PC: PC: SMS Page at https://linktr.ee/smshawaii.com
On October 29th, Boris Yankovitch, the lawyer representing Seamless Funding – the firm that loaned SMS money in August – filed for a motion of default judgment against Timothy Carson and entities related to SMS.
The motion asks that the court approve the recovery of $30,146.55 to Seamless from SMS – $29,437.50 for the base amount and $254.05 interest, calculated at 9%, plus court costs at $455.00.
The interest that is charged to the proposed settlement is a great deal lower than what Mr. Carson and SMS agreed to in the initial agreement of the loan. As reported by Politics Hawaii in its report about the loan, the interest rate, then, was pegged at 528.62%.
Another detail in the filing showed that SMS/Timothy Carson has not responded to the initial complaint that was filed in late September. Politics Hawaii has also reached out to Mr. Carson in the same way – by mail – and as of the publishing of this post, there has been no response to either the complaint or to press inquiries.
While the case against SMS continues in New York court, Politics Hawaii has heard from consultants of various industries in Hawaiʻi, sympathizing with what Mr. Carson and SMS have experienced.
In one conversation, a consultant pointed out that what happened to SMS could happen to anyone. Sources indicated that due to the payment processes for consulting work—which encompasses various jobs beyond just surveys and marketing—business owners often need to dip into their savings to stay afloat.
In personal experience with entities needing immediate cash for potential later payouts, they often found funds by liquidating home equity to secure working capital.
In other words, they took out second mortgages to get the cash.
PC: State of Hawaii Procurement Office, screenshotted from a HANDS presentation located at https://www.youtube.com/watch?v=pFZo_huDQhI&ab_channel=Hawai%27iSPO
With Mr. Carson and SMS, the picture emerges of a company that had to front much of the money to fulfill a contract, only getting paid when the client was satisfied with the result. Because of changes or requests for corrections for work done by the client, SMS was forced to front even more money to perform the revisions and got caught short on cash, thus taking out the Seamless loan.
As for how often it happens where there is a local firm that faces cash crunches like SMS faced, no statistics are available, but it may be more common than not.
This raises the question of whether anything can be done to change the situation, particularly for firms awarded state contracts. With over a decade of experience in procurement rules, this reporter has encountered instances where vendors delivering procured items have called to inquire about their payments.
Sometimes more than once.
Although this writer has not witnessed a case where withheld payments forced a company or vendor out of business, the delayed processing of payments could potentially leave vendors short on cash to continue operating. Politics Hawaii will investigate this issue in the coming weeks and months while also reporting on developments related to the SMS shutdown.
The key question emerging from the shutdown of SMS is whether Hawaiʻi’s government and private entities are helping or harming local firms through their procurement rules and procedures when hiring local firms for consulting and other work. Additionally, it raises the issue of whether the “buy local” philosophy is genuinely supported by these rules.