Legislature(1995 - 1996)

04/13/1996 10:04 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HB 482 - STATE PROCUREMENT PRACTICES & PROCEDURES                           
 The next order of business to come before the House State Affairs             
 Committee was CSHB 482(L&C) (9-GH2020/C).                                     
 Number 0900                                                                   
 CHAIR JAMES explained her biggest concern regarding HB 482 was the            
 single-source procurement practice.  She was concerned about                  
 eliminating the chance for competition.                                       
 Number 0959                                                                   
 DUGAN PETTY, Director, Central Office, Division of General                    
 Services, Department of Administration, explained current law                 
 required that there was clear and convincing evidence that only one           
 source was available, and that evidence had to be cleared by the              
 chief procurement officer.  A strict interpretation of that                   
 provision in some cases required an agency to expend a lot of time            
 to demonstrate that there was only one source.  The provision                 
 allowed for accountability and a public process.  It further                  
 allowed for a determination to be made using criteria that was less           
 stringent than in current law.  In other words, it would streamline           
 the process.                                                                  
 Number 1111                                                                   
 CHAIR JAMES asked Mr. Petty to respond to the additional provision            
 inserted by the Senate.  She read, "(e) except for procurement of             
 supply services, professional services, or construction services              
 that do not exceed the amount for small procurement under AS                  
 36.33.20(a) as applicable.  The authority to make a determination             
 required by this section may not be delegated even if the authority           
 is to contract is delegated."  She asked Mr. Petty if he had a                
 problem with that language?                                                   
 Number 1145                                                                   
 MR. PETTY replied the department accepted the language in the                 
 Senate version, and would find that language acceptable in the                
 House version as well.  He explained the House version barred the             
 chief procurement officer from delegating that determination,                 
 except for small procurement.                                                 
 Number 1200                                                                   
 REPRESENTATIVE PORTER explained a consideration surrounding the               
 single-source procurement issue was, if the state had a large                 
 investment in a particular manufacturing brand, it could have to              
 change brands.  He wondered if there was enough justification to              
 stay with the initial brand or to change.                                     
 Number 1245                                                                   
 REPRESENTATIVE WILLIS said he agreed with Representative Porter.              
 Number 1253                                                                   
 REPRESENTATIVE GREEN asked Mr. Petty if the determination of why a            
 single-source was chosen would be available to the public?                    
 Number 1271                                                                   
 MR. PETTY replied that determination would be available as public             
 information.  A report was kept of alternative procurement.                   
 Number 1311                                                                   
 CHAIR JAMES asked Mr. Petty how the department would handle the               
 concerns of Representative Porter?                                            
 Number 1325                                                                   
 MR. PETTY said Representative Porter made a good point.  His                  
 concerns were seen more in the leasing arena.  A competitive                  
 process would be initiated even though there was a clear indication           
 of a single-source.  Unfortunately, this could result in higher               
 prices than what could be negotiated.                                         
 Number 1416                                                                   
 CHAIR JAMES said she understood that process.  She wondered how HB
 482 would change that process.                                                
 MR. PETTY replied HB 482 would allow for the interjection of common           
 sense.  It would allow for the determination if a bid process was             
 not practical in written format.  The information would be a matter           
 of the public record.                                                         
 Number 1463                                                                   
 CHAIR JAMES said she had seen many times people manipulate the                
 system to get what they wanted.  There was a problem when the                 
 public perceived a transaction that benefited a friend, for                   
 example.  According to Mr. Petty there would be documentation on              
 file to clear any mis-perception, however.                                    
 Number 1535                                                                   
 MR. PETTY stated the language in the Senate version held the chief            
 procurement officer accountable for that determination.  If he                
 knowingly made a false statement, he was guilty of a class A                  
 misdemeanor.  The intent was to include accountability.                       
 Number 1595                                                                   
 CHAIR JAMES said it was important that the state get the best deal            
 possible while at the same time protect the public process.                   
 CHAIR JAMES asked the committee members if the same provision that            
 the Senate included should also be included in the House bill?                
 Number 1628                                                                   
 REPRESENTATIVE PORTER said it was not an unreasonable requirement             
 to have the person in charge of the process be accountable.                   
