Legislature(2003 - 2004)

04/01/2003 09:02 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                                                                                                                                
     SENATE BILL NO. 40                                                                                                         
     "An Act relating to construction of highways by the Department                                                             
     of Transportation and Public Facilities."                                                                                  
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken stated,  "SB  40 allows  the use  of force  account                                                            
construction  only for highway  construction  projects estimated  to                                                            
cost  $250,000  or less.  Projects  greater  than $250,000  will  be                                                            
subject to a competitive  bid process as outlined in State statute."                                                            
                                                                                                                                
RICHARD SCHMITZ,  Staff to Senator  Cowdery, stressed importance  of                                                            
the competitive  bidding process to State government  operations. He                                                            
explained this  is to ensure fairness and to garner  the best prices                                                            
available. He  noted the current system does not accurately  compare                                                            
the  expense  of  private   ownership  of  equipment   and  contract                                                            
employees with  that of State-owned  equipment and State  employees.                                                            
                                                                                                                                
Mr.  Schmitz spoke  to  a handout  [copy on  file],  which reads  as                                                            
follows.                                                                                                                        
                                                                                                                                
     Re: SB 40 alternatives:                                                                                                    
                                                                                                                                
     Is DELIVERY ORDER CONTRACTING an alternative?                                                                              
        · DOC is used by, and was developed by, the Department of                                                               
          Defense (it's called JOC by the Army, SABER by the Air                                                                
          Force) and is being increasingly used by local                                                                        
          governments and educational facilities.                                                                               
        · DOC is a competitively bid, fixed price, indefinite                                                                   
          quantity,     indefinite    delivery    (IDIQ),    general                                                            
          construction contract.                                                                                                
        · The contract typically has a base year with 2 to 4 option                                                             
          years.                                                                                                                
        · The contract sets parameters such as location of work,                                                                
          type of work to be done, design criteria, etc.                                                                        
        · A DOC contract uses unit price guides (UPG) and/or a                                                                  
          unit-price   book  (UPB)  to  establish   a  price  for  a                                                            
          multitude  of lines items of work. A typical UPB has about                                                            
          40,000  line  items in  order to  cover  just about  every                                                            
          imaginable  task. Items that are not in  the book are then                                                            
          negotiated,  priced,  and  added to  the UPB.  A UPG  uses                                                            
          computer cost databases, etc.                                                                                         
        · The contractor bids a coefficient that is a markup or                                                                 
          markdown to the UPB items, rather than a dollar price.                                                                
                                                                                                                                
     What you get with a Delivery Order Contract:                                                                               
        · On-call general contractor where prices for line items of                                                             
          work are predetermined.                                                                                               
        · A contract that is easy to manage.                                                                                    
        · A contract that puts more money into "hard construction"                                                              
          instead of soft upfront costs.                                                                                        
                                                                                                                                
Mr. Schmitz  surmised this  legislation would  provide incentive  to                                                            
the Department of Transportation  and Public Facilities to institute                                                            
new methods of contracting for smaller projects.                                                                                
                                                                                                                                
SENATOR JOHN  COWDERY told of contractors  that bid on a  $3 million                                                            
project located in Saint  Mary's, in which the Department elected to                                                            
utilize a force  account. He opined  this was an abuse of  the force                                                            
account. He reported  that many states have defined  maintenance and                                                            
construction, separated  by dollar amounts. He intended to provide a                                                            
"level playing  field", understanding that the Department  must have                                                            
the ability to  utilize a force account. He considered  the $250,000                                                            
limit  to be  adequate  and  would provide  necessary  latitude.  He                                                            
relayed he  had asked the  Department the  lowest cost of a  project                                                            
located  in rural  Alaska,  in which  a request  for  bids would  be                                                            
issued. He was told the amount was between $75,000 and $100,000.                                                                
                                                                                                                                
Senator Cowdery stated  this legislation would "get the State out of                                                            
the construction business".                                                                                                     
                                                                                                                                
