Legislature(2021 - 2022)BARNES 124
04/15/2021 01:00 PM House TRANSPORTATION
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| Audio | Topic |
|---|---|
| Start | |
| HB160 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 160 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 160-PROCUREMENT; CONSTRUCTION; CONTRACTS
2:03:34 PM
CHAIR HOPKINS announced that the only order of business would be
HOUSE BILL NO. 160, "An Act relating to the state procurement
code; establishing the construction manager general contractor
procurement method; and providing for an effective date."
2:04:56 PM
MIKE LESMANN, Legislative Liaison, Office of the Commissioner,
Department of Transportation & Public Facilities, presented HB
160 on behalf of the sponsor, House Rules by request of the
governor. He stated that the exclusive purpose of HB 160 is to
grant the Department of Transportation & Public Facilities
(DOT&PF) the authority to write regulations via a pre-existing
process between the department and its contractors. He said the
proposed legislation would amend AS 36.30, the state's
procurement code, to codify the department's current use of the
construction manager/general contractor's (CM/GC's) construction
contracting method. The method provides for a two-phase
contract, in which the same contractor can provide construction-
related services during both the pre-construction and
construction phases of a project. He explained that although
the procurement method is not a specific option under current
procurement law, the department has been using the method
successfully under the authority of the innovative procurement
language found under AS 36.30.308. This method has been used
for public facilities projects, federal aid highway projects,
bridge projects, and new vessel construction projects in Alaska
for approximately the past 15 years. The method has been
utilized even longer in the Lower 48. He said the CM/GC process
is recognized in Federal Highway Administration (FHA)
regulations, State of Alaska regulations, and other states'
transportation regulations; it is an accepted common practice in
the construction industry.
MR. LESMANN shared that DOT&PF's experience is that CM/GC
contracts can decrease contractor change orders and
administrative delays, as well as leverage the department's
resources, to the benefit of the state's infrastructure. He
said with passage of HB 160, the department would collaborate
with the general contractors of Alaska and stakeholders to adopt
regulations and "guidance materials" to standardize the method
of application in Alaska. He said the department looks forward
to providing contractors with "clear and consistent sideboards,"
which will improve the CM/GC process.
2:08:43 PM
MR. LESMANN presented the sectional analysis of HB 160, which
read as follows [original punctuation provided]:
Section 1. AS 36.30.200(c) is amended to add CMGC
(Construction Manager / General Contractor). This
section ensures that the Department only uses the
contracting method on appropriate projects by
requiring that the Commissioner of Transportation and
Public Facilities first determine that doing so is
advantageous to the State.
Section 2. AS 36.30.250 is amended to add the
Department may exclude price criteria when awarding a
preconstruction services contract under the CMGC
contracting method.
Section 3. AS 36.30 is amended to add a new section AS
36.30.309. This section is the operative provision of
the CMGC bill. It identifies the CMGC method as
requiring a two-phase contract: one contract for
preconstruction services and another for construction
services. The Department awards the construction
services contract only if the parties can reach an
agreed price for construction services for a specific
project scope and schedule. If the parties cannot
reach an agreed price, the Department may contract
with another contractor for construction of the
project using any other contracting method under the
procurement code.
Section 4. AS 36.30.990 is amended to add the
definition for "preconstruction services".
Section 5. Authorizes the Department to adopt
regulations that further implement the Act.
Section 6. This section specifies that Section 5 takes
effect immediately.
2:11:01 PM
REPRESENTATIVE HANNAN offered her understanding of several
buildings that had been constructed under [regulation] and asked
what the impetus was for seeking new statute for something that
could be done without it.
MR. LESMANN confirmed that Representative Hannan was correct
about the various buildings having been constructed under the
CM/GC contracting method. He indicated this has been done via
language under Title 36.33.08, which is a section of the
procurement law described as "innovative procurements." He said
the department wants the statute in order to set up sideboards
to the process.
REPRESENTATIVE HANNAN asked for further details regarding
innovative procurements and clarity regarding the need to create
new statute.
