Legislature(1995 - 1996)

04/03/1995 03:10 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HB 288 - PROCUREMENT PREFERENCE/DISABLED PERSONS                            
 CHAIRMAN PETE KOTT announced that a quorum was present.  The first            
 and only order of business would be HB 288.                                   
 Number 022                                                                    
 SPONSOR OF HB 288, read the following sponsor statement:  "This               
 bill will allow 100 percent disabled owned corporations and                   
 partnerships to be eligible for disabled bidder preferences.                  
 "Current law allows disabled owned sole proprietorships to take               
 advantage of the disabled bidder preference, the exclusion appears            
 to me to have been a drafting oversight.                                      
 Equal protection under the law requires all like situations to be             
 treated fairly and equally.  Current law discriminates against                
 disabled owned corporations and partnerships.                                 
 "The intent of this legislation is to create fairness on this one             
 issue.  I understand that there may be other problems with the                
 current legislation, it is not my intent to address other                     
 controversial portions of this law and its enforcement.                       
 "I wish to keep this bill focused and on this one narrow point."              
 REPRESENTATIVE JAMES told the committee she has had conversations             
 with the Department of Education (DOE) and also the drafting                  
 attorney to make changes so that HB 288's intent would be to allow            
 the disabled persons to have business entities other than sole                
 proprietorships.  If disabled persons want to have corporations or            
 partnerships with other disabled persons, they should not be                  
 disqualified or forced to be sole proprietorships.  She is only               
 addressing the ownership of the business.  This was brought to her            
 attention by three disabled people in the Fairbanks area.  They are           
 severely disabled but mentally alert and capable of managing their            
 own business.  This would not allow a disabled person to own the              
 business on paper only.  The owner of the company should exercise             
 leadership and management functions in the business.  The disabled            
 person would not be just the recipient or the beneficiary.  She               
 commented on cases where people have ongoing businesses and                   
 transfer the businesses into their wife's name so they will qualify           
 for "A Women in Business" preference.                                         
 REPRESENTATIVE JAMES said this would allow people to decide what              
 type of entity they want for their business.  If there is a                   
 preference for any disabled, then it ought to include all disabled            
 so as to prevent discrimination.                                              
 Number 096                                                                    
 CHAIRMAN KOTT asked if she knew of any cases that had challenged              
 the provision on Equal Protection grounds.                                    
 Number 104                                                                    
 REPRESENTATIVE JAMES responded no.  Legally, when partnerships,               
 corporations and sole proprietorships are talked about,                       
 corporations are not persons.  If it is a person, it is its own               
 person.  Therefore, the line must be crossed (indisc.) in regards             
 to a corporation.  If three disabled persons want to form a                   
 corporation, as opposed to three separate sole proprietorships,               
 they should be entitled to benefits given to disabled persons                 
 regarding bidder preference.                                                  
 Number 318                                                                    
 REPRESENTATIVE SANDERS asked if HB 288 applied to state procurement           
 REPRESENTATIVE JAMES replied yes.                                             
 REPRESENTATIVE SANDERS asked if the preference would apply only to            
 Alaska residents, or was it for anyone holding a business license             
 in the state.                                                                 
 REPRESENTATIVE JAMES wasn't familiar with the rest of the statute.            
 This is only part of that statute, but she expected the statute was           
 only for Alaskan residents.                                                   
 REPRESENTATIVE SANDERS said that with the 10 percent bidder                   
 contracts, many of the large contracts get taken by a half of                 
 percent.  For instance, he owns a printing company.  If you get a             
 $40,000 bid for state envelopes, you could have ten people bidding            
 within a half a percent.  If the company that is awarded that                 
 contract brokers those envelopes to some other state, how would               
 that affect HB 288?                                                           
 REPRESENTATIVE JAMES replied that she wasn't active in bidding.               
