Legislature(2005 - 2006)SENATE FINANCE 532

04/19/2005 09:00 AM Senate FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 142 REGIONAL SCHOOL BD LAND/BLDG OWNERSHIP TELECONFERENCED
Moved CSSB 142(L&C) Out of Committee
+ SB 160 STATE PROCUREMENT ELECTRONIC TOOLS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= SB 131 WAGE & HOUR ACT: EXEC/PROF/ADMIN/SALES TELECONFERENCED
Scheduled But Not Heard
+= SB 70 CRIMES INVOLVING CONTROLLED SUBSTANCES TELECONFERENCED
Heard & Held
+= SB 100 ENHANCED 911 SURCHARGES TELECONFERENCED
Moved CSSB 100(FIN) Out of Committee
+= SB 112 TAX ON REAA RESIDENTS TELECONFERENCED
Heard & Held
                                                                                                                                
     SENATE BILL NO. 160                                                                                                        
     "An Act relating to a procurement and electronic commerce                                                                  
     tools program for state departments and instrumentalities of                                                               
     the state; and providing for an effective date."                                                                           
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
9:38:24 AM                                                                                                                    
                                                                                                                                
Senator Bunde,  the bill's sponsor by request of the  Senate Labor &                                                            
Commerce  Committee, stated  that this legislation  would assist  in                                                            
modernizing  the State's  procurement methods  by transitioning  the                                                            
State away  from a "pencil and paper"  procurement system  toward an                                                            
electronic  (e-commerce) system.  This "Supply  Chain Modernization                                                             
Program"  would provide  financial benefits  to the  State. He  read                                                            
segments of the Sponsor Statement as follows.                                                                                   
                                                                                                                                
     …it is  very important that the  Legislature remain  focused on                                                            
     the  need  to  deliver  long-term  reductions  in the  cost  of                                                            
     government.  Therefore, this bill renames, expands  and extends                                                            
     the pilot  procurement, eCommerce  and supply chain  management                                                            
     program authorized  by HB 313 in the 2003 Legislative  Session.                                                            
                                                                                                                                
     The  program  is already  delivering  savings  in  the cost  of                                                            
     overhead  and administration.  …  It needs to  be expanded  and                                                            
     extended to reach its full potential.                                                                                      
                                                                                                                                
     Overhead  costs represent  a significant  portion of the  total                                                            
     cost  of government.  However,  the State  of Alaska  generally                                                            
     performs  overhead functions using outmoded tools  and methods.                                                            
     Private   industry   has  delivered   considerable   gains   in                                                            
     productivity  during the  past two decades  by contracting  out                                                            
     back-office  functions   to specialist   firms  and  installing                                                            
     modern   computer-based   systems.  It   is  time  that   State                                                            
     government  embraces  these techniques  and  participates  more                                                            
     fully in the U.S. productivity boom.                                                                                       
                                                                                                                                
Senator Bunde  noted that  projected annual  net labor cost  savings                                                            
for the  fourteen  primary State  agencies in  which the  e-commerce                                                            
system would  be implemented  would range from  two to five  million                                                            
dollars.  Total cost  savings  for goods  and services  could  range                                                            
between  five  to  twenty-five  million  dollars.  In  addition,  an                                                            
increased  degree  of efficiency   would occur,  as  the  e-Commerce                                                            
system would increase the speed of acquisitions and purchasing.                                                                 
                                                                                                                                
9:41:04 AM                                                                                                                    
                                                                                                                                
Senator Bunde  stated that  the adoption of  HB 313 during  the 2003                                                            
Legislative Session  authorized a three-year "Pilot  Procurement and                                                            
Internet  e-Commerce  Program"  specific "to  two agencies  and  two                                                            
other  state  instrumentalities.   Cost savings   on administrative                                                             
salaries  and  benefit  burden are  currently  projected  to  exceed                                                            
$150,000  over this two-year  period. This  represents a savings  on                                                            
procurement  administration of over  20%. Cost savings on  goods and                                                            
services  will evolve  over time as  the program  matures and  other                                                            
regions and  agencies are  added, and the  resulting volume  savings                                                            
and purchasing  can be obtained."  Support of this bill "would  help                                                            
move the State of Alaska into the Twenty-first century".                                                                        
                                                                                                                                
Senator  Hoffman recalled  the discussions  that transpired  in 2003                                                            
when HB  313 was adopted.  Because there  was concern regarding  the                                                            
possible  impacts  of the  Program,  it  was  limited to  two  State                                                            
agencies and  two other State institutions  for a three-year  period                                                            
in  order to  allow  the Legislature  could  evaluate  the  program.                                                            
Therefore,   he  questioned   the   reason  for   considering   this                                                            
legislation at  this time as it would "be premature"  to continue it                                                            
prior to a complete report being compiled.                                                                                      
                                                                                                                                
9:43:05 AM                                                                                                                    
                                                                                                                                
Senator  Bunde stated  that there  is evidence that  the program  is                                                            
working  well. "It  has worked  exceptionally  well  in the  private                                                            
sector". Acting now would be financially beneficial.                                                                            
                                                                                                                                
Senator  Hoffman voiced  concern about  whether  sufficient data  is                                                            
available from  which to make a determination  as to the  success or                                                            
failure of  the program.  While evidence  might support there  being                                                            
monetary  savings, other  drawbacks might  become evident.  He urged                                                            
that  the  complete  report  be  finalized  before   further  action                                                            
occurred.                                                                                                                       
                                                                                                                                
9:44:17 AM                                                                                                                    
                                                                                                                                
Senator Bunde  anticipated  there to be resistance  to changing  the                                                            
process,  regardless of  whether action  was taken  now or in  three                                                            
years time.  Monetary savings,  "sooner rather  than later",  should                                                            
prevail. Others might disagree with this position.                                                                              
                                                                                                                                
Co-Chair Green  noted that an abundance of back-up  material [copies                                                            
on file] accompanies Senator Bunde's sponsor statement.                                                                         
                                                                                                                                
9:45:04 AM                                                                                                                    
                                                                                                                                
VERN  JONES,   Chief  Procurement   Officer,  Division  of   General                                                            
Services,  Department  of  Administration,  shared  that,  upon  the                                                            
passage of HB  313, which implemented the State's  Pilot Procurement                                                            
Program, the Department  issued a Request for Proposals  (RFP) for a                                                            
private contractor to outsource  State procurement functions for the                                                            
Southeast  Region of  the Department  of Transportation  and  Public                                                            
Facilities  (DOT). A  feasibility  study was  conducted as  required                                                            
under organized labor bargaining  unit agreements, and subsequently,                                                            
the contract was awarded  to Alaska Supply Chain Integrators (ASCI).                                                            
The  bill, which  has  a contract  termination  date  of June  2006,                                                            
limited the  pilot procurement  program to  two departments  and two                                                            
instrumentalities  of  the State.  ASCI  has been  coordinating  the                                                            
procurement program for DOT for nine months.                                                                                    
                                                                                                                                
Mr. Jones stated that this  bill would eliminate the restrictions on                                                            
the number  of State departments  and instrumentalities  that  could                                                            
implement this procurement  program. In addition, it would eliminate                                                            
the June 2006 termination  date of the program. The Labor & Commerce                                                            
committee substitute  being considered would require  the contractor                                                            
contract   include  the   Alaska   Bidder  and   other  preferences                                                             
requirements.                                                                                                                   
                                                                                                                                
9:46:52 AM                                                                                                                    
                                                                                                                                
Senator Hoffman  asked whether sufficient  information is  available                                                            
from which to determine the success of the program.                                                                             
                                                                                                                                
9:47:17 AM                                                                                                                    
                                                                                                                                
Mr. Jones responded  that it is "the Administration's  position that                                                            
this program  is still  in transition".  At this  time, it would  be                                                            
unfair to label  it as being a "failure"; it would  be premature "to                                                            
draw any firm conclusions" about the program.                                                                                   
                                                                                                                                
Senator Olson  asked whether Mr. Jones' remarks could  be indicative                                                            
of there being "a sense" that the program is a failure.                                                                         
                                                                                                                                
Mr.  Jones  responded that  that  is  not the  Department's  or  the                                                            
Administration's   position.   He  clarified   that   it  would   be                                                            
"premature" to  label the program as either a success  or a failure.                                                            
                                                                                                                                
9:48:27 AM                                                                                                                    
                                                                                                                                
Senator  Olson  understood  that  the University   of Alaska  has  a                                                            
different  procurement   mechanism  in  place.  To  that  point,  he                                                            
inquired as to  whether the University has opted out  of the State's                                                            
procurement process.                                                                                                            
                                                                                                                                
Mr.  Jones explained  that  the  University  is required  "to  adopt                                                            
substantially   similar  procedures   to  those  contained   in  the                                                            
Procurement   Code".  Therefore,   while  the  University   "is  not                                                            
technically  governed  by the  Procurement  Code, they,  in  essence                                                            
follow the  spirit and intent  and most of  the provisions  that are                                                            
contained in the Procurement Code."                                                                                             
                                                                                                                                
Senator Olson asked for further information in this regard.                                                                     
                                                                                                                                
Mr.  Jones  responded   that  Alaska  Statute  36.30   requires  the                                                            
University  "to comply  substantially  with the  provisions" in  the                                                            
State Procurement Code.                                                                                                         
                                                                                                                                
Co-Chair Wilken, noting  that the backup material contains the first                                                            
audit of the  Pilot Program, asked  the status of the second  audit.                                                            
                                                                                                                                
9:49:53 AM                                                                                                                    
                                                                                                                                
Mr. Jones responded  that, while the  complete second quarter  audit                                                            
is  not yet  available,  the cost  of goods  portion  of the  second                                                            
quarter audit has been completed and is available.                                                                              
                                                                                                                                
Co-Chair Wilken  asked when the second  audit in its entirety  would                                                            
be available.                                                                                                                   
                                                                                                                                
