Legislature(2001 - 2002)

04/24/2001 10:05 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                                                                                                                                
     SENATE BILL NO. 152                                                                                                        
     "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."                                                                            
                                                                                                                                
                                                                                                                                
DICK  CATTANACH, Alaska  General  Contractors (AGC),  testified  via                                                            
teleconference  from  Anchorage  and  noted that  he  had  submitted                                                            
written testimony  regarding AGC's position on the  legislation.  He                                                            
offered to answer any questions of the Committee.                                                                               
                                                                                                                                
BERT  BELL,   Alaska  General  Contractors   (AGC),  testified   via                                                            
teleconference  from Fairbanks  that  it is wrong  to use  someone's                                                            
money  and not pay  interest  on it.   He predicted  that the  State                                                            
would loose.  He spoke in support of the legislation.                                                                           
                                                                                                                                
TON JOHANSEN testified  via teleconference from Fairbanks,  to voice                                                            
support of the bill.                                                                                                            
                                                                                                                                
KEVIN  BRADY,  Attorney,  Oles  Mornson   Law  Firm,  testified  via                                                            
teleconference from Anchorage  and encouraged the passage of SB 172.                                                            
 He claimed  that  passing the  bill would  give  some incentive  to                                                            
settle  claims where  the  costs are  less.   He offered  to  answer                                                            
questions of the Committee.                                                                                                     
                                                                                                                                
BILL  RENO,   Attorney,  Oles  Mornson   Law  Firm,  testified   via                                                            
teleconference from Anchorage  in support of SB 152.  He stated that                                                            
the dispute-resolution  process is badly broken.  He emphasized that                                                            
SB 152  could help  address the  current process  problems and  deal                                                            
with them "fairly".                                                                                                             
                                                                                                                                
KATELYN MARKLEY, Alaska  Industrial Development and Export Authority                                                            
(AIDEA),  testified via teleconference  from  Anchorage that  SB 152                                                            
could  result  in additional  interest  payments  for  the State  on                                                            
contract related claims.   She added that there is no way to predict                                                            
what the  legislation will  cost in the future.   AIDEA development                                                             
finance  funds generally  do not  use general  fund  money.  In  the                                                            
past, claims  have been  negotiated through  the actual settlement.                                                             
If AIDEA funds  are required of AIDEA's net income,  then there will                                                            
be  declines,  which  will  result  in  a  decrease  to  the  annual                                                            
dividends.     She  stated  that   SB  152  could  affect   economic                                                            
developers, AIDEA and the general fund with decreased funding.                                                                  
                                                                                                                                
EDEN   LARSON,   Executive   Director,   Associated   Builders   and                                                            
Contractors (ABC), testified  via teleconference from Anchorage that                                                            
the Associated Builders and Contractors supports SB 152.                                                                        
                                                                                                                                
BILL WATTERSON  testified via teleconference from  Anchorage support                                                            
for SB 152.                                                                                                                     
                                                                                                                                
Co-Chair  Kelly stated that  SB 152 would  be HELD in Committee  for                                                            
further consideration.                                                                                                          
                                                                                                                                
                                                                                                                                
AT-EASE 11:05 AM / 6:18 PM                                                                                                      
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 152                                                                                                        
     "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."                                                                            
                                                                                                                                
                                                                                                                                
SENATOR  JOHN COWDERY  stated that  the proposed  legislation  would                                                            
require  that when  a contract  settlement  with  the Department  of                                                            
Transportation  & Public Facilities  is in dispute and then  settled                                                            
in favor of the contractor,  interest must be paid to the contractor                                                            
on the  settlement  amount for  the time  that the  contract was  in                                                            
dispute.  Interest would  accrue at the rate applicable to judgments                                                            
and the interest  accrues from the  date the claim is filed  through                                                            
the date of the decision.                                                                                                       
                                                                                                                                
Senator Hoffman commented  that the bill would create constitutional                                                            
concerns with equal protection.   The Department of Transportation &                                                            
Public Facilities  has procurement  authority  for all construction                                                             
projects conducted  in the State and prejudgment claims  will affect                                                            
all agencies conducting  construction.  He questioned claims against                                                            
the  other  agencies besides  the  Department  of  Transportation  &                                                            
Public Facilities.                                                                                                              
                                                                                                                                
Senator Cowdery  replied that  if other agencies  owe money  and the                                                            
court  indicates   that,   then  those  agencies   should   also  be                                                            
responsible to pay the interest due.                                                                                            
                                                                                                                                
