Legislature(2007 - 2008)BELTZ 211
01/25/2008 01:30 PM Senate JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| HB151 | |
| HB7 | |
| HB149 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 149 | TELECONFERENCED | |
| += | HB 7 | TELECONFERENCED | |
| = | HB 151 | ||
CSHB 151(JUD)-INDEMNITY CLAUSE IN PUBLIC CONTRACTS
CHAIR FRENCH announced the consideration of HB 151. [Before the
committee was CSHB 151(JUD).] He highlighted the proposed Senate
Committee Substitute (CS). The only difference is that "where
there is joint liability." is deleted from page 1, lines 13-14
of the current version O.
1:34:22 PM
SENATOR HUGGINS moved SCS CSHB 151, version N, as the working
document.
SENATOR THERRIAULT asked if the prime sponsor agrees with the
language change.
CHAIR FRENCH said he understands that the sponsor requested the
change. He and the drafter saw the language as surplus.
1:34:43 PM
JEANNE OSTNES, Staff, to Representative Craig Johnson, confirmed
that the sponsor agrees with the change.
1:35:08 PM
SENATOR WIELECHOWSKI asked if removing the language changes the
bill.
MS. OSTNES replied, "Through the discussion that the committee
was having and through legal, it just seemed to end some of the
discussion that lawyers would have with more words."
CHAIR FRENCH announced that without objection, version N is
before the committee.
MS. OSTNES clarified that the intent of the legislation is to
address professional services contracts. Page 2, line 25, refers
to professional services as defined in the definitions section
of the state procurement code. She read AS 36.30.990(19) as
follows:
(19) "professional services" means professional,
technical, or consultant's services that are
predominantly intellectual in character, result in the
production of a report or the completion of a task,
and include analysis, evaluation, prediction,
planning, or recommendation;
1:36:43 PM
SENATOR McGUIRE joined the meeting.
1:37:19 PM
JOHN ASHENBRENNER, Deputy Attorney, Matanuska-Susitna (MatSu)
Borough, stated that the Alaska Constitution tasks
municipalities with providing a myriad of services to the
public. To carry that duty to fruition, they should be given
maximum flexibility. He read Article X, Section 1 of the
constitution to support his view.
The purpose of this article is to provide for maximum
local self-government with a minimum of local
government units, and to prevent duplication of tax-
levying jurisdictions. A liberal construction shall be
given to the powers of local government units.
MR. ASHENBRENNER said contract negotiations are part of the
process for reaching agreement between local government and
contractors, and a mandated indemnification clause runs counter
to allowing local government to deliver those services. A second
concern is that this clause could be applied where professional
services are provided in hybrids, such as design built
contracts. The definition of "professional services" in AS
36.30.990(19) and the definition of "construction" in paragraph
(1) of the bill could lead to the conclusion that municipalities
could not use protective indemnification clauses, which are
widely used in construction contracts. If this goes forward, we
would ask that the MatSu Borough be exempted from this
provision, he said. Furthermore, it ought to be clear that it is
not intended to apply to design built contracts because those
save the public money.
1:41:55 PM
MR. ASHENBRENNER expressed concern with the language that talks
about comparative fault basis because it could be construed as
obligating the government in a joint liability claim to
indemnify the contractor. If it were construed that way, an
attorney general opinion from 2005 says that an additional
appropriation at the local and the state level would be
necessary. That would be an additional cost for the government.
1:44:09 PM
CHAIR FRENCH asked how, on a comparative fault basis, either
side could indemnify the other for something they did not do.
"Isn't that exactly what comparative fault's about?"
MR. ASHENBRENNER said he's been struggling with the question of
whether this would be cross indemnification and that may or may
not be the case. However, the larger concern for the MatSu
Borough is that the provision should not apply to design built
or hybrid contracts. It's difficult to think that applying a
mandated contractual provision for all professional related
contracts is appropriate in all contexts, he said.
1:46:57 PM
SENATOR WIELECHOWSKI asked if the suggested indemnification
language is very different than what the borough currently uses.
MR. ASHENBRENNER said yes, but stronger language has been used
in some contracts.
SENATOR WIELECHOWSKI asked if the bill will have a financial
impact to MatSu Borough.
MR. ASHENBRENNER said it could; the cost of litigation will
probably go up because the contractor's obligation to indemnify
and defend the local or state government won't be as broad.
1:48:44 PM
NELSON PAGE, Anchorage Attorney, spoke in support of the Senate
CS for HB 151. He explained that he represents a large number of
design professionals statewide and indemnification is a very
difficult issue for his clients. For example, the
indemnification clause that the MatSu Borough and others use
requires a design professional to accept all legal and financial
responsibility for errors made by any party to the contract even
if another party is 99 percent responsible and someone other
than the design professional is responsible for the other 1
percent. Usually he recommends that his clients not sign those
clauses. When the other party won't agree to amend the clause,
his client has to either turn down the work or sign the contract
and assume huge risk for which there is no insurance. Insurance
usually covers negligence of the design professional but not
contractual obligations.
MR. PAGE said in some respects the CS favors the people who are
contracting with the design professionals. First, the bill
allocates responsibility fairly; the entity that is negligent
and causes damages will be held responsible to the extent of
those damages. Second, it's an advantage to state and local
governments to the extent that it's easier for design
professionals to bid on projects. Smarter design professionals
won't bid on contracts with an onerous indemnification clause,
he said. Finally, government may save money to extent that
design professionals are padding their bids to cover the
additional risk.
1:52:07 PM
MICHAEL CARLSON, Partner, McCool Carlson Green Architects, said
he supports HB 151 because it makes everyone responsible for
their own mistakes and negligence. It's the right thing to do
and it's good public policy. Part of the advantage of HB 151 is
that when the language is consistent, it can be consistently
interpreted by the court. He encouraged the committee to move
the bill.
1:55:27 PM
LEANNE BOLDNOW, Insurance Broker, Marsh USA, said she has been a
member of the Alaska Design Professional Council and was on the
contract task force. Stating support for HB 151, she said she
has represented more than 30 design firms across the state and
has continually reviewed poorly written contracts. Many of those
contracts are uninsurable because of contract wording and the
indemnification clause. She explained that a design consultant's
work is intellectual property and as such design professional
insurance provides defense when negligent act, errors, or
omissions are tied to the intellectual property. When public
entities publish contracts that reference general construction,
she recommends that design professional insurance will not cover
that contract.
MS. BOLDNOW relayed that it was not the intent of the task force
or the sponsor to allow a building contractor to morph into the
design contract and thereby gain from HB 151.
1:57:56 PM
CHAIR FRENCH, finding no one else who wanted to testify, closed
public testimony and asked for committee discussion.
SENATOR WIELECHOWSKI stated that HB 151 doesn't appear to be
particularly interesting on its face, but it presents very
interesting and colliding ideas. There's the concept of fairness
and the fact that each party should bear the cost of their own
negligence. That clashes with the free market and the ability of
municipalities or agencies to negotiate contracts to their
liking. But if a municipality can negotiate and get another
party to accept their liability, it's not a bad thing under the
free market theory. Another thing that collides is the inability
of the designer to get insurance. It's been an interesting
discussion, he added.
CHAIR FRENCH agreed it is a lively issue, but he believes that
it boils down to the issue of fairness.
1:59:41 PM
SENATOR McGUIRE motioned to report Senate CS for CSHB 151,
version N, from committee with individual recommendations and
attached fiscal note(s).
CHAIR FRENCH announced that without objection SCS CSHB 151 (JUD)
moves from committee.
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