Mr. Jones anticipated  that the second audit to be  completed within                                                            
the next week.                                                                                                                  
                                                                                                                                
Co-Chair  Wilken  asked  whether  the  second  audit  would  contain                                                            
information  pertaining to the three-month  quarter ending  December                                                            
31, 2004.                                                                                                                       
                                                                                                                                
Mr. Jones affirmed.                                                                                                             
                                                                                                                                
Co-Chair Wilken  noted that a substantial amount of  information was                                                            
provided  in  the  first  audit. He  asked  Mr.  Jones  to  identify                                                            
information  in the audit  from which the  Committee could  "form an                                                            
opinion".                                                                                                                       
                                                                                                                                
Mr. Jones understood  Co-Chair Wilken's  remarks to infer  that "the                                                            
first quarter audit was really inconclusive".                                                                                   
                                                                                                                                
Co-Chair Wilken  disagreed that to  be the point of his remarks,  as                                                            
he could  not understand  the  report. "This  is a  report built  to                                                            
confuse not  to inform."  The hope is that  the second report  would                                                            
provide  "decision makers"  with more  substance.  He asked who  was                                                            
responsible for the report.                                                                                                     
                                                                                                                                
Mr. Jones affirmed that he was.                                                                                                 
                                                                                                                                
Co-Chair Wilken opined  that it was "a very poor report". Subsequent                                                            
reports should be improved.                                                                                                     
                                                                                                                                
Co-Chair Wilken  asked how much staff  time is being devoted  to the                                                            
project.                                                                                                                        
                                                                                                                                
Mr.  Jones responded  that  the time  varies.  A number  of  people,                                                            
including himself, a dedicated  DOT contract administrator position,                                                            
and  a Department  of  Administration  contract  manager,  devote  a                                                            
substantial amount of time to the program.                                                                                      
                                                                                                                                
9:52:21 AM                                                                                                                    
                                                                                                                                
Co-Chair  Wilken specifically  asked  the  number of  hours in  each                                                            
workweek that Mr. Jones devotes to this "important" project.                                                                    
                                                                                                                                
Mr. Jones determined that  he spends a couple of hours a week on the                                                            
project.                                                                                                                        
                                                                                                                                
Co-Chair  Wilken expressed  that "a  deal is a  deal". He  disclosed                                                            
that  his being  one  of  the initial  supporters  of  the  project;                                                            
however, now he  is "a little concerned" and "conflicted"  about the                                                            
efforts being  exerted to the program. The expectation  was that six                                                            
quarterly  progress reports  would be  provided.  He noted that  the                                                            
privately  owned company,  British Petroleum,  has experienced  good                                                            
results with this type of a program.                                                                                            
                                                                                                                                
Co-Chair  Wilken  perceived  the  Administration   to  be  "somewhat                                                            
detached" from  this effort. "Some  influence/management  direction"                                                            
must be provided  to the project;  else wise, the Legislature  would                                                            
continue  to receive  reports  similar to  the first  audit  report.                                                            
Therefore,  he supported tabling further  action on the legislation                                                             
until  the next Legislative  Session.  That would  allow three  more                                                            
audit reports  to be compiled  through which  the Legislature  could                                                            
better evaluate the program.                                                                                                    
                                                                                                                                
Co-Chair Wilken characterized  the current program scenario as being                                                            
"set  adrift"  with  "the bureaucracy   fighting  the privatization                                                             
people" and there being  no one in the middle to bring the two sides                                                            
together. "Someone needs  to manage the program" in order to provide                                                            
the Legislature  the information necessary  to make decisions  about                                                            
the program. He  suspected that, were that done, the  decision would                                                            
be  to  support  the  program.  The  benefits   of  the  program  as                                                            
highlighted in Senator Bunde's remarks would be realized.                                                                       
                                                                                                                                
Co-Chair Wilken  stated that were  the concept of the pilot  program                                                            
undermined  by "delays,  a lack  of cooperation,  and falsehoods  on                                                            
both sides",  the Committee might  be required "to craft  it at this                                                            
table"  during the next  Session.  That would not  be the  preferred                                                            
course  of  action.   "Really  good  data,  understandable   by  the                                                            
Committee, understandable  by this Legislature" must  be provided by                                                            
next January.                                                                                                                   
                                                                                                                                
Co-Chair Wilken noted that  he had conveyed his reluctant to vote in                                                            
favor of this legislation  to Senator Bunde. This hearing would be a                                                            
determining factor in his decision.                                                                                             
                                                                                                                                
9:55:39 AM                                                                                                                    
                                                                                                                                
Senator  Bunde moved  to  adopt committee  substitute,  Version  24-                                                            
LS0224\C as  the working document.  This committee substitute  would                                                            
serve to "clean up" some provisions of the bill.                                                                                
                                                                                                                                
Senator Hoffman objected for explanation.                                                                                       
                                                                                                                                
KEVIN BROOKS,  Deputy Commissioner,  Department  of Administration,                                                             
assured  the Committee  that  the  Department  is committed  to  the                                                            
effort to analyze the Pilot Procurement Program.                                                                                
                                                                                                                                
9:57:05 AM                                                                                                                    
                                                                                                                                
Mr.  Brooks  spoke to  the  Department's  assistance  in  developing                                                            
language in the committee  substitute that would "clean up" Title 36                                                            
preferences   currently  applicable   to   State  purchases.   These                                                            
preferences  have  been expanded  over  time  and, as  result,  have                                                            
become  quite  cumbersome.   While  no  changes  were  made  to  the                                                            
preferences themselves,  efforts were made to develop  language that                                                            
would  make  the  application   of  those  preferences   "easier  to                                                            
administer as procurements are made".                                                                                           
                                                                                                                                
Senator Hoffman  asked for  assurance that  the changes included  in                                                            
Version "C"  would, therefore, be  limited to "cleaning up"  current                                                            
language.                                                                                                                       
                                                                                                                                
Mr. Brooks affirmed.                                                                                                            
                                                                                                                                
Senator Hoffman removed his objection.                                                                                          
                                                                                                                                
9:58:26 AM                                                                                                                    
                                                                                                                                
Senator  Dyson  inquired  to  the  obstacles  that  "have  kept  our                                                            
existing  workforce from"  being more innovative  in the  purchasing                                                            
process.                                                                                                                        
                                                                                                                                
Mr. Brooks  responded that  no State's  procurement office  employee                                                            
would  "dispute" the  fact that  "the implementation  of  e-commerce                                                            
tools  would  be  a great  benefit  to  the  State".  Some  monetary                                                            
investment  would  be  required  to  automate  the  existing  "labor                                                            
intensive paper process"  which is "based on a procurement code that                                                            
in many cases is not meant  to be as efficient as it is to be fair".                                                            
It is  designed to  provide any bidder  a chance  to bid for  public                                                            
dollars.  The   rules  governing   the  Pilot  Procurement   Program                                                            
contractor in  procuring goods and services for the  State are "more                                                            
relaxed" than those required of a State agency.                                                                                 
                                                                                                                                
Mr.  Brooks noted  that,  although  not occurring  on  a wide  scale                                                            
basis, efforts  have been undertaken across departments  to automate                                                            
the procurement processes. Some have been successful.                                                                           
                                                                                                                                
9:59:52 AM                                                                                                                    
                                                                                                                                
Mr. Brooks stated that  the Department's perspective on the bill "is                                                            
that  there is  room for  improvement" in  the manner  in which  the                                                            
State currently  procures goods and services. He disagreed  that the                                                            
Pilot Program  "has been cast adrift", as the Department  is anxious                                                            
to determine whether the program would work.                                                                                    
                                                                                                                                
Senator Dyson restated  the question as to what might have prevented                                                            
the  State from  advancing  its procurement  methods  to align  with                                                            
procurement  trends  that  have occurred  elsewhere  over  the  past                                                            
twenty-five  or  thirty  years;  specifically  whether  the  State's                                                            
existing procurement  code or Statutes  are preventing the  existing                                                            
workforce from accomplishing "these really imaginative things".                                                                 
                                                                                                                                
Mr.  Brooks  expressed   that  "the  procurement   code  is  not  an                                                            
impediment to automating" the procurement progress.                                                                             
                                                                                                                                
Senator  Dyson asked  whether  any of  the State's  bargaining  unit                                                            
agreements   were  an  impediment   to  transitioning  toward   more                                                            
efficient modes of conducting procurement.                                                                                      
                                                                                                                                
Mr. Brooks did not recognize  bargaining unit agreements as being an                                                            
impediment.                                                                                                                     
                                                                                                                                
Senator Dyson  asked whether the Legislature has refused  to provide                                                            
the necessary  resources, specifically  computers and networks  that                                                            
would be required to advance the process.                                                                                       
                                                                                                                                
Mr.  Brooks responded  that  the necessary  computer  resources  and                                                            
staff are available;  however the  necessary software that  would be                                                            
required to automate State government has not been procured.                                                                    
                                                                                                                                
Senator Dyson asked the reason for the absence of such software.                                                                
                                                                                                                                
Mr. Brooks  responded that  no recent software-funding  request  had                                                            
been made;  higher priorities,  such as new  payroll and  accounting                                                            
systems, have  preceded the procurement  software request.  However,                                                            
it should be noted  that "the procurement module for  automation" is                                                            
in the Department's five-year plan going forward.                                                                               
                                                                                                                                
Senator Dyson opined therefore  that since the issue is not the law,                                                            
the procurement  code,  or the  people, then  "ultimately" it's  the                                                            
lack "of will to do it".  To that point, he asked whether it was the                                                            
Department's intention  "to move towards the very  best, most modern                                                            
kind of procurement system" available.                                                                                          
                                                                                                                                
Mr. Brooks affirmed that to be the intent.                                                                                      
                                                                                                                                