2:14:25 PM
RICHARD WELSH, Senior Assistant Attorney General, Transportation
Section, Civil Division (Juneau), Department of Law, gave an
overview of the ad hoc process of innovative procurement, which
undergoes review each time. He said the CM/GC process is seeing
increased use nationwide, with federal recognition. He
indicated that the proposed statute would create uniformity with
regulations and formalize the process. In response to a follow-
up question, he said new vessel construction is exempt from the
procurement code, but nonetheless, DOT&PF followed the CM/GC
process. Regarding whether adoption of statute would enhance
the state's ability to direct where the contract is awarded, he
specified that local preferences cannot be used when using
federal funds, while it is a different matter when using state
funds, as when the Ketchikan ship yard was selected to construct
a ferry.
2:18:47 PM
REPRESENTATIVE MCKAY expressed concern regarding his
understanding that [DOT&PF] awards a contract to a company for
pre-construction services but then, if it likes the work of the
company, just awards the construction services contract to the
same company without going through the bid process.
MR. WELSH replied that under HB 160, the department would put
out a request for proposal (RFP) for any company interested in
the CM/GC project; evaluation would take place to award an
entity the pre-construction services; at the conclusion of that
phase, the contractor and department would work toward a
guaranteed maximum price for which the contractor would perform
the construction services. He said this is different from the
typical invitation to bid, because the contractor that wins the
pre-construction bid earns the right to negotiate with the state
for the construction services contract. In response to a
follow-up question, he emphasized the collaborative process
wherein the department has engaged with the contractor during
the pre-construction phase, but said there is no guarantee that
the contractor who has won the pre-construction phase will get
the contract for the construction phase; the contractor must
negotiate in good faith, or the state is free to put the bid out
to the public.
2:24:39 PM
REPRESENTATIVE MCCABE asked about the differences between RFP,
design build, and CM/GC contracting. Further, he asked about a
third-party that ensures the fairness in pricing. Finally, he
remarked that the lowest bidder is not always the best choice.
MR. WELSH confirmed there is an independent cost estimator
(ICE), who, through separate contract, works with the department
and engages with the contractor via an open-book method to
ensure the reasonability of costs. He said design build is the
manner in which DOT&PF got the fast vehicle ferries, and in this
process the owner sets out specification of the build and the
contractor does the build for an agreed-upon price. He
mentioned invitation to bid (ITB), and he agreed that low bids
are not always the best choice due to hidden costs.
REPRESENTATIVE MCCABE talked about the RFP process resulting in
low bids and extra costs, and he said with the design build the
state gave the contractor the specifications and didn't "really
know what they're going to come up with." He surmised that the
CM/GC process falls somewhere in between the two.
MR. WELSH responded that he thinks that is a fair statement.
REPRESENTATIVE MCCABE indicated he may be a fan of [the method
proposed under HB 160].
2:31:06 PM
CHAIR HOPKINS noted that the committee had received letters of
support from various construction and contractor firms [included
in the committee packet]. He asked whether the CM/GC process
would be the sole method used if HB 160 were to pass.
2:31:27 PM
MR. LESMANN responded that this method would remain just one
tool in the toolbox; it would not be the only procurement
method.
CHAIR HOPKINS asked how the decision process would be made as to
which method to utilize.
2:32:15 PM
MIKE LUND, Regional Construction Engineer, Northern Region,
Department of Transportation & Public Facilities, talked about
design, bid, build and design build methods and identifying
areas where a contractor is needed to help solve a problem. He
said the decision is based on many factors, including risk
assessment and leveraging department risk.
CHAIR HOPKINS asked Mr. Welsh whether the CM/GC process would be
put into regulations or remain a subjective decision.
2:34:54 PM
MR. WELSH said the intent would be to establish criteria to
enable the department to select appropriate projects that are
amenable to the CM/GC process, to bring some uniformity to the
department's selection process.
2:35:42 PM
MR. LUND, in response to Representative Spohnholz, gave an
example of risk management available via the CM/GC process. He
said when the department puts together a project with a design
build bid or low bid, it owns the entire contract, the
assumptions, and the preparation. He talked about the
mitigation of risk up front through communication between the
department and the contractor, for example by finding different
materials or methods for construction.
2:38:26 PM
MR. LUND, in response to Representative Hannan, offered examples
of when CM/GC has been used successfully. One was a bridge
replacement outside Denali National Park. In that construction,
use of the CM/GC method enabled the state to "shave eight
months" off the schedule and evaluate and execute permitting
option it would have never been able to push through between the
department and National Park Service without that contractor
joining them at the table to discuss possible impacts. He said
he has not had a bad experience with CM/GC thus far.
