Legislature(2003 - 2004)
03/30/2004 09:04 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 second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained that this bill would limit the use of
Force Account Construction funds to highway construction projects
that cost less than $250,000. He noted that bill version 23-
LS0381\A, which was initially heard during the First Session of the
Twenty-Third Legislature, is before the Committee.
SENATOR JOHN COWDERY, the bill's sponsor, explained that this
legislation was introduced in response to concerns from private
construction contractors regarding the fact that a $2.4 million
highway construction project at St. Mary's in Rural Alaska was
conducted by the State through the Force Account process and
without abiding by the State Procurement Code that requires a
competitive bid process be utilized.
Senator Cowdery stated that the legislation was developed following
conversations with contractors and discussions with the Department
of Transportation and Public Facilities (DOT). He noted that DOT
was also asked to develop a Statewide Delivery Order maintenance
contract that would require a 24-hour call-out for a job. He stated
that this legislation would be in the State's best interest.
Contractors throughout the State support the $250,000 limit
specified for Force Account highway construction projects.
Senator Dyson asked that additional information be provided
regarding past situations of abuse of this issue. He also asked how
Governor Frank Murkowski's Administration is addressing the issue.
Senator Cowdery explained that in the past, and particularly in the
notorious St. Mary's project, the State circumvented the system by
utilizing State employees or hiring construction crews and paying
State employee wages rather than paying higher, contractor Davis-
Bacon wages. He characterized the State's behavior in the St.
Mary's project operation as being "very creative."
Senator Cowdery voiced support for the $250,000 State Force Account
limit and stated that it an appropriate level as the purpose of
such an account is to allow the State to respond to unforeseen
projects. He stated that this limit would assure, in a workable
manner, that DOT would operate using the competitive bid process.
Senator Hoffman asked whether this limit is pertinent only to
general funds expenditures.
Senator Cowdery responded that it would apply to any project
exceeding $250,000 regardless of whether the funding for that
project was State or federal.
Senator Olson asked whether this legislation would specifically
apply to Department of Transportation and Public Facilities (DOT)
highway construction projects.
Senator Cowdery responded that the legislation could be expanded to
include all State departments, as the intent is to address abuses
within the State procurement system process.
Senator Olson asked whether this bill could therefore apply to
other departments.
Senator Cowdery pointed out that, as reflected, in the bill's
title, this legislation is specific to DOT.
Amendment #1: This amendment deletes language in Section 1, lines
eight through eleven, on page one that reads as follows.
"when the estimated cost of a construction project is less
than $100,000 or when it appears to be in the best interest of
the state and the estimated cost of a construction project is
$250,000 or less, the department may perform the work
notwithstanding any other provisions of law.
In addition, the following language would be inserted on page one
following line seven in Section 1.
the department may perform the work notwithstanding any other
provisions of law when
(1) the estimated cost of a construction project is less
than $100,000;
(2) the construction project is not connected by a land
road to the main road system of the state and the commissioner
determines that [OR WHEN} it appears to be in the best
interests of the state; or
(3) the construction project is connected by a land road
to the main road system of the state, the estimated cost of a
construction project is $250,000 or less, and the commissioner
determines that it appears to be in the best interests of the
state[, THE DEPARTMENT MAY PERFORM THE WORK NOTWITHSTANDING AN
Y OTHER PROVISIONS OF LAW].
New Test Underlined [DELETED TEXT BRACKETED]
Senator Olson moved Amendment #1.
Co-Chair Wilken objected for clarification. He noted that Amendment
#1 is accompanied by a sponsor statement from Senator Olson and a
copy of Administrative Order No. 199 [copies on file].
Senator Olson stated that this amendment addresses the fact that
the legislation, as presented, would require all DOT public road
projects exceeding $250,000 to be subject to the competitive bid
process. This process could limit the economic feasibility of
numerous Rural construction projects. Therefore, this amendment
would exempt Rural road projects that are not connected to the
Alaska road system from the competitive bid requirement. Questions
regarding the use of the competitive bid process in these areas is
best answered by language in Administrative Order No. 199, which
addresses construction projects in rural Alaska. This Order has
been in effect since October 2002.
Senator Olson noted that Administrative Order No. 199 is working
effectively and was, when developed, supported by a vast number of
people in the construction industry, including State contracting
agencies, the Associated General Contractors, labor unions, and
rural construction entities.