Senator Hoffman  asked why the other  agencies were not included  in                                                            
the legislation.                                                                                                                
                                                                                                                                
Senator  Wilken mentioned  that  Page 1  was difficult  to read  and                                                            
noted that there is no effective date placed in the bill.                                                                       
                                                                                                                                
Co-Chair Kelly asked if there were any proposed amendments.                                                                     
                                                                                                                                
Senator Leman thought that  the State interest rate was too high and                                                            
acknowledged  that  this  bill was  not  the  vehicle to  make  that                                                            
change.                                                                                                                         
                                                                                                                                
DOUG  GARDNER,  Assistant  Attorney   General,  Department  of  Law,                                                            
commented  that the  concerns indicated  by the  Associated  General                                                            
Contractors,   propose  stipulations   that   are  currently   being                                                            
litigated  in a case called  Quality Asphalt.   The letter  does not                                                            
address the problems that  the Department of Law sees with the bill.                                                            
                                                                                                                                
Mr. Gardner  suggested that the Committee  should consider  that the                                                            
majority  of states  do not  implement  the interest  penalty.   The                                                            
legislation  would put Alaska in a  minority position.  Most  states                                                            
pay interest on liquidating  claims.  The cost of the application of                                                            
the bill would  be "unknown".  The fiscal note could  be significant                                                            
if the bill was given any retroactive charges.                                                                                  
                                                                                                                                
Many  of  the  Department  of Transportation   &  Public  Facilities                                                            
projects are  funded by the Federal  Highway Administration  (FHWA),                                                            
the  Federal  Aviation  Association  (FAA) or  the  Federal  Transit                                                            
Authority.  Some of  the agencies  would not  pay interest  charges.                                                            
All  agencies  that  build  though  the  State,  contract  with  the                                                            
Department  of Transportation  & Public  Facilities.   Every  single                                                            
agency would be  required to pay interest on administrative  claims.                                                            
The  Committee   could  see,  in  the  years  to   come,  a  lot  of                                                            
supplemental requests to cover these costs.                                                                                     
                                                                                                                                
Mr. Gardner  invited  the Committee  to consider  some of the  equal                                                            
protection issues  voiced by Senator Hoffman.  The  bill changes the                                                            
procurement  code and singles  out construction  projects.   A savvy                                                            
litigator could  misconstrue that information.  The  other projects,                                                            
such as the Railroad, would  be required to have similar statutes in                                                            
place and to also pay interest.                                                                                                 
                                                                                                                                
Senator   Ward  asked   how  many   states  have   implemented   the                                                            
legislation.                                                                                                                    
                                                                                                                                
Mr. Gardner remembered  of the 17 states that were checked, only one                                                            
pays  interest on  a disputed  claim.   He  offered to  go back  and                                                            
recheck which states had been checked.                                                                                          
                                                                                                                                
Mr.  Gardner  explained  that the  Department  of  Transportation  &                                                            
Public Facilities does  pay interest on administrative claims.  That                                                            
issue did  not become  litigated until  fairly "late  in the  game".                                                            
Contractors  probably   became  familiar  with  receiving   interest                                                            
payments  until the  Courts  changed that.    That was  a change  in                                                            
findings.                                                                                                                       
                                                                                                                                
Senator Wilken  addressed equal protection.  He understood  that the                                                            
contractors  had been excluded from  the interest payments  that the                                                            
State already pays.                                                                                                             
                                                                                                                                
Mr. Gardner commented  that the responses found in  that letter were                                                            
confusing.   In  the cases  that are  brought as  direct actions  to                                                            
Superior Court,  the State has allowed itself to be  sued on certain                                                            
types of conditions elected by the Superior Court.                                                                              
                                                                                                                                
Senator  Donley  moved  to  report  SB 152  out  of  Committee  with                                                            
individual recommendations  and with the accompanying  fiscal notes.                                                            
                                                                                                                                
Senator Hoffman maintained his objection.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:       Leman, Ward, Wilken, Donley, Kelly                                                                              
OPPOSED:        Olson, Hoffman                                                                                                  
                                                                                                                                
Senators Austerman and Green were not present for the vote.                                                                     
                                                                                                                                
The motion PASSED (5-2).                                                                                                        
                                                                                                                                
SB 152  MOVED from  Committee with  a "do pass"  recommendation  and                                                            
with  a  fiscal   note  by  Department   of  Community  &   Economic                                                            
Development  and note #1  by Department of  Transportation  & Public                                                            
Facilities.                                                                                                                     
                                                                                                                                

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