Corruption in Government Procurement
Price of Paradise · Hawaii Public Radio · aired 1993-11-01
Guests: Richard Matsuura (State Senator; chairman, Senate special investigative committee); Bill Wood (freelance journalist; former editor, Hawaii Investor magazine)
Duration: 0:28:20

[0:00:06] Randall Roth: Good morning. I'm Randy Roth, host of the Price of Paradise radio show. Today's topic involves something called procurement. Simply stated, procurement is the process by which our government buys goods and services with our tax dollars. When we spend our own money, we want as much value as possible and government should, too. And yet, taxpayers in Hawaii have grown increasingly suspicious in recent years about our government's procurement practices.

[0:00:33] Randall Roth: We've read in the newspaper, for example, about numerous non-bid contracts that appear to be based primarily on political connections, about a $150,000 contract at the airport that somehow grew into nearly $53 million, about purchases at Aloha Stadium and even in the governor's office that have been parceled into smaller pieces seemingly to get around dollar limits that would have required competitive bidding. With me today to talk about these concerns and others are state Senator Richard Matsuura, the chairman of the Senate committee currently investigating allegations of procurement abuse, and Bill Wood, former editor of Hawaii Business and Hawaii Investor magazines.

[0:01:16] Randall Roth: Bill, you wrote an article for the Economist earlier this year in which you describe government in Hawaii as a cross between Louisiana and Japan. What did you mean by that and how does it tie into our topic today?

[0:01:28] Bill Wood: Well, Louisiana politics probably epitomizes the old old boy network of the of the South in the way of doing business politically. And Japan probably epitomizes the uh the practice of uh secret uh political negotiations with a with a very little actually meeting the eye of the public. I think that Hawaii has a little bit of both. I'm not sure that a lot of other states wouldn't qualify as well, but it was uh it was the expression was an effort to catch the imagination of the international reader, which is the Economist's audience. I mean they all relate to Louisiana and they all relate to certainly Japan, so that was the reason for them.

[0:02:17] Randall Roth: Would would you say that there's a perception in the community at least among people who've been reading in the newspapers about these procurement matters, a perception that something has been wrong with our our procurement process here in Hawaii?

[0:02:32] Bill Wood: I am sure that there is some kind of a perception, and I don't know how broad it is or how widespread it is. I think that's probably the crucial question of this whole thing in uh in that, you see, there are two ways of looking at this. Those who are the apologists of some of the practices that some people choose to criticize, say that uh it's hey, the system works. It produces the desired results and so what's the problem? And there are others who say well, maybe it it isn't strictly according to Hoyle, as far as, say, procurement practices are concerned, and therefore something must be wrong.

[0:03:16] Randall Roth: Dick, why is your committee doing what it's doing? Is it because of of a perception in the community? Is it an attempt to determine if if the reality matches that perception, or is there some other reason why your committee was formed?

[0:03:30] Richard Matsuura: Basically, the committee was formed because we had an experience in which the telephone did not work properly in a lot of our offices and in trying to correct that deficiency, we found out that the system that the government had contracted was done on soul source. And the the disturbing part was that we we were some of us were aware that the contract was to be let out, you know, in a in a, you know, bit contract and it was to include, you know, PBX, seelex, you know, or a combination thereof.

[0:04:07] Richard Matsuura: But when we found out that the this was a sole source, non-bid contract, I think that was the beginning of our inquiry into why, because most of the $400,000 studies that was conducted indicated that the state should go to PBX system.

[0:04:26] Randall Roth: So you're saying, first of all, the studies suggested that we do something different than what we did, and secondly, what we did was with just one vendor that we didn't shop around? Is is that what sole source means?

[0:04:39] Richard Matsuura: That that is correct. And I think what, you know, triggered a lot of things is that uh we paid twice the amount that we should have paid for our telephones. You know, the prices twice as much as when we went out for bid.

[0:04:53] Randall Roth: And got a different system than what the study had suggested would be best?

[0:04:57] Richard Matsuura: Absolutely.

[0:04:58] Randall Roth: How did that happen? Doesn't the procurement code require that there be some competition in the bidding process?

[0:05:06] Richard Matsuura: Well, it the director of budget and finance said this was a judgment call on his part. So, you know, he's saying that at that time, you know, the the the decision was to go with the seelex, even though there were one, two, three studies that showed that uh the the more efficient and cost-effective system was the PBX system.

[0:05:27] Randall Roth: Bill, you have any thoughts on sole source contracts in general or or this particular situation?

