Legislature(1995 - 1996)
03/28/1996 01:36 PM Senate TRA
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SB 315 ALASKA RAILROAD PROCUREMENT
Number 001
CHAIRMAN RIEGER called the Senate Transportation meeting to order
at 1:36 p.m. and noted that testimony would be taken until a quorum
arrived. He introduced SB 315 as the first order of business.
HENRY SPRINGER, Executive Director of the Associated General
Contractors of Alaska, emphasized the association's platform of
open competitive bidding processes. He said that there have been
attempts to erode that process in the past few years. Mr. Springer
mentioned that he worked with the Department of Transportation
(DOT) in 1962 and is somewhat familiar with the construction or
changes within the right of way of the Alaska Railroad. He did not
understand why that work could not be done under a competitive
bidding process. The Alaska Railroad would continue to outline the
specifications and the operational demands. Mr. Springer said that
it could be done as a specialty contract where the railroad does
the construction and integrates the construction with their
maintenance and other operations or it can be done through DOT.
Regardless of how the work is done, Mr. Springer believed that the
work could be done as the rest of the state work is done, which is
in compliance with the State Procurement Code. He offered to
answer any questions.
A quorum was established.
Number 082
JOHN ENG, Cornerstone Construction, explained that Cornerstone
Construction is a general contractor that does commercial and
industrial work as well as railroad maintenance and construction.
Mr. Eng believed that tax dollars should be awarded through a
competitive bidding process. He agreed with Mr. Springer that the
owner of the adjacent property whether it be the railroad or
someone else, could establish some technical requirements that
would have to be followed for everyone's benefit. Mr. Eng said
that he was promoting this legislation primarily for the economic
benefit to the state as well as a competitive bid operation and
business opportunity for Cornerstone Construction.
BOB HATFIELD, President and CEO of the Alaska Railroad, said that
the railroad owns the right of way on which the work would be done
and the railroad should do the work it is capable of doing on its
own right of way. As a standard condition to consent to a DOT
grade crossing project, the railroad asks that its employees do
that work which involves changing or moving track. Mr. Hatfield
emphasized that the railroad asks that its employees do such work
due to the liability issues which the railroad accepts through its
normal operations. Therefore, the railroad wants to know exactly
how work has been done. Mr. Hatfield recognized that the work
could be accomplished by contractors, but the railroad's liability
creates the need to know exactly what is done. Also the train and
construction operations have to be coordinated; the railroad can do
this more efficiently. Mr. Hatfield pointed out that the railroad
is reimbursed for doing a project in accordance with the Federal
Highway Administration guidelines. He explained that cost
estimates are submitted to DOT who analyzes the estimates for
reasonableness. Once the project is complete, DOT routinely audits
the payments in order to ensure that the railroad does not receive
payment for work that was not done or not done in the manner
specified. He offered to answer any questions.
Number 145
SENATOR LINCOLN inquired as to why the railroad could not specify
within the contract that the contractor would bear the
responsibility. With regards to the reimbursement by the federal
government, could the contractors or subcontractors submit cost
estimates and DOT could audit them just as the department audits
the railroad? BOB HATFIELD agreed that the audits could be done
for the subcontractor. Mr. Hatfield reiterated that the railroad
can not only do work comparable to that of a contractor, but also
can coordinate the work better. This discussion only refers to
track and signal work. Mr. Hatfield pointed out that the railroad
routinely contracts out other work in the right of way that does
not directly involve the track or the signal.
SENATOR LINCOLN noted that Mr. Eng's letter said that he was
looking at railroad crossings and overpasses when asking how track
and signal work would be involved in overpasses. BOB HATFIELD
explained that often a track must be relocated when there is work
done on an overpass.
SENATOR LINCOLN asked if Mr. Hatfield believed there to be a cost
savings to Alaska by keeping the contract solely with the railroad.
BOB HATFIELD believed there to be a cost savings. The railroad has
the equipment, people, and the expertise to do this work on demand.
Mr. Hatfield noted that the railroad seems to have the same
situation with highway construction as the utility companies do.
SENATOR LINCOLN asked how much the savings would be in one fiscal
year. BOB HATFIELD did not know. There are many factors involved
in such an estimate.
Number 203
SENATOR GREEN asked if this same dilemma applied to any other
governmental entity besides the railroad. Senator Green believed
that a conflict had been created in this public-private entity
which separates the railroad from a normal utility.
SAM KITO III, Department of Transportation & Public Facilities, did
not believe there was another private entity to which this would
apply. Typically, the department does force account work with
villages through Public Health Services or the Department of
Environmental Conservation.