Senator Olson stressed that $250,000 oftentimes might not even
provide for the required air transportation and mobilization and
demobilization of equipment and materials relating to a
construction projects in Rural areas.
Senator Dyson asked whether the intent of the amendment is to
provide local people an opportunity to work.
Senator Olson responded that is correct. He cited several
successful "Force Account" projects, including the St. Mary's
project, that were completed below budget, on time, and with no
worker's compensation claims. Another benefit of hiring local
residents and having local expenditures, including equipment, is
that a community is able to continue to utilize purchased equipment
to maintain its roads and airports. He stressed that were the
$250,000 limitation in place, construction projects costs would be
driven upward due to equipment transportation and other related
expenditures rather than being the result of labor expenses. He
exampled the 1998 Selawik Boardwalk Improvement project as one
whose $75,000 labor costs were minimal when compared to its
$310,000 cost relating to equipment transportation and other
associated things. He referred the Committee to the "DOT&PF Force
Account Report" [copy on file] dated February 12, 2003 that was
provided by the sponsor that depicts Force Account projects for the
years 1998 through 2002.
Senator Olson argued that the $250,000 limitation would be a
logical approach for a construction project that could be reached
via the State's connected road system; however, the fact that a
project is not on a road system has significant financial impact
that, adhering to the competitive bid policy, would not serve to be
in the best interest of the State.
Senator Hoffman, referencing the aforementioned Force Account list,
stated that projects such as boardwalk projects do not require a
high level of skilled labor; however, the costs associated with the
project mobilization and the demobilization expenses could either
increase the costs associated with the project or serve to provide
"less of a project." In addition, he noted that in addition to
providing jobs to rural residents, experiences indicate that when a
community is involved in a project, it becomes invested in it and
subsequently takes care of it. Therefore, he summarized that the
benefit of Force Account projects include getting a better product,
local control and investiture, and dollars being spent in a
community which has few other financial opportunities. "The
Amendment makes a lot of sense."
Senator Cowdery spoke against the amendment, particularly in
regards to Davis Bacon wages not being paid, the State procurement
code being circumvented, and there being questions regarding the
liability of using city rather than private contractor equipment.
Rural contractors have testified that they have been denied the
opportunity to bid on rural projects because Force Account
operations were conducted. He noted that local contractors support
the development of a DOT day-labor Delivery Order Contract, which
would specify a 24-hour callout timeframe through which maintenance
projects could be conducted. Development of this contract would not
be difficult as DOT is quite good of estimating what a job would
cost. This would assure that the public is served at the best price
and would allow local contractors an opportunity to bid jobs
accordingly.
Senator Hoffman, referencing the sponsor's position that the Force
Account program has been abused, characterized that position as a
"stretch" as the aforementioned Force Account report indicates that
the jobs conducted in this manner between the years 1998 and 2002
amount to less than three percent of the total construction
projects of the Department. Therefore, he stated that legislation
that would prevent Rural residents from working these limited
projects "is going a little bit too far."
Senator Dyson voiced appreciation for the intent of the
legislation; however, he understood that this amendment would not
preclude the use of Davis Bacon wages. In addition, the use of
local qualified applicants and equipment would be beneficial. He
questioned how limiting the price of a contract would prevent State
government from utilizing State employees.
Senator Cowdery explained that the initial purpose for allowing use
of Force Accounts was to address unforeseen problems that might
occur relating to a job that was already under contract. The use of
Force Accounts "was never intended" to fund a job "from scratch."
Co-Chair Wilken asked that Committee discussion focus on Amendment
#1.
Senator Dyson understood that in order to provide a good bid
package, such things, as core samples are required. Continuing, he
opined that the development of a DOT Delivery Order Contract would
be useful in managing the many small jobs that do not require in-
depth investigation. Funding of these jobs through the use of Force
Accounts would be more cost efficient. The question is, what is the
threshold. He agreed with Senator Olson that were local equipment
and labor available, their use would be more economical. Therefore
he asked the sponsor whether $250,000 is the right threshold
limitation for Force Account work.
Senator Cowdery supported the $250,000 limit. Originally, a
$100,000 limit was entertained. Continuing, he noted that DOT is
responsible for providing contractors with such things as soil
analysis because jobs that go to bid should not be misrepresented.
A job that has a soil problem could become very expensive.
