SB 2662: Auditor; External Consultants; Purchasing Agencies; Audit; Exceptions; Reports

A BILL FOR AN ACT

RELATING TO GOVERNMENT ACCOUNTABILITY.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that there is a pressing need to reduce the reliance on external consultants for work that can or should be performed by qualified government employees.  Excessive outsourcing of government functions often leads to increased costs, diminished accountability, and a loss of institutional knowledge within public agencies.  By prioritizing the use of in-house expertise, the State can foster greater transparency in its operations, ensuring that decisions about the allocation of public funds are clear, justifiable, and aligned with the best interests of taxpayers.  Moreover, reducing dependence on external consultants will promote cost efficiency, enabling government agencies to allocate resources more effectively while building and retaining institutional capacity.  Strengthening the role of public employees in performing core government functions will also enhance the long‑term sustainability and independence of state operations.  Through these efforts, the legislature seeks to ensure that public agencies are equipped to meet the evolving needs of the State in a manner that is both responsible and effective.

     Accordingly, the purpose of this Act is to reduce reliance on external consultants for work that can be performed by qualified government employees and ensure transparency, cost efficiency, and the development of in-house expertise within government agencies by:

     (1)  Requiring each purchasing agency to provide justification for hiring external consultants;

     (2)  Requiring each agency to seek approval from the legislature for consulting contracts exceeding a certain dollar amount;

     (3)  Requiring each agency to submit annual reports to the legislature;

     (4)  Requiring the compliance audit unit within the office of the auditor to conduct regular audits of agency consultant contracts to assess cost‑effectiveness and compliance; and

     (5)  Requiring each chief procurement officer to ensure that inherent government functions are not delegated to a contractor.

     SECTION 2.  Chapter 103D, Hawaii Revised Statutes, is amended by adding a new section to part III to be appropriately designated and to read as follows:

     "§103D-     External consultants; justification; spending caps; reporting requirements; audits.  (a)  Notwithstanding section 103D‑301, each purchasing agency shall:

     (1)  Provide detailed justification for hiring external consultants by:

          (A)  Demonstrating the lack of in-house capacity or expertise;

          (B)  Conducting a cost-benefit analysis that compares consultant costs with the expenses of hiring or training state employees; and

          (C)  Publishing justification reports for public and legislative review;

     (2)  Seek approval from the legislature for any contract for consulting services exceeding $          ; and

     (3)  Submit an annual report to the legislature no later than twenty days prior to the convening of each regular session on its contracts with external consultants, which shall include:

          (A)  The number of external consultants used; and

          (B)  The percentage of the purchasing agency's budget spent on consulting.

     (b)  The compliance audit unit, from the office of the auditor, shall conduct regular audits of each purchasing agency's external consultant contracts to assess the cost‑effectiveness of the contracts and compliance with this section.

     (c)  This section shall not apply to the contracting of external consultants for:

     (1)  Technical or specialized expertise unavailable in the department; and

     (2)  Short-term emergency needs, including disaster response or urgent technical projects."

     SECTION 3.  Section 103D-205, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  For their respective jurisdictions and unless otherwise specifically provided in this chapter, each chief procurement officer shall serve as the central procurement officer for the officer's respective jurisdiction and:

     (1)  Procure or supervise the procurement of all goods, services, and construction;

     (2)  Exercise general supervision and control over all inventories of goods;

     (3)  Sell, trade, or otherwise dispose of surplus goods;

     (4)  Establish and maintain programs for the inspection, testing, and acceptance of goods, services, and construction;

     (5)  Coordinate with the administrator regarding procurement policies, opportunities for statewide innovation implementation, and concerns;

     (6)  Report procurement contract data pursuant to requirements established by the administrator, in the form and manner prescribed by the state procurement office; [and]

     (7)  Assist and cooperate with the administrator regarding any compliance review by the administrator pursuant to section 103D-206[.]; and

     (8)  Ensure that inherent government functions are not delegated to a contractor."

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on January 1, 2525.

