1
1
2
3 SENATE/HOUSE OF REPRESENTATIVES
4 THE 21ST LEGISLATURE
5 INTERIM OF 2001
6
7
8
9 JOINT SENATE-HOUSE INVESTIGATIVE COMMITTEE HEARING
10 OCTOBER 5, 2001
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12
13
14 Taken at the State Capitol, 415 South Beretania,
15 Conference Room 325, Honolulu, Hawaii commencing at
16 1:13 p.m. on Friday, October 5, 2001.
17
18
19
20 BEFORE: MYRLA R. SEGAWA, CSR No. 397
21 Notary Public, State of Hawaii
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23
24
25
2
1 APPEARANCES:
2
3 Senate-House Investigative Committee:
4 Co-Chair Senator Colleen Hanabusa
5 Co-Chair Representative Scott Saiki
6 Vice-Chair Senator Russell Kokubun
7 Vice-Chair Representative Blake Oshiro
8 Senator Jan Yahi Buen
9 Representative Ken Ito
10 Representative Bertha Kawakami
11 Representative Bertha Leong
12 Representative Barbara Marumoto
13 Senator Norman Sakamoto
14 Senator Sam Slom
15
16 Also Present:
17 Special Counsel James Kawashima
18 Gary M. Slovin
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20
21
22
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24
25
3
1 I N D E X
2
3 WITNESS: KAREN ERHORN
4 EXAMINATION BY: PAGE
5 SPECIAL COUNSEL KAWASHIMA.................6
6 VICE-CHAIR SENATOR KOKUBUN...............50
7 VICE-CHAIR REPRESENTATIVE OSHIRO.........52
8 SENATOR BUEN.............................60
9 REPRESENTATIVE ITO.......................66
10 REPRESENTATIVE KAWAKAMI..................68
11 REPRESENTATIVE LEONG.....................73
12 SENATOR SAKAMOTO.........................75
13 REPRESENTATIVE MARUMOTO..................85
14 SENATOR SLOM.............................89
15 CO-CHAIR REPRESENTATIVE SAIKI...........100
16 CO-CHAIR SENATOR HANABUSA...............102
17 SPECIAL COUNSEL KAWASHIMA...............123
18 SENATOR SAKAMOTO........................124
19 VICE-CHAIR OSHIRO.......................128
20 REPRESENTATIVE MARUMOTO.................130
21 CO-CHAIR SENATOR HANABUSA...............132
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4
1 P R O C E E D I N G S
2 CO-CHAIR REPRESENTATIVE SAIKI: Good
3 afternoon. I'd like to call to order our Joint
4 Senate-House Investigative Committee to investigate
5 the State's efforts to comply with the Felix Consent
6 Decree. I'd like to take a roll call.
7 CO-CHAIR SENATOR HANABUSA: Co-Chair
8 Saiki?
9 CO-CHAIR REPRESENTATIVE SAIKI: Here.
10 CO-CHAIR SENATOR HANABUSA: Vice-Chair
11 Kokubun?
12 VICE-CHAIR SENATOR KOKUBUN: Here.
13 CO-CHAIR SENATOR HANABUSA: Vice-Chair
14 Oshiro?
15 VICE-CHAIR REPRESENTATIVE OSHIRO: Here.
16 CO-CHAIR SENATOR HANABUSA: Senator Buen?
17 SENATOR BUEN: Here.
18 CO-CHAIR SENATOR HANABUSA:
19 Representative Ito?
20 REPRESENTATIVE ITO: Here.
21 CO-CHAIR SENATOR HANABUSA:
22 Representative Kawakami?
23 REPRESENTATIVE KAWAKAMI: Present.
24 CO-CHAIR SENATOR HANABUSA:
25 Representative Leong?
5
1 REPRESENTATIVE LEONG: Here.
2 CO-CHAIR SENATOR HANABUSA:
3 Representative Marumoto? Senator Matsuura is excused.
4 Senator Sakamoto?
5 SENATOR SAKAMOTO: Here.
6 CO-CHAIR SENATOR HANABUSA: Senator Slom?
7 SENATOR SLOM: Here.
8 CO-CHAIR SENATOR HANABUSA: Co-Chair
9 Saiki, you have the floor.
10 CO-CHAIR REPRESENTATIVE SAIKI: Thank you
11 very much. Members, we just have one witness on our
12 agenda today. This committee subpoenaed Karen Erhorn
13 who I believe is seated at the table. We'd like to
14 administer the oath at this time.
15 CO-CHAIR SENATOR HANABUSA: Ms. Erhorn,
16 do you solemnly swear or affirm that the testimony
17 you are about to give will be the truth, the whole
18 truth and nothing but the truth?
19 KAREN ERHORN: I do.
20 CO-CHAIR SENATOR HANABUSA: Thank you
21 very much.
22 Members, we will be following the usual
23 procedure. We will begin the committee's questioning
24 by way of our legal counsel followed by all of you.
25 If you have any questions, the ten-minute rule as to
6
1 the committee members will be instituted.
2 Mr. Kawashima.
3 SPECIAL COUNSEL KAWASHIMA: Thank you,
4 Madam Chair.
5 EXAMINATION
6 BY SPECIAL COUNSEL KAWASHIMA:
7 Q. Please state your full name and address.
8 A. Karen Marie Erhorn. My home address is
9 254 Kaha Street, Kailua, Hawaii.
10 Q. And ma'am, who is your employer?
11 A. Pacific Resources for Education and
12 Learning.
13 Q. And what position do you hold at Pacific
14 Resources for Education and Learning?
15 A. I'm the chief financial officer.
16 Q. Ma'am, so that we don't have to say that
17 over and over again, I don't anyway, your
18 organization has an acronym PREL, does it not?
19 A. Yes, it does.
20 Q. And I also note that you have your
21 counsel Mr. Slovin with you today?
22 A. Yes, sir.
23 Q. As you have a right to do. Now, in your
24 position, ma'am, as chief financial officer, can you
25 briefly tell us what your duties and responsibilities
7
1 are?
2 A. My responsibilities entail the financial
3 reporting and recording of financial transactions for
4 PREL including their tax, contract compliance,
5 internal controls, establishing and maintaining, some
6 risk management, cash management, most any other
7 areas that touches the financial transaction.
8 Q. All right. And how long have you served
9 in that capacity with PREL, ma'am?
10 A. I've been with PREL for about seven
11 years.
12 Q. And before that may I ask with whom you
13 served?
14 A. Before that I was at home basically
15 taking care of my daughter, and before that -- and at
16 one time I owned a travel agency, part-time owner of
17 a travel agency.
18 Q. All right. Now, as the chief financial
19 officer for PREL, ma'am, are you responsible for the
20 processing of payments that PREL makes to someone who
21 is subcontracted with PREL?
22 A. Yes.
23 Q. For example, if a subcontractor with PREL
24 incurs an expenditure and sends an invoice to you,
25 you would be the one to review it at least ultimately
8
1 be possible for reviewing that invoice and
2 determining whether or not, as you say, it complied
3 with the contract that was involved and then to
4 approve payment?
5 A. My responsibility would be to determine
6 that the invoice was properly processed and reviewed
7 by those in PREL as well as myself as processing and
8 finalizing the invoice.
9 Q. Thank you. Now, perhaps you might assist
10 us, ma'am, by giving us background on what PREL is.
11 A. PREL is a non-profit 501-C3 corporation
12 established in the State of Hawaii whose board of
13 directors consists of the chief state school officers
14 of the region we serve as well as constituent members
15 of parents, teachers, business members and community
16 members.
17 The region we serve includes Hawaii,
18 American Samoa, Guam, Federated States of Micronesia,
19 the Common Wealth of Northern Mariana Islands,
20 Republic of Palau and Republic of the Marshall
21 Islands.
22 Q. I see. And how long, ma'am, has PREL
23 been in existence?
24 A. I think last year we celebrated 10 years.
25 Q. Congratulations.
9
1 A. Thank you.
2 Q. Now, PREL in the course of its work does
3 contract with the Department of Education, the Hawaii
4 state Department of Education, does it not?
5 A. It has, yes.
6 Q. Does it have, for example, contracts
7 without telling me specifically what they are, does
8 it presently have contracts with the State of Hawaii
9 Department of Education?
10 A. I'm sure we do, yes.
11 Q. As far as presently the nature of how
12 many contracts -- I understand we didn't prepare you
13 for this, but could you tell me how many or give me
14 an estimate of how many such contracts you might have
15 right now current?
16 A. I don't think more than five.
17 Q. Now, is it a usual practice if we might
18 just focus on the State of Hawaii Department of
19 Education not only the existing about five contracts,
20 but contracts you've had in the past, is it a normal
21 practice to utilize the services of subcontractors?
22 A. My familiarity with each Department of
23 Education contract -- I'd like to answer that broadly
24 that yes, we do often have contracts in which we use
25 subcontractors. I can't remember the other contracts
10
1 with the Department of Education which we would have,
2 but I'm not sure.
3 Q. I see. In the ones that you do recall
4 that you utilize the services of subcontractors,
5 ma'am, is there a policy or procedure that your
6 company follows in identifying which organizations or
7 people would qualify first of all to be a
8 subcontractor and then go through another policy or
9 process whereby ultimately a person or an
10 organization is actually selected to be the
11 subcontractor in that job?
12 A. I think a lot depends on the way it was
13 initiated. PREL is a federal contractor and grant
14 holder primarily. So much of my experience I would
15 be relying relates to that experience, and the way we
16 process transactions and enter into grant and
17 contracts with the federal government.
18 Often times with the federal government
19 they do -- we put in proposals that have specified
20 contractors of partners or collaborators that we use
21 to do a program of work, and often times this is at
22 the federal government's -- we propose with these
23 people and they're part of our work, and then the
24 subcontract ensues once we're given the award.
25 So there are those instances in which,
11
1 yes, they're established up front. There are other
2 instances which it might not be.
3 Q. All right. I'm not sure if you're aware
4 of this, ma'am, but the reason we subpoenaed you here
5 today was to ask you some questions about specific
6 contracts that I think you're aware of that, ma'am.
7 A. Yes.
8 Q. And I'd like to ask you questions about
9 them, but before I do, is it a typical situation
10 where you might enter into a contract with the
11 Department of Education, for example, yet have that
12 contract funded not necessarily by the State of
13 Hawaii but by the federal government?
14 A. I can't say we've had very many contracts
15 with the Department of Education; so if you're
16 talking about the specific ones, probably unusual
17 because I don't think the others were or at least
18 they didn't specify where the funding came from.
19 Q. All right.
20 A. So I wouldn't know.
21 Q. In other words if, in fact, the funding
22 came from impact aid, that would be -- your
23 understanding would be that it was federal funds,
24 right?
25 A. Right.
12
1 Q. And maybe we ought to clarify, ma'am.
2 What we're saying is that the federal government
3 provides impact aid to the State of Hawaii Department
4 of Education who then uses those funds to fund, for
5 example, a contract with an organization like PREL
6 which is what happened in this case, right?
7 A. Yes.
8 Q. All right. Now, let me ask you then,
9 ma'am, in terms of contracts of this nature, you, of
10 course, are involved in the process in reviewing them
11 before anyone at PREL in a position of authority to
12 do so signs these contracts?
13 A. Yes.
14 Q. So that you have at least some
15 familiarization with the terms of the contract, do
16 you not?
17 A. Yes.
18 Q. These types of contracts, yes?
19 A. Yes.
20 Q. And normally in the case of contracts
21 like the one we're talking about, are you also
22 responsible for reviewing or having someone else make
23 sure that the people involved with the contract
24 comply with the terms of the contract?
25 A. As far as -- yes, yes.
13
1 Q. All right. Would it be fair to say, or
2 if you could identify them since you know what they
3 are, and we're going to have them marked as exhibits
4 for everyone to look at, but you have familiarity
5 with the terms of these contracts we're talking
6 about, do you not?
7 A. Yes.
8 Q. Were you involved with the negotiations
9 that ended up in these contracts being signed?
10 A. Yes.
11 Q. All right. So that I'm going to have the
12 court reporter hand you first of all what we've
13 marked as Exhibit 1 to this legislative hearing and
14 will you briefly describe that document to us, ma'am?
15 A. It's an agreement for non-bid services
16 from the State of Hawaii to PREL for our assistance
17 on the Felix consent decree compliance work.
18 Q. And just so we know what we're talking
19 about for the other members of the committee, we're
20 talking about a document that's entitled "State of
21 Hawaii Agreement for non-bid Purchase of Goods and
22 Services." It has an effective date of August 15,
23 2000, and it is between the Department of Education
24 and PREL; is that correct?
25 A. Correct.
14
1 Q. And then let me have the reporter hand
2 you what we're going to mark as Exhibit 2 for the
3 purposes of this Joint Senate-House Investigative
4 Committee hearing and ask you to identify that.
5 A. This is a copy of a fax that I sent to
6 someone at Hawaii State Department of Education as
7 requested -- upon their request which is a copy of
8 PREL's contract with Kaniu 1 referred to as Na Laukoa
9 Program and the modification thereto.
10 Q. All right.
11 A. And extension.
12 Q. So again, it's a shorter document with
13 this fax transmittal page under your organization's
14 letterhead addressed to Ms. Laurel Johnston who is,
15 as you know, with the Department of Education?
16 A. Correct.
17 Q. And it comes from you, and it's
18 transmitting a copy of a contract that is between
19 PREL and it says Kaniu, I guess, Roman I and Hawaii
20 Limited Liability Company. Am I correct?
21 A. Correct.
22 Q. And then Exhibit 3 is a shorter document.
23 Will you identify that for us?
24 A. This is an internal document that PREL
25 uses whenever a contract is developed, and it's
15
1 called "Worksheet for preparation of Contracts,
2 Memorandum of Understanding, et cetera."
3 Q. All right. Now, you also are familiar
4 with that document, are you not?
5 A. Yes.
6 Q. Now, if I might ask you -- before I go
7 on, I meant to ask you a few other questions, ma'am.
8 Other than to your conversations with
9 your attorney, ma'am, which are privileged, have you
10 been contacted by anyone from the Department of
11 Education or any representative of that person
12 regarding your testimony today?
13 A. No.
14 Q. No one from the Department or appearing
15 to represent a member of the Department has discussed
16 any matters related to these exhibits that we
17 produced today, that we've marked today, has that not
18 happened?
19 A. That has not happened.
20 Q. All right. Now, if we might look at
21 these two exhibits, ma'am, Exhibit 1, then, the
22 thicker document is the actual contract between the
23 DOE and PREL, is it not?
24 A. Yes.
25 Q. And it is in an amount of $2,320,611.00?
16
1 A. Correct.
2 Q. And it is, as we can see from the face
3 page, funding that would be provided by impact aid
4 which we understand to be federal funds?
5 A. Yes.
6 Q. And it also on the first page indicates
7 that the agreement is a procurement expenditure of
8 public funds for goods and services and that it goes
9 on to describe the fact that it was considered exempt
10 from the state procurement laws and such because of
11 an order issued by the United States District Court
12 for the District of Hawaii; is that correct?
13 A. Correct.
14 Q. And it has an order issued pursuant to
15 the Felix vs. Cayetano consent decree also it appears
16 to say, right?
17 A. Right.
18 Q. And you understand that the State of
19 Hawaii does have specific procurement laws that apply
20 to contracts of this nature?
21 A. Yes, I understand that, yes.
22 Q. Without knowing -- I'm not asking you,
23 ma'am, the exact provisions of the law just generally
24 because PREL does from time to time contract with the
25 State of Hawaii whether it be the Department of
17
1 Education or otherwise, you know that there are
2 specific procurement laws by which people who
3 contract with the State are governed?
4 A. Yes.
5 Q. All right. Now in this case, though, you
6 understood that these procurement laws didn't apply
7 to this transaction?
8 A. Correct.
9 Q. Now, do you recall going back to the
10 point in time of the summer of 2000 what the
11 circumstances were under which PREL, in fact,
12 contracted with the State of Hawaii Department of
13 Education for this contract that we've identified as
14 Exhibit 1?
15 A. (Witness nods head.)
16 Q. You're nodding your head. Take as long
17 as you like.
18 A. I was not -- let me try to say. In
19 August we were advised or became aware -- at least I
20 became aware. I can't speak for others -- of the
21 desire for the State of Hawaii Department of
22 Education to secure PREL's services for assistance on
23 the Felix consent decree.
24 At that time PREL followed its normal
25 procedures to review and go through some of the --
18
1 execute the contract.
2 Q. Sure. Do you recall what your
3 involvement was, though, in the steps that led up to
4 the signing of this contract?
5 A. I participated on a team that PREL put
6 together as it does for all contracts that come up.
7 We put together a team of individuals who are
8 familiar with the consent area that services are
9 being requested or specialists in that.
10 Some planning and evaluation personnel
11 assisted and our management assisted, and I provide
12 the contractual and financial information or review
13 of a contract. So we've met, and there were
14 discussions about this work.
15 Q. All right. There was no formal bid
16 process with this contract, was there?
17 A. No, there was not.
18 Q. There were discussions for people on the
19 Department of Education's side on the one hand and
20 PREL on the other hand as a result of which this
21 contract was entered into?
22 A. Correct.
23 Q. Who was it under the DOE's side, ma'am,
24 that represented the department in these
25 negotiations?
19
1 A. Dr. LaMehieu.
2 Q. Dr. LaMehieu himself?
3 A. Yes.
4 Q. Was there anyone else to your
5 recollection that was involved in that -- in those
6 discussions?
