SB2601 SD2

SECTION 1. The legislature finds that the procurement process is in need of clear legislative direction to award state contracts to responsible bidders or offerors through the state procurement process, to increase accountability with performance on state contracts, and to more efficiently utilize taxpayer dollars. Some state contracts may currently be awarded to the lowest bidder through the invitation for bid process without regard to poor past performance. Such bidders may be considered qualified despite poor performance on state, federal, or private contracts in the past, which may result in repeated inefficiencies and substandard work.

The purpose of this Act is to:

(1) Require procurement officers to complete periodic performance evaluations of certain contractors;

(2) Establish factors to be included in any evaluation, consideration, or review of past performance and ratings standards for those factors;

(3) Require that past performance be considered in future bid selection of contractors for sole source contracts and any competitive sealed contracts that exceeds the small purchase threshold;

(4) Require procurement officers to consider specific factors, including past performance, when making a determination of offeror responsibility;

(5) Allow procurement officers to delegate to contract administrators certain duties relating to contract administration; and

(6) Appropriate funds to the state procurement office to implement this Act.

SECTION 2. Section 103D-302, Hawaii Revised Statutes, is amended by amending subsection (f) to read as follows:

"(f) Bids shall be evaluated based on the requirements set forth in the invitation for bids. These requirements may include criteria to determine acceptability such as inspection, testing, quality, workmanship, delivery, and suitability for a particular purpose. Those criteria that will affect the bid price and be considered in evaluation for award shall be objectively measurable, such as discounts, transportation costs, and total or life cycle costs. Past performance shall be evaluated in all bids expected to meet or exceed the small purchase threshold. The invitation for bids shall set forth the evaluation criteria to be used. No criteria may be used in bid evaluation that are not set forth in the invitation for bids."

SECTION 3. Section 103D-303, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows:

"(e) The request for proposals shall state the relative importance of price and other evaluation factors. Past performance shall be evaluated in all solicitations expected to meet or exceed the small purchase threshold. The currency, relevance, and source of the information, context of the data, and general trends in the contractor's performance shall be considered. This assessment of past performance information shall be separate from the responsibility determination required under section 103D-310. The solicitation shall describe the approach for evaluating past performance, including evaluating offerors with no relevant performance history, and shall provide offerors an opportunity to identify past or current contracts (including federal, state, local government, and private contracts) with requirements that are similar to the solicitation. The solicitation shall also authorize offerors to provide information on problems encountered on the identified contracts and the offeror's corrective actions. The governmental body shall consider this information, as well as information obtained from any other sources, when evaluating the offeror's past performance. The procurement officer shall determine the relevance of similar past performance information. The evaluation shall take into account past performance information regarding predecessor companies, key personnel who have relevant experience, or subcontractors that will perform major or critical aspects of the requirement when the information is relevant to the procurement. In the case of an offeror without a record of relevant past performance or for whom information on past performance is not available, the offeror may not be evaluated favorably or unfavorably on past performance."

SECTION 4. Section 103D-306, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) A contract may be awarded for goods, services, or construction without competition when the head of a purchasing agency determines in writing that there is only one source for the required good, service, or construction, the determination is reviewed and approved by the chief procurement officer, the written determination is posted in the manner described in rules adopted by the policy board, a review of past performance has been conducted, and no objection is outstanding. The written determination, any objection, past performance evaluations relied upon, and a written summary of the disposition of any objection shall be included in the contract file."

SECTION 5. Section 103D-310, Hawaii Revised Statutes, is amended to read as follows:

"§103D-310 Responsibility of offerors. (a) Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only.

(b) No purchase or award shall be made unless the procurement officer makes an affirmative determination of responsibility. In the absence of information clearly indicating that the prospective contractor is responsible, the procurement officer shall make a determination of nonresponsibility.

