Legislature(2003 - 2004)

12/09/2003 09:12 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                         December 09, 2003                                                                                    
                              9:12 AM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-03 # 110,  Side A                                                                                                           
SFC-03 # 110,  Side B                                                                                                           
SFC-03 # 111,  Side A                                                                                                           
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Gary  Wilken convened the meeting at approximately  9:12 AM                                                            
in Anchorage.                                                                                                                   
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Ben Stevens                                                                                                             
Senator Donny Olson                                                                                                             
                                                                                                                                
Also  Attending:  SENATOR  FRED  DYSON;   JOHN  R.  SNODGRASS,  JR.,                                                          
Attorney,  General Computer  Sales,  Inc.; JOHN  POWERS,  President,                                                            
Government   Computer  Sales,  Inc.;   MIKE  MILLER,  Commissioner,                                                             
Department    of   Administration;    RAY    MATIASHOWSKI,    Deputy                                                            
Commissioner,  Department   of Administration;   VERN  JONES,  Chief                                                            
Procurement Officer,  Department of Administration;  BRUCE JAMIESON,                                                            
CEO,  Government  Computer  Sales,  Inc.;  MARY  VERDURMEN,  Account                                                            
Manager for  Alaska, Dell Computers;  JOHN LAVORATO, Attorney,  Dell                                                            
Computers; BART MAULDIN,  Chief Procurement Officer, Municipality of                                                            
Anchorage                                                                                                                       
                                                                                                                                
Attending via  Teleconference: ROBERT CARRIER, Contracts  Management                                                          
Specialist, State of Arizona                                                                                                    
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
The Committee  conducted  an informational  meeting  concerning  the                                                            
State of Alaska's procurement  code regarding computers and computer                                                            
accessories   and   the  five-percent   local   bidders   preference                                                            
regulations. No formal action was taken.                                                                                        
                                                                                                                                
                                                                                                                                
                 Senate Finance Committee Hearing                                                                               
                         Anchorage, Alaska                                                                                      
                                                                                                                                
           "What's the Cost of doing Business Locally?"                                                                         
                                                                                                                                
                                                                                                                                
Co-Chair  Wilken  stated that,  while  this  is a  formal  Committee                                                            
hearing, no action would  be taken as the meeting is being conducted                                                            
during  the interim  between the First  and Second  Sessions  of the                                                            
Twenty-Third Alaska State Legislature.                                                                                          
                                                                                                                                
Co-Chair Wilken read a prepared statement, dated December 9, 2003                                                               
[copy on file] as follows.                                                                                                      
                                                                                                                                
               WHAT'S THE COST OF DOING BUSINESS LOCALLY?                                                                       
                                                                                                                                
     The  purpose  of the  Senate  Finance  Committee  convening  on                                                            
               th                                                                                                               
     December 9,   2003 is to publicly discuss the State of Alaska's                                                            
     new procurement  method for purchasing  computers and  computer                                                            
     accessories. This  hearing will continue what has become a year                                                            
     of  dialogue  between  a Fairbanks  $20M  Technology  Solutions                                                            
     business,  the State  of Alaska, and  Senator's Therriault  and                                                            
     Wilken's office.                                                                                                           
                                                                                                                                
     The  remedy sought as  a result of this  hearing is: (1)  a one                                                            
     year  extension  to the  existing  contract between  the  local                                                            
     company and the State  of Alaska, and (2) a bid/purchase record                                                            
     be  established  for  the purpose  of  review and  analysis  on                                                            
     November 15, 2004.  The purpose of this review is to answer the                                                            
      question, "What's the cost of doing business locally?"                                                                    
                                                                                                                                
     Since  1992 Government  Computer Sales  (GCS) has won,  through                                                            
     competitive bids,  the right to sell Dell and Gateway computers                                                            
     to  the State  of  Alaska.  Additionally,  GCS has  made  these                                                            
     contract  prices  available   to all  Alaskan  municipalities,                                                             
     school districts, and the University of Alaska.                                                                            
                                                                                                                                
     In  1998 the  Western States  Contracting  Alliance (WSCA)  was                                                            
     created by  the State of New Mexico in an attempt  to lower the                                                            
     prices of  product purchases by combining the  purchasing power                                                            
     of several  states to get large quantity discounts.   WSCA is a                                                            
     non-profit   agency   based  out   of  New   Mexico  with   all                                                            
     administrative  functions assumed  by the National Association                                                             
     of  State  Procurement   Officials  (NASPO).    In  return  for                                                            
     bargaining  and administrative  expenses NASPO receives  a one-                                                            
     tenth  of  one percent  of  the  gross revenue  from  all  WSCA                                                            
     purchases.   As of June 30, 2003  WSCA has sold $3,948,191,809                                                             
     worth of products for a fee of $3,948,191 paid to NASPO.                                                                   
                                                                                                                                
     In November 2000 the  State put WSCA in direct competition with                                                            
     GCS  and  other resellers.    Applying  the 5%  Alaska  bidders                                                            
     preference  to GCS's  proposal,  GCS was  the lowest  qualified                                                            
     bidder and  was issued a non-mandatory contract  to supply both                                                            
     Dell  and Gateway  computers  to the  State  and all  political                                                            
     subdivisions throughout the state.                                                                                         
                                                                                                                                
     In October  of 2002 the State  sent a notice to GCS  that their                                                            
     contract was to expire  on November 16, 2002 and that the State                                                            
     did not  plan to renew it.  The  intention of the State  was to                                                            
     go direct to the manufacturer  using the WSCA contract, thereby                                                            
     avoiding  the 5% local  bidders preference  and putting  70% of                                                            
     GCS's business in  jeopardy.  This loss of business would force                                                            
     the loss  of 7 jobs at GCS in Fairbanks and Anchorage,  as well                                                            
     as  several jobs in  other Alaskan  based technology  companies                                                            
     that support  GCS.  Senator Therriault and Senator  Wilken were                                                            
     contacted to ask why  an Alaskan company, that has historically                                                            
     provided services  to the State, was not allowed to participate                                                            
     in  bidding on  any future  State technology  business  through                                                            
     competitively awarded State contracts.                                                                                     
                                                                                                                                
     In November  of 2002, Senators Therriault and  Wilken contacted                                                            
     the Department  of Administration  to request documentation  of                                                            
     the  analysis that led  to the decision  to exclude an  Alaskan                                                            
     company  from  bidding  on the  contract.   The  Department  of                                                            
     Administration,  Division  of General  Services (DGS)  supplied                                                            
     Senators  Therriault and  Wilken a spreadsheet  of their  cost-                                                            
     benefit analysis  of WSCA vs. GCS prices and  provided GCS with                                                            
     a  one-year extension  of their  contract  to directly  compete                                                            
     against  WSCA.  The analysis  was flawed (Ex. A) and  a request                                                            
     was made  of Governor Murkowski  to allow further analysis  and                                                            
     an explanation.                                                                                                            
                                                                                                                                
     DGS  then provided  the Governor's  Legislative Director,  Mike                                                            
     Tibbles,  an analysis that showed additional  savings above and                                                            
     beyond  that  of  the  previous  analysis.    Once  again  this                                                            
     analysis (Ex. B) was  questionable and the savings could not be                                                            
     substantiated.   Senators Therriault and Wilken  then requested                                                            
     newly  appointed Commissioner  Miller  to step  in and  provide                                                            
     them with an accurate analysis and explanation.                                                                            
                                                                                                                                
     In June  of 2003 DGS provided  another analysis (Ex.  C) of the                                                            
     benefits  of  the  WSCA  contract   that  again  was  built  on                                                            
     questionable data.   After three separate analyses, DGS has not                                                            
     been able  to provide a valid  analysis of the savings  of WSCA                                                            
     despite  repeated suggestions  of possible  ways to  accurately                                                            
     analyze the  situation.  After a year of discussion,  we remain                                                            
     unable to  answer the basic question: "What does  it cost us to                                                            
     recognize the 5% local bidders preference in the purchasing of                                                             
     personal computers?                                                                                                        
                                                                                                                                