Report Title:

Auditor; External Consultants; Purchasing Agencies; Audit; Exceptions; Reports

Description:

Requires each purchasing agency to provide justification for hiring external consultants.  Requires each agency to seek approval from the Legislature for consulting contracts exceeding a certain dollar amount.  Requires annual reports to the Legislature.  Requires the Compliance Audit Unit within the Office of the Auditor to conduct regular audits of agency consultant contracts to assess cost-effectiveness and compliance.  Establishes exceptions.  Requires each chief procurement officer to ensure that inherent government functions are not delegated to a contractor.  Effective 1/1/2525.  (SD2)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

RELATING TO GOVERNMENT ACCOUNTABILITY.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that there is a pressing need to reduce the reliance on external consultants for work that can or should be performed by qualified government employees.  Excessive outsourcing of government functions often leads to increased costs, diminished accountability, and a loss of institutional knowledge within public agencies.  By prioritizing the use of in-house expertise, the State can foster greater transparency in its operations, ensuring that decisions about the allocation of public funds are clear, justifiable, and aligned with the best interests of taxpayers.  Moreover, reducing dependence on external consultants will promote cost efficiency, enabling government agencies to allocate resources more effectively while building and retaining institutional capacity.  Strengthening the role of public employees in performing core government functions will also enhance the long‑term sustainability and independence of state operations.  Through these efforts, the legislature seeks to ensure that public agencies are equipped to meet the evolving needs of the State in a manner that is both responsible and effective.

     Accordingly, the purpose of this Act is to reduce reliance on external consultants for work that can be performed by qualified government employees and ensure transparency, cost efficiency, and the development of in-house expertise within government agencies by:

     (1)  Requiring each purchasing agency to provide justification for hiring external consultants;

     (2)  Requiring each agency to seek approval from the legislature for consulting contracts exceeding a certain dollar amount;

     (3)  Requiring each agency to submit annual reports to the legislature;

     (4)  Requiring the compliance audit unit within the office of the auditor to conduct regular audits of agency consultant contracts to assess cost‑effectiveness and compliance; and

     (5)  Requiring each chief procurement officer to ensure that inherent government functions are not delegated to a contractor.

     SECTION 2.  Chapter 103D, Hawaii Revised Statutes, is amended by adding a new section to part III to be appropriately designated and to read as follows:

     "§103D-    External consultants; justification; spending caps; reporting requirements; audits.  (a)  Notwithstanding section 103D‑301, each purchasing agency shall:

     (1)  Provide detailed justification for hiring external consultants by:

          (A)  Demonstrating the lack of in-house capacity or expertise;

          (B)  Conducting a cost-benefit analysis that compares consultant costs with the expenses of hiring or training state employees; and

          (C)  Publishing justification reports for public and legislative review;

     (2)  Seek approval from the legislature for any contract for consulting services exceeding $          ; and

     (3)  Submit an annual report to the legislature no later than twenty days prior to the convening of each regular session on its contracts with external consultants, which shall include:

          (A)  The number of external consultants used; and

          (B)  The percentage of the purchasing agency's budget spent on consulting.

     (b)  The compliance audit unit shall conduct regular audits of each purchasing agency's external consultant contracts to assess the cost-effectiveness of the contracts and compliance with this section.

     (c)  This section shall not apply to the contracting of external consultants for:

     (1)  Technical or specialized expertise unavailable in the department; and

     (2)  Short-term emergency needs, including disaster response or urgent technical projects."

     SECTION 3.  Section 103D-205, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  For their respective jurisdictions and unless otherwise specifically provided in this chapter, each chief procurement officer shall serve as the central procurement officer for the officer's respective jurisdiction and:

     (1)  Procure or supervise the procurement of all goods, services, and construction;

     (2)  Exercise general supervision and control over all inventories of goods;

     (3)  Sell, trade, or otherwise dispose of surplus goods;

     (4)  Establish and maintain programs for the inspection, testing, and acceptance of goods, services, and construction;

     (5)  Coordinate with the administrator regarding procurement policies, opportunities for statewide innovation implementation, and concerns;

     (6)  Report procurement contract data pursuant to requirements established by the administrator, in the form and manner prescribed by the state procurement office; [and]

     (7)  Assist and cooperate with the administrator regarding any compliance review by the administrator pursuant to section 103D-206[.]; and

     (8)  Ensure that inherent government functions are not delegated to a contractor."

