Island Watch

Half a Million Dollars Later, The Pu`u Anahulu Well Goes Bust

The long saga of the Pu`u Anahulu well appears to be coming to a close.

Environment Hawai`i reported in June 1994 that the Department of Land and Natural Resources’ Division of Water and Land Development planned to drill a 1,635-foot-deep well near Waikoloa, Hawai`i. In February, when DOWALD sought approval for a contract to drill the well from the Board of Land and Natural Resources, DOWALD’s chief engineer, Manabu Tagomori, told the board that the well would have a 12-inch diameter. When the environmental assessment for the well was published two months later, however, the well’s bore had swollen to 18 inches. Not only that, but the well’s cost — which, under a bid approved by the BLNR, had been set at $410,315 — had trebled, to an estimated $1.2 million.

Subsequent investigation disclosed that the Legislature had appropriated $950,000 in 1992 for what was called the Pu`u Anahulu water system (the well lies within the border of the ahupua`a of Pu`u Anahulu, but just barely). Of that total amount, $25,000 was for planning, $50,000 was for design, and $875,000 was for drilling. The justification sheet provided in the capital projects budget said that the well “will provide information on the water resources and may provide water for planned development of the area.” At the time the Land Board approved the contract for drilling of the well, however, Tagomori informed the board that the well was strictly for “knowledge” of the resource and that there was no plan to develop it into a production well.

But the plan to drill an 18-inch well was itself soon supplanted by dreams of drilling an even bigger hole with a diameter of 26 inches. As Environment Hawai`i reported in July 1994, shortly after the Land Board granted is approval of the 12-inch diameter well, then-Board Chairman Keith Ahue forwarded to the governor a memo requesting release of $875,000 for a 26-inch-wide well.

Settling Down

In July 1994, when the matter came before the Commission on Water Resource Management, DOWALD appears to have forgotten about the 26-inch-bore well and instead was asking for a permit to drill one a mere 18 inches wide. This was granted.

By that time, DOWALD had signed a contract with Water Resources International, the original low bidder (on the 12-inch well project), calling for payment of $410,315 for the job. (DOWALD engineers had estimated the project would cost $726,375, while the amount released by then-Governor Waihe`e was $875,000.) Yet before the contract was approved by the Land Board, it appears DOWALD wanted to expand the scope of work by enlarging the well’s diameter to 18 inches. A memo dated February 3, 1994 — the same day the bids on the 12-inch well were opened — in DOWALD files states: “Mr. Ed Craddick of WRI [Water Resources International] called about the bid results and after learning that he was the low bidder, he request [sic] a meeting with us to discuss the possibility of increasing the scope of work for this project because of the vast amount left for construction.”

On February 17, 1994, Tagomori apparently met with his staff engineers, instructing them to revise the plans and cost estimates to reflect a larger-bore well. The following day, DOWALD staffer Linford Chang sent a memo to Ed Lau, also of DOWALD, covering transmittal of a revised “project cost estimate based on completing the subject well… Please obtain the necessary funds to meet the deficit and/or advise us accordingly.” The new estimated cost was $1.284 million, or $409,000 more than the $875,000 set aside for the well by Waihe`e (thus the “deficit”). When Tagomori brought the original bid before the Land Board for approval a week later, he at no time informed the board — or even suggested — that it was approving anything less than a complete exploratory well.

In short, as soon as the low bidder won the contract, he seems to have successfully urged an all-too-pliant DOWALD to seek an expansion of the scope of work so that the full amount of appropriated funds — and more — could be expended.

Unfinished Work

Work on the well began in August 1994. However, instead of the 18-inch well being drilled (as provided in the terms of the permit issued by the Water Commission), WRI drilled the 12-inch hole (as its contract provided and as the Land Board had approved). According to WRI’s schedule, drilling was to be finished by October 7, 1994, while a pumping test was to be completed by October 21. The job as originally bid included 100 hours of a pumping test (at $150 an hour).

The pumping test never occurred. In a memo for the record dated November 30, 1994, Glenn Bauer of DOWALD stated that he traveled to the well site “to write a geologic log for the well… The water level in the well is unconfirmed by sounder at 6-7 feet msl [mean sea level]. The present depth of the well is 1548 feet or bottom elevation of -32 feet msl. The well should be drilled to -80 feet msl or depth of 1596 feet and be tested.”

In February 1995, DOWALD Chief Engineer Tagomori twice attempted to submit to the Land Board a proposal to allow expansion of the project to an 18-inch diameter hole and to cover costs of pumping tests (despite this being in the original job). Both submittals requested board approval for amending the construction contract. The first submittal, prepared for the board’s meeting of February 10, stated: “Drilling of the pilot hole is nearing completion. Preliminary results on the static water level and salinity indicate the presence of a productive potable water source. Since the drilling equipment is still on the job site, it appears logical to use the remainder of the allotted construction funds to achieve the initial project scope and complete the work as originally intended.”

