- Special Projects
Hundreds of contractors and consultants working on Honolulu’s $6 billion rail project are raking in tens of millions of dollars in taxpayer funds, yet there’s little accounting of what they’re actually doing for the money.
It’s a glaring oversight that state lawmakers and city council members are struggling to reconcile before approving an extension of a half-percent General Excise Tax surcharge that could last anywhere from five to 25 years depending on what shakes out at the Capitol.
But even with calls for more transparency, the Honolulu Authority for Rapid Transportation has been reluctant to release information about how much these companies, which have been hired as subcontractors, are being paid.
Subcontractors are companies or individuals who have separate contracts or other agreements with prime contractors to provide specific services or materials.
For example, Glad’s Landscaping of Honolulu has a subcontract to perform tree work for Kiewit Infrastructure West Co., the prime contractor building the West Oahu Farrington Highway guideway section, while Ramtek Fabrication of Kapolei has a materials agreement with Kiewit to supply precast concrete structures.
Dan Grabauskas, HART’s Executive Director and CEO says it’s not within his legal authority to know how much the project’s main – or prime — contractors are paying the subcontractors helping them complete work on the 20-mile rail line between East Kapolei and Ala Moana Center. Getting such information, he has said, would be based upon “voluntary” disclosure by contractors.
So far the project’s largest prime contractors have not volunteered that information.
But Grabauskas’ assertions that he can’t get the information may not be accurate, according to a Civil Beat review of contract documents signed by HART and city officials, including the $1.55 billion grant agreement with the Federal Transit Administration.
Grabauskas did not respond to interview requests for this story, but in a statement reiterated his stance that HART is following the law and is acting in a manner consistent with procedures followed by other government agencies.
“HART is in full compliance with local, State, and Federal laws regarding disclosure of government records,” Grabauskas said in the statement.
No specific law requires prime contractors to disclose how much they have paid subcontractors since most of the large construction contracts are lump sum agreements where prime contractors receive a fixed price and are responsible for paying subcontractors themselves. But various federal advisories, agreements with the city, contract clauses and HART’s own Project Management Plan suggest HART and other public officials could obtain that information if they wanted.
The FTA, in its contracting Best Practices Manual, discusses “Access to Records” clauses contained in all contracts, saying “This provision must give the grantee [the city and by extension HART] the right to conduct audits of costs claimed in progress payment invoices.” Further, the FTA says “Any contract involving the expenditure of public funds is subject to review/audit during and after performance to ensure that, at the very broadest level, the Government got what it paid for…..”
“We continue to recommend that HART have access to the prime contractor databases so they can verify the accuracy and validity of payments made to subcontractors and contractors.” — City Auditor Edwin Young
This is reinforced in the FTA Master Agreement that is part of the Full Funding Grant Agreement under which Honolulu is receiving $1.55 billion in federal funds. That document authorizes the auditing of “any information about the project, whether owned or maintain by the recipient, subrecipient or other third party participant.”
Grabauskas said HART is not in the position to legally interpret FTA circulars and manuals and instead directed questions to the agency. An FTA spokeswoman in Washington had not responded to Civil Beat’s request for comment by Friday.
HART’s own management plan makes its resident engineer responsible for verifying invoices. Under HART’s major contracts, since prime contractors are responsible for paying their subcontractors it would seem that invoices from subcontractors — which are part of the financial documentation maintained by prime contractors — are subject to examination.
In addition, every HART prime contract requires the contractor to “maintain records and documents of payment to subcontractors” – and keep those records for three years after the project is completed. Contracts further require that these records must be available for inspection upon request by any authorized representative of the city and the U.S. Department of Transportation. This requirement also extends to any subcontractor.
In December 2013, Honolulu’s city auditor released a report on HART’s public relations contracting and criticized many of HART’s invoice oversight practices. HART disagreed with many of the audit’s findings, claiming its practices complied with contract provisions and federal requirements.
One persistent criticism in the audit was the fact that PR contractors did not provide invoices with detailed justification of the work performed, in many cases merely listing “for professional services.”
Whether the practice of listing minimal work descriptions extends to construction and other contracts can’t be determined by HART without actually examining subcontractor invoices, although presumably, since the prime contractors are responsible for the work of subcontractors, any padding of subcontractor invoices would eat into profits.
The city audit even recommended HART get “read-only” access to the contractor’s management database so it could easily trace how money was being spent by the public involvement consultants. But HART officials disagreed, saying in a recent follow-up report that there is “no reason or benefit” for the agency to have access to this information.
City Auditor Edwin Young, however, sticks by his report’s findings and recommendations. It’s also his opinion that HART should have access to subcontractor payment information under current conditions.
“Our argument is that the information is in the contractor’s database, all you have to do is ask for it,” Young told Civil Beat. “We continue to recommend that HART have access to the prime contractor databases so they can verify the accuracy and validity of payments made to subcontractors and contractors.”
Other procurement experts have agreed, saying that when taxpayer dollars are being spent public officials should have access to how that money is being used.
While HART officials may quibble over semantics and whether they do or do not have the “authority” to find out what subcontractors are paid, the Master Agreement in very clear language specifically authorizes access by city officials to “to inspect and audit records and information pertaining to the project,” presumably giving the city auditor full access to every document dealing with the project, including those in possession of every prime contractor and subcontractor.
And while HART maintains it is not obligated to examine subcontractor records, it does not deny it has the authority to examine those records if it wants to.
Paula Youngling, the assistant administrator at the State Procurement Office and a former HART employee, says it would be unusual for HART to request access to subcontractor payment information, especially under firm, fixed-price contracts, in which the government has an agreement with a company to do a certain task, such as build a road, for a set amount of money.
