Posted on: Tuesday, October 19, 2004
State to purchase, contract online
By Sean Hao
Advertiser Staff Writer
State officials plan to start buying goods and services via the Internet, using a new system they say will save the government money while making its purchasing practices more open and accessible.
Select state departments are expected to start using the Hawaii Electronic Procurement System in mid-January, with a statewide rollout about six months later, if all goes well.
The current method of awarding smaller contracts valued at less than $25,000 involves soliciting bids by phone or fax — a time-consuming, opaque practice.
Converting that process to an automated electronic system similar to commercial Internet commerce sites could save Hawai'i taxpayers an estimated 10 percent, or $9 million, on $94 million in annual transactions, according System Engineering Inc., the Waltham, Mass.-based company selected last year to provide the electronic procurement system.
The contract process was delayed when System Engineering's winning bid was challenged by a competitor, Apex Software Inc. of Phoenix. System Engineering's selection was upheld, and plans are to start registering venders for the system in December.
Aaron Fujioka, state procurement office administrator, said the new system should level the playing field for businesses that sell to state government.
"The (current) small-business purchasing practices are inherently unfair, because there's no public notice given and the purchaser decides which venders to contact," Fujioka said. "Our hope is the use of the online e-procurement system will further promote openness and generate competition among venders, and lead to greater efficiency."
The process eliminates much of the paperwork and time involved in contracting. Businesses register online with the state, specifying the types of goods and services they sell. They are then notified automatically whenever a state agency puts out a request for quotes for those items.
Similar to an online auction, businesses will have a specified time to submit their bids, with the winner notified once the bidding closes.
"There's not a whole lot of people really in the middle of that process," said Al Day, president for System Engineering.
In the case of a reverse auction, venders can outbid one another throughout the process. "That creates downward pressure until you get to the minimum price that the market will bear," Day said.
Under System Engineering's three-year contract, the state will pay no fee up front. The contractor will make money on a fee it charges for each transaction. Use of the system won't be mandated, though it will be available to all state agencies, the counties, state Legislature and boards of water supply.
The types of goods and services purchased electronically would include computers, printers and wireless telephones. Under System Engineering's contract, items on mandatory price lists — which include office supplies sold by existing contractors — would be made available via an online catalog. System Engineering and its business partners supply similar systems to the states of Idaho and Maine.
While the new system promises to open up state contracts to a broader number of businesses, it also could make it easier for Mainland companies to compete with local companies for government work. Out-of-state suppliers could have an advantage if they're not subject to the state's general excise tax.
Catalog and other companies that sell online pay Hawai'i taxes only if they have operations in the state, such as warehouses and distribution facilities. However, Fujioka said the plan is to solicit only local companies, unless the level of local competition is inadequate.
At issue is whether the priority should be getting products and services at the lowest cost, or paying more to support Hawai'i businesses that employ local residents and pay state taxes.
"Our job is to get services, construction and commodities at either the lowest price or for us the best value," Fujioka said. "That's our mission. At the same time, that's what agencies are being told to do.
"But the general belief at the Legislature, I believe, is that it's OK to pay a little bit more to support local companies, because they employ people, generate taxes, etc.," Fujioka added.
"We're cognizant of that, but we're trying to balance all these different things because every budget cycle, departments' budgets get cut back."
Stan Kubota, president of Honolulu-based Internet service provider PixiNet, welcomed the idea of a more open procurement process, even if it might introduce more competition.
"It's definitely a time-saver, a paper-saver etc.," he said. "The state should get the best price for the best technology."
But the state shouldn't invite more Mainland competition, Kubota said.
"There's already a lot of unfair competitive situations. If the state doesn't take the time to monitor that stuff, it just hurts business in general," he said.
Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.
