Legislature(2003 - 2004)

04/01/2003 09:02 AM Senate 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                                                             
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                                                             
     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                                                             
        • 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                                                             
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                                                             
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                                                             
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                                                             
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                                                             
Senator Bunde  asked if the employees  of Alcan Builders  are union                                                             
Mr. Alling  replied they  are not, although  he stated the  company                                                             
engages  unionized subcontractors  and  they  "work together  quite                                                             
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                                                             
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                                                             
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                                                             
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                                                             
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
Co-Chair Gary Wilken adjourned the meeting at 11:13 AM                                                                          

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