 Number 1678                                                                   
 REPRESENTATIVE PORTER moved to inserted the same language as in the           
 Senate bill as subsection (e).  Hearing no objection, it was so               
 inserted.  (Amendment 1)                                                      
 Number 1737                                                                   
 CHAIR JAMES announced she had one more concern.  She referred the             
 committee members to Sections 6 and 7, the lease-purchase option.             
 She said a lease-purchase would cost the state more money because             
 it would pay over a period of time for the purchase of the                    
 property.  Therefore, she suggested including a length of time                
 provision.  She was not concerned about the maintenance during the            
 lease, but rather after the purchase.  The state was not willing to           
 fund deferred maintenance.                                                    
 Number 1808                                                                   
 MR. PETTY said he shared the concerns of Chair James regarding the            
 deferred maintenance situation in the state.  The Administration              
 was working on a solution.  It was beyond the scope of HB 482,                
 however.  He also believed the state did not handle leasing well.             
 He cited the Department of Labor building was leased in 1982 at               
 $1.95 per s.f., and in 1996 at $2.32 per s.f., including full                 
 service.  The state had paid in total in excess of $22,000,000 for            
 the building.  Moreover, in Juneau a new school would cost                    
 approximately $165 per s.f., and the capital cost would be                    
 $9,811,000.  Therefore, the state could have bought the Department            
 of Labor building a couple of times.  The state could have owned              
 that building and saved money.  If a lease-purchase agreement was             
 entered into appropriately, it could save the state money.                    
 Number 1986                                                                   
 CHAIR JAMES said she agreed with everything Mr. Petty said.                   
 However, no one wanted to pay the on-going maintenance charges.               
 She was willing to move the bill forward, however.  She stated                
 there was over $1 billion of deferred maintenance for public                  
 facilities that was not being addressed.                                      
 Number 2027                                                                   
 REPRESENTATIVE GREEN asked if the problem could be avoided if the             
 language "including maintenance" was added?                                   
 Number 2038                                                                   
 CHAIR JAMES said the language was not necessary because lease-                
 purchase agreements almost always included maintenance.                       
 REPRESENTATIVE GREEN said the language would do away with the term            
 CHAIR JAMES said the issue could not be fixed in HB 482.  It was a            
 problem after the state purchased the facility.                               
 Number 2077                                                                   
 REPRESENTATIVE OGAN asked Mr. Petty how the bill changed the                  
 authority of the department regarding the lease-purchase authority?           
 Number 2087                                                                   
 MR. PETTY replied the Department of Administration was currently              
 granted authority under AS 36.30.085 to enter into a lease-purchase           
 agreement.  The amount was not restricted, except for real property           
 that required the Administration to notify the legislature.                   
 Number 2129                                                                   
 REPRESENTATIVE OGAN said he was the author of a lease-purchase bill           
 this year, therefore, he was hesitant to stray from the current               
 policy.  He did not want to lose the legislative approval.  The               
 language was included for good reasons.  Otherwise it was a capital           
 expenditure without the vote of the people.                                   
 Number 2161                                                                   
 REPRESENTATIVE GREEN asked Mr. Petty if the state had ever                    
 exercised a lease option?                                                     
 Number 2168                                                                   
 MR. PETTY replied, "yes."  He cited the Seward Skill Center, the              
 Spring Creek Prison, the Court Plaza Building, and the Anchorage              
 Times Building.                                                               
 REPRESENTATIVE GREEN asked Mr. Petty if the state had purchased any           
 of the above cited buildings of which repair maintenance was                  
 Number 2197                                                                   
 MR. PETTY replied the Court Plaza Building was under lease to the             
 state of which a portion was transferred to the Department of                 
 Transportation and Public Facilities to maintain it.                          
