Legislature(2003 - 2004)
04/01/2003 09:02 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 40
"An Act relating to construction of highways by the Department
of Transportation and Public Facilities."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated, "SB 40 allows the use of force account
construction only for highway construction projects estimated to
cost $250,000 or less. Projects greater than $250,000 will be
subject to a competitive bid process as outlined in State statute."
RICHARD SCHMITZ, Staff to Senator Cowdery, stressed importance of
the competitive bidding process to State government operations. He
explained this is to ensure fairness and to garner the best prices
available. He noted the current system does not accurately compare
the expense of private ownership of equipment and contract
employees with that of State-owned equipment and State employees.
Mr. Schmitz spoke to a handout [copy on file], which reads as
follows.
Re: SB 40 alternatives:
Is DELIVERY ORDER CONTRACTING an alternative?
• DOC is used by, and was developed by, the Department of
Defense (it's called JOC by the Army, SABER by the Air
Force) and is being increasingly used by local
governments and educational facilities.
• DOC is a competitively bid, fixed price, indefinite
quantity, indefinite delivery (IDIQ), general
construction contract.
• The contract typically has a base year with 2 to 4 option
years.
• The contract sets parameters such as location of work,
type of work to be done, design criteria, etc.
• A DOC contract uses unit price guides (UPG) and/or a
unit-price book (UPB) to establish a price for a
multitude of lines items of work. A typical UPB has about
40,000 line items in order to cover just about every
imaginable task. Items that are not in the book are then
negotiated, priced, and added to the UPB. A UPG uses
computer cost databases, etc.
• The contractor bids a coefficient that is a markup or
markdown to the UPB items, rather than a dollar price.
What you get with a Delivery Order Contract:
• On-call general contractor where prices for line items of
work are predetermined.
• A contract that is easy to manage.
• A contract that puts more money into "hard construction"
instead of soft upfront costs.
Mr. Schmitz surmised this legislation would provide incentive to
the Department of Transportation and Public Facilities to institute
new methods of contracting for smaller projects.
SENATOR JOHN COWDERY told of contractors that bid on a $3 million
project located in Saint Mary's, in which the Department elected to
utilize a force account. He opined this was an abuse of the force
account. He reported that many states have defined maintenance and
construction, separated by dollar amounts. He intended to provide a
"level playing field", understanding that the Department must have
the ability to utilize a force account. He considered the $250,000
limit to be adequate and would provide necessary latitude. He
relayed he had asked the Department the lowest cost of a project
located in rural Alaska, in which a request for bids would be
issued. He was told the amount was between $75,000 and $100,000.
Senator Cowdery stated this legislation would "get the State out of
the construction business".
Senator Taylor asked if this legislation would prevent abuses.
Senator Cowdery responded it would require competitive bid. He
noted that currently no limitation is imposed.
Senator Taylor asked the regulatory authorization under which the
Department makes the decision that only certain contractors could
bid on a project. He gave the construction of high-speed ferries as
an example.
GEORGE LAVASSEUR, Acting State Maintenance Engineer, Office of the
Commissioner, Department of Transportation and Public Facilities
responded he would provide an answer at a later time at Co-Chair
Wilken's request.
Mr. Lavasseur testified to his 29 years in Southcentral Interior
Alaska maintaining highways. He gave a history of the force account
method beginning with a meeting eight years ago in Washington D.C
with the National Highway Administration, where he learned that
other states have the same problem of infrastructure without
adequate funding to maintain it. As a result, congressional
approval was granted to allow the use of federal funds for
maintenance purposes, including pavement life extension, bridge
repair and gravel-to-pavement programs. Before this authorization,
he reminded that for several years during the 1980s, the State did
not have enough funds to maintain highways.
