Legislature(1999 - 2000)
04/28/1999 03:26 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
CSSB 141(L&C) - PROCUREMENT: CONTRACTS/SUBCONTRACTS Number 0124 CHAIRMAN ROKEBERG announced the committee's first order of business is CSSB 141(L&C), "An Act relating to construction contracts and subcontractors; relating to design-build construction contracts; and providing for an effective date." Number 0137 JEREMY KERR, Student Intern to Senator Loren Leman, Alaska State Legislature, came forward to present CSSB 141(L&C) on behalf of the bill sponsor. He indicated he is a student at the University of Alaska Southeast and conveyed Senator Leman's regrets that he was unable to testify in person due to a recent injury. Mr. Kerr stated he is present to speak about Sections 1 through 6 of SB 141. Senate Bill 141 was introduced at the request of the Department of Transportation and Public Facilities (DOT/PF) to give the department greater flexibility in contracts known as design-build. A design-build contract is one where the owner, in this case the state, chooses a contractor that will be building as well as designing a project. A couple of examples of this from the state of Alaska are the M/V Kennicott ferry and the Whittier tunnel. A more typical contract is one where the owner picks a design and the contractors then begin building according to that design. This bill allows decisions that are made to be in the best interest of the state in regard to building projects and will only affect state contracts. MR. KERR explained current law specifies that construction contractors must list the subcontractors they plan on using within five days of contract award. Because of the nature of design-build contracts, it is not always possible for the contractor to have identified the necessary subcontractors. For example, during the middle of a ferry building project the primary contractor learns that the propulsion system needs to be different and it is not something the current subcontractor can perform. Therefore, the primary contractor needs to hire a different subcontractor. The primary contractor cannot do this under current statute; under statute he cannot get rid of the first subcontractor. This legislation gives DOT/PF the flexibility to allow design-build contractors to provide subcontractor information past that five-day notification period. The legislation also contains protections in that requested subcontractor changes must be in writing. Mr. Kerr noted Senator Leman has reviewed the new Section 7 of the proposed committee substitute (CS) and has found no objection. In addition, they have also spoken to the design and construction communities regarding Sections 1 through 6 and have found no objection from them either. Number 0404 CHAIRMAN ROKEBERG commented there is a proposed CS; he would entertain a motion to adopt Version H. REPRESENTATIVE HALCRO made a motion to adopt the proposed Version H House CS for CSSB 141(L&C), labeled 1-LS0827\H, Bannister, 4/27/99. There being no objection, it was so ordered. Number 0465 DAVID ROGERS, Lobbyist/Attorney for the City of Delta Junction, came forward in Juneau. Mr. David Rogers indicated he is joined online in Delta Junction by Mayor Gilbertson of Delta Junction and the Delta Junction City Council, and by Brian Rogers in Fairbanks, a key consultant to the Delta prison project. They are all here today to testify in support of Section 7 [added by Version H, the proposed House CS]. This amendment basically means that the public procurement process undertaken by the City of Delta Junction over the last several months meets the requirements of HB 53 [HB 53, LEASE-PURCHASE CORRECTIONAL FACILITIES, Twentieth Legislature]. This process resulted in an ordinance authorizing a sole source contract for that purpose. House Bill 53, among other things, authorized the state to enter into an agreement with Delta Junction to lease prison facilities as long as the prison is operated by a private third party vendor selected by the city through a process similar to the procedures set out in the state procurement code, AS 36.30. Some people have raised concerns about Delta Junction's process, but the city thinks it has done it correctly and has arrived at a decision that is best for Delta Junction and its citizens. This amendment [Section 7] would resolve any ambiguities about Delta Junction's process and would allow them to begin as soon as possible. Mr. David Rogers indicated he would like to turn the testimony over to Mayor Gilbertson and the Delta Junction City Council for a statement. [Section 7 of the proposed House CS for CSSB 141(L&C) read: * Sec. 7. Section 4, ch. 