Legislature(1997 - 1998)

02/17/1998 08:15 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
 SENATE BILL NO. 285                                                           
"An Act relating to state procurement practices."                              
                                                                               
Co-chair Pearce first called SB 285 and indicated that this                    
bill was introduced by the Senate Finance Committee at the                     
request of Associated General Contractors.  Present was Mr.                    
John Wheatley from Associated General Contractors.  She also                   
noted that there was a sponsor statement by the Senate                         
Finance Committee in the packets as filed.  On line via                        
teleconference were Henry Springer, Executive Director,                        
Associated General Contractors and John Eng also with                          
Associated General Contractors.                                                
                                                                               
John Wheatley, Executive Vice President, Willis Corron                         
Corporation was invited to join the committee.  He said the                    
company he was with was one of the largest commercial                          
insurers and construction surety bond brokers in the State.                    
He is also Legislative chair for the Associated General                        
Contractors this year.  He thanked the committee for                           
allowing him to testify in favour of SB 285.  He said                          
currently, when highway improvements were needed, a project                    
was designed, advertised and a contract was awarded for the                    
work.  He explained that when a highway being improved                         
crossed a railroad track, the Alaska Railroad had input and                    
the Department of Transportation negotiated a force account                    
cost plus contract with the Alaska Railroad for that work.                     
This would reduce the amount of work for the private sector                    
and removed tax dollars from a competitive bid.  He further                    
said that they supported SB 285 which would require the                        
Alaska Railroad to utilize the competitive bid process and                     
would establish a fair and effective manner to award                           
contracts for projects that cross the railroad.                                
                                                                               
Senator Phillips said perhaps the opposite argument against                    
the bill would be the safety aspect.  He noted that                            
apparently the railroad workers felt more qualified.  Mr.                      
Wheatley responded saying the work was inspected, built to                     
specifications, therefore satisfying the safety issue.  In                     
response to further question from Senator Phillips he                          
indicated that inspections were done by the State                              
inspectors.                                                                    
                                                                               
Senator Parnell asked if these were contracts DOT was                          
putting out or the railroad?  Mr. Wheatley responded that it                   
was DOT.  He asked if they would require contractors to have                   
experience and be licensed and insured to cover any                            
potential problems that may arise?  Mr. Wheatley agreed it                     
was typical.  Senator Parnell further inquired that as part                    
of the procurement process sufficient experience would be                      
required to award the contract otherwise they would not                        
allow just anyone to obtain the bid?  Mr. Wheatley stated                      
that as pointed out, public contracts, particularly                            
Department of Transportation contracts, require the                            
contractors to provide surety bonds that guarantee                             
performance of the work.                                                       
                                                                               
Henry Springer, Executive Director, Associated General                         
Contractors testified via teleconference from Anchorage.  He                   
said one of the key points in AGC by-laws and regulations                      
was that they subscribe to open competitive bidding                            
processes.  He pointed out that categorically, contractors                     
could build anything anyone wanted to have built.  If it was                   
something highly specialized or not in the general scope of                    
work there were a variety of specialty contractors who                         
perform those specialties in all categories, usually as                        
subcontractors to general contractors.  Everyone knows that                    
the Alaska Railroad is not a purely public entity, however                     
DOT is and they receive public funds out of the highway                        
trust funds through the Federal Highway Administration.                        
Consequently they are bound to abide by different                              
procurement regulations, including in the State of Alaska,                     
the State Procurement Code.  The work being questioned was                     
those areas where a State highway or a Federal registered                      
highway crossed a railroad right-of-way.  This was not                         
different than any other work that needed to be done when                      
the owner is not DOT or the State of Alaska.  Included would                   
be different private entities, native lands and such.  In                      
general, he said, it was DOT's work over railroad land in                      
agreement with the railroad, if it pertained to bridges and                    
overpasses.  He voiced concern, however, when it came to                       
railroad crossings that were at the level of the track.                        
What typically happened was that DOT made an agreement with                    
the Alaska Railroad and gave the money to the railroad.                        
There is no true check and balance system regarding what                       
would be the best price for the work in regards to public                      
policy.  The only way to find out is to put the project out                    
to bid.  In cases where there are restrictions placed or                       
unsolicited, basically agreed upon agreements together, it                     
was always more expensive;  the excuse being the operational                   
or technical necessity to do so.  This was usually done in                     
the form of a grant or force account agreement.  The grant                     
is a lump sum payment to the owner to do whatever must be                      
done to satisfy demands; force account is basically paying                     
for personnel, materials, equipment and time in the form of                    
an agreement and was usually used when the scope of the work                   
was not clearly defined.  He said in this case that was not                    
true.  The scope of work was not unforeseen and could be                       
clearly defined by the owner, the operational demands could                    
be clearly defined by the owner and therefore, there was no                    
reason the railroad should not bid work that was financed                      
with public funds from the Department of Transportation.                       
That was the only way to guarantee that public policy is                       
adhered to and people get the best price for the work.  He                     
noted the two safety concerns, one being operational safety.                   
He said that was ongoing train schedules and operations by                     
the Alaska Railroad.  He said he had been involved in                          
several projects involving the railroad and usually a                          
retired railroad person was put on the payroll of the                          
contractor and that had been done with success.  Or, there                     
was also nothing preventing the Alaska Railroad having a                       
person safeguarding their safety operational requirements on                   
the project.  That individual could be paid through project                    
funds.  Mr. Wheatly already indicated all public work being                    
done had to be bonded, so there would be a check and balance                   
in the guarantee that the owner would get what he needed.                      
He said his testimony laid out there were no present                           
circumstances why the jobs should not be bid.                                  
                                                                               