Senator Taylor asked if this legislation would prevent abuses.                                                                  
                                                                                                                                
Senator  Cowdery  responded it  would  require competitive  bid.  He                                                            
noted that currently no limitation is imposed.                                                                                  
                                                                                                                                
Senator Taylor  asked the regulatory  authorization under  which the                                                            
Department  makes the decision that  only certain contractors  could                                                            
bid on a project. He gave  the construction of high-speed ferries as                                                            
an example.                                                                                                                     
                                                                                                                                
GEORGE LAVASSEUR,  Acting State Maintenance Engineer,  Office of the                                                            
Commissioner,  Department  of Transportation  and Public  Facilities                                                            
responded  he would provide  an answer at  a later time at  Co-Chair                                                            
Wilken's request.                                                                                                               
                                                                                                                                
Mr. Lavasseur  testified to  his 29 years  in Southcentral  Interior                                                            
Alaska maintaining highways.  He gave a history of the force account                                                            
method beginning  with a meeting eight  years ago in Washington  D.C                                                            
with the  National  Highway Administration,  where  he learned  that                                                            
other  states  have  the  same  problem  of infrastructure   without                                                            
adequate  funding  to  maintain  it.  As  a  result,  congressional                                                             
approval  was  granted  to  allow  the  use  of  federal  funds  for                                                            
maintenance  purposes,  including  pavement life  extension,  bridge                                                            
repair and gravel-to-pavement  programs. Before this  authorization,                                                            
he reminded that  for several years during the 1980s,  the State did                                                            
not have enough funds to maintain highways.                                                                                     
                                                                                                                                
Mr. Lavasseur  told  of significant  damage  caused by  the melt  of                                                            
discontinuous  permafrost and the use of federal funds  in the force                                                            
account  to maintain  road  smoothness,  and to  rehabilitate  older                                                            
pavements.  He listed  the type  of projects  undertaken with  these                                                            
funds, including  boardwalks, community  roads and capital  projects                                                            
performed by  the Department maintenance  staff. Of the $42,600,000                                                             
appropriated  for  this  purpose in  2003,  86  percent is  paid  to                                                            
private  contractors.  He  detailed  the  percentages  allocated  to                                                            
private contractors  and Department  staff in each region,  based on                                                            
the availability of hot asphalt.                                                                                                
                                                                                                                                
Mr. Lavasseur  indicated  photos showing  heavy  equipment, and  the                                                            
process of repairing roads in the Northern Region.                                                                              
                                                                                                                                
                                                                                                                                
SFC 03 # 38, Side A 10:37 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Mr. Lavasseur asserted  the force account method allows efficiencies                                                            
for maintenance  work done  in Interior Alaska.  He elaborated  that                                                            
the Department  combines  maintenance  resources from  a variety  of                                                            
"camps",   which  allows   reduced   per  diem   costs  and   better                                                            
mobilization of  units. He cautioned that if this  type of work were                                                            
contracted  to the  highest  bidder, the  costs would  increase.  He                                                            
listed design  problems, since typical  as-built specifications  are                                                            
not available  for 150  to 200 sections  of a  particular road  that                                                            
could be worked on. He  added that the sections only measure between                                                            
50 to 300 feet  rather than one continuous  section and that  he has                                                            
learned from  private contractors  they are not interested  in these                                                            
projects. He  attributed this to the  short construction  season and                                                            
the large area in which  equipment and manpower must be distributed.                                                            
He noted that  when a project is comprised of one  section measuring                                                            
three  or more  miles,  a private  contractor  is employed,  as  the                                                            
Department  only  addresses   spot  repairs.  He  assured  that  all                                                            
crushing  is  done by  the  private  sector,  amounting to  over  $1                                                            
million annually  in the Northern  Region. In addition, he  reported                                                            
that  all the  emulsion is  purchased from  the  private sector  for                                                            
approximately  $2.5  million  annually,  and rollers,  belly  dumps,                                                            
tractor-trailers,  and milling machines are rented  from the private                                                            
sector.                                                                                                                         
                                                                                                                                
