State finance officials rejected more than $30 million in payments to Kiewit Infrastructure West this past quarter because they believe the former rail contractor may be part of the federal criminal probe into the multibillion-dollar transit project.

Kiewit’s payments will be withheld pending the findings of the feds’ rail-related investigation, according to state comptroller Curt Otaguro.

“We’re not comfortable pursing that reimbursement until other information is provided,” Otaguro said Wednesday. “If everything’s cleared and Kiewit’s off the hook then that’s all the certification we need.”

If there’s no closure and the federal authorities don’t actually release any findings, Otaguro said the state would accept something in writing from the Honolulu Authority for Rapid Transportation “at face value” instead.

HART/Rail supports near Waipahu. Hawaii. 17 june 2015. photograph Cory Lum/Civil Beat
Kiewit Infrastructure West was awarded rail’s first major contracts, including this stretch of elevated guideway in Waipahu. Officials are now withholding more than $30 million in payments to the company pending findings of a federal investigation. Cory Lum/Civil Beat

The withheld payments to Kiewit, the prime contractor that built Honolulu rail’s first 10.5 miles of elevated track and its Pearl City operations center, are among more than $77 million in invoices that the state Department of Accounting and General Services, or DAGS, rejected in the quarter ending Sept. 30.

HART spokesman Bill Brennan said that the rail agency could cover those payments with its federal funds until the issue is resolved.

As part of their 2017 rail bailout, state leaders charged DAGS with verifying that all rail expenditures are legitimate — that they relate directly to construction — before reimbursing HART for the costs. The state agency has been scrutinizing rail invoices since 2108 and has two full-time employees working at HART’s Alii Place headquarters, Otaguro said.

Notably, the recently withheld Kiewit payments include last year’s $13.2 million negotiated settlement with HART, according to Otaguro.

That deal aimed to resolve all of the Omaha-based construction firm’s outstanding claims, and close out its rail work in West Oahu going back to 2009.

Insiders in 2016 described the relationship between Kiewit and HART as acrimonious, asserting that the construction firm was “fed up” with the city.

Kiewit saw just over $300 million in change orders on its three major rail contracts to build roughly half of Oahu’s steel and concrete guideway and the system’s operations center.

Nonetheless, at one point a former project consultant said Kiewit’s Honolulu rail contracts were costing the company $100 million.

Despite all its recent rejections, DAGS also expects to approve a separate $104 million in rail invoices for the quarter, which will be paid out to various rail contractors.

Trust, But Verify

Otaguro said he met with HART’s Chief Financial Officer and Fiscal Officer, Ruth Lohr, earlier this week to discuss the invoice rejections.

“As soon as she received it she gave us a call. She understands the state’s position,” Otaguro said. “I told her we’re doing our job and it’s our obligation to make sure the costs” are legitimate.

Besides the Kiewit invoices, DAGS rejected other invoices because they included design-related change orders, or cost increases, that state employees determined to be HART’s fault, and thus not qualify as a legitimate construction-related expense that should be paid out of the state’s special mass transit fund, Otaguro said.

“We just need more information. Ruth Lohr and her team need to provide it,” he added. “We don’t want to sound like we’re at each other’s throats. Our game is not ‘gotcha.’ We are supportive of this, but we take the responsibility seriously.”

Part of the issue, Otaguro said, is that HART is short-staffed and unable to submit the documentation DAGS needs to see for approval in a timely manner.

Eventually, he said, the rail agency might reverse much of those rejections by providing the proper paperwork.

“We have every reason to believe that most of these are justified,” Otaguro said.

But believing and proving are two different things, he added.

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