Legislature(2001 - 2002)

04/19/2001 01:18 PM TRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 235- DOT&PF-RELATED CONTRACT CLAIMS                                                                                        
                                                                                                                                
CHAIR KOHRING announced that the  next order of business would be                                                               
HOUSE  BILL NO.  235, "An  Act relating  to the  handling of  and                                                               
interest on  contract controversies  involving the  Department of                                                               
Transportation and  Public Facilities  or state agencies  to whom                                                               
the Department of Transportation  and Public Facilities delegates                                                               
the responsibility for handling the controversies."                                                                             
                                                                                                                                
Number 2603                                                                                                                     
                                                                                                                                
HEATHER MARTEL NOBREGA, Staff  to Representative Norman Rokeberg,                                                               
Alaska  State Legislature,  came  forth on  behalf  of the  House                                                               
Judiciary Standing Committee, sponsor of HB 235.  She stated:                                                                   
                                                                                                                                
     We  have introduced  this bill  at the  request of  the                                                                    
     Associated General Contractors [AGC]  of Alaska. ... On                                                                    
     public  works  projects  in  the  state  of  Alaska,  a                                                                    
     contractor  encountering a  condition  that requires  a                                                                    
     change in the contract is  required to perform the work                                                                    
     even  if there  is a  dispute as  [to] the  appropriate                                                                    
     adjustment.                                                                                                                
                                                                                                                                
     Resolution  of such  a claim  frequently  takes a  long                                                                    
     time, as  much as  four yeas,  and the  state currently                                                                    
     disallows  interest  on  the  amount  of  the  ultimate                                                                    
     settlement.   This bill ...  will require  the interest                                                                    
     to  be given  at the  end  of the  adjudication of  the                                                                    
     matter, and when there's a  settlement amount given ...                                                                    
     prejudgment interest will be given.                                                                                        
                                                                                                                                
CHAIR  KOHRING  asked Ms.  Nobrega  to  explain what  prejudgment                                                               
interest means.                                                                                                                 
                                                                                                                                
MS. NOBREGA explained that interest  would start running from the                                                               
day of the dispute until the  matter is settled.  She stated that                                                               
there are a couple of different ways it could be settled.                                                                       
                                                                                                                                
CHAIR KOHRING asked who makes the settlement.                                                                                   
                                                                                                                                
MS.  NOBREGA responded  that she  believes a  procurement officer                                                               
can make a  decision.  She noted that the  person could appeal at                                                               
each  level:    a  commissioner's  [decision],  a  Department  of                                                               
Transportation  and Public  Facilities  (DOT&PF) [decision],  all                                                               
the way up to a judicial decision.   In response to a question by                                                               
Chair  Kohring,  she  said  this   applies  universally,  to  all                                                               
parties.    It   says  the  interest  should  be   given  to  the                                                               
contractor, the department, or a contracting agency.                                                                            
                                                                                                                                
CHAIR  KOHRING asked  Ms.  Nobrega whether  she  could cite  some                                                               
examples that have occurred.                                                                                                    
                                                                                                                                
MS.  NOBREGA responded  that AGC  would have  the best  examples.                                                               
However, the Department  of Law's opposition paper  cites quite a                                                               
bit of  money it would  have to  give in prejudgment  interest if                                                               
required to do so.   It indicates to her that  this is a problem:                                                               
these contractors aren't getting interest on their money.                                                                       
                                                                                                                                
Number 2780                                                                                                                     
                                                                                                                                
DICK CATTANACH,  Associated General Contractors (AGC)  of Alaska,                                                               
testified  via  teleconference,   saying  [AGC]  understands  the                                                               
position of  the Department  of Law  - it likes  the idea  of not                                                               
having to  pay interest.   However, a  contractor has to  pay all                                                               
his/her   bills   on   time,   out-of-pocket;   frequently   [the                                                               
contractor]  has  to  borrow  money  just  to  pay  those  bills.                                                               
Controversies come  up, which is  why there is a  claims process;                                                               
it is resolved in terms of who is at fault and who has to pay.                                                                  
                                                                                                                                