Dennis Poshard, Legislative Liaison, Department of                             
Transportation and Public Facilities was invited to join the                   
committee.  He said the department did not oppose or support                   
the bill.  He pointed out that their only concern with the                     
bill was that their costs did not go up as a result of it.                     
The railroad may want to address this at some point.                           
Currently, he said they were happy with the process used for                   
dealing with railroad crossings on road projects.  A portion                   
of the project that related to railroad crossings, such as a                   
road going across railroad tracks, was separated and was not                   
included in the bid.  Then a force account contract would be                   
negotiated.  They had a fair idea of figuring out what the                     
costs were and negotiating a reasonable contract.  The                         
railroad, up to date, had chosen to do with their own                          
personnel and their own equipment.  Whether they contract                      
out or not is not a concern of the department.  They thought                   
the current process was good and felt it was better for the                    
railroad to do the work and have their own inspectors on the                   
projects.  It saved the department from having to meet with                    
them, include it in bid specs, work with the contractor and                    
then try to go and sell the completed project to the                           
railroad.  This was mostly for safety reasons and the ease                     
of trying to coordinate that part of the project.  He did                      
not want to speculate as to whether the safety would improve                   
or go up or down if a contractor were to do the work or                        
whether the costs would go up or down.  The department only                    
wanted to make sure that if the bill passed or did not pass,                   
the committee would consider whether or not the department's                   
costs would go up as a result.  He further pointed out, with                   
regards to the sponsor statement there were statements made                    
that this would allow the Alaska Railroad to define how a                      
portion of their tracks that interphase with the highway                       
improvement project could be improved at taxpayer expense.                     
He said, however, the railroad was not the only benefactor                     
of taxpayer money on road projects.  For example, they also                    
work with utility companies to bury power lines.  He said                      
the railroad did not define how much their portion of the                      
highway project should cost.  The department's own project                     
manager does the negotiating with the railroad and assures                     
that the costs stay down.  Other entities also benefit from                    
DOT road projects. He said the department did not provide                      
for any profits in the contracts.                                              
                                                                               
Senator Phillips asked if this process in Alaska was any                       
different than the States of Washington or Montana that also                   
deal with railroads?  Mr. Poshard indicated he had no                          
experience with these states.                                                  
                                                                               
Senator Parnell asked if sufficient experience of the                          
contractors was required in the request for proposal to                        
complete this kind of work?  Mr. Poshard said as he read the                   
bill it would be up to the Alaska Railroad Corporation.                        
But, the department would work with them.  With regards to                     
the work the railroad was currently doing they would be                        
required to contract that out.  Either the department would                    
have to give them money, issue the contract separately or                      
the department making it part of the overall road project                      
contract.                                                                      
                                                                               
Senator Parnell asked what was the volume of dollars on an                     
annual basis directly distributable to railroad crossing                       
work?  Mr. Poshard said he did not have exact figures,                         
however, he said part of the reason they did not oppose nor                    
support the bill was because it was a very miniscule amount                    
of the total road budget that they have annually.  Senator                     
Parnell asked that Mr. Poshard explain  "miniscule" amount                     
and Mr. Poshard said that statewide it may amount to a                         
couple of million dollars.  On a per project basis it was a                    
very small amount.                                                             
                                                                               
Senator Parnell asked if an analysis had been done on                          
whether or not there would be a cost savings or increase for                   
putting the job out to bid?  Mr. Poshard said they were                        
currently doing that work and had requested such information                   
from the railroad.  Senator Parnell requested a list of this                   
information.  He further commented on the fiscal note,                         
realizing that it was difficult to estimate costs.                             
                                                                               