     I  respectfully  request the  Department of  Administration  to                                                            
     extend  the  current  contract  (currently  under a  one  month                                                            
     extension  and due to expire December 15, 2003)  until November                                                            
     15,  2004 and  to put in  place a  simple method  by which  the                                                            
     bidding and  the purchasing of personal computers  by the State                                                            
     of Alaska can be tracked and analyzed.                                                                                     
                                                                                                                                
Co-Chair  Wilken communicated  that  the State  would be  purchasing                                                            
approximately  $15 million worth of  computers and computer  related                                                            
equipment in FY 04, which,  he calculated, equates to an expenditure                                                            
of approximately  $80,000 per week.  He voiced that, in addition  to                                                            
being  a significant  expenditure  of money  by the  State, it  also                                                            
represents  a  significant  amount  of business  for  local  Alaskan                                                            
companies who have been  able to compete for this business under the                                                            
auspice of  the five percent local  bidders preference regulations.                                                             
He  declared that  the  Legislature,  rather  than a  State  agency,                                                            
should address  the decision of whether or not "to  acknowledge" the                                                            
local five  percent bidders  preference statute.  He furthered  that                                                            
were  the entire  $15  million  spent, the  cost  to the  State  for                                                            
utilizing  the  five  percent  local  bidders  preference  would  be                                                            
between zero dollars  and $750,000. He opined that  were the bidders                                                            
preference   negated   in  this   case,  out-of-state   information                                                             
technologists   (IT)  and  service   bundlers,  rather  than   local                                                            
contacts, would be providing  the front-end consultation and service                                                            
endeavors. The end result  of this scenario, he attested, would be a                                                            
web-based  relationship.   He contended  that,  while  out-of-state                                                             
support service  might be  acceptable when  dealing with one  or two                                                            
computers,  the  magnitude  of the  purchases  in this  case,  would                                                            
require  local support.  Moreover,  he stated  that  removal of  the                                                            
Alaska  bidders  preference  would  result  in "a  fight  for  life"                                                            
situation for  GCS and its eight employees in Fairbanks  and its two                                                            
employees  in Anchorage.  He stated  that the  negative affect  this                                                            
action would have  on a business in his hometown of  Fairbanks is of                                                            
concern to him.                                                                                                                 
                                                                                                                                
Co-Chair Wilken  assured that while  the State would never  disallow                                                            
out-of-state  companies such as Dell  Computers from doing  business                                                            
in the State,  he declared that the  State has the right  to support                                                            
local businesses  by continuing to  advocate the five percent  local                                                            
bidders preference.  He asserted  that the  State could inform  Dell                                                            
that a local representation would be desirable.                                                                                 
                                                                                                                                
Co-Chair  Wilken communicated  that  the three  goals of  conducting                                                            
State business  are: to get the best  total value for the  State, to                                                            
avoid fraud and  corruption, and to assist local economies  and jobs                                                            
opportunities.  He  stated  that these  are  issues that  should  be                                                            
considered today.                                                                                                               
                                                                                                                                
Co-Chair  Wilken  referred  the  Committee  to a  December  8,  2003                                                            
Memorandum  [copy  on file]  he  had received  from  Rob  Carpenter,                                                            
Fiscal Analyst, Division  of Legislative Finance, that was developed                                                            
in response  to a  question regarding  the potential  fiscal  impact                                                            
that the elimination of  approximately seven to ten jobs might incur                                                            
in Anchorage and Fairbanks.  He stated that the memorandum indicates                                                            
that  the elimination   of these  jobs  could  result in  an  annual                                                            
economic loss of between  $975,000 and $1.35 million, dependent upon                                                            
which economic multiplier  is used. He characterized the issue being                                                            
discussed today,  and the subsequent decision regarding  it, as very                                                            
important due  to the potential loss  of jobs and the corresponding                                                             
fiscal impact.                                                                                                                  
                                                                                                                                
Co-Chair  Wilken  noted  that the  Members'  packets  include  three                                                            
different  economic impact  analyses,  referenced  as Analysis  "A,"                                                            
"B," and "C" [copies  on file]. He noted that these  analyses do not                                                            
provide  "an obvious  consensus."  He  also  noted that  he,  Senate                                                            
President  Gene Therriault,  and  the Department  of Administration                                                             
Commissioner  Mike Miller  and Department  staff  have reviewed  the                                                            
summaries at length.  He voiced that the summaries  are important as                                                            
they would become  part of the documentation regarding  the issue of                                                            
the State's  "contact  and preference"  bidding  policy. He  defined                                                            
"contact"  as  meaning  that  local people  must  be  contacted  and                                                            
"preference" as  meaning that some sort of monetary  preference must                                                            
be given to local  Alaskan businesses. He stated that  other factors                                                            
that should  be considered would include  the level of service  that                                                            
would be provided  as well as the  cost to the State. He  reiterated                                                            
that this cost could range between zero dollars and $750,000.                                                                   
                                                                                                                                
Co-Chair Green  asked for further  clarification regarding  the word                                                            
"contact."                                                                                                                      
                                                                                                                                
Co-Chair  Wilken responded  that, in this process,  it means  that a                                                            
company, or  in this case, the State,  would be required  to contact                                                            
local companies, such as GCS, to provide a service.                                                                             
                                                                                                                                
Co-Chair Wilken  communicated that  the statutes applicable  in this                                                            
case, as referenced  in the letter  [copy on file] to the  Committee                                                            
from  the Department  of Administration  Commissioner  Mike  Miller,                                                            
dated December 5, 2003,  and the letter [copy on file] from Marjorie                                                            
Vandor,   Assistant   Attorney  General,   Department   of  Law   to                                                            
Commissioner Mike  Miller, are State Procurement Code  Statutes Sec.                                                            
36.30.700 and Sec. 36.30.710 that read as follow.                                                                               
                                                                                                                                
     Sec. 36.30.700. Cooperative purchasing authorized.                                                                         
                                                                                                                                
     A public  procurement unit may either participate  in, sponsor,                                                            
     conduct,  or administer a cooperative purchasing  agreement for                                                            
     the procurement  of supplies, services, professional  services,                                                            
     or construction  with one or  more public procurement  units or                                                            
     external   procurement   activities  in   accordance  with   an                                                            
     agreement  entered into  between public  procurement units  and                                                            
     open-ended  state public  procurement  units contract that  are                                                            
     made available to local public procurement units.                                                                          
                                                                                                                                
     Sec  36.30.710.  Sale, acquisition,  or  use of  supplies by  a                                                            
     public procurement unit.                                                                                                   
                                                                                                                                
          (a)  A public procurement unit may sell  to, acquire from,                                                            
     or  use any supplies  belonging to  another public procurement                                                             
     unit  or  external  procurement  activity  independent  of  the                                                            
      requirements of AS 36.30.060 and 36.30.100 - 36.30.260.                                                                   
          (b)   A  public  procurement   unit  may  enter   into  an                                                            
     agreement, independent  of the requirements of AS 36.30.060 and                                                            
     36.30.100-36.30.260,  with another  public procurement  unit or                                                            
     external  procurement  activity  for  the  cooperative  use  of                                                            
     supplies  or services under the  terms agreed upon between  the                                                            
     parties.                                                                                                                   
                                                                                                                                
Co-Chair  Wilken stated  that the  question is  "under what  statute                                                            
does the Administration  believe that they have the  ability to just                                                            
go to WSCA (Western States  Contracting Alliance)? and not recognize                                                            
the  bidder's  preference."   He  stated  that  WSCA  is  a  buyers'                                                            
cooperative.  He stated that  the aforementioned  letters appear  to                                                            
have "a difference  of opinions" as to which Statute  is applicable.                                                            
He  stated that  contrary  to the  Administration's  position  which                                                            
"hinges on"  AS 30.710, he suggested  that AS 30.700 rather  than AS                                                            
30.710  applies  to  WSCA,  as  he  argued,   AS  30.700  "does  not                                                            
acknowledge, as 710 does,  that there is an exemption from the local                                                            
bidders preference."                                                                                                            
                                                                                                                                
