Legislature(2007 - 2008)CAPITOL 106
03/20/2007 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB166 | |
| HB151 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 166 | TELECONFERENCED | |
| *+ | HB 151 | TELECONFERENCED | |
| *+ | HB 92 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 151-INDEMNITY CLAUSE IN PUBLIC CONTRACTS 9:28:49 AM CHAIR LYNN announced that the final order of business was HOUSE BILL NO. 151, "An Act requiring an indemnification and hold harmless provision in professional services contracts of state agencies, quasi-public agencies, municipalities, and political subdivisions." The committee took an at-ease from 9:28:59 AM to 9:34:10 AM. 9:34:21 AM REPRESENTATIVE JOHNSON, Alaska State Legislature, introduced HB 151 as sponsor by request. He said a constituent called attention to the necessity for the bill. The constituent illustrated the problem by saying that if someone were to slip on the ice in front of a state building, and someone else were to remark that the ice wouldn't have fallen on the sidewalk if the building had been designed correctly, the necessity to defend the state would go all the way to the engineer that designed the building, irrespective of whether or not someone did not scrape the ice or the contractor may or may have made a mistake. Representative Johnson relayed that the designer and the engineer, according to some contracts with the State of Alaska, are responsible for defending the state in all the legal costs involved. The bill, he said, would level the playing field for all contracts with the state, as well as ensure accountability; for example, the person who did not scrape the ice would be responsible and "it wouldn't go all the way back to the designer." REPRESENTATIVE JOHNSON said some contractors are discouraged from bidding, because it is very difficult to get insurance, and they know that they may have to defend themselves in some future litigation. He said only about 5 percent of the contracts with the state put this type of responsibility on the [design consulting companies], but those that do are costing extra money, time, and effort due to litigation. He said one unintended consequence of HB 151 is that it "may bring in some financial consultants for the permanent fund dividend group and the [Alaska Retirement Management (ARM)] Board." He stated that that is not the intention of the proposed legislation, and he expressed willingness to clean up the language to avoid such a consequence. 9:38:55 AM CHAIR LYNN moved to adopt Amendment 1, labeled 25-LS0479\C.1, Bannister, 3/16/07, which read as follows: Page 1, line 1, following "indemnification": Insert ", defense," Page 1, line 7, following "Indemnification": Insert ", defense," Page 1, lines 9 - 10: Delete "that indemnifies the public agency and holds the public agency harmless" Insert "under which the consultant agrees to indemnify, defend, and hold harmless the public agency from claims or liability" Page 1, lines 10 - 11: Delete "who contracts with the public agency to provide the professional services" Page 1, line 12: Delete "joint liability on a comparative fault basis" Insert "the indemnification, defense, and hold harmless obligation on a comparative fault basis where there is joint liability" Page 2, line 1, following "indemnify": Insert ", defend," Page 2, line 4, following "indemnify": Insert ", defend, or hold harmless" Page 2, line 8, following "indemnification": Insert ", defense," Page 2, line 12: Delete "provision" Insert "subsection" Page 2, following line 16: Insert a new paragraph to read: "(1) "consultant" means a person who contracts with a public agency to provide professional services;" Renumber the following paragraphs accordingly. 9:38:58 AM REPRESENTATIVE COGHILL objected. 9:39:08 AM THERESA BANNISTER, Attorney, Legislative Legal and Research Services, Alaska State Legislature, said Amendment 1 would add an obligation of dissent to the language of the bill. 9:39:51 AM REPRESENTATIVE COGHILL removed his objection. 9:40:02 AM REPRESENTATIVE GRUENBERG said he would like the terms "indemnification," "defense," and "hold harmless" to be defined for the record. 9:40:26 AM MS. BANNISTER said she would have to look up the terms indemnify and hold harmless to describe the difference between them; however, she said all three terms have always been associated together. REPRESENTATIVE GRUENBERG said defense is the obligation to defend against the [court]. CHAIR LYNN proffered that indemnify means to "bring back to the original position." REPRESENTATIVE GRUENBERG said he does not know the difference between indemnification and hold harmless. 9:41:04 AM REPRESENTATIVE JOHNSON said Brad Thomas from Risk Management suggested Amendment 1, and he is currently present. CHAIR LYNN reminded the committee that the objection to Amendment 1 had been removed. REPRESENTATIVE COGHILL suggested that the House Judiciary Standing Committee review the definitions when it hears the bill next. REPRESENTATIVE LYNN announced that Amendment 1 was adopted. 9:42:10 AM REPRESENTATIVE JOHNSON said the bill would provide a policy of fairness and address the cost to state and the difficulty of individuals to contract with the state. He suggested the committee focus on the bigger policy decision. REPRESENTATIVE COGHILL asked if there have been court tests related to the aforementioned terms. REPRESENTATIVE JOHNSON deferred to Mark O'Brien. 9:43:57 AM MARK O'BRIEN, Chief Contracts Officer, Contracting and Appeals, Office of the Commissioner, Department of Transportation & Public Facilities (DOT&PF), regarding the terms indemnification, defense, and hold harmless, said the department has found this language to be adequate in protecting its concerns and has not had any specific claims or difficulties that required amendment to that language. 9:44:47 AM REPRESENTATIVE ROSES asked Mr. O'Brien if there have been any instances where contractors have not bid because of the barriers referenced by the sponsor. MR. O'BRIEN explained that the existing language that the department uses is the model toward which the proposed bill intends to move other entities; therefore, the department has not experienced such a barrier. MR. O'BRIEN, in response to a question from Representative Coghill, stated that before the bill was introduced, he was asked to look at it. At that time, he said, he contacted both the Risk Management Section and attorneys who work with DOT&PF, and "they were not aware of any problems that they had in the recent past involving our current provision." 