University of Hawaii Procurement Under Fire for Wasting Millions of Dollars on Fraud and Corruption

BY MALIA ZIMMERMAN – When the University of Hawaii hired architect Bryce Uyehara to design a stadium for the women’s softball team, the project completed in 1998 didn’t turn out quite how the fans or the players expected.

The architect designed the “line of sight” too high, so spectators sitting in the stands could not see home plate or much of the batter’s body. The mistake, which made news headlines, cost the University more than $500,000. Most people believed the University administration would avoid hiring that architect for future jobs, but Uyehara was hired again in 2011 to perform major renovations on the Gateway House student dormitory – a $12 million project completed in August 2012.

These are the kinds of decisions local construction industry leaders are questioning as the University doles out a total of $622 million in contracts including $206 million for major contracts now underway, $229 million of major projects being procured and $187 million in health, safety, code and repairs and maintenance projects.

Waste, Fraud and Corruption in University Procurement Alleged

Dennis Mitsunaga, a successful and politically connected government contractor who has worked for virtually every state agency over the last 40 years, sent shock waves through his industry when he testified at a recent Senate hearing about waste, fraud and abuse that he witnessed firsthand in the University’s procurement system.

Mitsunaga, a practicing structural engineer since 1969 and a general contractor since 1971, has worked on several projects including the University of Hawaii Chemistry building, the University of Hawaii Cancer Research Center, the Rainbow Baseball Stadium, and the University of Hawaii- Hilo Housing Project, Phase 1.

In an explosive February 14 letter to senators in support Senate President Donna Mercado Kim’s bill that would transfer University procurement oversight from University Board of Regents and University administration to the state Department of Accounting and General Services, Mitsunaga laid out several examples of mismanagement and waste of taxpayer funds at the state’s only public University. (see the testimony here: SB 1383 TESTIMONY from UH, Mitsunaga)

He focused much of his criticism on Brian Minaai, a University administrator who has overseen the capital improvement projects for all of the campuses since March 2008.

“Working with the UH Office of Capital Improvement and its director Brian Minaai has been a nightmare for members of our firm working on the UH student Housing Phase 1. In the process of giving us a difficult time, Brian gave away millions of dollars on this project alone and should be investigated for blatant mismanagement,” Mitsunaga wrote.

“Brian’s process for selection of non-bid contracts is highly suspect. His selection committee consists of two ‘yes men’ assistants and a third member from the department involved in the project. In essence he controls two out of the three votes he himself makes each selection. He selects only friends from a pool of hundreds of qualified architects and engineers in Honolulu. An investigation will show that the consultants he selected were very small and not the best qualified for the projects he gave them,” Mitsunaga added.

Had it not been for the exemption the University of Hawaii was given by the state Legislature from the state procurement code from 2009 to 2012, Minaai’s actions against one of Mitsunaga’s companies after the selection process would have been a criminal violation of the procurement statute, Mitsunaga said.

University Official Awards Contracts to Friends, Contractor Said

Mitsunaga, who has two companies, Mitsunaga and Associates and Mitsunaga Construction, said Minaai directed him to replace his own civil engineering company on the job with Minaai’s pick, Wesley Segawa, even though Mitsunaga and Associates had applied for and was selected for the project as the civil engineer of record.

Segawa charged the University another $293,260 for the civil engineering work and Mitsunaga and Associates had to add a 10 percent coordination fee of $29,326 plus General Excise tax; boosting the cost of the project by $30,000.

Minaai also directed Mitsunaga and Associates to replace Kimura International as the environmental assessment consultant with Wilson Okamoto and directed Mitsunaga and Associates to use Palekana Permitting and Planning to do the permit and processing at a cost of $23,000.

“That work is usually covered by the companies involved so the $23,000 was an additional cost, plus a 10 percent coordination fee and GE Tax,” Mitsunaga said.

On another job for the University of Hawaii Cancer Research Center in Kakaako, Palekana Permitting and Planning charged $120,000 to process the permits even though the Kakaako district is currently exempt from such permitting.

“Looking back, his (Minaai’s) call was very confusing because the Cancer Research project is in Kakaako and Kakaako is exempt from permit requirements,” Mitsunaga said.

Corruption Costs Taxpayers in the Short and Long Run

Mitsunaga said he is contemplating a lawsuit against the University for damages, in part because AC Kobayashi replaced one of Mitsunaga’s companies on another University job – this one in Hilo.