(c) The award of a contract to a prospective contractor based on lowest evaluated price alone can be false economy if there is subsequent default, late deliveries, or other unsatisfactory performance resulting in additional contractual or administrative costs. While it is important that a governmental body's purchases be made at the lowest price, a supplier shall not be awarded a contract solely because that supplier submits the lowest offer. A prospective contractor shall affirmatively demonstrate its responsibility, including, when necessary, the responsibility of its proposed subcontractors. To be determined responsible, a prospective contractor shall:

(1) Have adequate financial resources to perform the contract, or the ability to obtain the resources;

(2) Be able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments;

(3) Have a satisfactory performance record. A prospective contractor shall not be determined responsible or nonresponsible solely on the basis of a lack of relevant performance history. A prospective contractor that is or recently has been seriously deficient in contract performance shall be presumed to be nonresponsible, unless the procurement officer determines that the circumstances were properly beyond the contractor's control, or that the contractor has taken appropriate corrective action. Failure to meet the quality requirements of a contract shall be a significant factor to consider in determining satisfactory performance. The procurement officer shall consider the number of contracts involved and the extent of deficient performance in each contract when making this determination;

(4) Have a satisfactory record of integrity and business ethics;

(5) Have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them, including, as appropriate, production control procedures, property control systems, quality assurance measures, and safety programs applicable to materials to be produced or services to be performed by the prospective contractor and subcontractors;

(6) Have the necessary production, construction, and technical equipment and facilities, or the ability to obtain them; and

(7) Be otherwise qualified and eligible to receive an award under applicable laws and regulations.

(d) Unless the policy board, by rules, specifies otherwise, before submitting an offer, a prospective offeror, not less than ten calendar days prior to the day designated for opening offers, shall give written notice of the intention to submit an offer to the procurement officer responsible for that particular procurement.

[~~(b)~~] (e) Whether or not an intention to bid is required, the procurement officer shall determine whether the prospective offeror has the financial ability, resources, skills, capability, and business integrity necessary to perform the work. For this purpose, the officer, in the officer's discretion, may require any prospective offeror to submit answers, under oath, to questions contained in a standard form of questionnaire to be prepared by the policy board. Whenever it appears from answers to the questionnaire or otherwise, that the prospective offeror is not fully qualified and able to perform the intended work, a written determination of nonresponsibility of an offeror shall be made by the head of the purchasing agency, in accordance with rules adopted by the policy board. The unreasonable failure of an offeror to promptly supply information in connection with an inquiry with respect to responsibility may be grounds for a determination of nonresponsibility with respect to [~~such~~] the offeror. The decision of the head of the purchasing agency shall be final unless the offeror applies for administrative review pursuant to section 103D-709.

[~~(c)~~] (f) All offerors, upon award of contract, shall comply with all laws governing entities doing business in the State, including chapters 237, 383, 386, 392, and 393. Offerors shall produce documents to the procuring officer to demonstrate compliance with this subsection. Any offeror making a false affirmation or certification under this subsection shall be suspended from further offerings or awards pursuant to section 103D-702. The procuring officer shall verify compliance with this subsection for all contracts awarded pursuant to sections 103D-302, 103D-303, 103D-304, and 103D-306, and for contracts and procurements of $2,500 or more awarded pursuant to section 103D-305; provided that the attorney general may waive the requirements of this subsection for contracts for legal services if the attorney general certifies in writing that comparable legal services are not available in this State.

[~~(d)~~] (g) Information furnished by an offeror pursuant to this section shall not be disclosed to any person except to law enforcement agencies as provided by chapter 92F."

SECTION 6. Part V of chapter 103D, Hawaii Revised Statutes, is amended to read as follows:

"PART V. [~~MODIFICATION AND TERMINATION OF CONTRACTS~~] CONTRACT ADMINISTRATION

§103D-A Contract administration office functions. (a) The contract administrator shall perform contract administration functions in accordance with this chapter, associated administrative rules adopted by the procurement policy board, the contract terms, and, unless otherwise agreed to in an interagency agreement, the applicable rules of the procuring agency.