So long as that road is built for the agreed upon price by the agreed upon date, Youngling said there should be no need to review how much the subcontractors were paid.
If HART began asking to routinely inspect a contractor’s books or require copies of all subcontractor invoices before payments are made, Youngling said that could be looked at as an “extraordinary” effort that falls outside the contract parameters, which might result in a request for more money by the contractor to provide the information.
“If I was a contractor, I would be asking for a change order because the administrative burden of doing that is pretty high,” Youngling said.
Despite the reluctance of prime contractors to produce details of subcontractor payments, this information is readily available and easily retrievable from the prime contractors’ own computer systems and could be quickly provided to authorized public officials.
An illustration of how easy it is for prime contractors to produce payment breakdowns are federal regulations requiring detailed accounting for payments to Disadvantaged Business Enterprises who must be awarded a portion of the work. Each month HART receives reports of amounts paid by prime contractors to the 33 DBEs working on the project, suggesting the information for all subcontractors is not difficult for prime contractors to produce.
Through March these DBE subcontractors had been paid a total of $21.3 million, with the largest individual amount of $5.6 million paid to LKG-CMC Inc., a California document control and configuration management firm holding four subcontracts. Another firm, Honolulu’s PAC Electric, has received $2.7 million from Kiewit for work on the West Oahu-Farrington Highway Guideway.
“The person’s that’s paying should know how and what they’re paying for. And the person that’s paying is the taxpayer.” — City Councilwoman Ann Kobayashi
HART itself has the technology and know-how to track this data. It relies on top-end contract management software produced by Oracle called Primavera that can track all aspects of the project and calculate financial data down to the penny. It can also easily churn out reports based on this data to show, for instance, which companies have the most change orders.
Records from the Honolulu Budget and Fiscal Services Department show HART has spent at least $381,000 on the Primavera system, yet HART officials have been guarded about it.
For months, Civil Beat has been asking for a demonstration of HART’s contract management database. Civil Beat has also requested a list of data fields tracked by the system to get a better understanding of what information HART tracks as it builds the largest public works project in the state’s history. HART has yet to provide the information.
For lawmakers, getting a handle on who is being paid how much is something akin to navigating the Pineapple Garden Maze at the Dole Plantation in Wahiawa. In the clubby world of public infrastructure construction, prime contractors on one segment of a project are frequently subcontractors on another.
In large part this symbiosis is due to professional reputations or relationships developed between companies on previous projects. Frequently selecting a subcontractor does not entail the complex competitive bidding required for prime contracts.
Geolabs Inc. for example, a 40-year-old Hawaii-based company specializing in geotechnical engineering and subsurface exploration that’s necessary before support columns can be erected, received an early $1.2 million prime contract from the city and has held eight subcontracts. At least four of those, valued at $10.3 million, are currently active.
Much of this contracting confusion is created by the way HART identifies contracts. On the city’s most recent list of 49 rail contracts awarded through last October, all are identified with a seven-digit number. Yet the same contracts are identified differently in HART monthly reports, making it difficult to keep the players straight.
Further complicating lawmakers’ understanding of the project’s contract structure is the fact that besides construction contracts, HART utilizes services provided by scores of consultants — companies that don’t build anything, but provide advice and keep an eye on the work of companies that do. Even HART’s administrative staff is heavily populated with contract employees. Of the 24 positions on HART’s February organizational chart, 11 were consultants.
In fact, through February HART had paid $663.6 million for various “professional services” directly related to construction that were performed in large part by subcontractors and consultants.
Responding to a request from City Councilwoman Ann Kobayashi, in January Grabauskas provided a partial list of subcontractor information, saying “while HART’s prime contractors are not required under contract to list or provide subcontract values for its subcontractors HART reached out to our prime contractors to obtain these values.”
Of the information provided to Kobayashi, Kiewit only identified subcontractors by name and provided no contract values. In some cases the information provided was incomplete. In one case, a DBE subcontractor who received $639,000 was not even included in the list provided to the City Council.
However, the value of a subcontract does not necessarily reflect what subcontractors have actually been paid. Change orders and other unforeseen circumstances can easily increase subcontractor payments. The “values” reported were the basic contract amounts.
“HART is in full compliance with local, State, and Federal laws regarding disclosure of government records.” — Executive Director Dan Grabauskas
The Kiewit group of companies — which holds three prime contracts with a total value of $1.3 billion and is composed of Kiewit Infrastructure West Company, building both the West Oahu-Farrington Highway and Kamehameha Highway guideways, and Kiewit/Kobayashi Joint Venture, constructing the Maintenance & Storage Facility — provides detailed DBE subcontractor payment information to HART. But no actual dollar amounts paid to these subcontractors by Kiewit were included in the information provided to Kobayashi.
Kiewit representatives did not respond to Civil Beat’s interview requests. Instead, the company issued statements through public relations firm Stryker Weiner & Yokota that said Kiewit does not publicly disclose who its subcontractors are or how much they are paid.
The company also said through the PR firm that it responded to HART’s request for information as provided under the terms of its contract.
But state legislators and City Council members appear ready to chip away at the secrecy in contracting practices. They’re particularly worried about the growing cost overruns on the rail project and are asking for details.
Kobayashi, the council Budget Committee chair, has become increasingly frustrated with HART, and has even threatened to take more control over the agency’s budget.
Kobayashi told Civil Beat she doesn’t understand why HART refuses to provide subcontractor data when city officials previously provided such information while Mufi Hannemann was mayor. She said it shouldn’t take an audit to pry the information from HART.
“I think they can do more,” Kobayashi said of HART. “The person’s that’s paying should know how and what they’re paying for. And the person that’s paying is the taxpayer.”