Mr.  Lavasseur  stressed   the  Department  performs   some  of  the                                                            
maintenance  work because  of the  lower costs  associated with  not                                                            
paying  Davis-Bacon Act  wages,  bypassing bid  packages,  preparing                                                            
construction engineering  on the grade, and not paying for a profit.                                                            
He also spoke of the need  to employ the "highly-trained" Department                                                            
staff for at least nine  months per year, explaining that previously                                                            
the winter  seasonal workers fished  commercially during  the summer                                                            
months before the fishing industry declined.                                                                                    
                                                                                                                                
Mr. Lavasseur  informed that the Department  has been able  to adapt                                                            
to  lower  budget  appropriations,  inflation  and  unfunded  salary                                                            
increases because of cost saving efforts such as these.                                                                         
                                                                                                                                
Mr. Lavasseur  assured the Department was committed  that the abuses                                                            
of the  past would  not occur under  the leadership  of the  current                                                            
Murkowski Administration.  He warned that passage of this bill would                                                            
have a "devastating effect" on the highway maintenance program.                                                                 
                                                                                                                                
Senator  Taylor asked if  a series  of repairs along  50 miles  of a                                                            
highway could  be divided into separate projects,  each costing less                                                            
than   $250,000  and   complying   with  the   provisions  of   this                                                            
legislation.                                                                                                                    
                                                                                                                                
Mr. Lavasseur predicted  the costs would be higher than $250,000. He                                                            
voiced concern that the  Department would be limited by the $250,000                                                            
maximum amount  and indicated  he preferred  a $1 million limit.  He                                                            
gave the repairs  needed to the Alaskan Highway between  Tok and the                                                            
Canadian  border  as an  example of  this.  He stated  that  private                                                            
contractors  would be hired to make  repairs to the larger  sections                                                            
of the  highway, but  the Department  would conduct  the repairs  on                                                            
damaged  sections  of  only  several hundred  yards  in  length.  He                                                            
detailed the process  of staging equipment and a two-year  supply of                                                            
materials  in key  locations along  the highway.  He calculated  the                                                            
cost of repairs utilizing  this method at approximately 65 cents per                                                            
square foot, or $100,000  per square mile of area actually repaired.                                                            
He predicted that to divide  the repairs into smaller projects would                                                            
increase the cost significantly.                                                                                                
                                                                                                                                
Senator  Taylor  restated his  scenario  suggesting  the  Department                                                            
could address the smaller  repair sections as separate projects, yet                                                            
still  utilize   the  efficiencies   of  stockpiled  materials   and                                                            
equipment.                                                                                                                      
                                                                                                                                
Mr. Lavasseur  expressed the Department  would not chose  to violate                                                            
the  intent of  the  bill.  He qualified  that  if the  division  of                                                            
repairs  as   Senator  Taylor  described   were  specified   in  the                                                            
legislation, the Department could utilize the practice.                                                                         
                                                                                                                                
Senator  Cowdery countered  Mr.  Lavasseur's comments  pointing  out                                                            
that the private  sector also has a trained workforce.  He mentioned                                                            
one  project  covering  38 miles.  He  relayed  that he  spoke  with                                                            
Commissioner  Barton  about day-labor  contracts  to address  larger                                                            
projects and had received assurance this would be done.                                                                         
                                                                                                                                
EDEN  LARSON,  President and  Chief  Executive  Officer,  Associated                                                            
Builders  and Contractors  of Alaska, testified  via teleconference                                                             
from an off  net location to dispute  the Department testimony.  She                                                            
characterized this legislation  as designed to prevent abuses to the                                                            
force  account system  in  the future.  While  she was  assured  the                                                            
current  Administration  would not  commit such  abuses, she  voiced                                                            
concern  that the  proposed limitation  must be  imposed to  prevent                                                            
future administrations  from  committing abuse.  She furthered  that                                                            
the limitation  would allow the Department  to perform efficiently.                                                             
                                                                                                                                
