Legislature(1993 - 1994)
02/03/1994 01:35 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATOR KELLY returned SB 212 (STATE PROCUREMENTS AND PUBLICATIONS) to committee and explained a proposed committee substitute had been written which removed any reference to the Permanent Fund. He asked his Aide, JOSH FINK, to give an overview of the committee substitute. Number 102 MR. FINK spoke to the committee substitute, saying there had been substantial changes made to SB 212. He gave some history on the bill and explained it had been introduced by request of the Senate Economic Task Force. From the Sponsor Statement, MR. FINK read, "State government is one of the largest purchasers of goods and services in the Alaskan economy, purchasing everything from road design and construction services to copy machines and paper and pencils. The use of services and products provided by Alaskan businesses stabilizes and diversifies Alaska's economy. SB 212 aims to help strengthen Alaska's economy by increasing the share of State government contracts for goods and services going to Alaskan businesses." MR. FINK described how the legislation would establish an Innovative Construction Procurement Methods Pilot Program within the DOT/PF for a period of two years to implement an Alaska Bonus Program to replace the current preferences. MR. FINK reviewed some of the present incentive programs as largely unworkable, under-utilized, or not utilized at all. He explained SB 212 proposes to provide bonuses at project completion, would encourage policy goals for the vendors, reduce administrative costs and bid protests, and could likely be used in joint federal/state projects where State preferences are currently not allowed. MR. FINK continued by explaining the Commissioner of DOT/PF would establish the program through regulation and would report to the Legislature on the program's progress 15 and 27 months after the implementation. If successful, the legislature could expand and extend this program indefinitely, otherwise, it sunsets in two years. MR. FINK concluded by talking about the incorporation of provisions from the "Make-it-Alaskan" legislation from the 17th Legislature, House Bill 245, which would also increase the amount of State work going to Alaskans. He said this bill would: Number 144 1) "Encourage procurement officers to restrict notice of contract solicitation to Alaskan suppliers and providers of services desiring to compete for state contract work, as is standard practice in DOT/PF; (MR. FINK said there was a four year sunset on this provision to see how it works.) 2) Require the Commissioner of DOT/PF to include in his report to the legislature on State procurements the number of bidders located in-state and out-of-state that bid or make proposals on procurements; (MR. FINK said there would be tracking on the number of Alaskan businesses bidding, how many receiving contracts, and an idea of the competition.) 3) Replace the statutory requirements that State publications be produced at State-operated facilities with a requirement that State publications be produced at a private sector facility located in the State when practicable. In addition, standards for the production of publications would be established by the Department of Administration, and a cost box would be required for all publications exceeding $1,500 in cost." (He explained the use of the cost box which was initiated a number of years ago by SENATOR DRUE PEARCE.) SENATOR KELLY called on DUGAN PETTY, Director of the Division of General Services in the Department of Administration. MR. PETTY said the Department of Administration was supportive of efforts that foster Alaska businesses and brings efficiencies to the State procurement process, and he brought a zero fiscal note from the Division of General Services. He explained they have made changes in their bidder list as required under AS 36.3050 over the last two years. MR. PETTY said, in reference to the proposed committee substitute, there would be minor additional reporting requirements, and he pointed out, on a statewide basis, from division records over the last seven years they had 34 bid awards go out of state. He quoted the most recent data which has the number reduced to 24 bid awards, and he claimed the average amount of funding captured in Alaska with SB 212 would be about $2 million over four years if the bill was 100% effective. Number 206 MR. PETTY thought the FY94 data gave a more accurate trend, and he predicted the bill, SB 212, would be about 66% effective in terms of capturing out-of-state awards, bringing them in-state. He predicted a cost differential of about $250 thousand for awarding to the low Alaska bidder over what would have been the low out-of- state bidder, and he discussed several elements of the bid, including the sunset provision. SENATOR RIEGER questioned the figure of $1.6 awarded out-of-state for 1993 for the Department of Administration, and MR. PETTY explained it was for the invitations to bid, issued on behalf of state agencies, but did not include small procurements initiated under the department's own authority. Number 259 SENATOR SHARP reviewed the publications sections to ask about how the cost of publication would compare to the standard costs of private industries such as depreciation costs. MR. PETTY commended the question and explained their current process of refining the department's pricing schedule