Senator Dyson  voiced appreciation  for the fact that an  entity was                                                            
willing to  participate in  the Pilot Program  and "commit a  lot of                                                            
money and resources"  to demonstrate that such a program  would work                                                            
in  the  State's  environment.   "That's  the  genius  of  the  free                                                            
enterprise system."                                                                                                             
                                                                                                                                
Senator Dyson asked what  might occur where the State to authorize a                                                            
private contractor to conduct  all or a major portion of the State's                                                            
key  goods  and  services  procurements   functions,  and  then  the                                                            
contractor  discontinued  their service,  went out  of business,  or                                                            
increased their fees astronomically.                                                                                            
                                                                                                                                
Mr. Brooks  speculated that the alternative  would be for  the State                                                            
to reassume the responsibility or hire another contractor.                                                                      
                                                                                                                                
Senator  Dyson  asked   how  much  notification  of  separation   is                                                            
specified in this legislation.                                                                                                  
                                                                                                                                
10:05:10 AM                                                                                                                   
                                                                                                                                
Mr. Brooks  communicated that  the Pilot  Program established  by HB
313 would  terminate in June  2006, or in  approximately 14  months.                                                            
During  that time  period,  efforts would  be exerted  to  determine                                                            
whether  the program  would be  feasible  to expand  to other  State                                                            
departments.  SB 160 would  provide the authority  needed to  expand                                                            
the program in  such a manner. In addition, passage  of SB 160 would                                                            
assure the contractor that the State could continue the program.                                                                
                                                                                                                                
Senator Dyson  recognized, as did the Department,  that this program                                                            
could provide  a multitude of possibilities.  However, the  specific                                                            
question is  how, after the State  "committed major portions  of its                                                            
State  business  into their  hands",  the  State would  continue  to                                                            
conduct "its business"  were the contractor to un-expectantly "cease                                                            
to function".                                                                                                                   
                                                                                                                                
Mr. Brooks  "speculated" that  the State would  be required  to hire                                                            
staff or hire another contractor.                                                                                               
                                                                                                                                
10:06:30 AM                                                                                                                   
                                                                                                                                
Senator  Dyson  asked whether  the  conditions  in this  bill  would                                                            
adequately provide  the time and file/software access  that would be                                                            
required were the State required to resume those functions.                                                                     
                                                                                                                                
Mr.  Brooks replied  that  in that  event, "the  procurements  being                                                            
performed by the contractor would be available to the State".                                                                   
                                                                                                                                
Senator  Dyson  specifically  asked  whether  the State  would  have                                                            
access to the associated software files.                                                                                        
                                                                                                                                
Mr. Brooks replied  in the negative; software files  are proprietary                                                            
to the contractor.                                                                                                              
                                                                                                                                
After a brief  exchange with Senator  Dyson, Mr. Brooks stated  that                                                            
even thought the  software was proprietary, the fact  that the State                                                            
had  provided data  to  the contractor  at the  onset  of the  Pilot                                                            
Program,  would  allow  that  action   to  be  reciprocated  at  the                                                            
termination  of the  program. However,  he voiced  being  unfamiliar                                                            
with the specific terms of the contract.                                                                                        
                                                                                                                                
Senator  Hoffman asked whether  other states  have privatized  their                                                            
procurement process.                                                                                                            
                                                                                                                                
Mr.  Brooks  remarked  that  no  other  state   has  outsourced  its                                                            
procurements.                                                                                                                   
                                                                                                                                
Mr. Jones affirmed that to be correct.                                                                                          
                                                                                                                                
Senator Hoffman asked regarding  "the public policy reason" for that                                                            
decision.                                                                                                                       
                                                                                                                                
Mr. Brooks voiced being  unsure of the reasons that other states had                                                            
not furthered  such a privatization endeavor. "The  issue for Alaska                                                            
is" whether  we  can "provide  this service  better;  there is  fair                                                            
evidence that procurement  can be done more efficiently". The public                                                            
policy issue question should  include "who does procurements for the                                                            
State".  The issue of  public trust  is involved  when there  is "an                                                            
expenditure  of State funds;  do we value  that vendors have  a fair                                                            
shake at  State dollars and  that there is  a fair and open  process                                                            
for doing that".  These questions are valid, and this  Pilot Project                                                            
would  provide the  opportunity  to determine  the  answers to  such                                                            
questions.  Even  though "the  jury  is still  out"  on whether  the                                                            
program would  be an overwhelming  success, this bill would  further                                                            
the opportunity  to  investigate the  endeavor. While  "the data  is                                                            
inconclusive"  at this point, there is no reason to  discontinue the                                                            
investigation as to the program's potential.                                                                                    
                                                                                                                                
10:09:30 AM                                                                                                                   
                                                                                                                                
Senator  Olson,  noting  that  "an  essentially  zero"  fiscal  note                                                            
accompanies the bill, asked  what specific costs would be associated                                                            
with utilizing a private contractor.                                                                                            
                                                                                                                                
Mr. Brooks responded  that whenever a privatization  effort is being                                                            
considered that would displace  State employees, the bargaining unit                                                            
must be notified, a plan  must be developed, and a feasibility study                                                            
must be conducted.  The effort only  moves forward were there  to be                                                            
"savings  in  the  labor  costs".  The  bargaining   unit  agreement                                                            
contains  specific  guidelines   regarding  the  conditions  of  the                                                            
feasibility  study. It  is anticipated  that  an automated  process,                                                            
whether it be  conducted by a private entity or by  the State, would                                                            
also "realize savings in the actual" procurement costs of goods.                                                                
                                                                                                                                
Senator  Olson asked  regarding the  exemptions  that are  currently                                                            
specified in the State's procurement code.                                                                                      
                                                                                                                                
10:11:00 AM                                                                                                                   
                                                                                                                                
Mr. Brooks asked for further clarification of the question.                                                                     
                                                                                                                                
Senator Olson  understood there to  be several exemptions  currently                                                            
specified in the State's  procurement code. Thus his question was to                                                            
"the end result" of those exemptions.                                                                                           
                                                                                                                                
10:11:20 AM                                                                                                                   
                                                                                                                                
Mr. Jones stated  that there are currently  47 exemptions  specified                                                            
AS  36.30.850   of  the  State's   procurement  code.  Rather   than                                                            
indicating  that entities  were exempted from  abiding by the  code,                                                            
the result  is  that certain  classes or  commodities  of goods  and                                                            
services are exempted  across the board. For example,  "dentists and                                                            
doctors  are  not  required  to abide  by  the  competitive  bidding                                                            
requirements".   Such  things  as  grants  and  certain   investment                                                            
instruments  are also exempted. At  times, the issue of there  being                                                            
47 exemptions  has been  mistakenly interpreted  to mean that  there                                                            
were  47 agencies  or entities  "that didn't  have to  abide by  the                                                            
code".  By and large,  these exemptions  exempt  a certain class  of                                                            
goods or services from the code.                                                                                                
                                                                                                                                
Senator Olson  asked regarding the  recourse the bill would  provide                                                            
to a vendor who might wish to protest an award.                                                                                 
                                                                                                                                
Mr. Jones responded  that while protest  provisions are included  in                                                            
the State's  procurement code, no  such provisions were included  in                                                            
the current contract. "There is no allowance for that."                                                                         
                                                                                                                                
10:13:10 AM                                                                                                                   
                                                                                                                                
Mr.  Brooks  remarked   that  Co-Chair  Wilken's  earlier   comments                                                            
regarding the  audit reports were  "points well taken". While  early                                                            
reports pertaining  to the program "were lacking",  the fact is that                                                            
they were  being developed  during  the transitioning  phase of  the                                                            
program.  Going  forward,  the Department  would  require  that  the                                                            
successes of  the program be identified  and articulated.  "Accurate                                                            
and  timely reporting"  must  occur in  order to  meaningfully  make                                                            
those measurements.  He assured that  such efforts would  occur, and                                                            
that, "as  the program moves  forward" …  "data that everyone  could                                                            
agree with" would be provided.                                                                                                  
                                                                                                                                
10:14:15 AM                                                                                                                   
                                                                                                                                
Co-Chair Green revisited  the issue of what changes were included in                                                            
the  Version  "C"  committee  substitute  being  considered  by  the                                                            
Committee,  as it is noticeably  longer than  the previous  version,                                                            
Version  24-LS0524\X. Specifically,  she asked  whether language  in                                                            
Section  1(g), page two,  lines 11  and 12, and  Section 1(l),  page                                                            
two, lines  28 through 30  of Version "X"  had been revised  in some                                                            
manner in Version "C".                                                                                                          
                                                                                                                                
Mr.  Jones communicated  that  two  major  changes occurred  in  the                                                            
transitioning  of language between Version "X" and  Version "C". One                                                            
of those changes was the  Statute reference change from AS 36.30.190                                                            
as specified in  Section 1(a), page one, line ten  of Version "X" to                                                            
AS 36.30.265 in Version  "C". This change would allow the Department                                                            
"to award a contract  of this type via an RFP rather  than a low bid                                                            
invitation to bid situation.  The second change in Version "C" was a                                                            
series of changes starting  on page two" that would incorporate "all                                                            
the procurement  preferences", currently specified  in AS 36.30 into                                                            
this  bill.  This   action  would  serve  to  "apply   them  to  the                                                            
procurements  that  are  made  by  the  contractor".  As  previously                                                            
mentioned the  existing Statutes are  confusing and do not  interact                                                            
well.  Therefore,  existing  procurement  language  was  altered  in                                                            
Version  "C"  in  order  "to  make  all  the  preferences   uniform,                                                            
understandable, and a little simpler to apply and administer".                                                                  
                                                                                                                                
Co-Chair  Green corrected  her  earlier  remarks about  Version  "C"                                                            
being larger than Version  "X" as she had discovered that two copies                                                            
of Version "C"  had been inadvertently stapled together  in her bill                                                            
packet. Version "C' was not as large as it had appeared.                                                                        
                                                                                                                                