7 A. If I can go back and qualify it a little
8 bit, I had contact with Dr. LaMehieu but probably no
9 doubt were others involved but I really don't know.
10 Q. I see. I understand what you're saying.
11 What you're saying is you as the PREL representative
12 negotiated with Dr. LaMehieu as the DOE
13 representative?
14 A. But the negotiation on PREL's behalf was
15 also not just me. It was also a team that was doing
16 it.
17 Q. I see.
18 A. And they may have talked to other people
19 and engaged others, but Dr. LaMehieu was the one I
20 talked to.
21 Q. All right. Would it be fair to say,
22 ma'am, that you were the person of the highest
23 administrative position at PREL who negotiated with
24 the State on this contract?
25 A. I'd like to say so, but no, I was not.
20
1 Q. I see a Don Burger signed the contract
2 also?
3 A. Don Burger, no, his name is not on the
4 contract.
5 Q. You're right. I think his name is on one
6 of the worksheets, perhaps?
7 A. Right. Don Burger was the program
8 manager.
9 Q. Sure. I think Mr. or Dr. Kofel,
10 K-O-F-E-L signed on behalf of PREL?
11 A. Correct.
12 Q. Was he involved with the negotiations
13 also?
14 A. He was familiar with it. I'm not sure if
15 he was around at the time that some of the
16 conversations were going back and forth.
17 Q. Okay. This -- then it would have been,
18 of course, standard procedure for Mr. Kofel as the
19 president and C.E.O. of PREL to sign on behalf of
20 PREL?
21 A. Definitely. He did sign the contract.
22 Q. But you did the negotiations, though?
23 A. Only part of it. I participated in it.
24 There were conversations with others, and you see the
25 chief program officer there is -- also participated.
21
1 Q. Who would that have been?
2 A. Dr. Tom Barlow.
3 Q. I'm sorry?
4 A. Dr. Tom Barlow.
5 Q. Barlow?
6 A. Yes.
7 Q. All right. Now, in looking at the
8 contract, ma'am, without going into very specific
9 detail, you understand that the department was
10 looking for services related to what they call
11 targeted technical assistance?
12 A. Correct.
13 Q. And after your working was put together
14 and discussed, what was being asked for in terms of
15 services from PREL, PREL felt confident that it could
16 provide the services in this area of targeted
17 technical assistance?
18 A. Yes.
19 Q. And if I may ask, ma'am, looking at what
20 was required under this contract, would it be fair to
21 say that PREL and PREL alone without the assistance
22 of any other organization or person or subcontractor
23 or they could be all the same, that PREL had the
24 people with the skills and ability to handle this
25 contract alone?
22
1 A. That's probably way beyond my ability
2 about the skills of others. I can volunteer that
3 PREL normally collaborates and works with others as a
4 team on a major piece of work. So we have very few
5 federal programs in which PREL is just doing it
6 itself.
7 Q. I see.
8 A. It's normal for us to have another
9 organization whether it be a university or other
10 assistance provider to participate.
11 Q. And how do you -- if I might ask you
12 generally, ma'am, how do you go about, then,
13 identifying this organization or institution or
14 person that you are going to have work in conjunction
15 with you to fulfill the terms of the contract?
16 A. Again, it goes back. Many times it's in
17 our bid with the federal government to say that or
18 somebody will advise us of someone like the federal
19 government primarily, but the selection of
20 subcontractors when it has to do with a technical
21 area in education I'm generally not -- I'm not one of
22 those making those decisions.
23 Q. You do have knowledge, though, ma'am, in
24 this case of these two contracts, Exhibits 1 and 2,
25 you do have knowledge as to how the subcontractor was
23
1 selected though, don't you?
2 A. Yes, definitely.
3 Q. And what I might ask you to do if you
4 might look at these contracts side by side look at
5 first Exhibit 1 and then Exhibit 2. If you thumb
6 through Exhibit 1 maybe three quarters of the way
7 through, there is a page entitled "Scope of
8 Services."
9 A. Yes.
10 Q. You're familiar with that, are you not?
11 A. Yes, I am.
12 Q. And what those two pages do is they --
13 maybe more than two. What those four pages do is
14 define the work that PREL would need to complete to
15 comply with the terms of that agreement.
16 A. Correct.
17 Q. And then if we look at Exhibit 2, then,
18 ma'am, the contract -- the subcontract I guess we
19 might call it between PREL and Na Laukoa which was
20 entered into after Exhibit 1 of course and the scope
21 of services we see the exact same four pages?
22 A. Correct.
23 Q. In fact, I could be wrong, but there is
24 not a word that is different in the four pages
25 entitled "Scope of Services" in Exhibit 1 with the
24
1 four pages entitled "Scope of Services" in Exhibit 2?
2 A. They are the same document.
3 Q. And so that if we look at either one of
4 them, let's look at Exhibit 1 first what the scope of
5 services does, then, is it already tells us that Na
6 Laukoa is involved in the contract?
7 A. Correct.
8 Q. And am I to understand, then, the way
9 this came to you -- to you meaning PREL -- was that
10 someone in the Department of Education wrote up
11 agreement 1 of course without the handwriting and
12 presented it to you with a section entitled "Scope of
13 Services" as is exactly contained in Exhibit 1?
14 A. I think Exhibit 1 was a joint effort
15 where we helped develop those scope of services based
16 on what we perceived their needs were and then went
17 back and forth where additions and whatever went.
18 Q. All right. However, this scope of
19 services that would be contained in both agreements
20 as far as the naming of Na Laukoa is concerned --
21 A. Yes.
22 Q. -- that was not PREL's doing though, was
23 it?
24 A. No, it was part of the contract.
25 Q. Well, when you say no, it was part of the
25
1 contract, am I to understand, ma'am, that when the
2 scope of services section was negotiated in Exhibit 1
3 which then became the exact same thing in Exhibit 2,
4 that essentially PREL was told that Na Laukoa would
5 be named in this section to be involved with that
6 contract?
7 A. Yes, we took the contract with the
8 understanding that Na Laukoa absolutely would be a
9 partner or a subcontractor in the project.
10 Q. And the knowledge you got that Na Laukoa
11 would absolutely be a subcontractor on the contract
12 that information was provided to you by Dr. LaMehieu,
13 was it not?
14 A. Correct.
15 Q. And directly and specifically from
16 Dr. LaMehieu, was it not?
17 A. As far as I know.
18 Q. Now, were you aware, ma'am, at this point
19 in time that even prior to your negotiations with
20 Dr. LaMehieu that Dr. LaMehieu had attempted to get
21 the State Department of Education to contract
22 directly with Na Laukoa for pretty much the same
23 services that your contract provides for?
24 A. Yes, I've heard that, yes.
25 Q. You've heard that. What I'm asking you
26
1 is did you know when you were negotiating it?
2 A. Yes, yes.
3 Q. And how did you obtain that information?
4 A. I think it was explained to us in a
5 meeting when the history of this work was presented,
6 and I think it was a meeting with the Department of
7 Education personnel.
8 Q. Not Dr. LaMehieu?
9 A. He was there too.
10 Q. And did -- strike that. And in this
11 meeting with the Department of Education personnel,
12 do you recall who they were?
13 A. No, I don't.
14 Q. And do you recall what information was
15 imparted to you by the Department of Education
16 personnel?
17 A. No, but it sounded similar to what you
18 were mentioning earlier that there was a history
19 behind --
20 Q. I see.
21 A. -- where we were coming to.
22 Q. Well, maybe I'd ask you this way, ma'am.
23 At the time that you were negotiating for this
24 contract and before you signed it, any time before
25 you signed it on behalf of PREL you and Dr. Kofel,
27
1 were you aware that personnel in the Department of
2 Education, fairly high administrative personnel, were
3 against Na Laukoa being involved in any way in this
4 type of contract?
5 A. Personally, no.
6 Q. You came to learn that later of course?
7 A. Yes.
8 Q. But at that time you had no knowledge
9 that there were specific complaints made by not only
10 those in the Department of Education but also the
11 Department of Health as to the ability of Na Laukoa
12 to provide the type of services and the quality of
13 services that were required?
14 A. No, I didn't have any personal knowledge
15 of that.
16 Q. All right. And by the way, if you know,
17 ma'am, I'm not trying to have you answer questions
18 you don't know about, but did you understand that a
19 contract such as this because it was being funded by
20 Federal Impact Aid would avoid the scrutiny of the
21 state legislature because it was federal funds versus
22 state funds?
23 A. No, I did not know that.
24 Q. And do you know, ma'am, at the time you
25 negotiated this contract that because of the manner
28
1 in which this contract was entered into, in other
2 words, with PREL as opposed to Na Laukoa that the
3 Board of Education which would have had to supervise
4 I should say approve this type of contract would not
5 practically know that the contract, in effect, had
6 provided for a substantial part of work to be done by
7 Na Laukoa, not PREL. Were you aware of that?
8 MR. SLOVIN: Excuse me. That's a very
9 long complex question. Perhaps you can break it up
10 because it also assumes that she understands the
11 working relationships between the board and its
12 authorities with respect to contracts.
13 SPECIAL COUNSEL KAWASHIMA: That's well
14 taken. Let me rephrase that.
15 Q. (By Special Counsel Kawashima) Are you
16 aware of the relationship between the Board of
17 Education and the Department of Education with regard
18 to the entering into of contracts?
19 A. No, I'm not.
20 Q. All right. That makes it easy. Now, so
21 that now we look at this contract that Dr. LaMehieu
22 requires that Na Laukoa be involved in the contract,
23 did they, in fact, provide services -- did Na Laukoa
24 provide services?
25 A. Yes.
29
1 Q. And what type of services did Na Laukoa
2 provide?
3 A. I think it's somewhat described in that
4 attachment, and I'll try to explain it. They were --
5 let me think because I'm not on the program side; so
6 I'm trying to say.
7 MR. SLOVIN: Let me just interpose. You
8 have subpoenaed Don Burger who's a program manager,
9 and I think Karen Erhorn will try to answer the best
10 as possible, but he's probably in a better position
11 to give you more information on that.
12 KAREN ERHORN: Definitely.
13 SPECIAL COUNSEL KAWASHIMA: I understand.
14 That. We actually have tried to have Mr. Burger
15 appear here for reasons, I'm sure good and valid,
16 reasons he was not able to be served.
17 MR. SLOVIN: He was in Saipan at the
18 time.
19 SPECIAL COUNSEL KAWASHIMA: Good reason.
20 Q. (By Special Counsel Kawashima) But,
21 ma'am, just to the best of your ability we appreciate
22 it if you can, we may or may not have the time to
23 have Dr. Burger come here.
24 A. Na Laukoa provided some mental health
25 side component, knowledge and experience and capacity
30
1 that PREL -- that's not our expertise is more on
2 education. They provided personnel to individual --
3 to oversee some of the, in fact, all of the technical
4 assistance coordinators and to fulfill the services
5 as outlined in the attachment.
6 Q. What mental health services, do you know
7 what type of services they were, ma'am?
8 A. No, I don't.
9 Q. Not at all?
10 A. I know it had to do with children and
11 something after school help that they had done before
12 and probably are still doing.
13 Q. With children?
14 A. I would assume, but I don't know.
15 Q. All right. All right. How about the
16 technical assistance coordinators, by whom were they
17 hired by the way?
18 A. PREL was -- they were contracted for by
19 PREL as outlined in the attachment work. There was a
20 whole process followed for soliciting and engaging
21 these technical assistance coordinators of which Na
22 Laukoa participated.
23 Q. And to what extent did they participate?
24 A. They were part of the team to help
25 solicit, you know, there was an advertisement that
31
1 were not technical assistance coordinators and they
2 help review the r‚sum‚s, made selections,
3 recommendations, et cetera.
4 Q. In your mind, ma'am, from what you know
5 about the contract and only what you know, did it
6 appear that what PREL ultimately was doing was to be
7 training the personnel from Na Laukoa as to the
8 requirements of the contract or things that had to be
9 done under the contract?
10 A. I think PREL naturally does that, and we
11 do it with almost all -- it's not unexpected.
12 Capacity building is part of our forte so to speak.
13 So we did -- we do that with everyone we work with in
14 certain areas. We certainly did it with Na Laukoa
15 and -- but in other areas I don't -- probably not
16 when it comes to the program side.
17 Q. Well, on the side of obtaining technical
18 assistance coordinators and by the way these types of
19 technical assistance coordinators were a very
20 important part of this contract, were they not?
21 A. Yes.
22 Q. On that side, ma'am, in terms of the
23 soliciting and obtaining and hiring of these
24 individuals, as you say they provided assistance, did
25 they not?
32
1 A. Yes.
2 Q. But that type of assistance that they
3 provided, ma'am, PREL would have been quite capable
4 of providing those services themselves without the
5 assistance of anyone from Na Laukoa; is that correct?
6 MR. SLOVIN: Mr. Kawashima, I think the
7 problem that I'm concerned about here is you have
8 subpoenaed Don Burger who is scheduled to testify
9 next Friday who is pretty clearly based on the
10 qualifications that he's in a much better position to
11 answer that kind of question.
12 SPECIAL COUNSEL KAWASHIMA: Well --
13 MR. SLOVIN: Ms. Erhorn will help as much
14 as possible. What I am concerned about is that you
15 won't get a clear picture of what actually occurred.
16 SPECIAL COUNSEL KAWASHIMA: No, I
17 understand that we intend to get as clear a picture
18 as possible, Mr. Slovin, but I believe that she was
19 going to answer the question, and I think she can to
20 the extent of her knowledge. And I'm not attempting
21 to get her to say something she doesn't know about,
22 first of all; or second, to get her to say anything
23 that might contradict Mr. Burger. I really am not.
24 But I think she has some knowledge in this area which
25 is a fairly ministerial area I might say in terms of
33
1 hiring technical assistance coordinators. We're not
2 talking about high level --
3 MR. SLOVIN: Well, it's not ministerial.
4 I think that's one of the concerns. I'm not
5 objecting to your asking the question, but I just
6 think that the way the question is being asked -- and
7 it's not an unfair question -- but it's really being
8 asked to the chief financial officer who doesn't have
9 the same program involvement in this that Mr. Burger
10 does.
11 SPECIAL COUNSEL KAWASHIMA: I understand.
12 I appreciate that, but I think she also testified
13 earlier, Gary, that she has knowledge of these
14 contracts by virtue of her position in terms of
15 making sure there's compliance; and by virtue of
16 that, would have a bit of information and knowledge
17 about the contract that perhaps someone in a lower
18 administrative position might not have, and that's
19 all I'm asking.
20 MR. SLOVIN: Okay.
21 SPECIAL COUNSEL KAWASHIMA: Just to the
22 extent that she knows.
23 KAREN ERHORN: What was the question?
24 Q. (By Special Counsel Kawashima) Ma'am,
25 don't ask me to ask it again.
34
1 A. I think it was could PREL have recruited,
2 solicited, engaged those --
3 Q. Just alone without necessarily having any
4 assistance from anyone from Na Laukoa.
5 A. At the time -- there was a lot of
6 manpower needed at the time. We didn't anticipate --
7 that was not in our contract to do that work. That
8 was the recruitment as you'll see as No. 1 in the
9 contract of the management team. That was their
10 responsibility.
11 When you found that it wasn't happening,
12 then it was into each benchmarks -- and like I said
13 Don Burger can talk a lot better about this -- it
14 became a real race to start engaging that -- start
15 engaging in the solicitation and recruitment. And
16 whether we could -- I think technically at any point
17 in time we probably could do that, yes. Given the
18 circumstances under that time frame, I'm not sure I
19 could say yes.
20 Q. Well, the contracts provided for Na
21 Laukoa to be paid under your subcontract a certain
22 amount; is that correct?
23 A. Correct.
24 Q. And that amount was what, ma'am, do you
25 recall?
35
1 A. I think the contract with Na Laukoa was
2 around $688,000. I can look right here and see it.
3 Q. Yeah. I see a figure of $688,245?
4 A. Correct.
5 Q. Total contract amount that Na Laukoa paid
6 to -- I'm sorry, PREL paid to Na Laukoa pursuant to
7 these two agreements?
8 A. PREL has not paid that to Na Laukoa.
9 That was the contract amount.
10 Q. Was that amount paid?
11 A. No.
12 Q. Why not?
13 A. This is a cost reimbursement contract,
14 and also you'll see we're also holding back, like,
15 $40,000 and we intend to do so at some point in time.
16 Q. All right. When you say cost
17 reimbursement, what you're saying is that the
18 appropriate paperwork hasn't been provided yet for
19 you to pay it all other than the $40,000?
20 A. Correct. They'd have to submit invoices
21 with the cost, they get approved and then upon that
22 we make payment or final payment.
23 Q. In fact, this contract that was entered
24 into with Na Laukoa in the year 2000 for a period I
25 believe that went through June 30, 2001 of this year.
36
1 That contract has been extended, has it not?
2 A. Correct.
3 Q. And it has been extended by that letter
4 from Laurel Johnston to you up to and including
5 August 31 of this year?
6 A. Correct.
7 Q. Has that contract been completed, then,
8 to your knowledge and recollection?
9 A. Completed? We have not extended it, but
10 we intend to or we're expecting to.
11 Q. Whose decision was it to extend that
12 contract?
13 A. To extend it to August 31?
14 Q. Yes.
15 A. Again, it was a joint decision of
16 primarily the program people I guess.