Senator Dyson clarified that rather than referring to jobs in which
a contract has been awarded, he is referring to small jobs in which
it would not be cost effective to prepare a bid package and go
thought the competitive bid process.
Senator Cowdery stated that during previous, separate Committee
discussions with local contractors in Nome, Bethel and other
communities, testimony supported a limit, as it would allow local
contractors to participate in a competitive bid process.
Senator Dyson asked whether DOT could respond to his question.
Senator Olson stated that the amendment was patterned after
language in Administrative Order No. 199. The purpose of the
amendment is to provide an opportunity for local hire as opposed to
addressing Davis Bacon wages. He referenced Order language in this
regard on page two, section 3.(a) that reads as follows.
3.(a) Grant agreements for projects first funded for
construction after the date of this Order under the following
state programs shall include a requirement for the payment of
prevailing wages, including contributions to a pension or
retirement account, equal to the prevailing wages under AS
36.05, as modified through the use of the progressive,
graduated pay scale developed under (b) of this paragraph, on
all public construction projects:
Senator Olson stated that the inclusion of this language in the
Order was the reason that contractors and labor unions supported
it. This language does address wage concerns.
Senator Hoffman noted that, based on the Force Account Report for
the years 1998 through 2002, less than one half of one-percent of
the jobs depicted are under the $250,000 limit. Therefore, were
this amendment not adopted it would "slam the door" on the
potential for local hire in Rural Alaska, as, it could be said that
"basically this bill" would not allow the use of Force Account
projects in rural Alaska due to the high cost of construction in
those areas. He reiterated that while there is a lack of a skilled
workforce in those areas, things such as boardwalk projects could
use local hire and therefore benefit a community. Therefore, he
voiced support for the amendment, which would preserve "the status
quo" of less than three-percent of available DOT construction
projects and thereby provide jobs and revenue to Rural areas. "This
is not asking too much."
Senator B. Stevens questioned how Administrative Order No. 199
could relate to Force Account projects conducted in Rural areas in
1998 through 2002, as it was not enacted until October 1, 2002;
specifically that it is unknown whether Davis Bacon wages were or
were not being paid during that time. He also noted that the
legislation would not prevent DOT from awarding three percent or
more of its projects to rural areas regardless of whether a Force
Account were utilized.
Co-Chair Wilken characterized Senator B. Stevens's comments as
pertaining to the bill in general. Therefore, he stated that a
further discussion in this regard would continue after discussions
relating to Amendment #1 are concluded.
Senator Dyson asked whether DOT has "a policy or threshold"
regarding how minor construction projects in Rural Alaska would be
addressed "on a Force Account basis, and if so," is utilizing Force
Account funding more efficient than utilizing the competitive bid
process.
FRANK RICHARDS, State Maintenance and Operations Engineer,
Statewide Maintenance Division, Department of Transportation and
Public Facilities, testified via teleconference from Anchorage and
responded that the funding source of a project is one of the
primary determining factors in both Rural and urban area projects.
Before any work is advanced, the Department must conduct a cost
analysis to determine what method of construction would be the most
cost effective.
Senator Dyson asked whether Amendment #1 would provide the
Department, after its cost analysis is conducted, more flexibility
to address Rural construction projects.
Mr. Richards responded that the $250,000 ceiling denoted in the
Amendment "would still limit" the Department's ability to perform
work. Another issue would be the definition of what would
constitute a Rural area. Were this designation applied to Rural
roads that are part of the State's continuous highway system, it
would be "severely limit" the Departments work efforts.
Senator Dyson understood that the amendment would eliminate the
$250,000 limitation on construction jobs in Rural areas not
connected to the highway system.
Mr. Richards responded that were the amendment to allow the
Commissioner to remove constraints pertaining to projects in Rural
areas that are not part of a contiguous road system, the Department
would view it as favorable. This would apply to villages primarily
in Western and Northwestern Alaska as well as some communities in
Southeast Alaska. However, were it to apply to Rural places such as
Tok and Northway that are on the contiguous highway system, it
would be limiting.
Senator Dyson understood therefore that the amendment would provide
the Department more flexibility on projects that are not connected
via the contiguous road system.
SFC 04 # 62, Side B 09:51 AM
[NOTE: Due to a technical malfunction, Side B of Tape 62 did not
record; however, the minutes continue, uninterrupted, on Side A of
Tape 63.]