10:17:27 AM                                                                                                                   
                                                                                                                                
Co-Chair Green  asked whether the  Automatic Bid Award language  had                                                            
been eliminated in the Version "C" committee substitute.                                                                        
                                                                                                                                
Mr. Jones asked for further clarification.                                                                                      
                                                                                                                                
     (e)  Except as  otherwise  provided under  (g) or  (h) of  this                                                            
     section,  if  a  bidder  qualifies  as  an  Alaska  bidder,  is                                                            
     offering  services through  an employment  program, and  is the                                                            
     lowest  responsible and responsive  bidder with a bide  that is                                                            
     not  more than  15  percent higher  than  the lowest  bid,  the                                                            
     program  contractor shall  award the  contract to that  bidder.                                                            
     This  subsection does  not give  a bidder  who would  otherwise                                                            
     qualify  for a preference  under this  subsection a  preference                                                            
     over  another   bidder  who  would  otherwise   qualify  for  a                                                            
     preference under this subsection.                                                                                          
                                                                                                                                
     (g) If a  bidder is an Alaska bidder, is a qualify  entity, and                                                            
     is  the lowest  responsible and  responsive  bidder with  a bid                                                            
     that is  not more than 10 percent  higher than the lowest  bid,                                                            
     the program contractor  shall ward the contract to that bidder.                                                            
     This  subsection does  not give  a bidder  who would  otherwise                                                            
     quality  for a preference  under this  subsection a  preference                                                            
     over  another   bidder  who  would  otherwise   qualify  for  a                                                            
     preference  under this  subsection or  (h) of this section.  In                                                            
     this subsection  "qualifying  entity" has the meaning  given in                                                            
     AS 36.30.170(e).                                                                                                           
                                                                                                                                
Co-Chair  Green specified  that  language  in Version  "X",  Section                                                            
1(e), page  two, lines eight through  14 and Section 1(g),  lines 19                                                            
through 25,  specified that an automatic  bid could be awarded  were                                                            
certain conditions  in place. She understood that  this language was                                                            
changed in Version "C";  therefore, she asked to the reason for that                                                            
change.                                                                                                                         
                                                                                                                                
Mr. Jones responded  that while the Version "X" language  would work                                                            
in a bid process,  it would not be  appropriate for an RFP  process.                                                            
                                                                                                                                
Mr.  Brooks  reiterated  that  the  endeavor  was to  clean  up  the                                                            
preferences;  there  was  no  intent  to change  any  of  them.  Any                                                            
provision that  was included in Version  "X" is included  in Version                                                            
"C". "Just in cleaner more straightforward language."                                                                           
                                                                                                                                
There  being  no  further  objection,  the  Version   "C"  committee                                                            
substitute was ADOPTED as the working document.                                                                                 
                                                                                                                                
Co-Chair Wilken  asked what would occur on June 30,  2006, were this                                                            
legislation  not adopted.  In other words,  the question is  whether                                                            
the  process  would  revert  to  how  it  functioned  prior  to  the                                                            
implementation of the Pilot Program.                                                                                            
                                                                                                                                
Mr. Jones replied  that absent this  legislation, the Pilot  Program                                                            
contract  would  expire  on  June 30,  2006.  "There  are,  however,                                                            
extension   optional   renewals  included   in   there  should   the                                                            
legislation amend that sunset date."                                                                                            
                                                                                                                                
Co-Chair  Wilken  asked, for  clarification  purposes,  whether  the                                                            
extension  option  language was  included  in HB  313 or  in SB  160                                                            
Version "C".                                                                                                                    
                                                                                                                                
Mr. Jones stated  that HB 313 specified  a termination date  of June                                                            
2006 and  SB 160  would eliminate  the termination  date  provision.                                                            
Adoption  of SB 160 would  allow the State  "to amend" the  existing                                                            
contract going forward.                                                                                                         
                                                                                                                                
Senator  Bunde highlighted  the  fact that  the adoption  of SB  160                                                            
would  provide the  option  to extend  the contract;  its  extension                                                            
would  not be  mandatory. This  is a  "permissive"  bill that  would                                                            
allow the project to continue were it deemed warranted.                                                                         
                                                                                                                                
Senator  Hoffman  asked whether  the  Administration  would  promote                                                            
legislation  making the program  more permanent  were it  determined                                                            
that such  a program  would produce  "considerable  savings" to  the                                                            
State.                                                                                                                          
                                                                                                                                
Mr. Brooks  responded that while the  Administration was  interested                                                            
in determining  whether such a program would work,  he was unsure as                                                            
to whether the Administration would introduce such legislation.                                                                 
                                                                                                                                
Senator Olson  voiced being  uncomfortable  that there was  not more                                                            
support  for a  program  that  is supposedly  "working  and  working                                                            
well", as acclaimed by the bill sponsor's remarks.                                                                              
                                                                                                                                
Mr.  Brooks expressed  that  his testimony  was  that  "we have  not                                                            
determined  that this has been successful  in saving money.  We have                                                            
very  preliminary  data;   only  a couple   of  quarters  have  been                                                            
analyzed".  There is support for continuing  the procurement  pilot,                                                            
as further  analyses would provide  more complete information.  "The                                                            
jury  is  still  out  on  …  whether  privitization   of  all  State                                                            
government" would be the appropriate action.                                                                                    
                                                                                                                                
10:22:19 AM                                                                                                                   
                                                                                                                                
Co-Chair Green  recalled there being  frustration and delays  in the                                                            
implementation  of the program. That  situation might have  impacted                                                            
the  amount of  reporting  that  has been  provided  to  date. As  a                                                            
result, the  evaluation process has  been more difficult.  The delay                                                            
also shortened  the amount of time  that the contractor was  able to                                                            
manage the  procurement system.  This bill  would provide more  time                                                            
"for the program to be in place".                                                                                               
                                                                                                                                
Mr. Brooks  stated that  Co-Chair Green  has a  "good point",  as he                                                            
also questioned  the progression  of the endeavor  since HB  313 was                                                            
adopted. The first year  was dedicated to the development of a plan,                                                            
conducting  the feasibility  study, developing  the project  RFP and                                                            
selecting  the  vendor.  Therefore,  the contractor  was  unable  to                                                            
undertake  the DOT procurement  process in  July 2004. As a  result,                                                            
rather than  having three  years in which  to evaluate the  program,                                                            
only  two years  would  be available.  This  bill would  assure  the                                                            
vendor that the  program would not terminate in 14  months. It would                                                            
also provide the  Administration sufficient flexibility  in which to                                                            
determine which  other departments  and agencies would benefit  from                                                            
such an endeavor.                                                                                                               
                                                                                                                                
Co-Chair Wilken  agreed that the original  timeline was of  concern;                                                            
however, the vendor's actual  involvement in the procurement process                                                            
began  on   June  30,  2004,  and   only  one  report,  which   took                                                            
approximately four months  to compile, has been provided. The second                                                            
report  is not  yet completed.  A total  of four  reports should  be                                                            
available  were action  on this  legislation  delayed until  January                                                            
2006. However,  it is  uncertain as  to whether  a decision  made at                                                            
that time would be sufficient "to make plans for June".                                                                         
                                                                                                                                
Co-Chair Wilken suggested  that the Committee consider extending the                                                            
Pilot Program  another year.  That would provide  time for  "a solid                                                            
basis of information"  to become available. He opined  that the four                                                            
reports that could  be available in January might  not provide a lot                                                            
more information than is available now.                                                                                         
                                                                                                                                
Co-Chair Green  characterized that issue as being  "the heart of the                                                            
conversation".                                                                                                                  
                                                                                                                                
10:27:11 AM                                                                                                                   
                                                                                                                                
Mr. Brooks  expressed  that the  intent  is to provide  "better  and                                                            
quicker information".  The second quarter report would  be completed                                                            
shortly and the  third quarter report, ending March  2005, should be                                                            
available  within the next  30 days. A 30-day  turnaround after  the                                                            
end of each quarter  is the goal. The report for the  quarter ending                                                            
on December 31, 2005 should be available in January 2006.                                                                       
                                                                                                                                
Co-Chair  Wilken understood  therefore  that six  quarterly  reports                                                            
would be completed by January 2006.                                                                                             
                                                                                                                                
10:28:08 AM                                                                                                                   
                                                                                                                                
JIM DUNCAN,  Business Manager,  Alaska State  Employees Association                                                             
(ASEA), informed  the Committee that  ASEA represents approximately                                                             
8,000 State  employees. ASEA members  hold a significant  portion of                                                            
the 200 State  jobs that would be  impacted by this legislation.  He                                                            
voiced being very  concerned about the impact that  this legislation                                                            
would have on  the livelihood of all State employees  represented by                                                            
bargaining units.                                                                                                               
                                                                                                                                
Mr.  Duncan  questioned  the  appropriateness   of  furthering  this                                                            
legislation  prior to  more Pilot  Project quarterly  reports  being                                                            
compiled. The data provided  in the lone report is insufficient upon                                                            
which  to  make  a sound  judgment.  While  the  report  provides  a                                                            
multitude  of  figures and  information,  it  does not  provide  any                                                            
substantive conclusion  about the program as previously  inferred by                                                            
Co-Chair Wilken  when he asked for  assistance in identifying  which                                                            
portion  of the  audit findings  could be  utilized  as a base  upon                                                            
which to further  a decision. He referred the Committee  to "Section                                                            
Two  -  Department's  Comments  on  Audit"  of  the  "Department  of                                                            
Transportation  and  Public  Facilities  Report on  the Outsourcing                                                             
Procurement   Pilot  February   14,   2005"  as   attached  to   DOT                                                            
Commissioner Mike  Barton's February 16, 2005 memorandum  [copies on                                                            
file] addressed to Ray  Matiashowski, Commissioner of the Department                                                            
of Administration.  Section Two stated  that, "It is clear  from the                                                            
audit  conclusions  that under  ASCI management  there  has been  no                                                            
improvement  in service  and the  cost of  goods to  the state  have                                                            
actually increased. Based  on these finds we recommend that there be                                                            
no expansion  of  the pilot  until ASCI's  performance demonstrates                                                             
significant benefit  to the state." Mr. Duncan declared  that, "that                                                            
is a clear and  very direct statement." This language  should answer                                                            
Co-Chair Wilken's question.                                                                                                     
                                                                                                                                
