The state has until the end of this month to decide whether to award a contract to manage an $8.7 million hydrogen technology investment fund.

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 has been held up by a dispute over who should manage the project.

The state Procurement Office ruled in September that a contract to manage the fund should have been awarded to the highest-ranking bidder, which was Kolohala Holdings LLP. Earlier this month the Department of Business, Economic Development and Tourism requested more time to decide whether to award the contract to Kolohala or cancel the contract outright.

DBEDT requested more time because the agency has entered into discussions with the U.S. Department of Energy that could encumber some of the same hydrogen fund money sought by Kolohala. Further details surrounding that new renewable energy partnership will be announced next week, said DBEDT Director Ted Liu.

Yesterday, the Procurement Office said DBEDT cannot cancel its original request for proposals based on the new federal partnership. Procurement Office Administrator Aaron Fujioka also said DBEDT should award the hydrogen fund contract to Kolohala or provide justification for not awarding the contract by Jan. 31.

"While you have determined that a change in circumstance has delayed the award as required in my Sept. 25, 2007 memorandum, there does not appear to be sufficient justification to support this," Fujioka wrote in a letter to Liu dated yesterday. "If the DBEDT's determination that the federal partnership will result in no longer requiring the services of the RFP, then a request with sufficient justification should be submitted by the above date for my review and approval."

The hydrogen fund and the contents of the letter were discussed during a state Senate Tourism and Government Operations Committee hearing yesterday.

"This federal partnership I believe is in the best interest of the state," Liu told the committee. "If it happens, and it sounds like there's a very good chance it will happen, it's going to impact how the hydrogen fund is implemented."

Senate Vice President Donna Kim, D-14th (Halawa, Moanalua, Kamehameha Heights), said DBEDT has an obligation to follow through and award the contract to Kolohala. DBEDT mistakenly awarded the contract to third-ranked bidder H2 Energy LLC in August. In September the Procurement Office ordered DBEDT to rescind the award because H2 Energy was the lowest-ranking choice of an evaluation committee that reviewed three qualifying proposals. Kolohala was the top-ranked bidder.

"That (federal partnership) is great but that has no bearing on this RFP," Kim told Liu.

"You put out an RFP. We are bound by that RFP. In good faith people applied for it and went through the process of being evaluated.

"The only reason we are here, Mr. Liu, is because you wanted to give it to the No. 3 bidder."

Reach Sean Hao at shao@honoluluadvertiser.com.