Hawaii Tourism Authority contract award to top marketing agency prompts scrutiny

The Hawaii Tourism Authority recently awarded a $9.4 million sole-source contract to the Hawaii Visitors and Convention Bureau, even as the marketing agency nears the end of a separate contract worth $105 million to promote Hawaii to U.S. travelers and will have to compete to keep the more lucrative deal.

HVCB was awarded the $9.4 million contract to oversee HTA’s new destination action management plans and community enrichment programs, and to develop a universal reservation system. The destination management contract was not awarded through the procurement process.

HVCB’s biggest contract with HTA, the U.S. major market area multiyear contract worth $105 million, expires Dec. 31.

HTA put out a request for proposals Tuesday to replace the current U.S. contract with a vastly different one to provide destination brand marketing and management services. Applicants have until Friday to register their intent to apply for the new contract, which will have a start date of Jan. 1.

The new U.S. contract provides the tourism authority with its first chance to align a major market contract to the destination management focus outlined in the agency’s latest tourism strategic plan, which was approved in 2020 and runs through 2025.

HTA’s decision to award its first destination management contract to HVCB, its top marketing agency, without opening the field to competition has left some wondering how much change is actually coming — especially in advance of the U.S. contract RFP process.

To be sure, HVCB, whose roots go back more than 100 years, predates the creation of HTA by the state Legislature in 1998. HVCB is so intrinsic to Hawaii tourism that HTA has let 10 contracts to the bureau since 2016 totaling $145.9 million.

HTA President and CEO John De Fries said the new RFP will be the first procurement under HTA’s new paradigm, and as such has been modified to align with its new vision of “Malama Kuu Home” (“Caring for My Beloved Home”) through the principles of “regenerative tourism.”

“The new RFP cannot just go out the way the one went out in 2017 because our world has changed,” De Fries said. “The new RFP will seek a better balance in the scope between that which is marketing and that which is management.”

Some in the community see HTA’s letting of its first major destination management contract and the bureau’s reworking of its largest U.S. market contract to include destination management as a step in the right direction.

HTA Chief Brand Officer Kalani Ka‘ana‘ana, who along with De Fries is Native Hawaiian, is confident the coming RFP process will start “all of the things that we are trying to accomplish with our pivot.”

“Obviously our strategic plan in 2020 signaled the start, but this is the first opportunity to structurally change the framework,” he said. “You can’t move the goalpost in the middle of the game.”

Procurement concerns

Angela Keen, co-founder of Hawaii Kapu Quarantine Breakers, said news of the sole-sourced destination management contract has upset some of the group’s members, who feel that tourism has not been adequately managed during the COVID-19 pandemic. They question HTA’s decision to award the contract to HVCB, the entity responsible for increasing U.S. visitor arrivals.

“For my group, there is a big concern. You need to put out that request to any available company that could do their best and not just pick one like HVCB, which in their past their goal was to bring in the visitors,” Keen said. “It’s almost like they are lining their pocket with their best friend.”

Former HTA board member Frank Kawaikapuokalani Hewett said he is disappointed with HTA’s decision to give out its first major destination management contract without going through procurement. Hewett said the contract may have been better served by organizations such as the Native Hawaiian Hospitality Association or a council of indigenous elders, who could tap into local expertise.

“Where does the money go and how does it benefit the people of Hawaii? That’s always my concern,” Hewett said. “At the end of the rainbow there is supposed to be one pot of gold. We never got our share of the gold. We need new vision to take us into the future.”

Former HTA marketing director Frank Haas said such concerns are fair, but that there are two sides to the argument.

“HVCB is a contractor so they do what HTA tells them to do, so if there is a pivot you would expect the contractor to pivot as well,” Haas said. “Now there might be other organizations especially after a pivot that would say, ‘Wait a second, this should not be sole-sourced because we have the expertise and capability as well.’

“That’s why it’s always good to do competitive bids: It takes that argument off the table. Sole-source contracts should always be a last resort.”

De Fries and Ka‘ana‘ana said they don’t know how many applicants will apply for the U.S. destination marketing and destination management contract but pledged to make the process competitive.

“At every step of the process with state procurement’s guidance, we’ve designed the process to encourage that competition, and it is my goal and our goal at HTA to make sure our procurements are competitive,” Ka‘ana‘ana said, adding that HVCB was the only applicant during the last procurement process for the contract in 2016.