MR. CATTANACH  stated that  [AGC] thinks  interest on  that money                                                               
ought to be part of the costs  of that claim, and the state ought                                                               
to be responsible  for its fair share if the  claim goes in favor                                                               
of the  contractor.  One  thing [AGC]  is concerned about  is the                                                               
sheer size of the state  [government] and its ability to postpone                                                               
claims.     It   places  small   contractors  at   a  significant                                                               
disadvantage when  they are forced  at times to settle  claims at                                                               
less  than  their realistic  values;  sometimes  they go  out  of                                                               
business because  they can't  afford to  take on  the state.   He                                                               
added that [AGC]  doesn't think this type  of interaction between                                                               
the state and the contractor is just; it is bad public policy.                                                                  
                                                                                                                                
CHAIR KOHRING asked  Mr. Cattanach whether he  could justify this                                                               
legislation  as  far  as  how  many  people  have  actually  been                                                               
impacted by this.                                                                                                               
                                                                                                                                
MR.  CATTANACH  responded that  this  impacts  a good  number  of                                                               
people each  year.  For  example, a  contractor right now  who is                                                               
working on a  project on the Kenai Peninsula is  basically out of                                                               
business because  of having to use  the cost of the  entire claim                                                               
just to  continue.  In  some cases, arbitrators award  upwards of                                                               
half a million dollars as  prejudgment interest, only to have the                                                               
Department  of Law  contest  it, take  it to  court,  and end  up                                                               
settling the claim for "pennies on the dollar."                                                                                 
                                                                                                                                
Number 2928                                                                                                                     
                                                                                                                                
CHAIR KOHRING asked whether the court process has worked for                                                                    
AGC.                                                                                                                            
                                                                                                                                
MR. CATTANACH answered that it is  a very expensive process.  One                                                               
thing  [AGC] is  working  on with  [DOT&PF] is  a  review of  the                                                               
entire claims  process.  His members  say if their claim  is less                                                               
than $150,000, it  is not economical to pursue it  because of the                                                               
time involved and attorney fees.                                                                                                
                                                                                                                                
Number 2975                                                                                                                     
                                                                                                                                
JOHN WHEATLEY, Senior Vice President, Associated General                                                                        
Contractors of Alaska, testified via teleconference.                                                                            
                                                                                                                                
TAPE 01-30, SIDE B                                                                                                              
                                                                                                                                
MR. WHEATLEY stated:                                                                                                            
                                                                                                                                
     Contractors are  required to perform  the work  even if                                                                    
     there  is  a  dispute  between  the  parties  regarding                                                                    
     adequate   and   appropriate   compensation.      Also,                                                                    
     construction claims  frequently represent  differing of                                                                    
     opinions   between  the   owner   and  the   contractor                                                                    
     regarding whether  or not particular work  was included                                                                    
     in the  documents at  the time of  bid.   Resolution of                                                                    
     these differences  takes time, and the  state currently                                                                    
     disallows  any  interest  on the  amounts  of  ultimate                                                                    
     settlement.                                                                                                                
                                                                                                                                
     A contractor incurs costs to  complete the work.  These                                                                    
     costs, if recovered in a  timely fashion, could be used                                                                    
     to finance  additional work  and to  support additional                                                                    
     security  bond  credit.   The  inability  to use  these                                                                    
     funds  in their  business  could  result in  tremendous                                                                    
     costs  to the  contractor  in terms  of lost  projects,                                                                    
     credit,  and wages,  [and] as  we've heard  in previous                                                                    
     testimony, even their very existence.                                                                                      
                                                                                                                                
     Alaska courts generally  recognize awarding prejudgment                                                                    
     interest is  necessary to make  a plaintiff  [whole] by                                                                    
     compensating him for  the use of money ....   The State                                                                    
     of Alaska  should recognize the  same principle  in its                                                                    
     claim-resolution   process   by  paying   interest   on                                                                    
     contract controversy.     I urge  you to  support House                                                                    
     Bill 235,  allowing contract claims to  be [calculated]                                                                    
     the same as all other claims in the state of Alaska.                                                                       
                                                                                                                                
