Legislature(2005 - 2006)CAPITOL 120
04/13/2005 01:00 PM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| HB183 | |
| HB260 | |
| HB53 | |
| HB257 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 257 | TELECONFERENCED | |
| += | HB 183 | TELECONFERENCED | |
| *+ | HB 260 | TELECONFERENCED | |
| + | HB 133 | TELECONFERENCED | |
| = | HB 53 | ||
HB 257 - STATE PROCUREMENT ELECTRONIC TOOLS 3:24:26 PM CHAIR McGUIRE announced that the final order of business would be HOUSE BILL NO. 257, "An Act relating to a procurement and electronic commerce tools program for state departments and instrumentalities of the state; and providing for an effective date." VERN JONES, Chief Procurement Officer, Central Office, Division of General Services (DGS), Department of Administration (DOA), explained that in 2003, House Bill 313 was passed by the legislature and became law, thereby creating a state procurement pilot program. He went on to say: The [DOA] then prepared and issued an RFP [request for proposals] for a contractor to outsource state procurement functions in the Southeast Region of [the Department of Transportation & Public Facilities (DOT&PF)], and awarded a contract to [Alaska Supply Chain Integrators, LLC (ASCI)] as envisioned in ... [that] bill. [The] bill and subsequent contract were limited to two departments and two instrumentalities of the state, and had a June 2006 sunset date. [The] procurement pilot contractor, as we're calling them, has been operating [DOT&PF] Southeast Region procurements for nine months now. [House Bill 257] would remove the restrictions on the number of departments and instrumentalities contained in the current law, as well as eliminate the sunset provisions that are there now. ... Yesterday I spoke with committee staff and sent a message in which I suggested a couple of amendments that would fix an incorrect statutory reference and clean up some of the preference language. I see that the version before you does not have those amendments, and I would urge you to consider them. CHAIR McGUIRE, speaking as the chair of the House Judiciary Standing Committee, sponsor of HB 257, noted that Mr. Jones's suggested amendments are contained in an e-mail he provided; the portion of his e-mail that explains his suggested amendments read [original punctuation provided]: 1.Replace reference to AS.36.30.100-190 to AS 36.30.100-265 - this would allow for awarding of the contract via RFP rather than just ITB, which would not be appropriate for this type of contract. 2. "Cleans up" the preferences and makes them more uniform and workable. The preferences as listed are drawn from existing statute, which are complex, confusing, poorly written, and have been subject to protest. MR. JONES clarified that the portion of his e-mail labeled "1" proposes that language, "36.30.190" on page 1, line 10, be replaced with, "30.36.265". He said that doing so would allow the department to "award a contract of this type via an RFP rather than just an ITB [invitation to bid]." With regard to the portion of his e-mail labeled "2", he said: This bill lifts preferences from existing statute, and I can tell you from experience that the preferences we now have in statute are complex, ... cumbersome, ... hard to understand, and hard to apply - they are not consistent, [and] they act in different ways. For example, some preferences reduce an offeror's price for comparison purposes, [while] other preferences have you go through an analysis, find the lowest price, take a percentage of that bidder's price, and apply a discount to someone else's ... offer. My suggestion and the language that I'd provided would make these preferences, at least for this bill, uniform and consistent. And I would recommend that you would consider that. 3:30:41 PM REPRESENTATIVE DAHLSTROM asked how the bill will affect the transparency of the current procurement process. MR. JONES relayed that under the bill, as is now the case under the pilot program, the state would not be required to provide formal public notice of either the opportunity to compete or the awards that are made. In response to questions, he reiterated that the pilot program was implemented by the DOA, which chose to implement it in the DOT&PF's Southeast Region. CHAIR McGUIRE mentioned that the administration didn't want to institute a pilot project in areas where it might not be successful, and so the bill gave the DOA the discretion to utilize the pilot program in up to four different departments. She offered her belief that the intent of the bill that originally established the pilot program was not carried out. She elaborated: It was for four departments. We really wanted to see, in four different departments, what are the measured savings, how does it work, how is it changing - in a good way or bad way - procurement. And what happened was that ... people drug their feet, [and] it wasn't until a year after the bill had been signed into law that even any meaningful steps were made to identify which department would then be under the pilot [program]. And when it was done, I would argue that it was done in a department that's very difficult: ... the [Alaska] Marine Highway Southeast Transportation System. That's a difficult department [in which] to employ the kind of success that I would have liked to have seen. So ... as the [original] bill's sponsor, I felt a little set up; I felt, personally, as if the goal that I was trying to get realized ... wasn't allowed to ... go forward. And so that's a source of frustration, and it's part of the reason that ... [HB 257] is before you today; ... I want to give ... [the DOA] the discretion to expand it to whatever departments they believe will be feasible. ... CHAIR McGUIRE reiterated that the intent of the original bill establishing the pilot program was to allow for the pilot program to be instituted in up to four different departments, and that the pilot program was only utilized in one department and late at that. 3:36:27 PM REPRESENTATIVE KOTT offered his understanding that under the