[0:05:34] Bill Wood: Well, again, it gets to the to the to the crux of the argument is to what is the most effective way of doing it. And uh those who um like the the budget director you indicate, felt at the time that uh probably that the way they were doing it was the best under the circumstances and that served the purpose best. Um, this is the way they have defended other things that they that have, you know, in procurement.

[0:06:05] Bill Wood: And I think that's that that indicates, either, I think you you you either tighten up the system which uh removes that amount of discretion or you say, okay, it's you're you're hired to make decisions like this and you make them and if uh and and if, you know, if if that's it, unless you make an obvious mistake. And maybe the the the uh procurement reform package adopted in the special session of the legislature does that, I don't know. What do you think?

[0:06:40] Richard Matsuura: Well, yes, it does, because, you know, the other disturbing thing that was happening is that, you know, a person will get a sole source contract, you know, a non-bid contract, and within six months or eight months, that contract would be amended. And the amount would be tripled, you know, you know, you have an $80,000 contract and with just a small amendment, the price would jump to $240,000.

[0:07:05] Randall Roth: You mean by small amendment, they wouldn't be required to do much more than what they were required to do under the original contract?

[0:07:11] Richard Matsuura: That is correct.

[0:07:13] Randall Roth: How can that happen? Is that just a problem with the law or is that something that could be a problem even under the the recently passed legislation that bill referred to?

[0:07:23] Richard Matsuura: Well, that was the loophole, you know, and they found it and they used it to the max. 40% of the sole source non-bid contracts were amended. I mean, it's unbelievable the number of, you know, uh, sole source contracts that were amended. And I'm just talking about the regular contract. If you look at the purchasing orders, I mean, I don't know what percentage there was amended and I can guarantee you, most of the abuses took place at that level, at the purchase order, uh, level.

[0:07:57] Randall Roth: Dick, as I was listening to Bill earlier, I got the impression that that what's going on often times is has been a judgment call and that we're not talking about something that could could be criminal activity. Is is that your sense after having heard a lot of testimony thus far in the Senate investigation process? Is it your sense that people haven't been committing crimes, it's just that they've been exercising their judgment in a particular way?

[0:08:25] Richard Matsuura: Well, that's the excuse that they give, you know, that this was a judgment call. Our committee on, you know, is not there to prosecute people, just to gather information, and they say, well, you know, the law was defective and all that, but I I can tell you for a fact that, you know, it's not the law, it's the people who uses that law. Look for these loopholes and take advantage of it. And so this new law that we have passed now, we covered all those loopholes.

[0:08:57] Randall Roth: Do you think that the new law will will will correct the situation?

[0:09:00] Richard Matsuura: I think if we have the chief procurement administrator, if you have a person at that level, who is honest, you know, and fair, this this law will work perfectly. It has worked in the other states, so I'm I'm very confident it will in Hawaii.

[0:09:18] Randall Roth: You're listening to the Price of Paradise radio show. I'm Randy Roth, and my guests are Bill Wood, a freelance journalist, and Richard Matsuura, chairman of the Senate committee currently investigating allegations of procurement abuses. Uh Dick, during the course of of this Senate investigation, at one point, uh Governor Waihee referred to what was going on uh as McCarthyism, a rather uh strong pejorative term. How did that make you feel personally to have him suggest that this was uh a form of McCarthyism?

[0:09:55] Richard Matsuura: No, you know, for me it's, you know, what I think I am, I mean, as long as I feel that I'm doing a job that which I was elected, and I think as long as the Almighty God knows what I'm doing, I don't care what the rest of the world thinks of me.

[0:10:11] Randall Roth: Do you think this is going to come back to haunt your political career, the fact that you've uh more or less single-handedly, and I know there are other people involved, but at least the community pretty much sees this as as Dick Matsuura's effort. Do you think it's going to come back to haunt you politically?

[0:10:29] Richard Matsuura: Well, as one person told me, Dick, you know that they're going to get you, and I said yes, I know they'll get me.

[0:10:35] Randall Roth: Bill, do you think they're going to get him?

[0:10:38] Bill Wood: I hope not. I really don't. I really think that it it what we're talking about basically is a climate, a climate that permits this kind of abuse, if it's abuse. I mean that causes people to feel that they can circumvent the letter of the law for personal gain or political gain or whatever the motive is. Because this as the Senator just said, is, uh, it's not the law, it's the people who are executing the law. And uh what kind of a climate do we have that is that uh encourages this kind of abuse? And laws won't change laws if if there exists that climate, change laws won't change the climate.

[0:11:21] Bill Wood: They make it make it more difficult. But uh what This is what concerns me, you see.