15, SLA 1998, is amended by adding a new subsection to read: (d) The adoption by a municipality, when exercising its powers under AS 29.35.020(a), of an ordinance for procurement of a facility or operation on a design-build construction contract basis satisfies the procurement requirements under (b) of this section.] Number 0607 ROY GILBERTSON, Mayor, City of Delta Junction, testified next off-network via teleconference from Delta Junction. He noted city council members Susan Kemp, Mary Dowling (ph) and Rick Johnson were present. Mayor Gilbertson thanked the committee for its time and turned the testimony over to Councilwoman Susan Kemp. Number 0643 SUSAN KEMP, City Council Member, City of Delta Junction, testified next off-network via teleconference from Delta Junction. She read the committee a statement on the Delta Junction City Council's position: "This winter, we brought the question of the private prison project to the Delta Junction voters. They said we should proceed, and that's what we are trying to do. "Delta Junction is going to be in a world of hurt when Fort Greely closes unless the base is reused. Our best shot for economic reuse of the base is the prison project. The prison is controversial in our community, and there is a vocal opposition, but they've been in the minority both times we've voted. "Those [the proposed] changes in Section 7 of this bill are designed to help the City with the goals set out in House Bill 53 last year, and I quote: '1. To take advantage of the unique opportunity to use surplus military facilities on the road system that are becoming available through the United States Army's realignment of Fort Greely's mission, 2. To prevent and ameliorate economic hardship in the Delta region occasioned by that realignment, and 3. To relieve overcrowding of existing facilities within the state and the extensive use of out-of-state correctional facilities to house Alaska inmates.' "The legislature's intent was to provide economic redevelopment relief to Delta Junction by seizing the unique opportunity of using the abandoned buildings left after the realignment of Fort Greely. At the same time, it applies to a matter of statewide concern because capitalizing on this unique opportunity will have a positive impact on the State by returning prisoners to custody in Alaska. "The City is under tremendous time pressure to move this project forward for timely completion, to even have a chance of aligning the prison project with the closure of Fort Greely. These pressures include the need to begin the landfill construction and permitting this summer, to handle the demolition that will be needed for a major conversion project. Survey work has to be done to begin the process of land transfers. "Most importantly, we have to demonstrate to the Army that they have a viable plan to proceed. If the Reuse Plan is not in acceptable form by January 2000, then the opportunity to seek an economic development transfer for this project will be gone. If the prison is not ready to operate by July 2001, the jobs in Delta Junction will be gone and families will suffer. To meet this schedule, Delta must select our design-build and initial operations contractor now. "This amendment will keep the project on track. For the state, that means the goals of economic redevelopment and in-state ... prisoner housing can be met. For Delta Junction, that means our community can survive the base closure. Thank you for helping us meet this challenge." Number 0842 CHAIRMAN ROKEBERG requested that Ms. Kemp fax her written statement to the committee. He confirmed no one else wished to testify from Delta Junction. The chairman asked if that concluded Mayor Gilbertson's presentation. MAYOR GILBERTSON commented he didn't really have anything to add. RICK JOHNSON, City Council Member, City of Delta Junction, commented off-network via teleconference from Delta Junction that Councilwoman Kemp had done a good job of representing the majority of the council. CHAIRMAN ROKEBERG asked the committee members if there were any questions for Ms. Kemp or Mayor Gilbertson. REPRESENTATIVE HALCRO noted there was a lawsuit filed over this issue about adhering to state procurement code. He asked Mayor Gilbertson if Section 7 would provide the city some relief. MAYOR GILBERTSON answered he was not too sure on that and deferred the question to Brian Rogers. Number 0921 MR. DAVID ROGERS in Juneau offered a response. He noted the Delta Junction's city attorney is out of town, emphasizing he is not the city attorney. Mr. Rogers said his sense is that it [Section 7] will resolve much of the issues presented in the lawsuit; he doesn't