(b) The procurement officer may delegate the following contract administration functions to a contract administrator:

(1) Prepare evaluations of contractor performance in accordance with section 103D-B;

(2) Review the contractor's compensation structure;

(3) Review the contractor's insurance plans;

(4) Conduct post-award orientation conferences;

(5) Determine the allowability of costs suspended or disapproved as required, direct the suspension or disapproval of costs when there is reason to believe they should be suspended or disapproved, and approve final payment;

(6) Issue notices of intent to disallow or not recognize costs;

(7) Attempt to resolve issues in controversy;

(8) Determine the contractor's compliance with cost accounting standards and disclosure statements, if applicable;

(9) Negotiate price adjustments and execute supplemental agreements;

(10) Ensure timely notification by the contractor of any anticipated overrun or underrun of the estimated cost under cost-reimbursement contracts;

(11) Monitor the contractor's financial condition and advise the procurement officer, when it jeopardizes contract performance;

(12) Issue work requests under maintenance, overhaul, and modification contracts;

(13) Negotiate and assist the procurement officer in executing contractual documents for settlement of partial and complete contract terminations for convenience;

(14) Negotiate and assist the procurement officer in executing contractual documents settling cancellation charges under multiyear contracts;

(15) Process and execute novation and change of name agreements;

(16) Perform property administration;

(17) Perform necessary screening, redistribution, and disposal of contractor inventory;

(18) Perform production support, surveillance, and status reporting, including timely reporting of potential and actual slippages in contract delivery schedules;

(19) Monitor contractor industrial labor relations matters under the contract; apprise the procurement officer and, if designated by the agency, the cognizant labor relations advisor, of actual or potential labor disputes; and coordinate the removal of urgently required material from the strikebound contractor's plant upon instruction from, and authorization of, the procurement officer;

(20) Ensure contractor compliance with contractual quality assurance requirements;

(21) Ensure contractor compliance with contractual safety requirements;

(22) Perform engineering surveillance to assess compliance with contractual terms for schedule, cost, and technical performance in the areas of design, development, and production;

(23) Evaluate for adequacy and perform surveillance of contractor engineering efforts and management systems that relate to design, development, production, engineering changes, subcontractors, tests, management of engineering resources, reliability and maintainability, data control systems, configuration management, and independent research and development;

(24) Review and evaluate for technical adequacy the contractor's logistics support, maintenance, and modification programs;

(25) Report to the procurement office any inadequacies noted in specifications;

(26) Perform analyses of contractor cost proposals;

(27) Review, analyze, and submit comments and recommendations to the procurement officer regarding engineering and design studies proposed by a contractor, as required;

(28) Review and submit comments to the procurement officer regarding engineering change proposals for proper classification, and, when required for need, technical adequacy of design, producibility, and impact on quality, reliability, schedule, and cost;

(29) Assist in evaluating and make recommendations for acceptance or rejection of waivers and deviations;

(30) Approve the placement of subcontracts;

(31) Review, evaluate, and approve small business master subcontracting plans, if applicable;

(32) Assign and perform supporting contract administration;

(33) Ensure timely submission of required reports;

(34) Issue administrative changes, correcting errors or omissions in typing, contractor address, facility or activity code, remittance address, computations that do not require additional contract funds, and other similar changes;

(35) Obtain contractor proposals for any contract price adjustments resulting from amended shipping instructions and review all amended shipping instructions on a periodic, consolidated basis to ensure that adjustments are timely made;

(36) Accomplish administrative closeout procedures;

(37) Support the program, product, and project offices regarding program reviews, program status, program performance, and actual or anticipated program problems; and

(38) Monitor the contractor's environmental practices for adverse impact on contract performance or contract cost, and for compliance with environmental requirements specified in the contract.

(c) Any additional contract administration functions not specified in subsection (b), or not otherwise delegated, shall remain the responsibility of the head of the purchasing agency.

