A behind-the-scenes look at the bad blood troubling a controversial state contract emerged in a Senate committee hearing Wednesday.

The Hawaii Senate Ways and Means Committee weighed in on the tax department’s embattled $25-million dollar contract with a Montreal-based information technology company, CGI, for the first time since the resignation of Kurt Kawafuchi, the state’s former director of taxation. Kawafuchi has not responded to requests for comment on his decision to leave.

Donna Mercado Kim, the committee’s chair, read from an internal e-mail from the CGI project manager to an unnamed state official calling for the ouster of Kawafuchi.

“The Department is operating under dysfunctional management environment,” the e-mail said. Mercado Kim didn’t give a date for the e-mail, which her staff said is not a public document. “Warring factions are disrupting the project. Kurt is incapable of managing the situation.”

Kim said the e-mail went on and on in this tone.

“Solution to the problem: Take Kurt out of the picture,” the e-mail said. The e-mail was shown to the department’s staff by the person who received it, causing “a lot of disenchantment” and stopping the project, Stanley Shiraki, acting director of taxation, testified.

Today, the contract is the subject of a state audit, called for during the last legislative session by the committee. Since 1999, the state of Hawaii has spent $87.5 million on contracts with CGI. CGI took a lead role in developing computer systems for the tax department. Most recently, the company received $25 million to collect delinquent taxes from 2008 to 2011. The company receives a third of the delinquent taxes collected using its system, up to a cap of $25 million, which has already been hit.

Shiraki, who took over his new role last week, told the committee Wednesday that the contract had been “hugely successful” at “no cost, no risk” to the state. The program brought in $84 million — of which $59 million went to the state, he said.

However Mercado and Sen. Sam Slom raised other concerns about the contract. They said that CGI’s original goals from the first phase of the project had still not been met and may not be completed by the end of the contract in 2011. Raising further eyebrows was a clause highlighted by Mercado Kim that says that CGI’s obligation to provide service will be considered complete by June 30, 2011, whether or not the work is complete.

“No, I did not read that,” said Shiraki, in response to Mercado Kim. “But the fact is that I am very confident they’ll be finished by June 30.”

CGI surfaced as a potential trouble spot earlier this year when a former tax department employee testified during the legislative session that tax department leadership considered the CGI contracts the “single most troublesome problem.” Yet, the employee, Tu Duc Pham, said the department continued to sign multimillion dollar contracts without consultation despite concerns expressed by the Attorney General and by the tax staff.

After an article on Pham’s allegations in the Star-Advertiser last week, the governor’s chief of staff, Barry Fukunaga, fired off a blistering attack on Pham and the allegations he had raised.

“The undisputed fact on this matter is this: Pham was not a part of the contracting or collection process and is making unsubstantiated claims, accusations and insinuation on the events that led to the successful collection of delinquent tax revenues that will likely realize $80 million for the state,” Fukunaga wrote.
At Wednesday’s hearing, Fukunaga’s name emerged as involved in the contract.
The CGI e-mail, Mercado Kim said, a meeting was scheduled between state Human Resources Director Maria Laderta and the CGI author of the e-mail.

“I had a brief conversation with [Maria Laderta] yesterday over the phone. I suspect she still needs to have Barry (Fukunaga) dictate the order down to Kurt (Kawafuchi). I don’t think that Maria would be willing to put the hammer down on Kurt based on what she told me yesterday.”

The e-mail said: “The entire department must know that the governor’s office is requesting this change. The governor’s office must require bimonthly dates on the project status, particularly the revenue generation to make sure the project remains on track.”

It also went on the describe the people in the department as “clinically psychotic. Past history of alleged workplace violence. Manages by intimidation. Staff hates. Experiencing certain kind of marital problems. Extremely odd. Very strange person. Not respected by peers in the state.”

Mercado Kim questioned how a person with a contract with the state could feel that he could dictate who the state should hire and fire, and what that said about oversight of the contract.