17 Q. Well, let me ask this: Whose decision
18 was to include Na Laukoa in the process of this
19 contract extension of being involved in the contract
20 extension?
21 A. The work still called -- continued
22 through June. Our contract with the State Department
23 of Education went through September 1. We drafted --
24 Na Laukoa is just till June we just did. And so when
25 the work continued in the summer, they continued as a
37
1 partner in the summer.
2 Q. By whose choice?
3 A. Our choice.
4 Q. And was this another matter to your
5 knowledge that was directed to PREL by Dr. LaMehieu?
6 A. No, I don't remember any discussion on
7 that.
8 Q. You don't remember any discussion you had
9 with Dr. LaMehieu on that?
10 A. No.
11 Q. Although in the first instance it was
12 Dr. LaMehieu who specifically instructed PREL that Na
13 Laukoa would be a part of that contract?
14 A. Asked PREL to participate in the contract
15 with Na Laukoa, yes.
16 Q. In other words, to your knowledge, ma'am,
17 if PREL had not agreed to include Na Laukoa as a
18 subcontractor to this Exhibit 1, in all likelihood
19 PREL would not have received that contract?
20 A. I really don't know.
21 Q. Was Dr. LaMehieu at that time in August
22 of 2000 a member of the board of directors of PREL?
23 A. In August of 2000, correct.
24 Q. He had been a member of the board of
25 directors of PREL for sometime before that though?
38
1 A. Correct.
2 Q. And the fact that he was a member of the
3 board of directors of PREL and then awarded this
4 contract to PREL caused some consternation among the
5 public, did it not?
6 A. It appears to have, yes.
7 Q. There were newspaper articles written.
8 I'm not suggesting anything was wrong on PREL's part,
9 but I am saying that there were complaints voiced
10 publicly by a number of people and organizations,
11 were there not?
12 A. A number in the public?
13 Q. Yes.
14 A. Yes, I read those articles.
15 Q. You read those articles. Well, you know,
16 interestingly one of those articles, ma'am, out of
17 the whole Advertiser when it discussed or I should
18 say reported this matter indicated that the Board of
19 Education after considering Dr. LaMehieu's being a
20 member of your board -- and again, I'm not suggesting
21 anything wrong on PREL's part -- but ruled that
22 Dr. LaMehieu should no longer be a member of your
23 Board of Directors. Were you aware of that?
24 A. Yes.
25 Q. And in that very same article dated
39
1 May 13, 2001 in quotes that the reporter obtained
2 from Dr. LaMehieu in terms of what Na Laukoa had done
3 or could do with regard to this contract we're
4 talking about, Dr. LaMehieu was quoted as saying,
5 "They -- meaning Na Laukoa -- "have never done this
6 before. That's the true statement. But here's an
7 important thing to realize, if you only give
8 contracts to people who have done it before, then no
9 one new will ever learn to do it and the Big Island
10 will never have the capacity."
11 Now, were you aware that Na Laukoa had
12 never done this before, "this" meaning what the
13 contract Exhibit 1 called for before you entered into
14 that contract?
15 A. I remember hearing that statement, yes,
16 yes.
17 Q. Thank you. You remember hearing that
18 statement. Were you aware, though, before you
19 entered into the contract which was before the
20 article was written, that Na Laukoa had never done
21 that before?
22 A. I'm sorry. I think I heard Dr. LaMehieu
23 say that before too that this was -- and that's one
24 of the requests he had of PREL was to help mentor a
25 Native Hawaiian organization and to grow capacity on
40
1 the Big Island. So all was clearly understood before
2 we entered into the contract.
3 Q. So when you entered into this contract,
4 then, part of the contract was for you, PREL, to
5 train the people at Na Laukoa to some degree, right?
6 A. To build capacity as best.
7 Q. And to train them to do the job that they
8 were supposed to do under that contract, right?
9 A. There's a lot of areas of training.
10 Q. Sure.
11 A. I'm not sure -- they certainly had -- and
12 again this goes to the program's side -- but they
13 certainly had personnel there who were capable to do
14 it, to do the work.
15 Q. You know that from the program side?
16 A. Pardon?
17 Q. Do you know that from the program side
18 you're saying?
19 A. Yes.
20 Q. So you have some knowledge of the program
21 side then?
22 A. I know some -- I've seen r‚sum‚s, and
23 they looked good.
24 Q. I'm not criticizing you, ma'am, but is
25 that the extent of your knowledge of the program side
41
1 having seen r‚sum‚s?
2 A. No. Of course I've sat in some meetings,
3 and I have more knowledge on that but.
4 Q. Sure. Well, what do you think
5 Dr. LaMehieu was referring to, then, when they say
6 they, Na Laukoa, have never done this before, never
7 done what before?
8 A. The way I read it never administered a
9 large contract.
10 Q. And so that part of your contract, then,
11 would require PREL to train Na Laukoa as to how to
12 administer a large contract?
13 A. That's the way I read it.
14 Q. All right. And that's part of what PREL
15 was paid to do to train Na Laukoa to do that?
16 A. That's part of what we were tasked to do
17 which is again fairly normal with what we do almost
18 on a daily basis.
19 Q. Do you understand, ma'am, that with
20 regard to the carrying out of this contract in terms
21 of whether it be program or administrative work that
22 essentially in the end PREL did all the work and all
23 Na Laukoa provided was essentially secretarial
24 services?
25 A. Absolutely not.
42
1 Q. What did they do, then, specifically that
2 you're aware of other than secretarial services and
3 other than assisting in locating and hiring technical
4 assistance coordinators?
5 A. Their responsibility was with the
6 technical assistance coordinators to oversight
7 review, manage, answer their questions, help schedule
8 them get into doors. I mean, that was quite a few
9 TACs to administer.
10 Q. I understand what you're saying as to
11 what their responsibility should have been. What I'm
12 asking you, ma'am, is did they specifically carry out
13 those responsibilities?
14 A. As far as I know, yes.
15 Q. Well, when you say as far as you know --
16 MR. SLOVIN: Well, we already indicated
17 that she's not the program person who monitors this.
18 SPECIAL COUNSEL KAWASHIMA: That's why
19 I'm asking if she's answering the question as if she
20 knew.
21 Q. (By Special Counsel Kawashima) Do you
22 know if they carried out these responsibilities on
23 the program side or not, ma'am?
24 A. Yes.
25 Q. Tell me what they did specifically then?
43
1 Ma'am, if you don't know, please tell me.
2 A. I really don't. I did not attend those
3 meetings. I was not part of the management team
4 meetings. I did not attend the TAC meetings, but I
5 know those things were held, and all the processes
6 were held. But I didn't attend the meetings to be
7 able to say specifically what they said at the
8 meeting or what they did.
9 Q. Sure. In terms of what happened in those
10 meetings, who participated in them, who really, for
11 example, ran the meetings, and whether or not Na
12 Laukoa and their personnel had any part of carrying
13 out that meeting you don't know that, do you? You
14 have to answer.
15 A. No.
16 Q. All right. And as far as whether or not
17 Na Laukoa did the tasks that they were required to do
18 under the contract, in terms of program you do not
19 have the ability to answer those questions, do you?
20 A. I think Dr. Burger would be much better.
21 Q. Sure. You were not involved in the
22 program side?
23 A. Yes.
24 Q. All right. Were you contacted by any
25 Department of Education personnel about this contract
44
1 with the department before you signed it other than
2 Dr. LaMehieu?
3 A. I can't remember anyone else.
4 Q. And oh, let me get back to one thing.
5 When you had that discussion -- those discussions
6 with Dr. LaMehieu, you among others at PREL that
7 ended up in the entering into of agreement of this
8 agreement Exhibit 1, did he ever mention the name of
9 a person named by the name of Dr. Golden?
10 A. I've heard the name. Whether it was
11 mentioned at that time, I really couldn't remember.
12 Q. Do you know Dr. Golden yourself?
13 A. Yes, yes. Well, no, I've never met. I'm
14 sorry. I just heard the name.
15 Q. Sure. Thank you. And did Dr. LaMehieu
16 mention to you or tell you or anyone else at PREL at
17 that time whether or not there had been a discussion
18 with Dr. Golden, Robert Golden there had been
19 communications, written communication back and forth
20 where Dr. Golden opposed, vehemently opposed
21 contracting with Na Laukoa to provide these types of
22 services?
23 A. I understand that that happened, and I
24 did hear about that personally later on after the
25 contract was executed.
45
1 Q. I see.
2 A. But I personally did not beforehand.
3 Q. You did not. You did not personally hear
4 that beforehand from Dr. LaMehieu?
5 A. No.
6 Q. Who did you hear it from later, ma'am?
7 A. Sometime afterwards we heard -- and I
8 don't even know if this is factual about some
9 lawsuit, and maybe Bob Golden's name was associated
10 with it.
11 Q. Was there the name of an Albert Yoshii
12 also?
13 A. Yes.
14 Q. And that's what you heard?
15 A. Yes.
16 Q. There was another individual who opposed
17 that contract with Na Laukoa and ultimately became a
18 subcontract with PREL?
19 A. Yes.
20 SPECIAL COUNSEL KAWASHIMA: Thank you,
21 ma'am. No further questions.
22 CO-CHAIR SENATOR HANABUSA: Members,
23 instead of starting and then taking a break, we will
24 take the break for the court reporter at this time
25 and we ask that you return in a minute -- I mean,
46
1 five minutes. When I say minute, you'll probably
2 come in five minutes; so we'll be taking a recess at
3 this time.
4 (Recess from 2:00 p.m. to 2:10 p.m.)
5 CO-CHAIR SENATOR HANABUSA: Members, back
6 in session. Before we proceed, Ms. Erhorn, this is
7 the first time that the committee has had a witness
8 represented by counsel, and what I'd like to remind
9 the committee members and also Mr. Slovin is that the
10 committee has enacted rules as permitted and as
11 required under Chapter 21 of the Hawaii Revised
12 Statues.
13 Specifically Rule 3.1 the witness's
14 counsel may advise the witness as to his or her right
15 subject to reasonable limitation which the committee
16 may prescribe to prevent obstruction of or
17 interference with the order and conduct of the
18 hearing. And if there is an issue as to whether your
19 testimony is required, it is the Co-Chairs who will
20 either order you to answer or not to answer.
21 So, Members, since we've never been faced
22 with this situation before, I'm calling our rules to
23 your attention. You've never had a witness with an
24 attorney present. So we should all understand what
25 the parameters of both the witness's rights, the
47
1 attorney's rights and your rights are.
2 So remember the ultimate decision as to
3 any question as to the relevancy relies with your
4 Co-Chairs and then you as the committee depending on
5 how that goes will have the decision as to if, for
6 example, it would be necessary to compel the
7 testimony by going to court or any further action.
8 So review your rules and with that we
9 will continue. Mr. Kawashima I understand has some
10 other questions.
11 SPECIAL COUNSEL KAWASHIMA: Thank you.
12 Q. (By Special Counsel Kawashima) I'm
13 sorry, ma'am. I forgot to ask you a few more. I
14 notice from Exhibit 2 that there is a budget summary
15 that Na Laukoa provided breaking down the items that
16 or items for which they would be seeking payment
17 and/or reimbursement. You see that, don't you?
18 A. Yes, I do.
19 Q. I assume PREL keeps accurate records of
20 all payments made to Na Laukoa as in the case of this
21 subcontract?
22 A. Yes.
23 Q. You do have those records?
24 A. Yes.
25 Q. Would you agree to or through your
48
1 counsel provide copies of those records through this
2 committee at your earliest convenience?
3 A. Yes.
4 Q. Thank you. Do those records show how
5 much Na Laukoa was paid or reimbursed for travel, for
6 example?
7 A. Yes. If I could explain, there's a
8 $230,000 advance up front and then after that they
9 invoiced and paid against that advance. So we do
10 have their invoices.
11 Q. How about for that first $200,000,
12 though, do you recall if any backup pay, any receipts
13 or anything of that nature was paid to justify that
14 $200,000?
15 A. No, that's a typical type of advance that
16 is given on contracts at least in our experience
17 between with the federal government. The Department
18 of Education advance PREL funds, and we in turn
19 advance funds to Na Laukoa to initiate the contract
20 and the work.
21 Q. I understand. But is there some manner
22 or form of accountability, though, for those
23 $200,000?
24 A. Definitely, definitely.
25 Q. And what is it?
49
1 A. Well, the amounts paid and you compare
2 the amounts paid whether it be through an advance or
3 through payment of an invoice against the total
4 amount of the invoice is the detail. So it might be
5 different. It might pay one and invoices might be
6 more; invoices might be less.
7 Q. But the amount of the $230,000 advance
8 would be accounted for in some fashion, though?
9 A. Absolutely.
10 Q. All right. And then last area in terms
11 of the travel expenses that were estimated to be
12 $116,576 for travel interisland which to some extent
13 would seem justified but also to the mainland, do you
14 know what that travel was for to the mainland for Na
15 Laukoa?
16 A. There was no mainland travel.
17 Q. I notice under the budget portion,
18 though, to which is attached some sheets you see
19 where they have section such as personnel, travel and
20 so forth?
21 A. Yes, yes.
22 Q. You see where under travel for staff it
23 says to the mainland for observations?
24 A. I'm sorry. I answered your question
25 incorrectly. I was referring to the billings. I
50
1 think that was some plan initially in the contract
2 that personnel would look, go to some other school or
3 complex or departments of education and see how
4 they're operating. And that's just a mainland visit
5 to look at other departments of education.
6 Q. You say that never took place?
7 A. No, it did not.
8 Q. And do you know why it never took place?
9 A. I guess they felt it wasn't necessary.
10 SPECIAL COUNSEL KAWASHIMA: All right.
11 That's all I have. Thank you.
12 CO-CHAIR SENATOR HANABUSA: Thank you
13 very much. We will begin with Vice-Chair Kokubun
14 followed by Vice-Chair Oshiro.
15 VICE-CHAIR SENATOR KOKUBUN: Thank you,
16 Madam Co-Chair.
17 EXAMINATION
18 BY VICE-CHAIR SENATOR KOKUBUN:
19 Q. Ms. Erhorn, I wanted to talk about
20 Exhibit 2 a little bit and just to help me. Now,
21 that's dated fairly recently September 12 informing
22 the DOE with the assistance of Laurel Johnston that
23 there is a modification for the time period for the
24 contract, correct?
25 A. This exhibit and documents were presented
51
1 to the department as requested. They had requested a
2 copy of the contract, and we provided a copy of the
3 contract along with the modification.
4 Q. Okay. And that modification request to
5 extend the time period came from who?
6 A. Na Laukoa requested it, PREL reviewed it
7 and PREL did it.
8 Q. Okay. So the extension you indicated the
9 extension was granted in time without any
10 accompanying appropriation or allocation funds?
11 A. No. You're correct, there's no
12 additional funds necessary.
13 Q. Okay. We had a previous witness Debra
14 Farmer who was here, and she indicated that the
15 contract for Na Laukoa was actually extended until
16 October. Are you familiar with that at all?
17 A. I'm not familiar with Debra Farmer saying
18 that. Am I familiar with the contract for Na Laukoa
19 being extended to October? Yes, there's a request in
20 for us to extend the contract to October.
21 Q. And the approval is still pending?
22 A. It's still pending.
23 Q. With respect to that extension, was there
24 any appropriation among your allocation of money?
25 A. No, it would be a no cost extension.
52
1 Q. You're not aware that additional monies
2 that may be provided maybe you have another source
3 other than the PREL contract for that extension?
4 A. No, no. It would come out of our
5 contract.
6 VICE-CHAIR SENATOR KOKUBUN: Okay.
7 That's all.
8 CO-CHAIR SENATOR HANABUSA: Thank you.
9 Representative Vice-Chair Oshiro followed by Senator
10 Buen.
11 VICE-CHAIR REPRESENTATIVE OSHIRO: Thank
12 you, Co-Chair Hanabusa.
13 EXAMINATION
14 BY VICE-CHAIR REPRESENTATIVE OSHIRO:
15 Q. I just wanted to get some clarification
16 on the partner in process that you had talked about
17 earlier. I think when Mr. Kawashima was initially
18 asking you about how you determine who PREL will
19 subcontract with, I think you had said something
20 about sometimes the federal agency may advise or
21 there may be outside experts giving advice; is that
22 correct?
23 A. When we're proposing on a major piece of
24 work, yes.
25 Q. Okay. And then -- but in the end it's
53
1 somebody actually you said someone else other than
2 you but someone at PREL would actually do some kind
3 of assessment as to who a proper subcontractor would
4 be?
5 A. Yes.
6 Q. Okay. But later on in your questioning,
7 I do recall you saying that you attended a meeting
8 where you -- essentially Superintendent LaMehieu said
9 that the subcontractor was going to be Na Laukoa; is
10 that correct?
11 A. Yes.
12 Q. Okay. And do you recall approximately
13 when this meeting was? If the contract was entered
14 into according to the date of it on August 15, 2000,
15 do you recall about when this meeting occurred?
16 A. It was close to that time, and it was --
17 if I put it in context, the normal meeting in which
18 we were going over the scope of services and what was
19 to be expected as I remember it.
20 Q. So when you folks were meeting to
21 negotiate this contract, was there a lot of dispute
22 over the terms of the contract or was it fairly
23 smooth going?
24 A. It was smooth.
25 Q. Do you happen to remember about how long
54
1 before the contract was entered? Was it one week or
2 two weeks or is there any kind of estimate you can
3 provide?
4 A. It couldn't have been much more than two
5 weeks before.