§103D-B Contract performance information; past performance evaluations. (a) Agencies shall monitor performance of contractors under previously awarded contracts or orders, as provided in this section for future evaluation purposes. An evaluation shall:

(1) Include a clear, non-technical description of the principal purpose of the contract or order;

(2) Reflect how the contractor performed, including clear relevant information that accurately depicts the contractor's performance, and be based on objective facts supported by program and contract or order performance data; and

(3) Be tailored to the contract type, size content, and complexity of the contractual requirements.

(b) Evaluation factors for each assessment shall include, at a minimum, the following:

(1) Technical (quality of product or service);

(2) Cost control (not applicable for firm-fixed-price or fixed-price with economic price adjustment arrangements);

(3) Schedule and timeliness;

(4) Management or business relations;

(5) Small business subcontracting, including reduced or untimely payments to small business subcontractors when the contract requires a subcontracting plan; and

(6) Other factors, as applicable (e.g., trafficking violations, tax delinquency, failure to report in accordance with contract terms and conditions, defective cost or pricing data, terminations, suspensions, and debarments).

(d) Each factor and subfactor used shall be evaluated and a supporting narrative provided. Each evaluation factor shall be rated in accordance with the following five scale rating system:

(1) Exceptional;

(2) Very good;

(3) Satisfactory;

(4) Marginal; and

(5) Unsatisfactory;

provided that the ratings and narratives shall reflect the definitions in subsection (n); provided further that plus or minus signs may be used in conjunction with a rating to indicate an improving or worsening trend that is insufficient to change the evaluation status; and provided further that a "N/A" or "not applicable" rating shall be used if the rating is not going to be applied to a particular area for evaluation.

(e) Agencies shall monitor their compliance with the past performance evaluation requirements, and measure the quality and timely reporting of past performance information.

(f) Past performance evaluations shall be prepared at least annually and at the time the work under a contract or order is completed. Past performance evaluations shall be required for contracts and orders as specified in subsections (i) through (l). These evaluations are generally for the entity, division, or unit that performed the contract or order. Past performance information shall be entered into an evaluation reporting tool for all past performance reports on contracts and orders.

(g) Except as provided in subsection (l), agencies shall prepare evaluations of contractor performance for each contract that exceeds the small purchase threshold. Agencies shall also prepare an evaluation if a modification to the contract causes the dollar amount to exceed the small purchase threshold.

(h) Past performance evaluations shall be prepared for each architect-engineer services contract of $25,000 or more, and for each architect-engineer services contract that is terminated for default regardless of contract value. Past performance evaluations may also be prepared for architect-engineer services contracts of less than $25,000.

(i) Past performance evaluations shall include an assessment of a contractor's:

(1) Performance against, and efforts to achieve, the goals identified in the contract; and

(2) Reduced or untimely payments made to small business subcontractors, if determined by the procurement officer to be unjustified. The procurement officer shall:

(A) Consider and evaluate a contractor's written explanation for a reduced or an untimely payment when determining whether the reduced or untimely payment is justified; and

(B) Determine that a history of unjustified reduced or untimely payments has occurred when the contractor has reported three or more occasions of unjustified reduced or untimely payments under a single contract within a twelve-month period; provided that the following payment or nonpayment situations shall not be considered unjustified:

(i) There is a contract dispute on performance;

(ii) A partial payment is made for amounts not in dispute;

(iii) A payment is reduced due to past overpayments;

(iv) There is an administrative mistake; or

(v) Late performance by the subcontractor leads to later payment by the prime contractor.

(j) Agency evaluations of contractor performance, including both negative and positive evaluations, shall be provided to the contractor as soon as practicable after completion of the evaluation. The contractor shall receive a notification when an evaluation is ready for comment. Contractors shall be afforded up to fourteen calendar days from the date of notification of availability of the past performance evaluation to submit comments, rebutting statements, or additional information. Agencies shall provide for review at a level above the contract administrator to consider disagreements between the parties regarding the evaluation. The ultimate conclusion on the performance evaluation is a decision of the contracting agency. Copies of the evaluation, contractor response, and review comments, if any, shall be retained as part of the evaluation. The completed evaluation shall not be released to anyone other than government personnel and the contractor whose performance is being evaluated during the period the information may be used to provide source selection information.

