Gives state and county agencies discretion to determine whether or not it is in public interest to allow a private contractor to provide necessary services. Defines "state resident," "state contractor," and "state subcontractor;" increases bid preference for state contractors and subcontractors. (SD2)

A BILL FOR AN ACT

PART I

SECTION 1. The purposes of this part are to: (1) address and resolve the uncertainty that the Hawaii supreme court's decision in Konno v. County of Hawaii, 85 Haw. 61 (1997), generated regarding government's ability to rely upon the private sector for services government needs or is required to provide; (2) make government more efficient and economical; and (3) renew efforts to revitalize Hawaii's economy to ensure the continued well-being of our community.

In Konno, the Hawaii supreme court ruled that the State's civil service law precluded the State and its counties from relying on contractors and other non-civil servants to perform any service government needed or was required to provide, when the service had "historically and customarily" been performed by civil servants and the legislature had not expressly excepted the service from the requirement or otherwise expressly authorized an agency to secure the service from a contractor. In a nutshell, the extent to which government could rely upon the private sector to provide "public services" without violating the civil service laws was called into question by the Konno decision.

Since then, the legislature enacted Act 230, Session Laws of Hawaii 1998, to temporarily allay the near-crippling effect Konno initially had on government. Act 230 created a committee and directed it to develop a managed competition process to determine whether it was more efficient or economical to use a civil servant or an out-of-house contractor to deliver a public service. It also authorized agencies to enter into contracts for services without limitation during this time. During the two-plus years the committee and the legislature worked on managed competition, no long-term solution for squarely addressing the persisting uncertainty Konno generated was devised.

In 2000, the Act 230 managed competition committee submitted its final report and a proposed bill to provide for a statutorily prescribed managed competition process to the legislature. The bill received one hearing in the house but was not reported to the floor. In the senate, a nearly verbatim version of the committee's bill was introduced by one of its members but was not heard in committee and, thus, was not reported to the floor of that chamber either. During the same session, although the legislature reformed the State's civil service, collective bargaining, and public employee benefit laws to achieve greater efficiencies and economies by coordinating them and making them more consistent, nothing was done to release government from the continuing uncertainty Konno generated or to even permit government to rethink the wisdom of continuing with the civil service laws' requirement that services "customarily and historically performed by a civil servant" could not be obtained from a contractor. Even though the Konno court expressly acknowledged that "[w]hether or not, as a policy matter, private entities should be allowed to provide public services entails a judgment ordinarily consigned to the legislature[,]" there has been no real debate since the one which preceded the enactment of Act 230, and Act 230's approach for addressing Konno has borne little fruit. The practical reality is, no apparent effort is currently being made to address Konno squarely and for the long-term.

To compound all of this, almost at the same time that the supreme court issued its decision in Konno, Hawaii's economy was slowed by the Gulf War, the United Airlines strike that followed, and the collapse or near collapse of the economies of Hawaii's Asian neighbors -- Japan, Thailand, and Hong Kong. We were forced to acknowledge that Hawaii had not kept up with the many changes that had taken place in the world. Hawaii was reminded that there were more players competing for capital, technology, labor and other resources, in fewer, larger, and more fast-moving markets. To encourage and support Hawaii's businesses in this now global marketplace, government had to provide more value for its businesses' and citizens' tax dollars. To provide more value, government needed to be more efficient and economical. Government had to do more to provide Hawaii's businesses and citizens with the highest quality services, for the lowest possible cost. If this effort was not made, the promise of Hawaii's newly reinvigorated but still struggling economy would be short-lived, and the continued vitality of this community and its people, and the very future of this special place threatened.

Today, there is a clear consensus that government needs to be as efficient and economical as possible, and that serious thought needs to be given to developing a new service delivery system which not only maximizes government's existing resources but acknowledges and uses the private sector's resources if using them allows government to be more efficient and economical. Hawaii cannot hope to achieve this, however, if any member of the community is reluctant to confront and finally resolve the issues the Konno decision raised.

