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The Honolulu Advertiser
Posted on: Sunday, February 12, 2006

Lingle aides bypass procurement process

 •  Letter from Attorney General's office to DBEDT: Page 1, Page 2 Page 3 Page 4
 •  Letter from State Procurement office to DBEDT: Page 1, Page 2 Page 3 Page 4

By Sean Hao
Advertiser Staff Writer

Lingle administration officials may have violated state procurement laws last year when they selected a Honolulu nonprofit organization to handle finances for the governor's trade mission to China and Korea.

The state tapped the nonprofit Pacific and Asian Affairs Council to run Gov. Linda Lingle's China trip without asking other organizations if they would like to bid on the $268,637 project. The Pacific and Asian Affairs Council in turn hired several companies, such as Events International Inc., as subcontractors without following a bidding process.

The Pacific and Asian Affairs Council was paid nearly $7,000 for administering the trip and got a boost in prestige from its close association with a major state initiative. Events International and a related company got contracts worth $20,000.

While the payments don't appear to be excessive, the apparent failure of state officials to follow procurement laws raises questions. Procurement laws are meant to ensure the state gets the best value for its money and that potential state suppliers are treated fairly.

Ted Liu, director of the Department of Business, Economic Development and Tourism, said the state was not obligated to follow usual procurement policies because the trips were funded by corporate sponsors and not taxpayers. Using a nonprofit made the process of raising and spending money more efficient and allowed the agency to keep sensitive details about the mission private, Liu said.

"That doesn't pass the smell test," said Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai). "If people are going to believe in the procurement process, then everybody has got to do the same thing and everything has to be above board."

The law requires competitive solicitations even if vendors aren't paid directly by the state, according to the State Procurement Office.

Aaron Fujioka, State Procurement Office administrator, said he couldn't comment specifically on the China trip. However, he said, "The procurement code applies to all contracts made by government bodies whether the considerations for the contract is cash or other realizations" such as enhanced reputation. "If there is a realization, is it subject to the code? I would say yes it is," Fujioka said.

The Lingle administration already has come under fire for seeking large corporate sponsors for the elaborate trips in exchange for promises of special benefits. Now it's the manner in which state officials spent money that is being questioned.

If DBEDT's actions don't violate procurement law, they seem to have been an attempt to sidestep the law, said state Sen. Shan Tsutsui, D-4th (Kahului), vice chairman of the Senate Ways and Means Committee.

"It was not the intent to allow a nonprofit to serve as a pass-through to get around the procurement law," Tsutsui said. "If that is happening, we may need to look at it."

The nonprofit that raised and oversaw the spending of $268,637 for Lingle's trip said all decisions concerning subcontractors and money were made by Liu's department.

"As we understood it per our agreement ... DBEDT was responsible for the planning and organizing of the mission and as such, the selection of and negotiation with vendors," said Lisa Maruyama, executive director of the Pacific and Asian Affairs Council, in an e-mail to The Advertiser.

"We paid vendors based on invoices sent to us from DBEDT invoices that had first been received by DBEDT, reviewed and verified for accuracy by DBEDT and then subsequently signed by Ted Liu at DBEDT," Maruyama wrote.

While that may raise procurement issues, the head of one of the companies hired to work on Lingle's trip said it was not their intent to exclude other organizations.

"If there's a gray area here it's unfortunate because I don't think anybody had any malicious intentions," said Eric Schneider, chief executive for Events International. "It was a bunch of people getting together trying to do something good for the state of Hawai'i. All anybody could talk about when they got back was what a success this public-private partnership was."

Liu says Lingle's trip to China and South Korea in June produced millions of dollars in business for the state, and taxpayers saved money because most of the trip was paid for by private donors. Altogether 200 business leaders, state officials and entertainers accompanied Lingle on the 10-day trade mission.

Liu said he was advised that he would not need to follow the procurement process when selecting a nonprofit to organize the trade missions.

"Based on discussions with the Office of the Attorney General and the State's Chief Procurement Officer, no competitive selection process was required," Liu said in a written reply to The Advertiser.

The Attorney General's office declined to comment for this story.

However, an April 5 letter from Deputy Attorney General John Wang to Liu's department warned Liu's department about funneling money for the trip through a nonprofit. The letter says that if Liu or someone from his department helps make decisions about how money is spent at a nonprofit organizing a state trade mission, it may violate procurement law. The letter refers to "DEC," or the nonprofit Hawaii District Export Council, which was originally considered as the main organizer of the China trip. That job was ultimately given to the Pacific and Asian Affairs Council.

"The fact that DBEDT has a member on the DEC subcommittee that will supervise and operate the bank account may be a violation of the state's procurement law," Wang's letter said. "Though the DBEDT member is in the minority on the sub-committee, the DBEDT member may be able to exert influence over the other members and direct expenditure of funds without complying with the procurement law. It is strongly suggested that there be no DBEDT member on the sub-committee."

Despite that warning, Liu played a lead role in deciding how the Pacific and Asian Affairs Council spent money related to Lingle's China trip. For example, Liu directed the nonprofit to hire Honolulu-based Events International in May to plan and provide entertainment for the China trip, according to the Pacific and Asian Affairs Council.

In addition to the warning from the Attorney General's office, Liu's department was told by the State Procurement Office that it could not hire Events International without going through a competitive solicitation.

Events International was offering to promote and produce the China trip for free. But the procurement office, in a March 8 letter, said DBEDT still needed to go through a bidding process.

"Since there is a potential for a contractor to derive benefits as a result of receiving this contract, a formal competitive solicitation should be issued to allow potential vendors the opportunity to receive this contract," according to the procurement office letter.

Events International was hired by the Pacific and Asian Affairs Council, which as a private nonprofit is not required to use a bidding process.

"When (DBEDT) didn't get the exemption, they found another solution and we didn't see anything wrong with it," said Events International CEO Schneider.

Other nonprofits with an interest in China should have been notified about the state's interest in lining up organizations to work on the trip, said Johnson Choi, president of the nonprofit Hong Kong-China-Hawai'i Chamber of Commerce.

"Generally I think everything should be on the up and up and it should be on a bidding process," Choi said. "DBEDT was just looking for a yes man. Somebody that wouldn't ask any questions."

Reach Sean Hao at shao@honoluluadvertiser.com.

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