Court nullifies rule waiver for rail contracts

Circuit Court Judge Karl Saka­moto on Tuesday struck down a procurement rule that the city used to award more than $144 million in rail-related contracts, declaring the 1995 rule invalid because it conflicts with state procurement law.

It was not immediately clear what effect, if any, the ruling might have on the city’s contracts with rail consultants PB Americas Inc. and InfraConsult LLC. Those companies have had a critical role in the planning, design and launch of construction for the $5.27 billion rail proj­ect.

The lawsuit challenging the procurement rule had asked that all contracts awarded under the disputed rule also be declared void. However, Saka­moto said he was not declaring invalid any contracts awarded before Tuesday’s ruling.

With his decision, Saka­moto said the court was declaring the procurement rule invalid, and "that is all the court does."

Honolulu lawyer John C. McLaren said his firm sued to enforce the state procurement code in the public interest, and said research revealed at least 26 contracts for professionals, including architects and engineers, were awarded using the now-invalid rule.

"It matters because the taxpayers of Hawaii are entitled to receive the best benefit for their money, their taxes, whenever government contracts are issued," McLaren said. "In this area, with architects and engineers, they are entitled to receive some reasonable assurance that their money is being well spent and that the work is being distributed evenly among all eligible architects and engineers, and not just to a favored few."

Under the state procurement law, panels of state, city or county officials are formed to review lists of professionals such as architects or engineers to decide which are best qualified for public works contracts.

According to the law, those panels must review the competitors, "rank a minimum of three persons" based on the selection criteria and forward that ranking to the head of the state or county government purchasing agency.

The 1995 procurement rule that was the subject of the judge’s decision created a waiver of the requirement that at least three competitors be ranked. That rule set out procedures to be followed in cases where there were fewer than three architects, engineers or other professionals seeking a particular contract.

Honolulu lawyers McLaren and Arthur Park concluded the 1995 rule was invalid because it conflicted with the state law requiring a minimum of three competitors for professional services contracts.

McLaren said former Gov. Ben Caye­tano joined Park and McLaren for a 2010 meeting with then-Attorney General Mark Bennett to discuss the apparent conflict between the rule and state procurement law. According to the lawsuit, Bennett took no action to rescind the rule.

Cayetano said Tuesday he participated in the meeting with Bennett because "we thought this (rail) thing was being rushed and that the people who were going to get the contracts were kind of like preordained."

Cayetano later became involved in a separate federal lawsuit that is challenging the rail proj­ect, and said he has not participated in the state lawsuit over the procurement rule. Caye­tano is running for Hono­lulu mayor, and has pledged to stop the rail proj­ect if elected.

Park and McLaren sued the state Procurement Policy Board in 2011 to challenge the procurement rule and to see that the state law is followed, McLaren said.

"It’s to make sure that the distribution of these very lucrative contracts isn’t based on favoritism or pay-to-play or that kind of improper, unethical conduct," McLaren said of the law. "That’s why the system was laid out that way, particularly for architects and engineers."

Judge Sakamoto agreed Tuesday the rule is invalid because it contradicts the "clear and unambiguous" language of the state law.

Sakamoto also awarded McLaren and Park lawyers’ fees and costs in the case.

Deputy Attorney General Pat Ohara said the decision overturning the procurement rule may be disruptive to government operations in cases where fewer than three competitors are seeking a professional contract.

The rule making it possible to award contracts when there were fewer than three competitors was an example of "government trying to do government’s work," Ohara said.

Without the rule, when there are fewer than three competitors, government officials may have to delay a proj­ect to seek additional competitors, or start the procurement process over, she said.

"These capital improvement proj­ects take a lot of time, and to have it stop after it has already proceeded is very disruptive," Ohara said. "It will delay the proj­ect and make the proj­ect cost more."

Louise Kim McCoy, press secretary for Mayor Peter Carlisle, said the city is aware of the lawsuit but is not a participant in the case.

"We understand that today’s court ruling did not invalidate any existing contracts," McCoy said in a statement. "We will review the matter upon our receipt of the court’s final written order and consult with the State Procurement Office as appropriate. The city follows the Hawaii Public Procurement Code and its related administrative rules as promulgated by the State Procurement Policy Board."