Senator   Cowdery  asked   the  size  of   the  membership   of  the                                                            
organization.                                                                                                                   
                                                                                                                                
Ms. Larson listed  145 contractors, their associates  and suppliers,                                                            
representing approximately 4,000 employees in the State.                                                                        
                                                                                                                                
DON   VALESKO,   Business   Manager,   Local   71,   testified   via                                                            
teleconference    from   Anchorage   representing    Department   of                                                            
Transportation  and Public Facilities  the 500 to 600 employees  who                                                            
perform road and facility  maintenance. He voiced concerns with this                                                            
legislation,  particularly  the  impact  it would  have  on  regular                                                            
maintenance operations,  such as snow removal. He  detailed the high                                                            
cost of  clearing roads after  a heavy snowfall,  which must  be bid                                                            
upon under the  provisions of this bill. He understood  one incident                                                            
brought this issue  to light, but stressed that one  incident should                                                            
not "dictate bad legislation".                                                                                                  
                                                                                                                                
Senator  Cowdery  told  of research  indicating  the  definition  of                                                            
maintenance  is "tighter"  in  other states,  and  that many  states                                                            
categorize  projects costing  less than $50,000  as maintenance  and                                                            
those over  $50,000 as construction.  He asked if the witness  would                                                            
favor such definitions.                                                                                                         
                                                                                                                                
Mr.  Valesko  did  not, because  snow  removal  after  even  lighter                                                            
snowfall would require  the bidding process. He stated that the time                                                            
involved with the bidding  process would cause unnecessary delays in                                                            
clearing the roadways.                                                                                                          
                                                                                                                                
Senator  Cowdery  asked  what  information  the  witness  based  his                                                            
comments on.                                                                                                                    
                                                                                                                                
Mr. Valesko  calculated the  $200 daily salary  paid to an  operator                                                            
plus  the $200  daily  cost  for equipment,   multiplied  by the  30                                                            
operators  working five days  per week in  the Anchorage area  to be                                                            
$60,000  per  week.   He  remarked  this would  place  snow  removal                                                            
services in the category of construction, which he disputed.                                                                    
                                                                                                                                
JEFF ALLING,  Alcan Builders,  and Member,  Associated Builders  and                                                            
Contractors of Alaska,  testified via teleconference from Fairbanks,                                                            
in support of  the bill. He agreed this legislation  was prompted by                                                            
an  incidence  of   abuse  committee  by  the  prior  gubernatorial                                                             
administration.   He  expressed  the intent  is not  to hamper  snow                                                            
removal  efforts, but  rather to  prevent the  State from  competing                                                            
with private industry on large construction projects.                                                                           
                                                                                                                                
Mr. Alling  told of bidding  on a University  of Alaska project  and                                                            
the use of multipliers to simplify the process.                                                                                 
                                                                                                                                
Mr. Alling  questioned the  representation  by Mr. Valesko  of union                                                            
members.                                                                                                                        
                                                                                                                                
Senator Bunde  asked if the  employees of  Alcan Builders are  union                                                            
members.                                                                                                                        
                                                                                                                                
Mr. Alling  replied  they are not,  although he  stated the  company                                                            
engages  unionized  subcontractors  and  they "work  together  quite                                                            
happily".                                                                                                                       
                                                                                                                                
Senator Cowdery  asked if most of the private contractors  pay Davis                                                            
Bacon Act wages to its employees.                                                                                               
                                                                                                                                
Mr. Alling answered yes.                                                                                                        
                                                                                                                                
