Legislature(2003 - 2004)
05/13/2003 04:08 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 313
"An Act authorizing a pilot program relating to state
procurement and the use of electronic commerce tools;
and providing for an effective date."
REPRESENTATIVE LESIL MCGUIRE, SPONSOR spoke in support of HB
313. The legislation would look at the state of Alaska's
procurement process. This is the overhead portion of
government: buy and selling. The legislation would
streamline procurement through e-commerce tools.
Vice-Chair Meyer asked the potential savings. Representative
McGuire estimated that there would be between $5 and $20
million dollars in overall savings. The pilot program would
start with two distinct departments and two distinct areas
to see if the savings can be proved over a three-year
period. She felt that the savings would be closer to $20
million.
In response to a question by Vice-Chair Meyer,
Representative McGuire stated that there is an Alaskan
company, which is very advanced in procurement, particularly
in the North Slope. She noted a Alaskan preference.
Vice-Chair Meyer expressed his support of the bill. He
asked if the bill would follow Alaskan guidelines for
hiring, for example in hiring veterans, etc. Representative
McGuire responded that the selection of the out source
company would be implemented under the existing procurement
code. There is an exception for the pilot program to allow
the commissioner of Administration as much flexibility as
possible using the principle set out in the procurement
code. She noted that British Petroleum (BP) has similar
procurement policies. An on-line action was created [for BP]
with their procurement policies.
Representative Hawker asked whether the sponsor would object
to a friendly amendment requiring an annual report by the
vendor. Representative McGuire stated that she would not
object.
SCOT HAWKINS, ALASKA SUPPLY CHAIN INTEGRALS responded that
the intention is to prove the concept and be able to expand
it and demonstrate its value. A report would be inherent in
the intent.
Representative Kerttula noted that the procurement did not
actually fall under the Alaskan procurement code and asked
why not. Representative McGuire noted discussions with the
Administration about ways to provide the most flexibility,
including purchase orders.
VERN JONESS, CHIEF PROCUREMENT OFFICER, DEPARTMENT OF
ADMINSTRATION clarified that the selection of the original
contractor, that would run the pilot, would be subject to
the procurement code. The contractors in the pilot would
not be subject to the code.
Representative Kerttula asked why the contractors in the
pilot would not fall under the code. Mr. Jones stated that
there was a recognition that the state procurement code was
not designed with efficiency in mind. Parts of the
procurement code are inefficient, entailing timelines that
the private sector could not follow. He speculate that the
intent of the bill was to take advantage of the
efficiencies of the private sector and technologies and not
to saddle the pilot with the inefficient and time consuming
process of government.
Representative McGuire emphasized that e-commerce allows
the financial authority to commit and revise purchase
orders as an agent of the state. She maintained that for
the pilot program to succeed, it must have the required
flexibility. She stated that the challenge was to rewrite
the entire procurement code or to allow a pilot program in
a small area to go forward to see if it can work. She
suggested that this may precipitate a change to the
procurement code.
Representative Chenault observed that the fiscal note was
zero and asked about the potential cost.
Mr. Jones noted that the note was zero since it involves an
element of privatization. The idea is that the private
sector is able to use cheaper labor, run a cheaper process
and obtain cheaper goods and services. He noted that if
the pilot did not result in a savings, it would be a
failure.
Representative Chenault maintained that there would be some
cost involved in putting on the program and asked to know
what it is. Mr. Jones noted that there are a number of
steps before the pilot can be implemented. The mix of goods
and services purchased by various state agencies would have
to be studied, along with current bids to select a study. A
feasibility study would have to be conducted, per union
bargaining agreements. He noted that that the feasibility
study would enlighten the potential costs. He acknowledged
that there would be a fee involved for the procurement, but
stated that unless the program generated a savings, it
would not be undertaken. Representative Chenault stressed
that it would cost something to initiate a pilot program,
whether or not the program was successful.
Mr. Hawkins noted experience in the private sector, and
observed that companies generally worked within the
existing budget for a department and demonstrated their
ability to reduce the budget for that activity. Regarding
start up costs, he stated, that these costs would be
integrated within the department's budget. He maintained
that the funding was found within the savings. He noted
that if savings were not realized, then the business would
not be undertaken. In response to a question by
Representative Chenault, Mr. Hawkins confirmed that if
savings are not demonstrated, costs would not incurred.
Vice-Chair Meyer observed that the intent is to use Alaskan
services where possible. Mr. Hawkins agreed.