Budget shifts

De Fries and Ka‘ana‘ana said HVCB’s $9.4 million destination management contract didn’t go through procurement because it was part of $39.8 million in contracts from HTA’s tourism special fund that were restricted due to state House Bill 862.

The bill, which passed during the 2021 legislative session, took away the dedicated transient accommodations tax funding HTA has relied on since its founding. State legislators funded this year’s HTA budget with federal funds and left next year’s budget uncertain.

HVCB received $11.65 million — about 29% — of the funds, including the $9.4 million destination management contract, $2.4 million for island chapter support services, and $100,000 for a University of Hawaii athletics partnership.

The money is over and above HVCB’s annual allotment; however, it is not replacing the marketing budget, which still is 38% below 2019 levels.

HVCB’s baseline marketing budget for 2020, which covered marketing to the U.S. and the meetings, convention and incentive market, was $20.2 million. But that was reduced by $8.8 million because of COVID-19. HVCB’s baseline marketing budget for 2021 is $17 million.

HVCB President and CEO John Monahan said the cuts caused layoffs in 2020 that reduced the HVCB/Island Chapter employee count from 66 full-time workers to 48.5, and staffing isn’t expected to grow markedly regardless of contract outcomes.

Ka‘ana‘ana said the HTA board has budgeted up to $22.5 million for U.S. marketing in 2022, a higher figure than the 2018 and 2019 budgets.

“We have this huge hill to climb in changing the perception that visitors have about Hawaii in their minds and then the education that we are trying to do, so we really want to make sure that they are adequately resourced to meet that challenge,” he said.

State Sen. Glenn Wakai (D, Kalihi-Salt Lake-Aliamanu), who chairs the state Senate’s Energy, Economic Development, Tourism and Technology Committee, said HTA should have waited to award the destination management contract given possible duplication with the next U.S. major market area contract.

“They could have waited and figured out a better strategy. But I understand from their standpoint they have money that would have been expiring at the end of the year so they are going to just burn it,” Wakai said.

HTA projects it will return $2.6 million to the state’s general fund this year. However, Wakai said HTA’s rush to encumber millions more is an example of poor stewardship of state resources.

“It’s all based on how much money that they’ve got to spend, and then they come up with a strategy. That’s backwards,” Wakai said. “They have not endeared themselves to getting more money for their programs next year.”

Change in marketing

De Fries and Ka‘ana‘ana maintain that HVCB was a natural choice for the first destination management contract, as the agency has worked with HTA on destination management through the island chapters and with campaigns to make residents aware of the importance of tourism, while bringing more “pono” travelers to Hawaii.

Monahan and HVCB Chief Marketing Officer Jay Talwar said HVCB’s role in destination management goes back decades to the establishment of its island chapters, and that the bureau has been using destination management in leisure marketing since 2018.

“We began the change in our marketing at least four years ago,” Monahan said. “We began having local people talking about their values and talking about the things local people believe in and why we do the things that we do. We felt pushback from the community and felt the need to better educate visitors of why we are the way that we are.”

On Sept. 27, HVCB kicked off an RFP process to provide Community Enrichment Program funding support to qualified nonprofit organizations and projects in 2022. As part of the recent destination management contract, HVCB also has begun staffing its island chapters with destination managers to oversee HTA’s new destination action management plans.

The plans, one for each of the four major islands, detail steps the community, the visitor industry and other sectors deem necessary to improve tourism over the next three years.

Monahan said HVCB intends to bid on the latest U.S. contract and is formulating a plan based on the new scope.

Former HTA board member Keith Vieira said he believes HVCB is the right entity to handle U.S. destination management and marketing so that HTA’s messaging remains unified and consistent.

“I think HVCB had done a good job with these market destination plans. They don’t have some of the authority to pull it off, but they certainly went to the community and made that happen,” Vieira said. “I think it would be hard for another bidder to compete with HVCB and their history and knowledge.”

However, some members of the community argue HVCB’s destination management has fallen short, given that U.S. travelers for many months this year have outpaced 2019, the peak year for tourism before COVID-19 hit. And while the domestic arrivals increase has resulted in greater spending from that market, it’s also led to more conflicts between residents and visitors, who aren’t always respectful about Hawaii’s COVID-19 rules or its natural and cultural resources.

Talwar said much of HVCB’s strategy relies on targeted marketing and messaging.

“If we want a particular type of behavior, we need to ask for it,” Talwar said.

He said HVCB didn’t have the budget to do that type of educational messaging preceding the travel surge in the spring after vaccines became widely available, which “certainly the rear-view mirror shows us would have been helpful.”