Suspect contracts deserve scrutiny


POSTED: Tuesday, June 30, 2009

What the state auditor described as “;a culture of indifference”; within the Department of Education appears to have resulted in egregious behavior in the handling of contracts. To her credit, schools Superintendent Patricia Hamamoto has begun to remedy the problem and has asked the attorney general to investigate possible occurrence of criminal fraud.

The cozy relationships between state education officials and private contractors resulted in many instances of noncompliance with procurement rules and “;possible instances of procurement fraud,”; Auditor Marion Higa reported this spring. Hamamoto told the Star-Bulletin's Gary T. Kubota that the department has completed its own investigation and made changes, including application of “;checks and balances”; in awarding contracts.

We urge the attorney general for a thorough accounting of suspect contracts.

The audit found that the process of awarding a $300,000 construction contract to a private company “;was subsequently manipulated to give the impression of a fair and competitive selection.”; The job was one-fourth completed before the department got around to awarding the contract to M&E Pacific Inc., an engineering company.

M&E Pacific's “;contact person”; for other contracts with the Education Department, totaling more than $1.7 million, was Rae Loui, who had resigned in December 2005 from her job as assistant superintendent for business services. She had been in charge of the section that approved the contracts, according to the audit. Loui is now a vice president of M&E Pacific, since at least April 1, 2007.

Hawaii law forbids a state agency from entering into a contract with a company that has been assisted by a person who had been employed by the agency within the preceding two years and been directly involved in the contract's issues. Higa pointed to e-mails showing that Loui was involved in contract negotiations between the Education Department and M&E Pacific in March and April 2006, less than five months after she had left the department.

An M&E Pacific executive signed a statement a day after the contract took effect that the company was not represented “;in the matter with which the contract is directly concerned”; by a person who had been employed by the Education Department in the previous two years.

Before 2005, school construction contracts were handled by the state Department of Accounting and General Services, and Hamamoto asked the Legislature to transfer the authority to her department. She later asked for an audit of the first year procurement process by “;an external construction management firm,”; which found no impropriety.

Hamamoto then asked for the Higa audit, which found that the superintendent's delegation of the authority to those beneath her lacked “;an adequate control system.”; Hamamoto acknowledged in a letter to Higa that she sets the “;tone at the top.”;