Mr. Duncan stated  that while the second quarter,  October 1 through                                                            
December  31 2004,  audit  has not  as of  yet been  completed,  the                                                            
"Costs of Goods"  portion is available and indicates  that there was                                                            
a 16.3 percent  increase in  the cost of goods  to the State  during                                                            
that quarter. An increase  in the cost of goods also occurred during                                                            
the  first   quarter.  These  increases,   combined  with   the  DOT                                                            
recommendation  against expanding the pilot program,  "are very good                                                            
indicator[s] that  there are questions about whether  this is really                                                            
saving the State money  or not", in regards to the cost of goods. He                                                            
asked  that the Members  strongly  consider this  information.  "The                                                            
trend is  there," and its  continuance would  clearly indicate  that                                                            
the program would not save  the State money. A final decision on the                                                            
program  should  not  be  made  until  all  the  reports  have  been                                                            
provided.                                                                                                                       
                                                                                                                                
10:32:43 AM                                                                                                                   
                                                                                                                                
Mr. Duncan characterized  the "privatization of State jobs" as being                                                            
an important  issue. The response  to Senator Hoffman's question  as                                                            
to whether any  other state has pursued privatizing  procurement was                                                            
"no", no  other state or  municipality has  done it. There  had been                                                            
discussion  during  a  different  committee  hearing  on  this  bill                                                            
regarding  the fact  that the Municipality  of  Anchorage was  doing                                                            
"something innovation and  different" in regards to its procurement.                                                            
"While that  is true and should be  applauded, the City's  effort to                                                            
streamline  its procurement  system  "is  being done  by  government                                                            
employees".                                                                                                                     
                                                                                                                                
Mr. Duncan addressed Senator  Hoffman's question as to whether there                                                            
was  "a  good   public  policy  reason"   against  privatizing   the                                                            
procurement  process  by  providing   an  Executive  Office  of  the                                                            
President,  President George Bush,  Office of Management  and Budget                                                            
Washington,  DC 20503  Circular  No. A-76  (Revised)  dated May  29,                                                            
2003,  [copy  on  file].  The  Bush  Administration  has  sought  to                                                            
privatize "jobs wherever  they can", and this circular addressed the                                                            
development  of a  policy regarding  the performance  of  commercial                                                            
activities.  The "Policy" component  of the circular reads  "Policy.                                                            
The longstanding  policy of the federal government  has been to rely                                                            
on the  private sector  for needed  commercial  services. To  ensure                                                            
that  the  American  people  receive maximum  value  for  their  tax                                                            
dollars, commercial  activities should  be subject to the  forces of                                                            
competition."  Continuing, he pointed  out that section "b."  of the                                                            
Policy section specifies  that government agencies shall "b. Perform                                                            
inherently governmental activities with government personnel."                                                                  
                                                                                                                                
Mr. Duncan continued  that the question of what would  be defined as                                                            
an inherent  governmental  activity is addressed  in section  "B.a."                                                            
and section "B.a.(4)" of the circular.                                                                                          
                                                                                                                                
     a. An inherently  governmental activity is an  activity that is                                                            
     so  intimately related  to the  public interest  as to  mandate                                                            
     performance  by government personnel. These activities  require                                                            
     the   exercise   of   substantial   discretion    in   applying                                                            
     governmental  authority  and/or  in  making decisions  for  the                                                            
     government….                                                                                                               
                                                                                                                                
     (4)  Exerting ultimate  control over  the acquisition,  use, or                                                            
     disposition   of United  State   property  (real  or  personal,                                                            
     tangible  or intangible),  including  establishing policies  or                                                            
     procedures  for  the collection,  control,  or disbursement  of                                                            
     appropriated and other federal funds."                                                                                     
                                                                                                                                
Mr. Duncan  stated that the Bush Administration  has determined,  as                                                            
evidenced  in this Office  of Management  and Budget circular,  that                                                            
the  procurement  of federal  property,  which  could  be viewed  in                                                            
Alaska's case  as the purchase of State property,  "is an inherently                                                            
governmental  function   that should   be performed   by  government                                                            
employees".                                                                                                                     
                                                                                                                                
Mr. Duncan stated  that this position is supported  by the fact that                                                            
there  must  be  "significant   public  trust  in  the  procurement                                                             
function".  "There  should  be no  question"  as to  how  Government                                                            
procurement dollars are used or how contracts were developed.                                                                   
                                                                                                                                
Mr. Duncan reminded the  Committee that the State's procurement code                                                            
was developed  in 1985 as the result of a "significant"  procurement                                                            
issue  that occurred  relating  to a  Fairbanks facility.  A  select                                                            
State Senate Committee  developed the model procurement  code, which                                                            
was endorsed by  the American Bar Association. The  procurement code                                                            
was  adopted in  order  to regain  public trust  in  regards to  the                                                            
procurement process.  While the Code has been amended  over time, it                                                            
remains a good model.                                                                                                           
                                                                                                                                
Mr. Duncan declared that  this bill would exempt the contractor from                                                            
the conditions of the State's  procurement code. "The rules would no                                                            
longer  be those that  you have  in Statute",  but would instead  be                                                            
those set by the contractor  and the seated Administration. He spoke                                                            
against providing that  authority to those entities. The Legislature                                                            
should desire  a procurement process  that would be "conducted  with                                                            
integrity and would follow" Statutory guidelines.                                                                               
                                                                                                                                
Mr.  Duncan  shared  that  in addition  to  serving  in  the  Alaska                                                            
Legislature,  he  once held  the  position  of commissioner  of  the                                                            
Alaska Department of Administration.  One of his responsibilities as                                                            
Commissioner was  to oversee the State's procurement  process. While                                                            
he has heard  that there are problems  with the State's procurement                                                             
process;   he  did  not   experience  any   problems  when   he  was                                                            
commissioner.  Such things as provisions  that allow a dissatisfied                                                             
"vendor to protest  and to understand" the reason  for their getting                                                            
an award could  slow the process down;  however, the process  "still                                                            
works and it works the way it's supposed to".                                                                                   
                                                                                                                                
Mr.  Duncan  noted   that  the  State  employees  involved   in  the                                                            
procurement process are  professionals who "do their job and … do it                                                            
well". He noted  that a request "for the tools to  do e-procurement"                                                            
was, as is currently  the case, on the Department's  capital project                                                            
requests  when he was commissioner.  While  the current request  was                                                            
pre-empted  by the need for a new  payroll system, that request  is,                                                            
and was, there. "There  is nothing in the State's procurement system                                                            
that would prohibit the  use of electronic tools by State employees.                                                            
The only need is the purchase of electronic software."                                                                          
                                                                                                                                
Mr. Duncan urged  the Committee to wait and evaluate  the results of                                                            
the Pilot Project  audit and evaluate  whether the process  could be                                                            
conducted  "just  as  efficiently  and  effectively"  by  government                                                            
employees  were the required  tools in  place. These considerations                                                             
should occur before the legislation moves forward.                                                                              
                                                                                                                                
10:40:27 AM                                                                                                                   
                                                                                                                                
Senator  Bunde  noted that,  as  Mr.  Duncan  had expressed  in  his                                                            
opening  remarks,  Mr.  Duncan's   position  was  to  represent  the                                                            
interests of ASEA members.  Therefore, it could be assumed that even                                                            
were the  audit findings  to determine that  the process would  save                                                            
money, Mr. Duncan  would be obligated to oppose it  because it would                                                            
eliminate State jobs.                                                                                                           
                                                                                                                                
Mr. Duncan  affirmed  his responsibility  to  protect ASEA  members'                                                            
jobs;  he would  not support  the loss  of those  jobs. However,  "a                                                            
different angle"  is the anticipation  that the first two  quarterly                                                            
reports would  not reflect any money  being saved; "matter  of fact"                                                            
the costs  are increasing.  While  the contractor  would argue  that                                                            
they have saved  the State $200,000,  those savings were  the result                                                            
of the elimination  of State jobs rather than being  the result of a                                                            
decrease  in the  cost of  goods and  services. The  union would  be                                                            
reviewing  the forthcoming  quarterly audits  during the interim  to                                                            
further evaluate  the program. It would also be determining  methods                                                            
in which the process could  be more efficiently handled within State                                                            
government. Even thought  his job is to protect State employee jobs,                                                            
it is also his  job to work with the Legislature and  the Department                                                            
of Administration to further such efficiency.                                                                                   
                                                                                                                                
Mr. Duncan argued  that even though this process is  being touted as                                                            
a public/private  partnership,  that would not  be the case  as jobs                                                            
were being  eliminated. Last  year ten  State procurement  positions                                                            
were eliminated.  Some decry  that positions  for those individuals                                                             
were created  in other State departments.  That might have  been the                                                            
case in the 1980s  and 1990s, but that is not the  case today due to                                                            
budgeting constraints.  Another consideration is that were all State                                                            
procurement  jobs eliminated  there would be  no option to  secure a                                                            
procurement jobs in another department.                                                                                         
                                                                                                                                
