Probe of DBEDT contracting wraps up
By Sean Hao
Advertiser Staff Writer
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A state Senate investigation into procurement improprieties surrounding the award of an $8.7 million contract is wrapping up following more than 60 hours of hearings and a probe of 10,000 pages of documents.
The investigation has highlighted questionable actions within the Department of Business, Economic Development and Tourism. However, there's differing opinion over whether the committee can conclude that state officials knowingly broke the law by awarding a management contract for the fund to the lowest ranking bidder.
The fund was authorized by lawmakers in 2006 to help finance companies working to develop clean-burning hydrogen fuel from renewable resources such as wind and water. However, the fund's launch was held up after DBEDT officials erroneously gave the contract to H2 Energy LLC rather than top-ranked bidder Kolohala Holdings LLP.
During the past three months a five-member Senate committee has assembled circumstantial evidence showing that DBEDT officials should have known there was no legal basis for the original decision. So far there's been no "smoking gun" indicating that the mistake was deliberate.
"It's like you smell fish, but you don't see fish," said investigation committee member Sen. Clarence Nishihara, D-18th (Waipahu, Pearl City, Crestview). "It's kind of hard to prove it. You get to a certain point and you can't make the final connection — the final link."
State procurement law states that contracts should be awarded to a proposal judged as "the best value" based on the evaluation of a committee or a procurement officer.
Last July a DBEDT evaluation committee ranked Kolohala as the top bidder for the hydrogen fund management contact based on criteria laid out in the agency's request for proposals. However, DBEDT Director Ted Liu awarded the contract to H2 Energy. H2 Energy, which is a partnership involving HiBEAM and merchant bank Sennet Capital, was expected to receive up to $385,000 in consulting fees to manage the fund, along with 2.75 percent of the fund's value and a share of fund profits.
In September the state Procurement Office ordered DBEDT to rescind the H2 Energy award and give the contract to Kolohala. Kolohala, which is a partnership involving Hawaii Angels and the Hawaii Natural Energy Institute, has yet to receive a contract.
A key question throughout the investigation has been whether DBEDT officials knew that they could not award a contract to H2 Energy.
Liu said he was advised by staff that he could award the hydrogen fund management contract to a company that wasn't ranked highest by the evaluation committee. Several DBEDT staff members in turn testified under oath that they misunderstood or were not aware of various procurement laws.
Liu and other key agency officials contend the decision to award the contract to H2 Energy was an inadvertent mistake.
"I operated under procedures I understood to be correct based on advice received and on what I understood to be past practice in this department," Liu said in a written statement. "As far as I am concerned, the error has been corrected and we are moving forward to accelerate Hawai'i's development of renewable energy resources."
The Senate investigative committee, which is scheduled to meet again this week, won't issue its findings for about two months, said committee chair Donna Kim, D-14th (Halawa, Moanalua, Kamehameha Heights).
So far the Senate committee has held 12 hearings. Kim said the committee's key findings include:
The Senate committee also uncovered documents indicating that DBEDT director Liu advised HiBEAM co-founder Barry Weinman regarding the 2006 launch of Honolulu-based merchant bank DragonBridge. Weinman, a DragonBridge investor and manager, also mentored one of Liu's children.
Liu and Weinman also discussed the possibility of HiBEAM's involvement in the hydrogen fund prior to the contract award, according to e-mails between the parties. HiBEAM is an organization of venture capitalists that raises money for its client companies.
Liu has denied that favoritism played a role in the award of the contact to HiBEAM. Weinman has said he was never in a position to personally profit from the fund.
Kim said she'll likely recommend the committee attempt to fine or remove Liu from office. However, Kim acknowledged that there's little likelihood that will happen.
"I would like the committee to find that he intentionally did violate procurement law therefore the penalties involved in that should be applied," she said. "I think they should remove him from office. However, I don't see that (happening) based on the attitude of the administration."
Republican Gov. Linda Lingle has dismissed the Democrat-led investigation as unfair and partisan.
Regardless of the outcome of the special investigative committee, the Legislature already has passed five procurement-related bills that were spurred in part by the botched hydrogen fund procurement. The bills generally would require more procurement oversight and training.
Based on the findings thus far it's clear some DBEDT officials were incompetent, said Sen. Sam Slom, the investigation committee's only Republican member. However, that doesn't mean they were criminals.
"There's no question that what was done was wrong," said Slom, R-8th (Kahala, Hawai'i Kai). "There's no question that (DBEDT officials) should have known better.
"The bottom line question for me is, was there criminal intent? I don't find criminal intent."
Reach Sean Hao at shao@honoluluadvertiser.com.