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on January 1, 2525.

Report Title:

Auditor; External Consultants; Purchasing Agencies; Audit; Exceptions; Reports

Description:

Requires each purchasing agency to provide justification for hiring external consultants.  Requires each agency to seek approval from the Legislature for consulting contracts exceeding a certain dollar amount.  Requires annual reports to the Legislature.  Requires the Compliance Audit Unit within the Office of the Auditor to conduct regular audits of agency consultant contracts to assess cost-effectiveness and compliance.  Establishes exceptions.  Requires each chief procurement officer to ensure that inherent government functions are not delegated to a contractor.  Effective 1/1/2525.  (SD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

RELATING TO GOVERNMENT ACCOUNTABILITY.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that there is a pressing need to reduce the reliance on external consultants for work that can or should be performed by qualified government employees.  Excessive outsourcing of government functions often leads to increased costs, diminished accountability, and a loss of institutional knowledge within public agencies.  By prioritizing the use of in-house expertise, the State can foster greater transparency in its operations, ensuring that decisions about the allocation of public funds are clear, justifiable, and aligned with the best interests of taxpayers.  Moreover, reducing dependence on external consultants will promote cost efficiency, enabling government agencies to allocate resources more effectively while building and retaining institutional capacity.  Strengthening the role of public employees in performing core government functions will also enhance the long‑term sustainability and independence of state operations.  Through these efforts, the legislature seeks to ensure that public agencies are equipped to meet the evolving needs of the State in a manner that is both responsible and effective.

     Accordingly, the purpose of this Act is to reduce reliance on external consultants for work that can be performed by qualified government employees and ensure transparency, cost efficiency, and the development of in-house expertise within government agencies by:

     (1)  Requiring each purchasing agency to provide justification for hiring external consultants;

     (2)  Capping the amount each agency can spend on external consultants;

     (3)  Requiring each agency to seek approval from the legislature for consulting contracts exceeding a certain dollar amount;

     (4)  Requiring each agency to disclose all new contracts with external consultants;

     (5)  Requiring each agency to submit annual reports to the legislature;

     (6)  Requiring the compliance audit unit within the office of the auditor to conduct regular audits of agency consultant contracts to assess cost‑effectiveness and compliance; and

     (7)  Requiring each chief procurement officer to ensure that inherent government functions are not delegated to a contractor.

     SECTION 2.  Chapter 103D, Hawaii Revised Statutes, is amended by adding a new section to part III to be appropriately designated and to read as follows:

     "§103D-    External consultants; justification; spending caps; reporting requirements; audits.  (a)  Notwithstanding section 103D‑301, each purchasing agency shall:

     (1)  Provide detailed justification for hiring external consultants by:

          (A)  Demonstrating the lack of in-house capacity or expertise;

          (B)  Conducting a cost-benefit analysis that compares consultant costs with the expenses of hiring or training state employees; and

          (C)  Publishing justification reports for public and legislative review;

     (2)  Spend not more than       per cent of the purchasing agency's budget on consulting services;

     (3)  Seek approval from the legislature for any contract for consulting services exceeding $          ;

     (4)  Disclose all contracts the purchasing agency awards to external consultants after the effective date of this Act, including:

          (A)  The total costs of each contract, broken down by service and duration;

          (B)  The names of consultants and firms; and

          (C)  The work scope and deliverables; and

     (5)  Submit an annual report to the legislature no later than twenty days prior to the convening of each regular session on its contracts with external consultants, which shall include:

          (A)  The number of external consultants used; and

          (B)  The percentage of the purchasing agency's budget spent on consulting.

     (b)  The compliance audit unit shall conduct regular audits of each purchasing agency's external consultant contracts to assess the cost-effectiveness of the contracts and compliance with this section.

     (c)  This section shall not apply to the contracting of external consultants for:

     (1)  Highly technical or niche expertise unavailable in the State; and

     (2)  Short-term emergency needs, including disaster response or urgent technical projects."

