Marketing Through State Procurements

1. Marketing Through State Procurements Elizabeth Haws Connally, Esq. Alston Hunt Floyd & Ing March 9, 2009 704875

2. State Government Buyer of Ag Products • Schools • Prisons • Hospitals • State has strong buying power to support purchasing local products

3. Hawaii Procurement Process • Most purchases of goods and services by government entities are controlled by the terms and conditions of HRS Chapter 103D.

4. Current Statutory Preferences for Hawaii Products • Under HRS §103D-1001 Government agencies are to apply a preference of 3-5 % to purchases of Hawaii products.

5. Current Statutory Preferences for Hawaii Products • HRS §103D-1001 defines “Hawaii products” as products mined excavated, produced, manufactured, raised, or grown in the state where the input constitutes no less than 25% of the manufactured cost; provided that: • Where the value of the input constitutes 25% or more, but less than 50%, of the manufactured cost, class I product; • Where the value of the input constitutes 50% cent or more, but less than 75%, of the manufactured cost, class II product; and • Where the value of the input constitutes 75% or more of the manufactured cost, class III product.

6. Why Are Hawaii Products Not Receiving Preference? • Administrative Rule HAR §3-120-4(b) Exempts purchases of fresh meats, produce, plants and animals from HRS Chapter 103D.

7. What Does It Mean to be Exempt from HRS 103D? • Procurement rules do not apply to purchases - including the statutory preference provisions for Hawaii products. • Agencies can ignore the preferences and protections of HRS Chapter 103D.

8. What Does It Mean to be Exempt from HRS 103D? • Agencies don’t have to openly advertise request for proposal. • Even if a Hawaii Farmer or Rancher is listed with the State Procurement Office as a producer of local products, agencies have no obligation to give a preference for their products due to HAR §3-120-4(b).

9. Exemption Also Denies Hawaii Farmers Other Benefits • HAR §3-120-4(b) also prevents products from Hawaii’s Farmers and Ranchers from receiving the benefits of the small business set-aside program: • HRS §103D-906 permits government agencies to set-aside contracts for purchases from small businesses. • HAR §3-124-73 – provides that government procurement officers shall set-aside such contracts which are suitable for performance by small business.

10. Movement To Provide Benefits Of Preference And Other Protections Under HRS Chapter 103D • HB 988 and SB 506 – moving through Legislature • Purpose: • Removes HAR exemptions - procurement code will apply to government purchases of Hawaii products. • Streamlines administration – Hawaii Farmer or Rancher self-certifies the product meets the minimum specifications to receive the preference. • Provides 10-15% preference for Hawaii products. • Also permits Hawaii Farmer or Rancher to benefit from small business set-aside contracts.

11. Hawaii Small Business Preference Program Using the State’s Buying Power to Nurture Small Businesses

12. When Did The Small Business Preference Program Start? In 2005, the Legislature passed the Small Business Preference Bill and the Governor signed into law – Act 50

13. What Is The Small Business Preference Program? • The program provides procedures to use the State’s buying power to: • Promote economic growth • Enhance the ability of small businesses to win and successfully perform federal, state and local government contracts • Develop competitiveness for commercial contracts • Increase employment opportunities for local workers

14. Specifics of the Small Business Preference Rules Administrative Rules Implement Act 50 HAR §3-124-70 – Purpose: • Strengthen and nurture emerging Hawaii industries; • Increase competition by broadening the local small business contractor base; • Develop and enhance the ability of local small businesses to win and successfully perform federal, state, and local government contracts; • Provide increased employment opportunities for local workers in high-skill trades and technical fields; and • Ensure the Small Business Preference program is implemented so as to maximize competition and obtain quality goods, services, and construction at reasonable prices.

15. How Does This Work? HAR § 3-124-71 Small Business Utilization Council Council established to provide recommendations to the Procurement Policy Board to: • Set annual small business utilization goals; • Identify emerging industries, geographic areas within the State, and under-utilized workforce resources where small business preference purchases will promote State goals; • Coordinate with purchasing agencies to encourage set-asides for small businesses.

16. How Does This Work? HAR § 3-124-73.1 Implementation of Small Business Preference by Heads of Agencies Rule provides steps for agencies to implement small business preference in purchases: • Step 1: Identify small business size standard for each procurement. • Step 2: Identify procurements for small business set-asides. • Step 3: Insert small business set-aside provisions into solicitation. • Step 4: If procurement is not likely to be performed by a small business, insert in solicitation small business subcontracting incentive clause. • Step 5: Agency required to use competitive source selection for all procurements including small business set-asides.

17. What Can The Program Accomplish? • Small Business Preference program allows the State to harness its purchasing power to benefit the people of Hawaii • Program has endless potential for Hawaii’s small businesses • FY2009/2010 State Budget - $10+ billion • These expenditures are opportunities for small businesses

18. Small Businesses Are the Very Foundation of Hawaii’s Economy Program will use State’s purchasing power to: • Strengthen Hawaii’s economic foundation – Small Business • Advance Hawaii’s sustainment goals • Improve job opportunities • Promote and nurture potential growth industries • Agricultural • High tech • Environmental

19. Questions ? Thank You Elizabeth Haws ConnallyAlston Hunt Floyd & Ing808-524-1800Ehaws@AHFI.com