know if it will resolve every one of them, but it will certainly do a big job of clearing the path for the city to proceed. CHAIRMAN ROKEBERG asked who the parties to the lawsuit are. MR. DAVID ROGERS answered that the plaintiffs are: Wayne Mark Carpenter (ph), Dean Willard Cummings (ph), Dean William Cummings (ph), William Johnson (ph), Ray Patterson (ph), Russell Bowdry (ph) and Ray Bowdry (ph) v. the City of Delta Junction, the "Delta Corrections Group, LLC," and "Cornell Corrections of Alaska, Inc." Mr. Rogers noted Cornell will be the city's contractor. CHAIRMAN ROKEBERG questioned that this was filed on the complaints about procurement code violations. MR. DAVID ROGERS answered in the affirmative, indicating that the plaintiffs were objecting to the city's process. CHAIRMAN ROKEBERG asked if that was what generated the need for this remedial statute. MR. DAVID ROGERS answered in the affirmative, indicating it is, however, for the same reason - time delay - that the competitive RFP [request for proposal] process did not work for them. He said this would create another potential substantial delay in launching the project, which could ultimately jeopardize the project and place the community at risk. It is one of the factors that brings the city before the committee today. CHAIRMAN ROKEBERG confirmed Brian Rogers in Fairbanks was available on teleconference and had been following the testimony. The chairman asked if he had anything to add to clarify the situation. Number 1049 BRIAN ROGERS, Chief Financial Officer, Information Insights, Incorporated, testified next off-network via teleconference from Fairbanks. Mr. Rogers noted litigation is not his area. He indicated he thinks the city has pretty well described what the need is for this amendment. He indicated he could answer technical questions, commenting he has been working with the city attempting to bring the project to fruition. CHAIRMAN ROKEBERG requested that Brian Rogers provide the committee with something on the order of a one-page critical time line of the timing, rationale, and very brief outline, which could be added to the bill packet for the House floor. The chairman indicated this might help the members understand the situation a bit better. Number 1093 MR. BRIAN ROGERS answered in the affirmative, noting he could provide a brief verbal walk-through as well. Mr. Rogers commented the city [Delta Junction] needs a prison that is ready to operate by July 13, 2001. This is the date Fort Greely is realigned and all the remaining jobs will be eliminated. Mr. Rogers indicated their continual focus has been to ensure a seamless transition from the use of Fort Greely as a military base to use as a private prison. In order to reach that July 2001 time frame, the city needs to begin construction during the 2000 construction season. This requires demolition to be done over the course of this winter and next spring. Unfortunately, the Delta Junction landfill is close to capacity and a new landfill is needed to allow the demolition. The city needs to do the landfill work by September or October of this year and begin the permitting process well in advance of that. Over the course of the last nine months Mr. Brian Rogers has been working on the project, they have worked through sort of understanding all of the issues and were headed toward issuance of a competitive RFP. In February the city authorized the issuance of an RFP and the services of Mr. Richard Crane (ph) were retained. Mr. Crane (ph) is the national expert in RFPs for private prison services. MR. BRIAN ROGERS continued, "He [Mr. Crane (ph)] has written a number [of RFPS] for a number of states, and he came back with a time line that said, basically, we could ... be ready to make an award under a time line beginning in February, that would be the end of October of this year, and with [the] state's procurement 10-day, et cetera, mid-November before an award can be made." Mr. Rogers said at that point they realized going forward with an RFP process would not allow them to make that July 2001 time table. Because of the time needs, the city attorney examined the issue of justification for a sole source based on the unique circumstances of the military base's availability, the fairly complex process of working with the military, the time table of preparing the landfill for demolition, for construction. The city attorney concluded this does meet the state standards for a sole source procurement. Mr. Rogers noted this assumes the city does not have other extraneous items like litigation which further delay the process. He commented this is a difficult process to get completed, but