CITY COUNCIL
CITY AND COUNTY OF HONOLULU
HONOLULU, HAWAII

No

19-29

RESOLUTION
SUPPORTING THE INITIATION BY THE HONOLULU AUTHORITY FOR RAPID
TRANSPORTATION BOARD OF AN INDEPENDENT FORENSIC AUDIT OF THE
HONOLULU AUTHORITY FOR RAPID TRANSPORTATION AND THE CITY AND
COUNTY OF HONOLULU CONCERNING THE HONOLULU HIGH-CAPACITY
TRANSIT CORRIDOR PROJECT.
WHEREAS, pursuant to Section 17-103 of the Revised Charter of the City and
County of Honolulu 1973 (2017 Edition), the Honolulu Authority for Rapid Transportation
(“HART”) is responsible for the development of the City’s planned fixed-guideway transit
system, known as the “Honolulu High-Capacity Transit Corridor Project’ (“Rail Project”
or “Project); and
WHEREAS, the Rail Project is a planned 20.1-mile fixed-guideway rail transit
system extending from East Kapolei to the Ala Moana Shopping Center; and
WHEREAS, pursuant to Act 247, Session Laws of Hawaii 2005, on August 10.
2005, the City Council (“Council”) passed Bill 40, FD1, CD2, which established a onehalf percent general excise and use tax surcharge to be levied beginning January 1,
2007, to be used for the purposes of funding the operating and capital costs of a locally
preferred alternative for a mass transit project within the City and County of Honolulu
(‘‘City’’); and
WHEREAS, on August 23, 2005, Bill 40, FD1, CD2, was approved by the Mayor
and became law as Ordinance 05-207; and
WHEREAS, prior to the establishment of HART, the City’s Department of
Transportation Services (“DTS”) was responsible for the Rail Project, and the DTS and
other City departments were involved in awarding the following contracts for the Rail
Project totaling $2.9 billion:
1.

InfraConsult LLC, program management support, $11.9 million, awarded
on April 20, 2007;

2.

PB Americas, Inc., engineering consultant-PE/ElS phase, $168 million,
awarded on August 24, 2007;

3.

GEOLABS Inc., drill shaft load test, $1.2 million, awarded on June 30,
2009;

4.

Kiewit Infrastructure West Co., West Oahu/Farrington Hwy guideway,
$486 million, awarded on October21, 2009;
I

OCS2O19-0126/21812019 8:29 AM

 CITY COUNCIL
CITY AND COUNTY OF HONOLULU
HONOLULU, HAWAII

No

19-29

RESOLUTION
5.

InfraConsult LLC, program management support, $36.7 million, awarded
November 2009;

6.

Kiewit/Kobayashi JV, maintenance and storage facility, $195.2 million,
awarded on June 24, 2010;

7.

Enovity, Inc., LEED certification services, $278,630, awarded on October
6,2010;

8.

HDR Engineering, Inc., architectural/engineering services for Farrington
Highway stations, $5.5 million, awarded on January 12, 2011;

9.

Kiewit Infrastructure West Co., Kamehameha Highway guideway, $372
million, awarded on March 21, 2011;

10.

Ansaldo Honolulu JV, core systems, $1.4 billion, awarded on March 21,
2011;

11.

AECOM Technical Services Inc., HDOT design review, $3 million,
awarded on June 7, 2011;

12.

PB Americas, Inc., general engineering consultant, $300 million, awarded
on June 30, 2011; and

WHEREAS, on October 27, 2009, the Council received the City Auditor’s Audit of
the Department of Transportation Services’ Honolulu High-Capacity Transit Corridor
Project Contracts (“DTS Audit”) in which the City Auditor reviewed three contracts,
totaling $107 million, for the Rail Project and found that:
1.

All three rail contracts complied with procurement requirements. However
the Department of Transportation Services-Rail Transit Division (“DTS
RTD”) needed to improve its documentation of the basis for its
procurement decisions to improve transparency; and

2.

