Report Title:

Procurement; Hawaii Products; Preference



Allows offerors to self-certify their Hawaii products as an alternative to registration on the Hawaii products list.  Creates two Hawaii product classes and increases the preference given Hawaii products.  Removes procurement code exemptions for certain agricultural products from the administrative rules.  (SB506 HD1)



S.B. NO.



S.D. 1


H.D. 1














     SECTION 1.  Approximately ninety per cent of Hawaii's food is imported from the continental United States or foreign countries.  This equates to an exportation of over $3,000,000,000 annually to places outside of Hawaii.

     This practice is not confined to, or the result of, private sector practices alone.  The State of Hawaii and its political subdivisions procure large quantities of agricultural products from outside the State of Hawaii, contrary to the intent of state procurement laws.

     In 1994, Act 186 created a preference for the purchase of Hawaii products in the Hawaii state procurement code (procurement code), which was codified as part X of chapter 103D, Hawaii Revised Statutes, and was intended to provide Hawaii businesses with a preference similar to the federal government's "Buy American Act" under Federal Acquisition Regulation 52.225-1.

     However, undermining and eviscerating the preference program are administrative rules that exempt certain products from the procurement code.  Chapter 3-120, Hawaii Administrative Rules, "Exhibit A," specifically exempts from the procurement code, and from the Hawaii products preference, certain products such as "fresh meats and produce" and "animals and plants."

     The legislature recognizes that direct intervention into the administrative rules is an unusual procedure.  However, given current fiscal uncertainties, and the lengthy time required to amend administrative rules in compliance with chapter 91, Hawaii Revised Statutes, the legislature in this Act, repeals certain sections of the administrative rules that are contrary to the purpose, letter, and spirit of the Hawaii preference in the procurement code.

     In addition, sections 3-124-1 through 3-124-8, Hawaii Administrative Rules, establish a cumbersome, lengthy, and complex procedure requiring Hawaii product offerors to be placed on a pre-approved list.  The procedure does not allow Hawaii businesses to respond and submit proposals in a timely fashion, and does not reflect the need for flexibility in an ever-changing marketplace.  The legislature finds that offerors should be allowed to "self-certify" that their products meet the criteria for the Hawaii products preference, and should also be subject to rigorous penalties if they do not meet those criteria.

     The purpose of this Act is to strengthen the Hawaii products preference in the procurement code by:

     (1)  Allowing offerors to self-certify that their products meet the criteria for the Hawaii preference, and making offerors who self-certify subject to suspension and debarment if they fail to deliver Hawaii products;

     (2)  Increasing from twenty-five per cent to fifty per cent, the amount of Hawaii input that qualifies a product as a Hawaii product, and establishing two, instead of three Hawaii product classes;

     (3)  Increasing the preference for Hawaii products by applying a ten per cent decrease in a bid or proposal  for class I Hawaii products, and a fifteen per cent decrease for class II Hawaii products; and

     (4)  Removing from the Hawaii Administrative Rules, certain agricultural product procurement code exemptions.

     SECTION 2.  Chapter 103D, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

     "§103D-1002.5  Failure to adequately verify, deliver, or supply Hawaii products.  Any contract for Hawaii products performed in violation of section 103D-1002 shall be voidable and the offeror shall be referred for debarment or suspension proceedings under section 103D-702."

     SECTION 3.  Section 103D-702, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

     "(b)  The causes for debarment or suspension include the following:

     (1)  Conviction for commission of a criminal offense as an incident to obtaining or attempting to obtain a public or private contract or subcontract, or in the performance of the contract or subcontract;

     (2)  Conviction under state or federal statutes relating to embezzlement, theft, forgery, bribery, falsification or destruction of records, receiving stolen property, or any other offense indicating a lack of business integrity or business honesty which currently, seriously, and directly affects responsibility as a contractor;

     (3)  Failure to adequately verify, deliver, or supply Hawaii products, as required by section       ;

    [(3)] (4)  Conviction under state or federal antitrust statutes arising out of the submission of bids or proposals;

    [(4)] (5)  Violation of contract provisions, as set forth below, of a character that is regarded by the chief procurement officer to be so serious as to justify debarment action:

         (A)  Deliberate failure without good cause to perform in accordance with the specifications or within the time limit provided in the contract; or

         (B)  A recent record of failure to perform or of unsatisfactory performance in accordance with the terms of one or more contracts; provided that failure to perform or unsatisfactory performance caused by acts beyond the control of the contractor shall not be considered to be a basis for debarment;

    [(5)] (6)  Any other cause the chief procurement officer determines to be so serious and compelling as to affect responsibility as a contractor, including debarment by another governmental entity for any cause listed in the rules of the policy board; and

    [(6)] (7)  Violation of the ethical standards set forth in chapter 84 and its implementing rules, or the charters and ordinances of the several counties and their implementing rules."

