Legislature(2011 - 2012)HOUSE FINANCE 519

04/09/2011 01:00 PM FINANCE

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HOUSE BILL NO. 204                                                                                                            
     "An  Act  relating  to   the  State  Procurement  Code,                                                                    
     including the  use of small procurement  provisions for                                                                    
     certain  amounts of  leased space,  the requirement  of                                                                    
     Alaska  business license  proof for  Alaska bidder  and                                                                    
     other  procurement  preferences,  the  registration  of                                                                    
     construction   contract  bidders   and  offerors,   the                                                                    
     establishment and  maintenance of lists of  persons who                                                                    
     want  to provide  supplies or  services  to the  state,                                                                    
     state    agencies,    and   state    instrumentalities,                                                                    
     electronic bids and  proposals, small procurements, and                                                                    
     writings; and providing for an effective date."                                                                            
1:21:10 PM                                                                                                                    
VICE-CHAIR   ANNA   FAIRCLOUGH,   SPONSOR,   explained   the                                                                    
legislation.  She pointed  out that  HB 204  along with  the                                                                    
companion  bill  HB 205  attempted  to  modernize the  state                                                                    
procurement  code,  streamline   procurement  processes  and                                                                    
change  the definition  of  small  procurement. She  offered                                                                    
that  HB 204  clarified  business  license requirements  for                                                                    
sealed  bids and  qualifications  for  the Alaskan  bidder's                                                                    
preference.  The   threshold  for  small   procurements  was                                                                    
increased   from  $50   thousand   to   $100  thousand   and                                                                    
construction procurements  were increased to  $200 thousand.                                                                    
The   bill   increased   the  square   footage   for   small                                                                    
procurements from 3000 to 7000  square feet. Electronic bids                                                                    
and  signatures were  allowed. The  legislation updated  the                                                                    
vendor  list and  enabled the  Department of  Administration                                                                    
(DOA) to manage  the vendor list online.  She concluded that                                                                    
the legislation modernized the entire procurement process.                                                                      
VERNON  JONES,   CHIEF  PROCUREMENT  OFFICER,   DIVISION  OF                                                                    
GENERAL SERVICES,  DEPARTMENT OF ADMINISTRATION,  provided a                                                                    
sectional analysis of HB 204 (copy on file).                                                                                    
     Section 1: Amends AS 36.30.080(f)                                                                                          
          Increases   the   threshold    limit   for   small                                                                    
          procurements  of leased  space  from 3,000  square                                                                    
          feet to 7,000 square feet, consistent with section                                                                    
     Section 2: Amends AS 36.30.110(b)                                                                                          
          Clarifies  Alaska  business  license  requirements                                                                    
          for competitive sealed  bids and qualification for                                                                    
          the   Alaska  bidder   preference.  Change   would                                                                    
          require  bidders to  show  proof  of their  Alaska                                                                    
          Business  License   prior  to  award,   but  would                                                                    
          require the license at the  time of bid submission                                                                    
          in  order   to  qualify  for  the   Alaska  bidder                                                                    
Mr.  Jones  expounded  that  the  department  experienced  a                                                                    
disproportionate  amount  of technical  disqualification  on                                                                    
larger  procurement bids.  The change  was recommended  by a                                                                    
legislative audit to remedy the situation.                                                                                      
     Section 3: Amends AS 36.30.130(a)                                                                                          
          Eliminates  reference to  a procurement  officer's                                                                    
          use of vendor lists,  reflecting the repeal of the                                                                    
          statute establishing the  vendor lists, consistent                                                                    
          with section 10.                                                                                                      
Mr. Jones added that bid requests were noticed online for                                                                       
the public.                                                                                                                     
1:25:29 PM                                                                                                                    
Mr. Jones continued with the sectional analysis.                                                                                
     Section 4: Amends AS 36.30.210(b)                                                                                          
          Clarifies  construction   contractor  registration                                                                    
          requirements,     now     explicitly     requiring                                                                    
         registration before award of a contract.                                                                               
     Section 5: Amends AS 36.30.210(e)                                                                                          
          Clarifies  Alaska  business  license  requirements                                                                    
          for     competitive    sealed     proposals    and                                                                    
