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The Honolulu Advertiser
Posted on: Thursday, April 20, 2006

No contract signed to collect donations for trade mission

 •  PDF: State Procurement Office letter: Page 1, Page 2,
 • PDF: Protocol and Procedural Framework documents: Page 1, Page 2, Page 3, Page 4, Page 5,

By Sean Hao
Advertiser Staff Writer

The state Procurement Office has concluded that the Lingle administration did not violate procurement code when it used a nonprofit, without competitive bidding, to handle $268,000 in private sponsorships of a state trade mission to China.

Gov. Linda Lingle's trip to China and South Korea in June was paid for in part by contributions from businesses. The donations covered trip extras such as the travel expenses and honorariums for Island entertainers who accompanied the governor.

The Pacific and Asian Affairs Council, a nonprofit that assisted with collecting and distributing the donations, never signed a contract with the state and therefore the state was not bound by procurement code, said Aaron Fujioka, the procurement office administrator, in a memo issued yesterday.

The Department of Business, Economic Development and Tourism directed the Pacific and Asian Affairs Council to pay vendors and provide other financial services, and the council was paid nearly $7,000 for its work. Another organization, the District Export Council, also assisted with the trip and received about $4,200 for its involvement.

"We are encouraged that the state procurement officer has concluded that DBEDT's fundraising effort in relation to the China-Korea Business and Trade Mission in 2005 did not violate the state procurement code," said Ted Liu, director of DBEDT, in a written statement.

The responsibilities of the three major participants in the trip were detailed in a "Protocol and Procedural Framework," which specified how much the Pacific and Asian Affairs Council and the District Export Council were to be paid.

The protocol "is not considered to be a procurement contract because, among other things, it is unsigned and does not indicate the parties' agreement to be bound by it," Fujioka wrote in his memo.

Liu has said that the lack of a contract was not a deliberate attempt to sidestep procurement laws.

The Lingle administration's reliance on private-sector sponsorships has been much greater than previous administrations, and Liu has said that was necessary because the Legislature cut his marketing budget.

"To the extent that we needed to raise money for business development missions, we tried to fully engage the private sector by making them partners in our plans," Liu said in a written statement. "I plan to continue our outreach programs on behalf of Hawai'i's business community and will work closely with the state procurement office in all our future plans."

Fujioka recommended that the Department of Business, Economic Development and Tourism use the state's procurement law on future trade missions.

"After completing our review, it is evident that concerns and issues surrounding the trade mission involve accountability," he said in an interview. "To enhance disclosure and open government, they should utilize the procurement process in the future."


Unlike a state agency, the Pacific and Asian Affairs Council is not subject to state procurement law. That means the council could pay vendors for services provided on the trip without competitive bidding. Also, a nonprofit is not required to report certain details of contributions and expenditures. The Pacific and Asian Affairs Council declined to provide a list of trip sponsors and sponsorship amounts when they were requested by The Advertiser last summer. Similarly, DBEDT also was asked for such a list; but the requested information was not disclosed until January of this year.

The Lingle administration has disclosed raising nearly $1 million in cash and in-kind contributions from Hawai'i businesses and organizations since 2003 to cover costs related to several overseas trade missions. Sponsors include DFS Hawaii, Ko Olina Resort and Marina, and NCL America. In addition to any donations, business participants were required to pay their own travel expenses and a fee for joining missions.


The procurement office's finding comes as lawmakers consider passing two resolutions calling for probes into trade mission finances.

The Senate has passed a resolution calling on the state Procurement Office and the state Ethics Commission to review the issue and report back to the Legislature by Sept. 1. The House has passed a bill calling for the state auditor to look into the financing of the trade missions and issue a report by early January. Both resolutions await further hearings.

The state Attorney General's Office said on March 9 that DBEDT did not violate criminal law by working with the Pacific and Asian Affairs Council without a competitive bidding process.

House Majority Leader Marcus Oshiro, D-39th (Wahiawa), said the Legislature should push ahead with both resolutions. He said there should have been a contract between DBEDT and the Pacific and Asian Affairs Council for the protection of both parties and public interest.

Procurement laws are meant to ensure the state gets the best value for its money and that potential state suppliers are treated fairly.

"I think it's wrong to be putting together these trade missions without the transparency and accountability that the procurement law provides," Oshiro said. "It just reeks of special interests and favoritism."

Oshiro said DBEDT's actions violated the spirit, if not the letter, of state procurement law.

"If this decision is allowed to stand, it blows a hole in the procurement process by allowing people to avoid compliance by simply not using a contract or by funneling the money through a nonprofit," he said. "Maybe we need to ask the auditor to move more expeditiously and report as soon as possible."

Reach Sean Hao at shao@honoluluadvertiser.com.