     SECTION 4.  Section 103D-1001, Hawaii Revised Statutes, is amended as follows:

     1.  By adding a new definition to be appropriately inserted and to read:

     ""Hawaii input" means the part of the cost of a product attributable to production, manufacturing, or other expenses arising within the state.  "Hawaii input" includes:

     (1)  The cost to mine, excavate, produce, manufacture, raise, or grow the materials in Hawaii;

     (2)  The value added to the cost of imported materials that is incurred after the materials land in Hawaii, including the cost of adding other articles, materials, and supplies to the imported materials;

     (3)  The cost of labor, variable overhead, utilities, and services, incurred in the production and manufacturing of materials or products in the state; and

     (4)  Fixed overhead cost and amortization or depreciation cost, if any, for buildings, tools, and equipment situated and located in the state and used in the production or manufacturing of a product."

      2.  By amending the definition of "Hawaii products" to read:

     ""Hawaii products" means products that are mined, excavated, produced, manufactured, raised, or grown in the [State] state and where the [input constitutes no less than twenty-five] cost of the Hawaii input into the product exceeds fifty per cent of the [manufactured] total cost[;] of the product; provided that:

    [(1)  Where the value of the input constitutes twenty-five per cent or more, but less than fifty per cent, of the manufactured cost, the product shall be classified as class I;

     (2)] (1)  Where the value of the Hawaii input [constitutes] exceeds fifty per cent [or more, but less than seventy-five per cent,] of the [manufactured] total cost, the product shall be classified as class [II;] I; and

    [(3)  Where the value of the input constitutes seventy-five per cent or more of the manufactured cost, the product shall be classified as class III.]

     (2)  Where any agricultural, aquacultural, horticultural, silvicultural, floricultural, or livestock product is raised, grown, or harvested in the state, the product shall be classified as class II."

     SECTION 5.  Section 103D-1002, Hawaii Revised Statutes, is amended to read as follows:

     "§103D-1002  Hawaii products.  (a)  A purchasing agency shall review all specifications in a bid or proposal for the purchase [from the] of Hawaii products [list], where these products are available[; provided that the products:

     (1)  Meet the minimum specifications and the selling price f.o.b. jobsite;

     (2)  Unloaded including applicable general excise tax and use tax does not exceed the lowest delivered price in Hawaii f.o.b. jobsite; and

     (3)  Unloaded, including applicable general excise tax and use tax, does not exceed the lowest delivered price of a similar non-Hawaii product by more than:

         (A)  Three per cent where class I Hawaii products are involved;

         (B)  Five per cent where class II Hawaii products are involved; or

         (C)  Ten per cent where class III Hawaii products are involved].

     (b)  All invitations for bids and requests for proposals shall [include a description]:

     (1)  Include a description of the products that are listed in the Hawaii products list established pursuant to this section, [and their established classes,] which may be used to complete the scope of work specified in the invitation for bids or request for proposals[, where the products area available and meet the minimum specifications.]; or

     (2)  Allow as part of the offer, self-certification that the Hawaii products qualify for preference;

provided that the offer may be evaluated along with any other published criteria in the solicitation, including such considerations as specific nutritional content or its equivalent, timing of delivery, quality, freshness, and past performance, if applicable.

     All Hawaii products in any bid or request for proposal shall be made available for inspection, or additional information may be requested to verify that the Hawaii product meets the minimum specifications.

     (c)  All persons submitting bids or proposals to claim a Hawaii products preference shall designate in their bids which individual product and its price is to be supplied as a Hawaii product.

     (d)  Where a bid or proposal contains both Hawaii and non-Hawaii products, then for the purpose of selecting the lowest bid or purchase price only, the price bid or offered for a Hawaii product item shall be decreased by subtracting [therefrom:  three per cent, five per cent, or] ten per cent for [the] class I[, class II, or class III] Hawaii product items bid or offered[,] or fifteen per cent for class II Hawaii product items bid or offered, respectively.  The lowest total bid or proposal, taking the preference into consideration, shall be awarded the contract unless the bid or offer provides for additional award criteria.  The contract amount of any contract awarded, however, shall be the amount of the bid or price offered, exclusive of the preferences.

     (e)  Upon receipt and approval of the application for Hawaii products preference, the administrator shall include within the Hawaii products list, the names of producers and manufacturers in the [State] state who are authorized to supply locally manufactured soil enhancement products to state agencies under subsection [(h).] (k).  The administrator of the state procurement office shall maintain and distribute copies of the list to the purchasing agencies of the various governmental agencies.

     (f)  Any person not on the Hawaii products list desiring a preference pursuant to this section shall certify the Hawaii product when submitting a response to a solicitation; provided that the person certifies under penalty of sanctions that the offered Hawaii product meets the requirements for the preference.

     The procurement officer may request any additional information deemed necessary to qualify a product and shall have sole discretion to determine qualification for the preference.

     Any offeror whose product is deemed not qualified for the preference may appeal by filing a written request for reexamination of facts with the procurement officer.  Upon determining that the offeror is qualified for the preference, the procurement officer shall notify the administrator and the offeror shall be placed on the Hawaii products list.

     (g)  Solicitations shall contain a provision notifying offerors who request application of the preference that in the event of any change that materially alters the offeror's ability to supply a Hawaii product, the offeror shall immediately notify the chief procurement officer in writing, and the parties shall enter into discussions to revise or terminate the contract for convenience.