Number 2909                                                                                                                     
                                                                                                                                
MIKE    MILLER,   MB    Contracting   Company,    testified   via                                                               
teleconference.     He  stated   that  he   has  worked   in  the                                                               
construction industry  for 28 years  in Alaska, and for  17 years                                                               
for  MB  Contracting  Company.   He  views  this  legislation  as                                                               
correcting an oversight in the  [Alaska] Procurement Code.  Prior                                                               
to the procurement code, in  the mid-to-late '80s, the state paid                                                               
prejudgment interest.   [The construction industry]  is asking to                                                               
be treated fairly.                                                                                                              
                                                                                                                                
CHAIR KOHRING  asked Mr.  Miller whether there  is a  system like                                                               
this set up at the municipal level in Anchorage or Fairbanks.                                                                   
                                                                                                                                
MR. MILLER  responded that  he knows  that they  pay [prejudgment                                                               
interest], but  does not  know how it  is set up.   When  he took                                                               
Legal Aspects  of Engineering and Architecture  at the University                                                               
of Alaska Fairbanks in the late  '70s, a footnote in his textbook                                                               
mentioned  that prejudgment  interest  was paid  in  Alaska as  a                                                               
matter of course.   He suggested this seems to  be oversight from                                                               
when the model procurement code went to the procurement [code].                                                                 
                                                                                                                                
CHAIR  KOHRING remarked  that he  asked  the question  to see  if                                                               
there is  any system in  place, either municipally or  perhaps in                                                               
other states, to use as an example of how it works elsewhere.                                                                   
                                                                                                                                
MR. MILLER  said he is sure  the federal C.F.R. (Code  of Federal                                                             
Regulations) covers it.                                                                                                       
                                                                                                                                
Number 2778                                                                                                                     
                                                                                                                                
KEVIN BRADY,  Attorney, Oles Morrison  Rinker &  Baker, testified                                                               
via teleconference.  He stated:                                                                                                 
                                                                                                                                
     I have  been involved with approximately  four of these                                                                    
     cases that have gone  through the administrative claims                                                                    
     process.  ...  I  should  point   out  that  there  are                                                                    
     multiple  layers  of  review:   the  beginning  in  the                                                                    
     field, going  up through the project  management, going                                                                    
     up  through  the  ...  appropriate  [DOT&PF]  division,                                                                    
     going up  through the  commissioner, going  through the                                                                    
     hearing  officer,   and  going  through   the  judicial                                                                    
     appeals.   The  fastest  I've ever  seen  one of  these                                                                    
     actually  go through  the  process is  24  months -  24                                                                    
     months  on   a  $750,000   award,  which   resulted  in                                                                    
     approximately  $90,000 in  prejudgment interest,  which                                                                    
     the contractor never received.                                                                                             
                                                                                                                                
     From a legal  standpoint, up through July  of 1998, the                                                                    
     commissioner's   office   routinely  paid   prejudgment                                                                    
     interest for contractor claims.   Some time after that,                                                                    
     they arbitrarily decided that they  no longer had to do                                                                    
     it.                                                                                                                        
                                                                                                                                
     Suffice it  to say  that we view  that as  being wrong,                                                                    
     and  our   efforts  are   to  codify   the  preexisting                                                                    
     requirement  that they  must  in  fact pay  prejudgment                                                                    
     interest.   There [are] a  number of reasons  for doing                                                                    
     [this], not  the least  of which  is every  city, every                                                                    
     municipality,  every federal  agency [is]  all required                                                                    
     to  pay  prejudgment  interest for  contractor  claims.                                                                    
     For that  matter, every  state agency  in the  State of                                                                    
     Alaska  is  required  to pay  prejudgment  interest  on                                                                    
     other contract  and court [claims].   There's simply no                                                                    
     basis  for  [DOT&PF]  not to  pay  general  contractors                                                                    
     prejudgment  interest;  it's fundamentally  unfair  and                                                                    
     it's unfriendly to business.                                                                                               
                                                                                                                                
