Legislature(2005 - 2006)SENATE FINANCE 532
05/01/2006 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB500 | |
| HB283 | |
| HB338 | |
| HB83 | |
| SB160 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 231 | TELECONFERENCED | |
| += | SB 160 | TELECONFERENCED | |
| + | HB 500 | TELECONFERENCED | |
| += | HB 283 | TELECONFERENCED | |
| + | HB 338 | TELECONFERENCED | |
| + | HB 83 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR SENATE BILL NO. 160(L&C)
"An Act relating to a procurement and electronic commerce
tools program for state departments and instrumentalities
of the state; and providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Senator Bunde, the bill's sponsor, moved to adopt committee
substitute Version 24-LS0524\B as the working document.
Co-Chair Green objected for explanation.
10:12:02 AM
Senator Bunde voiced appreciation for today's hearing. This bill
would address the State's procurement and electronic (e-
commerce) tools pilot program that has been in operation for a
year. He determined the State would benefit most by retaining
senior procurement specialists to purchase specialty items such
as gears needed for the State ferries while using the e-commerce
tools for simple, repetitive orders. Thus, Version "B" would
limit outsourced e-commerce procurements to $50,000. State
procurement personnel would be responsible for specialty
purchases exceeding $50,000 as well as the majority of contracts
for services.
Senator Bunde explained the changes in Version "B" were based on
a consensus between the Administration and the private
contractors. Private contractors' responsibilities would expand
"horizontally" to include more of the small, repetitive aspects
of purchasing. State procurement officers would secure services,
contracting, and large procurements. The State should use the
experience gained through the pilot procurement program [PPP] to
advance its procurement activities. He urged the Committee to
support the bill.
10:13:55 AM
JANE ALBERTS, Staff to Senator Bunde, noted that provisions in
Version "B" would address State employees' position that, if
provided e-commerce tools, they could match the procurement
savings experienced by the private contractor. These provisions
would allow each State department to either "contract for both
labor aspects and e-commerce tools from the private contractor"
or to "pay a licensing fee … for the e-commerce tools" and
conduct procurement operations with State employees. Since both
these options would utilize "the same e-commerce tools", the
Office of Management and Budget could compare purchases made by
State employees to those purchased by the private contractor.
10:15:09 AM
Senator Bunde stated that Version "B" would also extend PPP's
current State procurement code exemptions another three years.
10:15:30 AM
In response to a question from Senator Olson, Senator Bunde
clarified that PPP's current State procurement code exemptions
would be extended until July 1, 2009. After that date, all
procurements must comply with the code.
Co-Chair Green noted that language in Sec. 9 page 4, line 21
pertained to the procurement code exemption.
Senator Olson asked for further clarification.
Co-Chair Green read the language.
Sec. 9. Section 2 and 3 of this Act take effect July 1,
2009.
Senator Bunde stated that, in order to successfully implement
the PPP and its e-commerce tools, exemptions to some portions of
the State's procurement code were required. Those exemptions
would be continued until July 1, 2009. After that date, all
provisions of the procurement code must be adhered to.
Senator Olson asked whether this bill would affect PPP's
"estimated savings".
Ms. Alberts deferred to Scott Hawkins with ASCI.
Senator Bunde understood Senator Olson's question to be whether
eliminating the procurement code exemptions would negatively
affect the savings the State might receive from the PPP.
10:17:31 AM
Co-Chair Green understood Senator Olson's question to be whether
the proposal to allow State employees to purchase large ticket
items would negatively impact savings the State might receive
were ASCI, with its specified exemptions, to make those
purchases.
10:18:06 AM
SCOTT HAWKINS, President, Alaska Supply Chain Integrators,
testified via teleconference from an offnet site. The affect on
savings is "one of the things that the three-year period will
tell us". DOT data indicates that approximately 93 percent of
all transactions are less than $5,000. Thus, the exemptions to
the State procurement code would "streamline, really, a small
share" of the overall transactions. The reasons for providing
the procurement code exemptions were "more technical than
relating to cost savings". Technical compliance issues would
include such things as "the implications for having a private
contractor" serving as an agent of the State and how do certain
"elements of the procurement code apply to a private agent of
the State". The three-year procurement code exemption extension
would provide "adequate time" in which to address technical
issues.