Co-Chair  Wilken stated that,  at his request,  John Snodgrass,  the                                                            
attorney  representing   GCS,  would   further  explain   these  two                                                            
statutes.                                                                                                                       
                                                                                                                                
JOHN R. SNODGRASS,  JR., Attorney,  Government Computer Sales,  Inc.                                                            
expressed  that the  phrase "independent  of the  requirement  of AS                                                            
36.30.060  and 36.30.100-36.30.260"  as written  in AS 36.30.710(a)                                                             
and,  in particular,  AS  36.30.710(b)  that Ms.  Vandor  repeatedly                                                            
refers to in  her Attorney General  opinion, is "the exemption  from                                                            
the public  procurement law,  basically, and  in particular,  170(b)                                                            
the local  bidders  preference." Continuing,  he  stated that  these                                                            
"magic  words"  provide   the  exemption  from  the  local   bidders                                                            
regulation, AS 36.30.170, which reads as follows.                                                                               
                                                                                                                                
     Sec. 36.30.170. Contract award after bids.                                                                                 
          (a)  Except as provided  in (b)-(h)  of this section,  the                                                            
     procurement  officer  shall  award  a  contract  based  on  the                                                            
     solicited bids with  reasonable promptness by written notice to                                                            
     the  lowest   responsible  and  responsive  bidder   whose  bid                                                            
     conforms  in  all material  respects  to the  requirements  and                                                            
     criteria set out in the invitation to bid.                                                                                 
          (b)  The procurement officer shall award  a contract based                                                            
     on  solicited bids  to the  lowest responsive  and responsible                                                             
     bidder  after an Alaska bidder  preference of five percent,  an                                                            
     Alaska  products  preference  as described  in  AS 36.30.322  -                                                            
     36.30.338,   and  a  recycled  products  preference   under  AS                                                            
     36.30.337  have  been  applied.  In  this  subsection,  "Alaska                                                            
     bidder" means a person who                                                                                                 
                                                                                                                                
Mr. Snodgrass reiterated  that when reviewing AS 36.30.710(b), which                                                            
"Ms. Vandor relies upon  consistently," it is stated that the public                                                            
procurement unit (PPU)  "may enter into an agreement, independent of                                                            
the procurement  code." He  declared that  this Statute language  is                                                            
followed  by the phrase "for  the cooperative  use of supplies."  He                                                            
declared  that these  are "the  magic words  that  she [Ms.  Vandor]                                                            
fails to argue."  Therefore, he opined  that the only thing  that AS                                                            
36.30.710(b) "provides  for is the cooperative use  of supplies," as                                                            
he noted, is  substantiated in footnote  number one in Ms.  Vandor's                                                            
memorandum.                                                                                                                     
                                                                                                                                
Mr.   Snodgrass   continued  that,   were   the  State   of   Alaska                                                            
cooperatively using a computer  with, for instance, the State of New                                                            
Mexico,  then AS 36.30.710(b)  would  come into  play and the  local                                                            
bidders  preference   regulation  could  be  avoided.   However,  he                                                            
attested that  were this cooperative use not occurring,  then 710(b)                                                            
could not be used. Continuing,  he stated that Ms. Vandor could also                                                            
have used  710(a) as an argument  in that  "a PPU may sell,  acquire                                                            
from,  or use  any supplies  belonging  to another  PPU or  external                                                            
procurement activity"  ? "independent of the requirements  of 36.30;                                                            
however,  he pointed out  that the problem  there is that WSCA  does                                                            
not own  the computers or  in other words,  "these computers  do not                                                            
belong to WSCA  or New Mexico." Therefore, he concluded  that 710(a)                                                            
would not be applicable.                                                                                                        
                                                                                                                                
Mr. Snodgrass  continued that  because neither  AS 36.30.710  (a) or                                                            
(b) are applicable,  Ms. Vandor argues  that AS. 36.30.700  provides                                                            
the exemption,  even though,  he noted, she  specifies that  "if the                                                            
State  sponsors or  administers  a cooperative  purchase  agreement,                                                            
that  it  must  comply  with 36.30,  including,   36.30.170(b),  the                                                            
bidder's preference." He  opined that, "this is correct, because the                                                            
magic words, 'independent of 36.30,' do not exist in 700."                                                                      
                                                                                                                                
Mr. Snodgrass stated, therefore,  that while the State could acquire                                                            
computers under AS 36.30.700,  that purchase would be subject to the                                                            
State's procurement  code including  the local bidder's preference.                                                             
He stated therefore, that Ms. Vandor's letter is "flawed."                                                                      
                                                                                                                                
Mr. Snodgrass  furthered that,  separate from  and not addressed  in                                                            
Ms. Vandor's  memorandum, is Commissioner  Miller's reference  to AS                                                            
36.30. 850(c),  which Mr. Snodgrass  opined, does not apply  to this                                                            
situation. He stated that  850(c) specifies that, "this chapter does                                                            
not apply to  contracts between two  or more agencies, DOT  and DOA,                                                            
between  the State  and its political  subdivisions,  the State  and                                                            
Anchorage,  or  the State  and  other governments,  Alaska  and  New                                                            
Mexico." He  stated that no language  in 850(c) specifies  that this                                                            
language would  apply to the State and Dell or any  private company.                                                            
Therefore,  Mr. Snodgrass concluded  that, "Section 850(c)  does not                                                            
exempt  the  State,  in its  dealings  with  Dell,  from  the  local                                                            
bidder's preference."                                                                                                           
                                                                                                                                
Co-Chair Wilken  interpreted Mr. Snodgrass's  comments to  imply "at                                                            
least the strong  suggestion that what's being done  here is outside                                                            
the State  statutes;" notwithstanding,  he  continued, the  Attorney                                                            
General's opinion  and the Department  of Administration's  response                                                            
to these comments.                                                                                                              
                                                                                                                                
MIKE  MILLER, Commissioner,  Department  of  Administration,  voiced                                                            
being  "uncomfortable"   responding  to  Mr.  Snodgrass's   comments                                                            
without having a Department of Administration attorney present.                                                                 
                                                                                                                                
Co-Chair   Wilken   understood   the   Department's   position   and                                                            
communicated  that  he  had  solicited  Mr.  Snodgrass's  "help"  in                                                            
further explaining the Statutes.                                                                                                
                                                                                                                                
Co-Chair  Wilken noted that  the Executive  Session as noted  on the                                                            
agenda would not be conducted.                                                                                                  
                                                                                                                                
JOHN POWERS,  President, Government  Computer Sales, Inc.,  read the                                                            
following prepared statement [copy on file] to the Committee.                                                                   
                                                                                                                                
     Honorable Members of the Senate Finance Committee.                                                                         
                                                                                                                                
     My name  is John Powers  and I am the  President of  Government                                                            
     Computer Sales, Inc.,  a Fairbanks and Anchorage based computer                                                            
     technology supplier.  We have been serving the technology needs                                                            
     of  state and local  governments and  educational institutions                                                             
     since  1989.  We  currently   hold  the  State  Micro  Computer                                                            
     Contract.  We are  the largest  supplier of  technology to  the                                                            
     state of Alaska, and  we provide, directly and indirectly, many                                                            
     well-paying Alaska jobs.                                                                                                   
                                                                                                                                
     Senator  Wilken asked  the question, what's  the cost  of doing                                                            
     business  locally? The  flip side of  that question is,  what's                                                            
     the cost  of NOT doing business  locally? This second  question                                                            
     is very  real to us  because we are in  danger of being  forced                                                            
     out of business by  the Division of General Services (DGS). DGS                                                            
     wants to  terminate our competitively bid contract  in favor of                                                            
     a contract direct  with our vendors, through the Western States                                                            
     Contracting Alliance (WSCA). WSCA provides no Alaska jobs.                                                                 
                                                                                                                                