 However, the statute was set up to allow people with disabilities             
 to set up their own businesses because they weren't able to be an             
 employee somewhere else.  She asked, "If you were disabled and                
 bidding, would you like to have a 10 percent bidder preference?"              
 REPRESENTATIVE KIM ELTON asked if the 10 percent was additional to            
 the 5 percent Alaska bidder preference.                                       
 REPRESENTATIVE JAMES said, "The subsection does not give a bidder             
 who would otherwise qualify for a preference, under the subsection,           
 a preference over another bidder who would otherwise qualify for a            
 preference under the subsection."  She did not feel the preferences           
 could be stacked.                                                             
 REPRESENTATIVE ELTON asked how many sole proprietorships have taken           
 advantage of the 10 percent bidder preference in the past and how             
 big the field now would become.                                               
 REPRESENTATIVE JAMES believed the field to be eight.  She                     
 reiterated that there may be problems with other parts of the                 
 statute.  She is not intending to fix those problems with HB 288,             
 only to let disabled people qualify as corporations.  The three men           
 who are disabled but mentally fit have the ability to run their own           
 business.  She had asked the drafting attorney to require that in             
 order to qualify, the vocational rehabilitation people would need             
 to have severe physical or mental disabilities which limit their              
 functional capacities.  This includes those who are seriously                 
 incapacitated but still have the mental ability to manage a                   
 Number 343                                                                    
 ADMINISTRATION (DOA), testified that the department, at this time,            
 was neutral on HB 288.  HB 288 extends the 10 percent bidder                  
 preference to corporations and partnerships where the owners are              
 disabled.  In that sense, it treats all business entities equally.            
 In order to qualify for this preference, you must qualify as an               
 Alaskan bidder.  HB 288 doesn't carry a fiscal note.                          
 MR. PETTY explained two concerns exist regardless of whether or not           
 HB 288 is adopted.  The first is that while this enhances the                 
 competitive opportunities of disabled bidders, it doesn't add                 
 additional opportunities for disabled employees.  The second                  
 concern is the issue of how to ensure that the bidder receiving a             
 disabled bidder preference doesn't broker the bid.  With respect to           
 the matter of preference stacking, he stated that subsection (e),             
 the Disabled Bidder Preference, combines with other preferences.              
 In reference to Representative Sanders question regarding                     
 subcontracting, he said this was permissible under the law.                   
 Number 318                                                                   
 REPRESENTATIVE SANDERS asked if Moore Business Forms were eligible            
 for the Alaska bidders preference.                                            
 MR. PETTY replied that it holds an Alaskan Business License, it has           
 submitted bids for goods of service, its name appears under an                
 Alaska Business License, its had a place of business in the state             
 for over six months, and it is incorporated.                                  
 REPRESENTATIVE SANDERS pointed out that Moore Business Forms was a            
 multi-national company out of Canada.  With the 10 percent bidder             
 preference, you run the risk of larger corporations bidding the               
 price up 10 percent higher, and then taking the work to Moore                 
 Business Forms and having the work done there.  The result being              
 that the state would be paying 10 percent more.                               
 Number 343                                                                    
 MR. PETTY replied any bidder preferences the state has affects the            
 outcome of the bid.  Preferences increase the cost to the state.              
 Number 344                                                                    
 CHAIRMAN KOTT asked if you had to be a resident of the state in               
 order to hold an Alaska Business License.                                     
 Number 349                                                                    
 MR. PETTY replied AS 36.31.70 (b) sets out a number of criteria,              
 none of which includes residency.  However, it requires the firm to           
 have an Alaska Business License, to submit a bid for goods and                
 services in the name appearing on the license, and to maintain a              
 place of business within the state, staffed by the bidder or                  
 employee of the bidder for a period of six months immediately                 
 preceding the date of the bid.  He added that if the bidder is                
 incorporated it must be registered in the state.  If it is a                  
 proprietorship or partnership, all owners must be residents of the            
 state.  Corporations do not have to be residents of the state.                