Representative Berkowitz spoke in support of the
legislation. He observed that the two departments in which
the pilot program would occur could be quite large, such as
the Department of Transportation and Public Facilities or
the Department of Health and Social Services. He suggested
that if it were a pilot program it would be a C5
[procurement]. Representative McGuire responded that the
chief procurement officer is working closely with the
commissioner of Administration. They would examine the
potential costs and determine where savings would be
realized. She stated that the intent was to implement a
mechanism for a feasibility study.
Mr. Jones stressed that there had not been any studies to
target any agencies and noted that a division or office
could be targeted. Organizational structures must be
analyzed. He expressed the hope that a self-contained unit
could be found to use as a test case.
TAPE HFC 03 - 90, Side B
Representative Berkowitz asked if it was possible to model
the program. He asked if one could simply complete a
comparison for the entire state procurement, rather than
for two departments. Mr. Jones stated that the idea was to
examine smaller portions of the administration, since there
were great complexities and a wide variety of goods and
services. He stated that a test case was desired before
taking broad action. He pointed out that private firms had
lower labor costs, and life cycle costs. He stressed that
while a model would reflect potential benefit, it might not
reflect a complete picture.
Representative Berkowitz referred to the procurement code,
and pointed out that there were reasons that the government
did not operate in the manner of the private sector. He
expressed concern with deviations from the procurement
code, and questioned if policy problems were considered in
abandoning the code. Mr. Jones responded that this was the
reason for a pilot program, to prevent widespread out-
sourcing. Policies and procedures for contractors need to
be developed; these may be more than that needed for
private sector clients. There is a lot of due process. The
intent is not to end up with a private sector contractor,
which is operating in the same manner as the state.
Representative McGuire reiterated the commitment to Alaskan
business. She recounted her experience with the Alaska
Supply Company, and pointed out that procurement
requirements could be programmed into the process. She
emphasized that parts of the state procurement code would
remain unchanged and could be programmed in.
Mr. Hawkins explained that the procurement code requires
three quotes. He noted that the company could set up a mini
marketplace of providers to create a "smart catalogue" of
suppliers, chosen to compete on a regular basis. When
procuring, the electronic system provides the best price
from those providers on any given day. The electronic
process would replace the need to get three quotes by
telephone or mail. He pointed out that the code did not
allow the same process to realize these savings. He noted
that his company would not advocate choosing too large a
pilot program. It is important that the pilot be
successful and not overreach. The challenge is to right
size the program.
Representative Stoltze referred to the current procurement
code and the number of changes to it that have been
necessary. He noted the advantage of technological
advances.
Representative Berkowitz asked if any consideration was
given to allowing state procurement offices to compete in
the bidding process. Mr. Jones stated that this was not
the intent of the bill, but the process did allow for
counter proposals as part of the union bargaining process.
Representative Kerttula expressed concern with the
potential amount to be expended without any sidebars. She
asked how preferences of the procurement code might be
maintained.
Mr. Jones speculated that any policies and procedures
developed would be contained in a contract, which the
contractor would be required to adhere to. The presumption
of the bill is that the private sector can achieve savings,
if it is not encumbered with governmental procedures. He
acknowledged that there were many preferences that would be
difficult to administer. He did not envision writing
requirements substantially equivalent to the state system
into the contract.
Representative Moses expressed concern that legislation was
required to implement the pilot program. Representative
McGuire noted that in discussions with the Administration,
it was decided that this was the proper avenue, since it
proposed potentially large policy changes. She felt that,
in a few years, they would be able to view preferences
contained in the contract.
Representative Berkowitz MOVED to AMEND Page 2 line 8 of
the bill to delete "with a person from the private sector".
Vice-Chair Meyer OBJECTED. Representative McGuire observed
that [using the private sector] is the would of the bill.
She clarified that partnerships would be included.
Representative Berkowitz explained that the private sector
would not be precluded, but that it would allow cities and
other entities to participate. Representative Moses
suggested the use of "entity". Representative McGuire
expressed opposition to the amendment.
Co-Chair Williams OBJECTED to the amendment.
A roll call vote was taken on the motion.
IN FAVOR: Berkowitz, Kerttula
OPPOSED: Chenault, Foster, Meyer, Moses, Stoltze,
Whitaker, Williams
Co-Chair Harris was absent from the vote.
The MOTION FAILED (2-8).
Representative Foster MOVED to report HB 313 out of
Committee with the accompanying fiscal note NO OBJECTIONS
HB 313 was REPORTED out of Committee with no recommendation
and with a new zero fiscal note by the Department of
Administration.
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