          qualification  for  the Alaska  bidder  preference                                                                    
          using  language  consistent   with  that  used  in                                                                    
          section 2.                                                                                                            
     Section 6: Amends AS 36.30 by adding a new section                                                                         
          Adds a  new section  allowing an agency  to accept                                                                    
          electronic bids and proposals.                                                                                        
     Section 7: Amends AS 36.30.320(a)                                                                                          
          Increases  the  threshold   under  which  a  state                                                                    
          agency  may use  informal  procurement process  to                                                                    
          $100,000 for  goods and professional  services, to                                                                    
          $200,000 for  construction, and 7,000  square feet                                                                    
          for lease of space.                                                                                                   
     Section 8: Amends AS 36.30.655                                                                                             
          Eliminates  reference to  the removal  of debarred                                                                    
          or   suspended   persons    from   vendor   lists,                                                                    
          reflecting the  repeal of  a law  establishing the                                                                    
         vendor lists, consistent with section 10.                                                                              
     Section 9: Amends AS 36.30.990                                                                                             
          Adds   new  definitions   for  "in   writing"  and                                                                    
     Section 10: Repeals statute establishing the vendor                                                                        
     Section 11: Amends the uncodified law of the State of                                                                      
          Clarifies the  application of the  procurement act                                                                    
          to   pending   solicitations   during   transition                                                                    
     Section 12: Effective Date                                                                                                 
          Language  making  the  procurement  act  effective                                                                    
Representative  Gara remarked  that  he liked  the bill.  He                                                                    
questioned  Section  5.  He wanted  to  tighten  the  Alaska                                                                    
bidder preference.  He felt  that it was  too easy  for non-                                                                    
residents  to procure  bids.  Vice-chair Fairclough  replied                                                                    
that  HB   204  did  not   attempt  to  change   the  bidder                                                                    
preference. She communicated  that restrictions were legally                                                                    
challenged  in  the past  and  failed.  The legal  precedent                                                                    
maintained  what latitude  did exist  in state  statute. She                                                                    
revealed  how  Section  5  related  to  the  Alaska  bidders                                                                    
preference. The  bidder's preference process  was frequently                                                                    
appealed  and   challenged  because  of  ambiguity   in  the                                                                    
language  on  procurement.  Both  Section 2  and  Section  5                                                                    
provided explicit  language that an Alaska  business license                                                                    
was required at  the time of bid submission.  She noted that                                                                    
the change  does address Representative Gara's  concern. The                                                                    
provision at least ensured  an Alaska residential preference                                                                    
on the opening bid.                                                                                                             
1:29:51 PM                                                                                                                    
Representative  Gara  commented  on   the  legal  issue.  He                                                                    
informed  the   committee  that  interstate   commerce  laws                                                                    
precluded that the state cannot  require residency in Alaska                                                                    
for more  than a year.  A residential bidder  preference was                                                                    
legal up to one year. He  wanted to research a way to ensure                                                                    
that the  Alaskan presence  [residency] was  real and  not a                                                                    
"shell presence." Mr. Jones  outlined the existing requisite                                                                    
for the Alaska bidder  preference. The statute required that                                                                    
a place of business in  Alaska was operating and staffed six                                                                    
months  prior  to the  bid  opening.  A shell  presence  was                                                                    
Representative  Gara argued  that  the  problem existed.  An                                                                    
outside company can  open a fake office and  pay an employee                                                                    
to  appear busy.  Mr. Jones  countered  that tightening  the                                                                    
regulations   would   hurt    honest   businesses.   Further                                                                    
regulatory measures could eliminate  small business or large                                                                    
corporations from the competitive bid process.                                                                                  
Co-Chair  Stoltze   noted  flaws  in   Alaska's  procurement                                                                    
process. He gave the example  of a Colorado company that was                                                                    
considered   an  Alaskan   business  because   its  previous                                                                    
business in  the state  counted as  a presence.  The company                                                                    
acquired  an Alaskan  bidder's  preference  over an  Arizona                                                                    
firm. Mr. Jones confirmed that  the firm did qualify because                                                                    