SENATOR TAYLOR said that the substance of SB 315 is to allow the
railroad to defer to DOT. He asked if the railroad would have to
defer to DOT.
CHAIRMAN RIEGER explained that SB 315 would require that the
railroad use the same processes that DOT would have used had DOT
done the work themselves. In response to Senator Taylor, Chairman
Rieger said that the railroad is not doing that.
BOB HATFIELD interjected that the railroad is behaving in the same
manner in which DOT would. DOT can choose to do the work itself of
the work can be contracted out.
SENATOR TAYLOR asked if the railroad was using competitive sealed
bidding. BOB HATFIELD said that the railroad was being asked to do
the work and the railroad is. SENATOR TAYLOR said that if the work
is being done in-house, competitively sealed proposals would not be
required; this law would not effect that, would it? BOB HATFIELD
said that it seems that any work DOT may undertake on the
railroad's property which involved track work would have to be put
out to bid, even routine work.
SENATOR TAYLOR asked if the routine work was being done by DOT, not
the railroad and its employees.
Number 256
BOB HATFIELD explained that DOT may be relocating a road or
building a highway overpass which would require taking apart tracks
or moving tracks. That work is done by the railroad at the request
of DOT. SB 315 would require that work done by the railroad for
the railroad to be competitively bid upon.
HENRY SPRINGER pointed out that under the State Procurement Code,
any money appropriated to DOT under the Capital Program (CIP) or
any projects must have a competitive bidding process. The
department can choose how to proceed with operating and maintenance
funds that are general fund appropriations. Mr. Springer clarified
that he was asking that the railroad, in cases of capital money
coming through DOT to the railroad, have a competitive bid process.
SENATOR LINCOLN understood from previous testimony that this
legislation would cost the state more money. She noted that there
is no fiscal note. Senator Lincoln inquired as to the position of
DOT regarding SB 315 and if SB 315 will cost more money.
CHAIRMAN RIEGER pointed out that there are fiscal notes from the
Alaska Railroad and DOT. SENATOR LINCOLN said those fiscal notes
are zero.
SAM KITO III said that DOT does not believe there to be a fiscal
impact with SB 315. The department cannot project what the fiscal
impact may be for the Alaska Railroad Corporation if the method of
operation is changed. Mr. Kito said that DOT supports the Alaska
Railroad Corporation's position on SB 315.
Number 300
CHAIRMAN RIEGER asked if the Alaska Railroad were a private
corporation and there were no special statutes governing the
railroad, would DOT be able to transfer the ability to do the work
on the railroad's right of way to that private railroad. If the
department could transfer that ability to a private railroad, would
it be subject to State Procurement Code laws?
SAM KITO III believed that if the Alaska Railroad Corporation were
an independent or private entity, DOT would have no say in how the
project was constructed. With regards to the private entity
receiving funds from the department, Mr. Kito did not know if that
would be possible.
CHAIRMAN RIEGER asked if that was done in any other instance or
does the department always own the right of way included in a
project. Perhaps, utilities would be an example. SAM KITO III
informed the chairman that DOT does have lease agreements for
utilities within the road right of way where a utility will have an
easement within the road right of way to place its utility. With
a DOT project or highway project, the department will own the right
of way or have a significant interest. With some airports, the
department leases the land from a corporation or is proposing to
lease the land from a corporation.
CHAIRMAN RIEGER asked if the department did the work in such
situations. SAM KITO III replied yes, the department does the work
directly; it is a public project. The department would have a
lease for the property and the department would have significant
interest in the property in order to operate a public project.
Number 330
CHAIRMAN RIEGER asked if money would be transferred to Alyeska
where the road crosses the pipeline right of way or would the
department do the work. SAM KITO III said that he was unfamiliar
with the statutes and the regulations. Statute specifically
addresses utility relocation in state right of way.
CHAIRMAN RIEGER said that he was still unclear as to what would
transpire if the railroad was private.
SENATOR TAYLOR acknowledged that there may be some specialty or
advantage to doing the work in-house. He asked if this work should
be open to competitive bidding when the railroad is ultimately
liable for the trains running over that work.
SENATOR LINCOLN wanted to know if there would be a significant
difference in the cost of going through a competitive bidding
process. She pointed out that more employment would be created, if
there was not a significant difference in the cost. With regards
to the liability, Senator Lincoln suggested that the construction
of buildings, highways and bridges is no different than building
railroad ties. The liability could be written into the contract.
Is there going to be an additional cost to Alaska and if so, how
much? Would this carry forward if the railroad was sold?