the city's best shot at ensuring it does not lose the job, and that families are not left without sources of income, is to proceed by this sole source. That was the city's decision. Number 1258 CHAIRMAN ROKEBERG asked if the January 2000 date is the point at which they, in essence, have title from the military to begin construction. MR. BRIAN ROGERS replied the January 2000 date is for an effective reuse plan. The "Delta Coalition" filed a reuse plan with the military. Basically, reuse of Fort Greely requires some form of what, in a shopping mall, would be called an "anchor tenant." In this case the primary tenant would be the prison. If they are not able to show the military that they have an economic reuse of the base with an anchor tenant - someone that is committed and makes the base operate as an economic entity as the prison would - then the whole process of land transfer cannot start. They may not need all the transfers by January because the military can execute leases and furtherance of conveyance, "LIFC (ph)," in the interim period, but the military needs to know by January of 2000 whether this is a go or no go. CHAIRMAN ROKEBERG noted, then, they could begin the demolition under the leases and further conveyance if the military felt progress was being made on the total reuse issue. The chairman asked if that was correct. MR. BRIAN ROGERS agreed. The city will need an inter-governmental agreement with the state and final contract with the sole source contractor, in that order. The next step would be the inter-governmental agreement with the state which sets out all the terms so the military knows that this is the real deal. Number 1359 MR. DAVID ROGERS in Juneau said he would like to add one general comment about the process. This decision did not come easily; there was a substantial public process undertaken that ultimately led to the sole source decision as the best shot for the seamless transition. It was a long, involved process with a lot of discussion between community members and a vote on an ordinance to sanctify the decision. REPRESENTATIVE HARRIS directed a question to either of the Mr. Rogers. He asked, regarding the litigation or injunction filed to stop the progress of this project, if it was their understanding that this legislation, especially Section 7, would be retroactive to before this injunction was filed in order to give the city of "Delta" some relief. MR. DAVID ROGERS answered the intent is to provide that remedy. He noted there is some discussion amongst the lawyers about whether or not a specific retroactive clause is needed in the bill. Mr. Rogers indicated he is comfortable with the current drafting. CHAIRMAN ROKEBERG questioned, on that point, if adopting a retroactive effective date for Section 7 would be appropriate. MR. DAVID ROGERS replied it would not hurt. In response to the chairman's further comment, Mr. Rogers noted the date of the ordinance is March 30. He indicated a March 29 retroactive date would make very clear. CHAIRMAN ROKEBERG suggested possibly March 15. MR. DAVID ROGERS indicated it is the committee's choice. REPRESENTATIVE HALCRO suggested March 17. CHAIRMAN ROKEBERG confirmed there were no further questions for either of the Mr. Rogers and informed the committee there was one more witness. Number 1474 MARK O'BRIEN, Chief Contracts Officer, Office of the Commissioner, Department of Transportation and Public Facilities, came forward. Mr. O'Brien indicated he thought Mr. Kerr had done an excellent job describing the department's situation which brought about the legislation's introduction. He is available to answer any questions the committee might have regarding Sections 1 through 6. CHAIRMAN ROKEBERG noted the unfortunate example of the M/V Kennicott state ferry had been used earlier. The chairman questioned whether this legislation could in any way have helped the specifications and the avoidance of the Y2K [year 2000] problem for that vessel. MR. O'BRIEN answered in the negative, indicating he didn't think the legislation would have done that for the department. Mr. O'Brien provided another example. If the department is erecting a simple shed building by design-build and is ready to award to the firm that has scored the highest number of points, within five days of that [award] period according to the statute, this firm would be required to name its construction contractors. However, that design has not been done, it has not been approved by the state. Perhaps there was the option of piling or concrete perimeter foundation. Mr. O'Brien commented, "There's no way to select a foundations contractor at the point in which you're entering