That request was not approved for submittal when it was forwarded to the chairman’s office.

Tagomori expanded on his justification in a submittal prepared for the board’s February 24 meeting. “If the uncased pilot well is stopped at this point,” he wrote, “pumping test of the well cannot be conducted and the sustainable capacity of the well cannot be determined. Also, the uncased pilot well will undoubtedly cave in and plug the well in time, rendering it useless.”

Again, the chairman’s office refused to allow the submittal to appear on the board’s agenda.

Appeals

On April 6, Tagomori again appealed to Deputy DLNR Director Gilbert Coloma-Agaran, whose duties include reviewing staff submittals for inclusion on board agendas. “For our discussion,” Tagomori wrote, “we have looked into bidding the additional work for this project. Bidding is not possible; amending the current contract is the only way to utilize the funds and get this project closer to completion.” In a two-page addendum to the memo, Tagomori described how staff engineers had wanted to drill an 18-inch well originally, but when their estimates of the cost exceeded the funds available, the project was scaled back to a 12-inch well.

When the bids were opened, however, “due to the lack of available work in the current construction climate, very favorable bids were received.” “In the request to the governor for the release of construction funds, we requested to release all of the available funds and to expand the scope of the work to include the reaming of the pilot hole in preparation for the casing installation. The cost of the additional work was obtained through negotiations with the low bidder; quotes were also obtained from the other original bidders.”

While funds to cover the original bid were encumbered, Tagomori explained how he was able to tuck away the entire appropriation for future use: “The remaining funds for the additional work and staff costs were placed in a blanket claims encumbrance to prevent them from lapsing on June 30, 1994.”

He concluded: “There are no alternatives to amending the current contract. The additional work cannot be re-bid as the funds are encumbered to the current contract and will automatically lapse if not expended. If the project is stopped now, all past expenditures for plans, design and construction of the well will be lost. More importantly, no hydrologic data will be obtained… [T]he abandonment of the well at this time may jeopardize its integrity, thus rendering it unusable in the future and necessitating the need to redo the entire project at some future date.”

No Go

Coloma-Agaran was unswayed. “After conferring with Budget and Finance,” he wrote Tagomori in a memo dated April 11, 1995, “we will let the funds lapse. As a policy matter, we cannot amend a contract awarded on the basis of competitive bidding for a certain job by increasing the scope of the work and by paying nearly the amount of the original contract. The Procurement Office concurs.

“Why was the project reduced to a 12″ pilot hole from an 18″ exploratory well if a 12″ hole would not provide sufficient information? Why weren’t all bids rejected in the public interest after bid opening indicated funds would be sufficient for an 18″ exploratory well?”

On May 30, Tagomori answered Coloma-Agaran’s two questions. The 12-inch hole would “provide the minimum information of the static water level and salinity of the well,” so, apparently, it would not be entirely without benefit. As to rejecting the bids when the bids came in low, Tagomori wrote: “If all bids were rejected and rebid with an 18″ exploratory well in May or June 1995, the bids in all likelihood would have been significantly higher, due to several well-drilling projects from other government agencies and private developers… In order to save the state’s money, we decided to award the contract to the lowest bidder to drill the 12″ pilot hole to ensure that a promising productive portable [sic] water source would be present prior to requesting the funds necessary to drill the originally intended 18″ well.”

Non-Compliance?

Terms of the well construction permit granted by the Water Commission require permanent installation in the well of “a one-inch diameter (minimum) galvanized pipe,” which is to allow the well to be used as a means of monitoring water level, water quality, and any other groundwater characteristic. The Pu`u Anahulu well has no such pipe installed.

Staff at the Water Commission was asked if this constitutes a violation of the permit terms for the well. Yes, almost certainly, was the answer.

What recourse does the Water Commission have to ensure compliance? The short answer: hardly any.

The Board of Land and Natural Resources did not give much serious attention to the Pu`u Anahulu contract — or, for that matter, to any of the many dozens of contracts brought to the board for approval by DOWALD over the last several years. That may be about to change.
On October 13, DOWALD’s chief engineer Tagomori sought board permission to “engage consultants to provide various engineering services” for a total of 33 different projects. Scope of services to be sought ranged from developing plans for water transmission lines and storage reservoirs, to preparing plans and specifications for an emergency generator, to conducting a “survey and development of a public education program for vessel pump-out facilities” at recreational boating facilities statewide. According to Tagomori, the Legislature had appropriated funds for the projects, whose estimated costs spanned the spectrum from a few tens of thousands of dollars to $200,000. (Tagomori hedged when asked to provide a total dollar amount for appropriations made for all the projects, but agreed that it was probably a couple of million dollars.)