Senator Taylor understood  the presence of a systemic problem of the                                                            
distinction of the Department  between construction and maintenance.                                                            
He  commented   that  in  British   Columbia,  Canada,  maintenance                                                             
operations  have   been  contracted  to  the  private   sector  with                                                            
significant  savings  realized.   He  suggested  the  definition  of                                                            
maintenance and construction  should be given further consideration,                                                            
because  this  legislation   as  written,  could  result   in  "more                                                            
disservice than good."                                                                                                          
                                                                                                                                
Senator B. Stevens  asked if Mr. Lavasseur has reviewed  the handout                                                            
titled, "Air  Force Guide: Simplified  Acquisition of Base  Engineer                                                            
Requirements  (SABER)" [copy on file].  He asked if the information                                                             
contained in this report address preventive maintenance.                                                                        
                                                                                                                                
Mr. Lavasseur  affirmed and  explained that  due to permafrost  melt                                                            
the destruction  of roads has increased rapidly, and  more resources                                                            
have been necessary to perform repairs.                                                                                         
                                                                                                                                
Senator B. Stevens echoed  Senator Taylor's assertion that the issue                                                            
is  based  on  the definitions   of construction   and maintenance.                                                             
Senator  B.  Stevens  characterized  snow  removal  as one  type  of                                                            
maintenance,  yet  preventative   maintenance  is  more  a  type  of                                                            
construction.                                                                                                                   
                                                                                                                                
Senator B. Stevens next  questioned the zero fiscal note, citing the                                                            
second paragraph of the analysis, which reads as follows.                                                                       
                                                                                                                                
     Since  it is not possible to  determine which projects  will be                                                            
     considered  for FAC [Force Account Construction]  over the next                                                            
     six years, we will  base the projected savings on Calendar Year                                                            
     2002.  The estimated  savings  on 2002 force  account  projects                                                            
     (greater than $250,000)  was $4,267,700. Assuming the amount of                                                            
     force  account  projects remains  constant  over  the next  six                                                            
     years, the lost savings would total $25,606,200.                                                                           
                                                                                                                                
Senator  B.  Stevens  asked  if expenses  would  increase  over  $25                                                            
million.                                                                                                                        
                                                                                                                                
Mr. Lavasseur  replied  it would for  the period  of time  indicated                                                            
[six  years].  He elaborated  this  would  be due  to  the costs  of                                                            
issuing   bid  packages,   engineering   design,   advertising   and                                                            
construction management.                                                                                                        
                                                                                                                                
Senator B. Stevens  indicated a fiscal note to separate  legislation                                                            
applying  to  FY  01  [bill  number  and  further   information  not                                                            
provided],  estimated  savings  of $120  million utilizing  a  force                                                            
account.  He  cited the analysis of  the unspecified fiscal  note as                                                            
reading "Assuming the force  account managed costs over the next six                                                            
years,  loss of  savings would  be  a total  of $120  million."   He                                                            
requested reconciliation  of the information of the two fiscal notes                                                            
and the  aforementioned Air  Force report.  He suggested the  matter                                                            
could be discussed after this meeting concludes.                                                                                
                                                                                                                                
Mr. Lavasseur agreed to explain the matter.                                                                                     
                                                                                                                                
Senator B. Stevens  noted the funding has been accounted  more often                                                            
as "one line item" and wanted to understand the reason.                                                                         
                                                                                                                                
Mr. Lavasseur  indicated the  majority of  the projects in  question                                                            
have been gravel-to-pavement.                                                                                                   
                                                                                                                                
Co-Chair  Wilken asked the  year the federal  government ruled  that                                                            
federal National Highway  System funds could be used for maintenance                                                            
purposes as well as construction projects.                                                                                      
                                                                                                                                
Mr. Lavasseur answered 1998.                                                                                                    
                                                                                                                                
MARK O'BRIEN, Chief Contracts  Officer, Contracting, Procurement and                                                            
Appeals, Office  of the Commissioner,  Department of Transportation                                                             
and Public Facilities,  testified via teleconference  from an offnet                                                            
location that he could  answer questions posed by Committee members.                                                            
                                                                                                                                
