Legislature(2003 - 2004)
02/18/2003 01:43 PM Senate TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 40-CONSTRUCTION OF HIGHWAYS BY DOTPF
MR. RICHARD SCHMITZ, staff to Chair Cowdery, introduced SB 40.
He told members that the Department of Transportation and Public
Facilities (DOTPF) uses force accounts for sole source
contracts. These are usually small contracts and enable the
work to be done by temporary state employees. Other state
departments occasionally use force accounts for projects costing
small amounts.
SB 40 would insure that the competitive bid process be used for
state road projects. Competitive bidding allows transparency and
provides the lowest and best bids. Force accounts could be used
for projects under $250,000 while projects above $250,000 would
be competitively bid. An advantage of the competitive bid
process is that Davis-Bacon wage determinations are paid; this
is the set union wage scale. Under the force account system,
temporary state employees do not necessarily receive Davis-Bacon
wages.
CHAIR COWDERY clarified that if something was overlooked in the
initial bid, a force account can be used to take care of the
unforeseen problem rather than shut down the project. Force
accounts are a necessary tool in the construction business but
they have been abused in the past. He thought SB 40 was needed
to stop the abuse.
CHAIR COWDERY said both rural and urban labor on contract or
force account should be paid the same Davis-Bacon wages. This
legislation had support from most labor unions last year but the
bill was killed in the House.
SENATOR OLSON said last year the bill started with a $250,000
limit but was changed to a $1 million limit as it progressed
through the legislative process. He asked why SB 40 went back
to the $250,000 limit.
CHAIR COWDERY said, "The bill didn't pass so we're going to
start at the same place." He said he has no control of the
limit when the bill reaches the Finance Committee.
SENATOR LINCOLN addressed SB 40 and said the Rural Construction
Work Group had several meetings and made a number of
recommendations as a result of the administrative order (AO)
dated October 1, 2002. She wanted to hear from that group
because the members represent a very broad group from across
Alaska.
CHAIR COWDERY said the work group members had been notified of
the hearing.
SENATOR LINCOLN asked if anyone was present to testify for the
Rural Construction Work Group.
CHAIR COWDERY thought there was someone present.
SENATOR LINCOLN said she would postpone her questions because
the Rural Construction Work Group would likely cover a number of
the points she planned to raise.
MR. KEVIN RITCHIE, Alaska Municipal League, apologized for not
having submitted a letter but said one would follow. He
explained that concerns brought a broad group of people together
over the summer who had a great deal of discussion. Two obvious
concerns were apparent:
· The level of wages, fairness and competitiveness on the
part of contractors.
· The ability to hire and train local people to a greater
extent and the cost of getting the work done on the local
side.
The group included contractors, labor representatives,
municipalities and state agency representatives and resulted in
Administrative Order 199 (AO 199). Mr. Ritchie felt AO 199 is a
compromise that addresses ways to stop abuse, overtime and new
wage rates. Those abuses are identified as the purpose for SB
40. He suggested finding out if AO 199 is being implemented and
how it might reflect on the need for SB 40.
CHAIR COWDERY disclosed this issue was brought to his attention
when a $3.5 million road project in Saint Mary's went out to bid
and was then withdrawn a couple of years ago. Fairbanks
contractors complained because they wanted to bid on the job.
DOTPF chose to hire people as state employees, train them and
build the road with state equipment rather that conform to
Davis-Bacon Act wages. He was told by DOTPF the road is
excellent, however SB 40 is needed to stop this type of abuse.
Projects costing over $250,000 should go through the competitive
bid process.
SENATOR OLSON said Saint Mary's is in his district. He reported
that not only is the road excellent, it came in under budget
thanks to city manager Walton Smith, project engineer Dave
Schaffer, and the rest of the group working on it. It was a
very good experience.
CHAIR COWDERY said he had not been out to see the road but had
asked for an audit.
SENATOR LINCOLN asked if Mr. Ritchie was a member of the Rural
Construction Work Group.
MR. RITCHIE responded that he was.
SENATOR LINCOLN said representatives of Native corporations,
nonprofit organizations, private contractors, organized labor,
affected state agencies, the Association of Village Council
Presidents (AVCP), Kawerak, the Tanana Chiefs Conference, Inc.
