Legislature(1993 - 1994)

02/03/1994 01:35 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              SENATE LABOR AND COMMERCE COMMITTEE                              
                        February 3, 1994                                       
                           1:35 p.m.                                           
  MEMBERS PRESENT                                                              
 Senator Tim Kelly, Chairman                                                   
 Senator Steve Rieger, Vice-Chairman                                           
 Senator Bert Sharp                                                            
 Senator Georgianna Lincoln                                                    
 Senator Judy Salo                                                             
  OTHERS PRESENT                                                               
 Senator Dave Donley                                                           
  COMMITTEE CALENDAR                                                           
 SENATE BILL NO. 208                                                           
 "An Act relating to the employment of certain state employees and             
 officers seeking election to state or national office."                       
 SENATE BILL NO. 212                                                           
 "An Act relating to publications produced by state agencies and to            
 the procurement of property, property interests, and services by              
 state agencies."                                                              
  PREVIOUS SENATE COMMITTEE ACTION                                             
 SB 208 - NO PREVIOUS ACTION.                                                  
 SB 212 - See Labor & Commerce minutes dated 11/17/93 and                      
  WITNESS REGISTER                                                             
 Josh Fink, Aide                                                               
 Senator Tim Kelly                                                             
 State Capitol                                                                 
 Juneau, AK 99801-1182                                                         
   POSITION STATEMENT: Presented SB 212.                                       
 Dugan Petty, Director                                                         
 Division of General Services                                                  
 P.O. Box 110210                                                               
 Juneau, Alaska 99811-0210                                                     
   POSITION STATEMENT: Administrative support for SB 212.                      
 Josh Warner                                                                   
 Alaska Corporation Printing                                                   
 10006 Crazy Horse Drive                                                       
 Juneau, Alaska 99801                                                          
   POSITION STATEMENT: Supports SB 212.                                        
 Christopher Gates, Director                                                   
 Division of Economic Development                                              
 Dept. of Commerce & Economic Development                                      
 P.O. Box 110804                                                               
 Juneau, Alaska 99811-0804                                                     
   POSITION STATEMENT: Supports SB 212.                                        
 Resa Jerrel, State Director                                                   
 National Federation of Independent Business                                   
 9159 Skywood Lane                                                             
 Juneau, Alaska 99801                                                          
   POSITION STATEMENT: Supports SB 212.                                        
 Loren Rasmussen, Chief                                                        
 Design, Construction Standards                                                
 Dept. of Transportation & Public Facilities                                   
 3132 Channel Drive                                                            
 Juneau, Alaska 99801-7998                                                     
   POSITION STATEMENT: Supports SB 212.                                        
  ACTION NARRATIVE                                                             
 TAPE 94-6, SIDE A                                                             
 Number 001                                                                    
  CHAIRMAN TIM KELLY  called the Labor and Commerce Committee meeting     g    
 to order at 1:35 p.m.                                                         
 SENATOR KELLY introduced SB 208 (CANDIDATES MUST RESIGN STATE                 
 EMPLOYMENT) and invited the sponsor, SENATOR DAVE DONLEY to                   
 SENATOR DONLEY explained the purpose of the bill is to require that           
 anyone who chooses to run for office and raise money to do so, must           
 resign from their state employment.  He also explained that once a            
 letter of intent has been filed with the Alaska Public Offices                
 Commission, a person becomes a candidate and can raise money for              
 their campaign.  SENATOR DONLEY thought currently state employees             
 have an unfair advantage in raising funds for their election due to           
 the position of power they might hold with their state employment.            
 SENATOR DONLEY said he would make a specific exception for those              
 people who currently hold elective state office, or who are running           
 for another state position, because of their place in the political           
 mainstream, being elected to that position in the first place. He             
 explained the classified, partially exempted have already been                
 prohibited from running for state office, since people in an                  
 exempt position are typically political appointees.  He thought it            
 would be a good government idea to keep them from utilizing their             
 public position as a springboard during the election process, also.           