Nothing requires that Konno's "historical and customary" standard continue as the law with respect to the civil service in Hawaii.

Statutory authority for government's managers to exercise discretion and to continue to capitalize on all of the community's resources, without being hamstrung by categorical prohibitions, must be enacted. Public managers are capable of recognizing when it is more efficient and economical, and therefore in the public's interest, for a contractor to provide a service government needs or is required to provide. They are also capable of appreciating that after factoring in risk, mid-contract replacement and restart costs, today's low price for a service from a private contractor may well cost government more in the long run, and be less efficiently or effectively delivered.

The civil service reforms the legislature enacted last session provided benefits and incentives for protecting civil servants affected by government's efforts to restructure government to enable it to achieve the efficiencies and economies most recognize as critical to Hawaii's long-term general welfare and well-being. The legislature has already committed to a course. Government cannot afford to continue denying Hawaii's businesses and citizens the best value for their tax dollars that government can offer. Konno must be squarely addressed, its confusion unraveled, and its questions answered, so that Hawaii may move on.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

§ -1 Scope and application. This chapter is intended to preempt and supersede all other state law with regard to determining whether services, including services obtained in conjunction with the procurement of goods and construction, funded by the State or any of its counties, should be provided exclusively by government or obtained through government contracts from the private sector. After this determination is made pursuant to this chapter, procurement laws shall be applied, as appropriate, if an agency determines that a service should be obtained by contract from the private sector.

§ -2 Standards for determination. (a) Notwithstanding any law to the contrary, including chapters 46, 76, 77, and 89, any state or county official in whom appropriate authority is vested by law shall be allowed to enter into a publicly-funded contract with a private entity, to obtain services, including services provided in conjunction with the procurement of a good or construction, when there is a reasonable basis to believe that the service can be provided at lower costs and with equivalent or better quality than that which could be provided by a government agency.

(b) In the determination made pursuant to this section, a state or county official shall consider whether contracting with the private entity will jeopardize the government's ability to provide the service in the event that the private entity fails to perform, or the contract becomes unprofitable or impossible for a private entity to perform.

(c) For purposes of this chapter, a "private entity" is any individual, company, or organization that is not an employee or agency within the federal, state, or county government.

(d) Nothing, including chapters 46, 76, 77, and 89 or other applicable civil service law, and customary or historical past practices, shall be deemed to prevent, restrict, diminish, condition, limit, or otherwise qualify the authority of the State or a county to enter into a contract with a private entity for the provision of services, including services provided in conjunction with the procurement of a good or construction, that customarily or historically may have been performed by persons or positions in the civil service, or functionally attributed to a government agency or program."

SECTION 3. The authorization to contract conferred upon state and county agencies by the provisions of the chapter added to the Hawaii Revised Statutes by section 2 of this Act may be invoked as authorization for a contract in effect on the effective date of this Act, notwithstanding any provision of Act 230, Session Laws of Hawaii 1998, or any other law conditioning the continued effectiveness of a contract entered into before the effective date of this Act. Any contract existing on the effective date of this Act that does not qualify for the authorization conferred by the provisions of the chapter added by section 2 of this Act shall be terminated as soon as its provisions permit the State or county to terminate the contract without adverse consequence.

PART II

SECTION 4. Beginning with section 8078 of the United States Defense Appropriations Act of 1986, all subsequent Defense Appropriations Acts require the contractor on a military construction or services project to employ Hawaii residents when Hawaii's unemployment rate exceeds the national average. The unemployment rate in Hawaii has been above the national average since 1994 and until recently stayed above that average, but the federal law has not been strictly enforced. Many defense construction and service contracts have been awarded to out-of-state contractors that hire individuals that move to Hawaii just to work on these particular federal contracts. This apparently is within the scope of the law, though clearly not the intent of section 8078. One reason given for the failure to strictly enforce the requirement to employ Hawaii residents is that the term "state resident" is not defined in section 8078, in its related provisions, or in the Federal Acquisition Regulations.