(TCC), and the Bering Straits Native Corporation (BSNC) were all
represented in the group. She understood the group made a number
or recommendations that AO 199 closely follows. She asked, in
representing the Alaska Municipal League, whether Mr. Ritchie
might have wanted to change anything in AO 99 in hindsight.
2:16 p.m.
MR. RITCHIE answered the process was a good one and, as far as
making major changes, members came to a good compromise. It
creates a more progressive wage rate for people hired through a
force account; they are hired at essentially Davis-Bacon
training wages, which is a good thing. Part of the group's
philosophy was to allow the use of force accounts for amounts
over $250,000 but to create a competitive situation between
force accounts and contracting. If wages approximating Davis-
Bacon wages are paid, then the choice can be made on a
completely competitive basis and the laborers win either way.
Preserving the concept of the force account is really important
in some rural areas. He said there might be a number above which
force accounts should not be used but $250,000 may be low
because of the cost of doing business.
MR. RITCHIE felt it made sense for the new administration to
review AO 199 and see how it would recommend its implementation.
He noted, "Just for the record, our public works and
infrastructure committee did review the bill recently and did
recommend that in its present form to not support the bill, just
the Municipal League alone."
MR. RITCHIE added the Associated General Contractors (AGC) was
also a member of the working group.
CHAIR COWDERY noted he was anxious to talk to the new
administration on this issue.
MR. JOHN BROWN, field representative, Operating Engineers Local
302, pointed out that Alaska's policy on public construction has
been to use the bid process, which makes sure the work is done
in an efficient manner. The people in rural Alaska should
receive Davis Bacon wages. He said he did not believe SB 40
would affect the ability of rural people to do force account
work. He explained SB 40 limits DOTPF to the competitive bid
process to make sure innovative methods and the best current
practices are used.
CHAIR COWDERY said when he was in the contracting business he
worked in rural Alaska and found it beneficial to hire as many
local people as possible because he didn't have to pay
transportation, per diem, or housing. When building an airport,
precise grades were needed and workers had to be imported that
could cut the grade required by the specifications. His
construction company paid everyone Davis-Bacon wages. He hired
about 60 people on one project in Kotlik and had about everyone
who wanted to, work on the project.
MR. BROWN encouraged Senator Lincoln and Senator Olson to talk
to the people in Arctic Village who just finished a project.
The Operating Engineers trained people from the local community
and the project was force account work.
MS. EDEN LARSEN, Executive Director, Associated Builders and
Contractors, Inc. (ABC Alaska), stated ABC Alaska supports SB
40. The state should not be in competition with the private
sector. ABC contractors working in rural Alaska are looking for
trained people who can work on projects. The issue is largely
one of training rather than wages. Contractors are required to
pay a prevailing wage hiring locally wherever possible provides
a competitive advantage.
She said it is interesting to see that AO 199 brings the whole
force account argument full circle. Initially the argument was
that force accounting was more cost effective because local
people could be hired the prevailing wage would not have to be
paid. That argument is used to avoid federal open and
competitive bid requirements. AO 199 now imposes a prevailing
wage rate, which brings the argument full circle but does not
eliminate competition with the private sector or the people
directly performing the work.
MS. JUDY MARTINSON, Northcoast Construction, said Northcoast
Construction is a general contracting company that works in
northwest Alaska villages and has exclusively hired local
workforces for the past 22 years. State DOTPF forces have eroded
Northcoast Construction's work. The Saint Mary's project was not
put out to bid but was done by DOTPF and the costs are unknown.
DOTPF paid less than the Davis-Bacon wages that contractors are
required to pay and include in their bids. There is little work
in Northwest Alaska and state DOTPF forces were working when
private enterprise was not. Northcoast Construction is making
payments for equipment that sits idle and gross revenues have
gone from a high of $2.5 million down to about $20,000 per year.
They are selling equipment and letting local people go while
DOTPF is gearing up with more equipment and more forces. The
state and city forces are getting stronger and the private
sector is being put out of business. She concluded, "We are
looking at going to war to preserve our democracy." Northcoast
Construction supports SB 40 to stop this problem.
TAPE 03-02, SIDE B
2:30 p.m.
CHAIR COWDERY asked Ms. Martinson the smallest dollar amount and
[pay] range that Northcoast Construction had ever competitively
bid on a job.
