SB 3249: Procurement; Protests; Administrative Proceedings; Cash or Protest Bonds; Forfeiture

A BILL FOR AN ACT

RELATING TO PROCUREMENT PROTESTS.

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

     SECTION 1.  The legislature finds that construction costs are increasing, due in part to prolonged protests during the procurement process.  To address this issue, the legislature enacted:

     (1)  Act 224, Session Laws of Hawaii 2021, which increased the amount of cash or protest bond required to initiate an administrative proceeding from one‑half per cent to one per cent of the estimated value of the contract; and

     (2)  Act 162, Session Laws of Hawaii 2024, which provided for the return of the cash or protest bond to the initiating party, less administrative costs, unless the initiating party does not prevail and the claim is determined to be frivolous or made in bad faith.

     To expedite the construction of projects and minimize delays due to protest claims, the legislature further finds that it would be in the best interests of the State for the cash or protest bond, less administrative costs, to be deposited into the general fund in all cases where the initiating party does not prevail.

     Accordingly, the purpose of this Act is to require the forfeiture of half of the cash or protest bond if an initiating party does not prevail in an administrative proceeding.

     SECTION 2.  Section 103D-709, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows:

     "(e)  The party initiating a proceeding falling within subsection (d) shall pay to the department of commerce and consumer affairs a cash or protest bond in the amount of one per cent of the estimated value of the contract.

     The cash or protest bond shall be returned to that party, minus administrative costs as determined by the office of administrative hearings of the department of commerce and consumer affairs; provided that [full] forfeiture of half of the cash or protest bond shall occur if the initiating party does not prevail in the administrative proceeding and the office of administrative hearings finds that the appeal was [frivolous or] made in bad faith, in which case the cash or protest bond shall be deposited into the general fund."

     SECTION 3.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     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:

Procurement; Protests; Administrative Proceedings; Cash or Protest Bonds; Forfeiture

Description:

Requires the forfeiture of half of the cash or protest bond for review of procurement-related disputes if the initiating party does not prevail in an administrative proceeding and the Office of Administrative Hearings finds that the appeal was made in bad faith.  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 PROCUREMENT PROTESTS.

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

     SECTION 1.  The legislature finds that construction costs are increasing, due in part to prolonged protests during the procurement process.  To address this issue, the legislature enacted:

     (1)  Act 224, Session Laws of Hawaii 2021, which increased the amount of cash or protest bond required to initiate an administrative proceeding from one-half per cent to one per cent of the estimated value of the contract; and

     (2)  Act 162, Session Laws of Hawaii 2024, which provided for the return of the cash or protest bond to the initiating party, less administrative costs, unless the initiating party does not prevail and the claim is determined to be frivolous or made in bad faith.

     To expedite the construction of projects and minimize delays due to protest claims, the legislature further finds that it would be in the best interests of the State for the cash or protest bond, less administrative costs, to be deposited into the general fund in all cases where the initiating party does not prevail.

     Accordingly, the purpose of this Act is to require the forfeiture of the cash or protest bond in an administrative proceeding if an initiating party does not prevail.

     SECTION 2.  Section 103D-709, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows:

     "(e)  The party initiating a proceeding falling within subsection (d) shall pay to the department of commerce and consumer affairs a cash or protest bond in the amount of one per cent of the estimated value of the contract.

     The cash or protest bond shall be returned to that party, minus administrative costs as determined by the office of administrative hearings of the department of commerce and consumer affairs; provided that full forfeiture of the cash or protest bond shall occur if the initiating party does not prevail in the administrative proceeding [and the office of administrative hearings finds that the appeal was frivolous or made in bad faith], in which case the cash or protest bond shall be deposited into the general fund."

     SECTION 3.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

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

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

Report Title:

Procurement; Protests; Administrative Proceedings; Cash or Protest Bonds; Forfeiture

Description:

Requires the forfeiture of cash or protest bond in an administrative proceeding for review of procurement-related disputes if the initiating party does not prevail.

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. 3046

Honolulu, Hawaii

RE:     S.B. No. 3249

        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 Judiciary, to which was referred S.B. No. 3249, S.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO PROCUREMENT PROTESTS,"

begs leave to report as follows:

     The purpose and intent of this measure is to require the forfeiture of half of the cash or protest bond for review of procurement-related disputes if the initiating party does not prevail in an administrative proceeding and the Office of Administrative Hearings finds that the appeal was made in bad faith.

     Your Committee received testimony in opposition to this measure from the Department of Accounting and General Services; Department of Education; Ralph S. Inouye Co LTD; General Contractors Association of Hawaii, Royal Contracting Co LTD; Jas. W. Glover, LTD.; and one individual.

     Your Committee received comments on this measure from the State Procurement Office.

     Your Committee finds that Act 162, Session Laws of Hawaii 2024 (Act 162), imposed stringent penalties for frivolous or bad faith appeals, while also establishing safeguards to protect legitimate appeals.  However, appeals, including frivolous or bad faith appeals are exceedingly rare.  Between 2023 and 2025, the State had seven administrative appeals decisions, only three of which occurred before Act 162 was enacted.  This pattern suggests that the risk of frivolous or bad faith appeals is low, while the potential for stringent penalties to deter legitimate appeals is higher than anticipated.  To protect these legitimate appeals, this measure limits the forfeiture for unsuccessful appeals to only half the cash or protest bond and removes forfeiture for frivolous appeals.

     As affirmed by the record of votes of the members of your Committee on Judiciary that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 3249, S.D. 1, and recommends that it pass Third Reading.

Respectfully submitted on behalf of the members of the Committee on Judiciary,

STAND. COM. REP. NO. 2571

Honolulu, Hawaii

RE:     S.B. No. 3249

        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. 3249 entitled:

"A BILL FOR AN ACT RELATING TO PROCUREMENT PROTESTS,"

begs leave to report as follows:

     The purpose and intent of this measure is to require the forfeiture of cash or protest bond in an administrative proceeding for review of procurement‑related disputes if the initiating party does not prevail.

     Your Committee received testimony in support of this measure from the Department of Accounting and General Services and State Procurement Office.

     Your Committee received testimony in opposition to this measure from the Subcontractors Association of Hawaii; General Contractors Association of Hawaii; Ralph S. Inouye Co., Ltd.; and one individual.

     Your Committee finds that while allowing protests of the solicitation or award of a contract is an integral accountability measure in the procurement process, prolonged disputes can cause significant delays, increasing costs and construction timelines.  Strengthening the penalty for a frivolous appeal disincentives bidders on construction projects from filing bid protests which may be spurious or without merit.  This measure increases accountability and efficiency in the procurement process.

     Your Committee acknowledges the concerns raised in testimony by various contractors that the protest provisions of the procurement code act as ethical safeguards to ensure all participating parties comply with the law.  By increasing the risk of forfeiture of the cash or protest bond, this measure may deter legitimate protests on large projects that would require significant sums for the cash or protest bond amount.  Therefore, amendments to this measure are necessary to address this concern.

     Accordingly, your Committee has amended this measure by:

     (1)  Providing that half of the cash or protests bond amount, rather than the full amount, shall be forfeited if the initiating party does not prevail in the administrative proceeding;

     (2)  Restoring existing statutory language that requires the office of administrative hearings to find that an appeal was made in bad faith, in addition to the initiating party not prevailing in the administrative proceeding, before any forfeiture of the cash or protest bond occurs;

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

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

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

     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. 3249, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 3249, S.D. 1, and be referred to your Committee on Judiciary.

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