6 Q. Okay. And at that meeting do you recall
7 anyone -- you said that there was Department of
8 Education personnel and yourself from PREL?
9 A. Yes.
10 Q. Okay. Was there anybody else from PREL
11 that was also present at this meeting?
12 A. Yes.
13 Q. Who else was that?
14 A. Dr. Burger was there, Dr. Barlow was
15 there, Dr. Hammond was there, I think.
16 Q. Okay. And besides the DOE personnel and
17 the people from PREL, do you know if there was any
18 other people there such as somebody from Na Laukoa?
19 A. I really can't remember.
20 Q. Okay. And at that meeting do you recall
21 if there were any questions raised as to why Na
22 Laukoa was going to be the designated subcontractor?
23 A. PREL certainly discussed taking on or
24 working in collaborating with Na Laukoa and certainly
25 asked questions about it and about them and we got --
55
1 so it was collaborative too. It wasn't -- I don't
2 think as specific as you might say.
3 Q. But there were some discussions as to why
4 Na Laukoa was being the designated contract
5 subcontractor?
6 A. Definitely, definitely.
7 Q. And according to Exhibit 2, the
8 subcontract actually got entered into on September 6
9 of 2000; is that correct?
10 A. Correct.
11 Q. Okay. So there actually wasn't a
12 significant time either between the time that PREL
13 was contracted with this Department of Education and
14 the time that PREL subcontracted with --
15 A. Correct.
16 Q. -- Na Laukoa. I also had another
17 question regarding Exhibit 3 and that's the worksheet
18 for preparation of contracts, memorandums of
19 understanding, et cetera. Who is in charge of
20 preparing this document?
21 A. Whenever a program wants to enter into a
22 contract with whoever, programs generally, personnel
23 will initiate this form.
24 Q. Okay. So who is it at PREL that actually
25 prepares this form?
56
1 A. This form is prepared. We have many
2 programs; so this form is prepared by many people.
3 In this specific instance it was by Don Burger.
4 Q. Okay. So when the -- under the first
5 section of determination of contractor when it says,
6 "Directed by Hawaii DOE to use Na Laukoa program to
7 work on to provide technical assistance to Felix,"
8 that was actually written by Mr. Burger?
9 A. I would assume so or a secretary helped
10 him prepare it; but yes.
11 Q. Okay, okay. And I also had another
12 question. So I see there that the total for the
13 subcontract is $688,245; is that correct?
14 A. Correct.
15 Q. Okay. But I assume to recall the
16 contract with the Department of Education between
17 Department of Education and PREL was actually for
18 $2,320,611.00?
19 A. Correct.
20 Q. What is the justification for the
21 difference in the contract and the subcontract
22 pricing?
23 A. Well, PREL performed services for this
24 work, and that's for PREL services.
25 Q. Okay. And I guess that sort of gets me
57
1 to my next question which is the scope of services
2 for attachment one. So you are familiar with this
3 document, the scope of services?
4 A. Yes, I am.
5 Q. Okay. I see under the first part that
6 there is something called a Felix consent decree
7 management team which consists of DOE and Department
8 of Health personnel; is that correct?
9 A. Yes.
10 Q. So this management team is exclusively
11 made up of just essentially the state people?
12 A. As I understand, yes.
13 Q. Okay. And in looking at the actual
14 duties or what the management team is required to do,
15 I don't see anything specifically requiring them to
16 train the actual TACs or to train the Na Laukoa
17 program. Do you recall if there was anything like
18 that?
19 A. No, I don't see it, no.
20 Q. So if someone came -- an earlier
21 testifier came in and said that she ended up having
22 to actually train the Na Laukoa Program and she was
23 on the management team and that was just what she
24 understood she had to do, as you look through the
25 scope of services that's something that's beyond what
58
1 is in this contract for this scope?
2 A. Depends what training it is. It just
3 depends on what it is you're talking about as far as
4 training. So being familiar with state operations,
5 being familiar with whatever, they have to be --
6 people have to be familiar with -- you would expect a
7 management team or any organization to help with the
8 consultants.
9 Q. Okay. But if the actual training had to
10 more or less hypothetically of course because you
11 don't actually know what happened, but hypothetically
12 if the training actually had to do with the substance
13 of the work let's say in actually teaching these
14 people how to essentially perform their functions as
15 technical assistance coordinators in the IDEA or
16 under Chapter 56 Administrative Process, that's the
17 type of training that had to be provided substantive.
18 That isn't necessarily listed in the scope of
19 services though?
20 A. Probably not. I don't know.
21 Q. And when I look under the description for
22 what PREL was supposed to provide under the scope of
23 services, I don't really see them having any duty to
24 train the TACs or the Na Laukoa Program either on the
25 substantive issues that I just talked about; is that
59
1 correct?
2 A. I don't see the word "train."
3 Q. Okay. So earlier when Mr. Kawashima was
4 talking, I recall him using the word "training" when
5 he was questioning you, and I was a little confused
6 because it seemed that he was talking about this
7 statement you had heard that Na Laukoa had never done
8 this before. And later on in further clarification
9 you said they had no knowledge of how to administer a
10 large contract; is that correct?
11 A. I said my interpretation of some of that
12 was that their experience in administering a large
13 contract like this, but I really didn't know that.
14 Q. Okay. Okay. It's just because later on
15 he asked you about the duty of PREL to quote, unquote
16 "train" Na Laukoa and you said that you believed that
17 there was some kind of quote, unquote "training" that
18 was involved?
19 A. We often times mentor most every
20 organization we come as other organizations mentor
21 us; so that was definitely a component of this.
22 Q. Okay. But again, the training you're
23 talking about isn't really the substantive part of
24 this?
25 A. No.
60
1 Q. It's more the administrative or the
2 implementation part of it actually?
3 A. The administrative.
4 Q. Okay. Okay. I'm sorry. Getting back to
5 the scope of services, so basically the scope of
6 services specifically lays out the responsibilities
7 of the management team, the responsibilities of the
8 TACs, the responsibilities of Na Laukoa and the
9 responsibilities of PREL, but therein I don't really
10 see anyone designated with the responsibility to
11 train Na Laukoa as to what they are to do. Is that
12 correct?
13 A. I think you're correct. There is no
14 training.
15 Q. Would the general assumption be sort of
16 that they know what they're supposed to do so no one
17 really needs to train them how to do it; is that
18 correct?
19 A. Yes.
20 VICE-CHAIR REPRESENTATIVE OSHIRO: Okay.
21 Thank you. I have no further questions.
22 CO-CHAIR SENATOR HANABUSA: Thank you,
23 Vice-Chair Oshiro. Senator Buen followed by
24 Representative Ito.
25 SENATOR BUEN: Thank you, Co-Chair
61
1 Hanabusa.
2 EXAMINATION
3 BY SENATOR BUEN:
4 Q. Ms. Erhorn, I believe you had said that
5 Na Laukoa provides technical services and mental
6 health to children?
7 A. As I understand, yes.
8 Q. Okay. In Exhibit 2, Attachment 3 budget
9 summary, there is a cost itemization of personnel,
10 $162,400; fringe benefits, $45,472; travel and
11 there's supplies, contractual and under others you
12 have facilities, meetings and conferences, printing
13 and duplication, communication and other services and
14 then you have the total direct costs and indirect
15 costs.
16 Can you explain or identify, give us some
17 kind of brief explanation of these items. I don't
18 see anything in here as Na Laukoa providing technical
19 services. Is it somewhere in here that I don't see
20 as providing technical services?
21 A. The document you're looking at is just a
22 budget and it doesn't give the explanation associated
23 to, let's say, the personnel that are listed there or
24 the travel or whatever.
25 This is the budget to go with the scope
62
1 of services. So this is Na Laukoa's budget for their
2 personnel and whatever to provide the services and
3 the scope of work.
4 Q. Is there anywhere in any of the exhibits
5 that has been provided that would explain that?
6 Would they -- I would think that Na Laukoa would
7 provide a statement of expenses to be paid.
8 Now, is there any, as a C.F.O. for PREL,
9 would you have that kind of information in here?
10 A. Yes, in the contract itself that was just
11 the budget. We don't pay off of budget. We'll pay
12 off of invoices in the contract and one of the --
13 Q. Where can I find that in the exhibit?
14 A. I think it's 3.5 in the contract.
15 Q. So that would be pay Na Laukoa Program
16 $688,245 and then -- is that correct?
17 A. As follows, yes.
18 Q. As follows. Other than that, it doesn't
19 give me -- it doesn't tell me anything in detail of
20 this. Is there anything more?
21 A. This is your budget, your estimate before
22 the work begins; so I understand it's perhaps not
23 explanatory of the cost actually incurred.
24 Q. And you -- PREL has paid out how much to
25 date to Na Laukoa?
63
1 A. I think the number is around $450,000.
2 Q. Okay. In paying that amount out, Na
3 Laukoa would give you a statement of expenses to get
4 paid. Did you have anything like that that would
5 explain the technical services the mental health
6 followed?
7 A. We receive their invoices to which
8 explain -- which lays out the costs that they have
9 incurred, the services being performed. There's
10 other documents for that, too, that program people
11 look at when they approve the invoice.
12 Q. Okay.
13 A. There is a monthly report that they
14 provide so that people -- program people review that,
15 look at the invoice and then we'd process it.
16 Q. I see. So have you seen that?
17 A. Yes. I don't review them per se, but I
18 do see them.
19 Q. Can you provide that to the committee, to
20 the Co-Chair's?
21 MR. SLOVIN: Sure.
22 SENATOR BUEN: The other question that I
23 have --
24 MR. SLOVIN: Could you tell us what -- so
25 you only want monthly reports related to Na Laukoa?
64
1 Is that what you're asking? You're asking all of the
2 monthly reports related to Na Laukoa services? Is
3 that what you want?
4 SENATOR BUEN: Can that be provided?
5 MR. SLOVIN: Yes.
6 Q. (By Senator Buen) As far as the $40,000
7 in the final payment to Na Laukoa now, that is -- I
8 understand that 2.6 provides billings to PREL for
9 reimbursement of costs incurred to date not to exceed
10 contract price and the $40,000 will be withheld until
11 satisfactory completion of the work. How is that
12 $40,000 arrived at?
13 A. That was just my guess when we did the
14 contract that I would say we were going to withhold
15 that amount.
16 Q. Okay. So what is the definition of
17 satisfactory completion of work?
18 A. It's like with any other expenditure PREL
19 does particularly with their services. The people
20 who are engaged in those services review them and
21 approve an invoice or approve the expense.
22 Q. So there's some criteria that you have
23 to --
24 A. That the work -- the goods were received
25 and the services were performed.
65
1 Q. I have just one more question. You may
2 have answered it already, but when Counsel or when
3 Mr. Kawashima had asked you about the travel expenses
4 to the mainland, the visiting advisors did you say
5 that didn't take place or was that something else on
6 mainland travel?
7 A. I don't believe --
8 Q. Didn't that take place the visiting
9 advisors to --
10 A. I don't believe I've noticed that in the
11 billings.
12 Q. In the Exhibit No. 2 attachment page 3 on
13 the bottom other travel you have visiting advisors
14 and there is a cost of $3,600, lodging and then air
15 travel, $4,800.
16 A. Uh-huh.
17 Q. You have staff, number of staff or trips
18 you have six there. Did this take place?
19 A. The term cost this is a budget or
20 expected cost, but it would not be cost.
21 Q. Okay. I understand.
22 A. So this is the budget they anticipated
23 that the program work would require.
24 Q. Do you know if this had taken place?
25 A. Whether the mainland travel took place, I
66
1 don't believe it did because I don't remember seeing
2 it in the invoice.
3 SENATOR BUEN: Thank you. I have no
4 further questions.
5 CO-CHAIR SENATOR HANABUSA: Thank you.
6 Representative Ito followed by Representative
7 Kawakami.
8 REPRESENTATIVE ITO: Thank you, Madam
9 Co-Chair.
10 EXAMINATION
11 BY REPRESENTATIVE ITO:
12 Q. Good afternoon.
13 A. Good afternoon.
14 Q. You know, under attachment 3, you know,
15 you have over here charter school coordinator. And
16 what does a charter school coordinator do?
17 A. I really don't know.
18 Q. You don't know?
19 A. No. When the contract was developed,
20 you'll see the list there's 15 complexes and there's
21 some charter schools that were listed there. Charter
22 schools we never got. There was an anticipation that
23 some work would be performed with the charter
24 schools. I'm not sure that the clarity or the
25 direction was provided to give those services.
67
1 Q. The charter schools are the ones located
2 on the Big Island?
3 A. They're some of the ones located. There
4 are other complexes on the Big Island too. I think
5 the charter schools are on the Big Island. I don't
6 know.
7 Q. Do you know the names of the charter
8 schools?
9 A. It's just attached to the contract where
10 they have the list of the 15 complexes, and then
11 there's some charter schools there like Connections.
12 I think these are charter schools. I'm really not --
13 and some other ones, Waters of Life.
14 Q. You know, we're having some problems with
15 that charter school and usually the charter school
16 have their own budget, you know, to do whatever that
17 needs to be done because they allocated per people
18 allocation; so that's the reason why I'm asking why,
19 you know, the charter school's included.
20 A. There's some consideration whether they
21 were subject to requirements, the Felix and the
22 compliance.
23 Q. Okay. You know on Exhibit B it states
24 personnel cost $174,420. Is this what a one-person
25 pay the salary it makes $174,000?
68
1 A. Oh, no, no, no.
2 Q. What's that?
3 A. That would be just the cost of the
4 personnel that would be working on this job
5 whether -- many personnel.
6 Q. Oh, many personnel. It's not one then?
7 A. No.
8 Q. Okay. You know PREL, you folks do a lot
9 of good work in research.
10 A. Thank you.
11 Q. Are you folks going to get all these
12 materials and documents and put it into a book form
13 and share this with the rest of the Department of
14 Education?
15 A. We certainly hope so. There's a lot of
16 learning that's gone on and it's a fact that we want
17 to do. It's our intent.
18 REPRESENTATIVE ITO: Thank you very much,
19 Madam Co-Chair.
20 CO-CHAIR SENATOR HANABUSA:
21 Representative Kawakami followed by Representative Leong.
22 REPRESENTATIVE KAWAKAMI: Thank you very
23 much, Co-Chair Hanabusa.
24 EXAMINATION
25 BY REPRESENTATIVE KAWAKAMI:
69
1 Q. I'd like to start by asking you what are
2 your responsibilities as a C.F.O?
3 A. My prior responsibilities anything with
4 the fiscal aspects of PREL, financial reporting,
5 recording, internal controls, contractual, some risk
6 management, cash management. Those are my primary
7 duties and responsibilities.
8 Q. So actually all of the monies were
9 controlled through you?
10 A. They go through me, yes.
11 Q. Then let me go on to say now Dr. LaMehieu
12 was a member of the board and everybody knew this?
13 A. Uh-huh.
14 Q. Was there at no time any question raised
15 about a conflict of interest because he was
16 presenting this contract for the Department?
17 A. If I can explain a little bit further,
18 PREL holds the Regional Educational Laboratory
19 contract with the U.S. Department of Education. As a
20 Regional Education Laboratory, the federal government
21 U.S. Department of Education requests and almost
22 requires us to have this broad participation on our
23 board, and the Chief State School Officer sits on the
24 board of each educational laboratory in the nation
25 for each of the states that they serve. So it was
70
1 common practice. In fact, now is -- we're the
2 exception and the reason for it is common practice.
3 Q. So other chief executive officers,
4 et cetera, from other states sit on the board as
5 Dr. LaMehieu, do they make the presentations when
6 they want a certain group or organization to get a
7 contract?
8 A. It's not unusual for the chief state
9 school officers to ask for PREL's assistance
10 particularly in educational services in a variety of
11 forms.
12 Q. In this case --
13 A. Just a variety of forms.
14 Q. Thank you. In this case, he made the
15 total presentation for Na Laukoa?
16 A. We were in contact with Na Laukoa before
17 we entered into the contract.
18 Q. No, but I'm asking that specific when
19 that meeting was held to put this contract forward,
20 who did the presentation?
21 A. There was a meeting in which it was a
22 discussion group; so it wasn't like a presentation.
23 I'm thinking like a training with boards and stuff.
24 We just all sat down at the table and talked, and it
25 was with Dr. LaMehieu.
71
1 Q. Okay. But who was making the
2 presentation? Somebody must have been giving the
3 data, et cetera, why they were going to be good at
4 it, why they would, you know, you need to hire them,
5 et cetera?
6 A. Dr. LaMehieu.
7 Q. Okay. That's what I wanted to know.
8 A. Sorry.
9 Q. The management team according to the
10 scope of services met monthly with PREL. Am I
11 correct?
12 A. Correct.
13 Q. And these were held every month?
14 A. As far as I know, yes.
15 Q. Okay. Were you at those meetings?
16 A. No, I was not.
17 Q. You're not privy to the information?
18 A. It's not my area where I spend my time.
19 If I wanted to look in it, I probably could. But
20 it's not -- I do not participate in them.
21 Q. What I was trying to get at is if there
22 were complaints and those kinds of things came
23 through at that management meeting and you had to pay
24 a contract and you weren't -- you're just going to
25 pay it you don't know?
72
1 A. Oh, no. I do not pay a contract any
2 payment without the program person responsible
3 directly working with whatever it happens to be that
4 signs off that says yes, it's appropriate to pay.