Senator Olson characterized the response as "vague". He
understood that one of the objectives for implementing the PPP
was to save between five and 20 million dollars. Thus, his
question was whether this bill would affect that savings
potential.
Mr. Hawkins recalled that the five to 20 million dollars savings
projection was based on implementing the PPP to all State
departments. The PPP that was implemented was "so small" it
negated the opportunity to save even five million dollars.
Senator Olson asked whether the PPP has produced any savings, to
date.
Mr. Hawkins stated that a savings of approximately $187,000 in
procurement-warehouse overhead and operating expenses have been
documented over the PPP's two-year operational timeframe. A
savings measurement for costs of goods procurement was
unavailable, "as the program hasn't been implemented to a
degree" that could provide reliable catalog data.
10:21:15 AM
BRUCE LUDWIG, Business Manager, Alaska Public Employees
Association and American Federation of Teachers, testified in
opposition to the bill. The PPP was enacted two years prior "as
an experiment". Even though the program was projected to save
five to 20 million dollars, "the only documented savings has
been negative". Two independent audits indicated that PPP has
cost the State at least a million dollars a year because ASCI
paid more for goods than State purchasers did. "The final
savings in overhead" was in the range of $53,000 after contract
modifications were factored in. "In short" the PPP "failed
miserably".
Mr. Ludwig questioned the decision to continue exempting the
private contractor from the State's procurement code, as the
code was developed to protect citizens of the State by
providing: transparency in the process; competition; and appeal
procedures. Continuing the exemptions would provide none of
these. He asked the Committee to take no action on the bill at
this time.
10:22:57 AM
TOM BRICE, Representative, Public Employees Local 71 Labor
Association, informed the Committee that Local 71 members are
"the blue collar workers of the State of Alaska": they are
involved in airport, warehouse, pioneer home, and highway
station operations such as snowplow drivers and belly blade
truck drivers. These individuals have been some of the primary
users of the pilot procurement program in Southeast Alaska.
Association members have communicated to him that the "very
complicated process" involved in this procurement program has
forced many of them to use "credit cards or other alternative
means of purchasing, simply because trying to go through and
follow the computer system, trying to place an order through the
ASCI program, is becoming very cumbersome and burdensome".
Mr. Brice also noted that, oftentimes, orders placed through the
program deliver the wrong item, or the order is never delivered,
or does not arrive in a timely manner. One Association foreman
ordered 50 fluorescent light bulbs for a State shop. They
arrived one or two at a time over a three-month period. An order
for front-end loader oil filters remained unfilled for three
months. Such delays impact services provided by the State.
Mr. Brice urged the Committee to further investigate this issue
before moving it from Committee.
10:25:47 AM
JIM DUNCAN, Business Manager, Alaska State Employees Association
and former State Senator, spoke in opposition to the bill. Many
of the 7,500 general government unit members represented by the
Alaska State Employees Association (ASEA) would be impacted by
this legislation. Reasons against this legislation include the
fact there is clearly "no indication that this is a cost savings
of any kind". When ASCI questioned whether the Administration's
audit of the program was objective, a third party auditor,
Mikunda Cottrell Accounting & Consulting (MCAC), was hired to
conduct another audit.
Mr. Duncan stated he had not attended the March 24, 2006
Committee hearing about the MCAC audit because he was unaware it
was scheduled. The validity of that audit is in question. The
MCAC auditor "recognized" that the sample size was too small to
be valid and took this concern to the State and ASCI. The
decision was made to continue. The MCAC audit concluded that the
two-year program produced "a small savings" of $50,000 per year
in personnel costs for the two-year period. It also indicated
there was a "tremendous" one million dollar per year increase in
the cost of goods purchased.
