Legislature(2003 - 2004)
05/13/2003 02:20 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 218-STATE PROCUREMENT PILOT PROGRAM
CHAIR BUNDE announced SB 218 to be up for consideration. He said
folks had talked to him about the idea of creating a pilot
program for the state procurement program that might save some
money. The procurement procedures to be used in the pilot
program have promoted efficiency and cost savings in private
enterprise. The bill has a zero fiscal note.
MR. SCOTT HAWKINS, General Manager, Alaska Supply Chain
Integrators, said his company has a great deal of interest in
the general concept of cost savings through automation and
process excellence around supply chain management. The company
is four years old and employs 160 people. They provide
procurement, requisitioning, receiving, warehouse management and
a whole host of other services that support large purchasing
institutions. Their tool of choice for automation efficiency is
e-commerce and they have quietly become one of the largest
business-to-business Internet e-commerce sites in the country,
transacting several million dollars a year in purchase orders
and tens of thousands of purchase orders per year. He has been
able to deliver savings of 35 to 50% in the overhead cost of
transactions. Typically, he has been able to deliver another 5
to 10% in the cost of items that are being procured.
CHAIR BUNDE said he thought the potential savings could be $5 to
$20 million.
MR. HAWKINS said he thought that was a conservative estimate.
SENATOR SEEKINS arrived at 2:35 p.m.
SENATOR FRENCH asked if the state is engaged in e-commerce now.
MR. HAWKINS said his understanding is that the state uses some
e-commerce tools, such as ordering from websites.
SENATOR FRENCH noted this bill is exempt from AS 36.30 and asked
for a description of that statute.
MR. HAWKINS replied AS 36.30 is the state procurement code and
the exemption is for the purposes of the pilot program.
MR. VERN JONES, Chief Procurement Officer, told members:
SB 218 would allow the Department of Administration to
establish the pilot program that includes a privatized
procurement model with technological advancements.
Under the bill, a private sector contractor would take
over a governmental unit's procurement activities with
the goal of achieving savings on both the cost of
goods and services purchased as well as savings on
acquisitions costs. The department believes that there
is potential for cost savings. The administration is
interested in exploring just how significant those
savings could be.
Any changes to our current procurement operations,
even for a pilot project, would require the
administration to do several things. First, we would
have to study the organizational structure, the mix of
goods and services procured by various state entities
in order to select an appropriate unit for the pilot.
We would also have to conduct a feasibility study as
required by union bargaining agreements. Any time we
are displacing state employees we need to do that
under our various contracts. If that feasibility study
indicates that there are substantial savings, we would
then likely develop policies and procedures that would
govern the privatized procurement process.
Just exempting the contractor from our state
procurement code, I think, would create a void. We
would probably have to have some policies and
procedures that people had some confidence, insured
fairness and some sort of due process since we are
spending government money. We would then have to
select a private sector provider to operate the pilot
program. We would intend to do that through our state
procurement process that's in place now. If the bill
becomes law, those are the steps that we intend to
follow.
CHAIR BUNDE asked if the agencies that would participate have
been chosen yet, and whether the commissioner of the Department
of Administration in collaboration with Mr. Jones will decide
who will participate.
MR. JONES replied the selection of the Department of
Administration implies that the agencies are going to be from
the executive branch.
SENATOR STEVENS asked Mr. Jones to explain a little about the
state procurement process and whether a bid process is used. He
also noted the sunset date of 2006 and asked if the procurement
bid will be awarded for a three-year period.
MR. JONES replied:
Yes, the selection of any contractor would be subject
to our procurement code. The bill does not exempt the
selection of the contractor, but rather the
procurement activities done by the contractor.
Would we do a bid? We would probably not do a bid. We
would probably do a request for proposals [RFP]
whereby we select the contractor based on a number of
factors including cost. I'm not confident that we
could write bid specifications sufficiently tight in
order to make a selection based on low cost alone. So
we would probably use an RFP.
The process that I've outlined would likely take a
number of months to accomplish. I'm not certain how.
It's been a long time since we've conducted a
feasibility study and there's a give and take with the
unions and there's the developing procedures and the
procurement process, itself...The bill allows for a
pilot no longer than three years and we feel with a
sunset date of 2006 - that's possible, at least.
SENATOR FRENCH asked if the executive branch is involved in all
electronic purchasing now and, if so, how this program would
differ.
MR. JONES replied that the executive branch has a limited
involvement in electronic commerce, mostly on the reconciliation
and payment side. He told members:
It would be a stretch, though, to say that we had any
kind of a procurement system really, and it's
definitely not an automated procurement system. It's
more of a manual system. That's one of the inherent
problems we have with efficiency in state procurement
right now. The Department of Administration is trying
to address that through a larger project.
MR. LYNN JOHNSON, President, Dowland-Bach Corporation, said his
company is 28 years old and headquartered in Anchorage. It is a
main supplier of control systems, UL panels and process control
systems, instrumentation products, stainless steel piping and
sheet metal fabrication. They have other business interests in
Alaska including manufacturing and exporting. They are also a
minor affiliate of Alaska Supply Chain Integrators. He testified
that SB 218 is a great idea and has the potential to save the
state a great deal of money by reducing costs and automating the
procurement process.
SENATOR FRENCH thanked Mr. Johnson for taking the time to
testify today. He moved to pass SB 218 from committee with the
attached fiscal note. SENATORS DAVIS, STEVENS, SEEKINS, FRENCH
and BUNDE voted yea; and SB 218 was moved from committee.
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