     DGS claims  our termination will result in lower  prices to the                                                            
     State,  but DGS  has  repeatedly failed  to  show any  concrete                                                            
     evidence  that WSCA's  prices are lower  than ours. As  Senator                                                            
     Wilken  stated, DGS's  cost/benefit analysis  is "flawed."  The                                                            
     cost/benefit  analysis is flawed for two main  reasons. Second,                                                            
     it fails  to show a real benefit.  First, it fails to  show the                                                            
     real cost. Some of  the costs to Alaska include the termination                                                            
     of our  business and  all of our direct  jobs. Added to  all of                                                            
     our  lost  jobs  are the  economic  multiplier  effect  on  the                                                            
     economy and other lost jobs.                                                                                               
                                                                                                                                
     A  more technical  question  for this  hearing  is whether  the                                                            
     Legislature  will allow  DGS to avoid  both Alaska competition                                                             
     and the  Alaska preference law  for the computer contract.  DGS                                                            
     wants to  purchase computers solely under the  contract through                                                            
     WSCA with  no Alaska competitive bid and no Alaska  preference.                                                            
     When   the   Dell   and   Gateway   computer   contracts   were                                                            
     competitively  bid out subject to local preference,  we won and                                                            
     WSCA lost.                                                                                                                 
                                                                                                                                
     We  understand that  the State's Chief  Procurement Officer  is                                                            
     currently  negotiating with Dell  directly without competition                                                             
     and without  any notice to Alaska bidders. Why  would the Chief                                                            
     PO want  to avoid competition?  Why would he want to  take away                                                            
     local jobs  and to favor a WSCA bidder. Could  the fact that he                                                            
     is the national  Chairman of WSCA be a reason?  It seems unfair                                                            
     to us that  the Chairman of WSCA terminates our  State contract                                                            
     and  then  commits  the  State  to  a  WSCA  contract  with  no                                                            
     competition or notice to Alaska bidders.                                                                                   
                                                                                                                                
     In November  2000, we  were awarded the  contract for  Dell and                                                            
     Gateway products  in a competitive bid against  other resellers                                                            
     and WSCA. Our contract  was for one year, with three additional                                                            
     one-year  options.  The State  extended  the contract  for  the                                                            
     first  year of the option period.  Then, in November  2002, DGS                                                            
     notified  us  of termination.   At that  time,  DCS  apparently                                                            
     interpreted AS 36.30.700  to allow it to contract directly with                                                            
     our vendors  through WSCA. This  reading of Section  700 allows                                                            
     DGS to  bypass both Alaska competition  and the Alaska  bidders                                                            
     preference.  DGS's new  reading is wrong  because Section  700,                                                            
     unlike  710, does not  exempt cooperative  purchasing  from the                                                            
     Code's competitive  requirements set out in AS 36.30.100 - 260.                                                            
     Similarly,  unlike  Section 710,  Section 700  does not  exempt                                                            
     cooperative  purchases  from the  local bidders  preference  in                                                            
     36.30.170.                                                                                                                 
                                                                                                                                
     To the  manufacturers, DGS's  new reading means that  the State                                                            
     of  Alaska wants  to bypass local  business  and wants to  deal                                                            
     direct  with  outsiders.   This  interfered  with  out  12-year                                                            
     reseller  relationships  with Dell  and Gateway.  We  protested                                                            
     DGS's  termination.   DGS  eventually  agreed   to  extend  our                                                            
     contract, but only  on the condition that it could add the Dell                                                            
     and Gateway  contracts through WSCA to the State  Contract with                                                            
     equal  standing to us. We capitulated  and agreed. While  DGS's                                                            
     actions have hurt  us, we have continued to provide most of the                                                            
     computers to the State.                                                                                                    
                                                                                                                                
     During  this last year, agencies  were not required  to contact                                                            
     us  or to document  any purported  savings  that DGS claims  by                                                            
     purchasing  through  WSCA instead  of  us. DGS  has refused  to                                                            
     provide any meaningful  analysis of purchases during the period                                                            
     when we and WSCA both  supplied Dell and Gateway products, even                                                            
     though  repeatedly  asked  to  d  so  by  Senators  Wilken  and                                                            
     Therriault.  We request  that our contract  be extended  and an                                                            
     actual price comparison be mandated.                                                                                       
                                                                                                                                
     The damage  to our relationship  with our manufacturers  can be                                                            
     reversed  only by a  strong response  from the Legislature.  We                                                            
     request that agencies  be required to contact the Alaska vendor                                                            
     where  one exists, and  apply the Alaska  bidder preference  in                                                            
     determining the best price.                                                                                                
                                                                                                                                
     WHAT BROUGHT US HERE TODAY:                                                                                                
                                                                                                                                
     During the  mid-1980's governments and educators  across Alaska                                                            
     started  to realize the  benefits that  PCs could provide,  but                                                            
     the  normal bid  process  was too  cumbersome  for the  rapidly                                                            
     changing computer  industry. Computer specifications were often                                                            
     obsolete by the time  the procurement was completed. Also, many                                                            
     of the  machines the  State bought in  this manner met  all the                                                            
     specification, but  were no equivalent to the leading breads in                                                            
     quality  or compatibility.  Realizing that  it was not  getting                                                            
     what  it wanted  through a  standard competitive  process,  the                                                            
     State  of Alaska  decided  to hold  a competitive  bid  process                                                            
     among  suppliers   of  a few  brands   of  computers  that  had                                                            
     demonstrated long term total value.                                                                                        
                                                                                                                                
     In the early 1990's  the State introduced a contracting process                                                            
     which allowed resellers  and manufacturers to competitively bid                                                            
     for  the right to supply  a specific  brand PC product  line to                                                            
     the State  for a given period  of time. The contract  would tie                                                            
     the provider  to a published  price list (e.g., manufacturer's                                                             
     retail) so  that when products or prices changed,  the contract                                                            
     holder  would pass the  benefit to the  State. These  contracts                                                            
     were  typically  for a  year or  two at  a time  with  optional                                                            
     renewals   at  the   State's  discretion.   They  were   re-bid                                                            
     periodically,  again  providing  all  certified  resellers  and                                                            
     manufacturers  an opportunity  to bid  for the right to  supply                                                            
     the brand  specified on the contract.  We have held  successive                                                            
     versions of this form of State contract for over ten years.                                                                
                                                                                                                                
     The last time the  State re-bid the micro computer contracts in                                                            
     the  summer of 2000,  GCS won the right  to hold the  contracts                                                            
     for both  Dell and Gateway products. The contract  allowed only                                                            
     one provider per manufacturer.  The contracts were for one year                                                            
     with  three additional  one-year options.  The competitive  bid                                                            
     process  in 2000  contained a  caveat that  if no bidder  could                                                            
     offer  a price  better than  that  offered through  WSCA for  a                                                            
     brand, that  the State reserved the right to  make an award and                                                            
     to sign on  to the contract through WSCA for  those brands. Our                                                            
     prices  were lower than WSCA  after applying the Alaska  bidder                                                            
     preference and we got the contract for Dell and Gateway.                                                                   
                                                                                                                                
     As noted earlier,  on November 15th, 2002, DGS notified us that                                                            
     it was  terminating our  contract. We  expected DGS would  then                                                            
     re-bid  the contracts,  allowing Alaskan  technology  providers                                                            
     like us an opportunity  to compete for the State's PC business.                                                            
     We  were informed  that there  was no intention  to re-bid  the                                                            
     contract.  Instead, DGS decided to use cooperative  agreements,                                                            
     thereby  trying to  evade both  competitive  bidding and  local                                                            
     bidder's preference asset out in AS 36.30.100 - 260.                                                                       
                                                                                                                                
     As justification,  DGS claimed Alaskan providers offered little                                                            
     or no  value to the public sector,  and argued that  our prices                                                            
     were  much higher  than  WSCA offered  for the  same  products.                                                            
     However,   as  Senator  Wilken  stated,  and   I  quote,  DGS's                                                            
     "analysis   was   flawed,"    "the   savings   could   not   be                                                            
     substantiated,"   and  DGS has  not  been  able  to  provide  a                                                            
     detailed analysis of the savings of WSCA."                                                                                 
                                                                                                                                
