Companies seeking to develop projects on state lands aren’t required to go through a competitive bidding process under recently proposed rules that would govern Hawaii’s controversial Public Land Development Corporation.

And experts on public-private partnerships say that could lead to corruption, favoritism and bloated contracts that could prove costly for taxpayers.

“If there’s no competition at all, then the risk is that of corruption, that someone will find a sweetheart contractor to deal with and these sweetheart contractors will inflate the price,” said Edward Lozowicki, a San Francisco attorney with expertise in construction law and public-private partnerships. “That’s the whole reason to have competitive bidding, to avoid corruption and favoritism.”

The PLDC, created last year, sets up a structure for the state to partner with private companies to improve state assets such as harbors, parks and schools, as well as build anything from hotels to parking lots on state lands.

The agency recently held a series of public hearings around the state to get feedback on the proposed rules that will guide PLDC operations. Testimony was overwhelmingly hostile, with many calling for the abolishment of the PLDC.

One area of concern is the lack of a requirement for competitive bidding on PLDC projects.

Public-private partnerships are a growing national trend, with states increasingly teaming up with private companies to help shore up aging infrastructure, develop state projects more efficiently and provide greater access to capital, according to Richard Norment, executive director for The National Council for Public-Private Partnerships.

He said that the number of states passing laws establishing PPPs has doubled in the past seven or eight years, driven by state budget constraints and a pattern of deferred maintenance on public works projects. Currently, 34 states have such laws.

But ensuring that there are adequate controls to protect the public’s interest is important, and competitive bidding is standard, said Norment. He was surprised Hawaii’s PLDC doesn’t require competitive bids and said the public should be concerned about that.

The PLDC’s proposed administrative rules say bidding is an option, but not required. The PLDC can enter into direct negotiations with private developers.

Specifically, the rules state:

The corporation may optimize and develop projects in accordance with the provisions set forth in chapter 171C, HRS:
(1) On its own behalf; or (2) With an eligible developer through direct
negotiation, a competitive selection process, or upon initiation by an eligible developer.

Lloyd Haraguchi, executive director of the PLDC, did not return a call for comment.

Sen. Donovan Dela Cruz, who sponsored legislation setting up the PLDC, said the purpose of allowing no bid contracts is to allow flexibility when it comes to leasing out state lands, including complying with existing agreements.

The PLDC’s rules have yet to be finalized, but its staff announced in July that three projects were being pursued: developing farmland in the Ewa plain, making capital improvements at Olomana Golf Course on Oahu and extending a land permit for a bee farmer by hundreds of acres.

PLDC staff have met privately with production company Relativity Media about building a sound stage on the Ewa property, as well as Actus Lend Lease, which is interested in building workforce housing.

Controversy over no-bid contracts is just one issue that the PLDC is facing amid a growing public outcry that the corporation be completely abolished or its powers severely curtailed.

PLDC staff just completed a series of meetings throughout the islands that gave the public a chance to comment on its draft rules. Hundreds of people turned out on Oahu, Maui, Kauai, the Big Island and Molokai to call for the corporation’s repeal and officials from such organizations as the Hawaii Sierra Club, Office of Hawaiian Affairs, The Native Hawaiian Legal Corporation, The Outdoor Circle and Life of the Land derided the rules for failing to adequately protect Hawaii’s environment and cultural resources.

The stakes are high if there aren’t strong protections in the law and rules governing the PLDC, said state Senate candidate Laura Thielen, who formerly headed the Hawaii Department of Land and Natural Resources. She has vowed to work to repeal the PLDC in the Legislature if elected, citing major concerns about the conservation of natural resources in light of the PLDC’s mission to generate revenue.

The state controls about one-quarter of Hawaii’s lands, or 1.3 million acres, she noted.

“These are not small projects, they are potentially multi-million dollar projects,” said Thielen.

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