MS. MARTINSON answered Northcoast has bid jobs from $1000 to $3
million.
CHAIR COWDERY asked if Northcoast was required to post a bond
for the larger jobs.
MS. MARTINSON said it was.
CHAIR COWDERY asked if smaller jobs were exempt from bonding.
MS. MARTINSON said some projects require bonds and some do not,
it depends on the funding. Northcoast had a small maintenance
project that was bonded. Northcoast hires and trains local
people and uses anywhere from 80 to 100 percent local forces for
a project.
SENATOR OLSON asked her to mention some of the places where
Northcoast had done construction projects.
MS. MARTINSON said Northcoast had been to just about every
village out in Northwest Alaska, Teller, Brevig, Savoonga,
Gamble, Unalakleet, Kiwalik, Nome, and Wales (three additional
villages were listed that were indiscernible).
SENATOR LINCOLN appreciated Ms. Martinson's testimony and the
fact Northcoast Construction hires all local people. Senator
Lincoln said she came from a very small community and represents
129 communities. Local people are concerned that locals do not
receive the work when a job is put out to bid. An Anchorage
contractor brought all of his employees, food, materials and
equipment to Rampart. Rampart worked hard to get the project
but received absolutely no benefits in terms of jobs. She added
that many companies do not follow the local hire policy. Local
people are watching jobs leave the community and, in some cases,
leave the state.
MS. MARTINSON said after living in Nome for 30 years they are
compassionate and love the villages and village people. Life is
very hard; without funds coming in it is hard to eat. She
suggested the loss of jobs could be eliminated of a specific
number of hours required for apprentices could be placed in the
bidding process. People need to be trained on the job and the
state participates and helps with that through the competitive
bidding process and through the union apprenticeship program.
Northcoast has had a project agreement with the union. The
union came in and helped to train people, and made sure the
people were happy. She thought the bidding process needs more
teeth so that village people are accommodated.
CHAIR COWDERY said he hired as many locals as possible because
it was more profitable. Qualified people are needed to run the
equipment to meet specifications when close tolerances are
required and these people have to be brought in. He hired
locals on erosion control contracts that were hard working who
caught on fast and worked up to 12 hours per day. Contractors
will hire locally if they can save money.
CHAIR COWDERY said Frank Richards and Chris Kepler are on line
in Anchorage to answer questions.
MR. DENNIS POSHARD, Legislative Liaison/Special Assistant,
DOTPF, said Mark O'Brien, Chief Contracts Officer, is present to
help answer questions because this is a complex subject.
CHAIR COWDERY asked if he had talked to the new heads of DOTPF.
MR. POSHARD said they were introduced while waiting for this
hearing to start and Commissioner Barton had been acting
Commissioner for some time. He stated DOTPF has no position on
SB 40 and explained:
We are currently reviewing Administrative Order 199
and this administration is trying to determine their
approach to dealing with the issue of force account.
First though, I would like to clarify a few things.
One thing, I think that it's really important to note
up front, is we agree that we ought not be in
competition with the private sector. I mean we believe
the private sector is a partner with us to do the job
that we need to do to improve transportation in
Alaska. That's why over 97 percent of our current, you
know, construction program ends up getting bid out.
CHAIR COWDERY asked how much of the remaining 3 percent
represents in dollars.
MR. POSHARD said a little less than 3 percent was spent by force
account in 2002, which totaled about $11.2 million.
CHAIR COWDERY asked if that was in all areas of Alaska.
MR. POSHARD said yes. The lion's share of force account funding
was for projects that department maintenance crews did for line
item projects in the capital budget. Some of those projects
include preventative maintenance on roads, road surface
treatments, crack sealing and bridge repair. The total amount
was $11.2 million; about 2.2 percent of the total construction
program in 2002. That included the projects DOTPF gave to other
local agencies such as the Bureau of Indian Affairs (BIA) or
other state agencies. SB 40 is directed at that 2.2 percent and
not the $350 to $400 million that is contracted every year.
DOTPF agrees it should not be in competition with the private
sector and that is why it contracts most of the work that is
done.
CHAIR COWDERY asked the reason force accounts began.
