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UPDATED 8/14/2011 7:20 p.m.

The state has dismissed a contract appeal filed against Honolulu’s rail system, clearing an important hurdle for the $5.3 billion project.

Hawaii Department of Commerce and Consumer Affairs Senior Hearings Officer David Karlen on Saturday issued his findings of fact and conclusions of law, ruling that the city can award the billion-dollar design-build-operate-maintain (DBOM) contract to Ansaldo Honolulu.

, which rejected claims from Sumitomo Corporation of America, was published to the Sunday.

Karlen repeatedly said in his ruling that the city complied with the terms of its Request For Proposals (RFP). He said the city wasn’t capricious, arbitrary or unreasonable, and that it complied with procurement law.

But he was careful to point out that complying with the letter of the law doesn’t mean the city necessarily made the right choice, or that it did all it could have done to get the best deal for taxpayers.

At one point, Karlen wrote that “the City’s evaluation process was not a textbook example of how such an evaluation should be accomplished, and the City would have helped itself if it had kept better records of the evaluation process.”

During the evidentiary hearing, Sumitomo made many claims about the city’s evaluation of bids. It said using Ansaldo would cost Honolulu taxpayers $700 million extra over the 30-year life of the rail cars.

Perhaps the most damning accusation was that the city failed to properly consider and score Ansaldo’s past performance problems. In testimony, the head city evaluator said his team did not pick up the phone to check references.

Karlen’s ruling didn’t deny those claims but essentially said that those shortcomings didn’t make the procurement process illegal. The city’s RFP didn’t include past performance in the evaluation of price realism, Karlen wrote.

“The definition of ‘best value’ as meaning the evaluation and comparison of all relevant criteria in addition to price cannot implicitly be stretched, as Sumitomo advocates, to import other criteria such as past performance into a price realism or reasonableness evaluation,” Karlen wrote. (Emphasis in original.)

“While Sumitomo claims that it is desirable, or even standard in the industry, to consider past performance as part of a price realism or price reasonableness analysis, such a consideration was not contained in the terms of the RFP,” he wrote.

Karlen also said the RFP didn’t require a 30-year life-cycle cost analysis, despite the suggestion from a Sumitomo expert witness that such an analysis would have saved Honolulu taxpayers millions of dollars.

“Mr. (William) Rennicke’s testimony was quite interesting, and there was an interesting contrast between his opinions and the opinions of the City’s expert witness, Mr. Christopher Gambla. The Hearings Officer, however, does not have to decide who is ‘right’ or what number of years should be utilized in a life cycle cost analysis when evaluating a light rail system,” Karlen wrote. “The essential point is that Sumitomo is claiming the City’s life cycle cost analysis should have been for a significantly longer term than was required by the RFP.”

Karlen also wrote that one of Sumitomo’s claims about Ansaldo’s past performance lacked jurisdiction because it wasn’t raised at an appropriate time. Karlen said he couldn’t consider claims not considered by the city’s chief procurement officer. He said Sumitomo didn’t raise the past performance issue on which the decision hinged in its protest to the city.

“Sumitomo is obviously very disappointed. Sumitomo disagrees completely with the DCCA’s ruling and is pondering next steps,” Sumitomo Vice President Gino Antoniello said in a statement provided by a spokeswoman Sunday.

Ansaldo said it was pleased with the decision Sunday.

“Ansaldo Honolulu is extremely pleased that the state’s independent hearings officer concluded that the City correctly followed the procurement law and properly selected Ansaldo’s offer to design and operate Honolulu’s rail system as presenting the best value to Honolulu,” Ansaldo said in a written statement provided to Civil Beat.

“The selection of Ansaldo Honolulu has been reaffirmed now by both the city and state, and while we elected not to argue our case in the media, we are encouraged that an objective and impartial hearing process has found that our offer was sound and balanced,” the company said. “We remain ready to apply our experience and expertise to deliver a world class transportation system for the people of Oahu. We can now focus on our immediate needs of hiring employees and begin operations to bring this historic project to fruition.”

Honolulu Authority for Rapid Transportation Interim Executive Director Toru Hamayasu issued the following statement in response to the ruling.

“We are pleased with the ruling by DCCA. It reinforces the fact that our procurement process was conducted properly and in accordance with state law.”

The dispute over the so-called DBOM contract had been one of the major hurdles standing in the way of the project. The other, a federal environmental lawsuit filed against the project, is still undecided.

Karlen previously dismissed a separate appeal brought by another losing bidder, Bombardier.

Sumitomo has 10 days to appeal in state court.

If neither of the parties decide to go to court, the city will have cleared a potentially major stumbling block.