Legislature(2003 - 2004)
04/24/2003 08:06 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 250-STATE CONTRACTS CHAIR WEYHRAUCH announced that the next order of business was HOUSE BILL NO. 250, "An Act relating to protests of state contract awards, to claims on state contracts, to the arbitration of certain state construction contract claims, and to hearings and appeals under the State Procurement Code; making conforming amendments in the State Procurement Code; and providing for an effective date." Number 0285 REPRESENTATIVE HOLM, Alaska State Legislature, spoke as the sponsor of HB 250. He informed the committee that HB 250 was legislation negotiated between the Department of Transportation & Public Facilities' procurement officers and the Associated General Contractors (AGC). Representative Holm paraphrased the following sponsor statement: Construction claims occur when parties to the contract disagree as to whether a specific element of a project is within the scope of work defined by a construction contract. For projects undertaken by the State of Alaska, the Alaska procurement code defines a process for resolving those differences. Ideally such a process should resolve differences in a fair and expeditious manner. At this time, however, the perception in the construction community is that the process has slowly deteriorated so that it is no longer fair or expeditious. As now prescribed, when a contractor files a claim, the procurement officer involved with the claim initially evaluates the claim and issues a ruling on the perceived merits. If the contractor is not satisfied, an appeal is made to the procurement officer's supervisor. There is no review by an independent party unless a contractor elects to appeal the supervisor's decision. Even then, the hearing officer is selected by the state, which raises concern about the true independence of the hearing officers, since the state has sole discretion to maintain the hearing officer list. Delays are rampant. Justice is delayed. Contractors are forced to expend money defending their claim, but that money cannot be recovered in the process. Small contractors cannot afford to participate in the claims process because of these costs. Claims of less than $250,000 are frequently not pursued because of the great expense involved. The entire process is ripe for review and revision. The purpose of HB 250 is to modify the construction claims process to once again create a fair and expeditious claims process. Specifically, HB 250 will modify the procurement code pertaining to construction claims in the following manner: 1. If a procurement officer does not issue a written decision by the due date, the contractor may seek arbitration. 2. On appeals of all construction claims, the parties can agree to binding arbitration. 3. The timelines for decisions have been tightened, and redundant requirements have been eliminated. 4. An arbitrator or hearing officer who does not issue a decision by the deadline is disqualified for a year. 5. Qualifications for arbitrators and hearing officers will be established by the commissioner of administration in regulation. 6. The contractor is entitled to recover some of the claims costs incurred. Prompt passage of HB 250 will expedite contractor's claims and return fairness to the process. REPRESENTATIVE HOLM concluded by urging the prompt passage of HB 250, adding that there is nearly $400 million worth of work for the fiscal year 2003. Number 0638 MARK O'BRIEN, Chief Contracts Officer, Contracting, Procurement and Appeals, Office of the Commissioner, Department of Transportation & Public Facilities (DOT&PF), explained that about two years ago the department began a process with the AGC in order to review revisions to the claims process. The discussions resulted in review of a way to improve the process such that it was faster, fairer, and less expensive. In terms of faster, the legislation proposes specific timeframes where there were none and shortens existing timeframes by which action must be taken to keep the claims moving forward. Arbitration is offered as an alternative to the hearing officer process. Mr. O'Brien related the general belief that arbitration process offers a faster and fairer resolution. Furthermore, this legislation makes arbitration final and there is no lengthy court appeal process. With regard to fairer, the arbitration process together with regulations govern the selection. The contractors and the state believe that it will provide an opportunity to provide a true, fair, and neutral third party to hear the claim. The less expensive aspect is [borne through] arbitration, which is generally considered less formal, more expeditious, and therefore a less expensive process. Additionally, he said, there