     ...  The last  thing  I'd like  to  mention is  there's                                                                    
     approximately  a  three-year  period during  which  the                                                                    
     department  has declined  to pay  prejudgment interest.                                                                    
     ... I know  of four or five contractors  who have filed                                                                    
     claims and  certified their  claims within  this three-                                                                    
     year period,  and their  interest is  basically hanging                                                                    
     out  there and  accruing.   I would  like to  encourage                                                                    
     this committee, if  it sees fit to pass  this bill out,                                                                    
     to make  it retroactive  to cover every  contractor who                                                                    
     has a  pending claim  as of the  effective date  of the                                                                    
     legislation.                                                                                                               
                                                                                                                                
CHAIR KOHRING asked Mr. Brady  when the [prejudgment] interest on                                                               
claims failed to continue.                                                                                                      
                                                                                                                                
Number 2616                                                                                                                     
                                                                                                                                
MR.  BRADY responded  that he  is aware  of one  case.   The last                                                               
piece  of  correspondence  he  saw  was  signed  by  Commissioner                                                               
Perkins,  indicating  he  had   approved  the  hearing  officer's                                                               
recommended decision in  a case known as  Quality Asphalt Paving,                                                             
which included a  component of interest at 10.5  percent from the                                                               
date  the claim  was  initially filed.    Quality Asphalt  Paving                                                               
subsequently believed its  award was too little  and appealed it.                                                               
In  response  to  that,  the   Department  of  Law  appealed  the                                                               
prejudgment interest issue; that has been the subject of a lot                                                                  
of pleadings and is currently en route to the supreme court.                                                                    
                                                                                                                                
BILL  RENNO, Attorney,  Oles Morrison  Rinker &  Baker, testified                                                               
via teleconference.  He stated that  over the past few years [his                                                               
firm]  has  had   the  opportunity  to  represent   a  number  of                                                               
contractors in claims against DOT&PF.   He emphasized how long it                                                               
takes a contractor to get through this process.  He stated:                                                                     
                                                                                                                                
     Right now in our office alone  - and we're not the only                                                                    
     law firm by any means  that represents the contractor -                                                                    
     ... we are involved in at  least five or six cases that                                                                    
     are in stages of  the resolution process with [DOT&PF].                                                                    
     And as close as we are  to a decision on this interest,                                                                    
     ... my  best guess is a  year and a half  to two years.                                                                    
     The  next step  is to  go  from superior  court to  the                                                                    
     supreme  court.   One  of  our clients  has  to file  a                                                                    
     notice of appeal by tomorrow.  ... That decision in the                                                                    
     supreme  court -  and  that happens  to  be on  Quality                                                                  
     Asphalt - will affect all other pending claims. ...                                                                      
                                                                                                                                
     We would  strongly recommend  that the  effective date,                                                                    
     if you choose to pass  this bill, would be effective to                                                                    
     ending claim.  That's the  only way ... the legislature                                                                    
     can put  an end to  this long, arduous,  costly process                                                                    
     that  a number  of  contractors  have found  themselves                                                                    
     wrapped up in at this time.                                                                                                
                                                                                                                                
Number 2519                                                                                                                     
                                                                                                                                
MR. RENNO continued:                                                                                                            
                                                                                                                                
     I guess the other point is,  again, to go back and make                                                                    
     sure  that   the  committee  members   understand  that                                                                    
     [DOT&PF] essentially changed  positions ....  Everybody                                                                    
     else pays interest. ... The  reason you're not going to                                                                    
     see other  regimes is because,  as a matter  of course,                                                                    
     this is paid.                                                                                                              
                                                                                                                                
     What happened that derailed the  process at [DOT&PF] is                                                                    
     that the  supreme court issued a  decision called Danco                                                                  
     [Danco  Exploration v.  DNR].   That decision  actually                                                                  
     involved   a  deposit   on  an   oil  lease   with  DNR                                                                    
     [Department of  Natural Resources].  The  supreme court                                                                    
     in  that case  said that  the person  who put  down the                                                                    
     deposit was  not entitled to  interest on  his deposit.                                                                    
     There's been  reams of briefing  on that case;  I'm not                                                                    
     going to get  into it in detail.  Just  let me simplify                                                                    
     it and say that case  does not apply to this situation.                                                                    
     It  was not  a contractor  court case;  it was  a lease                                                                    
     deposit, and ...  the Department of Law  has latched on                                                                    
     to  that case  and used  that  as an  excuse to  direct                                                                    
     [DOT&PF] not to pay interest to contractors.                                                                               
                                                                                                                                
