State’s top U.S. tourism contract stalls again

Mike McCartney, director of the state Department of Business, Economic Development and Tourism, in his role as head of the purchasing agency for the Hawaii Tourism Authority, told the Senate Committee on Ways and Means on Monday that HTA’s U.S. tourism contract is likely headed for a third round of procurement.

McCartney addressed WAM during an informational briefing at the state Capitol that went for more than three hours on the status of a disputed contract for U.S. Brand Management and Global Support Serv­ices. He told the senators that he had already informed the two nonprofits vying for the contract — the Council for Native Hawaiian Advancement and the Hawaii Visitors and Convention Bureau — that he planned to rescind CNHA’s June 2 award for a multiyear U.S. tourism contract worth more than $34 million during the first two years.

Monday’s briefing was like deja vu. In December 2021, HTA awarded HVCB a multiyear U.S. tourism contract worth $22.5 million the first year but later rescinded it following an unresolved protest from CNHA. When HTA embarked on a second round in the request-for-proposals process, HVCB lost to CNHA.

McCartney said he now expects to issue a third request for proposals for the lucrative contract — this time for two separate contracts, with one focused on destination management and the other on brand management or marketing.

Canceling the second solicitation will nullify HVCB’s protest; however, the state could still face legal claims from either offerer, both of whom have spent hundreds of thousands of dollars on the previous procurement efforts. The new direction also raises an issue of fairness since opening another procurement potentially allows new offerers access to CNHA’s and HVCB’s winning proposals, which have already been made public.

McCartney’s new plan is a big departure from his earlier strategy to resolve the contract protest through mediation. In early October DBEDT issued a news release announcing that the parties to the contested award “were pleased to announce a potential pathway towards a resolution has been identified for the best interest of the people of Hawaii.”

The release went on to say, “While work continues on the resolution of the protest, a six-month extension of HVCB’s current contracts for U.S. Brand Manage­ment and Global Support Services will extend their work until March 31, 2023. This extension, agreed to by all three parties, will ensure the continuation of important work in visitor education including the GoHawaii.com website and call center.”

It was revealed during Monday’s WAM briefing that McCartney had been trying to resolve HVCB’s protest by negotiating an agreement that would have increased the monetary value of the procurement award to $40 million, which would have been split between HVCB, which would have handled branding, and CNHA, which would have handled destination management.

Addressing that move, Sen. Donovan Dela Cruz pointed out two apparent missteps: McCartney had not sought approval from the full HTA board or from the state Procurement Office before trying to broker the deal.

SPO Acting Administrator and Chief Procurement Officer Bonnie Kahakui told WAM that she found out about the settlement effort from the news release and promptly sent McCartney an email saying that “this collaborative or settlement agreement is not an authorized resolution.”

The process has since stalled. However, Hawaii Deputy Attorney General Bryan Yee told the WAM panel that “DBEDT is moving forward now with advice from counsel,” following the issuing of the news release.

Regarding the latest do-over, McCartney said, “I’m making this decision in what I believe is in the best interest of the state. I know it’s frustrating for the bidders, but sometimes that’s just the process. I apologize for that.

“I know the pain in the industry and the pain in the community about tourism and the issues that we face.”

Dela Cruz asked McCartney to brief the HTA board before rescinding CNHA’s U.S. tourism contract and re-soliciting for a new contract. McCartney, whose last day as DBEDT director is next week, said he would take Dela Cruz’s request under advisement.

Given that a new gubernatorial administration is taking shape, a decision on the U.S. contract will likely fall to McCartney’s successor. It’s unclear how that successor and HTA will delineate procurement responsibilities. It’s also uncertain how the agency will fund the new contracts, since come January the agency is without a budget.

This year federal American Rescue Plan Act funds provided HTA with a $60 million budget, and a $28.5 million expenditure ceiling for the Hawai‘i Convention Center. McCartney said those funds will be deleted by the end of the year. In 2023, McCartney said, the onus will be on the state Legislature to fulfill HTA’s funding request.

“Now it’s going to be the legislators’ call how you want to shape it going forward,” McCartney said, adding that the HTA board at its last meeting passed a resolution to seek $80 million in funding for its next budget cycle.

During the briefing Dela Cruz and several other senators questioned HTA’s value since the state agency’s top leadership indicated that procurement for its U.S. tourism contract had been relinquished to McCartney. Lawmakers suggested this was an unusual step, and one that indicated that perhaps HTA was not necessary if DBEDT could do its work.

When created in 1988, HTA had broad support as a vehicle to help the tourism industry overcome a seven-year slump after the Japan bubble burst. But over the years the agency and the work it does have become increasingly politicized. Lawmakers in 2021 passed House Bill 862, which took away the dedicated funding HTA has had since its founding and removed the agency’s procurement exemption.