MR. POSHARD said the answer depends on the type of force
account. DOTPF sometimes force accounts roads to local
governments or agencies such as the BIA and the Indian Health
Service (IHS) at their request.
CHAIR COWDERY asked if DOTPF ever uses force account when an
unforeseen situation arises during a project; for instance,
hydrocarbons were found and were not included in the bid but
DOTPF does not want to stop the job.
MR. POSHARD said he thought Chair Cowdery was referring to a
change order. If the contractor is on-site doing the work and
an unforeseen situation is discovered that calls for some change
to the bid specifications, DOTPF issues what is called a change
order. DOTPF negotiates directly with the contractor to go ahead
and complete the additional work above and beyond the original
specifications in the bid.
CHAIR COWDERY asked if that is the same as a force account.
MR. POSHARD asked Mark O'Brien, who reviews all the "best
interest findings" and determines whether or not force account
projects can be done, to explain force account because.
MR. MARK O'BRIEN, Chief Contracts Officer, DOTPF, explained that
two different definitions of force accounting cause confusion.
He told members:
One is force account, which is usually called 'time
and materials' and that's where a contractor is paid
on a time and materials basis. The description that
Dennis gave of the change order could well be that
that change order would be done on time and materials
[basis] so they would call that force account. But,
what the statute is looking at in this definition of
force account is where the department uses its own
forces to accomplish the work, so it's different.
Those are the different definitions for force account.
CHAIR COWDERY asked how DOTPF budgeted for force accounting.
MR. O'BRIEN asked if he was referring to a force account for the
contractor under a change order.
CHAIR COWDERY asked if they had a budget for unforeseen problems
and asked if that was the same as force account.
MR. POSHARD said that is not the same type of force account SB
40 is referring to. DOTPF builds contingency funds into projects
and Chair Cowdery was referring to a force account due to a
change order. The amount is not the same on every project and
depends on the level of certainty and comfort with the
information the specifications were based on. Sometimes it is as
much as 10 percent and sometimes it is less.
CHAIR COWDERY said an example would be when a contract provides
so much per ton for unusable excavated material to be hauled off
and then an unexpected peat bog is encountered and has to be
removed at additional cost. He asked if the unit price in the
original bid was standard for the additional pay to the
contractor.
MR. O'BRIEN said that is correct. If it was simply an overrun
in quantities for which there were unit prices then the unit
prices would continue to apply and DOTPF would pay for the total
quantities actually moved.
CHAIR COWDERY said if, in fact, the peat bog proved to be more
difficult to remove than the original unit price, a new price
would be negotiated.
MR. O'BRIEN said yes, equitable adjustment is allowed under
contract for circumstances where the contract did not
contemplate the series of events discovered on the project.
SENATOR WAGONER asked when the state highway maintenance is
involved in a force account job and state equipment is used
against an account, whether that equipment is billed against the
account by an hourly charge.
MR. FRANK RICHARDS, Statewide Maintenance Engineer, DOTPF, said
the question is how state equipment is administered under the
force account project done by DOTPF forces. The Federal Highway
Administration allows DOTPF to build a federal usage rate for
the cost of equipment usage it is able to charge to the project.
Use rates and costs for the state equipment fleet is developed
on an annual basis. The state/federal usage rate goes through a
federal audit and determines that the cost associated and
charged to the projects are. As the equipment is used, it is
being charged at that rate to the project.
SENATOR WAGONER asked where those funds revert to and what
account do they go into.
MR. RICHARDS said under a force account the project is set up
with a specific description; the personnel services and
equipment costs are charged directly to the project.
MR. POSHARD asked if the question was do the funds that go
towards equipment somehow go back into the highway capital
working fund and offset the annual cost for that equipment in a
capital force account project.
SENATOR WAGONER said yes, or an equipment maintenance fund of
some kind. He said otherwise, the equipment is being worn out
for nothing.
MR. POSHARD said essentially the answer is yes. He explained:
When we purchase a piece of equipment, we do that
through the state equipment fleet. We have set up by
statute what's called the Highway Capital Working Fund
and it's a separate fund that's used to acquire
equipment. And your lease rates are established in
such a way that they take into account the maintenance
of that equipment and the capital acquisition of new
equipment at some foreseen point in the future. And
so, the capital funding that goes to pay for equipment
during the time it's being used on that project,
that's that much less general fund that we would be
using to pay for that equipment on an annual basis.
