Legislature(2003 - 2004)
04/27/2004 01:42 PM Senate TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SCR 25-STATE CONSTRUCTION/MAINTENANCE CONTRACTS
The committee took up SCR 25.
CO-CHAIR COWDERY, sponsor of SCR 25, said SCR 25 was his effort
to address problems due to SB 40, and testified as follows:
In order to maintain transparency and to make certain
public funds are spent efficiently, statute requires
construction and maintenance contracts be awarded on
the basis of a competitive bid.
In the case of small projects or repairs, law allows
the state, for the purpose of efficiency, to fund a
project in-house through what's termed a 'force
account.' Ideally, these are for projects costing
$250,000 or less.
The purpose of SCR 25 is to encourage the State of
Alaska (primarily DOT&PF) to use day labor, 24-hour
call out contracts, competitively bid, in the range of
$250,000 to $1,500,000. Contractors employ skilled
managers and maintain an inventory of specialized
equipment. Therefore, construction work done in the
public sector requires similar staffing as well as
inventory, thus resulting in increased cost to the
ratepayer.
Day labor contracts on 24-hour call would be all
encompassing, using the competitive bid process to set
line item costs for a set of numerous individual
tasks, such as replacing a road sign to filling a
pothole to grading a gravel runway, and in some places
in rural Alaska, boardwalks. Contractors on 24-hour
call would use pretty much local labor sources.
CO-CHAIR COWDERY questioned if force accounts ever use a
competitive bid project if they run into problems that they
don't have the money for, and use force accounts to finish the
project.
MR. MARK O'BRIEN, Chief Contracts Officer for DOT&PF, said yes.
In a case where there is an ongoing construction project and
they run into an unknown repair, it is fairly typical to use a
force account to conduct work that was not previously called
for, under the low-bid competitive bid that was put out and
awarded under the contract. That needs to be accounted for in a
different manner.
CO-CHAIR COWDERY asked if the force account was used, in the
original conception of force accounts for the purpose just
referred to.
MR. O'BRIEN replied this was probably the most common use for
force account within the department; to pick up and address
these issues that were not within the scope of the original hard
money bid that was put out and awarded. There are other uses
for it too.
CO-CHAIR COWDERY asked if the estimated savings on calendar year
2002 force account projects, between $250,000 and $1.5 million
was $905,000, or 38 percent.
MR. O'BRIEN confirmed this was correct.
CO-CHAIR COWDERY said assuming the amount of force account
projects remains constant, over the next six years the lost
savings would total $5.43 million.
MR. O'BRIEN said this was correct.
CO-CHAIR COWDERY asked if this referred to contracts that were
competitively bid by engineers' estimates.
MR. O'BRIEN said these were estimated savings based on the
difference between issuing a competitive sealed bid and using
in-house force account labor to accomplish the work. Savings
are primarily the result of the differential between Davis Bacon
wages and the wages paid by the state, a profit that contractors
receive that the state does not charge on a project. Cheaper
materials are a result of stockpiling materials in advance of
the project, and a number of factors determine that for a
particular project it was 'x' percent less expensive to do it
with a force account. The representative number is an
accumulation and average.
CO-CHAIR COWDERY said these were never bid out competitively.
He asked if this was an estimate of what it would be if it went
on the street.
MR. O'BRIEN said that was correct.
CO-CHAIR COWDERY, suggesting that estimates are guesswork, asked
if engineers' estimates were always accurate.
MR. O'BRIEN said no, occasionally engineers' estimates are
considerably off from the price that comes in from contractors.
CO-CHAIR COWDERY said he has bid on jobs where it was as high as
50 percent. For example, bidding on the Port of Anchorage, he
came in very low because of "having a better mousetrap or
whatever." They did the job but it was about fifty percent less
than the engineer's estimate. He said his point was that
there's no way to be accurate until you have a competitive bid.