original legislation - House Bill 313 - the DOA could outsource up to two departments and up to two other instrumentalities of the state - for example, the Alaska Permanent Fund Corporation (APFC) or the Alaska Housing Finance Corporation (AHFC). With regard to the contract that was let, what period of time was it for, he asked. MR. JONES said that the contract aligns itself with the bill, and thus goes through [June] of 2006; however, there is a provision in the contract stipulating that if the bill were to be amended, the contract could be extended another couple of years through optional renewals. In response to the question of what would happen if an RFP was offered and a different vendor was the low bidder, he said that the contract which is in place now would "stand on its own and would run its course, and we would have two contracts up and running." He noted that all of the DOA's professional services contracts typically have several types of termination clauses that could be utilized if the state so chose, either for cause or for convenience. REPRESENTATIVE KOTT asked whether there are any annual reports required which could show a savings from outsourcing or the cost/benefit of outsourcing. MR. JONES replied: There's an understanding with that contract, and us, to perform benchmarking audits. And we have done that and continue to do that so we can get some sort of a gauge for how they're doing compared to how the agency was doing previously. MR. JONES, in response to a further question, said that those audits are performed quarterly; that the audit for the first quarter has been completed; that the contractor is now operating in the third quarter; and that the audit for the second quarter is just now coming up and will be completed very soon. The first quarter audit, he remarked, is for a time period in which "there was a lot of transition going on," and so the results are rather inconclusive, particularly given that it occurred so early on in the process, before a lot of data was available. REPRESENTATIVE KOTT surmised, then, that at this point, the cost/benefit is not yet known. MR. JONES concurred. He added that he hopes to have the second quarter audit concluded and available for release to members soon. In response to further questions, he relayed that although the second quarter audit has not yet been released, it does appear that Chair McGuire has possession of a letter from Commissioner Barton to Commissioner Matiashowski commenting on the first quarter audit, which was released some time ago, and includes a fax from the DOT&PF, Administrative Services, that pertains to first quarter findings. 3:44:14 PM BRUCE LUDWIG, Business Manager, Alaska Public Employees Association/American Federation of Teachers (APEA/AFT); Secretary/Treasurer, Alaska State, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), offered the following comments: The pilot program, two years ago, was rushed through in the final days of the 2003 [legislative] session. There were no measurements to success included in the bill, no benchmarks for comparison, and nothing to enable anyone to determine if it was a success or a failure. There doesn't appear to have been a lot of thought given to it. The bill title was misleading. When we talked to [legislators] after it was passed, we were told [that] it was a bill to enable e- commerce. The bill does much, much more than that. The [Alaska Supply Chain Integrators, LLC (ASCI)], who brought ... [House Bill 313] forward, was the only responsive bidder and was awarded the contract. The state determined they could save $250,000 by eliminating the warehouse and using fewer employees in favor of e-commerce. [Alaska Supply Chain Integrators] actually began work July 1, 2004, and 10 state employees were laid off. Since the pilot project [began], only one quarter has been audited; the second audit is in process, and the third should be getting underway. They're actually working in the fourth quarter at the moment. The pilot [program] has until a year from next June to finish. As the [DOA] testified in ... Senate [committee hearings], the jury's still out on whether it's saving money or not. It's too early to extend it; it still has another year to run its course and determine if it was a good pilot project or not. This bill should be held over while a sufficient record is established to be able to intelligently make a decision on whether it has been a success or not. We've heard various rumors from people out in the agencies about how successful it's been. For one thing, we've heard that goods and services cost 20 percent more when you buy them under ASCI than what the state was purchasing at. And if you extend that out for the life of the pilot project, that's a cost to the state of [$2.5 million] ..., or it's [$2.5 million worth] of fewer goods that you're going to have. We've heard that there's 1,500 invoices sitting out there, where the invoice can't be matched up to the purchase order. Now, that means that the state's vendors aren't getting paid. That affects the state's reputation, but, more importantly, it affects a lot of Alaska businesses that depend on the money; they've already delivered the goods and they're waiting on payment and aren't getting it. We've heard [about] other problems. For instance, the first audit points [out] that when the M/V Kennicott was undergoing engine overhaul down in the yard in Portland, ASCI ordered seven different orders of engine parts [and] six of them got shipped to Juneau. They had to be flown down - airfreighted down - to Portland. ... That cost the state a lot of money. Of the original $250,000 savings, about half of that was the warehouse - closing the warehouse. On October 1 they reopened the warehouse. It doesn't work without the warehouse; you have to have the warehouse to transfer goods and store them. So the savings was no longer $250,000. We're also hearing that the ASCI employees are working a lot of overtime. So who knows whether there's any savings in personal services costs. But if we're