BOB HATFIELD indicated that he would be speculating at this point
with regards to the savings or expense of SB 315. However, Mr.
Hatfield assumed that there would be no savings from the labor cost
component. Furthermore, the railroad has parts and materials that
are bought in bulk which presumes a better price than a contractor
would be able to obtain. Even if a contractor did the work, the
railroad would require that a flagman and track inspector be in
place monitoring the work. Therefore, three more employees would
be present than would if the railroad were doing the project.
SENATOR LINCOLN asked if anyone would have to be laid off if the
bidding process were utilized. BOB HATFIELD said that it could be
possible. With the Bird Creek to Girdwood Project, employees would
have been laid off.
Number 399
RICK LEGGETT, General Road Manager, that the Bird to Gird Project
had about 30 track people on that project and two separate crews.
If that project had been allowed to go through the bidding process,
those railroad employees would have been laid off.
SENATOR GREEN asked if the railroad determines the size of its
staffing based on the assumption that those employees will do those
projects in-house.
JOHN ENG posed the following question: would the work be better on
a competitive bid basis or a cost plus force account basis?
BOB HATFIELD pointed out that the railroad's estimates are reviewed
for reasonableness before the work is done and are further audited
after the work is completed in order to ensure that the railroad
did not do anything out of line.
JOHN ENG said that SB 315 does not prevent the railroad from also
bidding on the work. With a competitive bid process, the railroad
would be able to demonstrate if there would or would not be savings
if the railroad did the work.
SENATOR TAYLOR does not like the current procurement code. It is
burdensome. If the railroad has used private contractors in the
past and this is a policy shift, Senator Taylor did not object to
the legislation.
CHAIRMAN RIEGER pointed out that the additional language in SB 315
refers to "when procuring" and that there would be a competitive
process "when procuring". Chairman Rieger clarified that the
complaint was in regards to the force account. Does the railroad
interpret SB 315 as preventing any in-house work? BOB HATFIELD
replied yes. The railroad believes that SB 315 would require the
railroad to competitively bid a project no matter how small or
large. Mr. Hatfield mentioned the administrative burden which
would be created for the railroad.
CHAIRMAN RIEGER asked if Mr. Eng interpreted the bill in that
manner. JOHN ENG said no. Mr. Eng understood the bill to mean
that public bidding would only be required when the project is
funded by tax payers' dollars.
BOB HATFIELD agreed with Mr. Eng, but some of DOT's projects paid
for by tax payers are relatively insignificant with regards to
cost.
HENRY SPRINGER pointed out that is done under AS 36.30.100 -
36.30.270 which does not preclude the work being done in-house or
by force account; the statute lays out a mechanism. It basically
says that, under the procurement code, anything over $100,000 would
be required to go through a competitive bidding process. If there
are extenuating circumstances, then the competitive bidding process
does not have to be used; it is not a blanket requirement.
CHAIRMAN RIEGER asked if there were other questions from the
committee. Hearing none, Chairman Rieger asked for the pleasure of
the committee.
Number 465
SENATOR TAYLOR moved that SB 315 be moved out of committee with
individual recommendations.
CHAIRMAN RIEGER noted that SB 315 has a referral to Senate Finance.
SENATOR LINCOLN objected for discussion purposes. She had no
objection to moving the bill to Senate Finance, but the bill could
be waived from that committee because of the zero fiscal notes.
Senator Lincoln said that she would not object to moving the bill
out of committee if she was assured that it would be heard in
Senate Finance.
SENATOR TAYLOR shared Senator Lincoln's concerns regarding the
fiscal impacts of SB 315. He hoped the bill would not be waived
from Senate Finance.
SAM KITO III explained that AS 36.30.100 - 36.30.270 does not have
any guidelines for what would constitute a project that should be
eligible for competitive sealed bid or competitive sealed proposal.
Those portions of the procurement code only address the procedures
by which a competitive sealed bid or a competitive sealed proposal
would be implemented.
CHAIRMAN RIEGER said that he would like to move this bill, but he
would also like to review those statutes.
SENATOR TAYLOR withdrew his motion.
CHAIRMAN RIEGER believed that often public projects are
appropriated in part, with the expectation that work would get out
to the private sector. Chairman Rieger said that he was
sympathetic to that. He wanted to have a workable procedure in
place to ensure that happens. If there is a question regarding the
restrictions with the procurement reference, then it would be
appropriate to hold the bill. Chairman Rieger asked if anyone else
would like to testify on SB 315. He informed everyone that staff
would research those statutes, obtain a legal opinion, and share it
with committee members.
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