[0:11:27] Randall Roth: What would change the climate? Uh should should a Ken Kayabu be indicted, for example, as opposed to simply uh terminated? Would that change the climate or are we talking about something different?

[0:11:41] Bill Wood: I think we, well, I think that uh there are a handful of people in the state leadership who set the tone. And I think if the tone were set that, okay, we're going to clean up our act and we're going to play fair and square and honest uh from now on, uh well, that would make a huge difference. You wouldn't have to single out one person or more to punish them because, you know, with people have been punished before and they sort of they were the scapegoat. So you punish them and that's it and everybody feels like, well, that that relieves me of any responsibility.

[0:12:18] Bill Wood: But uh it's it's the tone that's set at the top, that's so important.

[0:12:22] Randall Roth: Dick, do you agree that that it's a matter of tone and that it has to be set at the top?

[0:12:27] Richard Matsuura: Yes. I agree with Bill.

[0:12:28] Randall Roth: Do you think do you see anything changing so far as the tone is concerned or do you expect anything to change in the near two term so far as the tone is concerned?

[0:12:39] Richard Matsuura: Well, the thing that surprises me is that, of course, there's a lot of contracts going off a bit today. I mean, um a lot of them compared to, you know, before the investigation started. However, you'll still see, you know, these abuses taking place. It's amazing. Even today. Even today.

[0:13:00] Randall Roth: With the investigation going on.

[0:13:01] Richard Matsuura: That is correct.

[0:13:02] Bill Wood: It's a widespread practice, you see. It's part of the system. It's built into it. It's ingrained. It'll be difficult to eradicate. But I think the the place to start is at the top and say, I won't The governor and others perhaps say, we won't tolerate this anymore, folks.

[0:13:18] Randall Roth: Speaking of the top, um, the Data House issue that was in the papers a month or so ago, uh as I understand it, um some computer equipment was purchased for use in the governor's office and again as I understand it, uh some of the purchases were broken down into smaller amounts, I think the term that's used is parceling, and at least the appearance is that that was done in order to avoid competitive bidding. Um is something going to happen as a result of what your committee has found, Dick, or is what we've read already the end of it?

[0:13:57] Richard Matsuura: Well, I think basically right now, um you know, we will be writing our report and of course, the Attorney General, you know, office will get our report. Now whether or not he want to pursue some of these uh allegations, you know, it will be up to you know, that will be his call.

[0:14:16] Randall Roth: And when you say pursue, you're talking about a possible criminal action.

[0:14:20] Richard Matsuura: Right.

[0:14:21] Randall Roth: So your committee can't accomplish any specific sanction, you simply are are finding facts That's right and then letting the Attorney General's office do what it's going to do.

[0:14:32] Richard Matsuura: Yes.

[0:14:34] Randall Roth: What about that particular contract that we've read so much about out at the airport where it initially was let at $150,000 and uh son of a gun, we look and it's up to $53 million.

[0:14:48] Richard Matsuura: Yes.

[0:14:49] Randall Roth: None of those changes were subject to review or competitive bidding?

[0:14:52] Richard Matsuura: No.

[0:14:54] Randall Roth: What did we get for that $53 million, Dick?

[0:14:57] Richard Matsuura: Well, of course, we got, um, you know, a number of uh work done, you know, because the person who had the original contract was like the coordinator of, you know, various projects. Uh that original 150 sole source contract was amended six times and that's what I'm talking about these amendments. But here is one case where you the the amount went from 150 to 53 million. I know of another contract that was amended 22 times. You know, so, you know, the abuse is there.

[0:15:31] Randall Roth: So somebody could could bid much lower than what they would ever be willing to bid in the first instance if they had a hunch that they were going to get some change orders.

[0:15:41] Richard Matsuura: Absolutely, that's what, you know, this this the the the flaw, because, you know, if you had a you know, a good relationship with a person, my advice would be put in a low bid, because in six months, I'll increase it three times.

[0:15:57] Randall Roth: You're listening to the Price of Paradise radio show. I'm Randy Roth, and my guests this week are Bill Wood, a freelance journalist, and Richard Matsuura, chairman of the Senate committee currently investigating allegations of procurement abuses. Bill, I know you recently wrote a series of articles on the ERS, the employees' retirement system here in Hawaii, that appeared in the Pacific Business News. Uh Dick has mentioned that he doesn't feel it's appropriate for him to comment on ERS issues since his committee is about to begin some hearings on that topic. Could you tell us a little bit about what you wrote in that series of articles and how that possibly ties into what we're talking about today?