Mr. Lavasseur told of significant damage caused by the melt of
discontinuous permafrost and the use of federal funds in the force
account to maintain road smoothness, and to rehabilitate older
pavements. He listed the type of projects undertaken with these
funds, including boardwalks, community roads and capital projects
performed by the Department maintenance staff. Of the $42,600,000
appropriated for this purpose in 2003, 86 percent is paid to
private contractors. He detailed the percentages allocated to
private contractors and Department staff in each region, based on
the availability of hot asphalt.
Mr. Lavasseur indicated photos showing heavy equipment, and the
process of repairing roads in the Northern Region.
SFC 03 # 38, Side A 10:37 AM
Mr. Lavasseur asserted the force account method allows efficiencies
for maintenance work done in Interior Alaska. He elaborated that
the Department combines maintenance resources from a variety of
"camps", which allows reduced per diem costs and better
mobilization of units. He cautioned that if this type of work were
contracted to the highest bidder, the costs would increase. He
listed design problems, since typical as-built specifications are
not available for 150 to 200 sections of a particular road that
could be worked on. He added that the sections only measure between
50 to 300 feet rather than one continuous section and that he has
learned from private contractors they are not interested in these
projects. He attributed this to the short construction season and
the large area in which equipment and manpower must be distributed.
He noted that when a project is comprised of one section measuring
three or more miles, a private contractor is employed, as the
Department only addresses spot repairs. He assured that all
crushing is done by the private sector, amounting to over $1
million annually in the Northern Region. In addition, he reported
that all the emulsion is purchased from the private sector for
approximately $2.5 million annually, and rollers, belly dumps,
tractor-trailers, and milling machines are rented from the private
sector.
Mr. Lavasseur stressed the Department performs some of the
maintenance work because of the lower costs associated with not
paying Davis-Bacon Act wages, bypassing bid packages, preparing
construction engineering on the grade, and not paying for a profit.
He also spoke of the need to employ the "highly-trained" Department
staff for at least nine months per year, explaining that previously
the winter seasonal workers fished commercially during the summer
months before the fishing industry declined.
Mr. Lavasseur informed that the Department has been able to adapt
to lower budget appropriations, inflation and unfunded salary
increases because of cost saving efforts such as these.
Mr. Lavasseur assured the Department was committed that the abuses
of the past would not occur under the leadership of the current
Murkowski Administration. He warned that passage of this bill would
have a "devastating effect" on the highway maintenance program.
Senator Taylor asked if a series of repairs along 50 miles of a
highway could be divided into separate projects, each costing less
than $250,000 and complying with the provisions of this
legislation.
Mr. Lavasseur predicted the costs would be higher than $250,000. He
voiced concern that the Department would be limited by the $250,000
maximum amount and indicated he preferred a $1 million limit. He
gave the repairs needed to the Alaskan Highway between Tok and the
Canadian border as an example of this. He stated that private
contractors would be hired to make repairs to the larger sections
of the highway, but the Department would conduct the repairs on
damaged sections of only several hundred yards in length. He
detailed the process of staging equipment and a two-year supply of
materials in key locations along the highway. He calculated the
cost of repairs utilizing this method at approximately 65 cents per
square foot, or $100,000 per square mile of area actually repaired.
He predicted that to divide the repairs into smaller projects would
increase the cost significantly.
Senator Taylor restated his scenario suggesting the Department
could address the smaller repair sections as separate projects, yet
still utilize the efficiencies of stockpiled materials and
equipment.
Mr. Lavasseur expressed the Department would not chose to violate
the intent of the bill. He qualified that if the division of
repairs as Senator Taylor described were specified in the
legislation, the Department could utilize the practice.
Senator Cowdery countered Mr. Lavasseur's comments pointing out
that the private sector also has a trained workforce. He mentioned
one project covering 38 miles. He relayed that he spoke with
Commissioner Barton about day-labor contracts to address larger
projects and had received assurance this would be done.