     And to run that point home,  I would like to quote from                                                                    
     a letter that Mr.  Cattanach received from Commissioner                                                                    
     Perkins on March 17, 2000.   At that time, Commissioner                                                                    
     Perkins  told Mr.  Cattanach, "On  the issue  of paying                                                                    
     prejudgment  interest on  a claim  appeal,  we are  not                                                                    
     avoiding  making such  payment by  choice.   Rather, we                                                                    
     are  following the  advice  of  the attorney  general's                                                                    
     office that such payments are contrary to law."                                                                            
                                                                                                                                
     So   what  has   happened  since   [DOT&PF]  has   been                                                                    
     instructed  by the  Department of  Law that  they don't                                                                    
     have to  pay interest  [has] actually  been ...  a club                                                                    
     against contractors.  And let  me give you [an] example                                                                    
     of how that  club has been used. ...  After the hearing                                                                    
     officer's decision, Quality  thought they were entitled                                                                    
     to more on the principal of their claim.                                                                                   
                                                                                                                                
     They appealed that to superior  court.  [DOT&PF] turned                                                                    
     around after  ... the commissioner had  recognized that                                                                    
     Quality  was  entitled  to  interest  by  adopting  the                                                                    
     hearing  officer's  decision.    After  that,  [DOT&PF]                                                                    
     reversed  fields in  response to  Quality's appeal  and                                                                    
     cross-appealed  and said,  "We changed  ... our  minds:                                                                    
     you are  not entitled to  interest."  That is  the case                                                                    
     that's been  tied up in  superior court ... and  is now                                                                    
     heading toward the supreme court.                                                                                          
                                                                                                                                
     Well,  let me  take this  one step  further.   Now it's                                                                    
     going  to the  supreme court,  and Quality's  attorneys                                                                    
     called  the   AGs  [attorney  generals]   in  Fairbanks                                                                    
     handling  this case  and asked  those  AGs, "Would  you                                                                    
     agree to allow  this to go to the supreme  court on the                                                                    
     interest issue only, and agree  to pay us the principal                                                                    
     amount  of our  claim  that has  been  affirmed at  the                                                                    
     hearing officer  level [and] that has  been affirmed at                                                                    
     the supreme  court level?"   The response from  the AGs                                                                    
     [was], "No, if you dare  to appeal this interest issue,                                                                    
     we are  going to  appeal all other  issues in  the case                                                                    
     and you're not going to see a dime."                                                                                       
                                                                                                                                
     So  that's the  kind of  abuse that  has been  going on                                                                    
     from  [DOT&PF]  with  regard to  this  interest  issue.                                                                    
     Interest is  needed in  order to  give these  people an                                                                    
     incentive to  sit down with  the contractors,  early on                                                                    
     in  the   process,  and  resolve  these   disputes,  or                                                                    
     otherwise  pay  the  penalty  of   having  to  pay  the                                                                    
     contractor at the  end of the day for  two, three, four                                                                    
     years of interest.                                                                                                         
                                                                                                                                
CHAIR KOHRING remarked that he was amenable to moving the bill                                                                  
if it was the will of the committee.                                                                                            
                                                                                                                                
Number 2228                                                                                                                     
                                                                                                                                
DOUG GARDNER, Assistant Attorney General, Transportation                                                                        
Section, Civil Division (Juneau), Department of Law, came forth                                                                 
and stated:                                                                                                                     
                                                                                                                                
     I guess I'd  like to tell some of the  things that Oles                                                                    
     Morrison Rinker, the  law firm that is  here to further                                                                    
     their  clients'  business  interests, hasn't  told  you                                                                    
     about  this particular  bill.   First of  all, we  have                                                                    
     heard  the comments  that [DOT&PF],  in  the past,  has                                                                    
     paid  this  interest,  and we  have  queried  a  senior                                                                    
     [DOT&PF]  staff and  asked  them  for situations  where                                                                    
     they  have paid  interest.   They have  been unable  to                                                                    
     provide us with any of  those instances.  I wouldn't be                                                                    
     surprised if  at some  point [DOT&PF]  may have  -- and                                                                    
     our clients  often make  mistakes. ...  It may  be that                                                                    
     somehow  or  another,  somewhere along  the  way,  some                                                                    
     interest was paid. ...                                                                                                     
                                                                                                                                
