Lyon contract scandal leaves Hawaii government officials scrambling

State and city agencies have been canceling or suspending contracts with Honolulu-­based Lyon Associates in the wake of a federal corruption probe involving the civil engineering firm whose president recently pleaded guilty to bribing government officials in Hawaii and Micronesia to obtain more than $10 million in contracts over the past decade.

Part of the investigation focuses on a $2.5 million contract that a Hawaii government agency awarded to the company around 2012. Frank James Lyon, president of Lyon Associates, admitted to paying government officials at least $240,000 to obtain the contract. However, neither the government agency nor officials who allegedly influenced the award and accepted the bribe have been named in court documents.

Officials with the U.S. Department of Justice have declined to comment on the case.

The investigation has put local government officials on edge as they review contracts entered into with Lyon over the years and as concerns mount that the investigation into Hawaii government contracting could widen. Lyon Associates was awarded dozens of contracts and subcontracts with state and county government agencies over the years.

The Department of Hawaiian Home Lands has suspended five contracts with Lyon Associates totaling more than $1.5 million in recent weeks, said Cedric Duarte, a spokesman for the department.

Some of the contracts involved engineering services for flood damage on Kauai and Molokai caused by heavy rainfall in 2012 and work involving dams on Kauai.

Top officials at DHHL also have taken the unusual step of contacting federal investigators to proffer documents relating to a $2.5 million contract the department awarded to Lyon Associates in 2010. A Hawaii News Now story earlier this year identified the contract as the subject of the investigation, though the Star-Advertiser was unable to independently confirm that.

Duarte said that DHHL had not received a target letter or subpoena from federal investigators relating to any of its contracts with Lyon Associates and DHHL remained in the dark as to whether the $2.5 million contract was indeed being investigated.

Duarte said DHHL officials had reviewed the contract, which was for designing the repair and removal of dams on Kauai, and found that the state’s procurement policies were followed.

The Hawaii Department of Transportation has canceled a $2.2 million contract that it awarded to Lyon Associates in December 2018 for tarmac work at Honolulu’s Daniel K. Inouye International Airport.

Hawaii’s Department of Land and Natural Resources is also closing out a $174,560 contract with the company for flood mitigation work along Kaluanui stream. The department says the contract hasn’t been active for a year.

The City of Honolulu is in the process of terminating four contracts that it has with Lyon Associates, and will let a fifth contract terminate in June, according to Andrew Pereira, a spokesman for Honolulu Mayor Kirk Caldwell.

Since 2010, the city has entered into contracts with Lyon Associates worth about $1.8 million to design bus stop improvements and street repairs and work on a Manoa earth stabilization project.

Obtaining a comprehensive list of contracts that the state has entered into with Lyon Associates over the years involving more than a dozen departments and multiple attached agencies isn’t easy given major deficiencies in the State Procurement Office’s data collection system. But records requests sent to numerous individual departments seeking contracts dating back to 2010 indicate that Lyon Associates has had substantial business with the state.

DHHL awarded a total of 11 contracts to Lyon Associates worth close to $4.8 million from 2010 to now, while DLNR entered into four contracts with the company worth about $800,000. DOT awarded the company about $6.6 million in contracts since 2010. The Transportation Department also paid the company about $1.2 million for a Hawaii Scenic Byways program under a contract that dates back to 2004 and was amended as late as of 2014. That program appears to be defunct.

Lyon Associates established its headquarters in Honolulu in 1972 and grew to have eight international offices, according to the company’s LinkedIn page. The company, which was previously run by Lyon’s father, is listed as having between 50 and 200 employees.

It’s not clear how the company is being affected by the federal investigation and cancellation of contracts. The company’s website has been down for weeks and the main phone number is not working. The company’s office on King Street in downtown Honolulu also appears to have been shuttered.

Attempts to reach the company were unsuccessful. An attorney for Lyon accepted emailed questions for this story inquiring about the state of the company and seeking more information about the investigation, but didn’t provide responses by deadline.

Lyon is currently awaiting sentencing in the case and faces up to five years in prison.

That federal investigators haven’t identified Lyon’s alleged co-conspirators referred to in court documents indicates that the federal investigation is ongoing, said Kenneth Lawson, co- director of the Hawaii Innocence Project, who said the investigation could go on for months.

“There isn’t any indication that this is winding down,” he said. “They’re just done with him.”

Lawson said federal investigators have likely been looking at issues such as how Lyon knew which state officials could be bribed, who told him that, who else might have known about it and whether there were other companies engaged in such activity.

“They get as much information as they can from Lyon and that may be enough to peel part of that onion back and the more they continue to pull back, you know, the more they find,” he said.

“When you are talking about a federal investigation, it really is like little fish eat big fish. They just continue to go up the chain. Who is up higher than you? They want to know how far up this goes and who knows.”