 Number 363                                                                    
 REPRESENTATIVE PORTER asked, "That's the qualification for what?"             
 MR. PETTY answered, "Qualifying for the Alaska bidders preference."           
 REPRESENTATIVE PORTER asked in reference to the preference for                
 businesses which hire 50 percent or more handicapped people,                  
 whether the exception accrues to a business regardless of its form            
 of organization.                                                              
 Number 373                                                                    
 MR. PETTY said that was correct.  They would have to qualify for              
 the Alaska bidders preference.  However, it would be for any                  
 bidder, regardless of whether it was a sole proprietorship, a                 
 corporation, or a sole partnership.                                           
 REPRESENTATIVE PORTER said HB 288 would make the ownership issue              
 for handicapped persons equivalent to the employee type of                    
 MR. PETTY replied yes.  The bill covers all business entities in              
 the same fashion with respect to ownership interest and                       
 Number 376                                                                   
 REPRESENTATIVE ELTON asked if HB 288 only covered non-profit groups          
 run by boards of directors, if everyone involved has a disability.            
 Number 381                                                                    
 MR. PETTY answered yes.  If a non-profit fits in any of those                 
 categories, that would be the case.  If there are non-profit                  
 corporations with  all shareholders having disabilities they would            
 be covered.                                                                   
 REPRESENTATIVE ELTON noted that those non-profit groups he and                
 Representative James use for their printing would, under the terms            
 of HB 288, not be eligible for the disabled bidder preference.                
 MR. PETTY responded that employment programs or sheltered workshops           
 have a special dispensation elsewhere in the procurement code.  In            
 some cases, they were able to not go to bid, where there was a                
 contract with one of those organizations.                                     
 REPRESENTATIVE ELTON asked what the dollar threshold was under AS             
 Number 406                                                                    
 MR. PETTY responded that it applies to an invitations to bid which            
 are over $25,000.  Invitations under $25,000 are done through                 
 request for quotation.  This section also applies to requests for             
 Number 415                                                                    
 CHAIRMAN KOTT asked if women and minorities were considered within            
 the scope of the Alaska bidder preference scheme.                             
 MR. PETTY said women and minorities are considered Alaskan bidders            
 and eligible for the bidders preference if they meet the                      
 requirements.  Under state statutes, there is no separate                     
 distinction, set a side program, or preference in either case.                
 Number 422                                                                    
 CHAIRMAN KOTT thought there was some provision at the federal level           
 pertaining to women and minorities who occupy various positions in            
 Number 429                                                                    
 REHABILITATION, DOE, testified that the bidder preference was                 
 changed three years ago to include sole proprietorships and                   
 businesses having 50 percent of their employees with severe                   
 disabilities.  This was added to the employment program preference,           
 which is the largest of three programs.  There are 16 employment              
 programs in the state.  He said when legislation was introduced by            
 then Representative Ellis, there was a lot of controversy and                 
 concern that there would be a flood of people applying for                    
 preferences.  Over the past three years there have been 11 sole               
 proprietorships that have requested bid packets.  Of those 11, 6              
 were certified and 1 was turned down.  The other four failed to               
 return their packets.  No businesses having 50 percent of its                 
 employees handicapped have been certified.                                    
 MR. RIDGEWAY said that HB  288 was intended for people who live in            
 group homes that might not want to work through shelter workshops.            
 These people could get janitorial and other contracts for people              
 living in the workshop.  Normally the house parent would run the              
 company.  There is room for abuse; however, they haven't seen any             
 thus far.  There are people from Fairbanks that are severely                  
 disabled and should have qualified for a bidder preference under              
 this bill; nevertheless, since it was for sole proprietorships,               
 they had to turn down the request.                                            
 MR. RIDGEWAY stated that certifying corporations would open up                
 abuses of the program.  His understanding of HB 288 is if they                
 certify corporations, all that is required is an Alaska Business              
 License.  Any corporation in the world, as long as they were                  
 certified to do business in Alaska, could get a bidders preference.           