10:43:36 AM                                                                                                                   
                                                                                                                                
MITCH ERICKSON, Representative,  None Chamber of Commerce, testified                                                            
via teleconference  from  Nome to  voice concern  in regards  to the                                                            
"expedited"  manner  in which  this  bill  is advancing.  The  Pilot                                                            
Project  is still in  the initial  process and  therefore, a  proper                                                            
analysis  could not be provided.  There is  confusion as to  whether                                                            
the contractor  would be held to the  same procurement standards  as                                                            
the State would.  Were they not, then  the process could  be likened                                                            
"to comparing  apples and oranges". Business conducted  by the State                                                            
is significant to local  economies. There is fear that transitioning                                                            
to a centralized  procurement system  would negatively impact  local                                                            
businesses. The State currently  "commands a best pricing system due                                                            
to  its size",  and  "the fact  that  the State  would  pay for  its                                                            
purchases"  is important. It should  also be noted, "that  eCommerce                                                            
is not  an exclusive private  sector function;"  it could easily  be                                                            
implemented in the State system.                                                                                                
                                                                                                                                
Mr. Erickson  communicated  that one consideration  of the  Costs of                                                            
Goods information, particularly  in regards to Rural communities, is                                                            
that "the  landed cost are  the true costs".  The purchase  price is                                                            
not the  true cost.  The belief  is that, without  proper  analysis,                                                            
State  offices in  Rural areas  would be  required  to carry  larger                                                            
inventories  in   order  to  compensate  for  "the  inefficiencies"                                                             
resulting from a centralized  procurement system. Currently, when an                                                            
item is needed, it could be purchased locally.                                                                                  
                                                                                                                                
Mr. Erickson  urged  that a thorough  evaluation  of the program  be                                                            
conducted  before this bill,  or a similar  bill, was advanced.  The                                                            
bill's  appearance now  is one of  being "back-doored;  it does  not                                                            
reflect well on the Legislative process".                                                                                       
                                                                                                                                
10:46:07 AM                                                                                                                   
                                                                                                                                
Senator Bunde  responded to the back-door  argument by stating  that                                                            
this  bill  has  transited  through  the  Legislative   process.  He                                                            
suggested  that the  action of  the State  buying  locally could  be                                                            
considered as a form of revenue sharing.                                                                                        
                                                                                                                                
AT EASE 10:46:43 AM / 10:47:58 AM                                                                                           
                                                                                                                                
Senator   Bunde  communicated   that  a  companion   bill   is  also                                                            
progressing through  the House of Representatives  committee hearing                                                            
process.                                                                                                                        
                                                                                                                                
Co-Chair  Green  stated  therefore,  that there  would  be  numerous                                                            
committee-hearing opportunities in this regard.                                                                                 
                                                                                                                                
10:48:31 AM                                                                                                                   
                                                                                                                                
SCOTT  HAWKINS,  Representative,  Alaska  Supply  Chain Integrators                                                             
(ASCI), communicated  that ASCI, the contractor operating  the Pilot                                                            
Procurement Project  program, was founded in 1999  to provide supply                                                            
chain  activities  for  the  oil  industry,  primarily  Prudhoe  Bay                                                            
operations.  Over the past  six years the  company has increased  in                                                            
size  to  approximately  150  employees,   most  of  who  reside  in                                                            
Anchorage,  the Mat-Su  Valley,  and the  Kenai Peninsula.  A  small                                                            
office  recently  opened in  Juneau.  A significant  number  of  the                                                            
employees  in the Anchorage  area graduated  from the University  of                                                            
Alaska's  global  statistics  program. The  company  specializes  in                                                            
back-office  process  management: helping  both  public and  private                                                            
sector  entities streamline  and automate  back  office duties  more                                                            
efficiently and expediently.                                                                                                    
                                                                                                                                
Mr. Hawkins  characterized  this "permissive  bill"  as being  "very                                                            
important to  the future of this program".  "There is little  danger                                                            
that it would run amuck".                                                                                                       
                                                                                                                                
Mr.  Hawkins   provided  Members   a  handout  titled  "ASCI   State                                                            
Procurement Pilot Review  and Outlook" [copy on file]. The company's                                                            
perspective  as  program  operator   is  that  "the  most  important                                                            
criteria" for  the program is to produce cost savings.  As discussed                                                            
"from  the very beginning",  staff  and personnel  cost savings  are                                                            
foremost in the cost-savings  endeavor. "There is also the potential                                                            
to save money on the cost  of goods." Those cost savings would occur                                                            
over   a  longer   timeframe,  and   would  be   most  successfully                                                             
accomplished  when the program  is applied  across several  agencies                                                            
and several regions,  as the result of purchasing  larger amounts of                                                            
goods and more agreements and automation occur.                                                                                 
                                                                                                                                
Mr. Hawkins  referred the  Committee to page  four of the  company's                                                            
handout titled  "Cost Savings Achieved".  That information  projects                                                            
that over the  first two years of  the project, $163,089  in savings                                                            
would be realized in personnel costs.                                                                                           
                                                                                                                                
Mr. Hawkins  noted that it has been  stated that the second  quarter                                                            
cost of goods  report reportedly indicates  that an increase  in the                                                            
cost of  goods occurred.  However, language  in the report  actually                                                            
states that, "The  Division of General Services, after  consultation                                                            
with  Legislative   Audit,  does   not  believe  the  data   can  be                                                            
extrapolated   in  order   to  draw  firm   cost  increase/decrease                                                             
conclusion, but that the  data may serve to identify potential areas                                                            
for improvement.  The data  documents less  than one percent  of the                                                            
purchases."                                                                                                                     
                                                                                                                                
Mr.  Hawkins stressed  that,  "these benchmark  audits  have been  a                                                            
feature  of the  program  from the  beginning".  To  that point,  he                                                            
opined  that  "the term  'audit'  might  be too  strong  a term"  to                                                            
characterize the  activity. A benchmark provides a  snapshot of data                                                            
with  the  purpose  of  providing  a  record  of  the  program,  the                                                            
methodology  being  used,  and  to  highlight   possible  areas  for                                                            
improvement. The reports  were not designed "to provide full program                                                            
reviews".                                                                                                                       
                                                                                                                                
Mr. Hawkins stated that  Co-Chair Wilken's description of the audit,                                                            
as being  "disappointing" would  be correct  were one looking  for a                                                            
conclusion.  That is not the purpose  of the benchmark; the  purpose                                                            
is to  provide  "on-going snapshots  of  data…" The  Costs of  Goods                                                            
report for  the first quarter "is  particularly troublesome",  as it                                                            
is based on seven  items. "Seven items out of several  thousand that                                                            
were done."  As such, no  "level of statistical  validity"  could be                                                            
extrapolated.  Approximately   thirty items  were  included  in  the                                                            
second quarter  Cost of Goods report.  That is also an insufficient                                                             
number  upon which  to  draw any  conclusions.  The  purpose of  the                                                            
report  is to  provide  information  pertaining  to such  things  as                                                            
vendor trends.  ASCI "was particularly concerned about  the Costs of                                                            
Goods piece being  taken out of context". Therefore,  ASCI conducted                                                            
"an analysis of  all the transactions to date under  the web tools."                                                            
For the period  October 1 through December 31, 2004,  the web tools/                                                            
catalog transaction comparisons  provide "high data integrity". This                                                            
analysis, which  is depicted on page five of the handout,  indicated                                                            
there being a  three-percent reduction in the cost  of goods for the                                                            
second quarter  and an  overall two-percent  reduction for  both the                                                            
first  and second  quarter  periods. This  analysis  of 972  catalog                                                            
transactions  would  sufficiently  "provide  statistical  validity".                                                            
There are  mechanisms through  which to provide  assurance  that the                                                            
State  "is getting  the  best price  available  to it  at any  given                                                            
time". There is evidence that the program is working.                                                                           
                                                                                                                                
10:55:50 AM                                                                                                                   
                                                                                                                                
Mr.  Hawkins   concurred  with  Mr.   Brooks  comments  that,   "the                                                            
Administration  is struggling  with  how to evaluate  the  program".                                                            
However,  he submitted that,  "on the basis  of cost of operations"                                                             
and the early  indications that the eCommerce web  tools are showing                                                            
worth, "the record is very clear that we are seeing that value".                                                                
                                                                                                                                
Mr. Hawkins stated that,  "the program has accomplished a great deal                                                            
in its  first few  months". Procurement  procedures  and rules  have                                                            
been established.  The rules "are hard-wired into  the contract" and                                                            
while  being substantially   similar to  the  rules of  the  State's                                                            
procurement code  in regards to such things as requiring  quotes for                                                            
procurements  under  a certain  amount;  "there  is a  lot less  red                                                            
tape"; specifically  in regards  to the appeals  process. While  the                                                            
current appeals  process has some  value "or else it wouldn't  be in                                                            
the procurement  code",  "more often,  it is a  source of delay  and                                                            
keeps the agencies from  getting the goods and services they need in                                                            
a timely manner".                                                                                                               
                                                                                                                                
Mr. Hawkins  stated that  there are several  reasons supporting  the                                                            
action  of  privatizing   the  procurement  process.   The  activity                                                            
associated  with  the  process  could not  be  classified  as  being                                                            
"glamorous  stuff".  While "most  managers  do not  wake  up in  the                                                            
morning thinking  about" how to improve the process,  procurement is                                                            
the nature  and focus of  ASCI's business.  The company has  "an on-                                                            
going desire for excellence in the process".                                                                                    
                                                                                                                                
Mr.  Hawkins   communicated  that   the  State  could  acquire   the                                                            
technology contusive to  improving the process in-house; however, as                                                            
a condition  of the State's collective  bargaining unit agreements,                                                             
there  is the requirement  that  the technology  and the  associated                                                            
process  "must  be deployed  effectively  and  has to  deliver  cost                                                            
savings". ASCI  must deploy technology, build catalogs,  and operate                                                            
the process "within  the existing baseline cost structure  and still                                                            
show a cost savings after that".                                                                                                
                                                                                                                                
10:58:48 AM                                                                                                                   
                                                                                                                                
Mr.  Hawkins opined  that  were the  State  to invest  in  eCommerce                                                            
software  and associated  technology,  it would be  unlikely that  a                                                            
reduction in personnel  would occur. Cost savings  are a requirement                                                            
under the contract with ASCI.                                                                                                   
                                                                                                                                