Both of Mitsunaga’s companies were awarded a UH Hilo construction project, but Minaai removed one of the companies from the job and told Mitsunaga not to question design, prices, materials and schedules. The new contractor was “constantly making changes to increase the profit margin,” Mitsunaga said, and there was no independent price check to ensure the contractor’s prices were in line.

Some of the contractor’s decisions were problematic, Mitsunaga said, because AC Kobayashi opted to use wooden framing that will require heavy maintenance because of all of the rain in the Hilo community. Hiring Kobayashi, which in turn hired two subcontractors to do all the work, also added another 12-15 percent to the project, Mitsunaga said.

Senators were presented with examples of how the University of Hawaii wasted millions of taxpayer dollars on unnecessary contracts, and how the department is run so poorly, contracts have been issued up to a year after the projects began.

In one case, a contract for a volleyball court was never issued by the UH to Mitsunaga. Normal state government procurement practice is to issue a contract within 60 days, he said.

Similar Allegations Documented in Lawsuit Over Cancer Center Procurement

Other architects and engineers have privately confirmed Mitsunaga’s claims. One claimed on average on University construction jobs, a construction management firm will charge 10 to 28 percent of the construction contract instead of 5 to 6 percent other state agencies would allow for the same service.

Contractors who solicit government contracts, zoning and permitting have not spoken out publicly as Mitsunaga did because they fear retaliation that would end with them being blackballed.

But similar allegations were made public when the University of Hawaii agreed to pay $2.5 million to settle a lawsuit that alleged cronyism played a role in the award of a key development contract at the $120 million Cancer Research Center of Hawaii.

Jim Dooley first reported the settlement in October 2010 Hawaii Reporter story:

Townsend Capital, a Maryland firm, was selected as developer by the regents in 2005 but filed suit last year after it was ousted as developer and replaced by Kobayashi Group, a local firm with “close personal ties to university administrators and regents,” the suit alleged. 

After skirmishing in court for a year over production of procurement records, the two sides recently reached a mediated settlement, which involves no admission of wrongdoing by the university.”

Townsend alleged in its suit that its development contract was cancelled after the University hired former Kobayashi Group employee Brian Minaai in 2008 to oversee the project.

After the suit was filed, Alston said the University used a “secret political process” to select Kobayashi Group as the new developer.

Kobayashi Group has “close personal ties to university administrators and regents” and was named CRCH project manager “after the University gave a lead role in managing the CRCH project to a former employee of the Kobayashi Group,” the Townsend suit alleged.

Minaai worked from 2002 to 2005 as a Kobayashi Group project manager. He previously served as deputy director and director of the state Transportation Department in Gov. Ben Cayetano’s administration.

In response to written questions from Dooley, Minaai said in 2010 that he has retained no financial or personal ties to Kobayashi Group or its principals and that his past work at Kobayashi Group poses no conflict of interest with his official duties as UH associate vice president for capital improvements. Kobayashi Group was founded by Bert A. Kobayashi Sr., a former member and past chairman of the University of Hawaii Board of Regents.

University Silent, Attorney General Launches Investigation

The University administration would not comment on Mitsunaga’s recent allegations, except to say:

“The university has requested that the Attorney General conduct an investigation into Dennis Mitsunaga’s allegations.”

“The Attorney General agreed to conduct the investigation and upon its completion will report its findings to the Board of Regents.”

“Until the investigation is complete we anticipate having no further comments.”

Minaai is on paid leave while the attorney general investigates Kobayashi’s allegations.

Emails to him at the University are forwarded to the administration.

Senators Contemplate Changes to University Power Structure

The University of Hawaii received a great deal of autonomy in 1999 from Legislature, including management of its own legal affairs, tuition and salaries and contracting.

But some senators said their own investigations have shown the University administration is failing in all of these areas. In addition, students have complained about tuition skyrocketing at the school, making it unaffordable for many local residents, because tuition has been increasing by 141 percent over the last 11 years.

Mitsunaga went public with his allegations in hopes that the Senate would pass Kim’s legislation to take procurement responsibilities at the University of Hawaii away from its administration and return it to the state Department of Accounting and General Services.

However, during two recent Senate hearings, University officials opposed the plan to transfer procurement responsibilities to the state, and maintained autonomy is necessary.

The procurement bill passed the Senate Higher Education Committee this session, but was killed by Senators, including Roz Baker and Suzanne Chun Oakland, in the Senate Economic Development Committee just minutes later.

Other bills introduced by Kim that would curb the power of the University president continue to move forward.

Comments

comments