Mr. O'Brien  addressed Senator  B. Stevens's  queries regarding  the                                                            
fiscal notes,  stating that the differences reflect  a change in how                                                            
the savings  was calculated. He explained,  "there were significant                                                             
savings factors  back in 2000 that resulted in estimates  of savings                                                            
as high  as 55  and 60  percent." He  informed that  upon review  of                                                            
competitive  bids   and  "the  current  marketplace",   the  savings                                                            
estimates  have  been recalculated   to 20  to  25 percent  and  the                                                            
current fiscal note reflects  a savings of 28 percent. He noted this                                                            
percentage  is based  on  a comparison  of  Davis Bacon  Act  wages,                                                            
profit and construction engineering expenses.                                                                                   
                                                                                                                                
Mr.  O'Brien  next  spoke to  the  definitions  of  maintenance  and                                                            
construction  projects,  indicating  AS  19.45.001(2)  provides  the                                                            
definition  of  construction  as "…construction  or  any  derivation                                                            
meaning 'construction,  reconstruction,  alteration, improvement  or                                                            
major repair…'" and (10)  provides the definition of maintenance. He                                                            
assured  this  legislation  would  not  hamper  routine maintenance                                                             
projects,  such  as  snow removal.  However,  he  pointed  out  that                                                            
because  the construction  definition does  not specifically  define                                                            
major repair,  uncertainty  over the classification  of resurfacing                                                             
projects would require the $250,000 provision.                                                                                  
                                                                                                                                
Senator  Taylor   asked  how  the  matter  could  be   resolved.  He                                                            
questioned  the   imposition  of  an  "arbitrary  number"   and  the                                                            
situation  of  the   cost  of  a  project  exceeding   $250,000  and                                                            
automatically  becoming  a  major  repair  that is  subject  to  the                                                            
bidding  process.   He  requested   further  clarification   of  the                                                            
definition of repair and major repair.                                                                                          
                                                                                                                                
Mr. O'Brien  ascertained the definition  of repair was unrelated  to                                                            
the  provisions  of this  legislation,  surmising  that maintenance                                                             
would  continue   to  be  categorized  as  repair   rather  than  as                                                            
construction  and  not  subject  to  the  provisions  of  the  force                                                            
account, although he assured he would review the matter.                                                                        
                                                                                                                                
Mr. O'Brien  agreed with  earlier testimony  that most construction                                                             
should  be  undertaken  through  the  competitive  bid  process  and                                                            
informed that  currently 97 percent  of the work is handled  in this                                                            
manner. He noted that of  the three percent of the work done through                                                            
the force account process,  half is contracted by competitive sealed                                                            
bid. He  stressed that  less than  one-half percent  of the  work is                                                            
therefore not undertaken through competitive bid.                                                                               
                                                                                                                                
Mr. O'Brien  reported that community  roads and boardwalk  projects,                                                            
which   require  considerable   maintenance   activity,   is   often                                                            
transferred from  the Department to the Bureau of  Indian Affairs or                                                            
Indian  Health Agency  undertaking other  projects  in the area.  He                                                            
stated  it  is often  in  the  State's  best interest  and  is  cost                                                            
effective to do so, as  the other agencies have staff, equipment and                                                            
materials on hand to perform  the work. He noted this practice would                                                            
be prohibited under the provisions of this legislation.                                                                         
                                                                                                                                
Senator Cowdery asked the  dollar amount of the three percent of the                                                            
projects  not  currently  addressed   through  the  competitive  bid                                                            
process.                                                                                                                        
                                                                                                                                
Mr. O'Brien replied that  $61 million was expended through the force                                                            
account during the years  1998 through 2002. During the same period,                                                            
he  continued,  the  entire  program  expended  $2,279,000,000.   He                                                            
calculated  the force account  comprised 2.68  percent of the  total                                                            
expenditure.                                                                                                                    
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Gary Wilken adjourned the meeting at 11:13 AM                                                                          

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