Most of the large mainland companies that would be interested in bidding for Hawaii public works projects are already established in the islands. Functioning as local companies paying Hawaii taxes, they would be able to use the preference to their own advantage, officials said.
However, a national contractors organization and its affiliate chapter in California say they are opposed to such measures and view them as anti-competitive.
The bill, passed by the 1996 Legislature and awaiting Gov. Ben Cayetano's signature to make it law, gives island-based contractors an edge in this way:
Even if an outside bidder comes in with the lowest price, the state must pick the lowest Hawaii bidder for the work, so long as its bid is not more than 15 percent higher than the outside bid. Current law already allows a 5 percent differential for local bidders.
"It inhibits open and free competition," said Michael Kennedy, general counsel for the Associated General Contractors of America, a national trade association based in Washington, D.C.
However, the Hawaii state association affiliated with his organization supports the measure, as do local contractors.
"We certainly support it for the local contractors," said Walter Janka, executive vice president of the General Contractors Association of Hawaii.
The most common reaction on the mainland when one state passes a preference law is that neighboring states do roughly the same, he said. They decide that if a state wants to discriminate against outside contractors then they are free to discriminate against that state's bidders.
That is true in California. Tom Holsman, a spokesman for the Associated General Contractors of California, said California has established what he calls reciprocity.
In essence the state increases a bid from a preference state by the amount of that state's preference. If a bid comes from Hawaii under the new law, the state government in California would treat as though it were 15 percent higher than it is, Holsman said.
It is highly unlikely that anyone in Hawaii would be bidding for work in California, said Denny Watts, president of Hawaii's Fletcher Pacific Construction.
Watts doesn't care whether or not the law is an illegal restraint of interstate trade. That never gets tested in court in other jurisdictions anyway, he said. They just reciprocate.
"Whether it's right or wrong, it's an area where the governor has been trying to stimulate the local economy," he said.
Outside contractors often bring in their own labor, they don't always pay the local state excise tax, they have lower workers compensation premiums and they take out the profits. That gives them an unfair advantage and their presence does little to help the island economy, Watts said.
"I don't think it's hurting," said William Wilson, president of Hawaiian Dredging & Construction Co. "I think the majority of contractors bidding have been in the state for a long time."
It won't drastically effect government costs because in the current tight economic environment contractors are already bidding lower than they probably should, just to get work, Wilson said.
Preference for local contractors is needed to ensure the maximum employment of Hawaii residents, people who buy goods and services locally and contribute to the economy, he said.