to reflect all of the costs. He also explained his department's operation within the amount of receipts and the difficulty of doing so. SENATOR SHARP commented the governmental printing shops he has seen have state-of-the-art equipment, which he didn't think had been factored into the price of the printing. MR. PETTY said he had checked on public sector printing and found factoring in the equipment costs has been a problem in the industry, but he couldn't speak for the private sector. He thought the goals of the legislation were important to both the State and the private sector. Number 310 SENATOR KELLY introduced JOSH WARNER with Alaska Corporation Printing in Juneau. MR. WARNER, also representing other local printing businesses, gave enthusiastic support for SB 212 and explained how his own printing business could be competitive with the State's Central Duplication Department. He claimed there were no incentives for production, quality, promotion, creativity, or efficiency during his working period with Central Duplication, and he expressed his preference for the struggle of his own business. MR. WARNER accused Central Duplication of unfairly controlling the market and not competing on the open market. He gave a pitch for the competitive spirit of Alaska and reiterated his support for the legislation. Number 367 Next to speak was CHRISTOPHER GATES, Director for the Division of Economic Development. MR. GATES said he had attended the meeting to support one aspect of SB 212 dealing with the Innovative Construction Procurement Methods Pilot Program in Section 13 of the bill. He thought it represented a substantial improvement over the present product preference incentive program, and he described the efforts of participating staff to craft a bonus program that will work. MR. GATES explained the goal was a bonus program that will work to accomplish the objectives originally set out for the program that are being frustrated for many reasons, not the least of which is the complications associated with the bidder preference, the lack of federal involvement in procurement projects at present, and the penalties associated with failing to use the specific products that are shown in a bid. He further explained the product preference bonus, which currently exists under AS 36.30.322-.338, is not accomplishing what was intended by the state departments, so he thought the legislation would assist the existing system. Number 411 MR. GATES said the present system is a bid based program, and the incentives cease at the time of the bid. Under the bonus program the bonus is paid at the end of the contract, and an incentive would continue throughout the life of a contract to purchase Alaska products and use Alaskan sub-contractors. He explained why he thought this was a major improvement over the existing system, which is confusing to general contractors. MR. GATES outlined the present cumbersome process of determining the low cost bidder on a project, where there are classes of Alaskan products that must be checked to be sure they are going into a project, components of bids, and substantial adjustments made to the bid amount for a low bidder determination. He deemed it an administrative hassle which would be eliminated under the bonus program. MR. GATES summarized the poor performance of the existing program as being due to the severe penalties associated with failures to use specified products; the inability of the program to be used on federal grant monies; the cumbersome administrative requirements; and the inability to be paid for substitutions of Alaskan products after bid award. MR. GATES quoted their conclusion as, "The substitution of Alaskan products after the bid is addressed by the establishment of an after-the-fact bonus system that is simpler to administer, provides ongoing incentives to use Alaskan products and services throughout the life of the contract, better assists Alaskan sub-contractors to take advantage of the program, and would possibly allow expansion of the incentive program to federal construction contracts administered by the State. For these reasons, the Department of Commerce and Economic Development urges the support of the committee for the innovative construction procurement methods pilot program as contained in Section 13 in SB 212." SENATOR LINCOLN expressed concern on the bonus v. preferences, and how the bonus program would protect the minority businesses. MR. GATES quoted on page 5 of the committee substitute, lines 27 through 31, Section 8, "Within six months after the effective date of this section, the commissioner of transportation and public facilities shall begin a two year pilot program for the use of innovative methods for the procurement of construction services by using bonuses to replace the preference required under AS 36.30." MR. GATES explained there was history and implementation associated with the sentence, and he assured SENATOR LINCOLN the participating agencies have been working to be certain minority preferences are still included in the bonus program. Number 450 SENATOR LINCOLN still had concerns about the commitment for Alaskan hire, and she referred to page 2, line 10, Section 1, to challenge the meaning of "local." MR. GATES said he believed "local" would include the minority provisions, and he explained his involvement with major general contractors for a number of years. He described the process of putting