HB1607 HD1

SECTION 1. The legislature finds that supporting local businesses strengthens the State's economy by creating more local jobs, increasing local workforce and business capacity, and enhancing economic and environmental sustainability. The legislature further finds that allocation of State funds to non‑local or out‑of‑state contractors or entities does not foster the same benefits as allocating these funds locally and may impede the success of local businesses and the State's economy. Local businesses often face barriers when competing for State contracts due to the higher costs associated with doing business in an island state, limited physical workforce capacity, and limited price competitiveness to produce goods and services.

The legislature believes that a preference for local businesses in bidding for contracts from purchasing agencies of the State and counties will help level the business playing field for local contractors. The legislature recognizes that while a local preference may slightly raise the average cost for bid contracts, this cost will be offset by the increases in state and county revenues from additional local business activity, increased local employment, and the long-term effects of keeping money within local businesses and the local workforce.

The legislature further finds that as part of the State's incremental initiatives to assist small businesses in the state procurement process, the state procurement office is now addressing part IX of the Hawaii public procurement code and assisting self-identified small businesses to obtain state contracts. The legislature recognizes the importance of continuing this progress by expanding the small business assistance initiative into a permanent procurement program to collect and develop relevant data and information necessary for small businesses to compete for and obtain small business contracts and identify and resolve issues that must be addressed to develop an effective small business state contracting program within the state procurement process.

Accordingly, the purpose of this Act is to:

(1) Permanently establish and appropriate funds for the small business procurement program and small business procurement coordinator position within the state procurement office;

(2) Require purchasing agencies to apply a local preference to Hawaii businesses when evaluating contracts awarded by competitive sealed bidding or competitive sealed proposals;

(3) Establish a small business procurement special fund and require the small business procurement coordinator to adopt rules and establish policies, effective January 1, 2029, requiring small businesses to commit to contributing 0.2 per cent of state contract awards to the special fund; and

(4) Repeal the small business assistance initiative established in Act 168, Session Laws of Hawaii 2022.

SECTION 2. Chapter 103D, Hawaii Revised Statutes, is amended by adding two new sections to part IX be appropriately designated and to read as follows:

"§103D- Small business procurement program; establishment. (a) There is established within the state procurement office a small business procurement program to ensure that small businesses, including businesses owned by veterans, Native Hawaiians, and women, are able to effectively participate in small business contracting opportunities in the State.

(b) The small business procurement program shall be administered by the small business procurement coordinator.

§103D- Small business procurement coordinator; appointment; duties. (a) The administrator of the state procurement office shall appoint a small business coordinator for the proper administration, enforcement, and facilitation of this part, without regard to chapter 76; provided that the coordinator shall be eligible for participation in state employee benefit plans. Notwithstanding section 76-16(b)(17), this exemption from chapter 76 shall not expire.

(b) The coordinator shall implement and administer programs and procedures necessary to assist small businesses to effectively participate in the State's public procurement processes. The coordinator shall:

(1) Administer the daily operations of the small business procurement program;

(2) Establish and maintain a statewide small business database;

(3) Establish processes for the registration, certification, and identification of small business in the State;

(4) Develop and implement outreach, engagement, and education initiatives, including:

(A) Serving as a liaison and advocate for small business interests within the state procurement system;

(B) Participating in outreach and engagement activities, including networking events, trade association meetings, local business expositions, and collaborating with organizations that support entrepreneurs, with a special focus on supporting underserved communities;

(C) Developing and disseminating outreach campaigns to promote small business initiatives and opportunities, including newsletters and electronic mail communications; and

(D) Creating, developing, advertising, and encouraging vendor participation in workshops, seminars, and trainings designed to promote and enhance small business participation in state contracts;

(5) Aggregate resources and advance accessibility, including:

(A) Aggregating all small business resources and materials areas the State and presenting them in an easily accessible and understandable online format for potential vendor participants; and

(B) Coordinating with small business advocates in the public and private sectors to create a small business network that can be easily accessed by all small businesses;

(6) Develop policy, oversight, and training, including:

(A) Adopting rules and establishing policies to support the implementation of this part;

(B) Producing, publishing, and disseminating training materials designed to inform procurement staff and small business vendors of policies and rules;

(C) Collaborating with state agencies to identify and promote contracting opportunities suitable for small businesses, including identifying potential contracts for set-asides or preferences; and

(D) Establishing mechanisms and implementing procedures for handling disputes and investigating allegations of fraud and other misappropriations of the small business procurement program and its benefits to small businesses; and

(7) Perform data collection and reporting, including:

(A) Establishing a system for collecting and analyzing data on small business participation in state contracts, including data on contract awards aggregated by industry, agency, and business demographic;

(B) Collecting data on existing and future small business vendor disputes, problems, difficulties, successes, recommendations, and any other metrics deemed important to the program by the state procurement office or legislature; and

(C) Producing an annual report of small business participation data and metrics to be submitted to the administrator of the state procurement office."