     In November  2002, DGS extended our contract  for one more year                                                            
     under  significant  pressure  from many  of our  public  sector                                                            
     customers around the  State. Most of them spelled out the value                                                            
     that  we provided  in  the form  of competitive  prices,  great                                                            
     service  and overall value. However,  in its extension  notice,                                                            
     DGS  required   us  to  accept  without  protest   the  State's                                                            
     simultaneous use of the WSCA agreements.                                                                                   
                                                                                                                                
     DGS  has  taken the  position  that  a cooperative   purchasing                                                            
     agreement  is exempt  from procurement  procedures, and  can be                                                            
     used,  essentially,  as a sole  source provider.  We  requested                                                            
     that DGS  provide instructions to users of the  WSCA agreements                                                            
     that would  require agencies  to contact the Alaska  vendor for                                                            
     comparative   pricing,   and  apply   the   5%  Alaska   bidder                                                            
     preference.  DGA  refused, thereby  effectively  annulling  the                                                            
     statutory  preference  that the  Legislature  has required  for                                                            
     Alaska  bidders  and  Alaska  jobs under  AS  36.30.170(b).  As                                                            
     further   evidence   of  DGS's   anti-Alaska   bias,  the   DGS                                                            
     procurement manual  (AAM 81.060) states "Cooperative Purchasing                                                            
     Agreements:  Competitive  quotes,  bids  or proposals  are  not                                                            
     required  for goods or services under AS 36.30.700-730."  While                                                            
     the  procurement manual  may show DGS's  interpretation  of the                                                            
     statutes  and may be correct  for Section 710, it is  wrong for                                                            
     Section 700 and WSCA.  Further, DGS's manual does not carry the                                                            
     weight  of   law  because  AS  36.30.870  requires   that  real                                                            
     regulations   "shall  be  adopted   in  accordance   with"  the                                                            
      Administrative Procedure Act, which the manual was not.                                                                   
                                                                                                                                
     In  November  2003,   DGS  again  notified  us  that  it  would                                                            
     terminate  our contract.  Once again, it  was not going  to re-                                                            
     bid,  and  it  intended  to use  the  contracts  through  WSCA.                                                            
     Avoiding  a re-bid of  our contract,  of course, evades  Alaska                                                            
     competition and the Alaska bidder preference.                                                                              
                                                                                                                                
     Apparently  DGS  simply assumes  that because  WSCA  negotiates                                                            
     with the manufacturers  on behalf of several states, its prices                                                            
     must  be  the lowest  available.  We  have  asked DGS  to  have                                                            
     procurement  officers  document  the  prices  they  are  quoted                                                            
     through   WSCA,  as  well  as   our  prices  offered   and  the                                                            
     comparative  retail  list price  at the  time  of purchase.  We                                                            
     believe  DGS has refused  to do this  because it would  provide                                                            
     hard  evidence  that in-state  providers  like us  are in  fact                                                            
     competitive  within  the  statutory  5%  preference.  Real-time                                                            
     documentation  is the only way  for the State to know  for sure                                                            
     what type  of discounts it is actually receiving  on purchases.                                                            
                                                                                                                                
     I  am almost  finished, but  I have  one more  point before  my                                                            
     short  conclusion. The State's  Chief Procurement Officer/WSCA                                                             
     Chairman  is negotiating on behalf  of the State with  Dell. It                                                            
     is our  understanding that the  negotiations require  the State                                                            
     have a sole source  deal with Dell. BY contract then, the State                                                            
     would  eliminate us. This means  that the State will  have even                                                            
     less  ability to tell  what pricing  it is receiving.  Further,                                                            
     the agreement would  require Dell to give us worse pricing than                                                            
     it gives the State.  We do not understand why anyone would want                                                            
     that provision. In  addition, we understand that the State must                                                            
     keep all pricing information  confidential. This requirement is                                                            
     far  removed from fair  and open competition,  and may  violate                                                            
     public  disclosure  laws. It  seems unlikely  to  us that  this                                                            
     secret-pricing term  is in any real WSCA contract because if it                                                            
     were,  no  other  state  would  know the  price  terms  of  the                                                            
     cooperative  agreement.  In short,  this new  secret deal  with                                                            
     Dell  would not be  a cooperative  purchasing agreement.  Thus,                                                            
     even  if the  State  could buy  computers  through cooperative                                                             
     purchasing, the State  could not buy them under this agreement.                                                            
                                                                                                                                
     The question again  is, why would the State's Chief Procurement                                                            
     Officer get this type  of deal for the State. We can understand                                                            
     why the Chairman  of WSCA may like this secret  deal, but we do                                                            
     not understand why  the State's Chief Procurement Officer would                                                            
     make a deal like this.                                                                                                     
                                                                                                                                
     CONCLUSION:                                                                                                                
                                                                                                                                
     We  support  the  State's  desire  to find  budget  savings  by                                                            
     providing  the most effective procurement methods.  However, we                                                            
     believe  that  DGS must  follow  existing laws,  which  support                                                            
     Alaska  bidders and Alaska jobs.  Our reseller agreements  with                                                            
     manufacturers   are based  on  the  expectation  that  we  will                                                            
     effectively  market  their products  in Alaska.  By its  recent                                                            
     actions,  DGS  appears  to be  telling  Dell and  Gateway  that                                                            
     Alaska   vendors   are   no   longer   preferred.    Logically,                                                            
     manufacturers have  a vested interest in minimizing their costs                                                            
     and they  may decide to cut us  out of the distribution  chain.                                                            
     The  end result  will be secret  contracts,  the loss of  local                                                            
     support services, and the loss of Alaska jobs.                                                                             
                                                                                                                                
     To make it redundantly  clear to DGS, we ask the legislature to                                                            
     amend  AS  36.30.700  of  the  Procurement  Code  to  expressly                                                            
     require  contact with  Alaskan businesses  that offer  the same                                                            
     products,  and applications of the Alaska bidder  preference in                                                            
     determining the best price.                                                                                                
                                                                                                                                
     We also  ask the State to exercise  the third extension  option                                                            
     of our  Micro Computer Contract  for Dell and Gateway  products                                                            
     through  November 15, 2004. The  extension will allow  DGS time                                                            
     to do a real  comparison of actual prices on  actual purchases.                                                            
     On  the other hand,  if DGS  terminates our  contract, then  we                                                            
     will  lose the  Number One priority  set out  in the  Christmas                                                            
     Speech by Governor Murkowski, ALASKA JOBS.                                                                                 
                                                                                                                                
     Thank you. Do you have any questions?                                                                                      
                                                                                                                                
SENATOR FRED DYSON asked  GCS whether the computer products involved                                                            
in  a large  supply  contract  would  be  shipped  directly  to  the                                                            
consumer or to GCS.                                                                                                             
                                                                                                                                
Mr. Powers  responded that shipping  arrangements are on  a case-by-                                                            
case  basis;  however,  he allowed  that  orders  are predominantly                                                             
shipped to  the customer to expedite  the customer's receipt  of the                                                            
product. He  stated that products  are shipped directly to  GCS when                                                            
such things as advance configurations must be installed.                                                                        
                                                                                                                                
Senator Dyson asked the  value of the contract that GCS has had with                                                            
the State.                                                                                                                      
                                                                                                                                
Mr. Powers responded that  the annual value of the contract with the                                                            
State has ranged between  eight to ten million dollars. He furthered                                                            
that  purchases  from  other  public  municipalities  and  education                                                            
institutions  that can tie  in with the State  contract would  bring                                                            
the total amount to approximately $20 million.                                                                                  
                                                                                                                                
Senator Dyson asked the total number of GCS employees.                                                                          
                                                                                                                                
Mr. Powers stated that GCS has ten employees.                                                                                   
                                                                                                                                
Co-Chair  Green asked  whether  this situation  has  resulted in  an                                                            
"antagonistic"  or  "controversial  climate"  between  GCS  and  its                                                            
suppliers, Dell and Gateway.                                                                                                    
                                                                                                                                
Mr. Powers responded  that, "the imposition of the  WSCA contract in                                                            
direct competition  with our State contract has hurt  us to the tune                                                            
of about 30 to 40 percent of our business."                                                                                     
                                                                                                                                