 Number 2228                                                                   
 REPRESENTATIVE GREEN said liability was another issue to address              
 before purchasing a facility.                                                 
 Number 2243                                                                   
 REPRESENTATIVE PORTER wondered if the state was precluded from                
 entering into an agreement if it was based on legislative approval            
 during the interim.                                                           
 Number 2264                                                                   
 MR. PETTY replied the state was not precluded from entering into a            
 congenial purchase agreement.  There was the possibility of loosing           
 a lease due to timing, however.  It would turn into a political               
 Number 2289                                                                   
 CHAIR JAMES said there were always two parties in a lease-purchase            
 agreement.  Timing was critical so it was possible that legislative           
 approval would stall a deal.  Moreover, if the state was ever going           
 to control its spending, a cooperative effort between the                     
 Administration and the legislature was necessary.  She did not want           
 to give up everything, however.                                               
 Number 2355                                                                   
 REPRESENTATIVE GREEN wondered if the rent would be higher to the              
 state in a lease-purchase option.                                             
 Number 2379                                                                   
 MR. PETTY replied that was not always the case.  A lessor could               
 take advantage of tax exemptions if the state occupied most of the            
 building, for example.                                                        
 Number 2400                                                                   
 REPRESENTATIVE GREEN said he was concerned about the state entering           
 into a lease-purchase option during the interim.                              
 MR. PETTY said a contingent offer was not popular for a seller.               
 There were some that would work and probably some that would not              
 work.  It was hard to say, however.                                           
 Number 2461                                                                   
 REPRESENTATIVE OGAN moved to delete the underlined language in                
 Sections 6 and 7, "with an annual rent to the department,                    
 University of Alaska, legislative council, or supreme court that is           
 anticipated to exceed $500,000, or with total lease payments that             
 exceed $2,500,000 for the full term of the lease-purchase                     
 agreement."  He was not comfortable giving the department, Board of          
 Regents, legislative council, or supreme court a "blank check" to             
 purchase property without legislative approval.                               
 Number 2494                                                                   
 MR. PETTY said the Sections gave the Administration the ability to            
 take advantage of a good business opportunity.  The motion would              
 restrict the Administration and the opportunity to reduce the cost            
 of government operations.                                                     
 TAPE 96-52, SIDE B                                                            
 Number 0023                                                                   
 REPRESENTATIVE GREEN said he opposed the motion.                              
 Number 0030                                                                   
 REPRESENTATIVE OGAN reiterated he was the author of a lease-                  
 purchase bill this year.  It passed the House and was now in the              
 Senate.  He explained the bill was committing this legislature and            
 the budget in the future to spend a certain amount of money on a              
 capital purchase.  He was not against the state entering into a               
 good deal.  He reiterated the legislature should not be left out of           
 the approval process.                                                         
 Number 0096                                                                   
 REPRESENTATIVE IVAN wondered if the Department of Administration              
 would notify the legislature through the budget process if it was             
 to enter into a purchase agreement.                                           
 Number 0111                                                                   
 CHAIR JAMES said the state would enter into a lease-purchase                  
 agreement to obtain different space, for example, of which would be           
 presented in the budget process.  The state would also enter into             
 a lease-purchase agreement to obtain additional space, of which               
 would also be presented in the budget process.  However, there were           
 times when the legislature was not included in the decision.  She             
 visualized there would be times that an opportunity would be missed           
 during the interim period.  She also agreed with the concerns of              
 Representative Ogan.  She could see both sides.                               
 Number 0240                                                                   
 REPRESENTATIVE PORTER wondered if by reducing the numbers the issue           
 would be resolved.                                                            
 Number 0251                                                                   
 MR. PETTY said the Administration selected the numbers because they           
 were the threshold requirements for notice on the operating side.             
 They were on the minimal side now.  The larger lease-purchase                 
 agreements would still come to the legislature for approval.                  
 Number 0316                                                                   
 MR. PETTY further stated that any lease-purchase transaction must             
 have a subject to funding clause included.                                    
 CHAIR JAMES replied that clause had a different meaning for                   
 different people.  A subject to funding clause scared some, and for           
 others it was considered a boiler plate.                                      
 CHAIR JAMES called for a roll call vote.  Representatives Green,              
 Ivan, Porter and Willis voted against the motion.  Representatives            
 Ogan and James voted in favor of the motion.  The motion failed.              
 Number 0396                                                                   
 REPRESENTATIVE PORTER moved to adopt CSHB 482(L&C) (9-GH2020/C) for           
 consideration.  Hearing no objection, it was so adopted.  The                 
 previous Amendment was included creating CSHB (STA).                          
 Number 0412                                                                   
 REPRESENTATIVE IVAN moved that CSHB 482(STA) move from the                    
 committee with individual recommendations and attached fiscal                 
 notes.  Hearing no objection, it was so moved from the House State            
 Affairs Committee.                                                            

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