9:46:15 AM MR. O'BRIEN, in response to a comment from Representative Coghill, confirmed that DOT&PF is responsible for numerous buildings, facilities, highways, and airports throughout the state, so "it's fair to characterize a fairly significant investment in those facilities." REPRESENTATIVE JOHNSON, in response to Representative Coghill, offered his understanding that DOT&PF oversees construction of approximately 90 percent of the state's facilities. REPRESENTATIVE COGHILL asked, "Can you tell me why this has not been previously a part of contracting?" REPRESENTATIVE JOHNSON said he can't answer regarding the past; however, he surmised the reason this issue has not been brought to light is due to the fact that "they weren't able to sit down with someone and ... draw the picture and explain ... the inequities that existed [within] some of the contracting to a legislator that would ... introduce the legislation ...." REPRESENTATIVE COGHILL asked Mr. O'Brien, "Has there been discussion on this very issue, looking for legal help from other agencies?" MR. O'BRIEN answered no. He explained: Each owner sets up their own contractual requirements for how they're going to impose the indemnity and hold harmless provisions on the contractors that work for them. And so, they would do that in-house with advice of their own council and have not come to [DOT&PF] and asked us that particular question that I'm aware of. REPRESENTATIVE JOHNSON noted that Brad Thompson is the director of Risk Management, and he might provide feedback to Representative Coghill's questions. 9:49:46 AM MR. O'BRIEN, in response to a question from Representative Roses, said the University of Alaska has its own contracting arm. REPRESENTATIVE ROSES explained that he wanted to note for the record that the bill would provide the same security to the university that it provides to DOT&PF. 9:51:09 AM REPRESENTATIVE GRUENBERG, in response to Representative Doll, explained that HB 151 has no written effective date, thus, if passed, it would automatically become effective 90 days after being signed by the governor. REPRESENTATIVE GRUENBERG directed attention to the language of AS 45.45.900, which read as follows: Sec. 45.45.900. Indemnification agreements against public policy. A provision, clause, covenant, or agreement contained in, collateral to, or affecting a construction contract that purports to indemnify the promisee against liability for damages for (1) death or bodily injury to persons, (2) injury to property, (3) design defects, or (4) other loss, damage or expense arising under (1), (2), or (3) of this section from the sole negligence or wilful misconduct of the promisee or the promisee's agents, servants, or independent contractors who are directly responsible to the promisee, is against public policy and is void and unenforceable; however, this provision does not affect the validity of an insurance contract workers' compensation, or agreement issued by an insurer subject to the provisions of AS 21, or a provision, clause, covenant, or agreement of indemnification respecting the handling, containment, or cleanup of oil or hazardous substances as defined in AS 46. REPRESENTATIVE GRUENBERG asked if that provision applies to the state. MR. O'BRIEN responded that that is not in his area of expertise. 9:53:49 AM BRAD THOMPSON, Director, Division of Risk Management, Department of Administration, said the division administers the self- insurance program for state agencies only - not the University of Alaska, the Alaska Railroad, the Alaska Housing Finance Corporation, or other school districts and local municipalities. He explained that HB 151 defines "public agencies" to encompass all of those other parties to follow the form that the state has already been using. He said the division advises and gives guidance to DOT&PF and other state departments within its self- insured program and uses "various forms of boiler plate conditions" for indemnity in contracts for professional services. He said that is a normal business practice. The proposed legislation, he said, would apply the state's present business practice to all other public agencies as defined. He said he provided a fiscal note that shows that the bill, as amended, uses the language from the DOT&PF model. MR. THOMPSON, in response to Representative Gruenberg's citation of AS 45.45.900, said: That certainly would apply to the state, but the nuance there is that it limits the ability to contract out your sole negligence. You cannot contract away, in a construction contract, your own sole negligence. The state does not do so in its construction contracts; and it does not do so in the appendix D, which is our professional form for design engineers. 9:55:44 AM MR. THOMPSON, in response to Representative Roses, clarified: In our contracts, we stipulate that the independent professional is responsible for their own deeds or misdeeds. And [there are] different words for it, but that's really what we're asking them: to hold us and protect us from things that are their legal responsibility, and to defend us in the cases where it is arising from their legal... What we at the same time say, within that same clause: if there's comparative fault - if we and they are responsible for whatever occurred - we would apportion that based on comparative fault, which is prevailing law. Now, there are ... stronger stipulations of indemnity that would obligate the independent professional to also protect for the comparative allocation of the principle - the owner of the project. We don't do so. 9:57:08 AM REPRESENTATIVE ROSES asked if HB 151 would "provide that same level of coverage" to which Mr. Thompson referred. MR. THOMPSON responded, "I don't administer the risk management guidance to those agencies, so I don't know the particulars, but I'm understanding that they have different terms." REPRESENTATIVE JOHNSON confirmed, "That is the intent." 9:57:54 AM CHAIR LYNN announced that HB 151 was heard and held.
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