 SENATOR DONLEY suggested the committee might want to narrow the               
 scope to include only those employees over a certain range, and he            
 explained his reasons.                                                        
 SENATOR KELLY admitted he liked the bill.                                     
 SENATOR SHARP asked SENATOR DONLEY about the definition of state              
 employees and whether it went into such agencies as ADA, the                  
 University of Alaska, and Alaska Housing Finance.                             
 Number 052                                                                    
 SENATOR DONLEY thought anyone who receives a salary from the state            
 government would be covered under the parameters of the bill.                 
 SENATOR SALO suggested there are some gray areas such as the Alaska           
 Railroad and thought there might be some questions directed at the            
 SENATOR DONLEY said he had no problem being more specific in                  
 listing the exemptions.                                                       
 SENATOR KELLY directed staff to work on a committee substitute for            
 the next meeting, and he listed some of the possible inclusions to            
 the list.                                                                     
 to committee and explained a proposed committee substitute had been           
 written which removed any reference to the Permanent Fund.  He                
 asked his Aide, JOSH FINK, to give an overview of the committee               
 Number 102                                                                    
 MR. FINK spoke to the committee substitute, saying there had been             
 substantial changes made to SB 212.  He gave some history on the              
 bill and explained it had been introduced by request of the Senate            
 Economic Task Force.                                                          
 From the Sponsor Statement, MR. FINK read, "State government is one           
 of the largest purchasers of goods and services in the Alaskan                
 economy, purchasing everything from road design and construction              
 services to copy machines and paper and pencils.  The use of                  
 services and products provided by Alaskan businesses stabilizes and           
 diversifies Alaska's economy.  SB 212 aims to help strengthen                 
 Alaska's economy by increasing the share of State government                  
 contracts for goods and services going to Alaskan businesses."                
 MR. FINK described how the legislation would establish an                     
 Innovative Construction Procurement Methods Pilot Program within              
 the DOT/PF for a period of two years to implement an Alaska Bonus             
 Program to replace the current preferences.                                   
 MR. FINK reviewed some of the present incentive programs as largely           
 unworkable, under-utilized, or not utilized at all.  He explained             
 SB 212 proposes to provide bonuses at project completion, would               
 encourage policy goals for the vendors, reduce administrative costs           
 and bid protests, and could likely be used in joint federal/state             
 projects where State preferences are currently not allowed.                   
 MR. FINK continued by explaining the Commissioner of DOT/PF would             
 establish the program through regulation and would report to the              
 Legislature on the program's progress 15 and 27 months after the              
 implementation.  If successful, the legislature could expand and              
 extend this program indefinitely, otherwise, it sunsets in two                
 MR. FINK concluded by talking about the incorporation of provisions           
 from the "Make-it-Alaskan" legislation from the 17th Legislature,             
 House Bill 245, which would also increase the amount of State work            
 going to Alaskans.  He said this bill would:                                  
 Number 144                                                                    
  1) "Encourage procurement officers to restrict notice of                     
 contract solicitation to Alaskan suppliers and providers of                   
 services desiring to compete for state contract work, as is                   
 standard practice in DOT/PF; (MR. FINK said there was a four year             
 sunset on this provision to see how it works.)                                
  2) Require the Commissioner of DOT/PF to include in his report               
 to the legislature on State procurements the number of bidders                
 located in-state and out-of-state that bid or make proposals on               
 procurements;  (MR. FINK said there would be tracking on the number           
 of Alaskan businesses bidding, how many receiving contracts, and an           
 idea of the competition.)                                                     
  3) Replace the statutory requirements that State publications                
 be produced at State-operated facilities with a requirement that              
 State publications be produced at a private sector facility located           
 in the State when practicable.  In addition, standards for the                
 production of publications would be established by the Department             
 of Administration, and a cost box would be required for all                   
 publications exceeding $1,500 in cost."  (He explained the use of             
 the cost box which was initiated a number of years ago by SENATOR             
 DRUE PEARCE.)                                                                 
 SENATOR KELLY called on DUGAN PETTY, Director of the Division of              
 General Services in the Department of Administration.                         