He referred to the St. Mary's project, and mentioned that local
residents were state employees. He said whether one lives in
rural or urban Alaska, the labor force should be paid the same
since people work just as hard to finish the project. The wage
scale should be on a par with the urban wage scale. This
resolution assures that it's competitively bid, that Davis Bacon
wages are followed, and so forth. He said he doesn't agree with
the fiscal note showing a savings because it's all speculation.
MR. O'BRIEN said that some projects are based on competitive
bid. For instance, in a year when they did resurfacing in a
particular area with a contractor, they knew what those costs
were. If they do a force account project on a similar stretch
of road, they have accumulated both of those costs to verify
that in fact the estimate for savings was verified through
actual bid results.
CO-CHAIR COWDERY said he didn't understand if a job was put out
to bid, the contractor went to the cost of bidding it but then
it went to the force account. Until one actually does
something, all one has is an educated guess which isn't
accurate, he said.
MR. O'BRIEN said he meant that if there are two separate
projects, one accomplished by a contractor under low bid, and
one accomplished by the state under force account, and track the
cost for both of those projects, it verifies a cost-savings for
the state to use force account for the re-surface job that he
referred to earlier. He clarified that it wasn't that they did
the project and then told the contractor that they were going to
do it with their own forces, but rather that it was a comparison
of two similar projects, one accomplished with a contractor and
one with state forces.
CO-CHAIR COWDERY said, "Granted, the state has equipment, but do
they pay taxes like the contractor does? Have overhead?" He
said with the St. Mary's project, two contractors spent time
bidding on the job and then the bids were cancelled.
MR. O'BRIEN said the department did not actually competitively
bid the St. Mary's project.
CO-CHAIR COWDERY mentioned that contractors went there to see
the job.
MR. O'BRIEN responded that may be correct.
SENATOR OLSON acknowledged that the force account system has
done a wonderful job in rural Alaska for some DOT&PF projects.
He said a number of the airports done under force account have
been a positive factor for those involved with the project. He
mentioned the project in Elim in particular where the village
and the city were involved, and the project was done under
budget. After the project was completed, people took pride in
it. He said the force account system has been working well in
the past, and asked for the department's opinion of the
resolution.
MR. O'BRIEN said some concerns about the resolution have been
formulated. The resolution intends to encourage the use of as-
needed contracts, which are commonly referred to as term
contracts where one doesn't have a specific piece of work but
has a contractor on board to take on whatever next piece of work
comes along. He said the department currently uses term-
contracts for various pieces of work, but is usually restricted
to individual tasks or individual contracts. He said there
should be a list of examples of term-contracts the department
currently uses, provided in the packet. He gave the examples of
construction inspection, corrosion inspection, cost estimating,
and materials testing. Those are examples of "as-needed"
contracts that are kept on the maintenance and operation side.
MR. FRANK RICHARDS, State Maintenance Engineer for Department of
Transportation and Public Facilities (DOT&PF), said that
included in the committee packet is an extensive list of
contracts currently under maintenance, including specialty work
such as brush-cutting, guard rail replacement, electrical
repair, and the largest one likely being the snow haul in
Anchorage. It's an as-needed, on-call basis for contract repair
to remove the snow. One of the other large efforts is the rural
highways and airport contracts. There are about 170 contracts
essentially on an as-needed basis, primarily to remove the snow
on the runways and roads in rural Alaska. Those are worth about
$2 million per year, which is a fairly large number.
SENATOR OLSON said he was talking about new capital projects as
opposed to maintenance and operations projects.
MR. O'BRIEN responded that this ties in to the construction
contracts because statute and regulations require all of the
construction contracts, absent those approved by force account,
to be done by competitive sealed bid, to the lowest responsive
and responsible bidder. That is different than the way this
tool sets that up. If these as-needed contracts were imposed,
there is no project for the contractor to bid on when he is
responding to the as-needed contract. His only option is to bid
hourly rates, equipment costs, and those kinds of figures so
they are sitting there when the department is ready to turn on a
project. In this case, if an as-needed contract were used, the
department would not have a contract low bid price for this work
going in; it would be time and materials. Rarely has the
department seen a low bid come in that is going to be more
expensive than the time and materials contract. Locking the
contractor in from day one for the specific construction project
is the main concern. If the department used this vehicle to use
a contractor who was not locked in, it may result in additional
costs to the state. That's the primary concern, he said.