SFC 04 # 63, Side A 09:51 AM
Senator Dyson voiced the understanding, however, that the
Department is uneasy about the lack of a definition for what
constitutes a Rural area."
Mr. Richards viewed Force Accounts as being "a tool in the toolbox"
that the Department could use to support its maintenance,
construction and operation responsibilities to the State's
transportation system.
Mr. Richards stated that in response to the furor that resulted
after the Force Account was utilized for the St. Mary's project,
the Department worked with contractors and labor unions to develop
Administrative Order No. 199. As a result, the Order provided a
framework through which either the Force Account or a competitive
bid process would be utilized to address Rural area projects on a
fair basis.
Senator Olson pointed out that while there is some ambiguity
regarding the definition of Rural, the Amendment is specific to
off-road system construction projects.
Senator Hoffman asked the Department for justification for its
analysis reflected in fiscal note #1, dated February 18, 2003 that
specifies that there would be "lost savings" exceeding $25 million
were this legislation enacted.
In response to a question from Co-Chair Wilken, Senator Hoffman
pointed out that the answer to this question is important, as
adoption of Amendment #1 might serve to continue savings rather
than negating them.
Mr. Richards responded that the calculation used to determine the
$25 million potential lost cost savings is based on annual savings
of four million dollars for six years that would result were the
State to use Force Account funding rather than conducting projects
utilizing the competitive bid process, based on historical cost
analyses. He noted that most of the money that could be saved is
federal money with a General Fund (GF) match.
Senator Hoffman declared that he supports the amendment because he
"would rather save money than blow it."
Senator B. Stevens asked, for clarification, the amount of the
total $505 million surface transportation program expenditures, as
specified in the 2002 Force Account Report, that were directly
related to construction projects. He stated that this is an
important element of the equation, as, as depicted, the calculation
that only 2.23 percent of the total $505 million was spent on Force
Account projects, could be misleading.
Mr. Richards affirmed that the total amount would include other
components.
Senator B. Stevens stressed therefore, that the 2.23 percent
depicted is on the low side as were funding for Shakwak, the Marine
Highway System, Trails and Recreation Access for Alaska (TRAAK),
and other federal components removed, the percentage of money spent
for Force Account Construction projects would increase.
Mr. Richards affirmed that the $505 million amount is all-inclusive
in that it does contain such things as Shakwak, federal highway
funding, and other Community Transportation Program (CTP) funding
for surface transportation projects. He also noted that the 2002
projects listed on the Force Account Report comprise the 2.23
percent. It is important to note, that while the State does
contract out for the majority of the cost of materials, equipment,
and supplies, the benefits to the State of using Force Account
funding is garnered from savings associated with State personnel
and equipment costs.
Senator B. Stevens understood that and commented that the purpose
of his comments was to clarify that the percentages of Force
Account construction projects is actually higher than depicted. He
also noted that CTP projects in the year 2002 amounted to
approximately $340 million. For further clarification, he asked
whether projects in Southeast Alaska communities such as Juneau,
Ketchikan, Sitka, and other communities that are served by the
Alaska Marine Highway System rather than a contiguous surface road
system, would be included under the auspice of this Amendment.
Mr. Richards reiterated that the question of what would constitute
"Rural" must be addressed.
Senator B. Stevens asked the Amendment's sponsor whether the intent
of the Amendment would be to include in its Rural, off-the-road
system designation, communities in Southeast Alaska that are served
by the Alaska Marine Highway System.
Senator Olson responded that the purpose of the Amendment is to
address the high cost of transportation construction in Northwest
and Western Alaska. He stated that he would either defer to or work
with the bill's sponsor to address questions regarding Southeast
Alaska communities.
Senator Hoffman stated that the inclusion of these communities is
insignificant, as, were their inclusion to equate, for example, to
the 2002 CTP program level of $340 million, their inclusion might
increase Force Account expenditures "to a whopping 3.3 percent."
Senator B. Stevens pointed out that, "there is nothing to prevent
those projects from being included under the normal process."
AT EASE 10:00 AM/ 10:00 AM
Senator Olson stated that there is no adversarial intent behind the
offering of this amendment. Its purpose is to recognize that the
bill raises some concern and to make its impact more palatable by
furthering language that was supported in Administrative Order No.