DTS-RTD complied with contract requirements, but needed to improve
monitoring and needed to develop detailed guidelines to increase
accountability; and

2
0CS2019-0126/2/8/2019 8:29 AM

 CITY COUNCIL
CITYANDCOUNTYOF HONOLULU
HONOLULU, HAWAII

No

19—

RESOLUTION
WHEREAS, in the DTS Audit, the City Auditor recommended that DTS-RTD
should:
1

Continue to encourage fair and open procurement by remaining vigilant in
following existing procurement policies and regulations;

2.

Within the official Record of Procurement, sufficiently document the
sources of information for contract cost estimates prior to procurement
and provide a memorandum or summary of contract negotiations and final
contract cost;

3.

Convey support for proper oversight by all agencies involved by providing
outside agencies with timely and complete submissions for review;

4.

For future large or complex procurements, consider outreach through
diverse media through market communication networks such as trade
associations, to increase competition and encourage additional qualified
firms to submit bids;

5.

Improve documentation of reasons for contract negotiations and awards to
increase transparency and accountability;

6.

Direct contractors to submit any remaining deliverables and close the
Alternatives Analysis contract to ensure that maximum costs are not
exceeded;

7.

Develop guidelines for providing supporting documentation of the work
performed to verify the contract-related tasks to invoices submitted by
subcontractors who are paid in lump sum amounts;

8.

Specify the terms under which a future allowance for extra work would be
established, the basis for the allowance amount, and the approval process
to be used; and

9.

Withhold approval of invoices for payment until the contractor has met
applicable contract requirements, including the development of pertinent
policies and procedures, to ensure the proper expenditure of funds; and

WHEREAS, although $2.8 billion of contracts were awarded by the City after the
completion of the DTS Audit, no subsequent audits were completed concerning whether

3
0CS2019-0126121812019 8:29 AM

 CITY COUNCIL
CITYANDCOUNTYOFHONOLULU
HONOLULU, HAWAII

No

—

RESOLUTION
there was proper oversight of the City’s procurement, award, and administration of the
$2.8 billion in Rail Project contracts; and
WHEREAS, a forensic audit examines an entity’s system of internal controls to
identify any weaknesses in the controls designed to safeguard assets and to determine
whether an employee or other person has exploited internal control weaknesses to
misappropriate assets or commit other illegal actions; and
WHEREAS, it is the Council’s belief that there may have been weaknesses in the
City’s oversight concerning the Rail Project’s contracts, so it would be prudent for HART
to initiate a forensic audit concerning the City’s procurement, award, and administration
of the Rail Project contracts; and
WHEREAS, HART began operations on July 1, 2011, and the Rail Project began
construction on April 20, 2012, but during the subsequent seven years, the Rail Project
has suffered from significant delays, numerous change orders, legal actions, leadership
changes, and, most significantly, an increase in the estimated costs of the Rail Project
from $5163 billion in 2012 to $9181 billion in 2018 and a delay in the anticipated date
of completion to full service operation from 2020 to 2026; and
WHEREAS, on April 15, 2016, the City Auditor issued an audit of the Honolulu
Authority for Rapid Transportation (“HART Audit”) in which the City Auditor made
specific findings concerning HART’s failure to construct the Rail Project economically,
effectively, and efficiently, including the finding that HART has failed to exercise
sufficient controls over its financial information to ensure that: (1) data are complete and
readily available; (2) delay claims are adequately tracked, monitored, and reported; and
(3) pending utility agreements, contingency allowance figures, and county general
excise and use tax surcharge receipt figures are complete and accurate; and
WHEREAS, one key recommendation in the HART Audit was that stronger
controls over contract administration practices and invoice payment practices are
needed. Specifically, guidance for contract administration was unclear, procurement file
documentation controls had weaknesses, and the invoice payment process was
inadequate to prevent improper payments from being made; and
WHEREAS, on September 6, 2017, the City Council (“Council”) approved
Resolution 17-1 99, CD1, which requested that the City Auditor conduct a follow-up audit
of HART, to include a review of the certain concerns including: (1) whether the
expenditures charged to HART by Rail Project contractors were valid and accurate; and
(2) whether HART has implemented the project management and contract