will be no additional cost for appeals under arbitration, with very few exceptions. MR. O'BRIEN noted that the only issue that the administration can't completely agree with the AGC on are the provisions for cost and fee. He explained that Rule 79 and 82 [of the Alaska Rules of Civil Procedure] allow the contractor and the state, if they are the prevailing party, to recover partial fees under different circumstances. For example, if there was a $2 million claim and the arbitrator awarded the contractor $50,000, the arbitrator would estimate that the Rule 82 fees and Rule 79 costs would amount to about $73,000. If one were to apply those figures to the last 11 years worth of cases on claims and average out the costs depending upon the prevailing party, it would amount to about $145,000 a year in additional claims costs. Mr. O'Brien informed the committee that the arbitrator has the authority, based on factors such as complexity or length of litigation, to increase those costs. Therefore, the $145,000 a year in additional claims costs represents the minimum additional cost estimate based on the past 11 years worth of claims history. Mr. O'Brien highlighted that these fees aren't eligible for reimbursement under the federal aid provisions. Most of the claims are funded under federal appropriations, and therefore the additional costs would be obligations. Number 0993 CHAIR WEYHRAUCH posed a situation in which there is a dispute between DOT&PF and a contractor and the dispute goes to court where there is a prevailing party. He asked if the state or the contractor are entitled to attorney fees incurred before the administrative part of the dispute. MR. O'BRIEN replied no and specified that those aren't recoverable fees. Past court decisions have held that the claimant isn't eligible to recover cost and fees for hearings under the administrative process. Number 1125 DICK CATTANACH, Executive Director, Associated General Contractors of Alaska, testified in support of HB 250 and thanked the sponsor. Mr. Cattanach related that contractors currently view the process as very expensive. [Due to technical difficulties, the committee held HB 250 until later in the meeting and had Mr. Cattanach call back. In the meantime, the committee turned attention to other legislation.] HB 250-STATE CONTRACTS CHAIR WEYHRAUCH returned to the discussion on HOUSE BILL NO. 250 "An Act relating to protests of state contract awards, to claims on state contracts, to the arbitration of certain state construction contract claims, and to hearings and appeals under the State Procurement Code; making conforming amendments in the State Procurement Code; and providing for an effective date." Number 1499 DICK CATTANACH, Executive Director, Associated General Contractors of Alaska, returning to the issue of cost, informed the committee that a contractor who had settled a claim for $530,000 settled because the contractor couldn't afford to go any further. The contractor had already spent over $25 million. The construction industry believes that the cost of the claim is sometimes used to delay the claim, and therefore the contractors are at a disadvantage when dealing with an organization as large as the state, which can financially outlast the contractor. Therefore, the cost containment provisions which bring in Rules 68, 79, and 82 of the Alaska Rules of Civil Procedure are important elements of this legislation. Mr. Cattanach urged the committee to support HB 250. Number 1540 RICHARD J. MONKMAN, Assistant Attorney General, Transportation Section, Civil Division (Juneau), Department of Law, explained that HB 250 provides for arbitration at the contractor's request for claims under $250,000, which provides for a faster and final decision on those claims. For claims above $250,000, if the contractor and department agree, those claims can also be arbitrated. Again, a faster and more final decision is provided. CHAIR WEYHRAUCH asked if parties can still agree not to have attorney fees and costs awarded in an arbitration. Or does the legislation require such. MR. MONKMAN specified that HB 250 would allow the prevailing party to request attorney fees and costs in accordance with the Alaska Rules of Civil Procedure. Therefore, the prevailing party would have the right, in either arbitration [or a hearing], to [request] attorney fees and costs from the other side. CHAIR WEYHRAUCH mentioned that many times parties want to go to arbitration, but don't want to have the possibility of having attorney fees and costs awarded against one another. He asked if the parties can agree to go to arbitration with each party bearing their own fees and costs. MR. MONKMAN answered that he supposed that could be the case. However, either party would have a statutory right