5 Q. Okay. But you take their word for it?
6 A. Yes.
7 Q. Okay. So who's double checking or who's
8 monitoring that kind of thing before payment is made?
9 A. The program person.
10 Q. Before you sign off?
11 A. The program person signs off, the program
12 manager.
13 Q. And that program manager is whom?
14 A. Dr. Burger.
15 Q. Dr. Burger. And his name has come up
16 several times, okay. Let's see. The technical
17 assistance coordinators, okay, there was one for each
18 of the complexes; so you had 15 complexes. You had
19 one per?
20 A. I'm pretty sure that's the way it worked
21 out.
22 Q. That's the way it worked, okay. And
23 those were all hired by you people with the consent
24 of DOE or?
25 A. Okay.
73
1 Q. So those names were given to you from
2 DOE?
3 A. There was an extensive process in place
4 for the selection, identity, recruitment and
5 selection and qualifications, and everything having
6 to do with those technical assistance coordinators
7 which involved the management team which was DOH,
8 PREL, Na Laukoa. It was the whole team effort.
9 Q. The last question I wanted to ask did
10 Mr. Yoshii sit on this management team as the
11 personnel director for the DOE?
12 A. I don't believe he did.
13 REPRESENTATIVE KAWAKAMI: Okay. That's
14 all I want to know. Thank you very much. Thank you.
15 CO-CHAIR SENATOR HANABUSA: Thank you.
16 Representative Leong followed by Senator Sakamoto.
17 REPRESENTATIVE LEONG: Thank you, Chair
18 Hanabusa.
19 EXAMINATION
20 BY REPRESENTATIVE LEONG:
21 Q. I just have a question, couple of
22 questions. As you're chief financial officer, had
23 you before this contract was instituted had you heard
24 anything about Na Laukoa, had you had any concerns
25 about it?
74
1 A. I didn't know anything particular about
2 Na Laukoa, but that's not unusual for when a contract
3 comes up. I may not know something about the various
4 contractors we work with. The questions were asked,
5 the consideration was given about engaging into a
6 contract with Na Laukoa just like we would have the
7 questions and consideration given for any contractor.
8 So there was consideration saying do we know these
9 people and why don't we do it.
10 Q. And so as far as the contract when as far
11 as understanding the accomplishment of this group,
12 you felt comfortable in awarding them the contract?
13 A. From my perspective, I have no problems
14 also walking away from a contract. If it doesn't
15 work, we have been known to not discontinue it.
16 Q. What would make you want to walk away
17 from such a contract, what would be some evidence?
18 A. We have had contracts with let's say
19 educational institutions in which perhaps our point
20 of view or their timeliness or some other
21 collaboration effort, and this again goes back to
22 programs makes the decision, not me.
23 They might say no, we don't want to
24 continue this. This isn't fruitful for all of us,
25 and there's a variety of reasons. We do it
75
1 infrequently, but certainly I always have the
2 contention. It's not a problem if we have to.
3 Q. In your previous testimony, and I just
4 wanted clarification on it, did you -- were you able
5 to delve into some of these and find out whether the
6 success of the program, whether everything was
7 working all right according to what your scope was?
8 A. Regarding PREL's contract and services?
9 Q. Yes.
10 A. Yes.
11 Q. And also as related to Na Laukoa?
12 A. Yes. Delve into, I'm not sure. I read a
13 lot of -- things came across, but I didn't
14 participate in any of those meetings.
15 Q. I just want to know that because the
16 contract was so large is that how much involvement or
17 how do you know how positive it is?
18 A. I've heard lots of positive things about
19 the results of this contract; so from that
20 perspective it sounds good, and I didn't hear the
21 negative.
22 REPRESENTATIVE LEONG: Thank you. Thank
23 you, Chair.
24 CO-CHAIR SENATOR HANABUSA: Thank you
25 very much. Senator Sakamoto followed by
76
1 Representative Marumoto.
2 SENATOR SAKAMOTO: Thank you.
3 EXAMINATION
4 BY SENATOR SAKAMOTO:
5 Q. I have a number of questions. Most of
6 them deal with your area of expertise of the
7 contracts, the money; so it's, I guess, in looking at
8 the documents that you provided, the DOE contract
9 with PREL, the $2.3 million dated August 28 a few
10 days after that the Na Laukoa contract $688,000 dated
11 September 6 both 2000. So their contract about
12 30 percent of the general contract?
13 A. Correct.
14 Q. On the budget summary that's in your
15 contract PREL, under contractual it lists -- includes
16 $612,307 for Na Laukoa. Why is it different from the
17 $688,000?
18 A. I don't know. I think that at that time
19 there were budgets and estimates put down, and I
20 really don't know where that number came from, but it
21 probably was an earlier budget.
22 Q. Okay. And so that's already $76,000
23 different. And in looking at your other worksheet
24 document, their contract is $688,000 is cost
25 reimbursement plus 17 percent overhead, plus
77
1 4.167 percent GTE; so does that mean 688 plus 17 plus
2 4.167?
3 A. No, it's to a maximum of 688.
4 Q. I was just looking at your worksheet;
5 so --
6 A. Oh, the worksheet probably -- the
7 contract is a better document to look at than the
8 worksheet.
9 Q. Okay. So this may be erroneous?
10 A. Yes.
11 Q. Because your contract includes overhead,
12 includes tax?
13 A. Yes, it does.
14 Q. So hopefully that's wrong; so it's not
15 688, plus, plus?
16 A. It's not.
17 Q. On your budget summary, you have
18 personnel costs of $174,000 and other costs. On
19 their budget summary it has personnel costs of
20 $162,000 and other costs.
21 Can you explain the -- is it duplicative,
22 is it parallel?
23 A. The cost for Na Laukoa's budget is for Na
24 Laukoa's staff and their activities.
25 Q. Okay.
78
1 A. PREL's budget is for PREL's staff and
2 PREL's activities.
3 Q. Okay.
4 A. And so the personnel number would cover
5 the cost of PREL personnel participating in the
6 project.
7 Q. Okay. And I'm a general building
8 contractor and if I hire subcontractors, normally the
9 contract that I issue to them would be different than
10 the contract that the owner issues to me. But in
11 this specific case, it looks like the contract you
12 issued to your subcontractor is identical to the
13 contract the owner issued to you or the other
14 parties. So why is that?
15 A. It was done on purpose. It was to
16 provide -- to make sure there was a clear
17 understanding of everyone's role in this project and
18 rather than just perhaps excerpt the pieces that just
19 had to do with Na Laukoa, we wanted to show them the
20 whole responsibilities of all the parties. And so
21 instead of doing that, it was easier just to take the
22 same contract, scope of services and put it in there.
23 Similarly the scope of services for
24 PREL's contract includes work for the management
25 team, you know. This scope of service is pretty
79
1 broad.
2 Q. So as the work progressed with the 15
3 complexes plus a number of charter schools, I heard
4 you say earlier perhaps none of the charter schools
5 were addressed before?
6 A. Charter schools was a question throughout
7 the contract, and it's better Dr. Burger could
8 explain what that question was and what was provided.
9 Q. Okay. Of the 15 complexes since the
10 general PREL and the sub Na Laukoa had the same scope
11 of work, how was that divided from September through
12 June and then subsequently through August?
13 A. The scope of work for PREL was different
14 than the scope of work for Na Laukoa.
15 Q. Okay. How did you segregate if they were
16 doing their part and you were paying their part?
17 A. Na Laukoa would submit progress reports
18 like we were talking about earlier. PREL -- maybe
19 you can ask the question again.
20 Q. Okay. Maybe Dr. Burger or whoever else
21 whether PREL had 1 through 6 and Na Laukoa had 7
22 through 15 or in terms of who did what?
23 A. Well, PREL had its own under D is PREL's
24 responsibilities. So PREL, for example, contracted
25 with the TACs, PREL contracted with Na Laukoa. We
80
1 monitored the performance of TACs and Na Laukoa
2 Program. We helped develop procedures with Na
3 Laukoa, helped interface with school complexes,
4 et cetera, and approve payments to TACs. So that
5 PREL had 13 steps as outlined on that scope of
6 services.
7 Q. But that's the same, yeah.
8 A. I understand. I understand.
9 Q. Well, another point, then, or another
10 area that maybe you can clarify. I guess in the past
11 a previous testifier seemed to indicate maybe
12 salaries of $117,000 were paid or some high amount.
13 On the budget from Na Laukoa on their
14 preliminary breakdown, they list lead coordinator,
15 full-time equivalent for two months $14,000; so
16 that's $7,000 a month. And they list for the Phase 2
17 ten months lead coordinator 1.01 full-time FTE which
18 I'm not sure and then $84,000. So is that two lead
19 coordinators because you only had nine months so the
20 1.01 is a nine-month person and a three-month person?
21 A. I think that's where it was anticipated.
22 Again, we went across -- payments was according to
23 what they actually spent.
24 Q. Okay.
25 A. So the budget sometimes was different.
81
1 Q. Okay. So if they send a billing in for
2 lead coordinator instead of $46.00, $67.00, they sent
3 a billing in for $32.00 or $89.00 so be it. This was
4 just for some guesstimation?
5 A. Right. Best estimate at the time as to
6 what the cost might be. The personnel change, like
7 in PREL sometimes the personnel change, cost rates
8 change, other things change.
9 Q. Then whether a full year was paid at
10 $170,000 to a person, can you sort of clarify what
11 indeed did occur because that was a previous issue?
12 A. No one was -- we have not been billed
13 $170,000 that's a number for an individual, no. The
14 billings have been significantly less for Na Laukoa's
15 personnel.
16 Q. Okay. On theirs on the contractual on
17 their estimate it says Phase 1 advisor or advisors,
18 45 days at $800 a day. Phase 2 advisors, 190 days at
19 $800 a day. Who's that advisor?
20 A. I'm not sure what was anticipated at the
21 beginning of the project that there might be some
22 services needed of some advisors to provide some
23 services. Again, we had -- go ahead.
24 Q. I'm sorry. I guess I'm not clear.
25 There's PREL, there is Na Laukoa and now you mean so
82
1 they may not know something so instead of coming back
2 to PREL which had 70 percent of the contract they
3 would scurrilously hire somebody for $800 a day as a
4 sub sub?
5 A. I can tell you they didn't.
6 Q. They didn't?
7 A. They did not because early on in the
8 contract most any subcontracting would be done by
9 PREL. So this was anticipated by somebody at the
10 beginning of the project that these might be services
11 needed and whether PREL was to provide it or Na
12 Laukoa would be.
13 Q. Well, help clarify, you know, as a
14 general and sub subs again that we work with, the
15 owner or the architect or the lawyer for the owner
16 doesn't want duplication of overhead, and it's -- so
17 if every time you subcontract you add in overhead and
18 profit, you end up with a big stack of bills as
19 opposed to less tiers.
20 So can you address their overheard on top
21 of your overhead because you're percentaging on their
22 percentage what was done to reduce cost?
23 A. Our percentage was not on top of their
24 percentage. We're not billing any percentages on top
25 of their contract amount, and it wasn't budgeted as
83
1 such. Does that answer it?
2 Q. Well, I guess when I look at your budget
3 summary it goes down direct cost from personnel on
4 down including contractual which includes PREL. It
5 goes to total direct cost $2,051,000. Then it says
6 direct/indirect overhead cost 19.75, $269,000. So
7 I'm not interested in profit. I'm just trying to
8 clarify what we've paid and where we're paying.
9 A. I'm sorry. I may have misinterpreted
10 your question. If you compute that indirect and
11 overhead on that number, it doesn't work out at 19.75
12 of the total. It's 19.75 of the total less the
13 amount of Na Laukoa contracts. So there is no --
14 it's not top and top of others.
15 Q. Then the presentation could have been --
16 A. Yes.
17 Q. -- PREL's work direct and indirect,
18 subcontractual x-amount total cost?
19 A. Correct.
20 Q. So there wouldn't be a duplication of at
21 least overhead?
22 A. Yes.
23 Q. So when you bill the DOE, they don't --
24 you bill directly, here's Na Laukoa's cost with their
25 backup billings?
84
1 A. When I bill the DOE, PREL bills the DOE.
2 Q. Yeah, PREL. When PREL bills Na Laukoa
3 say $8,000 for my lead coordinator for month six, you
4 receive their bill so you attach it to your cost
5 reimbursement bill to the DOE?
6 A. No.
7 Q. No.
8 A. We just -- PREL submits a billing to the
9 DOE. We do not submit documentation of other costs
10 that we might have incurred whether it be
11 subcontractors.
12 Q. Well, then maybe you can clarify. The
13 compensation contractor shall be compensated in a
14 total amount not to exceed the $2,320,000 including
15 approve costs incurred and taxes. Is it a cost-plus
16 contract or is it lump sum but cost to be paid as the
17 costs are incurred and ending up with a lump sum?
18 A. I'm not totally sure. Let me explain.
19 PREL operates almost all our work is based on a cost
20 work basis where it's just primarily cost in which is
21 the basis for our billings.
22 When we receive this contract, I wasn't
23 sure but PREL was going to treat it the same way as
24 we have any other contract which is on a cost basis.
25 And for that reason we have not billed the Department
85
1 of Education the total contract price. It's because
2 we're billing based on cost incurred. Did that help?
3 Q. Well, as a contractor, we sometimes do
4 get $2.3 million not to exceed and we bill cost plus
5 basis. But I'm not clear in your case and -- well,
6 I'll leave the other questions to our other members.
7 So who's going to clarify if it is indeed lump sum or
8 cost plus not to exceed?
9 A. The issue for PREL -- and I can just say
10 for PREL -- PREL will bill based on costs incurred
11 and will not bill more than the contract and may bill
12 less than the contract because that's just the way we
13 will do it. We just wouldn't do it any other way.
14 Q. And Na Laukoa's contract was extended.
15 Was PREL's contract extended?
16 A. Yes.
17 Q. With the same date ending August?
18 A. No, our initial contract went through
19 September 1, 2001, and we have an understanding that
20 the contract extended to October 31, PREL's contract.
21 Q. So it continues on?
22 A. Yes, till October 31.
23 Q. And Na Laukoa effectively is done even
24 with the extension?
25 A. Na Laukoa's contract with PREL was
86
1 extended through August 31. We will execute -- we
2 intend to execute an extension until October 31, but
3 I am awaiting certain information quite formally
4 before we formally execute that.
5 Q. With the same guaranteed maximum cost?
6 A. Absolutely.
7 SENATOR SAKAMOTO: Thank you. Thank you,
8 Chair.
9 CO-CHAIR SENATOR HANABUSA: Thank you.
10 Representative Marumoto followed by Senator Slom.
11 REPRESENTATIVE MARUMOTO: Thank you,
12 Madam Chair.
13 EXAMINATION
14 BY REPRESENTATIVE MARUMOTO:
15 Q. I might have missed this information
16 earlier, but does PREL have other contracts with the
17 Department of Education here in this State?
18 A. Yes, PREL has had other contracts and
19 some may still be in effect.
20 Q. Do you generally work with a person whose
21 job is to administer these contracts?
22 A. Most of the contracts come through
23 programs and many times it's a school that calls us
24 that needs technical assistance. So it will come
25 from a school or a district to provide specific
87
1 services.
2 Q. A school on its own can request or has
3 the funding to develop a contract with you?
4 A. Many of these are PO's, but I don't know.
5 But it is the school -- the school requests -- the
6 request come in often times from the school or a
7 district.
8 Q. Anyway, would there be any other
9 contracts that would be drawn directly with the
10 superintendent that you know of?
11 A. I can't remember. Most of the contracts
12 like there have only been a few.
13 Q. There have only been a few --
14 A. I'm sorry. I didn't mean to interrupt.
15 When you say with the superintendent --
16 Q. Directly written with the superintendent?
17 A. Generally there was one recently. There
18 was a PO for some data entry services or assistance
19 to the schools. There was some scoring.
20 Q. That was negotiated directly with the
21 superintendent?
22 A. No, it wasn't. It was negotiated with
23 perhaps people in this office. I'm not sure who the
24 personnel and their titles are.
25 Q. Who had assigned the contract?
88
1 A. That was issued through a purchase order
2 to PREL, and I don't remember who signed it.
3 Q. Isn't it more the usual course of
4 business to work with someone who is empowered to
5 negotiate these contracts like, for instance,
6 somebody like Mr. Golden for special education
7 contracts?
8 A. I really don't know. That's -- most of
9 this would come through programs.
10 Q. Okay. Let's see. If I understand
11 Senator Sakamoto right, PREL got two-thirds of the
12 $2.3 million on this particular contract before us?
13 A. The bill -- that's the contract amount.
14 PREL's contract amounts for $2.3 million.
15 Q. Of which $688,000 went to Na Laukoa?
16 A. Those are the budgets, and those are the
17 contracts. Those are not the payments.
18 Q. So the rest ostensibly goes to your
19 organization?
20 A. If we incur the cost and we bill them and
21 they're accepted, yes. We have not billed -- I guess
22 I get confused when you say it went to PREL. PREL
23 has not billed for the full contract amount.
24 Q. Okay.
25 A. And may not.
89
1 Q. May not. Well, it seems to me from
2 looking at the scope of services that there isn't
3 that much for PREL to do to warrant billing
4 $1.6 million. You contract the TACs to do the work
5 and in fact it says here the school complexes shall
6 drop the plan. So it's some nice work if you could
7 get it.
8 A. I can tell you that the work that PREL
9 provided was very extensive and included in
10 $1.6 million are all the payments to the TACs which
11 is a good portion of it also. So all the 15 service
12 providers, technical assistant service providers came
13 out of that, our contract.