CO-CHAIR COWDERY said once when he worked for the mayor of
Anchorage, the same problem arose and he developed a day labor
contract. Everybody who bid on it, including ABC, liked it. He
said he thought that in years past, he had given contract copies
of that to DOT&PF. It was put out similar to a job to build a
road from Juneau to Skagway, that is, anticipating everything
that's needed, whether that be guard rails, signage, glass
culvert, or asphalt per ton per mile. It started out at $.5
million dollars with the city of Anchorage and went to a
million; it was very competitively bid, and it was understood
that "items that you bid may not ever occur. But everybody
being on the up and up, the size of the contract was determined
by someone to be a fair expectation of the amount of work that
was going to be done in that year. In other words, it wouldn't
be said that it would be $10 million and then do $10."
2:58 p.m.
CO-CHAIR WAGONER referred to Mr. O'Brien's comment about
different salaries the state pays versus Davis Bacon wages,
saying he doesn't think one could stick to those parameters when
figuring the cost of jobs because he has observed that between
Kenai and Anchorage, a lot of guard rail is lost every year. He
said he had the chance to observe private contractors working
with two to three people, whereas the highway department would
have a much larger crew doing that type of work. He said it was
really difficult to estimate the actual cost unless it was bid
out, and then one takes that bid and relates it to the state and
looks at the increase in the amount of hours. He said he wasn't
saying which was right or wrong, but intangibles were involved
regarding figuring prices and jobs.
CO-CHAIR WAGONER remarked that this is a good bill. He
referenced 1996 when he was running for office and going back
and forth between Kenai and Anchorage every day. The state was
doing a large seal coat job on the highway, there was continuous
traffic and it was all state equipment, state workers. He
didn't know how many millions of dollars the job was worth, but
it must not have been a job that was bid out. He said he would
much rather see state employees working in maintenance-type
efforts to keep the good quality of the roads up than seeing
them working with equipment that costs several hundreds of
thousands of dollars, doing construction work. He said this was
a major construction project that he doesn't think was ever bid,
although the private sector is there to do the work, and has the
equipment. He questioned whether the state should have that
type of equipment, because "that's a lot of money sitting around
in inventory" although he understands in the winter there is
some use for sanding and other functions.
CO-CHAIR COWDERY questioned whether the state could do those
jobs for less.
SENATOR OLSON said he wanted to distinguish between the force
account projects on the road system and those not on the road
system. He said he was more familiar with the one outside of
the Railbelt, or road system in Alaska. He said he knows the
state has leased a lot of equipment and it has cut the price
down. This was true for the St. Mary's and the Elim project.
There has been an addition to the community as opposed to a
project that goes on in the community, when everybody comes and
then leaves, including a majority of the labor capital. He said
from a business perspective, he has concerns regarding equipment
being purchased or depreciating, and yet, in looking at the
whole picture, he sees the positive effects of force accounts
where it has been unfettered by the numbers or the size of the
project, especially in construction. From a public policy
standpoint, he said DOT&PF's force account system seems to be a
positive factor, despite some of the negative sentiments being
voiced. He reiterated that there should be a distinction
between road and not-on-the-road force account projects.
CO-CHAIR COWDERY asked if the marine highway was on the road
system.
SENATOR OLSON said this wasn't black or white, but a grey area.
He said somebody representing the Marine Highway System should
comment.
CO-CHAIR COWDERY commented that the purpose of SCR 25 on SB 40
would be to give some latitude to the local people. Having been
a contractor involved with making money, he said whenever he
could, he hired local people. The local people were anxious to
work, were good, creative workers, and he paid Davis Bacon
wages.