of  their presence  in the  state even  though the  work was                                                                    
performed out of state.                                                                                                         
1:32:52 PM                                                                                                                    
Representative  Guttenberg cited  Sections  2 and  5 of  the                                                                    
legislation. He  queried the language change  from "must" to                                                                    
"shall." Mr. Jones replied that  the change in semantics did                                                                    
not make a difference.                                                                                                          
Representative   Costello   asked  whether   Department   of                                                                    
Commerce,  Community and  Economic  Development (DCCED)  had                                                                    
the ability to  share their business license  data base with                                                                    
DOA. Mr. Jones answered in  the affirmative. He related that                                                                    
DOA  often  referenced  DCCED's  data  base  when  verifying                                                                    
Representative  Costello referred  to Section  7. She  asked                                                                    
what  percentage  of projects  would  fall  under the  lower                                                                    
limit  of  small procurements.  Mr.  Jones  voiced that  the                                                                    
question  was  difficult  to  answer   due  to  lack  of  an                                                                    
automated  procurement  system  to  tally  the  numbers.  He                                                                    
explained   the   logic   behind  the   changes   in   small                                                                    
procurements. The  previous raise in dollar  limits occurred                                                                    
in  the 1990's.  The changes  in small  procurement afforded                                                                    
procurement  officials more  time to  deal with  higher risk                                                                    
procurements  and  less  time on  simple  procurements.  The                                                                    
department hoped  that by raising the  threshold and placing                                                                    
more procurement  in the small  procurement realm  small and                                                                    
rural business  would benefit.  The small  procurement realm                                                                    
offered  small business  a  streamlined  process and  easier                                                                    
access to state bids.                                                                                                           
1:36:00 PM                                                                                                                    
Representative Costello cited the  repeal of the vendor list                                                                    
in Section  10. She  wondered what the  vendor list  was and                                                                    
what  effect removal  would provide  the process.  Mr. Jones                                                                    
explained that vendor lists were  used by DOA to notify bids                                                                    
to  interested  parties.  The  state  law  mandated  DOA  to                                                                    
maintain  vendor  lists.  The vendor  list  became  outmoded                                                                    
since the  onset of electronic  media. Currently,  the state                                                                    
provided public notice  of bids on its  online public notice                                                                    
website.  The  online  tool was  convenient  and  free.  The                                                                    
public  learned where  to find  the information  online. The                                                                    
department   abandoned  expensive   newspaper  notices   and                                                                    
mailings.  He did  not  believe the  lists  were useful  any                                                                    
Representative Neuman  questioned how  the changes  to small                                                                    
procurements ensured  that the process  remained competitive                                                                    
for  the  state.  Mr.  Jones revealed  that  the  state  was                                                                    
required to  obtain a  minimum of  three informal  bids. The                                                                    
change   removed  the   more   formal  competitive   bidding                                                                    
requirements. He assured that  minimum levels of competition                                                                    
remained in statue for small procurements.                                                                                      
Co-Chair Stoltze OPENED and CLOSED public testimony.                                                                            
Co-Chair Stoltze noted the zero fiscal note for DOA.                                                                            
HOUSE BILL NO. 205                                                                                                            
     "An   Act  relating   to   state   and  public   entity                                                                    
     procurement,  including  the  State  Procurement  Code,                                                                    
     procurement preferences, and  contract awards; relating                                                                    
     to the  meaning of  'Alaska bidder'; and  providing for                                                                    
     an effective date."                                                                                                        
REPRESENTATIVE  ANNA  FAIRCLOUGH, SPONSOR,  highlighted  the                                                                    
legislation.  She  explained  that   HB  205  endeavored  to                                                                    
provide  uniformity   to  the  application   of  preferences                                                                    
through   statutory  changes   in   the  procurement   code.                                                                    
Currently, preferences  do not contain the  same language so                                                                    
they must  be applied  differently. It also  clarified which                                                                    
preferences  are  cumulative  and  those  that  may  not  be                                                                    
combined.  The  legislation   consolidated  the  procurement                                                                    
preferences  under  one  statute. The  bill  eliminated  the                                                                    
seldom used  preference for employers  of the  disabled. The                                                                    
changes   streamlined  the   procurement   code  to   ensure                                                                    
