UH exemption raises red flags

The state Legislature handed the University of Hawaii the freedom two years ago to essentially extend construction projects to companies that had been involved in the design of the same project. The university wants to extend what amounts to an exemption from state procurement law, but legislators should be seriously questioning the objectiveness and fair competitiveness of what was regarded as a pilot project to kick-start a struggling economy. The practice has raised serious questions about favoritism — so unless and until such issues are addressed satisfactorily, it cannot be accepted as a sound policy.

Until two years ago, the Research Corporation of the University of Hawaii, a state agency, served as a design partner with private contractors in a procurement process known as design assist. Under that system, the associated private company was presumed to be awarded the construction contract. In 2010, the Legislature began allowing companies a temporary exemption from state procurement law in applying the design-assist process without the Research Corp. partnership.

In testimony last year objecting to extension of the exemption, Aaron S. Fujioka, procurement administrator for the Abercrombie administration, complained that the exemption would provide special treatment for the UH, instead of the university being a leader in championing a level playing field for all. He pointed out that the state procurement officers’ national organization opposes such a move.

"Exempting public colleges and universities from state procurement law is completely inconsistent with sound public policy and sound business practices," the National Association of State Procurement Officials stated in a November 2010 statement, without mentioning Hawaii.

Gov. Neil Abercrombie supports the UH exemption, which is to sunset in June unless lawmakers extend it under Senate Bill 1332.

The top beneficiary of design-assist has been Albert C. Kobayashi Inc., which won the $113 million UH-West Oahu project, the $119 million Cancer Research Center of Hawaii job and a $22.5 million research building through its association with the Research Corp. of UH. This month, Kobayashi was given the design contract for a UH-Hilo dormitory.

Several contractors who have done business with UH told the Star-Advertiser’s Rob Perez they are rethinking whether to invest the time and resources to pursue design-assist projects at UH because the selection process is too subjective and favors a single company. Without their competition in bidding for construction projects, there is real concern about whether reasonable costs are achieved.

Kobayashi did not respond to Perez’s repeated requests for comment, a disappointing silence heavy with either apathy or arrogance. The company’s recent receipt of the three sizable UH jobs totaling $254.5 million of taxpayer money, which has raised industry and public eyebrows, warrants an explanation.

UH President M.R.C. Greenwood said such complaints that the procedures are unfair are "a little premature," since only one UH design-assist project has been completed — the more than $6 million School of Nursing facility. However, more than $500 million worth of construction projects have been started under the new system.

Tim Lyons, president of the Subcontractors Association of Hawaii, testified to legislators a year ago that "the new way of doing business at UH" may leave "some people screaming that it is unfair and (it) would seem to us that the Legislature would want to exert its oversight function" on the procurement process. The group consists of nine separate subcontracting organizations.

Lax oversight is another questionable aspect of the exemption: The UH gets to decide the merits of procurement protests filed against it, a self-policing power few other isle government agencies enjoy. The university has denied all six procurement complaints filed against it since this pilot began. A losing contract bidder must file a lawsuit to challenge a UH contract award to a competitor, which can be expensive and cumbersome.

Any talk of extending the UH exemption must include provision of a third-party contract appeals process.

While the University of California system polices its own procurement issues, it’s a California construction review board, which appoints an independent hearing officer, that has settled 97 percent of all protests within three weeks in place of a lawsuit. Another difference is that California awards the lowest responsible bid, not the bid by a contractor deemed to be the most qualified, a choice that is subject to being regarded as arbitrary, thus political.