Under the procurement process outlined by Tagomori, DOWALD would select, from a pre-approved list, a design or engineering firm for each of the projects. Following approval by the department chairman, DOWALD would then enter into direct negotiations with the consultant on details of the work (cost, completion deadline, and so on).

O`ahu Board Member Michael Nekoba, a certified public accountant, expressed puzzlement. The construction industry is in a slump now, he noted, which means the design and engineering firms are also experiencing a slow-down. As seen in the Pu`u Anahulu well example above, DOWALD routinely takes advantage of the soft bidding position of the construction industry when it puts out to bid its construction projects. By timing the opening of bids on its projects to occur in periods where few other jobs are on the horizon, DOWALD can usually ensure vigorous competition and save the state money.

Why, Nekoba asked, can’t the state take similar advantage of the softness in the architectural and engineering industry? “There doesn’t appear to be any type of competitive pricing for these services,” Nekoba said. He added that companies will often bid low on jobs and accept a reduced profit margin just to keep their people working in slow times. “I mean, there’s not a hell of a lot of construction going on in the state right now,” Nekoba told Tagomori. “So, I don’t see why we do not have some kind of competitive bidding, provided it is among qualified firms. I think the state can save a lot of money… The market price will never be determined the way you guys are operating now.”

Tagomori pointed out that the contracts were for professional services and not construction, meaning that under the procurement law, the state need not seek bids for them.

Other board members shared Nekoba’s concerns. “What would be wrong with drawing up fairly detailed specification for the scope of the contract being awarded, having people submit proposals, and have your committee review them, but let people know that once they’ve met the basic qualifications, that the dollar amount that you submit is going to be a major factor in whether you get selected?” board member Chris Yuen asked.

Tagomori responded that that was the procedure once employed, but “the law changed on that, so, now, we’re essentially back to the old system with some modifications.”

‘No Dummies’

Yuen tried another tack, attempting to point out to Tagomori how the state’s ability to negotiate a good price with the selected consultant was hampered by the fact that the consultant, in all likelihood, was aware of how much the Legislature had set aside for the project. “The Legislature will have appropriated, say, $50,000 for plans and specifications for a water transmission line… These guys [consultants] are not dummies. They know there’s $50,000 available, and it’s going to cost you $50,000, right?”

Not necessarily, Tagomori said. “We work in negotiations with the consultant,” and if DOWALD cannot arrive at an agreement with a chosen consultant on an appropriate fee, it would start negotiating with a different consultant. When asked how often this occurred, Tagomori said it did not happen frequently — and, in fact, he could not recall the last time DOWALD abandoned talks with a selected firm because of a failure to agree on cost.

In the end, the board voted unanimously to give Tagomori the go-ahead he needed to select consultants and enter into direct negotiations with them for the listed projects. After Tagomori left, however, the board, at Nekoba’s suggestion, agreed to seek an opinion from the attorney general and from the state procurement office. They are to be asked whether DOWALD’s procedures for non-bid contracts is in compliance with the state procurement law, and, if so, whether the department might not still seek some way of factoring price into the picture.

The state Environmental Council will be conducting a second series of public hearings statewide on proposed changes to the environmental impact statement rules (Title 11, Chapter 200, Hawai`i Administrative Rules). The hearings will be conducted during the third week of November.

O`ahu: The hearing for O`ahu will be held November 14 at 5 p.m. at the Office of Environmental Quality Control (Central Pacific Bank building, fourth floor, at the corner of King and Alakea streets).

Hawai`i: Two hearings will be held on the Big Island. The Hilo hearing will start at 5 p.m. in Conference Room A of the state office building (75 Aupuni Street). The Kona hearing will begin at 5 p.m. in the cafeteria of the Kealakehe Intermediate School (4-5062 Onipa`a Street).

Kaua`i: On Kaua`i, the hearing on the rule changes will take place on November 20, at 5 p.m. in the County Council chambers (4396 Rice Street, Lihue).

Maui: The County Planning Department conference room will be the site for the Maui hearing on November 21. The conference room is on the ground floor of the Kalana Pakui Building (250 South High Street in Wailuku). Starting time is 5 p.m.

Copies of the proposed rules may be obtained at no charge from the chairperson of the Environmental Council (write him at 220 South King Street, Fourth Floor, Honolulu HI 96813). Also, copies of the proposed rule changes have been sent to all public libraries in the state.

County General Plans

Many of the changes are stylistic revisions to rules that went out for hearing earlier this year. One of the most important substantive proposals concerns procedures for dealing with the environmental impacts of changes proposed to county general plans. Existing rules require compliance with the state’s EIS law, Chapter 343, in most cases involving proposals to amend county plans. At present, the only significant exemptions allowed are for county-initiated plan amendments. Under the proposed change, language would be inserted to require Chapter 343 compliance for plans initiated by counties “at the request of or for the benefit of a private owner or developer.”