     (h)  Nothing in this section shall limit, restrict, or preclude a Hawaii product from any preferences, set-asides, or criteria that may be applied under section 103D-906, and this section shall be implemented to mutually enhance achievement of the purposes of both this section and section 103D-906.

     [(f)] (i)  This section shall not apply whenever its application will disqualify any governmental agency from receiving federal funds or aid.

     [(g)] (j)  Any purchase made or any contract awarded or executed in violation of this section shall be void and no payment shall be made by any purchasing agency on account of the purchase or contract.

     [(h)] (k)  For the purposes of this section, "soil enhancement product" means any nonchemical soil preparation, conditioner, or compost mixture designed to supplement aeration or add organic, green waste, or decaying matter to the soil; provided that the term does not include any plant fertilizer intended to stimulate or induce plant growth through chemical means.  All state agencies shall include in their solicitations, when required, the soil enhancement products identified on the Hawaii products list pursuant to subsection (e)."

     SECTION 6.  Chapter 3-120, Hawaii Administrative Rules, is amended by amending Exhibit "A" to read:


HAR Chapter 3-120


[07/17/08] 07/01/09

The following list of exemptions pursuant to HAR §3-120-4, has been determined to be exempt from chapter 103D by the procurement policy board:


Number                       Exemption


1.        Research, reference, and educational materials including books, maps, periodicals, and pamphlets, which are published or available in print, video, audio, magnetic, or electronic form, including web-based databases;


2.        Services of printers, rating agencies, support facility providers, fiscal and paying agents, and registrars for the issuance and sale of the State's or counties' bonds;


3.        Services of lecturers, speakers, trainers, facilitators and scriptwriters when the provider possess specialized training methods, techniques or expertise in the subject matter;


4.        Services of legal counsel, guardian ad litem, psychiatrists, and psychologists, receivers and masters when required by court order;


[5.       Fresh meats and produce;


6.] 5.    Insurance to include insurance broker services;


[7.       Animals and plants;


8.] 6.    New or used items which are advantageous and available on short notice through an auction, bankruptcy, foreclosure, etc.;


[9.] 7.   Food and fodder for animals;


[10.] 8.  Facility costs for conferences, meetings, and training sessions;


[11.] 9.  Advertisements in specialized publications, such as in ethnic or foreign language publications, trade publications, or professional publications;


[12.] 10. Arbitrator and mediator services;


[13.] 11. Interpreter services;


[14.] 12. Procurement of repair services when dismantling is required to assess the extent of repairs;


[15.] 13. Burial services consisting of mortuary, crematory, cemetery, and other essential services for deceased indigent persons or unclaimed corpses;


[16.] 14. Radio and television airtime when selection of station is based on the targeted audience (i.e. ethnic or age group, gender, etc);


[17.] 15. Subscription costs and registration or workshop fees for conferences or training; and


[18.] 16. Court reporter services."


     SECTION 7.  Section 3-120-4, Hawaii Administrative Rules, is amended to read as follows:

     "§3-120-4  Procurements exempt from chapter 103D, HRS.  (a)  Notwithstanding the intent of chapter 103D, HRS, to require governmental bodies to procure their goods and services through competitive bidding, it is acknowledged that there may be situations where procurement by competitive means is either not practicable or not advantageous to the State.

     (b)  An exhibit A titled "Procurements Exempt From Chapter 103D, HRS" dated [07/17/08,] 07/01/09, is located at the end of this chapter.  This exhibit provides a list of goods and services which the procurement policy board has determined to be exempt from chapter 103D, HRS, because although such goods and services may be available from multiple sources, their procurement by competitive means would be either not practicable or not advantageous to the State.

     (c)  Chief procurement officers may request periodic reports from the heads of purchasing agencies of procurements made pursuant to subsection (b).  The heads of purchasing agencies may be required to include in their reports, descriptions of the process or procedures the agency used to select the vendor ensuring maximum fair and open competition whenever practicable.

     (d)  Chief procurement officers may request that additional exemptions be added to [the] Exhibit A.

     (e)  The procurement policy board shall review [the] Exhibit A annually or more frequently as needed for amendments.

     (f)  Purchasing agencies making procurements which are exempt from chapter 103D, HRS, are nevertheless encouraged to adopt and use provisions of the chapter and its implementing rules as appropriate; provided that the use of one or more provisions shall not terminate the exemption and subject the procurement of the purchasing agency to any other provision of the chapter.

     (g)  Purchasing agencies shall cite on the purchase order or on the contract, the authority waiver as "Exempt From Chapter 103D, HRS, pursuant to section 3-120-4(b) (cite exemption number from exhibit), Hawaii Administrative Rules".

     SECTION 8.  After the effective date of this Act, any provision of the Hawaii Administrative Rules authorized by section 103D-102(b)(4)(L), Hawaii Revised Statutes, may be amended through rulemaking under chapter 91, Hawaii Revised Statutes, including any provision modified by this Act.

     SECTION 9.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

     SECTION 10.  Statutory and administrative rule material to be repealed is bracketed and stricken.  New statutory and administrative rule material is underscored.

     SECTION 11.  This Act shall take effect on July 1, 2020.