EDEN LARSON, President and Chief Executive Officer, Associated
Builders and Contractors of Alaska, testified via teleconference
from an off net location to dispute the Department testimony. She
characterized this legislation as designed to prevent abuses to the
force account system in the future. While she was assured the
current Administration would not commit such abuses, she voiced
concern that the proposed limitation must be imposed to prevent
future administrations from committing abuse. She furthered that
the limitation would allow the Department to perform efficiently.
Senator Cowdery asked the size of the membership of the
organization.
Ms. Larson listed 145 contractors, their associates and suppliers,
representing approximately 4,000 employees in the State.
DON VALESKO, Business Manager, Local 71, testified via
teleconference from Anchorage representing Department of
Transportation and Public Facilities the 500 to 600 employees who
perform road and facility maintenance. He voiced concerns with this
legislation, particularly the impact it would have on regular
maintenance operations, such as snow removal. He detailed the high
cost of clearing roads after a heavy snowfall, which must be bid
upon under the provisions of this bill. He understood one incident
brought this issue to light, but stressed that one incident should
not "dictate bad legislation".
Senator Cowdery told of research indicating the definition of
maintenance is "tighter" in other states, and that many states
categorize projects costing less than $50,000 as maintenance and
those over $50,000 as construction. He asked if the witness would
favor such definitions.
Mr. Valesko did not, because snow removal after even lighter
snowfall would require the bidding process. He stated that the time
involved with the bidding process would cause unnecessary delays in
clearing the roadways.
Senator Cowdery asked what information the witness based his
comments on.
Mr. Valesko calculated the $200 daily salary paid to an operator
plus the $200 daily cost for equipment, multiplied by the 30
operators working five days per week in the Anchorage area to be
$60,000 per week. He remarked this would place snow removal
services in the category of construction, which he disputed.
JEFF ALLING, Alcan Builders, and Member, Associated Builders and
Contractors of Alaska, testified via teleconference from Fairbanks,
in support of the bill. He agreed this legislation was prompted by
an incidence of abuse committee by the prior gubernatorial
administration. He expressed the intent is not to hamper snow
removal efforts, but rather to prevent the State from competing
with private industry on large construction projects.
Mr. Alling told of bidding on a University of Alaska project and
the use of multipliers to simplify the process.
Mr. Alling questioned the representation by Mr. Valesko of union
members.
Senator Bunde asked if the employees of Alcan Builders are union
members.
Mr. Alling replied they are not, although he stated the company
engages unionized subcontractors and they "work together quite
happily".
Senator Cowdery asked if most of the private contractors pay Davis
Bacon Act wages to its employees.
Mr. Alling answered yes.
Senator Taylor understood the presence of a systemic problem of the
distinction of the Department between construction and maintenance.
He commented that in British Columbia, Canada, maintenance
operations have been contracted to the private sector with
significant savings realized. He suggested the definition of
maintenance and construction should be given further consideration,
because this legislation as written, could result in "more
disservice than good."
Senator B. Stevens asked if Mr. Lavasseur has reviewed the handout
titled, "Air Force Guide: Simplified Acquisition of Base Engineer
Requirements (SABER)" [copy on file]. He asked if the information
contained in this report address preventive maintenance.
Mr. Lavasseur affirmed and explained that due to permafrost melt
the destruction of roads has increased rapidly, and more resources
have been necessary to perform repairs.
Senator B. Stevens echoed Senator Taylor's assertion that the issue
is based on the definitions of construction and maintenance.
Senator B. Stevens characterized snow removal as one type of
maintenance, yet preventative maintenance is more a type of
construction.
Senator B. Stevens next questioned the zero fiscal note, citing the
second paragraph of the analysis, which reads as follows.
Since it is not possible to determine which projects will be
considered for FAC [Force Account Construction] over the next
six years, we will base the projected savings on Calendar Year
2002. The estimated savings on 2002 force account projects
(greater than $250,000) was $4,267,700. Assuming the amount of
force account projects remains constant over the next six
years, the lost savings would total $25,606,200.
Senator B. Stevens asked if expenses would increase over $25
million.