     SECTION 3.  Section 103D-205, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  For their respective jurisdictions and unless otherwise specifically provided in this chapter, each chief procurement officer shall serve as the central procurement officer for the officer's respective jurisdiction and:

     (1)  Procure or supervise the procurement of all goods, services, and construction;

     (2)  Exercise general supervision and control over all inventories of goods;

     (3)  Sell, trade, or otherwise dispose of surplus goods;

     (4)  Establish and maintain programs for the inspection, testing, and acceptance of goods, services, and construction;

     (5)  Coordinate with the administrator regarding procurement policies, opportunities for statewide innovation implementation, and concerns;

     (6)  Report procurement contract data pursuant to requirements established by the administrator, in the form and manner prescribed by the state procurement office; [and]

     (7)  Assist and cooperate with the administrator regarding any compliance review by the administrator pursuant to section 103D-206[.]; and

     (8)  Ensure that inherent government functions are not delegated to a contractor."

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect upon its approval.

Report Title:

Auditor; External Consultants; Purchasing Agencies; Disclosure Requirements; Spending Caps; Audit; Exceptions; Reports

Description:

Requires each purchasing agency to provide justification for hiring external consultants.  Caps the amount each agency can spend on external consultants.  Requires each agency to seek approval from the Legislature for consulting contracts exceeding a certain dollar amount.  Requires each agency to disclose new contracts with external consultants.  Requires annual reports to the Legislature.  Requires the Compliance Audit Unit within the Office of the Auditor to conduct regular audits of agency consultant contracts to assess cost-effectiveness and compliance.  Establishes exceptions.  Requires each chief procurement officer to ensure that inherent government functions are not delegated to a contractor. 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO. 3004

Honolulu, Hawaii

RE:     S.B. No. 2662

        S.D. 2

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

     Your Committee on Ways and Means, to which was referred S.B. No. 2662, S.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO GOVERNMENT ACCOUNTABILITY,"

begs leave to report as follows:

     The purpose and intent of this measure is to reduce reliance on external consultants for work that may be performed by qualified government employees.

     More specifically, this measure:

     (1)  Requires each purchasing agency to provide justification for hiring external consultants;

     (2)  Requires each agency to seek approval from the Legislature for consulting contracts exceeding a certain dollar amount;

     (3)  Requires each agency to submit annual reports to the Legislature regarding external consultations;

     (4)  Requires the Compliance Audit Unit to conduct regular audits of agency consultant contracts to assess cost‑effectiveness and compliance; and

     (5)  Requires each Chief Procurement Officer to ensure that inherent government functions are not delegated to a contractor.

     Your Committee received written comments in opposition to this measure from the Department of Accounting and General Services, Employees' Retirement System, City and County of Honolulu Department of Parks and Recreation, Honolulu Authority for Rapid Transportation, City and County of Honolulu Board of Water Supply, and City and County of Honolulu Department of Transportation Services.

     Your Committee received written comments on this measure from the Department of the Attorney General, Department of Education, Office of the Auditor, State Procurement Office, and Office of the Mayor of the City and County of Honolulu.

     Your Committee finds that there is a pressing need to reduce reliance on external consultants for the performance of work that qualified government employees can or should perform.  Excessive outsourcing of government functions often leads to increased costs, diminished accountability, and a loss of institutional knowledge within public institutions.  Accordingly, your Committee believes that this measure will lead to greater transparency and ensure that decisions about the allocation of public funds are clear, justifiable, and aligned with the best interests of the State's taxpayers.

Should a Committee in the House of Representatives hear this measure, your Committee respectfully requests that it consider the concerns expressed by the Department of the Attorney General and Employees' Retirement System in their written comments.

Specifically, the Department of the Attorney General expressed concerns that:

     (1)  The requirement for purchasing agencies to seek legislative approval for any consulting contract exceeding a certain amount may delay time-sensitive projects and disrupt government operations when the Legislature is not in session;

     (2)  The measure does not exclude the appointment of Special Deputy Attorneys General from its requirements, which may delay the appointment process when specialized legal expertise beyond current staffing is needed;

     (3)  The measure does not exclude the retention of expert witnesses from its requirements, and subjecting expert witness retention to public justification, approval, and reporting requirements may impair the State's ability to prosecute and defend matters effectively, risk the disclosure of attorney work product and litigation strategies, and create unworkable delays in prosecutions; and

     (4)  The measure does not define the term "inherent government functions," and the absence of a definition may create uncertainty and lead to inconsistent application across state agencies.

