New Hawaii construction laws found to violate federal housing and development rules

HONOLULU—The U.S. Department of Housing and Urban Development (HUD) has notified the State that two laws that went into effect after the Legislature overrode Gov. Linda Lingle’s vetoes violate federal housing and development rules. HUD has instructed the State and counties to stop applying the two laws to procurement contracts that use HUD Community Planning and Development (CPD) funds.

In a September 16, 2010 HUD Region IX Information Bulletin, Mark Chandler, director of HUD’s Office of Community Planning and Development, announced that Act 17 of 2009 and Act 68 of 2010 impose “preferences in violation of HUD procurement regulations.” 

Act 68 requires that 80 percent of the workforce on public construction projects must be local residents. Act 17 favors bidders who have apprenticeship programs. HUD’s procurement requirements prohibit “the use of statutorily or administratively imposed in-state or local geographically preferences in the evaluation of bids or proposals.”

The HUD Information Bulletin also stated that, “due to the seriousness of the matter and the impact on all HUD funded projects in Hawaii, the Office of CPD in Honolulu has referred this matter to their federal Office of General Counsel” in Washington, D.C.

In the interim, HUD has instructed the State, counties, and contractors that these two laws may not be applied to construction projects or other procurement contracts using community planning and development grant federal funds.

Lingle, in her veto messages, warned of the adverse impacts both of these bills would have on public projects in Hawaii. In particular she questioned the legal validity of Act 68 that placed a residency requirement on contractors.

In light of the federal HUD decision, the State intends to ask for a federal ruling on whether these two laws violate federal procurement laws and regulations issued by other federal agencies. The governor is also recommending that the Legislature repeal these two laws when it reconvenes in January for the 2011 legislative session.

“I encourage the Legislature to take immediate steps to repeal these two laws since they place federally funded public construction projects in Hawaii in jeopardy and could even subject the State to fines and penalties for violating federal procurement rules,” Lingle said in a statement. “In addition to the legality of an ambiguous residency quota and procurement preference, I vetoed these measures because they discourage job creation, delay and increase the cost of public construction projects, and stall our economic recovery.”

To read the HUD information bulletin, click here.