BRUCE  JAMIESON, CEO,  Government  Computer Sales,  Inc. noted  that                                                            
GCS's "very  good" eleven-year  vendor relationship  with both  Dell                                                            
and Gateway has  been affected by the State's decision  to further a                                                            
direct contract  with those  suppliers, in  direct competition  with                                                            
GCS.                                                                                                                            
                                                                                                                                
Commissioner Miller commented  that, "the question is where do we go                                                            
from here."  He avowed  that the  Department has  been charged  with                                                            
saving  money and  operating more  efficiently. He  stated that,  in                                                            
this process, the Department  identified Information Technology (IT)                                                            
as  an area  in which  further  efficiencies  and savings  could  be                                                            
developed.  As part of the process,  he continued, a consultant  was                                                            
hired to assist in the  development of an integrated IT plan for the                                                            
State.  One  part  of  that  plan,  he  continued,   is  to  further                                                            
efficiencies by using four  or five types of computers from a single                                                            
system  vendor.  He  attested  that  this  approach   would  provide                                                            
significant savings.                                                                                                            
                                                                                                                                
Commissioner  Miller deferred to the  Attorney General's  opinion on                                                            
the bidder preference  regulations concerning WSCA.  He stated that,                                                            
in moving  forward,  a few issues  should be  remembered; one  being                                                            
that  the Governor  has been  "crystal  clear" that  only a  certain                                                            
amount of  money would be  spent in the  budget cycle. He  continued                                                            
that,  as policy  makers,  the Legislature  is dealing  with  "tough                                                            
times"  and would  have  to  make "tough  decisions."  He  contended                                                            
however,  that  these decisions  must  be  made within  the  overall                                                            
context  of the State  budget. He  stated that,  "if you, as  policy                                                            
makers, believe  that we should be buying computers  through a third                                                            
party vendor,  and should  be paying up to  five percent more,  lets                                                            
say  $50,000? that  is  your decision  to make."  In  that case,  he                                                            
continued,  this would be  $50,000 that would  be unavailable  to be                                                            
spent on some other government  service. He stated that were this to                                                            
be the  decision that the  Legislature makes,  then the Legislature                                                             
must also decide  what other services would be reduced  or unfunded.                                                            
He stated  that rather than  being an issue  to circumvent  GCS, the                                                            
issue is to  provide the State with  "the best service to  the State                                                            
of Alaska  at  the best  price." He  stated  that were  GCS able  to                                                            
provide computers at a  cheaper price, the Department would buy from                                                            
them, as he asserted that  the Department is charged with saving the                                                            
State money.                                                                                                                    
                                                                                                                                
                                                                                                                                
SFC-03 # 110, Side B 09:57 AM                                                                                                   
                                                                                                                                
                                                                                                                                
Commissioner  Miller  continued,  therefore,  that  the Legislature                                                             
would be required  to make the "policy  call" regarding whether  the                                                            
State should spend  more than the Department's specified  "x" amount                                                            
for these services.                                                                                                             
                                                                                                                                
Co-Chair  Wilken  commented that  Commissioner  Miller,  as a  small                                                            
business owner, is aware of "what is at stake here."                                                                            
                                                                                                                                
VERN   JONES,    Chief    Procurement   Officer,    Department    of                                                            
Administration,   stated  that  contrary   to  previous   testimony,                                                            
computer  price analyses have  been conducted  and indicate,  were a                                                            
WSCA agreement  in place, savings ranging from 6.5  to 10.5 percent.                                                            
Furthermore, he  informed the Committee that the State  belongs to a                                                            
variety  of cooperative  consortiums  in addition  to WSCA, and  has                                                            
been using  cooperative procurements,  "legally  for many years"  to                                                            
purchase,  for example,  hospital  supplies, industrial  tools,  and                                                            
laboratory  supplies.  He stated  that this  is a  long established                                                             
practice.                                                                                                                       
                                                                                                                                
Mr.  Jones communicated  that  were  the Alaska  bidders  preference                                                            
required to be applied  to every cooperative procurement transaction                                                            
conducted  by  the Division  of  General  Services, the  process  of                                                            
acquiring  a quote  and  applying the  five-percent  Alaska  bidders                                                            
preference  would result in an extra  28,000 to 30,000 transactions                                                             
per  year, which  he asserted  is  a "very  impractical situation."                                                             
Therefore, he attested  that in addition to providing the State with                                                            
lower product  prices, which saves  the State millions of  dollars a                                                            
year, cooperative agreements  reduce the labor demands placed on the                                                            
Department.  He stated  that every  state uses  similar cooperative                                                             
agreements to  save funds, and he "advocated that  it would be a bad                                                            
idea to take that tool away"                                                                                                    
                                                                                                                                
Co-Chair Green  inquired as to the  level of estimated savings  that                                                            
result from these cooperative procurements.                                                                                     
                                                                                                                                
Mr. Jones  replied that  it ranges  between three  and four  million                                                            
dollars each year.                                                                                                              
                                                                                                                                
RAY    MATIASHOWSKI,    Deputy    Commissioner,     Department    of                                                            
Administration,  expanded   on Commissioner   Miller's  comments  by                                                            
noting  that the  State  has  reviewed the  status  quo procurement                                                             
procedures  and has determined,  in this "new  period of time,"  the                                                            
importance of  standardizing desktops and other IT  applications. He                                                            
stated that the goal of  this standardization process is to purchase                                                            
large volumes of products and get further price reductions.                                                                     
                                                                                                                                
Mr.  Jones  stated that  the  Department,  upon  the advice  of  the                                                            
consultants,  has determined  that the IT  procurement methods  must                                                            
change.  He  noted that,  in  addition  to standardizing   desktops,                                                            
efforts  are  being  made  to  standardize   brands  and  models  of                                                            
computers within that brand  in order to receive the "greatest price                                                            
reduction"  as a result  of volume  purchases. He  stated that  this                                                            
process is continuing,  and he assured the Committee  that no secret                                                            
deals are being  conducted, and that no commitment  has been made to                                                            
keep this process confidential.                                                                                                 
                                                                                                                                
Senator  Dyson,  noting  that  he  had  arrived  after  the  meeting                                                            
started, asked  whether legal opinions  had been discussed  prior to                                                            
his arrival.                                                                                                                    
                                                                                                                                
Co-Chair Wilken stated  that applicable statutes were discussed, and                                                            
that Mr.  Snodgrass,  representing  GCS, inferred  that the  process                                                            
might   "be  outside   the  statutes."   He   continued  that   "the                                                            
Administration choose to  not comment on that." He noted that a copy                                                            
of Mr. Snodgrass's  interpretation of the applicable  State statutes                                                            
[copy on file] is included in the Members' packets.                                                                             
                                                                                                                                
Mr. Jones or Mr. Matiashowski  [speaker unidentified] commented that                                                            
the  Member's packets  also  contain an  opinion  from the  Attorney                                                            
General's  office that expresses  the Administration's  position  on                                                            
the statutes and the legality of the Department's actions.                                                                      
                                                                                                                                
MARY  VERDURMEN,  Dell  Account Manager  for  Alaska,  informed  the                                                            
Committee that  documentation [copy not provided]  has been provided                                                            
to  the Committee  that  explains  Dell  Computer,  Inc.'s  business                                                            
model. She  voiced appreciation for  the business that the  State of                                                            
Alaska has  conducted with Dell. She  characterized Dell  as "a very                                                            
unique" $40 billion  corporation that maintains WSCA  contracts with                                                            
27  states, as  a vehicle  to  address  State and  local  government                                                            
computer  needs, and  she clarified  that these  27 states  purchase                                                            
directly from  Dell. She noted that Dell Computers  strives for "the                                                            
highest  level  of  customer  satisfaction"   and  a  direct  access                                                            
relationship  with  the  customer,  even  when  a  Dell  product  is                                                            
purchased  through a local  vendor. She stressed  that good  service                                                            
and  good price  are  important  to the  company.  Furthermore,  she                                                            
stated  that Dell  provides  a  single point  of  accountability  to                                                            
customers  for such things  as warranty  and installation  services.                                                            
She attested  that in  its endeavor  to be a  low cost leader,  Dell                                                            
uses industry  standard technology  as well  as standards and  long-                                                            
term product life cycles.  She noted that Dell also offers the State                                                            
a zero percent leasing program and computer recycling program.                                                                  
                                                                                                                                
