Posted on: Saturday, November 1, 2003

State picks firm for e-bid upgrade

By Sean Hao
Advertiser Staff Writer

Hawai'i officials have awarded a company in Waltham, Mass., a three-year contract to create an Internet-based purchasing system for state agencies.

However, the procurement system to be created next year by System Engineering Inc. could be delayed by a protest lodged by Apex Software Inc. of Phoenix.

"Now we're going to respond to the protest," said Aaron Fujioka, state procurement office administrator. Resolving the protest "could take a week, or it could take several months."

The procurement system would be similar to the SuperQUOTE online process approved for use by the University of Hawai'i for purchases from $2,500 to $100,000.

Selecting a vendor to develop the state's electronic procurement system has taken about two years because of the complexity of the system and responses from a large number of bidders.

The procurement system will allow state agencies to solicit online proposals from suppliers and service providers nationwide.

State officials are hoping the Internet-based bidding will result in time and cost savings at least for contracts of up to $100,000. Such smaller contracts represent about half of all state contracts but only 5 percent of state money spent on procurement.

Many smaller contracts are now awarded after manually soliciting bids by phone or fax, Fujioka said.

"E-procurement, I think, allows more competition and, of course, more transparency," he said. "Right now the procuring agency has the discretion to notify the three vendors they want.

"This way the system notifies the vendors. That's much more fair."

Online procurement has generated controversy, with some local companies complaining they are placed at a disadvantage when bidding against Mainland vendors.

In addition to relatively higher costs for labor, shipping, health insurance and other overhead, local businesses say they must pay Hawai'i's general excise tax — all costs that they have to factor into their bid.

Catalog and other companies that sell online pay Hawai'i taxes only if they have operations in the state.

State officials are focused on the savings from competitive bidding, but say they are looking to use the planned Internet-based system to better track vendors who do business with the state, which could improve tax collections.

Under the terms of System Engineering's contract, the state would pay no upfront fee for the system, called the Hawai'i Electronic Procurement System or HEPS.

System Engineering would make money based a 0.933 percent fee, or $500 maximum, on every transaction and a one-time $275 vendor registration charge.

System Engineering could qualify for an indefinite number of three-year contract extensions.

Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.