Legislature(2003 - 2004)

05/13/2003 04:08 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ 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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