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Tuesday, April 27, 2021
Capital improvement procurement protests grind to a halt
By Andrew Walden @ 11:30 PM :: 1584 Views :: Ethics, Hawaii State Government

by Andrew Walden

Capital improvement procurement protests are grinding to a halt as a result of a recent decision by DCCA hearing officer Desiree L. Hikida on a bid appeal filed against the Hawaii Department of Transportation by Maui Kupono Builders (PDH 2021-003). 

Hikida’s ruling requires general contactors to list trucking companies among ‘subcontractors’ when bidding.

This may not sound like much to the lay reader, but, since early March, bid protests totaling between $79M and $107M have been frozen awaiting a court ruling.  (See list

Supporting an April 24, 2021 appeal to Oahu’s First Circuit Court by Maui Kupono, attorneys representing the General Contractors Association of Hawaii point to a “potential catastrophe” enabling “abuse of discretion… (which) …will promote and enable favoritism and/or corruption in public procurement.”

Here is the crux of their argument:

The errors of law in the Decision are many-fold, but all are made possible only by a fundamental error in reasoning by the Hearing Officer. The Decision reaches its confounding result that overrides long-standing practices and existing law by:

(1) first claiming that the relevant statute does not provide a definition of subcontractor (despite other portions of the statutory scheme governing public works providing that definition as contractors performing actual construction work on site, and specifically distinguishing “service providers” from “subcontractors” );

(2) then taking a non-specific definition from the administrative regulations in HAR section 3-120-2 applicable to more than just construction projects but which clearly references agreement “to perform a portion of the work for the contractor” (emphasis added), i.e., construction work; but

(3) rather than following the plain meaning of the statutes and regulations, reaches out to a mere agency solicitation text (an invitation to bid or IFB) to grab a definition of “work” to include anyone providing just about anything “convenient for the successful execution of all the duties and obligations imposed by the contract” which is very different from the meaning of the term “work” which is a term of art in the construction industry; and then

(4) extrapolates this mere agency solicitation text to essentially rewrite and supplant the statutory requirements as ALL contractors, and ALL procuring agencies, have here-to-for understood and applied them, and extend the cobbled definition from mere agency text to apply to ALL public procurement; and

(5) doing so to reach a conclusion which contradicts the very agency solicitation text on which the Hearing Officer relies as it specifically defines subcontractor as being limited to entities governed by HRS Chapter 444, the contractor licensing statute. Thus, the Decision uses a phrase extracted from one portion of the agency text to change a definition in the HAR so as to contradict the subcontractor definition not only in the HRS but in the very agency text upon which the Hearing Officer relies. 

The lynchpin to the Decision’s entire analysis is this agency text from a solicitation document; without it to change the meaning of the regulations and statutes, the Decision’s entire radical legal analysis fails. This agency text, however, was not debated, considered and enacted by the Legislature; it was not open to public hearing and comment or the other requirements for valid administrative rule making; nor was it subjected to any of the rigors of consideration and evaluation before our system of government and jurisprudence allows something to carry the force of law. Rather, the text is mere words from a functionary within a single procuring agency, but improperly given the force of law in the Decision.

This “Frankenstein” type approach to the cobbling or stitching of portions from different sources to combine in a result that contradicts both sources is every bit as abhorrent to proper legal analysis as was Frankenstein himself to the natural order of biology.2 What the Decision has done is the equivalent of pulling two non-related or distant parts of separate transcripts and pasting them together to yield a result exactly opposite of what either transcript reflects, and then use it to effectively overthrow the entire procurement system.3 

The Decision proceeded to compound the error by also using the purported need to prevent bid-shopping among truckers to justify the new radical system. It is unfortunate for all concerned that its author did not recognize the invalidity of this justification since trucking rates are governed and set by the Public Utilities Commission and are thus not even subject to the possibility of bid-shopping.

Perhaps the most concerning thing of all with the Decision is that it essentially ratified and enabled the disqualification of the lowest bidder so as to award to a bidder $760,000 more expensive, when that higher bidder’s proposal suffered from the exact same alleged defects under the new definition of subcontractor used to disqualify the low bidder. The agency and the OAH may retreat to the defense that truckers and other service providers are each less than 1% of the project price so that the agency can exercise discretion to waive or not waive the alleged deficiency; but in these circumstances, to waive for the high bidder and not waive the same thing for the low bidder is a clear abuse of such discretion, and only serves to highlight the very real concerns expressed in the Declarations submitted herewith that this Decision will promote and enable favoritism and/or corruption in public procurement.

the Decision’s attempt to drastically expand the definition of subcontractor for listing purposes will only help to frustrate compliance with the federally required DBE goals, unfairly impact Hawaii’s many small independent truckers who contractors will no longer be able to utilize since no one of them can fulfill the needs on a project, and will serve to reduce the number of contractors that can afford to gamble the vastly increased time, effort and cost to even submit a bid, thereby reducing competition—exactly opposite the purposes of the procurement code. Mr. Dempsey also testifies to the “frightening sea of confusion” that has already resulted from the Decision in other procurements by Respondent Department of Transportation such that the DOT has already “indefinitely postponed that project and others.” As the point is made repeatedly in all of the Declarations submitted herewith, the Decision—if not vacated by this Court—has already halted public procurement across the State and threatens to bring all such procurement to a halt at a time the community needs it the most

Judge John M. Tonaki set an hearing for May 4, 2021.

UPDATE:   Judge Tonaki vacated the bid award to Grace Pacific and the OAH hearing officer's decision. The judge also awarded the project back to the lowest bidder, MKB, for the Kamehameha Highway rehab project. The judge's written decision should be posted soon.

---30---

Agency Appeal: 1CCV-21-0000438 - Maui Kupono Builders v. State Dept of Transportation 

UPDATES:

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