14 Q. I see.
15 A. So it wasn't just PREL personnel. In
16 fact, most was not.
17 Q. Okay. So the TACs are separate from Na
18 Laukoa?
19 A. They are subcontractors of PREL. We
20 entered into contracts with these individuals.
21 Q. Okay. I see. How much went to the TACs,
22 would you happen to know offhand?
23 A. I should. It's a number I should have
24 right offhand, but it was a good portion of the --
25 oh, I know. If you go to the difference primarily in
90
1 the budget which we have a line item for contractual
2 $688,000 is Na Laukoa and primarily most of the rest
3 are technical assistance coordinators.
4 I think there was other items on the
5 budget having to do with, again, a thought that
6 perhaps there might be other assistance needed either
7 PREL participated with other regional educational
8 laboratories that might have some assistance that
9 could be provided, but most of the difference were
10 the TACs.
11 REPRESENTATIVE MARUMOTO: Okay. Thank
12 you. I think we have a lot more questions for the
13 program person.
14 KAREN ERHORN: Yeah, I think so.
15 CO-CHAIR SENATOR HANABUSA: Senator Slom.
16 SENATOR SLOM: Thank you, Madam Chair.
17 EXAMINATION
18 BY SENATOR SLOM:
19 Q. Ms. Erhorn, you said that PREL has been
20 around for 10 years now. How long have you been with
21 PREL?
22 A. About seven years.
23 Q. And how long have you been the C.F.O.?
24 A. I've had the title for, I think, two
25 years. Before that I was director of finance.
91
1 Q. And prior to PREL what was your financial
2 experience?
3 A. My initial financial experience was I was
4 with 11 years with Coopers & Lybrandt. I left
5 Coopers & Lybrandt as a manager in their audit
6 division -- excuse me, in their consulting division
7 but I also was a manager in the audit division.
8 Q. Thank you. This question about the
9 superintendent's position on the board of directors,
10 you had mentioned that it actually was a request but
11 not a demand by the federal government. Is that
12 correct, is that a fair statement?
13 A. Yes, I don't think the federal government
14 can make it happen.
15 Q. Right. And how many members are there on
16 your board?
17 A. Approximately 20.
18 Q. Is the superintendent ex officio or is he
19 a voting member?
20 A. No, voting member.
21 Q. He's a voting member. Are the directors
22 paid in any way?
23 A. No compensation is provided.
24 Q. No compensation, no fees?
25 A. No.
92
1 Q. And subsequently when did the
2 superintendent resign his board position?
3 A. I think it was July, or I don't know the
4 exact date.
5 Q. Of this year?
6 A. I think so.
7 Q. But as you mentioned previously, there
8 was an indication and an understanding of at least a
9 possible or potential conflict of interest?
10 A. Between who?
11 Q. Between having the superintendent or the
12 chief educational officer on a board who specifically
13 makes recommendations to that board and to the
14 organization for purchase?
15 A. The information -- it's so normal for the
16 regional educational laboratories to have that. I
17 guess maybe perhaps we don't think of it in that
18 terms. We think of it more as an opportunity for the
19 state to get the services of a regional educational
20 laboratory and help direct their work of a regional
21 educational laboratory to assist the state.
22 Also our annual report has a footnote
23 disclosure regarding that which talks about that too.
24 Q. Okay. I'm a little confused on the time
25 line here. I thought that when Mr. Kawashima had
93
1 first asked you if you were aware of any criticism
2 about Na Laukoa that you said that it was after the
3 contract had been signed and some period afterwards.
4 But then I thought that when
5 Representative Oshiro had asked you basically the
6 same kind of question you mentioned that there was
7 discussion at that meeting about it and possible
8 criticism. Could you clarify that for me?
9 A. I'd be happy to. The response to the
10 first question I thought was a response to did I know
11 about some lawsuit or something more serious that
12 Mr. Golden and Mr. Yoshii and that's where I did hear
13 about that after the contract was entered into.
14 The first when we talked about I was
15 trying to convey that when we take a contract with
16 any subcontractor we do have a discussion about their
17 participation, their background, whatever to say make
18 a decision among us, are we going to do that and, you
19 know, does that answer?
20 Q. Well, I think the first -- the initial
21 question didn't really have anything to do with the
22 lawsuit or anything else. It was basically did you
23 have any knowledge or was there any reason for you to
24 believe that there was criticism or that there might
25 be a potential problem with Na Laukoa?
94
1 MR. SLOVIN: At the time of the contract?
2 SENATOR SLOM: Prior to signing the
3 contract, yes.
4 KAREN ERHORN: I think the discussions
5 were and I think somebody quoted what Dr. LaMehieu
6 had said and I think it's what I've heard too that we
7 did know the history that Na Laukoa was considered
8 and involved earlier but I don't know anything
9 specific, but definitely there was probably some
10 concern.
11 Q. (By Senator Slom) On your Exhibit 3 the
12 worksheet for preparation of contracts, under the
13 area of determination of contractor it says sole
14 source and it says attach r‚sum‚. What were the
15 contents or what were the contents of that r‚sum‚
16 that was attached?
17 A. I didn't have a r‚sum‚ attached except
18 perhaps we did of -- and I don't know for a fact, but
19 I know we looked at the r‚sum‚ of Dr. Alameda from Na
20 Laukoa.
21 Q. But does the r‚sum‚ usually if it's a
22 sole source contract does that refer to a person or
23 does it refer to the organization that you're
24 subcontracting with?
25 A. Generally this refers to a person. We do
95
1 sole contracts with an individual. We always -- and
2 r‚sum‚ would refer to a person.
3 Q. And you're not sure whether or not there
4 was a r‚sum‚ attached to this as required by your
5 worksheet?
6 A. I can't remember. This was not with a
7 person. So they probably didn't even think about
8 doing it. When we contract with an individual, we do
9 require a r‚sum‚.
10 Q. About how long after the contract was
11 signed did you really begin hearing about or becoming
12 aware of the serious criticisms that occurred?
13 Within a couple of weeks or longer?
14 A. I can't remember. It had to do with that
15 lawsuit that I heard about.
16 Q. You didn't hear anything prior to
17 information about the lawsuit?
18 A. Nothing specific, no.
19 Q. Okay. And when you did hear about the
20 lawsuit and the seriousness of it, what, if anything,
21 did you do?
22 A. As I understood -- I don't know the
23 particulars of the lawsuit, and I didn't know whether
24 the lawsuit had to do with the qualifications of Na
25 Laukoa particularly. I thought it had to do with
96
1 some personnel action of Dr. LaMehieu that probably
2 Na Laukoa was connected in there for some reason, but
3 I didn't research the lawsuit to know.
4 Q. Because I think you had responded to
5 Representative Kawakami in terms of what you do and
6 one of the things you mentioned was risk management
7 as a function. So you didn't after hearing this or
8 becoming aware of it you didn't explore it or
9 research it further?
10 A. We certainly have had discussions, and we
11 found no reason on the contract that we were working
12 on to have a problem.
13 Q. Okay. I'm a little troubled as was
14 Senator Sakamoto about the differences in the
15 numbers. I note that looking at Exhibits 1 and
16 Exhibit 2, your subject summary is dated August 28,
17 2000 and the Na Laukoa is just five days later or
18 eight days later on September 5, and yet there seems
19 to be a wide discrepancy in a number of the
20 individual components. And I think you testified
21 that some of those things may have been mistakes in
22 terms of the numbers?
23 A. What was the going discrepancy that was
24 brought up was this 617,000 versus the 688.
25 Q. Well, no, I believe he went over specific
97
1 items like personnel. You had $174,420 and Na Laukoa
2 had $162,400. Right down the line the numbers are
3 different.
4 A. They're different budgets. If I can
5 explain here.
6 Q. Yeah.
7 A. PREL's budget the 174 is for PREL
8 personnel to provide the services under this
9 contract, and PREL's budget includes all the
10 technical assistance coordinators. That does not --
11 Na Laukoa's budget was for anticipated cost for Na
12 Laukoa Program that would be incurred. So they
13 wouldn't agree.
14 Q. Okay. This $2.3 million total budget is
15 that -- how does that compare with other budgets that
16 you've worked with in the past other programs? Is it
17 high or low or average or what?
18 A. It's probably about average.
19 Q. About average. And you had testified
20 earlier that to date you have paid approximately
21 $450,000 to Na Laukoa?
22 A. Correct.
23 Q. Leaving them a balance of about $238,000
24 of which $40,000 would not be paid until final
25 completion; is that correct?
98
1 A. Correct.
2 Q. Okay. So when you were asked questions
3 about mainland travel, you said that you had not
4 received any disbursements for mainland travel, but
5 there's still approximately $238,000 less; so is it
6 possible that mainland travel and other items might
7 appear in those disbursements?
8 A. I don't think that they would. Na
9 Laukoa's Program of work was reviewed by PREL and
10 directed by PREL in many respects. Unless PREL said
11 yes, we agree, go ahead, you need to take a mainland
12 trip, then we would.
13 Q. But I didn't think you were watching
14 their activities that closely. That's why I'm a
15 little confused.
16 A. Well, in the scope of services our
17 requirement is to monitor Na Laukoa Program just like
18 monitor the TAC and we monitor them just as we do any
19 subcontractor.
20 Q. And is that your function or Dr. Burger's
21 function?
22 A. It is Dr. Burger's function for this
23 contract to monitor.
24 Q. Okay. You also mentioned that in terms
25 of the $1.6 million that is the portion for PREL that
99
1 you have not billed for that amount to date. How
2 much has PREL billed?
3 A. PREL has billed $1,850,000.
4 Q. Excuse me?
5 A. $1,850,000.
6 Q. I thought that your share was
7 $1.6 million?
8 A. Our billings include all our payments to
9 Na Laukoa.
10 Q. I see. Okay. All right. But how much
11 would be for PREL, then, of that $1.8?
12 A. They take $450,000 out of that; so $1.4.
13 Remember that includes the technical assistance
14 coordinators. It's not just the PREL personnel.
15 Q. Okay. And in terms of the training you
16 said that it's not unusual that you do provide
17 training and so forth for the subcontractors. You
18 use the term several times quote, "to build capacity"
19 unquote. Could you define that for me?
20 A. Many of our federal government grants we
21 propose and they support us billing capacity in the
22 region we serve, and that's one of the roles I think
23 of the regional educational laboratory and other
24 grants. So we, unlike many other consultants --
25 well, I think we work with our clients and our
100
1 constituents. We do not go in and generally just do
2 it ourselves. To build capacity, we work with them
3 to help train them so that they -- when we are gone,
4 they have the capacity to go forward.
5 Q. I see. And finally Ms. Erhorn, the
6 question was asked I think by Representative Kawakami
7 about how you knew that Na Laukoa was doing or had
8 been doing a good job, and I think your response was
9 you heard lots of positive comments about the
10 program. Who did you hear the positive comments
11 from?
12 A. I know the positive results of the
13 project. In my mind generally I look at the bottom
14 line to see the results as far as we get the monthly
15 progress reports from Na Laukoa and nothing to
16 believe otherwise.
17 Q. So basically your belief that they were
18 doing a good job was based on the reports that they
19 sent you?
20 A. Again, we work as a team. I didn't hear
21 anything otherwise.
22 SENATOR SLOM: Thank you, Ms. Erhorn.
23 Thank you, Co-Chair.
24 CO-CHAIR SENATOR HANABUSA: Okay.
25 Members, we will break for a short five-minute recess
101
1 and resume hopefully at 3:30.
2 (Recess from 3:24 p.m. to 3:35 p.m.)
3 CO-CHAIR SENATOR HANABUSA: Members, we
4 are reconvened. Co-Chair Saiki.
5 CO-CHAIR REPRESENTATIVE SAIKI: Thank you
6 very much.
7 EXAMINATION
8 BY CO-CHAIR REPRESENTATIVE SAIKI:
9 Q. Mr. Erhorn, I just have a few questions.
10 First of all, are you familiar with the Felix
11 monitoring team, the court monitor in particular Ivor
12 Groves?
13 A. I've never met him.
14 Q. Do you know if he was involved with the
15 contract that was awarded to PREL whether it's in
16 negotiations or through a selection of Na Laukoa?
17 A. I do not know.
18 Q. Are you familiar with someone named
19 Lenore Behar, Lenore Behar?
20 A. No, I'm not.
21 Q. Are you related to someone named Judith
22 Schrag?
23 A. No.
24 Q. You know, I just had another question
25 attached to both PREL's contract and to the
102
1 subcontract there is a scope of services.
2 A. Uh-huh.
3 Q. Do you know when was the scope of
4 services drafted?
5 A. In August.
6 Q. And that was before you had entered into
7 the contract -- before PREL had entered into the
8 contract with the DOE?
9 A. No, the scope of services was developed
10 in conjunction with the DOE.
11 Q. So I noticed that in the scope of
12 services Na Laukoa is specifically identified as a
13 recipient of a contract?
14 A. Yes.
15 Q. Has PREL contracted with any other entity
16 aside from Na Laukoa to deliver any of the services
17 required by this master contract?
18 A. Just the technical assistance
19 coordinators.
20 Q. Are those entities or individuals?
21 A. Individuals, right.
22 Q. So I guess because the scope of services
23 was drafted in conjunction with the drafting of the
24 master contract between PREL and DOE, it was pretty
25 clear to PREL that there was requirement that Na
103
1 Laukoa be subcontracted?
2 A. Yes.
3 Q. Do you know if PREL had not agreed to
4 subcontract Na Laukoa, do you know whether or not
5 PREL would have received this master contract?
6 A. No.
7 Q. You don't know?
8 A. No. Would have received this contract,
9 no. I don't know whether your question is -- if the
10 answer is whether do I know whether PREL would have,
11 no, I do not know.
12 Q. But based on your discussions with
13 superintendent or other DOE officials with respect to
14 Na Laukoa, do you have any understanding or
15 familiarness as to whether or not PREL would have
16 received the master contract if it had refused to
17 agree to subcontract Na Laukoa based on the
18 negotiations leading up to the master contract?
19 A. No, I don't know.
20 CO-CHAIR REPRESENTATIVE SAIKI: Okay.
21 Thank you very much.
22 EXAMINATION
23 BY CO-CHAIR SENATOR HANABUSA:
24 Q. Ms. Erhorn, I have some questions of you
25 as well. Prior to the contract that we're discussing
104
1 here today, has PREL done any work for the Department
2 of Education related to the Felix consent decree?
3 A. PREL's work with the Department of
4 Education in the past has been relatively small
5 purchase orders and some evaluation work primarily.
6 As far as work particularly with the Felix consent
7 decree, maybe periphery in special education we have
8 definitely provided some services.
9 Q. When you said your contracts with the DOE
10 have been small, when you use the word "small," what
11 do you mean?
12 A. I think most of them -- most of them have
13 been assistance to schools which are under PO's and
14 evaluation contracts which are evaluating generally a
15 federal program or assisting in the evaluation.
16 Evaluation contracts generally are higher than just
17 technical assistance to a school.
18 Q. It's our understanding from prior
19 testimony that the PO limit in schools were not very
20 high. It was like $25,000. Are we in about --
21 A. Oh, definitely.
22 Q. So it's --
23 A. Sometimes they were $1,500.
24 Q. Okay. So this is probably your largest
25 contract with the Department of Education?
105
1 A. Definitely.
2 Q. Prior to that with all of the various
3 other places for lack of a better description of
4 PREL's services, have you done anything relating to
5 IDEA compliance?
6 A. Probably Dr. Burger could answer because
7 somebody had -- if one of our contracts had done
8 that, he'd know which one it was.
9 Q. But as you sit here today nothing comes
10 to your mind?
11 A. IDEA compliance, no, nothing comes to
12 mind but I know Dr. Burger has worked with the
13 Department of Education on special education.
14 Whether it's IDEA or some other area, I'm not sure.
15 Q. Has Dr. Burger ever mentioned to you what
16 a particular contract is for the Felix consent decree
17 or the Felix vs. Cayetano?
18 A. No. I know we did this scoring
19 assistance recently which was to get in compliance
20 with some reading tests for some students, and I
21 think that was a periphery and it had something to do
22 with that contract.
23 Q. When you say recently, is that after the
24 PREL/Na Laukoa contract?
25 A. I think it was in May of this year.
106
1 Q. This year. Thank you. Do you know a
2 person by the name of a Kaniu Kinimaka-Stocksdale
3 prior to the PREL/Na Laukoa contract?
4 A. No, I didn't.
5 Q. In your discussions with Dr. LaMehieu
6 over this contract that we're discussing here today,
7 did Dr. LaMehieu ever represent to you that he was a
8 very good friend of Kaniu Kinimaka-Stocksdale?
9 A. I don't remember him saying that.
10 Q. In the review of your contract looking --
11 this is Exhibit 1 -- the standards of conduct
12 declaration that's attached to the State of Hawaii
13 form, it just happens that the contractor is was
14 originally circled and then crossed out. This is No.
15 1, "A legislator or an employee or a business in
16 which a legislator or an employee has a controlling
17 interest." And there's an asterisk next to that.
18 Do you know why is may have been circled
19 and then crossed out?
20 A. No, I don't.
21 Q. You've executed contracts like this
22 before with the State of Hawaii?
23 A. Not many. I perhaps -- I don't remember
24 many. I do remember an evaluation contract that was
25 over a limit that required that.