Mr. Lavasseur replied it would for the period of time indicated
[six years]. He elaborated this would be due to the costs of
issuing bid packages, engineering design, advertising and
construction management.
Senator B. Stevens indicated a fiscal note to separate legislation
applying to FY 01 [bill number and further information not
provided], estimated savings of $120 million utilizing a force
account. He cited the analysis of the unspecified fiscal note as
reading "Assuming the force account managed costs over the next six
years, loss of savings would be a total of $120 million." He
requested reconciliation of the information of the two fiscal notes
and the aforementioned Air Force report. He suggested the matter
could be discussed after this meeting concludes.
Mr. Lavasseur agreed to explain the matter.
Senator B. Stevens noted the funding has been accounted more often
as "one line item" and wanted to understand the reason.
Mr. Lavasseur indicated the majority of the projects in question
have been gravel-to-pavement.
Co-Chair Wilken asked the year the federal government ruled that
federal National Highway System funds could be used for maintenance
purposes as well as construction projects.
Mr. Lavasseur answered 1998.
MARK O'BRIEN, Chief Contracts Officer, Contracting, Procurement and
Appeals, Office of the Commissioner, Department of Transportation
and Public Facilities, testified via teleconference from an offnet
location that he could answer questions posed by Committee members.
Mr. O'Brien addressed Senator B. Stevens's queries regarding the
fiscal notes, stating that the differences reflect a change in how
the savings was calculated. He explained, "there were significant
savings factors back in 2000 that resulted in estimates of savings
as high as 55 and 60 percent." He informed that upon review of
competitive bids and "the current marketplace", the savings
estimates have been recalculated to 20 to 25 percent and the
current fiscal note reflects a savings of 28 percent. He noted this
percentage is based on a comparison of Davis Bacon Act wages,
profit and construction engineering expenses.
Mr. O'Brien next spoke to the definitions of maintenance and
construction projects, indicating AS 19.45.001(2) provides the
definition of construction as "?construction or any derivation
meaning 'construction, reconstruction, alteration, improvement or
major repair?'" and (10) provides the definition of maintenance. He
assured this legislation would not hamper routine maintenance
projects, such as snow removal. However, he pointed out that
because the construction definition does not specifically define
major repair, uncertainty over the classification of resurfacing
projects would require the $250,000 provision.
Senator Taylor asked how the matter could be resolved. He
questioned the imposition of an "arbitrary number" and the
situation of the cost of a project exceeding $250,000 and
automatically becoming a major repair that is subject to the
bidding process. He requested further clarification of the
definition of repair and major repair.
Mr. O'Brien ascertained the definition of repair was unrelated to
the provisions of this legislation, surmising that maintenance
would continue to be categorized as repair rather than as
construction and not subject to the provisions of the force
account, although he assured he would review the matter.
Mr. O'Brien agreed with earlier testimony that most construction
should be undertaken through the competitive bid process and
informed that currently 97 percent of the work is handled in this
manner. He noted that of the three percent of the work done through
the force account process, half is contracted by competitive sealed
bid. He stressed that less than one-half percent of the work is
therefore not undertaken through competitive bid.
Mr. O'Brien reported that community roads and boardwalk projects,
which require considerable maintenance activity, is often
transferred from the Department to the Bureau of Indian Affairs or
Indian Health Agency undertaking other projects in the area. He
stated it is often in the State's best interest and is cost
effective to do so, as the other agencies have staff, equipment and
materials on hand to perform the work. He noted this practice would
be prohibited under the provisions of this legislation.
Senator Cowdery asked the dollar amount of the three percent of the
projects not currently addressed through the competitive bid
process.
Mr. O'Brien replied that $61 million was expended through the force
account during the years 1998 through 2002. During the same period,
he continued, the entire program expended $2,279,000,000. He
calculated the force account comprised 2.68 percent of the total
expenditure.
Co-Chair Wilken ordered the bill HELD in Committee.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 11:13 AM
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