 He doesn't feel this was the initial intent of HB 288.  The                   
 loophole needs to be tightened to address people's concerns, such             
 as that of the gentlemen from Fairbanks.                                      
 Number 482                                                                    
 CHAIRMAN KOTT asked if an individual, corporation or entity that              
 qualified under the Alaska bidder preference could broker their               
 awarded contracts to a third party located out of the state.                  
 MR. RIDGEWAY answered yes.                                                    
 REPRESENTATIVE ELTON asked if the men from Fairbanks would qualify            
 under paragraph (f), and if they have employees of which more than            
 50 percent are not disabled.                                                  
 MR. RIDGEWAY felt it was a fairly large corporation with an office            
 also in Illinois.  However, this is different in that the people              
 owning the corporation are disabled instead of having the employees           
 Number 497                                                                    
 CHAIRMAN KOTT said he had a proposed CS, dated 4-3-95, Version F.             
 The major change is that the title was opened up to allow for a               
 change in Section 2, which addresses the award of the contract for            
 the Alaska bidder preference provision and prohibits brokering to             
 a third party.  Section 3 ensures that any bids currently being               
 reviewed are excluded.  He acknowledged the prime sponsor was                 
 focusing on a narrower provision of the law.  However, the                    
 committee has the opportunity to fix an identified problem.                   
 Number 514                                                                    
 REPRESENTATIVE PORTER asked if the disability business preference             
 would allow a business whose owner was handicapped the 10 percent             
 bidder preference, even though the business itself had employees              
 that were not impaired.                                                       
 Number 521                                                                    
 REPRESENTATIVE JAMES said her intent was to have severely disabled            
 people covered to the extent that they could own and manage a                 
 business.  If they are physically disabled and there was physical             
 work to be done, they would have to have a non-disabled person to             
 do the physical work.  She would like to see a door closed in that            
 the owners of the corporations or partnerships would each have to             
 be qualified by Vocational Rehabilitation as being severely                   
 disabled.  Also, it is important that disabled owners be in active            
 management of the business.                                                   
 CHAIRMAN KOTT asked if they would be placing a higher degree of               
 requirement on the disabled than they would on the other                      
 individuals who receive bidder preference.                                    
 REPRESENTATIVE JAMES responded yes.                                           
 Number 540                                                                    
 REPRESENTATIVE PORTER noted that this was being accomplished by the           
 wording requiring all partners to qualify.                                    
 REPRESENTATIVE JAMES responded that in the example of Moore                   
 Business Forms, or another company like that, if they are a large             
 corporation they have an extended number of stockholders, and                 
 consequently there's no way they could qualify.  It would have to             
 be a closed corporation, where everyone of the shareholders was               
 severely disabled.  She felt this closes the door so they don't               
 have to worry.  They are encouraging disabled people to get                   
 educated and pick up other things to do to take care of themselves;           
 and in doing that, give them that preference to bid.                          
 Number 556                                                                    
 REPRESENTATIVE ELTON said if they were requiring this of the                  
 Department of Education, and the door opens not only to Alaska                
 corporations but to any corporations that can file in the state, it           
 would seem to broadly expand the duties of the Department of                  
 Education.  He asked if they would need additional resources on the           
 fiscal note.                                                                  
 Number 558                                                                    
 REPRESENTATIVE JAMES said she would defer the question to the                 
 department, as they never came to a conclusion on the issue.                  
 Number 573                                                                    
 REPRESENTATIVE PORTER made a motion to adopt the proposed CSHB                
 288(L&C), Version F.                                                          
 CHAIRMAN KOTT asked if there was an objection.                                
 Number 576                                                                    
 REPRESENTATIVE SANDERS objected.  He said on the surface HB 288               
 looks like a good idea.  However, he asked for clarification on the           
 language  "may not assign the contract".  He explained that, in his           
 business, they would never be aware of it.  He wouldn't assign the            
 contract.  He would call Moore Business Forms and have them do the            
 job, put the product into a plain box, and send it to his office              
 where he would put his business sticker on the box.  He asked                 
 whether this would cover that sort of situation.                              