(k) Evaluations used in determining award or incentive fee payments may also be used to satisfy the requirement of this section.

(l) Agencies shall require at least quarterly evaluations of agency compliance with the reporting requirements of this section. The evaluation shall identify delinquent past performance reports and monitor reports for quality control.

(m) Agencies shall ensure that information is accurately documented within seven calendar days after a procurement officer:

(1) Issues a final determination that a contractor has submitted defective cost or pricing data;

(2) Makes a subsequent change to the final determination concerning defective cost or pricing data;

(3) Issues a final termination for cause or default notice;

(4) Makes a subsequent withdrawal or a conversion of a termination for default to a termination for convenience; or

(5) Determines that a contractor has a history of three or more unjustified reduced or untimely payments to small business subcontractors under a single contract within a twelve-month period.

(n) For the purpose of this section:

"Exceptional" means that performance meets contractual requirements and exceeds many requirements to the government's benefit. The contractual performance of the element or sub-element being evaluated was accomplished with few minor problems for which corrective actions taken by the contractor were highly effective. To justify an exceptional rating, multiple significant events should be identified with a statement of how the events were of benefit to the government; provided that a singular benefit could be of a magnitude that it alone constitutes an exceptional rating; provided further that there should have been no significant weaknesses identified.

"Marginal" means that performance does not meet some contractual requirements. The contractual performance of the element or sub-element being evaluated reflects a serious problem for which the contractor has not yet identified corrective actions. The contractor's proposed actions appear only marginally effective or were not fully implemented. To justify marginal performance, identify a significant event in each category that the contractor had trouble overcoming and state how it impacted the government. A marginal rating shall be supported by referencing the management tool that notified the contractor of the contractual deficiency (e.g., management, quality, safety, or environmental deficiency report or letter).

"Satisfactory" means that performance meets contractual requirements. The contractual performance of the element or sub-element contains some minor problems for which corrective actions taken by the contractor appear or were satisfactory. To justify a satisfactory rating, there should have been only minor problems, or major problems the contractor recovered from without impact to the contract or order; provided that there should have been no significant weaknesses identified. A fundamental principle of assigning ratings is that contractors shall not be evaluated with a rating lower than satisfactory solely for not performing beyond the requirements of the contract or order.

"Unsatisfactory" means that performance does not meet most contractual requirements and recovery is not likely in a timely manner. The contractual performance of the element or sub-element contains a serious problem or problems for which the contractor's corrective actions appear or were ineffective. To justify an unsatisfactory rating, identify multiple significant events in each category that the contractor had trouble overcoming and state how it impacted the government. A singular problem, however, could be of such serious magnitude that it alone constitutes an unsatisfactory rating. An unsatisfactory rating should be supported by referencing the management tools used to notify the contractor of the contractual deficiencies (e.g., management, quality, safety, or environmental deficiency reports, or letters).

"Very good" means that performance meets contractual requirements and exceeds some requirements to the government's benefit. The contractual performance of the element or sub-element being evaluated was accomplished with some minor problems for which corrective actions taken by the contractor were effective. To justify a very good rating, a significant event should be identified with a statement of how it was a benefit to the government; provided that there should have been no significant weaknesses identified.

