Firm defaults on 11 government contracts

An Idaho general contracting company owned by a Hawaii native from Laie has defaulted on 11 government contracts in Hawaii worth about $57 million — leaving various projects incomplete or barely begun.

Performance Systems Inc. (PSI), under its president, Kaleo Nawahine, defaulted on five city contracts worth $17.6 million, four Board of Water Supply contracts totaling $9.2 million, a $14.4 million state project and a $16.9 million Hawaii County contract. It also stiffed private companies here and on the mainland.

PSI, headquartered in Meridian, Idaho, specializes in municipal and industrial jobs from construction and repair of buildings to roads and utilities. Among PSI’s more notable Hawaii contracts were replacing the crumbling Maipalaoa Bridge in Maili and shoring up the shifting hillside behind homes on Kuahea Street in Palolo.

The company’s government contracts are being fulfilled through its bonding company, Travelers Casualty and Surety Co. The state, the city and Hawaii County said the bonding company will ensure the work is completed. While delayed, the projects aren’t expected to cost any additional dollars.

After he was named the U.S. Small Business Administration’s National Minority Small Business Person of the Year in 2012, Nawahine grew his company to a bonding capacity of up to $100 million and employed more than 130 construction professionals in Hawaii, Idaho and Washington state.

Nawahine told the Honolulu Star-Advertiser he is liquidating the assets of PSI, which went into default on its contracts in March. PSI began auctioning off equipment in mid-August at its Waipahu office.

Liquidating assets would allow him to pay off other obligations and “make people as whole as we can,” he said in an email. He said PSI’s overall business was hurt by “multiple government projects being put on extended hold.” The city denies causing any delays, according to email answers provided by Budget and Fiscal Services’ Division of Purchasing in response to the Star-Advertiser’s questions.

“We never walked away from a project,” Nawahine said. PSI’s bank “chose not to renew our credit line this spring, and instead decided to sweep all of the money out of our accounts. We were forced to enlist our bonding company to ensure those projects moved forward toward completion and pay those involved,” he said.

Asked whether the company had overextended itself by taking on too many projects, Nawahine said, “We made a purposeful decision to grow, employ more people and take on more projects.”

The failure of PSI to make progress on its very first city project forced evacuation of some Palolo families, who have been waiting more than two years for stabilization of the hillside above their homes in the area of Kuahea Street. Sinkholes have developed, sewer lines have broken and streets are buckling.

The city in July 2015 awarded PSI a $3.45 million contract for work — including installing new concrete pipes, storm drains and street resurfacing — that was supposed to be completed by April 8.

“That work never started,” homeowner Jennifer Martin said.

Martin said the entire hillside behind her house has been shifting, but the movement got worse last year. She said specialists have said underground water levels have risen sharply. The foundation of her house cracked, prompting her family to move out last year.

“We’re living in a nightmare,” she said, struggling to pay the mortgage for an uninhabitable house purchased in 2015, while paying rent on another home.

Carroll Cox, who hosts a radio show highlighting government waste and corruption, uncovered information about PSI’s defaulted contracts while investigating why a solar building at the HPOWER facility, which should have been completed Oct. 17, was more than six months overdue.

The city awarded PSI the contract to construct the solar building on Nov. 23, 2015, for $9.22 million.

“The city knew they had a schedule of work, and the city dropped the ball,” Cox said. “It’s going to cost the public, and that’s intolerable,” he said, referring to the loss of services that would have come with completion of the building.

The city said city project managers monitored the solar building project, which had been on schedule and which at the time of default had performed 90 percent of the work. The building still isn’t complete, and no new contractor has taken over.

The city said PSI was paid for the partial work completed, getting $8,202,224 for the solar project.

But the city was silent on oversight for the Kuahea Street project, which was two years overdue.

The city said it sent PSI a letter Feb. 16, saying the job should be completed by April 8. Officials provided no information on the current status and whether another company has been hired by the bonding company to take over.

State Sen. Maile Shimabukuro (D-Kalaeloa-­Waianae-Makaha) said she was unaware PSI had defaulted in March when she told constituents in July that work was on track for the state Department of Transportation’s $14 million Maipalaoa Bridge replacement project crossing Maili Stream.

DOT spokesman Tim Sakahara said the job was only 5 percent completed when PSI notified the state March 29 it could not complete the project. About $760,000 of work was done, including mobilization, setup and protection of the staging area, he said.

Sakahara said the bridge is safe and regularly inspected.

A 2011 Final Environmental Assessment described the bridge as “intolerable requiring high priority corrective action.” The four-lane bridge, built in 1966, has flaking concrete, and its reinforcing bars are exposed and rusting, “nearing the end of its useful life,” the report said.

PSI’s bonding company will ensure the work is completed, Sakahara said. “We are confident the matter will be resolved without double payment by the state,” he said.

Even though PSI’s bonding company is responsible to ensure the work gets done, Cox said a delay in services and possibly double the work will occur because a new contractor must ensure work that a previous contractor left is satisfactory by inspection or by tearing down and rebuilding.

He faults city officials for not vetting PSI thoroughly enough before awarding it five contracts, and not monitoring closely enough to keep the projects on schedule.

“From a taxpayer’s standpoint, I’m appalled that such a relationship can exist,” he said. “I’m appalled that our moneys are being handled so loosely. Regardless of the cause, they fell asleep at the wheel.”

City spokesman Jesse Broder Van Dyke said in an email response that PSI’s notification of default was on March 23 — after all five city contracts had been awarded.

PSI also notified Hawaii County in March that it was defaulting on its $16.9 million contract for work on the Kealakehe Wastewater Treatment Plant. Environmental Management Director William Kucharski said PSI’s bonding company would hire a contractor and ensure the job is completed in Hawaii County as well.

PSI also failed to pay private companies in Hawaii, Idaho and Washington.

In May, Boise, Idaho-­based The Masonry Center sued PSI and Travelers Casualty and Surety Co. for $113,000 for materials delivered to Hawaii for a U.S. Army Corps of Engineers project at Schofield Barracks, the Idaho Statesman reported July 31. The company dropped the lawsuit July 27, indicating a resolution was reached, the newspaper said.

On March 28, PVT Land Co. Ltd., which runs Oahu’s construction and demolition landfill, served PSI a default notice, and sued PSI May 23 for $128,432 for landfill services.

The U.S. government also sued PSI in 2013 for $436,066 for failing to pay a subcontractor for an Army Corps project in Kent, Wash., the Idaho Statesman reported. The case was later settled.

Nawahine, a mechanical engineer, was interested in starting his own company after getting to know his entrepreneurial clients while working at an Idaho cement and building materials manufacturer, the Small Business Administration website says.

“I began to notice their … potential for true financial security,” he said. “It didn’t take long for me to start reevaluating my personal paradigms regarding risk verses (sic) reward.”

He bought into PSI in 2004 and soon acquired the remaining interest. PSI’s Idaho and Washington offices have been “our bread and butter,” he said in 2012. “But I like supporting the economy in my native Hawaii and look forward to expanding PSI’s presence on the islands.”