     As Mr. Renno  and Mr. Brady have indicated  to you, ...                                                                    
     we  have been  in litigation  with their  law firm  for                                                                    
     many years  over contract  claims and  for ...  quite a                                                                    
     few  months now  on this  issue.   The Alaska  Superior                                                                    
     Court has twice  ruled in the Quality  Asphalt case ...                                                                  
     that we have correctly  interpreted Alaska law and that                                                                    
     prejudgment interest is not paid on these claims.                                                                          
                                                                                                                                
     The  reason that  prejudgment interest  is not  paid on                                                                    
     administrative claims  is because under Alaska  law ...                                                                    
     the state has sovereign immunity;  it agrees to be sued                                                                    
     for  the things  it  agrees  to be  sued  for.   In  AS                                                                    
     09.52.50 the  state has specifically  not agreed  to be                                                                    
     sued  directly  in  superior  court  on  administrative                                                                    
     claims.  There's a process  that has been put together,                                                                    
     which  could  be  described  as  an  alternate  dispute                                                                    
     resolution  process   where  the  contractor   and  the                                                                    
     [DOT&PF]  represented by  our office  try and  litigate                                                                    
     these issues.   But for  claims like that,  where there                                                                    
     is  no   direct  route  into  court,   the  payment  of                                                                    
     prejudgment  interest  just  doesn't happen;  it's  not                                                                    
     something  that  the  state has  waived  its  sovereign                                                                    
     immunity to  allow to have  happen. ... A  very closely                                                                    
     analogous situation was raised in the Danco case.                                                                        
                                                                                                                                
Number 2078                                                                                                                     
                                                                                                                                
MR. GARDNER continued:                                                                                                          
                                                                                                                                
     ... The other  thing that I don't think  was clear from                                                                    
     any of the testimony so  far is that the concept that's                                                                    
     being advance here  is a concept, from  what we've been                                                                    
     able to  determine, [that] is  not a  majority position                                                                    
     in  the country.   The  Associated General  Contractors                                                                    
     and Oles Morrison are representing  to you that this is                                                                    
     a great idea  and a good thing to do.  ... Other states                                                                    
     have decided that they will  pay liquidated claims, but                                                                    
     they  will not  pay  interest  on unliquidated  claims.                                                                    
     And it gets  a little complicated, but  the bottom line                                                                    
     is,  the  State of  Alaska  pays  interest on  a  claim                                                                    
     that's not disputed.   If you've done work  for us, and                                                                    
     you're just owed  the money and there's  no dispute, we                                                                    
     pay interest.   If there is a disputed  amount, then we                                                                    
     don't pay  interest on  those types  of claims  for the                                                                    
     reasons that I have just said.                                                                                             
                                                                                                                                
     Something that the legislators  need to consider really                                                                    
     carefully is,  ... as a consequence,  this bill affects                                                                    
     all of  the agencies and  would make the cost  of those                                                                    
     projects, to the extent that  any interest is owed on a                                                                    
     claim, rise.                                                                                                               
                                                                                                                                
     That brings the second issue  up, which is how does the                                                                    
     state pay for  that kind of interest, if in  fact it is                                                                    
     owed?   [DOT&PF] gets most  of its funding  through the                                                                    
     Federal Highway Administration, ...  gets some from FAA                                                                    
     [Federal   Aviation  Administration]   and  some   from                                                                    
     Federal Transit Authority.  But  other agencies may get                                                                    
     their  funding  through  other  federal  agencies  that                                                                    
     don't participate  in the payment of  interest. ... The                                                                    
     state  will ultimately  have to  pay that  interest one                                                                    
     way  or  the  other,  whether  the  federal  government                                                                    
     participates  or whether  the state  has to  reach into                                                                    
     general funds to pay those  kinds of interest payments.                                                                    
     That's  certainly  a  consequence that  this  committee                                                                    
     should seriously  consider.  The other  consequences in                                                                    
     this legislation are some equal protection issues.                                                                         
                                                                                                                                