into the design-build portion of the contract." He noted that would be an example. CHAIRMAN ROKEBERG asked, "With the exception, is that the primary thing, the time-frame, or is there other aspects ... you'd like to bring to the committee's attention ...?" The chairman commented the five-day selection is ludicrous, noting he has been in the commercial real estate business for 25 years in Alaska and has been involved in this type of thing. It just doesn't make sense. Number 1564 MR. O'BRIEN indicated he had additional comments. He explained the second provision in the legislation is to allow for the substitution of a contractor when it is in the best interests of the state. For example, the department enters into a building contract not believing there is an asbestos problem, but upon opening up the structure for a remodel, asbestos is found and an asbestos abatement subcontractor needs to be hired. Technically the way the law is currently written, the department could not do that. Mr. O'Brien indicated this legislation would permit, when the contractor requests and when the state concurs, a best interest finding (BIF) to be done that allows the addition of that subcontractor. CHAIRMAN ROKEBERG noted, then, the department would have to do a BIF to get change of contract (indisc.). He asked if that is in the existing code. MR. O'BRIEN answered no, it is not. CHAIRMAN ROKEBERG questioned, then, why the department would have to do a best interest finding. MR. O'BRIEN indicated the department felt that in order to address some of the contractors' concerns, allowing substitutions of subcontractors for any reason might promote the idea of bid-shopping down the road. The idea was, then, that there had to be a compelling reason. Therefore, it ought to be documented to the file as to why the state is allowing the contractor to either add or replace a subcontractor. CHAIRMAN ROKEBERG mentioned the language that the request must be in writing, specifically detailing the basis for the request. He asked who the request is in writing to. MR. O'BRIEN answered it would be to the file by the contracting officer. Number 1635 REPRESENTATIVE MURKOWSKI questioned, then, if there would be an opportunity for appeal of that decision by the contractor who had been initially selected and who it has been determined it is not in the state's best interest to continue with. MR. O'BRIEN answered no, under this provision there would not be. REPRESENTATIVE MURKOWSKI questioned the identity of the entity making the final determination. MR. O'BRIEN answered it would be DOT/PF if it was one of the department's projects. REPRESENTATIVE MURKOWSKI questioned, then, it would be the procurement office. MR. O'BRIEN agreed. REPRESENTATIVE MURKOWSKI confirmed that "best interest of the state" is term of art. She noted it seems somewhat problematic. CHAIRMAN ROKEBERG mentioned BIFs, best interest findings. The chairman indicated the committee members were mainly or completely from the private sector. He questioned whether Representative Murkowski is satisfied with the answers she has received, indicating the point that there is no appeal is valid. REPRESENTATIVE MURKOWSKI asked if the legislation has further committees of referral. CHAIRMAN ROKEBERG indicated the legislation would proceed directly to the House floor. REPRESENTATIVE MURKOWSKI commented she was sure this would come up as a question from the very adequately versed lawyers. CHAIRMAN ROKEBERG asked Mr. O'Brien if there were other provisions in the code to replace the contractor, or if there are other policies or regulations within the department to do so. Number 1710 MR. O'BRIEN answered in the negative. Technically, under the example of the asbestos abatement [sub]contractor, if this was not allowed, the department would probably have to agree to allow the addition of that subcontractor where none existed before and, the way it is currently written, technically decide whether to assess the contractor a penalty. He noted this is ludicrous. CHAIRMAN ROKEBERG agreed, stating, "If you had to add the contractor? So there's no flexibility in it before?" MR. O'BRIEN noted that is correct. CHAIRMAN ROKEBERG commented that is ludicrous on its face, but he asked about replacing one, noting that is a different case. MR. O'BRIEN answered there was only a limited number of reasons why a subcontractor can be replaced: generally for bankruptcy and those kinds of issues, not when circumstances arise due to the contract itself. CHAIRMAN ROKEBERG said that is not in this bill, though. The chairman asked if it is in regulations, questioning what those circumstances are and if they are codified