STAND. COM. REP. NO. 517

Honolulu, Hawaii

RE:    S.B. No. 17

       S.D. 1

Honorable Colleen Hanabusa

President of the Senate

Twenty-Fourth State Legislature

Regular Session of 2007

State of Hawaii

Madam:

     Your Committee on Tourism and Government Operations, to which was referred S.B. No. 17 entitled:

"A BILL FOR AN ACT RELATING TO PROCUREMENT,"

begs leave to report as follows:

     The purpose of this measure is to amend the existing state contract requirement for an entity providing design professional services to defend the State in legal action.

     Specifically, this measure:

     (1)  Prohibits provisions in government procurement contracts that require the contractor to defend the governmental body; and

     (2)  Allows government procurement contracts to require a contractor to indemnify and hold harmless the governmental body from the negligence, errors, omissions, and other wrongful acts of the contractor in the performance of the contractor's professional services.

     Your Committee received testimony in support of this measure from the Small Business Regulatory Review Board; SSFM International, Inc.; Coalition of Hawaii Engineering and Architectural Professionals; ECS, Inc.; Engineering Concepts, Inc.; Fukunaga & Associates, Inc.; Gray Hong Nojima & Associates, Inc.; Consulting Structural Hawaii, Inc.; The Limtiaco Consulting Group; KAI Hawaii Inc.; Moss Engineering, Inc.; ACEC of Hawaii; Masa Fujioka & Associates; and Sam O. Hirota, Inc.  The Department of the Attorney General testified against the measure.

     This measure addresses the problems that arise from the fact that a great majority of architectural businesses are small businesses that cannot afford to absorb the unpredictable costs of defending the State against claims that could be frivolous.  Testimony indicated that the existing procurement code contract requirement to defend the State survives the life of the contract and runs concurrent with the life of the building, which could last for decades.  This places an onerous burden upon elderly and retired architects.

Your Committee finds that design professional service contracts are used by governmental bodies to construct public works that endure and are used by the public for a significant period of time beyond the life of these contracts.  It is not uncommon for public works to survive their designers.  Your Committee recognizes that design professionals have an extended period of personal liability that cannot be avoided by ways often used by other public contractors.

Testimony further indicated that obtaining professional liability insurance is a problem inasmuch as traditional errors and omissions policies cover negligence caused by the insured rather than cover the likelihood of having to defend against an unknown future claim.

     Your Committee has amended this measure by:

     (1)  Applying the provisions of the measure to contracts affected by this measure of less than $5,000,000, entered into beginning July 1, 2007; and

     (2)  Imposing a ten-year statute of limitations for contracts affected by this measure, entered into prior to July 1, 2007.

     The intent of this measure, as amended, is to achieve an equitable compromise of competing interest in the interests of preserving and promoting the architectural and construction industries of this State. 

     As affirmed by the record of votes of the members of your Committee on Tourism and Government Operations that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 17, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 17, S.D. 1, and be referred to the Committee on Judiciary and Labor.

Respectfully submitted on behalf of the members of the Committee on Tourism and Government Operations,

____________________________

CLARENCE K. NISHIHARA, Chair