107
1 Q. Has PREL as an entity, a corporate entity
2 established any kind of policy given the fact that
3 you have on your board employees of various states
4 and whether it's Guam and whatever else that you
5 would be very careful or watch the conflict of
6 interest by the statements like this, do you have a
7 policy on that?
8 A. I'm pretty sure we have a conflict of
9 interest of policy that the board has established,
10 but I can't remember it offhand.
11 Q. You testified, I believe, to Senator
12 Slom's question that no fee is even paid to your
13 board members.
14 A. Correct.
15 Q. So they don't have directors' fees, any
16 kind of reimbursement for travel, anything like that?
17 A. We do pay for their travel to attend
18 board meetings.
19 Q. Are your board meetings always held in
20 Honolulu?
21 A. No. Because our boards are made up of
22 constituents from throughout the region, the board
23 meeting moves from each locale. Sometimes it's in
24 Chuuk, sometimes it's in Ponape, American Samoa,
25 wherever.
108
1 Q. So say let's take Dr. LaMehieu, for
2 example, if he goes to any of these meetings, his
3 travel, would he be given a per diem?
4 A. Yes.
5 Q. So that would come from PREL?
6 A. Yes, it would.
7 Q. I notice the last page is a tax clearance
8 application, and this is standard for anyone doing
9 business with the State of Hawaii and/or receiving
10 federal grants. Is this something that you attached
11 to all your contracts?
12 A. No, it's only with the State. The State
13 every once in a while will alert us we need this, and
14 I don't know the requirements of it but when they ask
15 for it, we get it.
16 Q. Did anyone ask you for a tax clearance
17 for Na Laukoa?
18 A. No.
19 Q. Do you know if you needed to provide a
20 tax clearance for Na Laukoa as a subcontractor to
21 you?
22 A. No.
23 Q. You're not aware of that?
24 A. No.
25 Q. In dealing with your other grants,
109
1 federal grants, have you had to provide tax
2 clearances for your other subcontractors?
3 A. No.
4 Q. You have not. Because most of your money
5 are federal funds, are there specific types of forms
6 that you must complete for the federal government?
7 A. To get payment?
8 Q. Yes.
9 A. No.
10 Q. Not at all?
11 A. No.
12 Q. So how do you get paid from them?
13 Invoicing them?
14 A. We have a large contract in which we do
15 invoice, and it's monthly invoices we do provide and
16 that's on our regional educational laboratory
17 contract. On our others, all our grants, those are
18 on a GAP system which we go on the Internet, the web
19 and we draw down against our contract or excuse me,
20 against the grant and it gets wired to our account.
21 Q. In this particular contract which really
22 involves federal impact aid monies and basically
23 federal money, did the DOE inform you that there are
24 certain kinds of procedures you must follow to
25 receive the monies?
110
1 A. No, no.
2 Q. So you handled it like you did that other
3 big contract, you would invoice the DOE?
4 A. We invoiced it according to the payment
5 terms, invoicing payment terms in the contract.
6 Q. The Phase 1, Phase 2 and so forth?
7 A. Somewhat, yes.
8 Q. I'm looking at your Exhibit B of that
9 contract with the State, and I'm just curious because
10 there was a comment made in a prior testimony. The
11 $2,320,611.00 is the total contract amount, correct?
12 A. Correct.
13 Q. And the contractual amount which you said
14 includes the TACs, the technical assistance
15 coordinators as well as Na Laukoa is about
16 $1,683,000, correct?
17 A. Correct.
18 Q. And the difference is just under
19 $700,000, correct?
20 A. Correct.
21 Q. The $700,000 which is the difference is
22 actually the monies that went to PREL, correct, or
23 could go to PREL?
24 A. The difference -- all the non-subcontract
25 stuff, yes, contractual stuff.
111
1 Q. So you mentioned that you've already
2 billed or received about $1,850,000; is that correct?
3 A. Correct.
4 Q. Out of that, how much money is to PREL,
5 not the subcontracting amount?
6 A. I can get you that information. I have
7 to go back to the cost records to figure it out to
8 give you an accurate number if you don't mind.
9 Q. Okay. That's fine. But you said that
10 you've paid Na Laukoa about $450,000; is that
11 correct?
12 A. That's correct.
13 Q. Do you have any recollection as to how
14 much -- what's the neighborhood of payments you made
15 to the technical assistance coordinators?
16 A. It's a very easy number to get in our
17 accounting system. It's significant. It's got to be
18 over half a million dollars, but I don't have it
19 right now. I'd have to go look it up specifically.
20 Q. That's fine. Do you know if you have --
21 in essence, when I say you, I mean PREL -- has been
22 paid most of the, if not all of the personnel cost,
23 the fringe benefits, travel, supplies, other, this
24 category called other, and the indirect overhead
25 costs and the total direct costs, have you been paid
112
1 most of this amount here, do you remember?
2 A. The $2.3 million?
3 Q. No, the categories other than the
4 contractual, have you received that?
5 A. We billed $1.8 million of which includes
6 Na Laukoa and the TACs and the difference is $2.3
7 minus $1.8 equals $500,000 difference we haven't
8 billed.
9 Q. You haven't billed. I know you haven't
10 billed, that's right. And Na Laukoa is due about
11 230-something?
12 A. Well, when you say due, their contract
13 amount is that amount. Whether they ever get it is
14 another question.
15 Q. Have they made a demand upon you or upon
16 PREL for that 200 and some odd thousand dollars?
17 A. Oh, no, no. They just submit invoices
18 like the contract calls for.
19 Q. They have not submitted any invoices to
20 reflect that amount?
21 A. No.
22 Q. So you are withholding under the terms of
23 the contract $40,000, correct?
24 A. Yes.
25 Q. And that's money that they have already
113
1 earned per se?
2 A. They have already billed.
3 Q. They have already billed for that. So
4 right now if you were to pay them, it would be an
5 additional $40,000; is that correct?
6 A. Yes.
7 Q. Are there still things ongoing that would
8 or could result with Na Laukoa billing the difference
9 which would be almost $200,000?
10 A. I can't imagine, no, and I doubt -- no.
11 My answer is no.
12 Q. So as we sit here today, then, the -- I
13 guess the responsibilities of this contract and the
14 creation of the TACs that that's over, it's been
15 completed?
16 A. Through October 31. It's still ongoing.
17 Q. And after that it's over?
18 A. Yes.
19 Q. So if it's still ongoing, Na Laukoa no
20 longer has any role. Is that why they would not be
21 billing anything from when they last billed to now?
22 A. Na Laukoa I expect a billing for
23 September. We have not gotten a billing for
24 September. It's pretty close afterwards. They had
25 billed through August, and further services in
114
1 October I expect we'll probably get a billing.
2 Q. So it could be more than the $450,000
3 that you've been billed for today?
4 A. Correct.
5 Q. And you don't know what that amount is?
6 A. We have a budget. We have an estimate.
7 We anticipate it. We have a ballpark.
8 Q. Excuse me. What is the estimate?
9 A. I think the estimate is like 500 and some
10 thousand, $600,000 in total.
11 Q. In total. So till the end of October?
12 A. Correct.
13 Q. So Na Laukoa out of the 680-some odd
14 thousand could end up with about $600,000 at the end
15 of October?
16 A. Correct.
17 Q. Is that correct. I was just kind of
18 curious what is capital L-A-N capital W-A-N cost?
19 A. Local area network, wide area network
20 cost.
21 Q. Okay. And your indirect/overhead cost of
22 19.75 you've already explained that that's not a
23 double billing. It's a substantial amount of money
24 though it's $269,000. What is that? Is that like
25 what we call administrative overhead?
115
1 A. Again, I'll have to refer to our federal
2 contracts and grants. Under the federal contracts
3 and grants, we negotiate or are required to negotiate
4 an indirect rate with the federal government in which
5 we must apply to federal work, and the intent is that
6 the federal government we would never bill the
7 federal government more than we would bill anybody
8 else.
9 So it is a rate -- an indirect rate is
10 established to determine the amount of cost for those
11 kind of indirect costs, and indirect costs are
12 generally payroll, reception, human resources,
13 accounting, those kind of costs that are very hard to
14 directly charge to a grant; so the difference between
15 a direct charge which is a direct benefit person
16 serving on and somebody processing a payroll check.
17 So the indirect rate is the method that we use and we
18 are required to use.
19 Q. So if I'm hearing you correctly, the
20 reason it's 19.75 is because you've told the federal
21 government that you will charge 19.75 to everyone?
22 A. No, excuse me. I'm sorry. There is an
23 indirect rate, and I rarely tell the federal
24 government anything. This is negotiated. They
25 review all our costs, and they determine it on an
116
1 annual basis what your indirect rate will be for the
2 next year. They give you a provisional rate, and
3 then they also give a final rate. So it's an ongoing
4 process and it's definitely a negotiation.
5 Q. Did you hire any additional staff as a
6 result of this contract which would fall in the
7 indirect overhead cost that you can think of now?
8 A. Yes.
9 Q. For this specific contract with the
10 Department of Education?
11 A. Is your question regarding my unit or is
12 it regarding the program's side?
13 Q. The program's side. The total cost,
14 whatever would fall into indirect/overhead cost?
15 A. Oh, indirect, excuse me. Yes, we did a
16 lot of tempts we used and a lot of my time was spent
17 on it.
18 Q. And your time would not be attributed to
19 personnel or any of the other categories?
20 A. Very little of it. Almost all my time is
21 an indirect.
22 Q. Indirect?
23 A. Correct. And everyone in my unit is an
24 indirect.
25 Q. Is an indirect cost. But then you have
117
1 other contracts at the same time, correct?
2 A. Oh, yes.
3 Q. So other federal contracts are also being
4 assessed the 19.75?
5 A. The 19.75 has a component of indirect
6 cost plus a fee. So the indirect costs are being --
7 are applied to all federal contracts and grants, yes,
8 and this one also has a fee component.
9 Q. What's the total amount you can give me
10 your best guesstimate if that's what it comes down to
11 that PREL receives today in a year for indirect and
12 overhead costs for all your grants?
13 A. I do know the number. I'm trying to --
14 it is kind of a competitive advantage our indirect
15 rate, but our number is I think it's about
16 $1.2 million or $1.4 million somewhere around there.
17 Q. And that's indirect/overhead cost?
18 A. Correct, and that includes our Board of
19 Directors' costs. Our government's costs.
20 Q. Your government?
21 A. Well, we call the Board of Directors
22 governments.
23 Q. Oh, I see.
24 A. Kind of parallel.
25 Q. Oh, that's for their per diems and things
118
1 like that?
2 A. Correct, and their ward books, any costs
3 that the board might incur.
4 Q. That's interesting. Part of the contract
5 require DOE/DOH supervisors, and that's part of this
6 scope of service. I think they call themselves the
7 management team. Do you remember that?
8 A. Oh, definitely, yes.
9 Q. Do you remember who made up the
10 management team?
11 A. I know I've seen a list, but I don't
12 know. I never attended the management team meeting.
13 As I understand, the management team was in effect
14 before the contract was in effect.
15 Q. And did PREL have to compensate any of
16 the management team members?
17 A. No.
18 Q. Okay. Do you know if Dr. Burger knew
19 Dr. LaMehieu before Dr. LaMehieu became a member of
20 your Board of Directors?
21 A. No, I don't know.
22 Q. You don't know?
23 A. No.
24 Q. You said something very interesting and I
25 think this was in -- I mean, response to questions by
119
1 Dr. Slom. Dr. Slom was asking you about the fact
2 that they appeared to be -- I'm sorry, Senator Slom.
3 He'll pay me for that.
4 That there were concerns about Na Laukoa
5 and this was something that you had discussed, and it
6 was earlier in the process before the contract, I
7 believe, was entered into. Did I recall that
8 correctly?
9 A. Yes, I think so.
10 Q. What were the concerns?
11 A. We didn't know them. We weren't as
12 familiar with them.
13 Q. Do you do or does PREL do, as a matter of
14 course, some kind of preliminary investigation like
15 checking references, who they work for, you know, how
16 successful they have been in the conclusion of their
17 contract. Is there some kind of procedure like that
18 in PREL's contracting process?
19 A. Maybe perhaps not as formal as that but,
20 yes, the consideration is given.
21 Q. And do you know if PREL did something
22 like that when it came to Na Laukoa?
23 A. I think there were questions asked and
24 answers received that were sufficient for it.
25 Q. Do you remember who asked those
120
1 questions?
2 A. It was part of our team of Dr. LaMehieu
3 primarily.
4 Q. So Dr. LaMehieu asked questions about Na
5 Laukoa?
6 A. Excuse me. No, part of PREL's team ask
7 the questions.
8 Q. Okay. And they ask the questions of
9 Dr. LaMehieu?
10 A. Correct.
11 Q. Did PREL ask for like a r‚sum‚ of jobs
12 that Na Laukoa did prior to the decision to enter to
13 contract with them?
14 A. I don't remember that. I don't remember
15 that, no.
16 Q. Who makes the final decision that PREL
17 will enter into the contract?
18 A. It's a joint decision. As you see on the
19 contract worksheet, we all have to sign off on that,
20 and we all have our aspects to provide to it.
21 Q. Is that Exhibit 3?
22 A. Correct.
23 Q. If you would look at Exhibit 3, there's
24 some handwritten notes and it says note and it goes
25 on. It looks like KE at the end. Is that you?
121
1 A. Correct.
2 Q. Can you read that to me?
3 A. I'm pretty sure I can. I said, "Note:
4 Reviewed and okay'd by Tom." And I probably had the
5 date, and I can't even read my date.
6 Q. 8/30/00. Who is Tom?
7 A. Tom Barlow is our chief
8 financial officer -- excuse me, chief operating
9 officer.
10 Q. And with this approval, the contract can
11 be entered into?
12 A. Correct.
13 Q. It doesn't need the board's approval?
14 A. PREL's board of directors -- all the
15 contracts are presented to the board of directors.
16 I'm trying to think. Anyway, it's presented to the
17 board. I can't remember if we presented it as
18 information only or as ratification, but -- oh, no.
19 This one would have been a revenue contract, and it
20 is for the ratification.
21 So it is presented to the board. Not
22 prior to because sometimes our board meetings are
23 only three times a year. So it may have been
24 subsequent.
25 Q. For ratification by the board?
122
1 A. Yeah.
2 Q. And do you recall if Dr. LaMehieu also
3 voted on a ratification of this contract?
4 A. I don't know. I don't know if he
5 attended that meeting or which meeting it was.
6 Q. I kept this PREL publication that you
7 sent to me, and I think you have it there and this is
8 one dated April, 2001 and one of the inside articles
9 is PREL and Na Laukoa assist HIDOE -- I think it's
10 Hawaii DOE -- to comply with Felix consent decree.
11 A. Yes, that's what we have.
12 Q. That's what you have, right. And is this
13 your newsletter?
14 A. It's one of our newsletters, yes.
15 Q. And how many times a year is this
16 published?
17 A. I think updates might be sometimes two,
18 sometimes three, sometimes four.
19 Q. So it's not like it comes out every
20 quarter or something?
21 A. I think it was designed to come out
22 quarterly, but I think we cut back perhaps on doing
23 it less frequently.
24 Q. It says -- and I don't know if you know
25 this because I notice you were not one of those who
123
1 wrote it -- do you review any of this?
2 A. No, I don't review it.
3 Q. Have you even read it?
4 A. I've scanned it, but I sometimes don't
5 read them.
6 Q. I was just curious because one of the
7 statements is Na Laukoa and PREL have complimentary
8 skills in the field of education, and one of the
9 statements you made previously was that PREL had the
10 skill in education and Na Laukoa apparently had the
11 skill in mental health. That was your understanding,
12 correct?
13 A. Correct.
14 Q. So do you know if Na Laukoa had developed
15 any skills in education?
16 A. I don't know whether that article was
17 supposed -- no, I don't know.
18 Q. It's basically like a PR piece?
19 A. It's an informative piece. To that we
20 try to inform our constituents what we are doing and
21 what we're engaged in, and we're very proud of the
22 work we've done and the process we've gone through.
23 Q. It says the publication was produced from
24 funds from the Office of Education and Research and
25 Improvement, OERI, the U.S. Department of Education
124
1 and under the Regional Educational Laboratory Program
2 and there is a contract number.
3 Are those basically your major sources of
4 funding, PREL's major sources of funding?
5 A. The Regional Educational Laboratory
6 contract is about a third or 30 percent of our
7 funding. Federal funds is probably at least
8 90 percent of our funding if not more if not 95 or
9 98.
10 Q. And it was your understanding that this
11 particular contract that we're talking about here was
12 actually funded federally as well with federal impact
13 aid?
14 A. Yes, it's different kinds of funds than
15 what we normally deal with.
16 CO-CHAIR SENATOR HANABUSA: Thank you
17 very much. I have nothing further. Is there any
18 follow-up questions, Mr. Kawashima?
19 SPECIAL COUNSEL KAWASHIMA: Just a
20 request, Madam Chair.
21 FURTHER EXAMINATION
22 BY SPECIAL COUNSEL KAWASHIMA:
23 Q. Ms. Erhorn, in addition to the documents
24 that you've agreed to provide through your counsel,
25 would you please provide for us the copy of the
125
1 minutes of the board meeting in which this agreement
2 Exhibit 1 was ratified and if there are any
3 proprietary matters, feel free to redact those. Any
4 privacy issues, feel free to redact those. All we're
5 concerned about is whether or not Dr. LaMehieu as a
6 member of the board of PREL approved this contract,
7 abstained from voting or whatever. Do you understand
8 my request?