 Number 586                                                                    
 REPRESENTATIVE JAMES responded that it would.  It states that the             
 section does not prohibit subcontracting less than the entire                 
 contract.  You wouldn't be able to subcontract the entire contract.           
 Number 603                                                                    
 REPRESENTATIVE ELTON said that the section that reads, "This                  
 section does not prohibit subcontracting less than the entire                 
 contract."  He said to him that would mean if he was contractor               
 `XYZ,' he could bid a job and then assign 90 percent of that                  
 contract and say that 10 percent of the contract is management                
 oversight.  He observed this to be a loophole "big enough to drive            
 a Mack truck through," because any contract would have a management           
 Number 615                                                                    
 REPRESENTATIVE SANDERS thought this would cause more abuse.  He               
 appreciated what the chairman had done in trying to tighten the               
 language, but felt it needs to be tightened further.                          
 Number 627                                                                    
 REPRESENTATIVE JAMES commented that, if they had the provision that           
 disabled people had to be in the management of the business, this             
 would close the door.  However, the question was how to do that               
 without discriminating against the other part of this legislation,            
 which is the part requiring disabled employees.  There are two                
 different parts to this legislation.  One part concerns businesses            
 owned by disabled persons.  The other part concerns companies that            
 hire disabled persons.  She said she doesn't feel this would be               
 opening the door for misuse because these people would have to be             
 qualified by Vocational Rehabilitation as being severely disabled.            
 The decision the committee is making is whether or not they want              
 these people to be other than a sole proprietorship and allow them            
 to have this other entity.                                                    
 REPRESENTATIVE JAMES told the committee what prompted her to                  
 introduce this legislation was the case of the three men in                   
 TAPE 95-32, SIDE B                                                            
 Number 000                                                                    
 REPRESENTATIVE JAMES continued that maybe if the men weren't doing            
 this as a corporation, they wouldn't be able to have the business             
 they are doing.  She asked whether these three disabled people                
 would be denied the benefit given to other disabled people.                   
 Number 004                                                                    
 REPRESENTATIVE SANDERS acknowledged that the statute should be                
 broadened to cover corporations.  However, the language would have            
 to be tightened.                                                              
 Number 014                                                                    
 CHAIRMAN KOTT stated that they still had the motion to adopt the              
 proposed CSHB 288(L&C), dated 4-3-95, Version F, Bannister.  He               
 asked if Representative Sanders maintained his objection.                     
 REPRESENTATIVE SANDERS withdrew his objection.                                
 CHAIRMAN KOTT stated there being no objection, the CSHB 288(L&C),             
 dated 4-3-95, Version F, Bannister, was adopted.                              
 Number 025                                                                    
 REPRESENTATIVE JAMES said that in Section 2 the wording "where a              
 person has been awarded" should be changed to "person, corporation            
 or partnership", unless `person' could include the other business             
 entities.  She said she would ask for legal advice on that.                   
 CHAIRMAN KOTT said he believed that `person' would stand for an               
 Number 038                                                                    
 REPRESENTATIVE PORTER said the last line states "this Section does            
 not prohibit subcontracting less than the entire contract."  He               
 asked if they should change that to "this section does not prohibit           
 subcontracting less than 50 percent of the entire contract."                  
 Number 047                                                                    
 CHAIRMAN KOTT said that if you acquired an Alaska bidder preference           
 as a general contractor, you may be subcontracting part of the                
 contract out to several different entities.                                   
 Number 054                                                                    
 REPRESENTATIVE PORTER said that if you retained 51 percent of the             
 work yourself, you could justifiably say this is a legitimate                 
 interest of the state to provide business to a handicapped person.            