Co-chair Pearce said it was her understanding from the AGC                     
that DOT&PF used to contract projects out, as either part of                   
larger road projects or smaller ones.  She wanted to know                      
when the department started going directly to the railroad                     
and have them do the work.  Mr. Poshard said he was not                        
certain when that changed.  He could only speak to current                     
procedures and did not know how long those had been in                         
place.  He advised the Co-chair he would check this out and                    
get back to the committee.                                                     
                                                                               
Senator Phillips asked when there was a major road project,                    
involving power lines, cables, etc. did they contract to                       
whoever owned the power line or did the contractor remove it                   
as part of the road project?  Mr. Poshard said he could not                    
respond to this, but he would be able to get back to the                       
committee with the answer.                                                     
                                                                               
Co-chair Pearce referred to right-of-way and said                              
occasionally utility companies find they get to move their                     
utilities or up-grade them as part of a larger project and                     
asked if a fee was paid to the State for the right-of-way?                     
Mr. Poshard said he believed the utilities companies pay a                     
fee for the right-of-way.  Co-chair Pearce indicated they                      
were treated somewhat different.                                               
                                                                               
Co-chair Pearce requested that materials asked by the                          
committee to be supplied be done as timely as possible.                        
                                                                               
Jim Blasingame, Alaska Railroad testified via teleconference                   
from Anchorage.  He indicated that Mr. Bill Hupprich,                          
Associate General Counsel was also present.  Mr. Blasingame                    
said the railroad had no real objection to the proposed                        
legislation as written.  Unfortunately he said they did not                    
have the benefit of the statements made by the other                           
individuals, so they could only reply briefly.  With regards                   
to contracts or force accounts provided to the Alaska                          
Railroad from DOT, he said:  "we are a utility company just                    
as other utility companies where DOT goes to Chugach                           
Electric or ATU to perform those kinds of work".  He further                   
said that theirs had to do with crossings, in the sense that                   
if someone else were to do it, the Alaska Railroad would                       
have to have its inspectors certify that the work was being                    
done properly.  In addition, they would have to have                           
flagging protection for the trains.  He said those would be                    
additional costs that would probably amount to about ten                       
percent more than what they would already have.  He said                       
they did not make any profit off that work performed at                        
those crossings.  With reference to Mr. Poshard's testimony,                   
when DOT provides a contract to the Alaska Railroad for                        
crossing construction, they actually audit the railroad's                      
books and determine the rate to insure they were not making                    
a profit.  It is all done at cost.  He noted further for the                   
committee, that their union labor agreement dictated that                      
all railroad operating work be performed by railroad                           
employees.  That would be a problem if it were to be                           
dictated to be contracted out.  He believed there was a                        
State law pertaining to utility companies that perform works                   
on their right-of-way by the Department of Transportation.                     
                                                                               
Bill Hupprich, Associate General Counsel for the Alaska                        
Railroad, testified via teleconference from Anchorage.  He                     
believed there was a State law that allowed utility owners                     
the right to perform DOT&PF work using their own personnel,                    
their own equipment and their own materials.  He indicated                     
that would be found at 17 AAC, section 15.31.0 to 461, and                     
17 AAC, section 15.471 to 551.                                                 
                                                                               
Senator Parnell queried Mr. Hupprich as to the wording in                      
the contract related to the earlier statement by Mr.                           
Blasingame that all railroad operating work must be done by                    
employees.  Mr. Hupprich said it was in their collective                       
bargaining agreements.  Basically, they require any on-track                   
work, including moving the track, picking up the rail,                         
putting in new ties, ballast and installing crossing signals                   
had to be done by railroad workers.  Or at least they have                     
to have the opportunity to bid on that work.                                   
                                                                               
Senator Parnell felt that was the key, not that it was                         
required, but rather they had the opportunity to bid.  He                      
asked Mr. Hupprich to clarify what the regulations were in                     
regards to utility owners.  Mr. Hupprich, referring to his                     
notes from last year, said that any utility owner, be it                       
water line company, telephone company or electrical company,                   
had the right to perform any DOT required relocation of                        
their utility with their own labor forces and their own                        
equipment.  That was because they were the owners of the                       
cable, water line, or in this case, the railroad track,                        
which was being relocated.  Senator Parnell asked whose                        
regulations those were and Mr. Hupprich responded that he                      
was not sure.  He briefly noted Title 17.  Senator Parnell                     
asked, if under those regulations, the railroad was classed                    
a utility and Mr. Hupprich responded that he believed so.                      
                                                                               
