Hawai‘i contractors once felt free—some have argued too free—to contest unfavorable decisions made by State and County agencies in construction and other procurement matters. But Hawai‘i now imposes one of the costliest bond requirements in the country for the right to a hearing on an agency procurement decision. The result: Hawai‘i contractors have, for 1½ years, effectively stopped requesting procurement “appeals” before Hawai‘i’s Office of Administrative Hearings (“OAH”). And without first participating in an administrative hearing, a contractor generally cannot contest the matter in court.
History of Bonds for Hearings on Hawai‘i Bid Protests
From mid-1994 to mid-2021, OAH heard an average of approximately eight procurement matters per year according to its website. Throughout that time, Hawai‘i required either no bond at all, or a bond capped at $10,000, for a bidder to request an administrative hearing in a procurement matter.
But since July 6, 2021, the effective date of an amendment to Section 103D-709, Hawai‘i Revised Statutes (“HRS”), bidders wishing to contest an agency decision on a bid protest have been forced to furnish a cash or protest bond in the amount of 1% of the estimated value of the contract. Most significantly, the $10,000 ceiling was eliminated altogether, meaning that a contractor could be required to post a bond in the hundreds of thousands, or even millions of dollars. If the contractor loses before OAH, and does not obtain a reversal in court, the bond is forfeited to the State general fund.
Notably, in February 2020, Hawaiʻi’s State Procurement Office (“SPO”) issued findings that only six states required bonds to contest agency procurement decisions (including only three states that required bonds in all instances), and that bid protest bonds were not required for federal contracting. Further, the SPO could not identify any substantive data showing that bonds discouraged frivolous protests. In fact, the 2021 amendment clearly has had a substantial impact. Although at least 10 requests for hearing were filed in the second half of 2021 and the first half of 2022, the OAH website lists no decisions in which the hearing was requested after June 2022.
Further, one of the decisions issued after the amendment indicates that the Legislature and OAH may share a belief that disappointed bidders were simply filing too many actions. In Mira Image Construction, LLC v. State of Hawaiʻi, Dept. of Transportation, PDH-2021-014 and PDH-2021-015 (Jan. 20, 2022), the Hearings Officer posited that the “bond requirement was instituted to prevent parties from filing appeals as a ‘knee-jerk’ reaction to losing a government contract.” Thus, the “increase in the bond amount instituted in 2021 is even further evidence of the legislature’s intent to limit procurement appeals.” Id. The Hearings Officer emphasized that point both by deciding that she lacked jurisdiction over the matter (due to a defect in the bond) and by ordering the forfeiture of the bond amount of over $300,000. A court later vacated the bond forfeiture on the basis that if the Hearings Officer lacked jurisdiction to hear the appeal, she also lacked jurisdiction to retain the bond but the Hearings Officer’s point was made.
Challenges to the 2021 Amendment
At least one aggrieved party has filed an action challenging the constitutionality of the amendment. In Robert’s Hawaii School Bus, Inc. v. State of Hawaiʻi, et al., Civil No. 1CCV-23-0000754, Robert’s Hawaii sued the State, seeking a determination that the HRS § 103D-709 bond requirement is an excessive fine and is a violation of the right to petition, equal protection, and/or due process under either the Hawaiʻi or U.S. constitutions. There, Robert’s Hawaii filed a motion for summary judgment on its complaint and argued that in order for it to obtain a review of its bid protest, it would be required, unconstitutionally, to furnish a bond of over $3 million. The Robert’s suit did not work. A judge for the Circuit Court of the First Circuit concluded that the bond provision did not violate the right to petition, equal protection, or due process, and that it was not a “fine” under the meaning of the excessive fines clauses of either the Hawaiʻi or U.S. constitutions.
Conclusion
But not everyone in government is convinced that the new bond requirement is constructive. A bill pending before the State House of Representatives would, if passed, require a bond’s return (minus double the amount of OAH’s administrative costs) even if the initiating party loses the administrative proceeding so long as the appeal was not frivolous or made in bad faith. If passed, House Bill No. 2670 might help create a middle ground between competing visions of the bond requirement—and once again allow Hawaiʻi contractors to seek procurement appeals without the enormous financial risks that they now face.
This article was originally published as “Do Nonrefundable Fees Discourage Bid Protests?” in Building Management Hawaii and in Construction Commentary & Review by Construction Lawyers Society of America, LLC, as well as in the Spring/Summer 2024 issue of ke kumu, Cades Schutte’s client newsletter.