JOHN LAVORATO,  Attorney,  Dell Computers,  stated that Dell  has no                                                            
issue with  GCS and  that no  adversarial tone  exists. He  stressed                                                            
that Dell focuses on serving  its customers who, in this case is the                                                            
State of Alaska. He acknowledged  that while Dell does not currently                                                            
have any employees  in the State, it is considering  the possibility                                                            
of placing  employees here  and is also  contemplating working  with                                                            
Alaskan Native  companies  "in a sense that  the federal  government                                                            
has incentive programs  for vendors who basically have relationships                                                            
with"  Alaskan  Native  companies.  He  noted  that,  "it  would  be                                                            
factual"  that its  "break-fix-warranty  third  party providers  are                                                            
employees  of other  companies in  Alaska." He  stated that  because                                                            
Dell is  a global  company, numerous  Dell computer  components  are                                                            
manufactured in the Far  East and as part of its logistical network,                                                            
these components are transported through Alaska.                                                                                
                                                                                                                                
Mr. Lavorato specified  that from the Dell perspective,  cooperative                                                            
purchasing agreements allow  for reduced procurement cycles, reduced                                                            
administrative  costs,  aggregate buying  power for  both large  and                                                            
small governments, and  market-driven prices as opposed to arbitrary                                                            
prices  points. He  noted  that computer  prices  are continuing  to                                                            
decrease.  Furthermore,  he stated  that Dell's  broad offerings  of                                                            
services adequately address  customers' specific computer needs, and                                                            
he stated that  all these factors support Dell's business  model. He                                                            
declared  that this  "global company"  is market  driven and  enjoys                                                            
competing for business on a daily basis.                                                                                        
                                                                                                                                
Mr.  Lavorato  summarized  that  Dell  strives  to  provide  its  IT                                                            
customers with "the best  customer experience with lowest total cost                                                            
of ownership."  He stated that Dell supports and embraces  State and                                                            
federal  policies  pertaining  to  socioeconomic  programs,  and  he                                                            
assured that there is no  secret deal, and he furthered that, from a                                                            
legal and corporate perspective,  one of Dell's "basic tenants is to                                                            
win with integrity."                                                                                                            
                                                                                                                                
Senator Dyson  asked whether Dell or GCS personnel  currently supply                                                            
hardware technical support to the State's staff and employees.                                                                  
                                                                                                                                
Mr. Powers replied, both.                                                                                                       
                                                                                                                                
Ms. Verdurman  noted  that because  GCS is currently  supplying  the                                                            
equipment, they should respond to the question.                                                                                 
                                                                                                                                
Mr.  Powers  stated  that GCS  supplies  technical  support  to  its                                                            
customers.  He noted that  GCS provides its  Alaskan customers  with                                                            
"localized  support layered onto the  world-class service  that Dell                                                            
provides direct."                                                                                                               
                                                                                                                                
Ms. Verdurman  stated that Dell provides a lifetime  warranty on its                                                            
systems, and that technical  support is provided direct from Dell 24                                                            
hours a day, seven days a week.                                                                                                 
                                                                                                                                
Senator  Dyson  asked  whether  GCS  provides  telephone  help  desk                                                            
technicians.                                                                                                                    
                                                                                                                                
Mr. Powers responded yes.                                                                                                       
                                                                                                                                
Co-Chair  Wilken  opined  that  Dell,  as  the manufacturer,   might                                                            
provide GCS,  the reseller,  with a "better  price" than Dell  would                                                            
provide  to the State  because,  by providing  the front-end  sales,                                                            
end-product  determination, and technical  contact to the  customer,                                                            
GCS's contribution  eliminates a service  that Dell would  otherwise                                                            
be  required to  provide.  He  asked whether  the  local  providers'                                                            
front-end contribution  is recognized  and, as such, is provided  "a                                                            
deeper discount"  than the retail  price than Dell would  charge the                                                            
State were Dell to absorb that responsibility.                                                                                  
                                                                                                                                
Mr. Lavorato voiced understanding  of the concept being presented by                                                            
Senator Wilken,  and stated that price considerations  are dependant                                                            
on the  effort expended by  the third party  vendor, as exampled  by                                                            
whether the  end user would  be ordering a  standard IT system  or a                                                            
more complicated  system. He informed  the Committee that  Dell does                                                            
regularly  "team"  with big  companies  to develop  the end-product                                                             
needs.                                                                                                                          
                                                                                                                                
Ms. Verdurman  assured the  Committee that  Dell staffers  currently                                                            
travel  to  Alaska,  do consult  with  Alaskan  customers,  and,  in                                                            
addition, consult  with GCS on complicated  projects, as  she noted,                                                            
"their customers are our  customers." She noted that Dell recognizes                                                            
the value of growing its business in Alaska.                                                                                    
                                                                                                                                
Mr. Lavorato observed that  sometimes projects get "derailed" when a                                                            
lot of people are involved in a process.                                                                                        
                                                                                                                                
Senator  Olson  assumed  that State  Government  is  Dell's  biggest                                                            
customer in Alaska.                                                                                                             
                                                                                                                                
Mr. Lavorato understood that to be the case.                                                                                    
                                                                                                                                
Senator  Olson  asked whether  Dell  has  encountered  this type  of                                                            
situation before.                                                                                                               
                                                                                                                                
Mr. Lavorato  responded that,  although it  has not been a  problem,                                                            
those of the  27 WSCA states that  have considered contracting  with                                                            
Dell  to  be  their  sole  IT  provider,  have  worked  through  the                                                            
competitive and socioeconomic  issues that Alaska is now addressing.                                                            
In addition, he stated  that these issues have also arisen in regard                                                            
to federal General Services Administration procedures.                                                                          
                                                                                                                                
Co-Chair Wilken asked how  many of the 27 states have contact and/or                                                            
preference provisions.                                                                                                          
                                                                                                                                
Mr. Lavorato was unsure.                                                                                                        
                                                                                                                                
Co-Chair  Wilken referred  the  Committee  to the  resume of  Robert                                                            
Carrier   [copy   on  file],   a   former   Alaska   Department   of                                                            
Transportation   and  Public  Facilities   Southeast  Region   Chief                                                            
Procurement  Officer, who is now employed  in a similar capacity  in                                                            
the State of Arizona.                                                                                                           
                                                                                                                                
Co-Chair  Wilken  asked  Mr.  Carrier  his  opinion   regarding  the                                                            
Administration's  position that establishing  a system and  tracking                                                            
real-time purchasing data would be "a big project."                                                                             
                                                                                                                                
ROBERT CARRIER,  Contracts Management Specialist III,  Department of                                                            
Economic Security,  State of Arizona,  testified via teleconference                                                             
from Phoenix,  Arizona, and responded  that, in his experience  with                                                            
the Alaska Department of  Transportation and Public Facilities (DOT)                                                            
"that  it  would  not  be a  problem  to  create  the  data  showing                                                            
configuration  and the price that was paid for the  machine, and who                                                            
the vendor  was." He  surmised that  while it might  not be  a major                                                            
undertaking, on a statewide  basis, it might require the Division of                                                            
General Services'(DGS)  involvement to consolidate  the information.                                                            
He noted that  DGS acts in this capacity on other  reporting issues.                                                            
He opined  that it is do-able  and would  not impose undue  hardship                                                            
either on the agencies and/or DGS.                                                                                              
                                                                                                                                
Co-Chair Wilken  asked Mr. Carrier whether he had  ever participated                                                            
in a process of this type.                                                                                                      
                                                                                                                                
Mr. Carrier  stated that  when he worked  at DOT, "this information                                                             
was available  at the touch  of a button."  He noted that it  is not                                                            
unrealistic to  obtain more than one quote for comparison  purposes.                                                            
He acknowledged  that acquiring multiple quotes would  be more work,                                                            
but he stated that it would be do-able.                                                                                         
                                                                                                                                