Does that make sense or answer your question?
SENATOR WAGONER said it did if DOTPF projects how much it is
going to have from that type of income and puts that into the
budget.
CHAIR COWDERY asked if a $75 thousand engine blew up in a grader
on the Saint Mary's project, how the cost of replacement would
fit in the maintenance budget.
MR. POSHARD said DOTPF used almost no state equipment on the
Saint Mary's project. The equipment was leased from the local
government.
CHAIR COWDERY asked if DOTPF used any state equipment.
MR. POSHARD said they might have used a piece or two.
CHAIR COWDERY asked how the replacement cost of a blown engine
was accounted for.
MR. SWARTHOUT, Regional Director of the Northern Region, DOTPF,
explained almost all of the equipment used on the Saint Mary's
project was leased from the City of Saint Mary's. The state had
a few pieces of equipment; a roller and a dump truck were used
from time to time. He answered the question as follows:
Some of that would depend on what the cause of that
engine being blown was. If it was normal wear and
tear, there was some problem with the engine, we'd go
back to the manufacturer, perhaps where we'd absorb
that out of the Highway Working Capital Fund which
would drive the rates up in the future for that piece
of equipment. If it was an operator problem where he
over revved the engine or we've run it out of water,
the Highway Working Capital Fund would not pay for
that, it would not come out of the project. I mean
basically it would come out of our general fund budget
to repair that equipment.
MR. POSHARD said the Saint Mary's project is complete and the
total cost was $2.47 million.
CHAIR COWDERY asked for a breakdown of those costs. He said he
had requested an audit earlier.
MR. POSHARD said DOTPF would be happy to provide that
information. He added this bill would affect a few types of
force account projects:
· Projects that DOTPF force accounts through local
governments or agency partners like the BIA or Indian
Health Service.
· The Saint Mary's type project, which is essentially a force
account project that DOTPF did. The department sent its
construction managers to Saint Mary's and hired local
temporary state employees to complete that work.
CHAIR COWDERY interjected and asked if the employees worked for
the state prior to the project.
MR. POSHARD said not to his knowledge. He continued:
· The third type is the maintenance work normally done every
year with the DOTPF capital program. The maintenance
general fund budget has been cut over the years. DOTPF
managed to make up a lot of the difference by establishing
some types of maintenance activities that can use DOTPF
maintenance employees like pavement preservation and safety
kinds of issues.
MR. POSHARD clarified that DOTPF maintenance forces do a portion
of the capital budget line item projects, such as preventive
maintenance, road surface treatment and bridge repair. Every
spring or early summer a number of maintenance employees will
shift over to a capital project. They are no longer plowing
snow, they are out crack sealing, repairing bridges or doing
whatever their specialty is. They work throughout the summer
and in the fall get converted to the general fund maintenance
budget.
DOTPF is concerned that some of those activities could not
continue if this bill passes. Converting state employees and
state maintenance employees to work on capital projects for the
summer saves a portion of DOTPF's general fund for personnel
services that can be used for overtime in the winter for plowing
snow and weather related activities. If DOTPF is unable to do
that, a management decision must be made to either stop some
maintenance activity, bid it out to the private sector, lay off
employees to maintain that small cushion of overtime or maintain
those employees and have less time to deal with weather events
in the winter.
CHAIR COWDERY asked if DOTPF had a detailed description of
maintenance versus construction work.
MR. POSHARD said there is a statutory definition of maintenance
and construction work.
CHAIR COWDERY asked if DOTPF owns machines to lay down asphalt.
MR. RICHARDS answered DOTPF contracts out for the lay down of
asphalt. DOTPF does not own a lay down machine.
MR. POSHARD reiterated that DOTPF does not have a position on SB
40 but has concern about the management decisions DOTPF must
face should the bill pass. It takes away flexibility to plan
for unexpected weather events and stretches its general fund
maintenance budget a little further.
SENATOR OLSON said the difficulty he sees is the polarization
between the private sector and the state through force account.
This bill uses the amount of the project as the dividing line to
try and separate the two. The United States was built on the
capitalistic system and a dislike of seeing public moneys used
against people from the private sector. He asked if Mr. Poshard
could see any other mechanism or way that would make it less of
a divisive issue.