SENATOR LINCOLN said she didn't find that SCR 25 would help the
villages, as Co-Chair Cowdery was suggesting. She said she has
some misunderstanding of the "as needed" contractors and asked,
"In the force account projects that you've had in the villages,
how much in 2003 would have been provided to force account to
villages versus competitive bidding throughout Alaska, or even
competitive bidding in the villages?"
MR. O'BRIEN said he didn't have those numbers with him today.
SENATOR LINCOLN asked, regarding force account, if he could give
a percentage, such as 50 or 80 percent of the projects in
Alaska.
MR. O'BRIEN said no, in terms of the total highway [indisc.]
force accounts, for instance, in 2002, force account represented
2.23 percent of the department's funding.
SENATOR LINCOLN asked, of that 2.23 percent, were those all in
rural, bush communities?
MR. O'BRIEN said no they weren't. They reflect two different
programs - maintenance and operation programs that Senator
Wagoner discussed - with road crews doing jobs in an area. It
would also include projects such as King Cove or Soldotna, where
there were individual force account projects in those
communities. He said it's a mixture of both and he didn't have
a breakdown for where those percentages were.
SENATOR LINCOLN asked if 97.75 percent of all the projects were
done through competitive bidding.
MR. O'BRIEN said this was correct.
SENATOR LINCOLN asked for an explanation of why 97.75 percent of
all the projects in 2002 - and she expressed interest in 2003 -
was a concern, when force accounting is 2.23 percent.
CO-CHAIR COWDERY asked what the largest contract was in 2002,
that is, "What's the dollar value of the largest and the
smallest?"
MR. O'BRIEN asked if the question was the largest dollar amount
of a force account project.
CO-CHAIR COWDERY said no, of a project. He reviewed that in
2002, 2.23 percent was in force account, of all the projects.
He asked what the high bid was on whatever projects that "you
made in to this equation," what the low bid was, and where they
were located?
MR. O'BRIEN answered that the program for 2002 would have been
roughly a $550 million total program, of which the force account
approvals represented $11,242,000, reflected in the 2.23
percent.
CO-CHAIR COWDERY asked about there being hydrocarbons in the
road, and whether the force account would be used to add to the
cost of the project, or if the project would be stopped and
there would be new funding.
MR. O'BRIEN responded that was a different kind of force
account. A force account that occurs on a construction project
is not a force account that requires approval by statute because
the original contract was competitively bid. The department
had a project that required that kind of a force account with a
contractor, it's not found in these numbers and it's not
required for statutory approval. Statutory approval is required
when the department conducts a force account with its own
employees and does it from the very beginning, so there is no
competitive bid for the work itself.
SENATOR LINCOLN stated that force accounting is so critical to
many small communities. She mentioned the village of Rampart,
where none of the employees were local hires in a competitive
bid. Men and women watched the project, almost with tears in
their eyes. She concurs with Senator Olson's comments about
pride in projects done by local hire versus projects where there
is no idea how it was put together. She then asked for a review
of the handouts that were included in the committee packet.
MR. O'BRIEN referred to and explained the three handouts, noting
that the department currently utilizes as-needed contracts. The
difference between those contracts and the contract for a
construction bid is what is commonly called, a "hard dollar
bid." An as-needed contract, for the purposes of a construction
project, is not a hard dollar bid. There is no amount. The
amount comes along after the contract is in place with the term
contractor. He gave the example of winning a term contract in
Anchorage, which entitles one to do various repairs on the road
surface. DOT&PF has a $1.5 million project involving changes at
an intersection. That contract is already acquired, before the
project comes along, so he is paid according to his rates, not
on a hard dollar bid. The state doesn't have a bid for the $1.3
million for that job, but has the hourly rate, cost for the
equipment, overhead profit; it is not a hard dollar bid. That
is primarily the difference between the list of contracts and
how the department normally contracts for the competitive awards
for construction projects.