2:40:54 PM
MR. LUND, in response to a question from Chair Hopkins,
confirmed that the CM/GC method was being used on the University
Avenue project in Fairbanks. In response to a follow-up
question regarding bid size requirements, he said at this point
the department has used CM/GC in an ad hoc manner. If able to
develop regulations and build onto its knowledge of GM/GC, then
a size threshold may not be necessary. He said he would
hesitate to name a threshold because that could create
unnecessary barriers to opportunities.
2:42:53 PM
REPRESENTATIVE DRUMMOND directed attention to bill language on
page 1, line 14, through page 2, line 2, which read:
(c) Notwithstanding (a) of this section, the
Department of Transportation and Public Facilities may
exclude price as an evaluation factor when awarding a
construction manager general contractor contract under
AS 36.30.309.
REPRESENTATIVE DRUMMOND said that concerns her because it sounds
like "it's open for consideration once the contract's been
signed rather than as an advance consideration."
MR. LUND replied that if the department is able to design the
majority of the project, the major issue for which it needs a
contractor is "staging and phasing." In this scenario, price
may be a relevant factor for actual construction price to be
included in the proposal. In other projects where the
department may not have the majority of the project figured out,
it may not mean much to have a price "before we all know what we
want." He said that is one of the reasons there are costs and
competitive controls in place that are part of the process "to
preserve that competition" and "ensure that the department and
contractor are both pricing these projects fairly."
2:45:48 PM
REPRESENTATIVE SPOHNHOLZ said she shares the concern that if
price is stated as not a factor, then the state may be
"leveraged along the way." She asked whether the ICE has been a
standard practice or is "already described here in the bill
clearly."
MR. LUND answered by citing a sentence from page 2 of HB 160,
beginning on line 22, which read:
(c) If the contractor providing preconstruction
services and the Department of Transportation and
Public Facilities do not agree on a price for
providing construction services, the department may
seek an alternative contractor using a process
authorized under this chapter.
MR. LUND noted that the process would include any of the other
contracting methods.
REPRESENTATIVE SPOHNHOLZ said she sees reference relating to
coming to an agreed upon price but does not see reference to an
ICE being involved. She said she thinks there have been a lot
of well-documented cases in Alaska where the state has not made
the best use of resources, and because the state is in a tight
spot financially, she wants the state to be practicing due
diligence.
2:48:05 PM
MR. WELSH said Section 2 would alter statute to allow DOT&PF to
eliminate price as an evaluation factor when considering award
of a CN/GC contract in order "to avoid the lowball situation."
He stated that this would be a precautionary and discretionary -
not mandatory - measure. He added that it has nothing to do
with the ICE. In response to a follow-up question, he
emphasized that an ICE is an integral part of the whole CM/GC
process.
REPRESENTATIVE SPOHNHOLZ concurred but said she did not see it
spelled out in the proposed statute, and she suggested that may
be an omission to be remedied.
2:52:02 PM
CHAIR HOPKINS asked whether it would be Mr. Welsh's intent that
that would be put in regulations which would then be put out for
public comment.
MR. WELSH replied that he is confident there is no way that the
process would happen without the [independent cost estimator].
2:52:48 PM
REPRESENTATIVE MCCABE offered his understanding that without an
ICE, DOT&PF would have no idea how much a project would cost.
He characterized the process as "elegant."
MR. WELSH responded that Representative [McCabe] "has
articulated that point." He talked about intervals during pre-
construction phases where the parties have formalized meetings
where the numbers that are proposed are backed up. As the
process progresses, the numbers should solidify. This process
prevents any big surprises cropping up during construction
phase.
2:55:42 PM
CHAIR HOPKINS announced that HB 160 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 160 Hearing Request.pdf |
HTRA 4/15/2021 1:00:00 PM |
HB 160 |
| HB 160 fiscal note.pdf |
HTRA 4/15/2021 1:00:00 PM |
HB 160 |
| HB 160 Sponsor Statement.pdf |
HTRA 4/15/2021 1:00:00 PM |
HB 160 |
| HB 160 version A.PDF |
HTRA 4/15/2021 1:00:00 PM |
HB 160 |
| HB 160 Sectional Analysis 3.31.2021.pdf |
HTRA 4/15/2021 1:00:00 PM |
HB 160 |
| HB160 Letter of Support Cornerstone General Contractors 4.15.2021.pdf |
HTRA 4/15/2021 1:00:00 PM |
HB 160 |