MR. POSHARD said that was a difficult question to answer.
Different ideas have been tossed around but DOTPF has no
position on the ideas. He explained:
But other approaches could be maybe limiting the force
account work that's done by the department to the work
that's done with the existing state forces. So it
would prevent maybe us from going out and hiring new
state employees to do that work. I think that might
give us anyway the ability to continue doing some of
the budget shifting that we do to manage the
maintenances as effectively as possible. It might
maybe take away the ability of the department to do a
Saint Mary's type project, which is really the one
that seems to have been the camel's nose under the
tent for the Associated General Contractors and some
of the other agencies or organizations out there.
SENATOR LINCOLN asked if she understood correctly that three
percent of the overall budget was spent on construction and
maintenance force account projects.
MR. POSHARD answered that is correct. Less than three percent
of DOTPF's total capital construction program actually is force
accounting.
SENATOR LINCOLN asked how much of the three percent was used for
BIA and Indian Health Service projects.
MR. POSHARD said he did not have that information with him but
it could be provided.
SENATOR LINCOLN asked for an estimate.
MR. O'BRIEN answered that it is a very small portion of the
amount listed. In 2002, with a total amount of $11 million,
$8.8 million plus another $500 thousand were spent on
maintenance type activities. The other agencies totaled just
over $1 million of the $11 million.
SENATOR LINCOLN said ten percent.
MR. O'BRIEN answered ten percent of the amount that was force
accounted.
SENATOR LINCOLN said she would appreciate having the breakdown.
She said they were talking about a very minimal amount when
talking about force accounting, three percent.
CHAIR COWDERY said $11 million.
SENATOR LINCOLN said 2.2 percent of the total capital budget.
It is very small in those terms and important in terms of the
benefits the local people derive. She thought they had to look
at the overall big picture. "I guess I'm a little puzzled by
the 'no position on the bill' because isn't this the same bill
that we had last year with the exception of the amount?"
MR. POSHARD said this is essentially the same bill as it was
introduced last year and the previous administration pretty
strongly opposed the legislation. This administration is
reviewing AO 199, which was the result of the Rural Construction
Working Group and has yet to conclude exactly how it is going to
approach the force account issue.
SENATOR LINCOLN read a statement from former Governor Knowles in
regard to AO 199:
After the various agencies and those groups involved
in employment and training for rural construction
shall provide the Governor with a joint report one
year from the effective date of this order that
evaluates the results to date of this order and shall
report annually thereafter.
She asked what that meant now with the new administration coming
on and looking at AO 199.
3:05 p.m.
MR. POSHARD said he was not sure exactly how the administration
would approach that language and not sure what that language
meant initially because he had not participated in the process.
Mr. O'Brien participated and could possibly explain what that
language meant and what was intended.
SENATOR LINCOLN said since Mr. O'Brien participated she had
another question. The Department of Labor was in fact
represented on the Rural Construction Working Group and the
recommendations of that group resulted in AO 199. She asked if
that is correct.
MR. O'BRIEN said that is correct.
SENATOR LINCOLN asked, "What do you now find offensive or that
you would report back to a new administration that they should
change?"
MR. O'BRIEN said he was not sure it is an issue of something
being offensive. He thought at that point, the working group
did not know how the current administration would handle the
particular requirements of AO 199. Since it is a new
administrative order, they do not know how the reporting
requirements are going to be handled.
CHAIR COWDERY said he intended to hold the bill in committee and
talk about it with the new commissioners in DOTPF and perhaps
they will be present at the next hearing.
MR. RICHARDS said the cost of equipment is about 15 percent of
that 2.2 percent and the remainder of the money is spent in the
private sector contracting for aggregate, materials and rented
equipment. This money does not all go to the state; it is
spread out among the private sector.
CHAIR COWDERY said he appreciated that but was concerned about
how the state is doing it.
MS. MARTINSON said a basic democratic principle is that the
public should not compete with the private sector. The City of
Saint Mary's is a public organization that bought the equipment
for the project and the state paid the city for that equipment.
The amount of 3 percent might seem small but it has a big
impact.
CHAIR COWDERY announced his intent to hold SB 40 until he has an
opportunity to meet and discuss it with the new people in DOTPF.
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