 MR. PETTY said the Department of Administration was supportive of             
 efforts that foster Alaska businesses and brings efficiencies to              
 the State procurement process, and he brought a zero fiscal note              
 from the Division of General Services.  He explained they have made           
 changes in their bidder list as required under AS 36.3050 over the            
 last two years.                                                               
 MR. PETTY said, in reference to the proposed committee substitute,            
 there would be minor additional reporting requirements, and he                
 pointed out, on a statewide basis, from division records over the             
 last seven years they had 34 bid awards go out of state.  He quoted           
 the most recent data which has the number reduced to 24 bid awards,           
 and he claimed the average amount of funding captured in Alaska               
 with SB 212 would be about $2 million over four years if the bill             
 was 100% effective.                                                           
 Number 206                                                                    
 MR. PETTY thought the FY94 data gave a more accurate trend, and he            
 predicted the bill, SB 212, would be about 66% effective in terms             
 of capturing out-of-state awards, bringing them in-state.  He                 
 predicted a cost differential of about $250 thousand for awarding             
 to the low Alaska bidder over what would have been the low out-of-            
 state bidder, and he discussed several elements of the bid,                   
 including the sunset provision.                                               
 SENATOR RIEGER questioned the figure of $1.6 awarded out-of-state             
 for 1993 for the Department of Administration, and MR. PETTY                  
 explained it was for the invitations to bid, issued on behalf of              
 state agencies, but did not include small procurements initiated              
 under the department's own authority.                                         
 Number 259                                                                    
 SENATOR SHARP reviewed the publications sections to ask about how             
 the cost of publication would compare to the standard costs of                
 private industries such as depreciation costs.                                
 MR. PETTY commended the question and explained their current                  
 process of refining the department's pricing schedule to reflect              
 all of the costs.  He also explained his department's operation               
 within the amount of receipts and the difficulty of doing so.                 
 SENATOR SHARP commented the governmental printing shops he has seen           
 have state-of-the-art equipment, which he didn't think had been               
 factored into the price of the printing.                                      
 MR. PETTY said he had checked on public sector printing and found             
 factoring in the equipment costs has been a problem in the                    
 industry, but he couldn't speak for the private sector.  He thought           
 the goals of the legislation were important to both the State and             
 the private sector.                                                           
 Number 310                                                                    
 SENATOR KELLY introduced JOSH WARNER with Alaska Corporation                  
 Printing in Juneau.                                                           
 MR. WARNER, also representing other local printing businesses, gave           
 enthusiastic support for SB 212 and explained how his own printing            
 business could be competitive with the State's Central Duplication            
 Department.  He claimed there were no incentives for production,              
 quality, promotion, creativity, or efficiency during his working              
 period with Central Duplication, and he expressed his preference              
 for the struggle of his own business.                                         
 MR. WARNER accused Central Duplication of unfairly controlling the            
 market and not competing on the open market.  He gave a pitch for             
 the competitive spirit of Alaska and reiterated his support for the           
 Number 367                                                                    
 Next to speak was CHRISTOPHER GATES, Director for the Division of             
 Economic Development.                                                         
 MR. GATES said he had attended the meeting to support one aspect of           
 SB 212 dealing with the Innovative Construction Procurement Methods           
 Pilot Program in Section 13 of the bill.  He thought it represented           
 a substantial improvement over the present product preference                 
 incentive program, and he described the efforts of participating              
 staff to craft a bonus program that will work.                                
 MR. GATES explained the goal was a bonus program that will work to            
 accomplish the objectives originally set out for the program that             
 are being frustrated for many reasons, not the least of which is              
 the complications associated with the bidder preference, the lack             
 of federal involvement in procurement projects at present, and the            
 penalties associated with failing to use the specific products that           
 are shown in a bid.  He further explained the product preference              
 bonus, which currently exists under AS 36.30.322-.338, is not                 
 accomplishing what was intended by the state departments, so he               
 thought the legislation would assist the existing system.                     