Mr. Duncan reminded the Committee that MCAC "clearly" stated to
both this Committee and the public that its study was "not a
valid study but was a strong indicator of what was happening"
with the PPP. The indication was that PPP produced small
personnel savings, but increased costs of goods. Thus, there is
a "strong" indication that expanding the program beyond the
limited application of the initial pilot program endeavor "would
cost a whole lot more to the State".
Mr. Duncan opined it would be illogical "to expand and extend a
program that has a strong indication from a third party auditor"
with no vested interest, that the program would increase costs
to the State.
Mr. Duncan urged the Committee to consider the indicators
reflected in the MCAC audit and not expand or extend the
program. He also urged the Committee to be "very careful in
allowing anyone" making procurements for the State "to bypass
the State's procurement code". Such action could be "very
dangerous and it could create tremendous problems in the
future". The procurement code was developed between 1984 and
1986 by a Legislative commission, which ranked the best
interests of the State and the public as paramount.
Based upon his experience as a former Legislator and
commissioner of the Department of Administration, Mr. Duncan
believed the State's procurement code has worked and "would
continue to work very well".
Mr. Duncan concluded his remarks by reiterating reasons not to
further the pilot procurement program: "there is no indicator
that it has saved the State any money; there is a strong
indicator" that it would cost the State a tremendous amount of
money, particularly were it expanded to other departments.
Furthermore, "there is no good public policy reason to bypass
the State procurement code". Please do not extend or expand this
program.
10:30:46 AM
CHERYL FRASCA, Director, Office of Management and Budget, Office
of the Governor, testified on behalf of "the group that is held
accountable for the management results that State government
delivers". She appreciated the attention the Committee has
provided to evaluating the PPP's success or lack thereof. She
has, at times, "refereed" in regards to the "issues and
challenges" presented from "both sides of the pilot".
Nonetheless, the Administration "believes that these are
management tools that are good for government to deploy where it
makes sense". She appreciated Senator Bunde's efforts to develop
a committee substitute that "is a good reflection of the lessons
learned" from the PPP. Forwarding Version "B" would make State
government more efficient and would save money.
Senator Bunde stated that major technological advances have
occurred in the past decades, and, while "change is threatening"
it is inevitable. In spite of the "resistance" the pilot program
has experienced, "it has shown progress and promise. It is time
for the State" to update its e-commerce procurement activities
to the level at which private enterprise has operated for years.
This would improve efficiency and produce cost savings. He urged
the committee to support this legislation.
Co-Chair Green withdrew her objection to the adoption of the
Version "B" committee substitute.
There being no further objection, the committee substitute was
ADOPTED.
Senator Bunde moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
Senator Hoffman objected.
Senator Olson also objected. A pilot program that has cost the
State more than one million dollars a year rather than saving
the State money "is almost counterintuitive. The five to 20
million dollar anticipated savings have not transpired.
10:34:44 AM
Senator Olson asked why the pilot program had not provided the
expected results.
Senator Bunde responded that "there's absolutely no proof that
that million dollar" expense would not have been incurred under
the original procurement system. To that point, State personnel
costs have increased. "The audit has been pretty thoroughly
debunked", and he did not believe that the program incurred
additional costs. Costs increase "whether there is change or
not".
Senator Hoffman, speaking as a businessman, surmised that no
business person in making payroll decisions would approve this
measure.
Senator Olson did not object to the practice of employing
another private sector business to assist with the operation of
his business, as, in many cases, it is less expensive to
contract out some jobs. However, after reviewing the February
28, 2006 study [copy on file] on the MCAC report, he
acknowledged "validity, in spite of the previous study" that
included invalid variables.
A roll call was taken on the motion.
IN FAVOR: Senator Dyson, Senator Bunde, Senator Stedman, Co-
Chair Wilken, and Co-Chair Green
OPPOSED: Senator Hoffman and Senator Olson
The motion PASSED (5-2)
CS SB 160 (FIN) was REPORTED from Committee with new $650,000
fiscal note dated April 29, 2006 from the Senate Labor &
Commerce Committee.
10:37:55 AM
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