or stipulated anywhere. MR. O'BRIEN answered in the negative. Up to this point there were no provisions that allowed for those kinds of substitutions. He expressed some unsurety. CHAIRMAN ROKEBERG noted, right, the department was providing for substitution but the department just has to make a best interest finding. He commented, "In other words, if you are a good creative writer, you can have a lame excuse - there's no statutory grounds ... or rationale for it here, though. Is that correct?" MR. O'BRIEN answered that is correct. He indicated the department has discussed this with the "Associated General Contractors (AGC)" who had some initial concerns. Mr. O'Brien said this organization is now satisfied with this and a letter of non-objection is part of the bill packet. In response to the chairman's lack of enthusiasm, Mr. O'Brien indicated it was the department's attempt obtain some consensus on the issue with the contractors. CHAIRMAN ROKEBERG questioned if the letter was on that issue. MR. O'BRIEN answered in the affirmative; the AGC reviewed this legislation in its very early stages. CHAIRMAN ROKEBERG questioned if there were comments from the bill sponsor regarding this. Number 1801 ANNETTE KREITZER, Legislative Assistant to Senator Loren Leman, Alaska State Legislature, came forward as the bill sponsor's representative. She stated that they have gone back to AGC several times and AGC has reviewed the legislation. Additionally, Senator Leman has been having conversations over the past couple of days with AGC and the design-build community: they have no objection to the legislation as written. CHAIRMAN ROKEBERG asked if this provision is only in the design-build section, questioning if there is a general applicability to the entire operation of DOT/PF. MR. O'BRIEN responded that the second portion is applicable to all contracts. There are two issues: 1) To relieve the state from the five-day notification for design-build. 2) To allow the replacement or substitution of subcontractors under all DOT/PF contracts, not only design-build. Mr. O'Brien indicated the chairman is correct in that this does have universal application. Referring to the issue raised about whether a subcontractor would have some avenue to object, Mr. O'Brien noted the contract controversy provisions under the existing statute would allow a contractor to bring an action against the department for a contract issue. There is an avenue under the formal dispute resolution process, not as a part of this section of the statute. He agreed with the chairman and Representative Murkowski that the alternative would be a court action. CHAIRMAN ROKEBERG indicated this would be for breach. Number 1872 REPRESENTATIVE MURKOWSKI indicated that is her thought: By including this, are they not just opening up the door for some major lawsuits against the state by contractors? CHAIRMAN ROKEBERG noted that is where the BIF comes in - that is the supporting document, but it is to the file. REPRESENTATIVE MURKOWSKI agreed it is to the file. She questioned where it goes and the process. She expressed some concern, although the fact that the AGC has signed off on it gives her a bit more comfort. However, she guesses a non-opposition is not exactly a wholehearted endorsement. Representative Murkowski reiterated that she has some concerns. She admitted she had not caught this during her earlier review; if she had, she would have given it more thought before this meeting. It seems problematic that there isn't an appeal process in place. Perhaps the contract controversy is the avenue one does pursue, if in fact one has been ousted from the contract; it certainly gives one grounds to contest. However, she is not familiar with what that process is. CHAIRMAN ROKEBERG suggested that Representative Murkowski and staff look into this; if there is a problem, it can be brought to the attention of the House Rules Standing Committee. REPRESENTATIVE MURKOWSKI said she is happy to do that. Number 1959 REPRESENTATIVE HALCRO moved that the committee adopt a conceptual amendment to the effect of making Section 7 retroactive to March 17, 1999. There being no objection, the conceptual amendment was adopted. Number 1989 REPRESENTATIVE HARRIS made a motion to move House CS for CSSB 141(L&C) [Version H], as amended, out of committee with individual recommendations and the attached [zero] fiscal note. There being no objections, HCS CSSB(L&C) moved out of the House Labor and Commerce Standing Committee. Number 2019 CHAIRMAN ROKEBERG called a brief at-ease at 4:01 p.m. The committee came back to order at 4:02 p.m.
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