 Number 411                                                                    
 MR. GATES said the present system is a bid based program, and the             
 incentives cease at the time of the bid.  Under the bonus program             
 the bonus is paid at the end of the contract, and an incentive                
 would continue throughout the life of a contract to purchase Alaska           
 products and use Alaskan sub-contractors.  He explained why he                
 thought this was a major improvement over the existing system,                
 which is confusing to general contractors.                                    
 MR. GATES outlined the present cumbersome process of determining              
 the low cost bidder on a project, where there are classes of                  
 Alaskan products that must be checked to be sure they are going               
 into a project, components of bids, and substantial adjustments               
 made to the bid amount for a low bidder determination.  He deemed             
 it an administrative hassle which would be eliminated under the               
 bonus program.                                                                
 MR. GATES summarized the poor performance of the existing program             
 as being due to the severe penalties associated with failures to              
 use specified products; the inability of the program to be used on            
 federal grant monies; the cumbersome administrative requirements;             
 and the inability to be paid for substitutions of Alaskan products            
 after bid award.                                                              
 MR. GATES quoted their conclusion as, "The substitution of Alaskan            
 products after the bid is addressed by the establishment of an                
 after-the-fact bonus system that is simpler to administer, provides           
 ongoing incentives to use Alaskan products and services throughout            
 the life of the contract, better assists Alaskan sub-contractors to           
 take advantage of the program, and would possibly allow expansion             
 of the incentive program to federal construction contracts                    
 administered by the State.  For these reasons, the Department of              
 Commerce and Economic Development urges the support of the                    
 committee for the innovative construction procurement methods pilot           
 program as contained in Section 13 in SB 212."                                
 SENATOR LINCOLN expressed concern on the bonus v. preferences, and            
 how the bonus program would protect the minority businesses.                  
 MR. GATES quoted on page 5 of the committee substitute, lines 27              
 through 31, Section 8, "Within six months after the effective date            
 of this section, the commissioner of transportation and public                
 facilities shall begin a two year pilot program for the use of                
 innovative methods for the procurement of construction services by            
 using bonuses to replace the preference required under AS 36.30."             
 MR. GATES explained there was history and implementation associated           
 with the sentence, and he assured SENATOR LINCOLN the participating           
 agencies have been working to be certain minority preferences are             
 still included in the bonus program.                                          
 Number 450                                                                    
 SENATOR LINCOLN still had concerns about the commitment for Alaskan           
 hire, and she referred to page 2, line 10, Section 1, to challenge            
 the meaning of "local."                                                       
 MR. GATES said he believed "local" would include the minority                 
 provisions, and he explained his involvement with major general               
 contractors for a number of years.  He described the process of               
 putting together a bid for major construction as pandemonium on the           
 day of the bid, and the lack of incentive by the general contractor           
 to consider "local" contractors.  He explained how this would                 
 change under SB 212 to maximize a bonus at the end of the contract            
 by hiring "local" subcontractors.                                             
 SENATOR LINCOLN indicated she would like to see the committee add             
 a definition of "local" in the bill to provide incentives for  real           
 "local" contractors.                                                          
 Number 499                                                                    
 SENATOR KELLY said there was no intention of moving the bill, so              
 there would be time to work on amendments.                                    
 SENATOR LINCOLN was also concerned about the "21 day notice" found            
 throughout the bill, and she pointed to page 2 and 3 of Section 2.            
 She wondered if 21 days were sufficient for publications to reach             
 the outlying areas and thought the time should be increased.                  
 SENATOR RIEGER gave his understanding of how the bonus would work,            
 and MR. GATES said he was correct.  They discussed the bidding                
 procedure, and MR. GATES expressed assurance the new process would            
 lead to lower capital construction costs in the state of Alaska.              
 SENATOR SHARP reviewed the bill and suggested Alaskans could be               
 identified by the permanent fund list.                                        
 SENATOR KELLY thanked MR. GATES, and called on RESA JERREL,                   
 representing the National Federation of Independent Businesses,               
 who, she said, would like to see the bill go forward was soon as              
 SENATOR KELLY asked LOREN RASMUSSEN, from the Department of                   
 Transportation, to explain the bonus system for clarity.                      
