Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committees on Transportation, Military Affairs, and Government Operations and Economic Development, to which was referred S.B. No. 1078 entitled:

beg leave to report as follows:

The purpose of this measure is to increase the procurement preference percentage for bids and proposals that incorporate Hawaii products.

Your Committees received testimony in support of this measure from the Department of Business, Economic Development and Tourism. The State Procurement Office (SPO) submitted testimony in opposition to this measure.

With our economy sagging in the islands, your Committees believe that the State should take proactive steps to support local companies. Since the State is the largest purchaser of goods and services in Hawaii, one step to help local companies is to encourage state agencies to procure locally made goods.

Your Committees therefore support increasing the procurement preference percentage for bids and proposals that incorporate local products. This will help Hawaii's companies whose products are mined, excavated, produced, manufactured, raised, or grown in the State. It will also level the playing field for businesses that want to utilize Hawaii products but are reluctant out of fear of not being awarded state contracts due to a higher bid price.

At the hearing on this measure the SPO opposed this measure, primarily because it opined that raising the preference percentage would lead to higher overall costs for state purchasing agencies when awarding contracts.

While that may be technically true, your Committees find that the Hawaii products preference serves a different purpose, to support local businesses, and that those benefits must be balanced against the detriment to the State in terms of slightly higher contract prices. Therefore, your Committees support this measure as a valid method to help local companies survive despite the relatively high cost of doing business in Hawaii.

Your Committees were concerned, however, that the SPO testified against this measure without any hard data to support its assertions. Your Committees find that procurement preferences can only be analyzed if relevant data is collected and reviewed comprehensively.

Therefore, your Committees have amended this measure to require the SPO to collect and synthesize data about the number of products on the Hawaii products list, their cost relative to similar products not on the list, how incorporation of Hawaii products affects bid prices, and an evaluation of the overall effect of the Hawaii products preference on the local economy. As the state agency charged with administering the procurement process, your Committees believe that the SPO should be capable of undertaking this task and reporting to the Legislature annually regarding its findings.

Your Committees also made a technical, nonsubstantive amendment for clarity.

As affirmed by the records of votes of the members of your Committees on Transportation, Military Affairs, and Government Operations and Economic Development that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 1078, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 1078, S.D. 1, and be referred to the Committee on Ways and Means.