A report from a state Senate investigation alleges a state agency director sought to steer an $8.7 million contract to a bidder he favored and asks that a special counsel be appointed to determine whether four Department of Business, Economic Development and Tourism officials intentionally broke procurement laws.

The report, by a special Senate investigative committee, concluded DBEDT Director Ted Liu sought to manipulate the procurement process to award the contract to H2 Energy LLC over top-ranked bidder Kolohala Holdings LLP.

It alleges Liu and three others deviated from the agency's standard practices and that evidence indicates the team knew laws and rules required selection of the top-ranked bidder. Such an action would be a misdemeanor.

"There is a reasonable belief that the actions taken constitute a knowing and intentional violation of state procurement laws and rules by the director and his top management team," a summary of the report says.

The findings were to be released this morning at a committee meeting. They come after its members sat through 56 hours of testimony and reviewed 21,000 documents during 13 hearings. The investigation has sparked criticism from the Lingle administration, which branded it unfair and partisan because it was led by Democrats. The state attorney general's office did not immediately return a call yesterday inquiring whether it would consider the special counsel request.

Yesterday, Liu stood by his assertion that he did not knowingly or intentionally violate the procurement code. He said that at the time, he made the selection based on which bidder would be most advantageous for the state.

"I don't see the necessity of expending more money on an investigation," said Liu, who said he believed a voluminous amount of testimony and documents in the investigation allowed authors to pull items that supported their conclusion.

He said the mistake was made because the procurement code is ambiguous at best, and that subordinates had advised him that he could make the selection himself from a list of three bidders they provided him. The report says state procurement law requires the highest-ranked bidder to be selected.

The Senate investigation "failed to prove that there was a knowing or intentional violation," said Liu, who noted he has "moved on" and doesn't think the investigation has impaired his ability to run the state's economic development agency.

The controversy grew out of a hydrogen fund established by legislators in 2006 to help finance companies working to develop clean-burning hydrogen fuel. The committee said Liu originally wanted to award the contract to H2 Energy on a sole-source contract, but later was advised a bidding process was needed through a request for proposals.

A DBEDT evaluation team ranked Kolohala as the top bidder in the call for proposals but allowed Liu to make the selection from three companies.

Liu's award to H2 Energy was eventually contested by the state Procurement Office, which in September 2007 ordered DBEDT to rescind the offer and give it to Kolohala. DBEDT executed a contract with Kolohala a year later.

The Senate report is 1 1/2 inches thick. Among its findings:

• Liu, along with DBEDT senior managers Ken Kitamura, Maurice Kaya and John Tantlinger, misrepresented their position that the director had the authority to select a winning bid on his own.

• DBEDT deviated from standard procedure in removing its contract office from administration of the request for proposals and instead gave it to its Strategic Industries Division, which has little experience in such matters.

• Liu allowed Barry Weinman, a principal in one of the partners of H2 Energy, to be "inappropriately" involved throughout the procurement process.

• Before awarding the contract to Kolohala, DBEDT resisted doing so and tried to cancel the contract.

• There is evidence that DBEDT managers knew procurement laws and rules.

The Senate committee has no enforcement powers.

It is requesting the outside investigator instead of the attorney general's office because the senators believe the office has a conflict of interest in that it represented several state officials during the hearings.

The committee plans to request that an independent counsel be appointed within a month. It also wants a progress report on an independent counsel's investigation by year's end.

It also is submitting the report to the state Ethics Commission for a determination on whether ethics rules were broken.

State Sen. Donna Kim, D-14th (Halawa, Moanalua, Kamehameha Heights), said she expects Senate President Colleen Hanabusa will ask for a meeting with Attorney General Mark Bennett to discuss the report.

Kim said there are other options if Bennett ignores the request, including asking the Honolulu prosecutor, the U.S. attorney's office or to wait until a new state attorney general is appointed.

But Bennett "would be shirking his duty as attorney general after all the evidence," she said.

At one point, the Lingle administration asked the Senate to remove Kim from leading the committee because Lingle believed Kim was biased against Liu. To avoid any further such charges, Kim didn't participate in the writing of the findings, which instead was handled by Sen. Les Ihara Jr., D-9th (Kapahulu, Kaimuki, Palolo), and a staff attorney.

Yesterday, members of the bipartisan committee said the probe was important to preserve trust in how the state buys goods and services.

"In terms of dollar amounts we're talking about, it was a small contract," said state Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai). "But it has ramifications for what the state does."