together a bid for major construction as pandemonium on the day of the bid, and the lack of incentive by the general contractor to consider "local" contractors. He explained how this would change under SB 212 to maximize a bonus at the end of the contract by hiring "local" subcontractors. SENATOR LINCOLN indicated she would like to see the committee add a definition of "local" in the bill to provide incentives for real "local" contractors. Number 499 SENATOR KELLY said there was no intention of moving the bill, so there would be time to work on amendments. SENATOR LINCOLN was also concerned about the "21 day notice" found throughout the bill, and she pointed to page 2 and 3 of Section 2. She wondered if 21 days were sufficient for publications to reach the outlying areas and thought the time should be increased. SENATOR RIEGER gave his understanding of how the bonus would work, and MR. GATES said he was correct. They discussed the bidding procedure, and MR. GATES expressed assurance the new process would lead to lower capital construction costs in the state of Alaska. SENATOR SHARP reviewed the bill and suggested Alaskans could be identified by the permanent fund list. SENATOR KELLY thanked MR. GATES, and called on RESA JERREL, representing the National Federation of Independent Businesses, who, she said, would like to see the bill go forward was soon as possible. SENATOR KELLY asked LOREN RASMUSSEN, from the Department of Transportation, to explain the bonus system for clarity. MR. RASMUSSEN, who introduced himself as Chief of Design, Construction Standards, said the Department of Transportation is supportive of the legislation and referred to Section 3, which addressed advertizing outside of the State of Alaska. Number 551 MR. RASMUSSEN explained their policy of not advertizing outside of the State of Alaska, but they do advertize in the ADMINISTRATIVE JOURNAL, which is widely distributed outside of Alaska. He said the Department of Transportation presently does about $53 million worth of work in the State, with about one million going to out- side contractors. He said less than 2% of Alaskan contracts go to contractors from the State, and some could never be done in Alaska, such as ferries. MR. RASMUSSEN referred to Section 8 on page 5 to discuss the bonus program and beginning with many different areas such as prime contractors, subcontractors, products preferences, minority contractors, and equal opportunity. He was interested in letting the committee know a bonus program would work, and he was able to draw on knowledge from federal regulations on highways to look at the minority business program, which required a certain level of minority participation, resulting in better compliance. MR. RASMUSSEN explained it was so successful with highways, they tried the bonus program on some Federal Aviation Association construction, which worked well. He thought more programs could be tried with the proposed legislation, with less bureaucracy. Number 585 TAPE 94-6, SIDE B Number 001 MR. RASMUSSEN suggested the committee members might want to see the procurement reports and copies of the contracts. SENATOR KELLY asked MR. RASMUSSEN if he thought the legislation would give him the flexibility to make the bonus program work, and MR. RASMUSSEN seemed sure it would. He thought it would give the department the chance to try procedures not tried before. When asked the same question, SENATOR LINCOLN thought there needed to be new approaches, and she quoted, "... programs are largely unworkable and subsequently under-utilized or not utilized at all." She wanted to be sure the same mistakes were not repeated, but she didn't want to close out some important incentives. SENATOR LINCOLN referred to page 6, line 10, to read, "... the commissioner shall report to the legislature on the construction contract awarded during the first year of the pilot program." She said she would like to see included, as part of the report, the contracts by area of the State awarded to minority contractors. MR. RASMUSSEN explained the Department of Transportation does break it out by regions, and he asked if she wanted it broken down into election districts. SENATOR LINCOLN asked if it could be broken down as far as minority contractors, and MR. RASMUSSEN said they do a break down on minority contractors. He explained it wouldn't appear in the procurement report, because most of the minority are sub-contractors, and sub-contractors are not reported. He assured SENATOR LINCOLN the statistics were available, because they track these statistics. SENATOR KELLY told SENATOR LINCOLN his staff would develop some language to answer her suggestions. SENATOR RIEGER asked if awarding the incentive was discretionary. MR. RASMUSSEN explained the bid document would include how the incentive would be calculated and would not be changed from the time of bid opening. MR. RASMUSSEN asked to comment on SENATOR LINCOLN'S concerns about the minority business enterprise program, in which he explained these type of programs are presently under a bonus type program. Number 50 SENATOR LINCOLN said the present EEO programs were not working. MR. RASMUSSEN explained the part not working is mainly in areas of products preferences and cited problems in the bid process. He thought the bonus program would improve that area. SENATOR KELLY set the bill aside until Tuesday.
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