Co-chair Pearce said this was yet another hat they wanted to                   
wear.                                                                          
                                                                               
John Eng, President, Cornerstone Construction, testified                       
before the committee via teleconference from Anchorage.  He                    
said they were general contractors incorporated in the State                   
of Alaska to perform work of this type in addition to other                    
general construction.  They felt the bill addressed only                       
projects financed with tax dollars.  It did not deal with                      
projects that the Alaska Railroad paid for with revenues                       
generated within their own organization.  He gave an example                   
of the Federal Government having several miles of railroad                     
on Ft. Wainwright.  They have for several years contracted                     
with the Alaska Railroad to maintain the line and do all                       
construction on a force account basis.  Two years ago they                     
did advertise for bids and the company did submit a bid on                     
the job.  They were awarded the contract and the railroad                      
was happy enough with their work to extend the contract by                     
an additional year and have options to do so in future                         
years.  He said approximately eighty percent of the man                        
hours paid out on the project were higher wage rates than                      
those paid by the Alaska Railroad or the prevailing wage                       
rate.  Twenty percent was paid at the prevailing wage rate,                    
which was the same as paid by the Alaska Railroad.  Yet, the                   
cost the owner was paying was approximately twenty-five to                     
thirty-five percent cheaper than they were paying the Alaska                   
Railroad to perform the same work.  The last work last month                   
as performed by the Alaska Railroad, compared to the                           
subsequent months that they performed the work, the cost                       
savings were approximately twenty-six percent.  That was                       
typical and in that range of twenty-five to thirty-five                        
percent savings.  They felt it was a win/win deal for                          
everyone.  Costs were reduced, public dollars were spent in                    
a public format by advertising for bids and by defining what                   
was required on contract documents the owner should get what                   
they want.  The safety issues as affected the public were                      
the same as when a highway was built.  The general                             
contractors had certain safety requirements they had to                        
adhere to when a road was under construction.  The railroad                    
had to adhere to the same requirements.  He could also                         
answer one other question, as a general contractor, and said                   
they bid on road and street work all the time that involved                    
other utilities, such as Chugach Electric or telephone                         
utilities.  In those contracts the scope of work was defined                   
such as relocating underground conduit lines and so forth                      
that utility lines pass through and what they did was use                      
specialty personnel for that work and it was relocated as a                    
bid item on the bid documents.  In the particular case of                      
Chugach Electric underground utilities, that work was                          
included in public bid documents for street widening and was                   
competitively bid.                                                             
                                                                               
Senator Phillips asked who owned the right of way going from                   
the railroad to the post in Fort Wainwright?  Mr. Eng                          
indicated it was owned by the Alaska Railroad.  On the base                    
it was owned by the Federal Government.                                        
                                                                               
Jim Blasingame, via teleconference from Anchorage, said he                     
wanted to correct the comment by Mr. Eng regarding the                         
right-of-way in Fort Wainwright.  He said it belonged to the                   
U.S. Army and not the Alaska Railroad.  Co-chair Pearce said                   
it was indicated by Mr. Eng that the right-of-way to the                       
Fort belonged to the Alaska Railroad and on the Fort it                        
belonged to the Federal Government.                                            
                                                                               
Senator Torgerson queried Mr. Blasingame with regards to                       
direct grants from the Federal Government in the approximate                   
amount of ten million dollars per year.  He asked if that                      
money went through DOT and were there any other                                
appropriations that might be public funds funneled through                     
DOT that did not have direct correlation to railroad                           
crossings?  He said this bill covered procuring supplies,                      
professional services or construction and that was a fairly                    
broad-based statement.  The question was whether federal                       
money or public money might come to the railroad through                       
DOT.  Mr. Blasingame responded that the other grants do not                    
come through DOT.  They came directly to the Alaska Railroad                   
through the Federal Railroad Administration who actually                       
administered the money.  The only thing received from DOT                      
had to do with the crossings where the highway and the                         
railroad intersect.                                                            
                                                                               
Co-chair Pearce said she would hold the bill in committee                      
until fiscal notes were received from the Alaska Railroad                      
and the Department of Transportation and Public Facilities.                    
She further asked Mr. Blasingame or Mr. Hupprich to provide                    
the appropriate cites in their union contract requiring that                   
any work be done by railroad employees.  Senator Parnell                       
indicated he was also interested in taking a look at the                       
contract.   Mr. Blasingame indicated he would comply with                      
the request.  Co-chair Pearce further stated that the bill                     
would be brought before the committee sometime next week.                      
With that she called SB 261.                                                   
                                                                               

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