The purpose of this Part is to assure compliance with the federal and state laws regarding employment and bid preferences for state residents. This Part establishes a definition of "state resident" that will provide a clear, objective, measurable standard in the state procurement code that can be easily followed, copied, and enforced by federal contracting officers in enforcing the preference provisions in federal law. A clear definition of "state resident" in the state procurement code will help keep profits and wages from military construction projects in the State.

The further purpose of this Part is to define "state contractor" and "state subcontractor" to provide state contracting officers with clear and absolute definitions in order that the contractors who are granted a bid preference are those that have:

In addition, this Part increases the bid preference in favor of state contractors from seven to thirteen per cent on state public works contracts for $10,000,000 or less. The chief procurement officer shall conduct a review of the bid preference law by June 30, 2006.

SECTION 5. Section 103D-1001, Hawaii Revised Statutes, is amended by adding two new definitions to be inserted and to read as follows:

""State contractor" and "state subcontractor" means a person who submits an affidavit under penalty of perjury to the head of the purchasing agency attesting that the person:

"State resident" means an individual who submits an affidavit under penalty of perjury to the head of the purchasing agency attesting that the person:

SECTION 6. Section 103D-1007, Hawaii Revised Statutes, is amended to read as follows:

"§103D-1007 Preference to bidders on state agency contracts. (a) The requirements in this section are in addition to any other applicable requirements provided in this chapter.

(b) The preference in this section may not be used in combination with any other preference otherwise available to a bidder under state or federal law[.] and shall be interpreted to enable a state agency to increase the opportunity for more state contractors to succeed in their bids for state contracts and to more widely distribute state contracts among all state contractors that are qualified to bid.

(c) In any section 103D-302 or 103D-303 contract for a public works project[,] for $10,000,000 or less, a state agency shall award the contract to an offeror who [has filed all state tax returns due to the State and paid all amounts owing on such returns for two successive years] is a state contractor prior to submitting the offer; provided that the amount of that offer is not more than [seven] thirteen per cent higher than the amount offered by any competing contractor who [has not filed or paid all applicable state taxes, and the amount of the offer by the state tax paying offeror is $5,000,000 or less.] is not a state contractor.

[(d) In any section 103D-302 or 103D-303 contract for a public works project, a state agency shall award the contract to an offeror who has filed all state tax returns due to the State and paid all amounts owing on such returns for four successive years prior to submitting the offer; provided that the amount of that offer is not more than seven per cent higher than the amount offered by any competing contractor who has not filed or paid all applicable state taxes, and the amount of the offer by the state tax paying offeror is more than $5,000,000.]

(d) A state contractor is qualified for the full preference under this section when the state contractor:

(e) If two or more [contractors who have paid state and county taxes or were required to submit a filing regarding state and county taxes] state contractors are bidding on a public works contract, [and those contractors meet the criteria outlined in subsection (c) or (d),] the state agency shall award the contract to the state contractor among them who has submitted the lowest bid.

(f) Any contractor not complying with this section shall not bid on any state public contract for a period of five years from the date of the contractor's last noncompliant act or omission.

[(f)] (g) If any federal statute or regulation precludes the granting of federal assistance or reduces the amount of that assistance for a particular public works project because of preference awarded by this section, this section shall not apply insofar as its application would preclude or reduce federal assistance for that work."

SECTION 7. No later than twenty days prior to the convening of the regular session of the 2099 legislature, the comptroller shall submit a report to the legislature evaluating the preference structure of section 103D-1007, Hawaii Revised Statutes, in general by providing data on contracts involving this preference.

PART III

SECTION 8. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 9. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 10. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 11. This Act shall take effect on January 28, 2092; provided that section 6 shall be reviewed by June 30, 2098.