Government Competition

Establishes general policy of relying on the private sector for
the provision of goods and services, except for inherently
governmental functions and other conditions.  Prohibits
government from obtaining goods and services from, or providing
goods and services to, any other governmental entity.

THE SENATE                              S.B. NO.           971
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that there is a need to
 2 help Hawaii state government to achieve budget savings and to
 3 rethink where best to spend its limited resources.  The
 4 government, like the private sector, must focus on its "core
 5 competencies" -- those services that are central to its mission
 6 and must, for sound policy reasons, be performed by government
 7 employees.
 8      The legislature further finds that government should
 9 competitively outsource those functions that are not among its
10 core competencies and for which performance by the private sector
11 represents the best value to the taxpayer.  Outsourcing has the
12 potential to produce tremendous savings, which will allow
13 government to focus on other important issues, such as increasing
14 the State's economic diversity, high technology, and upgrading
15 the education system to be more responsive to the needs of new
16 technologies.
17      The legislature finds that this Act will help to boost
18 Hawaii's economy by helping to create new jobs in the private
19 sector, particularly in small business; expand state and county

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 1 tax bases as a result of private sector growth; and refocus
 2 government on its core missions and those inherently governmental
 3 activities that only government should perform.
 4      SECTION 2.  The Hawaii Revised Statutes is amended by adding
 5 a new chapter to be appropriately designated and to read as
 6 follows:
 7                             "CHAPTER
 9         -1  Findings.  The legislature finds and declares that:
10      (1)  Private sector business concerns, which are free to
11           respond to the private or public demands of the
12           marketplace, constitute the strength of the American
13           economic system;
14      (2)  Competitive private sector enterprises are for the most
15           part productive, efficient, and effective sources of
16           goods and services;
17      (3)  Government competition with the private sector has
18           risen to unacceptably high levels;
19      (4)  When government engages in entrepreneurial activities
20           that are beyond its core mission and compete with the
21           private sector:
22           (A)  The focus and attention of government are diverted
23                from executing its basic mission and objectives;

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 1                and
 2           (B)  Those activities may constitute unfair government
 3                competition with the private sector;
 4      (5)  Current laws and policies have failed to adequately
 5           address the problem of government competition with the
 6           private sector; and
 7      (6)  It is in the public interest that the State establish a
 8           consistent policy to rely on the private sector to
 9           provide goods and services that are necessary for or
10           beneficial to the operation and management of state
11           agencies and to avoid unnecessary government
12           competition with the private sector.
13         -2  Definitions.  As used in this chapter, unless the
14 context clearly requires otherwise:
15      "Agency" or "state agency" means any board, council,
16 authority, bureau, division, commission, department, institution,
17 or other administrative unit of the State.
18      "Inherently governmental function" means a function that is
19 so intimately related to the public interest as to mandate
20 performance by government employees.  Such functions include
21 activities that require either the exercise of discretion in
22 applying government authority or exercising value judgments in
23 making decisions for the government, including judgments relating

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 1 to monetary transactions and entitlements.  An inherently
 2 governmental function involves, among other things, the
 3 interpretation and execution of the laws of the State so as to:
 4      (1)  Obligate the State to take or not to take some action
 5           by contract, policy, rule, authorization, order, or
 6           otherwise;
 7      (2)  Determine, protect, and advance its economic,
 8           political, territorial, property, or other interests by
 9           civil or criminal judicial proceedings, contract
10           management, or otherwise;
11      (3)  Significantly affect the life, liberty, or property of
12           private persons;
13      (4)  Commission, appoint, direct, or control officers or
14           employees of the State; or
15      (5)  Exert ultimate control over the acquisition, use, or
16           disposition of the property, real or personal, tangible
17           or intangible, of the State, including the control or
18           disbursement of appropriated and other state funds.
19      "Inherently governmental functions" do not include:
20      (1)  Gathering information for or providing advice,
21           opinions, recommendations, or ideas to government
22           officials;
23      (2)  Any function that is primarily ministerial or internal

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 1           in nature, such as providing building security, mail
 2           operations, operations of cafeterias, laundry and
 3           housekeeping, facilities operations and maintenance,
 4           warehouse operations, motor vehicle fleet management
 5           and operations, or other routine electrical or
 6           mechanical services; or
 7      (3)  Any good or service which is currently or could
 8           reasonably be produced or performed, respectively, by
 9           an entity in the private sector.
10         -3  Reliance on the private sector.  (a)
11 Notwithstanding any law to the contrary, and except as provided
12 in subsection (c), each agency shall procure from sources in the
13 private sector all goods and services that are necessary for or
14 beneficial to the accomplishment of authorized functions of the
15 agency.
16      (b)  No agency may begin or carry out any activity to
17 provide any products or services that can be provided by the
18 private sector.  No agency may obtain any goods or services from
19 or provide any goods or services to any other governmental
20 entity.
21      (c)  Subsections (a) and (b) do not apply to goods or
22 services necessary for or beneficial to the accomplishment of
23 authorized functions of any agency if:

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 1      (1)  The goods or services are inherently governmental
 2           functions or the director of finance determines that
 3           the provision of the goods or services is otherwise an
 4           inherently governmental function;
 5      (2)  The head of the agency determines that the goods or
 6           services should be produced, provided, or manufactured
 7           by the government for reasons of state security;
 8      (3)  The government is the best value source of the goods or
 9           services in accordance with section    -4(b)(3); or
10      (4)  The private sector sources of the goods or services, or
11           the practices of those sources, are inadequate to
12           satisfy the agency's requirements.
13      (d)  The director of finance may:
14      (1)  Require a state agency to conduct an in-house cost
15           estimate, or management study of any aspect of a
16           government function to determine the potential for
17           privatization; and
18      (2)  Require a state agency to release a request for
19           proposals or invitation for bids pursuant to chapter
20           103D for any goods or services deemed appropriate for
21           privatization.
22      (e)  The director of finance shall:
23      (1)  Identify, with the assistance of state agencies, goods

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 1           and services in state government appropriate for
 2           privatization;
 3      (2)  Develop minimum savings criteria for governing the
 4           award of contracts resulting from the competitive
 5           government process; and
 6      (3)  Execute each of the following with the assistance of
 7           appropriate state agencies:
 8           (A)  Develop a costing model that accurately estimates
 9                and accounts for the total cost of providing a
10                government function and develop methods by which
11                state in-house costs can be compared to private
12                sector costs.  The model shall take into account
13                relevant costs for determining whether savings
14                would result from the privatization of a
15                government function.  The model shall specifically
16                account for conversion, transaction, disruption,
17                contract monitoring costs, and revenue increases
18                and decreases related to a privatization.  To
19                determine whether to privatize a government
20                function, the head of the state agency in charge
21                of the government function shall ensure that all
22                costs (including the costs of quality assurance,
23                technical monitoring of the performance of such

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 1                function, bid and proposal and independent
 2                research and development costs, liability
 3                insurance, product and performance liability
 4                costs, fringe and employee retirement and
 5                disability benefits, and all other allocated
 6                indirect overhead costs) are realistic and fair;
 7           (B)  Develop a handbook and training program that
 8                educate state agencies in the competitive
 9                government process; and
10           (C)  Preapprove requests for proposals and invitations
11                for bids, as the department deems appropriate,
12                that could result in the privatization or transfer
13                of a government function to another state agency.
14         -4  Rules.(a)  The director of finance shall adopt
15 rules pursuant to chapter 91 as may be necessary to implement
16 this chapter.
17      (b)  Consistent with the policy and prohibitions set forth
18 in section    -3, the rules shall include the following:
19      (1)  A preference for the provision of goods and services by
20           private sector sources;
21      (2)  Allow the director of finance, in consultation with the
22           director of human resources development, to furnish
23           information on relevant available benefits and

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 1           assistance to state government employees adversely
 2           affected by privatization conversions;
 3      (3)  Best value sources, which shall include standards and
 4           procedures for determining whether to privatize a
 5           government function including direct and indirect costs
 6           performed in a manner consistent with generally
 7           accepted cost-accounting principles, the qualifications
 8           of sources, the past performance of sources, and any
 9           other technical and noncost factors that are relevant;
10           provided that the director of finance shall consult
11           with persons from the private and public sectors in
12           developing the standards and procedures; and
13      (4)  A methodology for determining the types of government
14           functions that should be retained or transferred to
15           another agency.
16      The rules shall not contravene any law or rules regarding
17 state government employees.
18      SECTION 3.  The governor shall appoint a task force composed
19 of members of the public and private sectors to study the impact
20 of this Act on the privatization of government goods and
21 services, the procurement of goods and services in state
22 government, and any other related areas regarding the
23 implementation of this Act.  The members of the task force shall

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 1 serve without compensation, but shall be reimbursed for expenses,
 2 including travel expenses, necessary for the performance of their
 3 duties.  The task force shall submit its findings and
 4 recommendations, including any proposed implementing legislation,
 5 to the governor and the legislature no later than twenty days
 6 before the convening of the regular session of 2000.
 7      SECTION 4.  It is the intent of this Act not to jeopardize
 8 the receipt of any federal aid nor to impair the obligation of
 9 the State or any agency thereof to the holders of any bond issued
10 by the State or by any such agency, and to the extent, and only
11 to the extent, necessary to effectuate this intent, the governor
12 may modify the strict provisions of this Act, but shall promptly
13 report any such modification with reasons therefor to the
14 legislature at its next session thereafter for review by the
15 legislature.
16      SECTION 5.  This Act shall take effect upon its approval.
18                           INTRODUCED BY:  _______________________