State officials are creating a procurement program they hope will steer more government work to Hawai'i's small businesses.

However, some small businesses may get more work than others. That's because emerging industries, depressed geographic areas and under-utilized professions would receive preferential treatment under rules being drafted by state officials.

The federal government already has programs meant to spur growth of small business, particularly those owned by minorities and women. State officials want to emulate such programs, but instead direct business toward technology companies and others in emerging sectors. State government procurement practices, like federal ones, can have a powerful impact on the economy.

Procurement laws are meant to ensure the state gets the best value for its money and that potential state suppliers are treated fairly. By creating a small business preference the state could end up paying more to support Hawai'i's small businesses, said state Comptroller Russ Saito.

"The idea is that the law can be used now to strengthen small businesses — those areas of business where the state wants to encourage growth," he said. "We're trying to come up with a new economy. We don't just want everybody doing more tourism."

Saito and the heads of other large state agencies are in the midst of drafting rules governing how the preference program will work, including defining what constitutes a small business, how much work should be set aside for those businesses and establishing small business subcontractor goals. The preference program was created under Act 50, which was passed by state lawmakers in 2005.

POLICY BOARD CREATED

The act created a Procurement Policy Board, which adopted the framework of the new procurement program in October. Now a separate Small Business Utilization Council is charged with working out the practical details governing how the program will work. Those details include deciding which businesses and geographic areas should receive preferential treatment, said Saito, who is a member of the Small Business Utilization Council.

However, support for small business procurement preferences is not universal even among small-business advocates. Such preferences are akin to state government picking which business should succeed and which should not, said state Sen. Sam Slom, president of Small Business Hawaii. In addition, technology companies and businesses located in economically depressed areas may already have access to state economic development programs such as tax credits, enterprise zones and business incubators, Slom said.

A procurement preference that also targets those businesses "will have the effect of front-loading certain kinds of businesses over others," Slom said. "They are going to have advantages that no other business does. That's going to raise the costs to the others."

Slom, R-8th (Kahala, Hawai'i Kai), said the state should adopt regulatory and workers' compensation reforms that would benefit all Hawai'i businesses.

Ted Liu, director for the Department of Business, Economic Development and Tourism, said the state should do both — address business climate issues and provide small business purchase preferences.

"I think even in (an ideal) world there might still be a need for a small business procurement preference because there are some disadvantages small businesses face when competing with larger businesses," he said.

LOOKING FOR INPUT

Liu, who chairs the Small Business Utilization Council, said that decisions such as which businesses will receive preferences have yet to be made. The council will solicit input before submitting recommendations, which must be approved by the Procurement Policy Board.

It's likely certain kinds of technology companies could benefit from the program, but "I don't have a preset notion as to what those are," Liu said. But, "I'm not so sure that this is targeted at only emerging industries."

Once in place, the program would rely on small businesses to self-certify that they're eligible to compete for a state set-aside. State agencies in need of a product or service would restrict their request for proposal to eligible small businesses. Ideally, small businesses would self-police the program and report abuses to the state, Saito said.

In addition to emerging industries, the preference could be directed toward economically depressed areas, said Jessica Horiuchi, interim executive director of the Hawaii Procurement Institute, which helped draft the rules adopted in October.

"Most of Hawai'i has historically low unemployment," she said. "But there are some other areas where you have double-digit unemployment. This is a way for the state to help them."

In addition, the preference program will provide state agencies with more discretion over who benefits from state contracts.

"It does follow that properly adopted rules that are good and have a basis and are workable will in fact provide more flexibility to get small businesses involved in contracting," said DBEDT's Liu. "But it's not a blanket authority and it flows from a policy."

Reach Sean Hao at shao@honoluluadvertiser.com.