HPOWER contracts mishandled

Flawed contract and procurement practices resulted in unfavorable contract terms, bloated expenditures — including $751,700 in “improper and questionable” payments — and an unchallenged 27-year extension for the operator of the city’s HPOWER facility, according to a report by the Office of the City Auditor.

The analysis, released Friday, noted fundamental problems with the city Department of Environmental Services’ handling of contracts after the initial set of contracts to build and operate the facility were awarded some 30 years ago.

The original contracts totaled $313.7 million. The department subsequently initiated three more projects and used 79 contract modifications to improve, expand and refurbish the facility, raising the overall project costs to $993.3 million as of 2013. As part of these later initiatives, the department entered into sole-source, cost-plus, and time-and-materials contracts to have the work completed, despite state procurement codes and city policies restricting the use of such contracts.

The report further noted that the department “approved contract terms that were not in the best interests of the city, and approved contract modifications without realizing the contractor’s right to operate the HPOWER facility was extended from 20 years to 47 years.”

The HPOWER facility burns solid waste to produce steam, which is used to generate electricity that is then sold to the Hawaiian Electric Co. The city owns the facility, which is operated by Covanta.

As explained in the report, the department did not include in any of the HPOWER contracts state-mandated provisions for contractors to provide the city access to records. This allowed contractors to purge records earlier, and compromised the city’s ability to detect and prevent fraud and abuse.

The auditor found that the department’s reliance on the contractor, consultants and external law firms to set terms and conditions of the contracts — including establishing reasonable pricing — was “misplaced.”

A review of invoices prior to the 2013 fiscal year revealed city-approved payments for out-of-scope work, billing rates that exceeded the contract hourly rates, and first-class and business-class airfare for subcontractors, as well as payments for “excessive hours billed by a subcontractor, unallowable travel costs, unreasonable intern pay rates, and legal fees that the contractor should have paid” — all equaling $751,700.

In a response sent by city Managing Director Roy Amemiya to city Auditor Edwin Young, the city maintained, among other things, that contract amendments did not require competitive bidding, and that extended contract terms such as that granted to Covanta are common and in keeping with similar contracts in place in other cities with waste-to-energy facilities.