losing on the goods and services that we're purchasing, we're not saving money. A far better project would be to enable state agencies to use e- commerce tools themselves. There's some, right now, that are using them. There ought to be some kind of a program that [the DOA] establishes to let all the departments use them - one big e-commerce site. In summary, we just ask that you hold the bill over; let's see how the pilot project goes, let's give it a fair run, and see if we save money or lose money. Thank you. 3:48:54 PM JIM DUNCAN, Business Manager, Alaska State Employees Association (ASEA), said that the ASEA opposes HB 257 and recommends that it be held over. He offered his belief that it is very clear that the pilot project has not been completed, and that the legislature should evaluate the success or failure of that project before expanding it. Referring to page 2 of the aforementioned letter regarding the first quarter audit, he noted that it says in part: "It is clear from the audit conclusions under ASCI management there has been no improvement in service and the cost of goods to the state have actually increased. Based on these findings we recommend that there be no expansion of the pilot until ASCI's performance demonstrates significant benefit to the state." He said he's been hearing that there has been no improvement shown in the second quarter, but acknowledged that such has yet to be substantiated. MR. DUNCAN urged the committee to hold HB 257 over until the aforementioned results are provided and until the legislature has a chance to understand what has really happened with the pilot project. He indicated that there is also a constitutional question, which has been provided to members in the form of a memorandum, regarding denying Alaska businesses and individuals equal protection [under] the law. He suggested that the committee review the memorandum, and that the committee carefully consider what the result will be of allowing a private contractor to completely bypass Title 36, the procurement code, as is proposed in HB 257. MR. DUNCAN pointed out that Alaska's procurement laws were put into place after careful consideration, are based on model legislation, and have been updated. At the time that those laws were established, the legislature worked to ensure that Alaska's procurement process was open and transparent, and that the public's trust would be maintained. Passage of HB 257 will allow the rules of procurement to be set by [the DOA] and the contractor, he remarked, adding his belief that "those who set the rules will control the game." He acknowledged that he's heard that there is a lot of interest in streamlining the process, but opined that such should not be done at the expense of the public's trust. MR. DUNCAN noted that as a former commissioner of the DOA, he had similar goals, and therefore worked with the chief procurement officer and others towards that end. The statutes do not prohibit e-procurement at this time, he pointed out, but such does require the proper tools. He urged the committee to evaluate what those tools actually are and then given them to the administration. He then asked the committee to consider the issue of privatization by reviewing the federal government's "OMB Circular No. A-76", which gives direction to the heads of departments and establishments to be very careful with regard to what gets privatized, and which also indicates that some activities are inherently governmental. MR. DUNCAN relayed that the aforementioned document says in part: An inherently governmental activity is an activity that is so intimately related to the public interest as to mandate performance by government personnel. ... An inherently governmental activity involves ... [e]xerting ultimate control over the acquisition, use, or disposition of United States property (real or personal, tangible or intangible), including establishing policies or procedures for the collection, control, or disbursement of appropriated and other federal funds. MR. DUNCAN noted that these directions are currently being applied at the federal level, under an administration that is known to favor privatization, and suggested that similar direction should apply in the state of Alaska. In conclusion, he offered his belief that there are numerous, important reasons to hold the bill over for further careful consideration by the committee. 3:54:44 PM BEN MILAM had his testimony read by Ken Brown as follows: I have almost 30 years experience in logistics and purchasing, and have attended more formal classes on purchasing than anyone in the state, including upper- graduate level classes. I only mention this to emphasize that formal purchasing for government is a science. It is often complicated and very different from buying groceries at the local grocery store. In large corporations, professional buyers are viewed in the income category, rather than as expense, because of the value they add to the purchasing process. In government agencies, those professional buyers save thousands of dollars that can be then used to support programs. These profits and savings are possible because professional buyers are dedicated to their company or agency mission. The buyers in the proposed program will follow this same philosophy. They are dedicated to making money for their company. They are not dedicated to the government mission and cannot be if they are loyal to their company. This is a very bad program. I am also very active with the National Association of Purchasing Management. At a recent meeting we discussed the whole concept of contracting out. Where private industry has contracted out the purchasing function, however, all those that I'm aware of retained signature authority over purchases, had documents distributed on their own forms, and enforced their own corporation rules. In all of those cases the contractor provided only transactional work and was hidden from view on purchasing documents. Even though these private corporations maintained very strict control over their