The new language comes about as a result of claims by the county of Hawai`i that all plan changes must be county-initiated and thereby not subject to the public scrutiny attending proposals that must go through the EIS review process. What triggered the county’s claim was a proposed change to the county general plan needed to accommodate a “retreat resort” and residential development planned by Gentry-Pacific, Ltd., at an area known as Waika along the North Kohala coast.

An exchange of letters between the developer’s consultant (former county planning director Sidney Fuke) and Goldstein indicates that the developer was willing to prepare an environmental impact report for the “retreat resort” component of the development, as required by the Hawai`i County Code. But the county’s requirement for disclosure of environmental impacts does not entail the same standard of review as that provided in the OEQC rules relating to EISes prepared as a requirement of state law.

‘Initiation’ Rights

Fuke indicated that his client was willing to have availability of the environmental report published in the OEQC’s bulletin, but OEQC director Gary Gill nevertheless took strong exception to the claim of an exemption. In a letter to county Planning Director Virginia Goldstein dated September 11, 1995, Gill reminded Goldstein that in the past, the county had required Chapter 343 EISes for “applicant-initiated general plan amendments,” referring specifically to the Amanresort, proposed for Kukuihaele, and the Villages of Hokukano, in South Kona, both of which went through the EIS review process.

“The key word in this question is the meaning of the word ‘initiate,'” Gill wrote. “We do not believe that the Legislature used the term ‘initiate’ to mean the bureaucratic processing of private development proposals by county agencies. Thus we do not believe that the Gentry Waika project has been initiated by the county under Chapter 343.”

On September 15, the Environmental Council met in Honolulu and heard arguments in support of the county’s position from Hawai`i County Corporation Counsel Richard Wurdeman. The General Plan ordinance, he said, “provides for three kinds of changes. One, privately initiated. One, council initiated. And one, planning director initiated. Our Charter, however, says quite clearly: ‘Amendments to the General Plan may be initiated by the Council or the Planning Director.’ Period.”

This inconsistency came to light in processing the Amanresort project, Wurdeman said. “I was asked to rule on it and I ruled that the charter naturally prevailed.”

Gill responded that state law should take precedence over any contorted reading of county law that, in essence, would make all plan amendments county-initiated. “There is a 343 trigger whether there’s a county trigger or not in this case, because it [the Gentry project] is a privately initiated proposed change to the general plan. Regardless of how the county interprets ‘initiate’ in the county charter, under 343, if it quacks like a duck, walks like a duck, it’s a duck — it’s a privately initiated general plan amendment.”

Among other things, the language in the proposed revision to the Environmental Council rules would eliminate any ambiguity about whether plan amendments made to accommodate private developers but “initiated” by counties would be exempt. Under the proposed rules, they would not be. Period.

The state Land Use Commission has scheduled a hearing, beginning November 30, to consider whether the long-dormant Hawaiian Riviera Resort, planned for Ka`u, will have an adverse impact on the fishing village of Miloli`i, just up the coast.

The LUC approved the resort in May of 1991, but in 1992, the Third Circuit Court remanded the case to the LUC for consideration of the impact on Miloli`i. In the intervening years, the chief architect of the resort, one Charles Chidiac, lost control of the land to Den norske Bank of Norway, which had given him substantial loans on the property, and to his former partners, a Maui-based association of partnerships known as Hawai`i Ka`u `Aina.

On October 11, the Land Use Commission asked the bank and HKA to provide a report on the status of any plans they might have for the resort. No representative of the bank attended the meeting, while Tom Bodden, representing HKA, indicated that his group had only recently acquired title to the 17,000 or so acres it owns, and thus was unable to report on any plans it might have for the area.

If the LUC does not receive plans and a report on the impacts of the development on Miloli`i fishermen, it could then order the landowners to show cause why the land should not be returned to its original land use classification (Agriculture and Conservation).

Chidiac did not attend the LUC meeting in October, nor does he appear to have any recorded legal interest in the property. Still, a week after the hearing, he told The Hawai`i Tribune-Herald that he still intends to build the resort. Reporter Kevin Dayton of the Tribune-Herald tracked Chidiac down in Houston, Texas. In a telephone interview with Dayton, Chidiac was reported to have said, “I want to reassure the people of Ka`u that I am working hard on refinancing the project.”

He also told Dayton he is considering seeking election as a U.S. representative from Hawai`i to Congress, so that he might (in Dayton’s words) “teach the feds a thing or two about international business and the world economy.”

Volume 6, Number 5 November 1995