SB 462: RELATING TO PROCUREMENT CONTRACTS.

A BILL FOR AN ACT

RELATING TO PROCUREMENT CONTRACTS.

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

     SECTION 1.  Section 103D-313, Hawaii Revised Statutes, is amended to read as follows:

     "§103D-313  Types of contracts.  (a)  Subject to the limitations of this section, any type of contract that will promote the State's best interests may be used.

     (b)  Cost-reimbursement and cost-plus-a-percentage-of-cost contracts may be used only when the chief procurement officer determines in writing that [such a contract is] these types of contracts are likely to be less costly than any other type of contract or that it is impracticable to obtain the goods, services, or construction required except by means of such a contract.  Cost-reimbursement and cost-plus-a-percentage-of-cost contracts shall not be used if their use would jeopardize the receipt of federal assistance moneys or reduce the amount of [such] federal assistance under any applicable federal statute or regulation.

     (c)  In addition to the requirements of subsections (a) and (b), a cost-plus-a-percentage-of-cost contract may not be awarded unless:

     (1)  Notice is given to the head of the compliance audit unit, president of the senate, speaker of the house of representatives, and the chairpersons of the senate ways and means and house finance committees; and

     (2)  Notice is conspicuously posted in an area accessible to the public in the office of the chief procurement officer and available for public inspection during normal business hours.

     (d)  All performance incentive contracts shall specify a pricing basis, performance goals, and a formula in calculating the contractor's profit, fee, or price decrease, if the specified performance goals are exceeded or not met.

     [(d)] (e)  The policy board shall adopt rules to implement this section."

     SECTION 2.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 3.  This Act shall take effect January 1, 2525.

Report Title:

Procurement; Contract; Performance Incentive Contracts

Description:

Requires all performance incentive contracts to specify a pricing basis, performance goals, and a formula in calculating the contractor's profit, fees, or price decrease if the specified performance goals are exceeded or not met.  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 Contracts.

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

     SECTION 1.  Section 103D-313, Hawaii Revised Statutes, is amended to read as follows:

     "§103D-313  Types of contracts.  (a)  Subject to the limitations of this section, any type of contract that will promote the State's best interests may be used.

     (b)  Cost-reimbursement and cost-plus-a-percentage-of-cost contracts may be used only when the chief procurement officer determines in writing that such a contract is likely to be less costly than any other type of contract or that it is impracticable to obtain the goods, services, or construction required except by means of such a contract.  Cost-reimbursement and cost-plus-a-percentage-of-cost contracts shall not be used if their use would jeopardize the receipt of federal assistance moneys or reduce the amount of such assistance under any applicable federal statute or regulation.

     (c)  In addition to the requirements of subsections (a) and (b), a cost-plus-a-percentage-of-cost contract may not be awarded unless:

     (1)  Notice is given to the head of the compliance audit unit, president of the senate, speaker of the house of representatives, and the chairpersons of the senate ways and means and house finance committees; and

     (2)  Notice is conspicuously posted in an area accessible to the public in the office of the chief procurement officer and available for public inspection during normal business hours.

     (d)  The policy board shall adopt rules to implement this section.

     (e)  All performance incentive contracts shall specify a pricing basis, performance goals, and a formula in calculating the contractor's profit, fee, or price decrease, if the specified performance goals are exceeded or not met.  Any moneys remaining in the contract budget upon completion of the project may be divided between the contractor and State in accordance with the ratio specified in the contract; provided that the contractor has met or exceeded all performance goals specified in the contract, as determined by the chief procurement officer."

     SECTION 2.  New statutory material is underscored.

     SECTION 3.  This Act shall take effect upon its approval.

Report Title:

Procurement; Contract; Performance Incentive Contracts

Description:

Requires all performance incentive contracts to specify a pricing basis, performance goals, and a formula in calculating the contractor's profit, fees, or price decrease if the specified performance goals are exceeded or not met.  Allows moneys remaining in the contract budget after project completion to be divided between the State and contractor if the contractor has met or exceeded all performance goals specified in the contract.

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. 190

Honolulu, Hawaii

RE:    S.B. No. 462

       S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Sir:

     Your Committee on Government Operations, to which was referred S.B. No. 462 entitled:

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

begs leave to report as follows:

     The purpose and intent of this measure is to:

     (1)  Require all performance incentive contracts to specify a pricing basis, performance goals, and a formula in calculating the contractor's profit, fees, or price decrease if the specified performance goals are exceeded or not met; and

     (2)  Allow moneys remaining in the contract budget after project completion to be divided between the State and contractor if the contractor has met or exceeded all performance goals specified in the contract.

     Your Committee received comments on this measure from the Department of Education and State Procurement Office.

     Your Committee finds that performance incentive contracts can be powerful tools in efficiently completing contracts with superior outcomes for all parties involved.  However, the complexity of these contracts necessitates explicit terms for the accountability and satisfaction of the contracting parties.  This measure will guarantee best practices in the drafting of performance incentive contracts by specifying required elements of the contract in the Hawaii Public Procurement Code.

     Your Committee has amended this measure by:

     (1)  Removing language that would have allowed the contractor and the State to divide any moneys remaining in the contact budget upon completion of the project under certain circumstances to match rules adopted by the Department of Accounting and General Services;

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

     (3)  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. 462, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 462, 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,