Mr. Carrier  voiced that  he perceives this  issue to not be  exempt                                                            
from competition  under State  statute; however,  he continued  that                                                            
regardless  of  whether  something  is  exempt or  not  exempt  from                                                            
Statute, the awareness  must be maintained that the  "responsibility                                                            
to the public is reasonable  and adequate." He voiced uncertainty as                                                            
to whether  the WSCA contract is reasonable  and adequate;  however,                                                            
he stressed  that it is not a mandatory  contract. He exampled  that                                                            
other states,  such as New Mexico, have additional  contracts beyond                                                            
the WSCA agreement that allows businesses to sell computers.                                                                    
                                                                                                                                
Co-Chair  Wilken asked Mr.  Carrier if he  is aware of other  states                                                            
that  have  contact  and/or  preference  regulations  pertaining  to                                                            
computer sales through a WSCA agreement.                                                                                        
                                                                                                                                
Mr. Carrier  responded that New Mexico  and Arizona do; however,  he                                                            
noted that Arizona also  maintains computer sales independent of its                                                            
WSCA agreement.                                                                                                                 
                                                                                                                                
Co-Chair  Wilken  asked  for  clarification  regarding  whether  the                                                            
states' regulations specify  contact or contact/preference language.                                                            
                                                                                                                                
Mr. Carrier  responded that  he is unsure;  however, he stated  that                                                            
the contract language  in New Mexico's agreement specifies  that the                                                            
agreement  is applicable  to New  Mexico resellers.  He opined  that                                                            
this could be classified as preference language.                                                                                
                                                                                                                                
Mr. Carrier  reiterated that  WSCA is not  a mandatory contract.  He                                                            
suggested  that  one option  that  might occur  is that  Dell  could                                                            
designate  GCS as  a reseller,  and thereby  resolve  "a lot of  the                                                            
issues"  being  raised  as  this,  he  continued,  would  allow  the                                                            
"information that  must be gathered to be gathered."  He stated that                                                            
another,  less desirable,  option  could be  "that  the State  could                                                            
negotiate a permissive  agreement with GSC" to provide that service.                                                            
He noted that this is a  less desirable option because he understood                                                            
that these  services are  limited to $5,000.  He stated that  rather                                                            
than a WSCA agreement, other options are available.                                                                             
                                                                                                                                
Mr. Carrier  commented that  the direct purchase  agreement  that is                                                            
outlined  in the Memorandum  [copy  on file] from  Dell Computer  to                                                            
Vern  Jones, dated  October  30, 2003  identifies  Dell  as a  "sole                                                            
source supplier" in its  comments. However, he pointed out that sole                                                            
source  agreement language  is  not a  WSCA requirement.  He  voiced                                                            
confusion as  to how Dell or perhaps  the State "jumped from  a WSCA                                                            
contract to a  sole source" or single source agreement.  He stressed                                                            
that a WSCA  price agreement that  might be signed, "is just  that;"                                                            
that a product price would  be specified. Furthermore, he noted that                                                            
the Dell memorandum  includes caveats  such as that the State  would                                                            
be required to  spend a minimum of $15 million with  Dell each year.                                                            
Furthermore,  he stated that $15 million  is double the amount  that                                                            
the State has  traditionally spent with Dell on an  annual basis. He                                                            
questioned the  penalty that might arise were this  level not spent.                                                            
He reiterated that there are other options to consider.                                                                         
                                                                                                                                
Co-Chair  Wilken commented  that both  the GSC  and WSCA  agreements                                                            
extend the  State's pricing structure  to the University  of Alaska,                                                            
municipalities, and school districts.                                                                                           
                                                                                                                                
BART MAULDIN, Chief Procurement  Officer, Municipality of Anchorage,                                                            
informed  the   Committee  that,   during  his  23-years   with  the                                                            
Municipality  of Anchorage,  he has  had numerous  opportunities  to                                                            
work with  cooperative agreements.  He attested  that, at the  local                                                            
level, the City  does attach or "piggyback" onto state  contracts as                                                            
he  attested  the  City  is  extended  that  right  as  a  political                                                            
subdivision.  He exampled  that, in addition  to computer  purchases                                                            
with  GCS, Dell,  Compact, and  IBM, this  procedure  has been  used                                                            
approximately  25  times  in a  variety  of instances  such  as  the                                                            
leasing  and  purchasing   of  vehicles,  highway   paint  and  salt                                                            
supplies,  and road  graders.  He stated  that this  arrangement  is                                                            
attractive  and has high value to  the City because, in addition  to                                                            
the pricing  being  "advantageous,"  it allows  the municipality  to                                                            
forego such things as the  procurement cycle. He allowed that, while                                                            
the pricing might not be  the lowest, the benefits that are provided                                                            
are great.                                                                                                                      
                                                                                                                                
Co-Chair Wilken asked whether  this issue is of concern to the City.                                                            
                                                                                                                                
Mr. Mauldin  replied that while computer  purchasing is the  largest                                                            
component  of this arrangement,  concern arises  from the fact  that                                                            
were an agreement  not in place, the  City would either be  required                                                            
to carefully watch what  the State does in various regards or pursue                                                            
its own agreements.  He noted that  the City's participation  in the                                                            
program  is  not  mandatory.   Therefore,  he  concluded   that  the                                                            
agreement is  only disruptive if a  State contract is not  in place.                                                            
                                                                                                                                
Co-Chair Wilken reminded  that the Committee would not be conducting                                                            
an Executive Session, as specified on the agenda.                                                                               
                                                                                                                                
Co-Chair Green  inquired as to the  types of cooperative  agreements                                                            
that  the State  has  participated  in  under  the two  statutes  in                                                            
question.                                                                                                                       
                                                                                                                                
Mr. Jones responded  that the State has, for a long  time, secured a                                                            
cooperative   agreement   to   purchase,   on   an   annual   basis,                                                            
approximately  $3 million in pharmaceuticals/health  care  supplies.                                                            
He noted  that  the Alaska  Pioneers Home  has piggybacked  on  this                                                            
cooperative  agreement.   He stated   that  other  WSCA cooperative                                                             
agreements include laboratory  and scientific supplies, tools, paper                                                            
products, and  airfares. He noted that the State has  a long history                                                            
of cooperative agreements.                                                                                                      
                                                                                                                                
Senator Dyson asked the  level of human resources that GCS provides.                                                            
                                                                                                                                
Mr. Powers  responded that GCS predominantly  deals with  the public                                                            
sector, and  maintains two full-time  first level technical  support                                                            
staff to assist  local governments, schools and State  employees. He                                                            
stated that,  in situations  requiring a  higher level of  technical                                                            
assistance,  GCS and Dell  work together  to provide the  assistance                                                            
required.                                                                                                                       
                                                                                                                                
                                                                                                                                
SFC 03 #111, Side A 10:40 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Mr. Powers stated  that beyond the service provided  to governments,                                                            
GCS has established a joint  partnership with Mercury Data Group and                                                            
other  local  small  service  and  technical  support  providers  to                                                            
establish an  entity known as Alaska  Technology Services  (ATS). He                                                            
stated that  five seats of the professional  service contract  group                                                            
that was formed to assist  the State in its endeavors to further its                                                            
new IT plan  were members of ATS.  He noted that there is  in excess                                                            
of fifty  people who could  provide on-site  service support  to the                                                            
two individuals who man the GCS help desk.                                                                                      
                                                                                                                                
Senator Dyson  asked for confirmation  that these services  are free                                                            
to GCS equipment purchasers.                                                                                                    
                                                                                                                                
Mr. Powers clarified that additional costs are levied for services                                                              
"over and beyond" contract warranty conditions.                                                                                 
                                                                                                                                
Senator Dyson asked whether the assistance of the two staffers who                                                              
man the help desk is free of charge.                                                                                            
                                                                                                                                
Mr. Powers confirmed that this service is free.                                                                                 
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Gary Wilken adjourned the meeting at 10:46 AM                                                                          

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