The Employees' Retirement System offered its concerns that the reporting and approvals required by the measure may compromise the nimbleness necessary to execute external contracts vital to the operation of the System, specifically by:

     (1)  Requiring for legislative approval of contracts above a certain threshold, which would likely constrain the Board of Trustees' ability to fulfill its fiduciary duty to provide expert and necessary consultative resources to responsibly administer the System; and

     (2)  Imposing justification and reporting requirements that could impair the Board's ability to use external consultants for specialized roles that currently have a twenty-five percent vacancy rate, in part due to recruitment challenges for these specialized positions.

     Your Committee has amended this measure by adopting a technical amendment recommended by the State Procurement Office in its written comments to clarify that the Compliance Audit Unit referenced is within the Office of the Auditor.

     As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2662, S.D. 1, as amended herein, and recommends that it pass Third Reading in the form attached hereto as S.B. No. 2662, S.D. 2.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,

STAND. COM. REP. NO. 2626

Honolulu, Hawaii

RE:     S.B. No. 2662

        S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

     Your Committee on Government Operations, to which was referred S.B. No. 2662 entitled:

"A BILL FOR AN ACT RELATING TO GOVERNMENT ACCOUNTABILITY,"

begs leave to report as follows:

     The purpose and intent of this measure is to:

     (1)  Require each purchasing agency to provide justification for hiring external consultants;

     (2)  Cap the amount each agency can spend on external consultants;

     (3)  Require each agency to seek approval from the Legislature for consulting contracts exceeding a certain dollar amount;

     (4)  Require each agency to disclose new contracts with external consultants;

     (5)  Require annual reports to the Legislature;

     (6)  Require the Compliance Audit Unit within the Office of the Auditor to conduct regular audits of agency consultant contracts to assess cost-effectiveness and compliance;

     (7)  Establish exceptions; and

     (8)  Require each chief procurement officer to ensure that inherent government functions are not delegated to a contractor.

     Your Committee received testimony in opposition to this measure from the Department of Transportation, Employees' Retirement System, American Council of Engineering Companies of Hawaii, Airlines Committee of Hawaii, and two individuals.

     Your Committee received comments on this measure from the Department of Accounting and General Services, Department of Education, State Procurement Office, and the Office of the Auditor.

     Your Committee finds that excessive outsourcing of government functions often leads to increased costs, diminished accountability, and a loss of institutional knowledge within public agencies. Nonetheless, your Committee finds that many state departments make use of external consultants to provide services that the departments' internal staff are unable to provide due to limited staffing, the volume and complexity of work, and the lack of highly specialized skills.  Your Committee believes that, if the state government reduced its reliance on external consultants and prioritized the use of in-house expertise, the State would foster greater transparency in its operations, promote cost efficiency, and enhance the sustainability of government operations.  This measure will ensure public agencies are responsible, effective, and equipped to meet the evolving needs of the State by reducing the use of external consultants for work that can be performed by qualified government employees.

     Your Committee has amended this measure by:

     (1)  Deleting language that would have capped the amount each purchasing agency could spend on external consulting services;

     (2)  Deleting language that would have required each purchasing agency to disclose certain details of all new contracts it awards to external consultants;

     (3)  Clarifying that the requirements do not apply to the contracting of external consultants for technical or specialized expertise unavailable in the department;

     (4)  Amending section 1 to reflect its amended purpose;

     (5)  Inserting an effective date of January 1, 2525, to encourage further discussion; and

     (6)  Making technical, nonsubstantive amendments for the purposes of clarity and consistency.

     Your Committee has heard the testimony of the Office of the Auditor expressing concerns that it is not able to conduct the audits required by this measure due to lack of staffing and fiscal resources.  Your Committee finds that this issue raises concerns that merit further consideration and requests that your Committee on Ways and Means consider appropriating funds, including funds to hire full-time equivalent (FTE) employees, to effectuate the purpose of this measure.

     As affirmed by the record of votes of the members of your Committee on Government Operations that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2662, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2662, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Government Operations,