4
0CS2019-0126/21812019 8:29 AM

 CITY COUNCIL
CITY AND COUNTY OF HONOLULU
HONOLULU, HAWAII

No

19—29

RESOLUTION
administration controls aver

the contractors needed to prevent cost overruns for the Rail

Project; and
WHEREAS, on January 17, 2019, the City Auditor issued the Follow-Up Audit of
the Honolulu Authority for Rapid Transportation (‘HART Folfow-Up Audit’); and
WHEREAS, the HART Follow-Up Audit made specific findings concerning the
inadequacy of HARTs internal controls to prevent cost overruns on the Rail Project.
Specifically:
1.

HART lacks an internal audit function to properly monitor and control
contract costs;

2.

HART relies on an inefficient paper-based contract filing system to monitor
Project and contract costs;

3.

HART lacks expertise in modeling and quantifying the impact of contract
changes and amendments on Project costs and Project schedules; and

4.

Key personnel were not involved with reviewing change order and contract
amendments. Most notably, HART’s Chief Financial Officer was cut out of
some financial review processes, including the review and approval of
change orders; and

WHEREAS, one of the recommendations made in the HART Follow-Up Audit
was for HART to establish an internal audit function, attached to the HART Board, to
conduct independent oversight of Project expenditures and compliance with applicable
policies, procedures, law, contract requirements, and best practices; and
WHEREAS, in HART’s response to the HART Follow-Up Audit, HART stated that
its staff would recommend to the HART Board that the Board consider approving the
hiring an internal auditor or the retention of an outside firm to conduct audits of HART’s
work as well as that of HART’s consultants; and
WHEREAS, it is the Council’s belief that because of the inadequacy of HART’s
it may be possible that a
control weaknesses to
internal
exploited
contractor
consultant,
or
employee,
HART
that these illegal
and
actions
misappropriate public assets or commit other illegal
actions may have contributed to the increase in the estimated costs of the Rail Project
from $5163 billion in 2012 to $9181 billion in 2018; and
internal controls to prevent cost overruns and scheduling,

5
OC62019-0126/2/8/2019 8:29 AM

 CITY COUNCIL
CITYANDCOUNTYOFHONOLULU
HONOLULU, HAWAII

No

19—29

RESOLUTION
WHEREAS, it is the Council’s belief that the HART Board should initiate a
forensic audit of HART and the City to address any misappropriation of public assets or
other illegal actions since it is the Council’s understanding that HART is responsible for
the proper fiscal management of the Rail Project, including the fiscal management of
the $19 billion in contracts awarded prior to the establishment of HART; now) therefore,
BE IT RESOLVED by the Council of the City and County of Honolulu that the
Council supports the initiation of an independent forensic audit of the Honolulu Authority
for Rapid Transportation’s operations, procurement, contract award, and administration;
and the City and County of Honolulu’s procurement, award, and administration of the
Honolulu High-Capacity Transit Corridor Projects contracts; to be conducted by an
independent auditor to be selected and paid for by the Board of the Honolulu Authority
for Rapid Transportation, to ensure that no City or Honolulu Authority for Rapid
Transportation employee, consultant, or contractor exploited the City’s or Honolulu
Authority for Rapid Transportation’s internal control weaknesses to misappropriate
public assets or commit other illegal actions; and

6
OCS2O19-012612/8/2019 8:29 AM

 CITY COUNCIL
CITY AND COUNTY OF HONOLULU
HONOLULU, HAWAII

No.

19—29

RESOLUTION
BE IT FINALLY RESOLVED that copies of this resolution be sent to the Mayor,
Managing
Director, Director of Budget and Fiscal Services, Director of
the
Transportation Services, and the Executive Director and Chair of the Board of the
Honolulu Authority for Rapid Transportation.
INTRODUCED BY:

\‘th* 1&A1,ca4

DATE OF INTRODUCTION:

FEB 112019
Councilmembers

Honolulu, Hawaii

7
OCS2O19-0126/2/8/2019 8:29 AM

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