Legislature(1995 - 1996)
04/03/1995 03:10 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 REPRESENTATIVE JEANNETTE JAMES, ALASKA STATE LEGISLATURE, PRIME 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 only. 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 business. Number 343 DUGAN PETTY, DIRECTOR, DIVISION OF GENERAL SERVICES, DEPARTMENT OF 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 business. MR. PETTY replied yes. The bill covers all business entities in the same fashion with respect to ownership interest and disabilities. 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 36.31.70. 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 proposals. 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 corporations. Number 429 STAN RIDGEWAY, DEPUTY DIRECTOR, DIVISION OF VOCATIONAL 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 disabled. 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 component. 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 Fairbanks. 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 entity. 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.