 MR. RASMUSSEN, who introduced himself as Chief of Design,                     
 Construction Standards, said the Department of Transportation is              
 supportive of the legislation and referred to Section 3, which                
 addressed advertizing outside of the State of Alaska.                         
 Number 551                                                                    
 MR. RASMUSSEN explained their policy of not advertizing outside of            
 the State of Alaska, but they do advertize in the ADMINISTRATIVE              
 JOURNAL, which is widely distributed outside of Alaska.  He said              
 the Department of Transportation presently does about $53 million             
 worth of work in the State, with about one million going to out-              
 side contractors.  He said less than 2% of Alaskan contracts go to            
 contractors from the State, and some could never be done in Alaska,           
 such as ferries.                                                              
 MR. RASMUSSEN referred to Section 8 on page 5 to discuss the bonus            
 program and beginning with many different areas such as prime                 
 contractors, subcontractors, products preferences, minority                   
 contractors, and equal opportunity.  He was interested in letting             
 the committee know a bonus program would work, and he was able to             
 draw on knowledge from federal regulations on highways to look at             
 the minority business program, which required a certain level of              
 minority participation, resulting in better compliance.                       
 MR. RASMUSSEN explained it was so successful with highways, they              
 tried the bonus program on some Federal Aviation Association                  
 construction, which worked well.  He thought more programs could be           
 tried with the proposed legislation, with less bureaucracy.                   
 Number 585                                                                    
 TAPE 94-6, SIDE B                                                             
 Number 001                                                                    
 MR. RASMUSSEN suggested the committee members might want to see the           
 procurement reports and copies of the contracts.                              
 SENATOR KELLY asked MR. RASMUSSEN if he thought the legislation               
 would give him the flexibility to make the bonus program work, and            
 MR. RASMUSSEN seemed sure it would.  He thought it would give the             
 department the chance to try procedures not tried before.                     
 When asked the same question, SENATOR LINCOLN thought there needed            
 to be new approaches, and she quoted, "... programs are largely               
 unworkable and subsequently under-utilized or not utilized at all."           
 She wanted to be sure the same mistakes were not repeated, but she            
 didn't want to close out some important incentives.                           
 SENATOR LINCOLN referred to page 6, line 10, to read, "... the                
 commissioner shall report to the legislature on the construction              
 contract awarded during the first year of the pilot program."  She            
 said she would like to see included, as part of the report, the               
 contracts by area of the State awarded to minority contractors.               
 MR. RASMUSSEN explained the Department of Transportation does break           
 it out by regions, and he asked if she wanted it broken down into             
 election districts.  SENATOR LINCOLN asked if it could be broken              
 down as far as minority contractors, and MR. RASMUSSEN said they do           
 a break down on minority contractors.  He explained it wouldn't               
 appear in the procurement report, because most of the minority are            
 sub-contractors, and sub-contractors are not reported.  He assured            
 SENATOR LINCOLN the statistics were available, because they track             
 these statistics.                                                             
 SENATOR KELLY told SENATOR LINCOLN his staff would develop some               
 language to answer her suggestions.                                           
 SENATOR RIEGER asked if awarding the incentive was discretionary.             
 MR. RASMUSSEN explained the bid document would include how the                
 incentive would be calculated and would not be changed from the               
 time of bid opening.                                                          
 MR. RASMUSSEN asked to comment on SENATOR LINCOLN'S concerns about            
 the minority business enterprise program, in which he explained               
 these type of programs are presently under a bonus type program.              
 Number 50                                                                     
 SENATOR LINCOLN said the present EEO programs were not working.               
 MR. RASMUSSEN  explained the part not working is mainly in areas of           
 products preferences and cited problems in the bid process.  He               
 thought the bonus program would improve that area.                            
 SENATOR KELLY set the bill aside until Tuesday.                               
 There being no further business to come before the committee, the             
 meeting was adjourned at 2:27 p.m. by SENATOR KELLY.                          

Document Name Date/Time Subjects