Number 1901                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOOKESH  asked  Mr.   Gardner  to  describe  what                                                               
prejudgment  interest is.   He  pointed out  that in  the sponsor                                                               
statement it  says, "This legislation  would simply  require that                                                               
when  a  contract settlement  with  [DOT&PF]  is in  dispute  and                                                               
settled in favor of the contractor,  interest must be paid to the                                                               
contractor on  the settlement amount  from the date of  the claim                                                               
to the  date of the decision."   He said that  doesn't sound like                                                               
prejudgment to him.                                                                                                             
                                                                                                                                
MR. GARDNER  responded that he  thinks a  lot of terms  have been                                                               
used  to describe  this.   He said  it could  most accurately  be                                                               
described as interest on administrative claims.                                                                                 
                                                                                                                                
REPRESENTATIVE KOOKESH  asked when it  is paid and whether  it is                                                               
paid prior to a settlement.                                                                                                     
                                                                                                                                
MR. GARDNER answered  that it probably is not a  good term to use                                                               
in this situation.                                                                                                              
                                                                                                                                
CHAIR  KOHRING  asked  Ms. Nobrega  whether  the  legislation  is                                                               
retroactive.                                                                                                                    
                                                                                                                                
Number 1746                                                                                                                     
                                                                                                                                
MS. NOBREGA responded that it  is her understanding that it would                                                               
not be retroactive unless it was specifically stated as such.                                                                   
                                                                                                                                
CHAIR  KOHRING commented  that if  it  wasn't retroactive,  other                                                               
current claims  might come to  the forefront after  the effective                                                               
date of the legislation.                                                                                                        
                                                                                                                                
MS. NOBREGA said she is not sure.                                                                                               
                                                                                                                                
CHAIR KOHRING  remarked that assuming  that were the case,  he is                                                               
curious  as  to how  much  money  [DOT&PF] would  potentially  be                                                               
liable to pay out in claims.                                                                                                    
                                                                                                                                
Number 1709                                                                                                                     
                                                                                                                                
DENNIS POSHARD, Legislative  Liaison/Special Assistant, Office of                                                               
the   Commissioner,  Department   of   Transportation  &   Public                                                               
Facilities,  came forth  and stated  his understanding  that this                                                               
bill would not affect claims retroactively.                                                                                     
                                                                                                                                
MR.  GARDNER  said   a  bill  is  not   retroactive  unless  it's                                                               
specifically  made  retroactive.    He believes  there  would  be                                                               
serious  issues  with  respect  to  federal  participation  in  a                                                               
retroactive  payment; he  isn't  sure FHWA  would participate  in                                                               
that kind  of payment, but  the sense  is that it  probably would                                                               
not,  in which  case the  bill would  have a  seven-figure fiscal                                                               
note.    He  added  that to  do  something  retroactively,  under                                                               
[Alaska's]  constitution,  similarly   situated  people  must  be                                                               
treated similarly.   A retroactive  provision in this  bill could                                                               
really just be addressing the tip  of the iceberg; there may be a                                                               
massive  amount of  people who  could be  entitled to  raise this                                                               
issue.                                                                                                                          
                                                                                                                                
REPRESENTATIVE KOOKESH referred to  AS 09.52.50 and indicated the                                                               
desire to have  a legal opinion regarding  sovereign immunity, as                                                               
well  as the  state's ability  to  be sued,  and to  have to  pay                                                               
interest.   He  noted  that people  who  testified described  the                                                               
prejudgment interest,  but that it is  not particularly mentioned                                                               
in  the bill.    He suggested  perhaps someone  from  AGC or  Ms.                                                               
Nobrega could answer that later.                                                                                                
                                                                                                                                
Number 1492                                                                                                                     
                                                                                                                                
REPRESENTATIVE SCALZI said he would like  to move the bill out of                                                               
committee; the  remarks that  the state would  have to  pay don't                                                               
bother  him, because  he thinks  it  would bring  the state  into                                                               
compliance  with  the  private  sector and  push  the  DOT&PF  to                                                               
operate  more efficiently.   He  remarked that  he thinks  when a                                                               
contractor goes  through different change orders  on a good-faith                                                               
basis and  then all of  a sudden is  faced with having  to appeal                                                               
his or  her case,  the interest  accrued is a  big factor  in the                                                               
judgment and whether or not the contractor may remain solvent.                                                                  
                                                                                                                                