SECTION 3. Chapter 103D, Hawaii Revised Statutes, is amended by adding a new section to part X to be appropriately designated and to read as follows:

"§103D- Hawaii businesses. (a) Notwithstanding any law to the contrary, a purchasing agency shall apply a local preference to a Hawaii business in evaluating contracts awarded by competitive sealed bidding pursuant to section 103D-302 or competitive sealed proposals pursuant to section 103D-303.

(b) To qualify for a local preference, a Hawaii business shall self-certify that:

(1) It will maintain its headquarters in the State throughout the performance of the contract; and

(2) No less than fifty-one per cent of the labor in the performance of the contract, with respect to time and expenses, will be incurred from persons domiciled in the State,

provided that the small business procurement coordinator may adopt further rules and establish policies related to self-certification requirements.

(c) Where a bid or proposal contains both Hawaii and non‑Hawaii businesses, for the sole purpose of selecting the lowest bid or purchase price, the price or bid offered by the Hawaii business shall be decreased by subtracting the applicable local preference percentage pursuant to subsection (d); provided that the contract amount of any contract awarded shall be the amount of the bid or price offered, exclusive of the preferences.

(d) The local preference shall be five per cent for all contracts.

(e) If a Hawaii business is awarded a contract with the application of a local preference and is subsequently found to have failed to meet or maintain the requirements of subsection (b), the Hawaii business shall:

(1) Perform the contract at the contract price reduced by the amount of the local preference applied during bid or proposal evaluation; and

(2) Refund any overpayment to the purchasing agency that awarded the contract.

(f) The policy board or any county may adopt rules pursuant to chapter 91 or ordinances, respectively, necessary or appropriate to implement this section.

(g) For the purposes of this section, "Hawaii business" means any person, agency, corporation, or other business entity with its principal place of business located in the State."

SECTION 4. Chapter 103D, Hawaii Revised Statutes, is amended by adding two new sections to part IX to be appropriately designated and to read as follows:

"§103D-A Small business procurement program; rules; policies; nonprofit contributions. The small business procurement coordinator shall adopt rules and establish policies, effective January 1, 2029, requiring small businesses to commit to contributing 0.2 per cent of state contract awards to the small business procurement special fund established pursuant to section 103D-B.

§103D-B Small business procurement special fund. (a) There is established in the state treasury the small business procurement special fund, into which shall be deposited all moneys collected from small business contributions pursuant to section 103D-A.

(b) Moneys in the special fund shall be expended to support tax deductible nonprofit organizations and programs as determined by the small business procurement program."

SECTION 5. Section 103D-902, Hawaii Revised Statutes, is amended to read as follows:

"§103D-902 Small business assistance. [~~(a)~~] The policy board shall adopt rules to assist small businesses in learning how to do business with the State.

[(b) The state procurement office shall establish a small business initiative program consistent with this chapter to ensure that small businesses, including businesses owned by veterans, Native Hawaiians, and women, are able to effectively participate in small business contracting opportunities in the State.]"

SECTION 6. Act 168, Session Laws of Hawaii 2022, is amended by amending section 6 to read as follows:

"SECTION 6. This Act shall take effect upon its approval; provided that section 4 shall take effect on July 1, 2022[.]; provided further that section 3 shall be repealed on June 30, 2026."

SECTION 7. There is appropriated out of the general revenues of the State of Hawaii the sum of $126,000 or so much thereof as may be necessary for fiscal year 2026-2027 to establish one permanent full-time equivalent (1.0 FTE) small business procurement coordinator position within the state procurement office.

The sum appropriated shall be expended by the state procurement office for the purposes of this Act.

SECTION 8. In codifying the new sections added by section 4 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect on July 1, 3000; provided that section 4 of this Act shall take effect on January 1, 2029.

HOUSE OF REPRESENTATIVES	H.B. NO.	1607
THIRTY-THIRD LEGISLATURE, 2026		H.D. 1
STATE OF HAWAII