consistent application of the law  which resulted in a clear                                                                    
and efficient procurement process.                                                                                              
Mr.  Jones  emphasized that  HB  205  made preferences  more                                                                    
consistent and  organized into a single  section of statute.                                                                    
He  related  that  the  current  process  was  complex.  The                                                                    
preferences  were diffused  through  statute with  different                                                                    
formulas and  applications. A three-hour class  was provided                                                                    
for  procurement  employees  to   learn  how  to  apply  the                                                                    
preferences.  He noted  that HB  205 did  not eliminate  the                                                                    
Alaska offers preference.                                                                                                       
1:42:07 PM                                                                                                                    
Mr. Jones  pointed out  that the  biggest change  to statute                                                                    
was Section  11, which consolidated  all preferences  into a                                                                    
new  section  of  statue.  All   of  the  preferences  would                                                                    
transfer  into the  new section  except  for the  preference                                                                    
related  to the  disabled.  The department  viewed  it as  a                                                                    
duplicate  preference. He  identified two  other preferences                                                                    
that  benefit  the  disabled.  He  noted  that  the  section                                                                    
authorized use of alternative  verification for the disabled                                                                    
who  qualify  for  a  preference.   Under  current  law  the                                                                    
disabled must provide letters  from doctors. The requirement                                                                    
placed undue burden on the disabled.                                                                                            
Vice-chair  Fairclough  emphasized  that  the  controversial                                                                    
offers preference  contained in the legislation  in the past                                                                    
was not included  in HB 205. She stated that  it was not her                                                                    
intention  to  offer the  preference  as  an amendment.  Her                                                                    
intention was  to provide a  better working  environment and                                                                    
more competition and  savings for the state.  She noted that                                                                    
the Alaska State  Chamber of Commerce supported  both HB 204                                                                    
and HB 205 and read the contents of a handwritten letter:                                                                       
     Dear Vice-chair Fairclough:                                                                                                
     The Alaska State Chamber of Commerce supports HB 204                                                                       
     and HB 205 as important steps in reforming the                                                                             
     procurement code. Thanks for working with us on this.                                                                      
     Rachael Petro                                                                                                              
     Executive Director                                                                                                         
Vice-chair  Fairclough  noted  that she  did  a  substantial                                                                    
amount of outreach before she offered the legislation.                                                                          
1:46:10 PM                                                                                                                    
Representative    Costello   queried    what   organizations                                                                    
supported the  legislation. Vice-chair  Fairclough responded                                                                    
that  her  staff  contacted  the  Alaska  State  Chamber  of                                                                    
Commerce  which   redirected  the   request  to   all  local                                                                    
chambers.  Her staff  contacted  Anchorage homebuilders  and                                                                    
any   homebuilding  association,   the  Associated   General                                                                    
Contractors,  as  well  as  any  entities  that  opposed  or                                                                    
expressed  interest   in  the   previous  versions   of  the                                                                    
legislation. She  added that the  legislation was  vetted to                                                                    
all of the interested and contacted parties.                                                                                    
Representative     Costello    questioned     whether    the                                                                    
administration  requested the  changes or  if she  initiated                                                                    
the  legislation. Vice-chair  Fairclough responded  that the                                                                    
legislation was  her own  idea. She  expounded that  she was                                                                    
working  on   the  Alaska  veteran's  preference   when  she                                                                    
discovered inconsistencies  in the preference  language. She                                                                    
began discussions  with the department and  learned of DOA's                                                                    
challenges  with the  preferences. She  offered the  complex                                                                    
legislation  because she  wanted to  create efficiencies  in                                                                    
the  code,  save  procurement officer's  time,  and  provide                                                                    
opportunities for competitive bids in smaller communities.                                                                      
Representative Neuman shared concerns  with Sections 2 and 3                                                                    
of  HB 205.  He  noted  that the  legislation  provided a  7                                                                    
percent  preference for  agricultural products  purchased in                                                                    
the   state  and   deleted  language   that  specified   the                                                                    
agricultural products  shall be of like  quality compared to                                                                    