[~~§103D-501~~] §103D-C Contract clauses and their administration. (a) The policy board shall adopt rules requiring the inclusion of contract clauses providing for adjustments in prices, time of performance, or other contract provisions, as appropriate, and covering the following subjects:

(1) The unilateral right of the governmental body to order in writing:

(A) Changes in the work within the scope of the contract; and

(B) Changes in the time of performance of the contract that do not alter the scope of the contract work;

(2) Variations occurring between estimated quantities of work in a contract and actual quantities;

(3) Suspension of work ordered by the governmental body; and

(4) Site conditions differing from those indicated in the contract, or ordinarily encountered, except that differing site conditions clauses established by these rules need not be included in a contract:

(A) When the contract is negotiated;

(B) When the contractor provides the site or design; or

(b) Adjustments in price permitted by rules adopted under subsection (a) shall be computed in one or more of the following ways:

(1) By agreement on a fixed price adjustment before commencement of the pertinent performance;

(2) By unit prices specified in the contract or subsequently agreed upon before commencement of the pertinent performance;

(3) By the costs attributable to the events or situations under such clauses with adjustment of profit or fee, all as specified in the contract or subsequently agreed upon before commencement of the pertinent performance;

(4) In any other manner as the contracting parties may mutually agree upon before commencement of the pertinent performance; or

(5) In the absence of agreement by the parties:

(A) For change orders with value not exceeding $50,000 by documented actual costs of the work, allowing for twenty per cent of the actual costs for overhead and profit on work done directly by the contractor and ten per cent on any subcontractor's billing to the contractor for the contractor's overhead and profit. There shall be no cap on the total cost of the work if this method is used. A change order shall be issued within fifteen days of submission by the contractor of proper documentation of completed force account work, whether periodic (conforming to the applicable billing cycle) or final. The procurement officer shall return any documentation that is defective to the contractor within fifteen days after receipt, with a statement identifying the defect; or

(B) For change orders with value exceeding $50,000 by a unilateral determination by the governmental body of the costs attributable to the events or situations under clauses with adjustment of profit or fee, all as computed by the governmental body in accordance with applicable sections of the rules adopted under section 103D-601 and subject to the provisions of part VII. When a unilateral determination has been made, a unilateral change order shall be issued within ten days. Costs included in the unilateral change order shall allow for twenty per cent of the actual costs for overhead and profit on work done directly by the contractor and ten per cent on any subcontractor's billing to the contractor for the contractor's overhead and profit. Upon receipt of the unilateral change order, if the contractor does not agree with any of the terms or conditions, or the adjustment or nonadjustment of the contract time or contract price, the contractor shall file a notice of intent to claim within thirty days after the receipt of the written unilateral change order. Failure to file a protest within the time specified shall constitute agreement on the part of the contractor with the terms, conditions, amounts, and adjustment or nonadjustment of the contract time or the contract price set forth in the unilateral change order.

A contractor shall be required to submit cost or pricing data if any adjustment in contract price is subject to the provisions of section 103D-312. A fully executed change order or other document permitting billing for the adjustment in price under any method listed in paragraphs (1) through (4) shall be issued within ten days after agreement on the method of adjustment.

(c) The policy board shall adopt rules requiring the inclusion in contracts of clauses providing for appropriate remedies and covering the following subjects:

(1) Liquidated damages as appropriate;

(2) Specified excuses for delay or nonperformance;

(3) Termination of the contract for default; and

(4) Termination of the contract in whole or in part for the convenience of the governmental body.

(d) The chief procurement officer or the head of a purchasing agency may vary the clauses that may be required to be included in contracts under the rules adopted under subsections (a) and (c); provided that:

(1) Any variations are supported by a written determination that states the circumstances justifying such variations; and

(2) Notice of any such material variation be stated in the invitation for bids or request for proposals when the contract is awarded under section 103D-302 or 103D-303."

SECTION 7. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2018-2019 for the purposes of implementing this Act for executive branch departments and agencies.

The sum appropriated shall be expended by the state procurement office for the purposes of this Act.

SECTION 8. In codifying the new sections added by section 6 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

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

SECTION 10. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 11. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 12. This Act shall take effect on July 1, 2050; provided that section 7 shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	2601
TWENTY-NINTH LEGISLATURE, 2018		S.D. 2
STATE OF HAWAII