contractors and even though the programs were successful for them, contracting out purchasing of a government agency and spending public money is quite different. In government purchasing, public trust is essential. I belong to a newspaper clipping service that collects newspaper articles nationwide. I have a stack currently over an inch thick. Most of the articles collected in the past year concerned corruption in government contracts. There are two points here. One, contracts are vulnerable to corruption because of the extremely large dollar volume involved. Two, most of us would agree that all of these actions are wrong and that those involved should be punished; however, most of these offenses are not against the law in private contracts. [A] private contractor can give contracts to his friends if he wants to. It is his money. He can spend it where and how he likes. We can't do that with public money. Citizens of Alaska deserve strict accountability for their money and we have a procurement code that makes that possible. This is a very bad contract and very poor public policy. Thank you. 3:58:07 PM BARRY JACKSON, Procurement Analyst; Project Manager; Programmer Analyst, Resource Data, Inc. (RDI), relayed that he is a retired DOA Division of General Services (DGS) employee, having served as Contracting Manager, Deputy Director, and Acting Director. While working for the DOA, he remarked, he attempted to bring automation and improved productivity to the DOA's procurement systems, and in pursuit of those goals visited other states to examine their automation systems. However, he noted, the State of Alaska never adopted any of the procurement systems used by other states, and so frustrated by the state's inability to bring automation to the DOA's DGS, he taught himself to program and then created applications that have since been used for nearly 15 years. MR. JACKSON went on to say: When I first saw the RFP for this pilot program for e- commerce tools and web tools ..., I knew I wanted to be a part of this effort to improve the state's procurement system, and [so] I convinced my company to offer my services to Alaska Supply Chain Integrators in support of their RFP response. I assisted [ASCI] in winning the contract and have since developed most of the internal procurement policies used in the pilot project. I've also conducted training of [DOT&PF] employees on "ASCI Smart Tool Applications" and assisted in performance reviews internally. The ASCI tools, as they currently exist, are uniquely suited and fitted to the State of Alaska; they've been highly customized for the State's systems, and are better than anything I've encountered in any other state. ... MR. JACKSON added: In 1969, when I was hired, agencies of the state were ... limited to being able to make $25 purchases without coming back through the Division of General Services. In other words, the State of Alaska's procurement systems were highly centralized at that time. Over the years, because this [was] a very paper-oriented system, the more demand that was placed upon it, the longer things took, and there was a trend towards decentralization, which was strongly accelerated in the mid-80s. Subsequent to ... [some] scandals that [occurred], ... a procurement code was adopted which mandates a centralized procurement system. However, decentralization kept apace to the point where, now, I think it's fair to characterize the State's procurement system as strongly decentralized. And that brings with it the attendant difficulties of failure to consolidate repetitive procurements, [of] increases in personnel because the services are being performed over and over again in various departments, and [of] ... enforcing the rules and procedures that are required. Today, I think we have an opportunity ... to recentralize a lot of the procurement through the use of web tools and an automated system such as the one that ASCI has. [It will] ... provide for a better service, better accountability, better productivity. Business rules that the state now uses and tries to enforce through paper processes can be enforced through electronic means, and I believe all-around better efficiency and productivity can be realized. As a manager, my judgment is that these tools are well tailored to the job - they create efficiencies, which increase the productivity of the users. That increase in productivity can be put to use in several ways. The people that are doing the daily ordering have more time to do other things. In the centralized portion of the current system, the persons that are now doing the buying are far more efficient and productive in doing their jobs and producing the work that comes in. Right now we are in a period of transition; these are dramatic changes that are being made, and there will be challenges, which are due to the complexity and due to the resistance to change or just plain resistance due to potential for job loss. My estimation, given the "sea change" in the way the systems operate, is that the transition has been going pretty well so far, even given the resistance that's been encountered. Regarding the subject of these quarterly audits, I don't remember, in my 30 years of State service as a contracting official, ever doing quarterly audits on any contractor. MR. JACKSON concluded: This level of scrutiny, were it applied to a state agency, looking ... at the same issues, would undoubtedly reveal various issues of overspending and such as [has] been alleged by others providing testimony here today. I guarantee that were I able to spend that level of activity in scrutiny in investigating another agency quarterly, ... I would find purchasing violations and overspending. I'm not offering that as an excuse, I'm simply saying that this level of scrutiny is unprecedented in my experience, and I don't believe that any state agency could withstand that level of scrutiny ... either. CHAIR McGUIRE said she would leave public testimony open and hold HB 257 over.
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