agricultural  products  harvested   outside  the  state.  He                                                                    
maintained that Alaskan  suppliers produced superior quality                                                                    
products. He supported the  purchase of Alaskan agricultural                                                                    
products  by  state  agencies  and  schools.  He  felt  that                                                                    
quality was an inducement to buy locally.                                                                                       
1:50:33 PM                                                                                                                    
Representative  Neuman worried  that  removing the  language                                                                    
regarding   "comparable   quality"    would   hurt   Alaskan                                                                    
producers. Mr.  Jones indicated the  change in  language was                                                                    
specifically   meant  to   make  the   application  of   the                                                                    
preference  simpler and  would not  change how  the products                                                                    
were  graded. He  judged that  changing  the language  would                                                                    
remove  an  impediment  currently  in  place  that  mandated                                                                    
comparison of  Alaska produce to  outside produce.  He added                                                                    
that the current agricultural  preference was cumbersome. In                                                                    
order to calculate  the preference the state  went through a                                                                    
bidding process,  applied the  Alaska bidder  preference and                                                                    
found  the  lowest bid,  took  7  percent  of that  bid  and                                                                    
subtracted  that  number  from  the  bid  that  offered  the                                                                    
Alaskan  produce. The  change  would allow  for  a simple  7                                                                    
percent deduction. He  deemed that the change  was easier to                                                                    
understand and apply, and would remove an impediment.                                                                           
Representative Neuman argued that  the problem was where the                                                                    
quality  of the  produce was  measured. The  outside produce                                                                    
was  graded and  compared at  point of  origin. The  produce                                                                    
lost  quality  and vitamin  content  in  transit to  Alaska.                                                                    
Alaskan  agricultural products  cannot  compete against  the                                                                    
outside  produce  with  the  existing  process.  In  reality                                                                    
Alaskan  produce was  the better  product measuring  quality                                                                    
and nutritional value.                                                                                                          
1:54:15 PM                                                                                                                    
Co-Chair Stoltze  asked whether Vice-chair  Fairclough would                                                                    
object  to a  "friendly"  floor amendment  on  the issue  if                                                                    
warranted.   Vice-chair   Fairclough   reminded   that   the                                                                    
preference guaranteed 7 percent instead  of up to 7 percent.                                                                    
She requested  confirmation that the 7  percent agricultural                                                                    
preference  could  couple  with   a  12  percent  "assurity"                                                                    
preference  for agricultural  products. Mr.  Jones confirmed                                                                    
that the agriculture preferences accumulated.                                                                                   
Representative  Neuman noted  that  price was  not the  only                                                                    
factor. He  recognized the  important multiplier  effect and                                                                    
substantial  benefit  to  the  state  by  purchasing  Alaska                                                                    
products.  He  contended  that Alaska  cannot  compete  with                                                                    
outside  suppliers  because  of   economies  of  scale.  The                                                                    
outside supplier was  aware of the 7  percent preference and                                                                    
was  able  to  underbid   Alaskan  suppliers.  The  bidder's                                                                    
preference  did not  consider the  significant value  to the                                                                    
state  when   large  state  institutions  buy   locally.  He                                                                    
exemplified  that   the  Department  of   Corrections  (DOC)                                                                    
purchased large quantities of  agricultural products but are                                                                    
often able to purchase  large quantities from outside buyers                                                                    
at  greater  than 7  percent  savings  compared to  in-state                                                                    
products.  He was  uncertain how  to  rectify the  situation                                                                    
with   preferences.    He   reported   that    many   agency                                                                    
commissioners agreed  with his  assessment. He asked  if the                                                                    
legislation was  an opportunity to correct  the problem. Mr.                                                                    
Jones agreed  the problem was  difficult. He noted  that the                                                                    
department was  focused on bottom  line costs.  He suggested                                                                    
an increase in the agricultural  preference but was not sure                                                                    
that was the answer.                                                                                                            
Representative   Neuman  believed   that   a  solution   was                                                                    
authorizing  commissioners  to   purchase  in-state  if  the                                                                    
purchase  provided substantial  benefit  to  the state.  Mr.                                                                    
Jones related  that he had  dealt personally with  the issue                                                                    
through several  administrations. He reminded  the committee                                                                    