 However, if it was just a broker operation, it would be unfair to             
 other businesses.                                                             
 Number 079                                                                    
 MR. PETTY said it would be difficult to identify the minimum                  
 percentages of subcontracting because what is appropriate and                 
 customary in one service or supply may not be appropriate in                  
 another service or supply.  This would apply to the use of                    
 subcontracting with construction contracts because those are more             
 prevalent.  They have looked at the way the federal government                
 dealt with this issue with respect to women and minorities in                 
 businesses.  The federal approach is to require that bidders be               
 defined as dealers, which means they must be in the business of               
 selling the product or service to the public.  This would  prohibit           
 a bidder who has never conducted this business from turning around            
 and subcontracting out 100 percent of it and then selling it to the           
 state.  He felt it would be difficult to come to a solution today.            
 However, they should approach it from the subcontracting end, or              
 look at the regular dealer approach.                                          
 Number 143                                                                    
 REPRESENTATIVE PORTER said he had dealt with this indirectly                  
 himself, and felt the federal approach would be preferable in                 
 eliminating the problem of a handicapped entity being used by                 
 another business to gain a bidders preference.                                
 Number 162                                                                    
 REPRESENTATIVE ELTON said that would be a productive approach.                
 However, the change from sole proprietorship doesn't mean anything            
 with regard to increased employment opportunities for disabled                
 people.  This only creates additional business opportunities for              
 corporations that have 100 percent disabled ownership.                        
 Number 186                                                                    
 REPRESENTATIVE PORTER said he didn't understand it to mean that in            
 the first place.  He asked why they shouldn't increase the                    
 opportunities for handicapped people to own businesses rather than            
 just being employees.                                                         
 Number 190                                                                    
 REPRESENTATIVE ELTON responded that he didn't have a problem with             
 that.  What they were talking about are corporations and                      
 partnerships that are already formed and are profitable.  "We are             
 just expanding the ability of a discreet number these partnerships            
 or corporations to increase their profitability."                             
 Number 201                                                                    
 REPRESENTATIVE PORTER added that he sees this as an opportunity for           
 the 50 percent disabled employees who are working for someone else            
 but are capable of doing business for themselves.  This provides              
 opportunities both ways.                                                      
 Number 209                                                                    
 REPRESENTATIVE SANDERS said that any bidders preference would raise           
 the procurement price.  He didn't believe they could maintain the             
 zero fiscal note.                                                             
 Number 220                                                                    
 MR. PETTY responded that they have had very little impact as the              
 law now reads.  It would be difficult for them to deduce what the             
 cost to state agencies would be if HB 288 is passed.  Any                     
 preference which results in awarding to the higher bidder will                
 increase the costs to the state.  Over the last three years they              
 have not seen much impact from this preference.                               
 Number 238                                                                    
 REPRESENTATIVE ELTON said if they adopted the federal approach,               
 there would need to be an expanded certification process to ensure            
 those business making bids meet the federal requirements.                     
 Number 249                                                                    
 MR. PETTY said they would look at that.  They had never given                 
 serious consideration to a fiscal note for certification of this              
 type of a program.                                                            
 Number 255                                                                    
 REPRESENTATIVE JAMES commented that she was trying to visualize who           
 all the disabled people are in the state that have the ability, the           
 money and all the other things that are needed to implement this              
 organization.  She said that the six or so people that have been              
 certified might be able to change their business entity to be a               
 corporation or partnership, as opposed to a sole proprietorship.              
 There are benefits.  If there weren't any, we wouldn't have those             
 business entities.  This opens the door for these people in                   
 providing that 100 percent of the shareholders are severely                   
 disabled.  That alone would limit the number of people that would             
 be able to do this.                                                           
 Number 283                                                                    
 CHAIRMAN KOTT stated that it was his intent to hold HB 288 until              
 Friday.  The committee would work with the prime sponsor as well as           
 the Department of Administration to come up with language discussed           
 during the meeting.                                                           

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