Mr. Hawkins  communicated that the  pilot program got off  to a slow                                                            
start  and  is  operating  at  a  very  small  level;  however,  the                                                            
program's  footwork  has  now  been established.   Nonetheless,  the                                                            
current size limitation  could be likened to operating "a backhoe in                                                            
a sandbox".  This legislation  would allow  "the full potential"  of                                                            
the program to  surface, as the installation of a  massive eCommerce                                                            
system across multiple  departments would provide the most benefits.                                                            
                                                                                                                                
Mr. Hawkins  stated that  were the status  quo program to  continue,                                                            
there would be  insufficient time to implement it  on a larger scale                                                            
were  the   program  ultimately  deemed   successful.  From   ASCI's                                                            
standpoint as an employer,  due to the limited time remaining in the                                                            
Pilot Project,  "little assurance"  could be provided to  employees"                                                            
that the project  would even be renewed. This makes  it difficult to                                                            
retain employees.                                                                                                               
                                                                                                                                
Mr. Hawkins  shared  that the company  has learned  that the  entire                                                            
scope  of the procurement  operation  could not  be absorbed.  There                                                            
would  still   be  the   need  for  State   employee  counterparts,                                                             
particularly in regards to large projects such as construction.                                                                 
                                                                                                                                
11:01:22 AM                                                                                                                   
                                                                                                                                
Senator  Stedman  asked whether  the  Alaska Marine  Highway  System                                                            
(AMHS)  would  continue  to  be  excluded  from  the  privatization                                                             
procurement process under the conditions of this legislation.                                                                   
                                                                                                                                
Mr. Hawkins  affirmed.  The types  of procurements  required by  the                                                            
AMHS  could  not  feasibly  be  absorbed;  construction  and  Vessel                                                            
overhaul procurements would be difficult to manage.                                                                             
                                                                                                                                
Senator Bunde remarked  that the loss of a job is not taken lightly.                                                            
To that point,  he asked whether the ten State employees  whose jobs                                                            
were eliminated  by  the implementation  of the  Pilot Project  were                                                            
offered employment by ASCI.                                                                                                     
                                                                                                                                
Mr. Hawkins  stated that such action  had occurred. Some  of the ten                                                            
employees retired,  others were offered  other positions  at parity.                                                            
It should  be noted  however,  that there  was a  difference in  the                                                            
benefit packages  offered by ASCI  and the State. While none  of the                                                            
ten  displaced  workers  accepted   a  position  with  ASCI,  it  is                                                            
understood  that those individuals  obtained other State  government                                                            
employment.                                                                                                                     
                                                                                                                                
11:03:57 AM                                                                                                                   
                                                                                                                                
Senator Dyson  asked how the State could "protect  itself" were ASCI                                                            
services to be withdrawn.                                                                                                       
                                                                                                                                
Mr. Hawkins  responded that this is  a prudent consideration  at any                                                            
time a contractor  is performing a major task. ASCI  recognizes that                                                            
halting  its  services  without  proper  notice  would  destroy  the                                                            
company's reputation. Such  action would be unacceptable, and "would                                                            
be extremely  unlikely".  The  company "would  be  legally bound  to                                                            
provide these services",  and the company would "arguably be legally                                                            
obligated for  the damages" the State would incur  "were a breach of                                                            
contract to occur.                                                                                                              
                                                                                                                                
Senator  Dyson appreciated  the response,  however, noted that  were                                                            
the  contract extended  for  a longer  period of  time, procurement                                                             
staff positions  and support would be weaned from  State operations.                                                            
Perhaps a draft  amendment should  be considered that would  mandate                                                            
that at  the end of the  contract, electronic  files and  associated                                                            
software would be available  in order for the State to transition to                                                            
another vendor or to re-absorb  the process. To that point, he asked                                                            
Mr. Hawkins to contemplate such a proposal.                                                                                     
                                                                                                                                
Mr. Hawkins responded that  the company "would be happy" to consider                                                            
such  an  amendment.   The  current  contract  includes   provisions                                                            
requiring  that electronic  records be provided  to the State.  ASCI                                                            
has no "desire  to hold someone over  a barrel"; the purpose  of the                                                            
software  tools is "to automate  and streamline  and do good  things                                                            
not  to cohere  people with".  The  tools currently  accompany  ASCI                                                            
services  and should  ASCI  "services be  decoupled  …. the  company                                                            
would be happy  to negotiate a licensing agreement  that would allow                                                            
the tools  to continue  to operate".  Therefore,  such an  amendment                                                            
would be acceptable.                                                                                                            
                                                                                                                                
11:07:57 AM                                                                                                                   
                                                                                                                                
PETE  FORD, Southeast  Regional  Manager,  Alaska  Public  Employees                                                            
Association (APEA) Bargaining  Unit, provided testimony on behalf of                                                            
Bruce   Ludwig,   Business   Manager,   Alaska    Public   Employees                                                            
Association, as follows.                                                                                                        
                                                                                                                                
     The Pilot  Program authorized  by HB 313 was rushed  through in                                                            
     the final days of  the 2003 Session. There were no measurements                                                            
     of success included  in the bill, no benchmarks for comparison,                                                            
     and nothing to enable  anyone to determine if the Pilot Program                                                            
     was a success or a failure.                                                                                                
                                                                                                                                
     Frankly,  there does not appear  to have been a lot  of thought                                                            
     given  to the Pilot  Program.  There was one  hearing in  House                                                            
     Finance, and one in  Senate Labor & Commerce. The bill title is                                                            
     misleading.  When we talked with  legislators after  HB 313 was                                                            
     passed, we were told  it "just enabled e-commerce." In fact, it                                                            
     did much more than that.                                                                                                   
                                                                                                                                
     Alaska  Supply Chain  Integrators  (ASCI), who  brought HB  313                                                            
     forward,  was the only "responsive"  bidder, and was  awarded a                                                            
     contract  for Southeast DOT&PF. The State determined  that they                                                            
     could save $250,000  per year by eliminating the warehouse, and                                                            
     using fewer employees  through the internet purchasing process.                                                            
     ASCI  actually  began  work on  July  11,  2004, and  10  state                                                            
     employees were laid off.                                                                                                   
                                                                                                                                
     Since the Pilot Program  began, only one quarter of performance                                                            
     has been  audited. The second  audit is currently in  progress,                                                            
     and the third audit should be getting underway soon.                                                                       
                                                                                                                                
     The Pilot  Program is supposed to operate until  June 30, 2006,                                                            
     when  it  is   scheduled  to  expire.  As  the  Department   of                                                            
     Administration has  testified, the jury is still out. It is too                                                            
     early  to extend, or  make permanent,  the Pilot Program.  This                                                            
     Bill   should  be  held   over  while   sufficient  record   is                                                            
     established  to  be  able  to  intelligently  make  a  decision                                                            
     whether the Program has been a success or not.                                                                             
                                                                                                                                
     While  Mr. Hawkins  has been  quick to  characterize the  Pilot                                                            
     Program  as a  success,  we have  heard many  negative  reports                                                            
     regarding  the Program  and the  service it  is providing.  For                                                            
     instance,  we have  heard  that the  actual cost  of goods  and                                                            
     services purchased  through ASCI is as much as 16% greater than                                                            
     comparable costs made  through the state's existing procurement                                                            
     processes.  If true, this  would mean  that the state  has paid                                                            
     more than  $2 million more than  necessary for goods  purchased                                                            
     through  the Pilot Program. We  have heard that there  are some                                                            
     1,500  invoices,  valued at  more  than $250,000,  that  remain                                                            
     unpaid because  the Purchase Orders do not match  the invoices.                                                            
     This affects  the State's relationship with its  suppliers, and                                                            
     denies   many  Alaska  businesses   timely  payment,   creating                                                            
     difficulties for those  businesses. We have hear that, of the 7                                                            
     orders for  parts ordered through ASCI for the  engine overhaul                                                            
     of the M/V  Kennicott, 6 orders were shipped  to Juneau and had                                                            
     to be  re-shipped to  the shipyard in  Portland where  the work                                                            
     was actually being done.                                                                                                   
                                                                                                                                
     Of the original $250,000  projected savings, about half was for                                                            
     eliminating  the  warehouse.  But the  warehouse  has not  been                                                            
     eliminated; there  is no savings there. We have also heard that                                                            
     the ASCI  employees working the  Pilot Program are required  to                                                            
     work extreme  amounts of overtime; anticipated  savings will be                                                            
     further  reduced when those overtime  bills are paid.  It seems                                                            
     likely that the anticipated  savings may not be borne out after                                                            
     the final  audit - any savings will certainly  be substantially                                                            
     less than the grand amounts "anticipated".                                                                                 
                                                                                                                                
     In  addition, since  ASCI  does not  have to  follow the  State                                                            
     Procurement  Code,  their procedures  do not  meet the  minimum                                                            
     requirements  of  federal  purchasing,  and they  cannot  order                                                            
     equipment,  materials  or services  for  construction  projects                                                            
     funded  or partially  funded by federal  monies. All  purchases                                                            
     involving federal  monies are still worked by state procurement                                                            
     personnel - there is no savings there.                                                                                     
                                                                                                                                
     There is  also the matter of overhead, which  was not budgeted.                                                            
     With a zero  fiscal note, the State has had to  assume the cost                                                            
     of overseeing  the contract. The reality of the  "anticipated",                                                            
     promised savings seems more and more remote.                                                                               
                                                                                                                                