REPRESENTATIVE SCALZI  moved to  report HB  235 out  of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.                                                                                                                          
                                                                                                                                
REPRESENTATIVE KOOKESH objected.  He stated:                                                                                    
                                                                                                                                
     I know that there's no  retroactive clause in the bill,                                                                    
     and even  if there was,  I know  that we would  have to                                                                    
     think  twice  about   supporting  something  like  this                                                                    
     because of the  fiscal note it would generate.   And if                                                                    
     people continue  to want to have  a retroactive clause,                                                                    
     then we have a big problem.                                                                                                
                                                                                                                                
     ...  I  have  no  problem with  the  sponsor  statement                                                                    
     saying  that, if  there's a  problem and  they go  to a                                                                    
     decision and there's interest  owed somebody, after the                                                                    
     decision  is made,  ... because  I  think that's  fair.                                                                    
     But at  the same time, we  need to know how  much money                                                                    
     that  is ...  because I  think the  state itself  would                                                                    
     have to  come up with  that money to pay  that interest                                                                    
     payment. ...  The way I interpret  prejudgment interest                                                                    
     is that you pay it upfront. ...                                                                                            
                                                                                                                                
     And I  really believe that  if the state is  relying on                                                                    
     certain  statutes  that say  we  can  only be  sued  by                                                                    
     people who  waive sovereign immunity, ...  there's many                                                                    
     people, ...  especially in  this legislature,  who have                                                                    
     stood  up and  said the  state is  a sovereign  entity.                                                                    
     And  when you  give  away that  sovereign  entity to  a                                                                    
     contract or  through a bill  like this, then we  have a                                                                    
     problem.                                                                                                                   
                                                                                                                                
Number 1270                                                                                                                     
                                                                                                                                
REPRESENTATIVE MASEK  said it seems  many issues brought  up deal                                                               
with  the financial  portion, which  the  House Finance  Standing                                                               
Committee can deal with.   Therefore, she will support moving the                                                               
bill.                                                                                                                           
                                                                                                                                
CHAIR  KOHRING addressed  Representative Kookesh  and offered  to                                                               
put together a letter voicing any additional concerns.                                                                          
                                                                                                                                
REPRESENTATIVE  KOOKESH said  he  didn't have  any more  problems                                                               
with moving the  bill out, and would work  with [Michael Krieber,                                                               
committee aide  for the House Transportation  Standing Committee]                                                               
to  put  together  a  letter   for  the  House  Finance  Standing                                                               
Committee.   He  noted that  he would  still have  the option  of                                                               
voting "no"  on the floor.   He said he wanted  to be supportive,                                                               
but wanted to state his objections and the reasons.                                                                             
                                                                                                                                
CHAIR  KOHRING told  Mr. Gardner  he  would look  forward to  the                                                               
legal opinion as  far as the sovereign immunity issue.   He asked                                                               
that copies be provided to  himself, for circulation to committee                                                               
members.   He asked  whether there was  any further  objection to                                                               
the motion.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOOKESH said  he would  object "just  so I  could                                                               
vote no."                                                                                                                       
                                                                                                                                
Number 1220                                                                                                                     
                                                                                                                                
A roll call  vote was taken.  Representatives  Masek, Scalzi, and                                                               
Kohring  voted  in favor  of  moving  the bill.    Representative                                                               
Kookesh  voted against  it.   [Representatives Ogan,  Wilson, and                                                               
Kapsner were absent.]                                                                                                           
                                                                                                                                
CHAIR  KOHRING announced  that HB  235 was  moved from  the House                                                               
Transportation Standing Committee  by a vote of 3-1.   He assured                                                               
Representative Kookesh  that his  concerns would be  forwarded to                                                               
the House  Finance Standing  Committee.   [Representative Kookesh                                                               
was one of  four signers of the  bill report and thus  HB 235 was                                                               
forwarded to the Chief Clerk.]                                                                                                  

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