9 A. Yes.
10 SPECIAL COUNSEL KAWASHIMA: Thank you.
11 CO-CHAIR SENATOR HANABUSA: Senator
12 Sakamoto.
13 SENATOR SAKAMOTO: Thank you.
14 FURTHER EXAMINATION
15 BY SENATOR SAKAMOTO:
16 Q. Just for my clarification. Maybe you
17 said it before but let me just clarify Na Laukoa's
18 contract you got $200,000 initially; in PREL's
19 contract you have, at least the way the contract
20 document states, $580,000 initially.
21 A. Correct.
22 Q. Then -- and because these are cost plus
23 or cost reimbursement contracts, then is it that Na
24 Laukoa would receive their $200,000 plus one dollar
25 after incurring $200,000 of expenses sent in or when
126
1 it is that they would receive the next dollar?
2 A. The process isn't necessarily established
3 right up front. They received it sometime -- I can't
4 remember when we paid some other bills, but we paid
5 some other bills also.
6 Q. Well, let me -- I guess the way I read
7 the contract if Na Laukoa or my subcontractor and we
8 had this kind of wording, I would have paid them the
9 $200,000 and until they gave me invoices for $240,000
10 I would not have paid them one more dollar because
11 the $40,000 they would have incurred but we would
12 have withheld until they performed satisfactorily.
13 Would that be the way it could be read or
14 should be read?
15 A. The performance of satisfactory
16 performance was always there. So when I looked -- if
17 we're talking just about the administrative side and
18 processing the invoice, yes, it could be looked at
19 that way. We -- I'm pretty sure I did not do it that
20 way.
21 Q. Okay. So at this point in time you've
22 paid them $450,000 or so you, you anticipate they'll
23 come up to $560,000 more so. When will you start
24 saying we now are capturing $40,000 and not pay?
25 A. They haven't been paid since April or I
127
1 think May; so we have not paid even though we
2 received invoices because now they're at the point
3 where they have expended more than we've advanced.
4 Q. Okay. Let me clarify. The $450,000 is
5 costs they incurred or amounts you've paid?
6 A. Amounts we've paid.
7 Q. Okay. So you've paid 450. With the
8 contract you have a right to hold 450 plus 40,
9 $490,000 bona fide costs. You have the right not to
10 pay them any more because the contract says you can
11 hold $40,000, right?
12 A. Right, right, right.
13 Q. So at some point I'm wondering that's my
14 question now as we are finishing the contract when --
15 what is going to trigger you saying I'm holding this
16 $40,000 till some date and time?
17 A. Right now.
18 Q. Okay. So you will start to say?
19 A. We have said that and they submitted
20 invoices, and we have not paid those invoices because
21 we're at the end of the contract and this is the time
22 we've anticipated and planned that we would do in
23 review of all those invoices.
24 Q. So their billing might say $500,000 and
25 here's our backup or the backup we've previously sent
128
1 less $40,000, amount previously paid $450,000, now
2 due whatever that balance is?
3 A. Their invoices were just for that month's
4 expenses.
5 Q. Okay. So then you as the financial
6 officer would say --
7 A. Yes, we'd do that.
8 Q. Cost to date $500,000?
9 A. Keep track.
10 Q. Validated invoices $500,000, paid to date
11 $450,000 meaning, potentially $50,000 due, less
12 $40,000 till completion, here's your check $10,000?
13 A. Yeah, I might do that.
14 Q. Okay.
15 A. Or I just might not pay them until I'm
16 totally satisfied.
17 Q. Second question. Almost done, Chair.
18 So the last question I guess when you
19 talk about not doing your overhead or your indirect
20 and overhead on Na Laukoa which is part of the
21 contractual, you're saying it was a sub. As far as
22 the tax, is there an indirect and overhead on them or
23 they are not indirect either?
24 A. No, the indirect and overhead is computed
25 on the tax.
129
1 Q. Just not on Na Laukoa?
2 A. Not just on Na Laukoa a significant
3 contract amount, yes.
4 SENATOR SAKAMOTO: Okay. Thank you.
5 CO-CHAIR SENATOR HANABUSA: Any other
6 follow-up questions?
7 VICE-CHAIR REPRESENTATIVE OSHIRO: Yes,
8 Chair.
9 CO-CHAIR SENATOR HANABUSA: Vice-Chair
10 Oshiro.
11 VICE-CHAIR REPRESENTATIVE OSHIRO: Thank
12 you, Senator Hanabusa.
13 FURTHER EXAMINATION
14 BY VICE-CHAIR OSHIRO:
15 Q. Just one more area of clarification.
16 Senator Hanabusa raised an interesting point.
17 Normally when somebody subcontracts essentially as I
18 understand that what they're doing is taking over
19 maybe part of the duties or obligations of the main
20 contractor and thereby, you know, you pay them their
21 share; is that correct?
22 A. Correct.
23 Q. Okay. And as I understand it, part of
24 the requirements by the State is that when they
25 contract with you, you need to have that tax
130
1 clearance certificate from the Department of Tax
2 which is the attachment you stated, correct?
3 A. That's what the State asked us for, and
4 we gave it to them.
5 Q. Okay. Okay. I was wondering on
6 Exhibit 1 if you could turn to page 3, paragraph 6
7 when it talks about the subcontracts and
8 assignments -- I'm sorry, page 3 of the general
9 conditions.
10 When it talks about subcontracts, it
11 says, "The contractor shall not assign or subcontract
12 any of the contractor's duties." It goes on,
13 "Unless" -- and then small ii says, "The contractor's
14 assignee or subcontractor submits to the State a tax
15 clearance to figure out from the Department of
16 Taxation."
17 So under this provision of the contract,
18 if you were to subcontract with somebody, they would
19 herein have to get a tax clearance; is that correct?
20 A. It appears to be.
21 Q. Okay. But interestingly enough because
22 the scope of this contract actually already included
23 Na Laukoa, in a way they never had to get this tax
24 clearance because you're not subcontracting any part
25 of your obligations because their obligation is
131
1 already part of the contract. Does that make sense?
2 So normally -- what I'm trying to say is
3 normally if you were to subcontract with somebody
4 let's say Na Laukoa was no part of this general
5 contract and you decided to subcontract with someone,
6 you would have to make sure that you comply with this
7 provision and make sure that they have a tax
8 clearance.
9 A. Uh-huh.
10 Q. But interestingly enough because Na
11 Laukoa is actually in this general contract and
12 you're not really assigning part of your duties to
13 them, they never had to get any tax clearance through
14 the State?
15 A. It sounds like a legal question. I just
16 don't know. We did not ask Na Laukoa for a tax
17 clearance. Perhaps it was an oversight. I'm not
18 familiar with the State contracting as perhaps I am
19 with federal contracting.
20 Q. Okay. But as far as you know --
21 A. And that might make sense what you said,
22 yes.
23 Q. But as far as you know, Na Laukoa -- you
24 never required them to?
25 A. I never asked them for it, no.
132
1 VICE-CHAIR REPRESENTATIVE OSHIRO: Okay.
2 Thank you.
3 CO-CHAIR SENATOR HANABUSA:
4 Representative Marumoto.
5 REPRESENTATIVE MARUMOTO: Thank you.
6 FURTHER EXAMINATION
7 BY REPRESENTATIVE MARUMOTO:
8 Q. Just briefly I was looking at the front
9 of the contract and at the bottom it says money
10 available to this agreement pursuant to impact aid
11 and that's federal money.
12 Does that mean anything to you? Is it
13 more restrictions on that type of money as opposed to
14 private or state money?
15 A. PREL is very familiar with dealing with
16 federal funds and the requirements with federal
17 funds, and one of the requirements whenever PREL
18 enters into a contract or subcontract is this issue
19 of flow down of federal requirements where we
20 actually specify in our contract this comes from
21 grant from the federal government, how much and that
22 the subcontractor must comply with certain federal
23 requirements and compliance.
24 This contract does not have or does not
25 state any of those flow down requirements; so it may
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1 be -- I'm not familiar. I have not dealt -- PREL
2 does not deal with impact aid, and federal grants and
3 contracts and monies all have different requirements
4 as I understand.
5 Q. So does it flow down any way even though
6 it doesn't specify?
7 A. I think you're required to put it in the
8 contract at least we are required to any time that we
9 give a subcontract a federal fund to specify these
10 are federal funds and these are the requirements that
11 must flow down to you.
12 Q. So why is it not in this contract?
13 A. I'm not familiar with impact aid, and if
14 that's -- those requirements follow impact aid funds,
15 I don't know.
16 REPRESENTATIVE MARUMOTO: Well, thank
17 you. We'll look into that.
18 CO-CHAIR SENATOR HANABUSA: Any other
19 follow ups? I have just one question.
20 FURTHER EXAMINATION
21 BY CO-CHAIR SENATOR HANABUSA:
22 Q. Do you do an audit at any time of your
23 subcontractors on a regular basis or part of your
24 procedure?
25 A. No, we don't audit.
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1 Q. Are you auditing Na Laukoa at this time?
2 A. When I think of the work audit, I think
3 of a professional audit from a CPA firm. It's not in
4 our budget, and we are not going to engage an outside
5 auditor to. I don't think it's necessary.
6 Q. Well, let's not use such a restrictive
7 definition of audit. Do you or in terms of Na Laukoa
8 in particular, are you asking for backup materials
9 from them seeing whether what they have billed you is
10 actually for the work performed, are you doing any
11 kind of oversight or monitoring of that nature?
12 A. Absolutely. It's ongoing, and it has
13 been from the beginning.
14 Q. And through this monitoring or whatever
15 we want to call it, are you looking at the billing
16 and making decisions as to whether from the financial
17 part that it's properly billed, properly earned and
18 so forth?
19 A. Correct, we are.
20 Q. Someone asked you earlier about the
21 amount of money being paid to the -- I don't know
22 whether you want to call her the liaison or anyway,
23 Ms. Kaniu Kinimaka-Stocksdale, how do you know how
24 much money she's actually receiving?
25 A. By the billings. I know how much she has
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1 billed PREL under this contract.
2 Q. So is there a line item for herself
3 personally?
4 A. Yes.
5 Q. And is there also a line item for things
6 like overhead or other items?
7 A. Yes.
8 Q. Do you audit when you go in and audit
9 using it very loosely, do you ensure or do you look
10 at their books and decide, in fact, that the
11 audited -- I mean, the amounts attributed to, for
12 example, overhead or other kinds of items are, in
13 fact, not being converted somehow to salaries or
14 anything like that which may increase the amount of
15 quote "income" she may be receiving off of this
16 particular contract?
17 A. We have not looked at the books, and I
18 don't know whether that would be necessary. We've
19 given them guidance on how you are to bill cost. The
20 cost is your payroll cost, your actual cost and cost
21 is based on the time you spend on this project
22 whether that time be 10 percent or 100 percent.
23 So we have been working with them on
24 their billings to prepare them in such a way that it
25 makes it very easy to see this which is -- PREL is
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1 used to doing this and we're trying to pass that
2 experience on.
3 I don't have -- if that answers your
4 question. We haven't looked at your books, but you
5 can see how much times somebody is billing for you.
6 Q. So what you're actually doing is more
7 receiving -- ensuring that the paper route that comes
8 to you is in the form that's friendly to your
9 purpose?
10 A. That tells you what you're paying for.
11 Q. But there is no check between what the
12 paper reflects as coming to you and what's actually
13 done in terms of --
14 A. Oh, there's -- no, there is a check.
15 PREL does not make a payment without knowing that the
16 services have been provided or the goods received.
17 That's again on the program side. They get all kinds
18 of working with Na Laukoa on a daily basis, they're
19 attending meetings, they get reports. All the normal
20 way whether they do it on a federal program or any
21 other of our subcontracts. It's the same procedures.
22 Q. So if Mr. Burger was to come before us,
23 he would be able to tell us what is done to ensure to
24 you that the work is actually performed on the
25 program's side?
137
1 A. Yes.
2 Q. Are you aware of whether any other
3 governmental entity is auditing Na Laukoa, have you
4 been contacted by anyone else?
5 A. No.
6 CO-CHAIR SENATOR HANABUSA: Thank you.
7 Anyone else? Thank you. Co-Chair Saiki?
8 CO-CHAIR REPRESENTATIVE SAIKI: Thank you
9 very much, Ms. Erhorn, for your testimony. That
10 concludes your testimony.
11 KAREN ERHORN: Thank you.
12 CO-CHAIR REPRESENTATIVE SAIKI: Members,
13 at this point we'd like to make a motion for your
14 consideration to go into executive session to discuss
15 three topics. First, the witnesses scheduled for
16 tomorrow's hearing. Second, to be briefed by our
17 counsel on the status of our investigation; and
18 third, to consider the issuance of further subpoenas,
19 potential further subpoenas. Is there any
20 discussion? If not, we'll take a role call vote.
21 CO-CHAIR SENATOR HANABUSA: Co-Chair
22 Saiki?
23 CO-CHAIR REPRESENTATIVE SAIKI: I.
24 CO-CHAIR SENATOR HANABUSA: Vice-Chair
25 Kokubun?
138
1 VICE-CHAIR SENATOR KOKUBUN: I.
2 CO-CHAIR SENATOR HANABUSA: Vice-Chair
3 Oshiro?
4 VICE-CHAIR REPRESENTATIVE OSHIRO: I.
5 CO-CHAIR SENATOR HANABUSA: Senator Buen?
6 SENATOR BUEN: I.
7 CO-CHAIR SENATOR HANABUSA:
8 Representative Ito?
9 REPRESENTATIVE ITO: I.
10 CO-CHAIR SENATOR HANABUSA:
11 Representative Kawakami?
12 REPRESENTATIVE KAWAKAMI: I.
13 CO-CHAIR SENATOR HANABUSA:
14 Representative Leong?
15 REPRESENTATIVE LEONG: I.
16 CO-CHAIR SENATOR HANABUSA:
17 Representative Marumoto?
18 REPRESENTATIVE MARUMOTO: I.
19 CO-CHAIR SENATOR HANABUSA: Senator
20 Sakamoto?
21 SENATOR SAKAMOTO: I.
22 CO-CHAIR SENATOR HANABUSA: Senator Slom?
23 SENATOR SLOM: I.
24 CO-CHAIR SENATOR HANABUSA: Co-Chair
25 Hanabusa is I. We're in agreement.
139
1 CO-CHAIR REPRESENTATIVE SAIKI: Thank
2 you, Members. We'll recess for 30 minutes.
3 (Recess from 4:22 p.m. to 5:20 p.m.)
4 CO-CHAIR REPRESENTATIVE SAIKI: Members,
5 I would like to reconvene our hearing and we just
6 have one last item which is the recommendation to
7 authorize the subpoena to be issued against Terry Lee
8 from the Department of Health. Is there any
9 discussion? If not, we'll take a roll call vote.
10 CO-CHAIR SENATOR HANABUSA: Co-Chair
11 Saiki?
12 CO-CHAIR REPRESENTATIVE SAIKI: Yes.
13 CO-CHAIR SENATOR HANABUSA: Vice-Chair
14 Kokubun?
15 VICE-CHAIR SENATOR KOKUBUN: I.
16 CO-CHAIR SENATOR HANABUSA: Vice-Chair
17 Oshiro?
18 VICE-CHAIR REPRESENTATIVE OSHIRO: I.
19 CO-CHAIR SENATOR HANABUSA: Senator Buen?
20 SENATOR BUEN: I.
21 CO-CHAIR SENATOR HANABUSA:
22 Representative Ito?
23 REPRESENTATIVE ITO: I.
24 CO-CHAIR SENATOR HANABUSA:
25 Representative Kawakami?
140
1 REPRESENTATIVE KAWAKAMI: I.
2 CO-CHAIR SENATOR HANABUSA:
3 Representative Leong?
4 REPRESENTATIVE LEONG: I.
5 CO-CHAIR SENATOR HANABUSA:
6 Representative Marumoto?
7 REPRESENTATIVE MARUMOTO: I.
8 CO-CHAIR SENATOR HANABUSA: Senator
9 Sakamoto?
10 SENATOR SAKAMOTO: I.
11 CO-CHAIR SENATOR HANABUSA: Senator Slom?
12 SENATOR SLOM: I.
13 CO-CHAIR SENATOR HANABUSA: Co-Chair
14 Hanabusa is I. It is authorized.
15 CO-CHAIR REPRESENTATIVE SAIKI: Thank
16 you, Members, and don't forget our next hearing is
17 tomorrow morning at 9:00 a.m.
18 (Hearing adjourned at 5:25 p.m.)
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1 C E R T I F I C A T E
2 STATE OF HAWAII )
) SS:
3 CITY AND COUNTY OF HONOLULU )
4 I, MYRLA R. SEGAWA, Notary Public, State of
5 Hawaii, do hereby certify:
6 That on Friday, October 5, 2001, at
7 1:13 p.m., the hearing was taken down by me in
8 machine shorthand and was thereafter reduced to
9 typewriting under my supervision; that the foregoing
10 represents, to the best of my ability, a true and
11 correct transcript of the proceedings had in the
12 foregoing matter.
13 I further certify that I am not an attorney
14 for any of the parties hereto, nor in any way
15 concerned with the cause.
16 DATED this 22nd day of OCTOBER 2001, in
17 Honolulu, Hawaii.
18
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______________________________
22 MYRLA R. SEGAWA, CSR No. 397
Notary Public, State of Hawaii
23 My Commission Exp: 1-27-2005
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