CNMI cancels $8M contract with Marianas Southern Airways
Palacios says the government does not have funds to back the sole-source deal
By Pacific Island Times News Staff
Saipan-- CNMI Gov. Arnold Palacios confirmed today the administration’s decision to terminate the government’s $8 million sole-source contract with Marianas Pacific Express, which operates the Marianas Southern Airways.
“While I fully recognize the seriousness of any decision to end a contract, there is just no money to support this $8 million sole-source deal,” Palacios said.
“Former Governor Torres overcommitted the commonwealth and overpromised money we did not have then and do not have now.”
Under the terms of the contract, the deal may be terminated if there is no money for it.
The sole source contract was executed in March 2022 for interisland air and cargo-passenger service between Saipan, Tinian, Rota and Guam.
The carrier launched its interisland service in August 2022, with a promise to grow its operations in the region.
On Aug. 16, Aug. 30, and twice on Nov. 10, 2022, the commonwealth government issued advance payments to MSA that totaled approximately $2.4 million, including $1.5 million for start-up costs.
The source of funding was federal money awarded to the Commonwealth through the American Rescue Plan Act (ARPA).
“My administration is still assessing the extent of ARPA mismanagement, but what is crystal clear at this point is that these funds were misspent and overspent and ARPA accounts are now in deficit in the tens of millions of dollars,” Palacios said.
Acting Secretary of Finance Tracy Norita issued the notice of contract termination on Feb. 21, citing the non-availability of funds.
According to the contract terms, continued funding beyond fiscal year 2022 was contingent on the availability of funding in future years. In the event of funding not becoming available, the commonwealth may terminate the contract without any further liability.
“Equally disturbing to the lack of funds to support this sole-source contract, I question the fairness and wisdom of issuing such a lucrative agreement to a new private venture when an existing competing vendor was already providing the same service and was not offered a similar opportunity,” he added.
“We want our commonwealth to be a place where all businesses know they can operate and compete on a level playing field.”
Sen. Paul Manglona said the CNMI Senate will work with the governor’s office to identify options and long-term and sustainable solutions that build transportation capacity for the islands.
He said the Public Utilities, Transportation, and Communication Committee has been meeting with Marianas Southern Airways, and Star Marianas, and the Governor's Office with regard to overall issues relating to interisland transportation.
"We understand that because of the overspending and mismanagement of federal funds that occurred with the last administration, there are insufficient funds to sustain the sole source contract with Marianas Pacific Express," Manglona said.
"It is unfortunate that we find ourselves in this situation, but the lack of a funding source to pay for the $8 million sole-source contract necessitated the cancellation of the contract," he added.