SENATOR LINCOLN acknowledged that it was probably difficult for
Mr. O'Brien to sit in the hot seat and speak honestly about what
the effects of this resolution might be, and a reflection on SB
40 as well. She asked if he was representing the department,
the administration.
MR. O'BRIEN said that was correct.
MR. RICHARDS responded to Senator Lincoln's question and
referred to the three lists. One was a list of contracts that
Mr. O'Brien mentioned and the second was an identification of
projects that would not be completed, based on certain dollar
value limitations. The third was the fiscal note. He addressed
DOT&PF's force account efforts that Co-Chair Wagoner referenced,
and said the benefit of utilizing federal funds for preventive
maintenance type work is it allows for a continuity of work
force. The general fund dollars currently used for operating
budgets aren't sufficient to keep folks employed year round;
there would be seasonal lay-offs in the summertime to relieve
the workforce of those labor costs. The second benefit is of
the equipment costs. When the department is able to utilize
snowplows, tractors, loaders, and sweepers for preventive
maintenance contracts, there is an ability to charge that
equipment cost onto the federal project.
TAPE 04-20, SIDE A
MR. RICHARDS continued that the preventive maintenance programs
that have been put into place have been beneficial in preserving
the life of the assets that the department is constructing, by
utilizing federal highway and aviation dollars. It's not always
the best practice to have to reconstruct, once a pavement has
failed, and if preventive measures can be done up front during
the life of that pavement, there will be a cost savings overall
to state and federal programs.
SENATOR LINCOLN asked if there have been any major problems with
force accounting.
MR. O'BRIEN said he has been with the department in this
capacity since 1998, and is responsible for proving all of the
force account projects; he was not aware of any significant
problems.
CO-CHAIR COWDERY said this is not about force accounts. He
asked, without SB 40, what is the limit regarding somebody who
had a finding saying this is in the best interest of the state.
MR. O'BRIEN responded the requirement is for cost effectiveness
of finding on the individual project and there is no limit on
the size of the [project].
CO-CHAIR COWDERY said the purpose of this resolution is to help
out rural Alaska, and it addresses SB 40.
SENATOR LINCOLN read from the last paragraph of SCR 25 as
follows:
Be it resolved that the Alaska State Legislature
respectfully requests that the governor consider
directing the Department of Transportation and Public
Facilities and other state agencies to use, when
handling construction and maintenance projects between
approximately $250,000 and $1,500,000 throughout the
state, an approach under which a competitively
selected contractor agrees to provide construction and
maintenance services on an as-needed basis over a
particular period of time to a specific geographical
area and on a 24-hour response basis.
She asked what this does to force accounting.
MR. O'BRIEN replied that it is difficult to answer that question
because "be it resolved" is not binding on the department. It
requests that the governor consider it. It is difficult to know
if the administration would go forward with that request.
Assuming they did, projects that fall within that category for
all state agencies, not just DOT&PF, would be required to use
this approach whereby contractors are identified up-front. It's
difficult to say for certain what this would do. The
department's concern is since these are not hard-dollar bids,
not competitive, there could be an increase in the overall cost
to the state for those same groups of projects. That's the
primary concern.
SENATOR LINCOLN asked if the force accounting would continue as
is, under that resolve.
MR. O'BRIEN said projects in excess of $1.5 million would
continue under the normal force account process unless the law
changes as a result of SB 40, in which case it would be
restricted to $250,000. The department would be prohibited from
doing any project in excess of $250,000 by force account.
SENATOR WAGONER moved to report SCR 25 out of committee with
individual recommendations and the accompanying fiscal note.
SENATOR LINCOLN objected.
A roll call vote was taken. Senators Therriault, Wagoner, and
Cowdery voted in favor of the motion; Senators Lincoln and Olson
voted against it. Therefore, SCR 25 moved from the Senate
Transportation Standing Committee by a vote of 3 to 2.
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