Legislature(2021 - 2022)BARNES 124

04/15/2021 01:00 PM House TRANSPORTATION

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02:02:35 PM Start
02:03:34 PM HB160
02:56:11 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Meeting Postponed to 2:00 pm --
-- Teleconference Listen Only --
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
          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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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