Army housing contract on hold over tax breaks

By Jim Dooley
Advertiser Staff Writer

Final award of a massive U.S. Army contract to privatize all Army housing on O'ahu has been put on hold until the state and county decide whether to grant more than $200 million in tax exemptions requested by the private contractor, Actus Lend Lease LLC., an Army official said last week.

Peter Koziol

U.S. Rep. Neil Abercrombie

Actus chief executive officer Peter Koziol said Thursday the company was working with Abercrombie and state and city officials to resolve concerns about the tax-exemptions request, and to reach an agreement regarding use of union and non-union labor on the Army contract.

Pending resolution of the privatization contract issue, the Army has awarded Actus a sole-source, four-month contract worth $13.5 million to take over management and maintenance of more than 6,000 housing units on O'ahu. The contract takes effect June 1 and may have to be extended if the privatization issue is not resolved by Oct. 1, when the short-term contract expires, said Gordon Takeshita, head of the Army's Residential Community Initiative office here.

The sole-source contract to Actus replaces two existing Army housing maintenance and repair contracts each worth $10 million per year. One is held by a Mississippi company, Madison Services Inc., and expires at the end of this month; the Army will not exercise a six-month option to renew the contract, Takeshita said.

The other contract, held jointly by California-based Agbayani Construction Co. and local firm Shinco Inc., expires June 30, but the Army is terminating it a month early, Takeshita said, and paying the contractors a termination fee that is being negotiated.

Agbayani-Shinco officials did not return repeated telephone calls seeking comment on the contract termination.

But John Lange, head of Madison Services, called the Army's decision to award a sole-source, four-month contract to Actus "unconscionable."

"Never have I seen the government do anything like this," Lange said. "Don't get me wrong — it's 100 percent within their prerogative. We've had a very good working relationship with the Army, and I don't want to upset that. But I'm just surprised they'd make a change like this now without even talking to us."

Takeshita said the short-term contract was planned well before problems cropped up in awarding the privatization contract to Actus. It is a "transitional" contract, designed to help Actus and the Army adjust to fundamental changes that will take place under privatization, he said.

Both the Army and Actus said the transitional contract was the Army's idea.

"The Army approached us," said Koziol, adding that the company had received similar treatment on another huge privatization contract on the Mainland.

But Abercrombie said he did not like the sole-source contract any more than he likes proposed tax-exemption requests Actus is seeking in the privatization agreement.

"The plain fact is, it's an awful lot of money for a very short period of time," Abercrombie said of the sole-source agreement. "Something doesn't smell right to me." Existing maintenance contracts "should have been extended until the whole issue is resolved," he said.

Madison Services and Agbayani-Shinco are paid a total of $1.67 million per month for their housing maintenance work. The new Actus sole-source contract is worth $3.38 million per month.

Army contracting official Gary George said the new contract is worth more because Actus will perform in-house maintenance work now handled by the Army, as well as take over housing management duties — assignment of units, inspection of facilities and other functions — performed by Army personnel.

It is unclear how long the city and state will take to resolve Actus' tax-exemption requests.

Linda Smith, special adviser to Gov. Linda Lingle, said Actus needs to submit exemption requests for housing units it believes qualify for low- and moderate-income tax breaks to the Housing and Community Development Corp. of Hawaii.

"As far as I know, they haven't done so yet," Smith said. Stephanie Aveiro, executive director of HCDCH, could not be reached for comment last week.

The Honolulu City Council last week passed on second reading a bill that could impose real property taxes on military housing once it is privatized and controlled by Actus.

Actus officials claim the housing projects will not be using city services such as police and fire protection, and should not be subjected to property taxes.

Last week, City Council Budget Committee chairwoman Ann Kobayashi said: "We're trying to be fair about this. If military families are not using services, then they shouldn't have to pay for them. But we don't want them to stay behind the gates and not use our beaches, our parks, our cultural events."

The bill is scheduled for another hearing Wednesday.

"We may amend it," Kobayashi said. "I don't know what we'll do."

Abercrombie objects to the tax-exemption requests because the Army had told competitors for the $6.9 billion privatization contract they would have to pay any taxes levied by the state and local governments.

After Actus was selected for the contract, it said completion of work on an as many as 2,097 housing units would be delayed if it had to pay the taxes.

The company said it would not earn more money if the exemptions are granted, but would be able to add more amenities such as swimming pools and community centers to housing projects.

The office of Sen. Dan Inouye said last week it supported the tax exemptions sought by Actus.

Reach Jim Dooley at jdooley@honoluluadvertiser.com or 535-2447.