that  HB  205 raised  the  small  procurement threshold.  He                                                                    
informed  that a  state  agency could  simply  call a  small                                                                    
procurement  from three  Alaskan vendors  and ensure  buying                                                                    
in-state. He  thought the problem was  more complicated than                                                                    
simply preference.  Market issues,  timing, and the  way the                                                                    
state  purchased products  contributed  to  the problem.  He                                                                    
exemplified that  DOC held contracts  with large  firms that                                                                    
purchased agriculture products.  The purchasers were looking                                                                    
for  year   around  consistency  and   reliability.  Alaskan                                                                    
suppliers cannot provide that.                                                                                                  
2:00:19 PM                                                                                                                    
Representative Gara  supported the  agricultural preference.                                                                    
He was concerned about the  size of some of the preferences.                                                                    
He  pointed to  Page  5, Line  11, and  asked  where the  15                                                                    
percent  preference  applied.  He   believed  in  the  state                                                                    
accepting the  extra costs  of a 5  to 7  percent preference                                                                    
for the  benefit but thought  15 percent was  excessive. Mr.                                                                    
Jones  explained that  the  preference benefited  employment                                                                    
programs    that    employ   people    with    developmental                                                                    
disabilities.  Representative  Gara   established  that  the                                                                    
entire  section  dealt  with  vocational  programs  for  the                                                                    
disabled. Mr. Jones agreed.  Representative Gara thought the                                                                    
preference was justified.  He asked if the  state was losing                                                                    
the  blind person's  preference  for  vending machines.  Mr.                                                                    
Jones replied  that was  a federal  program not  affected by                                                                    
the bill.                                                                                                                       
Representative Gara turned  to Page 8, line  13, which cited                                                                    
cumulative  preferences.  He  asked which  preferences  were                                                                    
cumulative  and  what  the cumulative  sum  was.  Mr.  Jones                                                                    
answered that  in general, a  bidder that qualified  for two                                                                    
similar preferences  was prohibited from receiving  both. He                                                                    
exemplified  that someone  cannot be  a disabled  bidder and                                                                    
receive a preference  for an employment program  or a bidder                                                                    
cannot receive an agricultural preference  and also obtain a                                                                    
timber preference.  He added that agricultural,  timber, and                                                                    
fisheries   products   cannot    be   combined.   Disability                                                                    
preferences cannot be combined.  He exemplified that someone                                                                    
can  qualify for  an Alaskan  bidders preference  or Alaskan                                                                    
products preference and also be  a disabled bidder. A bidder                                                                    
could  have  an Alaskan  product  preference  but could  not                                                                    
combine an agricultural preference.                                                                                             
2:04:09 PM                                                                                                                    
Representative Gara asked if  cumulative language existed in                                                                    
current statute. Mr. Jones responded  in the affirmative. He                                                                    
offered to  provide a complete  list. He reiterated  that HB                                                                    
205 did not change how preferences accumulated.                                                                                 
Co-Chair Stoltze OPENED and CLOSED public testimony.                                                                            
2:05:44 PM                                                                                                                    
AT EASE                                                                                                                         
2:06:09 PM                                                                                                                    
Vice-chair  Fairclough  MOVED  to   report  HB  204  out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
HB  204 was  REPORTED  out  of Committee  with  a "do  pass"                                                                    
recommendation and  with attached previously  publish fiscal                                                                    
note: FN1, ADM.                                                                                                                 
Vice-chair  Fairclough  MOVED  to   report  HB  205  out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
Representative Doogan  OBJECTED to  state that  he commended                                                                    
the work and did not want to see the bills again.                                                                               
Representative Joule agreed.                                                                                                    
There being NO further OBJECTION, it was so ordered.                                                                            
HB  205 was  REPORTED  out  of Committee  with  a "do  pass"                                                                    
recommendation  and   with  attached   previously  published                                                                    
fiscal note: FN1, ADM.                                                                                                          
2:11:14 PM                                                                                                                    
AT EASE                                                                                                                         
2:22:45 PM                                                                                                                    

Document Name Date/Time Subjects
HB 49 support Letter.pdf HFIN 4/9/2011 1:00:00 PM
HB 49