Report Title:

Procurement Code; Random Audits; Auditor Review; Appropriation



To ensure compliance with procurement code, requires State Procurement Office annual random audits of government purchasing agencies and audits of agencies selected based on a pattern of agency noncompliance.  Appropriates funds for Auditor to audit State Procurement Office and Executive agencies. (SB2824 HD1)



S.B. NO.



S.D. 2


H.D. 1














     SECTION 1.  The legislature finds that if the state procurement policy office is to fully discharge its responsibilities, it must take further steps to ensure that government agencies comply with the Hawaii public procurement code.

     The purpose of this part is to require the procurement policy board to conduct compliance audits.

     SECTION 2.  Section 103D-202, Hawaii Revised Statutes, is amended to read as follows:

     "§103D-202  Authority and duties of the procurement policy board.  (a)  Except as otherwise provided in this chapter, the procurement policy board shall have the authority and responsibility to adopt rules, consistent with this chapter, governing the procurement, management, control, and disposal of any and all goods, services, and construction.  All rules shall be adopted in accordance with chapter 91; provided that the policy board shall have the power to issue interim rules by procurement directives, which shall be exempt from the public notice, public hearing, and gubernatorial approval requirements of chapter 91.  The interim rules shall be effective for not more than eighteen months. 

     (b)  The policy board shall consider and decide matters of policy within the scope of this chapter including those referred to it by a chief procurement officer.

     (c)  The policy board shall [have the power to] audit and monitor the implementation of its rules and the requirements of this chapter; but shall not exercise authority over the award or administration of any particular contract, or over any dispute, claim, or litigation pertaining thereto.

     The policy board shall ensure compliance with this chapter by:

     (1)  Annually performing compliance audits on a minimum of two governmental departments, divisions, or agencies, to be randomly selected by the policy board;

     (2)  Selecting any department, division, or agency for a compliance audit:

          (A)  Based upon a pattern of noncompliance;

          (B)  Based upon circumstances of a particular procurement that may indicate an intention to circumvent this chapter; or

          (C)  As otherwise authorized by law,

and conducting follow-up audits of a department, division, or agency that has been audited under paragraph (2)(A) or (B);


     (3)  Reporting the results of all compliance audits to the legislature no later than twenty days before the convening of each regular session."


     SECTION 3.  The Hawaii public procurement code was originally enacted by Act 8, Special Session Laws of Hawaii 1993, codified as chapter 103D, Hawaii Revised Statutes.  Since 1993, only one audit of the State's procurement practices has been performed.  That audit, Auditor's Report No. 95-8, was performed in 1995 and states in pertinent part in the summary:

          "We found that the administration has been slow in implementing the procurement code and has not taken the necessary steps to ensure effective implementation.  The late start of the Procurement Policy Office without appropriate staff has limited the ability of the policy board to carry out its responsibilities.  Furthermore, the late appointment of the interim administrator of the Procurement Office delayed development of an on-going training program, procurement manual, and a periodic review of the procurement process.  Because rules were issued late and insufficient attention was paid to interpreting the law and communicating the rules clearly, we found a number of instances of noncompliance and confusion about the law and rules. . . .

          The new procurement organization structure is ineffective with conflicting and unclear roles and responsibilities.  The division of responsibility and authority between the administrator and the policy office is not clear in law or practice.  Both have a responsibility to audit procurement practices.  In addition, we found that the administrator has conflicting roles as the chief procurement officer (CPO) for the Executive Branch and as the individual responsible for reviewing procurement practices of all governmental agencies."

     The legislature finds that a new audit is timely and necessary, given that thirteen years have elapsed since the 1993 audit and the recent problems in state procurement practices brought to light during the interim hearings by the senate committee on tourism and government operations.  One of the concerns is the apparent noncompliance with procurement laws in the award of contracts, which is a critical element of public procurement.

     The purpose of this part is to require the auditor to conduct a compliance, performance, and management audit of executive agency compliance with chapter 103D, Hawaii Revised Statutes, and the administrative rules adopted thereto.

     SECTION 4.  The auditor shall conduct a compliance, performance, and management audit of chapter 103D, Hawaii Revised Statutes, and the administrative rules adopted pursuant to chapter 103D.  The audit shall be limited to the state procurement office and the purchasing agencies, as defined in section 103D-104, Hawaii Revised Statutes, of the State, not including the legislature, judicial branch, office of Hawaiian affairs, and the several counties.

     The purpose of the audit, among other relevant issues as determined by the auditor, shall be to determine compliance with chapter 103D, Hawaii Revised Statutes, including but not limited to:

     (1)  Compliance with requirements that contracts be awarded to the highest ranking bidder;

     (2)  The use of an evaluation committee by a procurement purchasing agency to score proposals based on evaluation criteria;

     (3)  Whether awards are based solely on qualifications, and not on other considerations such as personal judgments and biased preferences when selecting another bidder with a lower score;

     (4)  The proper documentation of each step of the procurement process by a purchasing agency and its chief procurement officer, including but not limited to decisions and justifications to select a bidder and to award a contract;

     (5)  Whether adequate procurement practices training is made available to and regularly attended by appropriate procurement officials of state agencies; and

     (6)  The proper use of an alternative procurement method.

     SECTION 5.  The auditor may contract with a private entity for purposes of conducting the audit and studies required under this part.

     SECTION 6.  The auditor shall make an interim report of the findings and recommendations to the legislature no later than twenty days prior to the convening of the regular session of 2009, and a final report on findings and recommendations, including proposals for statutory amendments, to the legislature no later than twenty days prior to the convening of the regular session of 2010.

     SECTION 7.  There is appropriated out of the general revenues of the State of Hawaii the sum of $           or so much thereof as may be necessary for fiscal year 2008-2009 for the auditor to contract for an audit pursuant to section 5 of this part.

     The sum appropriated shall be expended by the office of the auditor for the purposes of this part.


     SECTION 8.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 9.  This Act shall take effect on July 1, 2034.