     In  summary, it is  way, way  too early to  extend the  current                                                            
     Pilot  Program. From  the anecdotal information  we have  heard                                                            
     (and formal,  official audits  are not yet available),  instead                                                            
     of  saving the  State  $150,000, the  Pilot  Program will  more                                                            
     likely cost the State  additional millions of dollars. We think                                                            
     that  the Pilot  Program  should run  its course  and have  its                                                            
     effectiveness fairly  and fully evaluated. We ask that you hold                                                            
     this Bill  and check the progress and performance  of the Pilot                                                            
     Program  next year.  We urge you  to be sure  to obtain  direct                                                            
     testimony  from  the Department  of Transportation  and  Public                                                            
     Facilities,  the  "customers"  of the  Pilot Program,  and  get                                                            
     their  impressions  and opinions  regarding  the  value of  the                                                            
     Pilot Program's performance.                                                                                               
                                                                                                                                
11:13:26 AM                                                                                                                   
                                                                                                                                
Senator Bunde  asked "what  level of savings"  would be required  to                                                            
garner ASEA's support of the program.                                                                                           
                                                                                                                                
Mr. Ford  responded  that he  could not  "answer that  in a  vacuum,                                                            
without being  able to look at real life figures";  however, ASEA is                                                            
not  opposed  to the  State  saving  money and  has  supported  "the                                                            
concept" of a State eCommerce  program, as it would produce monetary                                                            
savings. State personnel should be involved in such an endeavor.                                                                
                                                                                                                                
11:14:52 AM                                                                                                                   
                                                                                                                                
LAURA LAWRENCE,  Procurement Specialist, Central Region,  Department                                                            
of   Transportation    and   Public    Facilities   testified    via                                                            
teleconference  from Anchorage  and shared  with the Committee  that                                                            
she has been employed in  the Department's procurement office for 21                                                            
years. She opposed  the bill as both an employee and  as a concerned                                                            
citizen.  As   a  condition  of  her   position  as  a  procurement                                                             
specialist, she  must abide by the procurement code;  otherwise, she                                                            
could be guilty  of a Class C felony  and be subject to prosecution                                                             
under Alaska Statute 36.30.  Her bidding practices have earned her a                                                            
reputation  for  integrity  with  both  in-State   and out-of-State                                                             
vendors,  and federal employees.  The State's  procurement  code was                                                            
established "to  prevent unorthodox purchasing" that  had previously                                                            
occurred.  ASCI has already  admitted that  its conducting  of State                                                            
business  with one of its  own supply companies  was a mistake.  She                                                            
questioned  how many  such  mistakes would  occur  absent the  State                                                            
procurement  practice  obligations.  Continuing she  questioned  how                                                            
much  business would  be averted  to  specific companies  or  ASCI's                                                            
"favorite  vendors".  Such  action  would  be a  disservice  to  the                                                            
State's  entire  business  community  as  well  as  to  the  State's                                                            
taxpayers.  Competitive bids  for purchases  under $150,000  are not                                                            
required under the Pilot  Program. Bid competition by both small and                                                            
large companies  for projects under  that range are plentiful.  Many                                                            
bids are awarded to small  operations, and, to that point, she asked                                                            
how small  companies might  fare were the  new program implemented.                                                             
She detailed  the many responsibilities  that accompany each  bid as                                                            
well  as  the variety  of  bids  that  occur. She  also  noted  that                                                            
warranty work  is also an important  consideration, especially  when                                                            
accepting  a low bid  from an  out-of-state company.  ASCI, being  a                                                            
private company, would have no obligation to in-State vendors.                                                                  
                                                                                                                                
Ms. Laurence  noted  that the  aftermath  that might  result were  a                                                            
private  contractor  to  remove  their  service  should  also  be  a                                                            
consideration.  This  is a  very  controversial  bill.  There is  no                                                            
indication  that money would be saved  or that better service  would                                                            
be provided.  State  employees  would lose  their  jobs. Many  small                                                            
Alaskan companies  would be disadvantaged;  particularly  when goods                                                            
and services under $150,000  would not be required to be put to bid.                                                            
                                                                                                                                
Ms. Laurence supported  the purchase of computer software components                                                            
that  would allow  the State  to conduct  eCommerce  activities  in-                                                            
house. Were  State employees hands  "untied" they could provide  all                                                            
the services  and supplies, equal  to or better than an out-sourced                                                             
company could.  State jobs  would be maintained  and the use  of in-                                                            
State vendors  would continue to stimulate  the State's economy  and                                                            
provide  local  jobs. This  project  has  not been  undertaken  long                                                            
enough  to provide sufficient  data  and should  not be advanced  at                                                            
this time.                                                                                                                      
                                                                                                                                
Co-Chair Green  asked, in respect  of the Committee's limited  time,                                                            
that  Ms. Laurence  provide  her  written  comments to  Members  via                                                            
facsimile.                                                                                                                      
                                                                                                                                
11:22:10 AM                                                                                                                   
                                                                                                                                
BARRY  JACKSON, Resource  Data/ASCI,  testified  via teleconference                                                             
from Anchorage  and informed the Committee that he  retired from the                                                            
State of Alaska  Department of Administration,  Division  of General                                                            
Services  after   31-years  of  service   including  service   as  a                                                            
contracting  manager, deputy director,  and acting director.  He was                                                            
also  on the  Board  of  APEA and  a  founding  member of  ASEA.  He                                                            
informed  the Committee that  he had assisted  ASCI in winning  this                                                            
contract and has since  instructed DOT employees how to use the ASCI                                                            
eCommerce application.                                                                                                          
                                                                                                                                
Mr. Jackson  noted that  an effort  was made in  the Price of  Goods                                                            
reporting to compare  the price of goods purchased  by ASCI with the                                                            
price of  goods that had  been awarded by  State employees.  To that                                                            
point, the benchmark report  would provide information as to whether                                                            
prices increased, decreased  or held status quo; however, the report                                                            
would  not provide  information  as to  the reason  for any  change.                                                            
While   the  statistics   provided   might   be   interesting,   the                                                            
representation  is a dangerous one  in that "someone might  think it                                                            
was meaningful and base  a decision on it. It is a statistic with an                                                            
overwhelming potential to mask the truth."                                                                                      
                                                                                                                                
Mr. Jackson stated that  the State's standard practice is to measure                                                            
"its procurement  successes by comparing  the prices offered  at the                                                            
moment  of bid  opening  against each  other.  The State  has  never                                                            
judged  its own purchasing  performance  by comparing  the price  it                                                            
paid  last  year  with  the  price  it  pays  today.  This  kind  of                                                            
benchmarking  is an  approach that  … General  Services would  never                                                            
condone  having applied  to  themselves,  precisely  because of  its                                                            
potential  to  paint a  completely  false  picture of  their  actual                                                            
performance."                                                                                                                   
                                                                                                                                
Mr. Jackson  addressed the concern  about "potential corruption"  by                                                            
stressing that "in all  significant aspects of the existing contract                                                            
…. the contractor is required  to employ competitive practices which                                                            
are  fundamentally  the same  as  those actually  practiced  by  the                                                            
State.  There   is  not  much  difference   between  professionally                                                             
administered  public and  private purchasing  practices, except  for                                                            
mountains  and  mountains  of  red tape,  institutionalized   delay,                                                            
antiquated systems and huge performance and efficiency gaps."                                                                   
                                                                                                                                
Mr.  Jackson  suggested   that,  "an  independent  contractor   with                                                            
preservation  of investment  as its  most potent  motivation has  an                                                            
unbiased  primary interest  in simply doing  its job as efficiently                                                             
and economically  as possible  for the State".  He would also  argue                                                            
that,  "an independent  contractor  is  in  a stronger  position  to                                                            
resist pressures  to commit bad practices.  Such pressures  do exist                                                            
and are difficult  for State employees to resist because  their jobs                                                            
or careers can be put in  jeopardy. These pressures and consequences                                                            
are not  idle speculation  … they are real"  as he knows "from  long                                                            
experience".                                                                                                                    
                                                                                                                                
Mr. Jackson characterized  the project audits as intense "scrutiny".                                                            
The  quarterly  audits  are quite  frequent  and  are "questionably                                                             
conceived   and  yield   such   wrong  edit   interpretations   from                                                            
opponents".   They   are  "significant   mechanisms   for   building                                                            
resistance  to the further implementation  of the pilot,  especially                                                            
in the pilot agency". Were  the same audit procedures applied to the                                                            
State  procurements,   "numerous   purchasing  violations   and  bad                                                            
practices" would come to light.                                                                                                 
                                                                                                                                
Mr. Jackson countered the  union's position that more money could be                                                            
saved were  eCommerce tools provided  to State employees  by stating                                                            
that had the  unions submitted a proposal  to compete for  the Pilot                                                            
Project, he  doubted whether their  proposal could have won  were it                                                            
to have "preserved  every one of those  jobs that were lost"  in the                                                            
winning competitor's proposal.  "Who's kidding who here?" The unions                                                            
would have  had to  implement an  eCommerce system  as least  on par                                                            
with  the one  implemented  by  ASCI, and  they  would  have had  to                                                            
eliminate more  jobs than ASCI in order to win. "Enlightened  unions                                                            
have found  another perspective, one  which is ultimately  much more                                                            
valuable to union members."                                                                                                     
                                                                                                                                
Co-Chair  Green, in  recognition  of limited  time,  asked that  the                                                            
testimony  be concluded.  Further  comments, in  written form,  were                                                            
welcome.                                                                                                                        
                                                                                                                                
Mr. Jackson  stressed that, "the fiscal  train wreak is coming";  it                                                            
is  "just  around  the corner".  When  it  arrived,  "it  would  not                                                            
magically leave  purchasing positions  untouched. Failing  to enable                                                            
e-commerce  now" would "severely  cripple"  the State's procurement                                                             
system  in the future.  This bill  would provide  the State  "a rare                                                            
opportunity  to look toward the future"  and improve the  situation.                                                            
The technology is available  and could be implemented; it would save                                                            
money. "All that is needed is the resolve to do the obvious."                                                                   
                                                                                                                                
Co-Chair Green  announced that the  bill would be HELD in  Committee                                                            
in order for the bill's  sponsor to provide further consideration to                                                            
the comments that had been offered.                                                                                             
                                                                                                                                

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