[0:16:38] Bill Wood: Well, it may be a very good example of what we're talking about in the sense that uh in illustrating this argument that the end justifies the means. The uh the the the trustees of the ERS are proud of their record in terms of investment performance. They farm out the the management of the $5 billion dollars that are in the state employees' retirement system. And uh these investment advisers actually make and control the investments and they are monitored by other investment advisers and then the trustees sit back and monitor the overall results.

[0:17:22] Bill Wood: And uh there's no question but thanks to a a very good stock market and other good investment uh conditions in the last 10 years, the ERS has done well. The fund has grown as uh to uh double its size 10 years ago. And uh, which is uh a good performance. It's not outstanding, but then this is a pension fund after all and they have to be conservative. But uh at the same time, um the obligations of the fund have also grown tremendously. Uh new employees, it covers all state and county employees, you see.

[0:18:02] Bill Wood: And uh payroll of the state and county have gone up, particularly the state has gone up dramatically, salaries have gone up, all these things affect the pension obligations of the retirees uh because your pension, if you're a state retiree, is based on your highest three years of service, there salary during the highest three years. And um uh so it's it's obligatory that that they have, you know, good results with the with the investments of the fund. But uh it's other aspects of the operation.

[0:18:39] Bill Wood: The um the kind of uh deals that have been made, uh real estate purchases, uh the kind of um uh advisers and uh specialists that have been hired to help the trustees uh that raises the question of, and these are all non-bid.

[0:19:00] Richard Matsuura: obligations or contracts. It raises the same kind of questions that are raised in the procurement process.

[0:19:09] Randall Roth: I see. And that is what we are getting at.

[0:19:11] Richard Matsuura: Well, there's the buddy system, how important how politically motivated were some of these decisions.

[0:19:19] Randall Roth: I see. Um, we had a chapter from The Price of Paradise, volume two, uh, appear in in the advertiser focus section a week or two ago. It was written by Bob Morris. Um, the question he was responding to was, what's wrong with our legislature? Dick, I hope you don't take that personally. But I guess I would ask you that question, is there something that you would change if you could about our legislature or the way it works or anything else that you think would improve government in Hawaii?

[0:19:55] Richard Matsuura: Randy, if I had one wish, one reform that I could implement, that will be to remove the temptation of this so-called high three.

[0:20:07] Randall Roth: Now, Bill mentioned the high three a minute ago with respect to the ERS. Can you tell us what you mean by that?

[0:20:13] Richard Matsuura: Well, let's take my example. You know, I have been in the legislature for 13 years and by the time I finish my term, I will have put in 16 years. My retirement, uh, uh benefit per year, at the end of 16 years will be $18,200, $18,000. Now, let's assume now because I'm going to do something good or something, you know, I mean, and the governor want to reward me.

[0:20:43] Randall Roth: Or because he wants to get rid of you from the Senate.

[0:20:46] Richard Matsuura: That's right. He could remove me from the thing and you won't have maybe the, you know, me on there as the chairman of the committee. But let's say he offered me a directorship and let's say the salary, you know, went up, you know, it's 90,000 now. So I'll work, you know, for three years for 90,000. But this, now comes the the the the the point. My retirement, because I worked three years on the, you know, at the salary of 90,000, my retirement benefit per year will be $51,750.

[0:21:22] Randall Roth: It virtually triples, triples because of that appointment.

[0:21:25] Richard Matsuura: That's right. Now, would I want to be appointed? I mean, would not I want to do something that would triple my retirement? And that's what's happening.

[0:21:36] Randall Roth: That's called the high three.

[0:21:37] Richard Matsuura: That is right. And I think they should remove that, you remove all temptation of legislators trying to do somebody, you know, somebody a favor, in order to get a favor.

[0:21:49] Randall Roth: So the legislators are are reluctant to do something that the governor wouldn't like because it could jeopardize their ability to get a high three.

[0:21:57] Richard Matsuura: Well, I'll be cutting my own my my my own leg, all right. I mean like, if I should have a choice of 51,000 to 18,000, why would I want to why would I want to change the law, you know? But that is a temptation, and that is something that if you want to reform, that's the one the public should demand that we we initiate this reform.

[0:22:18] Randall Roth: I should point out that it doesn't have to be a state job. It can be a county job, too. I mean, there's a recent example of that, too. So, or a university job. Yeah. Dick, have you been offered a high-paying position?

[0:22:32] Richard Matsuura: Yes, I have, and I have refused it.

[0:22:35] Randall Roth: Thank goodness. Dick, what about people in the legislature? Uh are there a lot of them there that are uh concerned about getting reelected as opposed to doing the best job they can do, or how do you feel about that?

