2004-03-25                     House Journal                      Page 3082
HB 545                                                                                            
HOUSE BILL NO. 545 by the House Rules Committee by request of                                       
the Governor, entitled:                                                                             
                                                                                                    
     "An Act relating to the extension under the State Procurement                                  
     Code of terms for leases for real estate and certain terms for                                 
     certain state contracts for goods and services; and providing for an                           
     effective date."                                                                               
                                                                                                    
was read the first time and referred to the Labor & Commerce and                                    
Judiciary Committees.                                                                               
                                                                                                    
The following fiscal note(s) apply:                                                                 
                                                                                                    
1.  Zero, Dept. of Administration                                                                   
                                                                                                    
The Governor's transmittal letter dated March 24, 2004, follows:                                    
                                                                                                    
"Dear Speaker Kott:                                                                                 
                                                                                                    
Under the authority of article III, section 18 of the Alaska                                        
Constitution, I am transmitting a bill relating to the extension of terms                           
for leases and terms for contracts for goods and services under the                                 
State Procurement Code.                                                                             
                                                                                                    

2004-03-25                     House Journal                      Page 3083
This bill would make several changes to the State Procurement Code.                                 
Section one of the bill would authorize the state to negotiate lease rate                           
reductions on existing leases in exchange for certain term extensions                               
when favorable lease rates are available.  The current process only                                 
authorizes lease extensions if the property owner agrees to either (1)                              
reduce the lease rate by ten percent and perform modifications to bring                             
the property into Americans with Disabilities Act compliance, or (2)                                
reduce the lease rate by 15 percent.  The problem is, the current                                   
process does not take into account whether the current lease rate is                                
already below market.  Due to market conditions and current lease                                   
rates, this high discount is often not acceptable to property owners.                               
                                                                                                    
Many of our current lease rates are already below market and leave the                              
lessor unwilling to meet the 10 or 15 percent reduction to extend the                               
lease.  In fact, only a small percentage of lease extensions have been                              
negotiated under the existing provisions.  The only option left for the                             
state is to issue a new request for proposals.  Often this results in                               
additional moving costs and market rates, which can represent a                                     
substantial increase in costs to the state.                                                         
                                                                                                    
The method proposed in this bill would ensure that the state receives                               
the best value for its leasing dollars.  Lease extensions would only be                             
authorized where the rates are a minimum of five percent below                                      
market.  This would allow the state to maintain its presence in leases                              
which are already well below market rates.  Additional savings beyond                               
the five percent would be negotiated depending on a number of factors                               
such as location, current market value, existing vacancies, and market                              
trends.                                                                                             
                                                                                                    
The bill also would authorize term extensions for up to five years for                              
contracts for goods and services provided a minimum cost savings of                                 
at least five percent could be achieved on the price of the goods or                                
services as set in the current contract.  Under present law, at the end of                          
the contract term, contracts for goods or services must be resolicited                              
through a competitive process or a new contract awarded based upon                                  
alternative procurement methods regardless of price reductions that                                 
may be offered by the contractor if the contract were extended.                                     
                                                                                                    

2004-03-25                     House Journal                      Page 3084
I urge your prompt and favorable action on this measure.                                            
                                                                                                    
                                Sincerely yours,                                                    
                                /s/                                                                 
                                Frank H. Murkowski                                                  
                                Governor"