless:

(1) The contract is awarded by competitive sealed bidding pursuant to section 103D-302;

(2) The contract is awarded by competitive sealed proposal pursuant to section 103D-303; or

(3) The agency posts a notice of its intent to award the contract and files a copy of the notice with the state ethics commission at least ten days before the contract is awarded.

(b) A state agency shall not enter into a contract with any person or business which is represented or assisted personally in the matter by a person who has been an employee of the agency within the preceding two years and who participated while in state office or employment in the matter with which the contract is directly concerned.

(c) A state agency shall not enter into a contract with any person or business that has a financial interest with the person making the procurement decision.

(d) A state agency shall not enter into a contract with any person or any business owned by a person who is a relative of the person making the procurement decision or of the head of the agency. For purposes of this subsection, the term "relative" includes a person's spouse, parents, grandparents, stepparents, children, grandchildren, siblings, and the spouse's parents and siblings."

SECTION 4. Section 103D-110, Hawaii Revised Statutes, is amended to read as follows:

"§103D-110 Education and training. (a) The department of human resources development, either alone or in cooperation with any governmental body, including the department of labor and industrial relations[,] and the state ethics commission, or in cooperation with other states, the federal government, or other persons [may:] shall:

(1) Develop and maintain a comprehensive training and development program for procurement professionals of the State and the several counties;

(2) Conduct or participate in procurement education and training for persons not employed by the State; and

(3) Sponsor a purchasing certification program conducted by a voluntary organization of procurement professionals.

(b) The program under subsection (a)(1) shall:

(1) Ensure that procurement professionals have sufficient knowledge of the requirements of this chapter and chapter 84, and are aware of the importance of their responsibilities in managing public moneys; and

(2) Include procedures and guidelines for the management of non-state grant funds to avoid state liability for repayment and penalties if the requirements of the grants are not followed."

SECTION 5. Section 103D-205, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) Consistent with the provisions of this chapter and rules adopted by the policy board to implement its provisions, the chief procurement officers [may] shall adopt standard [operational] operating procedures to [assist] ensure that all officers and employees with procurement responsibilities under their respective jurisdictions, comply with the requirements of this chapter in the performance of these duties and responsibilities. The standard operating procedures shall include an internal control system that requires prior approval by the administrator of the procurement office of all contracts that exceed $100,000."

SECTION 6. Section 103D-208, Hawaii Revised Statutes, is amended to read as follows:

"§103D-208 Delegation of authority by the chief procurement officer. Subject to the rules of the policy board, each chief procurement officer may delegate any authority or duty conferred upon the chief procurement officer by this chapter to designees or to any department, agency or official within their respective jurisdictions[.]; provided that where a governmental body enters into contracts for the procurement of goods, services, or construction that exceeds in the aggregate $500,000 annually, the chief procurement officer shall delegate responsibilities to a contracts and procurement officer for that body."

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect upon its approval.

INTRODUCED BY:

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