[0:22:49] Richard Matsuura: I think every politician you know, their main concern is to get elected and reelected. I think if anybody tells you that they really don't care, I mean, that is an exception to the rule. I think the turning point of any politician when he gets to the point where he you know, really don't care about getting reelected. He don't want nothing from government. Now, that's the turning point of a mark of a good legislator.

[0:23:19] Randall Roth: You're listening to the Price of Paradise radio show. I'm Randy Roth, and my guests are Bill Wood, a freelance journalist and Richard Matsuura, chairman of the Senate committee, currently investigating allegations of procurement abuse. Bill, I asked Dick a little bit ago what he would change about the legislature if he could change one thing. What would you change about government in Hawaii if uh if you had the power to change one thing that would make uh the future for our kids and their kids brighter, what would it be?

[0:23:51] Bill Wood: I don't know that that change could could be limited to one thing. I think that um it's we're talking about the same system of government throughout the country and that one looks for always always looking for the the White Knight uh the guy who comes riding in and and is uh looks to be perfectly honest and and uh sincere and what has no personal motives other than uh to perform his job well. Uh if we could find that kind of a person to help lead this state in the right direction, I think everybody would fall into line pretty well. And so I think leadership has got to be the key.

[0:24:34] Randall Roth: Is is that one I don't think it the I don't think you need to change the system. The system uh can work if it's properly administered. Is the community um apathetic? Is the community sitting back, waiting for that person to ride in on a white horse, or how do you see the community fitting into that possibility?

[0:24:54] Richard Matsuura: I don't know that a Ross Perot would work here. Um because Hawaii voters are a little different from voters in most other places. At least that's been my experience and uh uh but I think that uh, it might take a little longer for a Ross Perot to to catch on here. Um, but I think that there is a general perception out there that things could be better. Um, there's not enough of a perception that things are bad that very many people speak out about it.

[0:25:31] Richard Matsuura: Because uh the the the old adage don't make waves still prevails. And uh but I think if somebody came along and and spoke honestly, providing he could do so over a period of time, that uh the the uh he would get the support that he would need to to lead.

[0:25:52] Randall Roth: Dick, are you optimistic about uh the future of Hawaii, especially when it comes to to government in Hawaii? Do you think we're headed in the right direction?

[0:26:02] Richard Matsuura: I think so. I I I you know, you always have to have the hope that that you know, you're going to quit yourself. I think there's young people, I mean, I can just, I don't want to mention, you know, individual, but Matt Matsunaga, you know, has been a very surprising, you know, person.

[0:26:19] Randall Roth: Now, wait a minute, you said you didn't want to mention individual.

[0:26:23] Richard Matsuura: Well, I you know, I just, you know, to give you an it's an example, I guess. And and I'm sorry I have to mention the one name, but I think that's a pretty good name. But I, you know, I mean, I think you know, if if Matt can you know, follow the footstep of his father, you know, I mean, you're going to have a great leader someday. And and that's the hope that I guess I have in terms of, you know, being one of the older legislators, and I still believe in the system, I believe in the people.

[0:26:52] Richard Matsuura: And uh and I gotta thank, you know, that you you give credit to a lot of things to, you know, my committee and all that, but the Hawaii Business Roundtable is the one that provided the technical help, they brought people from the mainland, the guys who wrote the the the model procurement. They paid for it, and they brought to Hawaii for us to use, and I want to thank all the members of the Hawaiian Business Roundtable for their help. That's where the credit really should lie.

[0:27:19] Randall Roth: What do you think is what's your perception of the We're out of time. We'll we'll save it for next time, and we definitely will have a next time. I want to thank you, Dick and and Bill uh and and Dick, everyone that's working with you on the Senate committee. Uh I think we all want to thank you for a job very well done. Our guests this week were freelance journalist Bill Wood and state senator Richard Matsuura. We would like to hear your thoughts about what we've said or not said. Those comments can be sent to me in care of Hawaii Public Radio, 738 Kaheka Street, Honolulu, Hawaii 96814.

[0:27:57] Randall Roth: For information about future programs, send a self-addressed stamped envelope to that same address. You've been listening to the Price of Paradise radio show. I'm Randy Roth. Aloha. This program is produced by the Consortium of Price of Paradise authors in cooperation with Hawaii Public Radio. The Price of Paradise is of interest for every concerned citizen of Hawaii. It is available in local bookstores and in public libraries. Please tune in next week when Randall Roth, one of his 37 co-authors and a special guest will take on another question of importance to listeners in Hawaii. Cassette copies of this program are available from Hawaii Public Radio for $10 by calling 955-8821.