to claim those fees and costs. The provision in HB 250 references the Uniform Arbitration Act, which has broad language allowing the parties to agree to the parameters of an arbitration and to the boundaries of an arbitrator's award. Mr. Monkman clarified that although he hasn't looked at that question specifically, he believes the parties could agree to waive the attorney fees and costs. Number 1727 REPRESENTATIVE GRUENBERG directed attention Section 7 and acknowledged the chair's concern with regard to the word "shall." Representative Gruenberg related his belief that Alaska's current rules of civil procedure would allow a party to waive attorney fees. Actually, the aforementioned does occur, he added, when one doesn't make an application for it. MR. MONKMAN agreed. REPRESENTATIVE GRUENBERG turned to Section 7(b), specifically the reference to Rule 68. He noted that there is also a statutory offer of judgment in AS 09.30.065. Basically, an offer of judgment allows a person to make an offer of judgment. For example, if a person is offered a better deal, but the offeree rejects it and the case is forced to go to trial, the attorney fees can be obtained and any resulting interest goes to [the offeror]. Although the court rule and the statute work together, the statute isn't referenced in HB 250. He asked if the statute was intentionally not referenced or should the legislation be amended to include it. MR. MONKMAN related his belief that the when Legislative Legal and Research Services reviewed the legislation, it was felt that the reference to the rule was sufficient to bring offers of judgment. Mr. Monkman said he didn't have any particular objection to referencing the statute, although the rule alone is probably adequate for these purposes. REPRESENTATIVE GRUENBERG suggested that members should review the statute and the rule so that they will see there really is a difference. If this legislation only provides the benefit of the rule, then the parties aren't being provided the full benefit of the offer of judgment scheme. Representative Gruenberg explained that the court rule provides that one can obtain actual costs, which can include enhanced attorney fees. The statute refers to certain deadlines and specifies that one can recover 75 percent of the attorney fees and [lower] depending upon when the offer occurs. He wasn't sure whether it would require additional work. He inquired as to Mr. Monkman's view on including the statute. MR. MONKMAN related his belief that the percentage of recovery referred to by Representative Gruenberg is included in Rule 68 itself. Mr. Monkman characterized Rule 68 as the "meet or beat" provision of the civil rules. Rule 68 is there to enhance the possibility of settlement and to encourage the parties, early in litigation, to realistically evaluate their claim and possibility of succeeding. Most claims, like most court cases, settle. Mr. Monkman explained that under Rule 68 the offeror reviews the case and relates that the claim is worth a specified amount. The offeree can take the money or go to a hearing and try to beat the offer. If the offeree doesn't beat the offer, the offeree will have to pay for [the offeror's] attorney fees, costs, and enhanced interest. Therefore, it's an important piece of the legislation. Number 2086 CHAIR WEYHRAUCH pointed out that Rule 68 references Title 9, the offer of judgment statute. Chair Weyhrauch explained that the committee will receive copies of the rules. He announced that if there was going to be a conceptual amendment he wanted it to occur today in order to move the legislation today. REPRESENTATIVE GRUENBERG related his understanding that the current amended Rule 68 is tied closely to the statute. MR. MONKMAN agreed and explained that's why the legislation only included the rule. CHAIR WEYHRAUCH noted that the intent is to include any statutory provision that would allow parties to deal with offers of judgment. REPRESENTATIVE GRUENBERG announced that he wouldn't offer a conceptual amendment. He noted that the House recently passed the revised Uniform Arbitration Act and asked if anything in HB 250 needs to conform to that. REPRESENTATIVE BERKOWITZ said that he couldn't say. CHAIR WEYHRAUCH, speaking as a cosponsor of the revised Uniform Arbitration Act, said that he didn't see anything [that necessitated conformity]. MR. MONKMAN informed the committee that HB 250 was drafted with the expectation that the revised Uniform Arbitration Act would be passed. CHAIR WEYHRAUCH, upon determining there was no one else who wished to testify, closed public testimony. Number 2230 REPRESENTATIVE HOLM moved to report CSHB 250(L&C) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered.
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