Report Title:

Privatization Contracts; Regulation



Provides for the regulation of privatization contracts, including providing for a review of contract costs, monitoring and enforcement of privatization services, and public access to information. Requires annual reports to include an evaluation of the efficiency and effectiveness of services provided.


S.B. NO.









relating to government.



SECTION 1. The legislature finds that using private contractors to provide public services formerly provided by public employees may not always promote the public interest. To ensure that the public receives high quality public services at a reasonable cost, with due regard for the taxpayers of this State, the service recipients, and the needs of public and private employees, the legislature finds it necessary to regulate such privatization contracts. Contracting out government services pose potential risks for state and county governments. These potential risks include higher operating costs, lower quality of service, diminished government accountability, and greater opportunities for corruption. The legislature further finds it necessary to ensure that access to public information guaranteed by state law is not hindered if public services are provided by private contractors.

SECTION 2. Act 90, Session Laws of Hawaii 2001, is amended by amending section 2 to read as follows:



§ -1 Scope and application. This chapter preempts and supersedes all other state law with regard to determining whether services, including services obtained in conjunction with the procurement of goods and construction, funded by the State or any of its counties, should be provided exclusively by government or obtained through government contracts from the private sector. Procurement laws shall be applied, as appropriate, if a determination is made pursuant to this chapter that a service should be obtained by contract from the private sector.

§ -2 Determination; standards. (a) Notwithstanding any law to the contrary, including but not limited to chapters 46, 76, 77, 78, 89, and 89A, any other applicable civil service law, customary or historical past practices, or the fact that the services hereinafter described may have been performed by persons or positions in civil service, any state or county official in whom procurement authority is vested by law may enter into a contract financed by public funds, with a private entity to obtain services, including services provided in conjunction with the procurement of goods or construction, from a private entity, when there is reasonable basis to believe that the service of equivalent or better quality than that which could be provided by a government agency can be provided at lower cost.

(b) For purposes of this chapter, a "private entity" is any individual, company, or organization that is not an employee or agency within the federal, state, or county government.

(c) In the determination made pursuant to this chapter, the state or county official shall consider whether contracting with the private entity will:

(1) Jeopardize the government's ability to provide the service if the private entity fails to perform, or the contract becomes unprofitable or impossible for a private entity to perform;

(2) Impact on any employee covered by civil service laws; provided that the impact shall not prevent the procurement of services pursuant to this chapter;

(3) Affect the nature of the service the agency needs, including whether:

(A) The service is self-contained or part of a larger service delivery system;

(B) The service is geographically dispersed;

(C) The service is a core or ancillary government service and if in-house resources are available or needed;

(D) Government control is necessary;

(E) Government accountability can be shared; and

(F) Governmental authority will be diluted;

(4) Increase the potential for achieving cost savings[,] when compared to in-house resources, including:

(A) The need to abandon or repurchase capital improvements or equipment that are not fully depreciated;

(B) The extent to which the service is available in the private sector marketplace; [and]

(C) The extent to which federal or state restrictions may reduce private sector interest in providing or performing the needed or required service; and

(D) The extent to which the savings for the contracting agency are substantial enough to be sustained through any private sector or state cost fluctuations that could normally be expected during the contracting period. The cost savings shall clearly justify the size and duration of the contracting agreement; and

(5) Affect the extent to which the services are needed or required, and how the criteria to select a service provider can be described in objective specifications.

(d) Any employee displacements shall be subject to section 46-    or 89A-1(e) as appropriate.

§   -3 Review of contract costs. (a) Any state or county department considering whether to enter into a privatization contract shall prepare a public-private cost analysis to evaluate which public costs will be reduced by contracting out the function. Cost comparisons shall be based upon the total costs of the contract, including the costs of transition from public to private operation, monitoring and administering contract performance, and additional unemployment and retirement benefits paid to displaced workers, if any.

(b) If a bidder proposes to perform any or all of the contract outside of the State, the contract cost shall be increased by the amount of income tax revenue, if any, which will be lost to the State by the elimination of state or county employees, as determined by the department of taxation or the county department of finance to the extent it is able to do so.

§   -4 Monitoring and enforcement of privatization contracts. (a) Any private contractor awarded a privatization contract, and any subcontractor to a private contractor subject to these provisions, shall file with the contracting state or county department, copies of financial audits of the private contractor prepared at least annually during the term of the contract.

(b) All privatization contracts shall include a contract provision specifying that in order to determine compliance with these principles and the contract, the private contractor shall be required to provide the State and the counties, except where prohibited by federal, state, or county laws, regulations, or rules, reasonable access, through representatives of the private contractor, to facilities, records, and employees that are used in conjunction with the provision of contract services.

(c) The private contractor shall submit a report not less than annually during the term of the privatization contract, detailing the extent to which the contractor has achieved the specific quantity and standard of quality of the subject services as specified by the contracting state or county department, and its compliance with all federal, state, and county laws, including any complaints, citations, or findings issued by administrative agencies or courts.

(d) The State or county may seek contractual remedies for any violation of a privatization contract under chapter 103D.

§   -5 Public access to information. (a) Any public record which a contracting state or county department provides to a contractor or subcontractor shall remain a public record for the purposes of chapter 92F, and the enforcement provisions of that chapter shall apply to any refusal to disclose records under this section.

(b) With regard to any public record, the contracting state or county department and the contractor or subcontractor shall comply with the requirements of chapter 92F, provided that the determination of whether or not to disclose a particular record or type of record shall be made by the contracting state or county department.

(c) No contractor, subcontractor, employee, or agent of a contractor shall sell, market, or otherwise profit from the disclosure or use of any public records which are in its possession pursuant to a contract, subcontract, or amendment to a contract, except as authorized in the contract, subcontract, or amendment.

§ -[3] 6 Annual reports. Each state and county department and agency that uses the contracting process set out in this chapter, shall submit a report to the legislature no later than twenty days prior to the convening of the regular session of each year beginning with 2002. The report shall include:

(1) An itemization of all services that were outsourced or subjected to the processes set out in this chapter;

(2) The agency’s or department’s justification that standards for determination were met[;], including an evaluation of the efficiency and effectiveness of the services provided;

(3) The cost of services obtained through the process set out in this chapter;

(4) A copy of all contracts entered into under this chapter; and

(5) An accounting of civil service employees displaced as a consequence of this chapter."

SECTION 3. Section 46-36, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Subject to the approval of the governor and the respective mayor of the county, the agency designated by the mayor with the responsibility to oversee the managed process for public-private competition for government services shall:

(1) Assist the mayor in formulating the county's philosophy for public collective bargaining and for the managed process for public-private competition for government services, including which particular service can be provided more efficiently, effectively, and economically considering all relevant costs[;]. As used in this paragraph "relevant costs" means the total costs of the contract, including the costs of transition from public to private operation, monitoring, and administering contract performance, and additional unemployment and retirement benefits paid to displaced workers, if any; and

(2) Coordinate and negotiate the terms and conditions or the managed competition process on behalf of the county with exclusive representatives of affected public employees and private contractors."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2003.