199. He stated that the Amendment would compliment the intent of
the bill, which is to provide consideration for contractors.
Senator Cowdery suggested that adoption of this amendment could
lead to increased levels of Force Account exemptions for projects
in Rural Alaska.
Senator Olson asked whether any federal highway penalties might be
incurred were the amendment adopted. He also asked whether the
adoption of the bill in its current form might incur federal
penalties.
Mr. Richards voiced being unaware of any penalties.
A roll call was taken on the motion.
IN FAVOR: Senator Dyson, Senator Olson, and Senator Hoffman
OPPOSED: Senator Bunde, Senator B. Stevens, Co-Chair Green, and Co-
Chair Wilken
The motion FAILED (3-4)
Amendment #1 FAILED to be adopted.
DON VALESKE, Business Manager, Public Employees Local 71, testified
via teleconference from Anchorage and shared that the Committee
discussion and testimony has clarified that this bill is limited to
construction projects rather than to both maintenance and
construction projects which was his concern.
Senator Olson asked whether Mr. Valeske supports the legislation.
Mr. Valeske commented that due to the fact that the bill does not
apply to maintenance projects, he does not have a position on the
bill. However, he noted that he is supportive of local hire as it
is beneficial to local people and communities. He noted that Local
71 members were involved in the St. Mary's project.
EDEN LARSEN, President and CEO, Associated Builders and
Contractors, testified via teleconference from an offnet site in
support of the bill.
Co-Chair Wilken noted that Members' bill packets contain a written
comment [copy on file] from the Associated Builders and Contractors
(ABC).
Senator Hoffman asked the reason behind their support.
Ms. Larsen responded that ABC's "fundamental principle" is that an
"open and competitive bidding process is the best methodology for
State procurements." Limits on what the State could conduct through
the use of Force Accounts and the continuance of the established
procurement process are appropriate.
Senator Hoffman asked whether ABC's position is mindful of the fact
that this legislation would serve to lose the State $25 million
dollars in lost savings over the next six year. Continuing, he
stressed that no abuse of the system has been provided. The fact
that Force Account Construction projects have cost the State less
than three percent of the total construction budget and would save
the State $25 million dollars over the next six years makes it
difficult to understand why, in these times of a fiscal dilemma,
anyone would support this legislation.
Ms. Larsen responded that testimony has been provided to ABC
regarding the fact that many small construction businesses in off-
road system communities have gone out of business due to the
increased usage of Force Account Construction projects over the
last eight years. The cost to these communities of losing these
businesses and their year-round employment opportunities should be
a consideration in "the true costs." She noted that the
justification for using Force Account Construction funding is that
money would be saved by not being required to pay prevailing wages.
The ABC's position is that there is a reason for an established
wage scale and that this should be considered when allowing the
State to avoid the competitive bid process.
Senator Olson asked the number of people in ABC who are actively
involved in road construction.
Ms. Larsen responded that ABC has a minimum of three contractors
who are actively involved in building roads and other roadwork.
Senator Olson understood Ms. Larsen to say that some contractors
have gone out of business due to Force Account Construction.
However, he countered that the impetus behind the number of
contractors, both in rural Alaska and on the road system, being
reduced is that the number of State road construction projects in
the State have been diminishing.
Ms. Larsen noted that she is "only passing along" comments that ABC
has received from Rural contractors.
Senator Hoffman and Senator Olson asked that the names of the
businesses that have gone out of business in Rural Alaska be
provided.
Ms. Larsen stated that she would attempt to acquire this
information.
JEFF ALLING, Representative, ALCAN Builders Incorporated, testified
via teleconference from an offnet site in support of the bill.
Co-Chair Wilken asked whether the sponsor would be opposed to the
legislation being subject to a four-year termination period.
Senator Cowdery responded he would not object.
Conceptual Amendment #2: This conceptual amendment would establish
a termination date of June 30, 2008.
Co-Chair Wilken moved to adopt Conceptual Amendment #2.
There being no objection, Conceptual Amendment # 2 was adopted.
Senator Bunde moved to report the bill, as amended, from Committee
with individual recommendations and accompanying fiscal note.
There being no objection, CS SB 40(FIN) was REPORTED from Committee
with a zero fiscal note, dated March 26, 2004 from the Department
of Transportation and Public Facilities.
AT EASE 10:15 AM / 10:16 AM
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