Legislature(2003 - 2004)

05/13/2003 02:20 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
             SB 218-STATE PROCUREMENT PILOT PROGRAM                                                                         
CHAIR BUNDE announced SB 218 to  be up for consideration. He said                                                               
folks  had talked  to  him about  the idea  of  creating a  pilot                                                               
program for  the state procurement  program that might  save some                                                               
money.  The  procurement  procedures  to be  used  in  the  pilot                                                               
program  have promoted  efficiency  and cost  savings in  private                                                               
enterprise. The bill has a zero fiscal note.                                                                                    
MR.  SCOTT   HAWKINS,  General   Manager,  Alaska   Supply  Chain                                                               
Integrators, said  his company  has a great  deal of  interest in                                                               
the  general  concept  of cost  savings  through  automation  and                                                               
process excellence  around supply  chain management.  The company                                                               
is  four  years   old  and  employs  160   people.  They  provide                                                               
procurement, requisitioning, receiving,  warehouse management and                                                               
a  whole host  of other  services that  support large  purchasing                                                               
institutions. Their  tool of choice for  automation efficiency is                                                               
e-commerce  and  they have  quietly  become  one of  the  largest                                                               
business-to-business  Internet e-commerce  sites in  the country,                                                               
transacting  several million  dollars a  year in  purchase orders                                                               
and tens  of thousands of purchase  orders per year. He  has been                                                               
able to  deliver savings  of 35  to 50% in  the overhead  cost of                                                               
transactions. Typically,  he has been  able to deliver  another 5                                                               
to 10% in the cost of items that are being procured.                                                                            
CHAIR BUNDE said he thought the  potential savings could be $5 to                                                               
$20 million.                                                                                                                    
MR. HAWKINS said he thought that was a conservative estimate.                                                                   
SENATOR SEEKINS arrived at 2:35 p.m.                                                                                            
SENATOR FRENCH asked if the state is engaged in e-commerce now.                                                                 
MR. HAWKINS  said his understanding  is that the state  uses some                                                               
e-commerce tools, such as ordering from websites.                                                                               
SENATOR FRENCH noted this bill is  exempt from AS 36.30 and asked                                                               
for a description of that statute.                                                                                              
MR. HAWKINS  replied AS 36.30  is the state procurement  code and                                                               
the exemption is for the purposes of the pilot program.                                                                         
MR. VERN JONES, Chief Procurement Officer, told members:                                                                        
     SB 218 would allow  the Department of Administration to                                                                    
     establish the pilot program  that includes a privatized                                                                    
     procurement  model   with  technological  advancements.                                                                    
     Under the bill, a  private sector contractor would take                                                                    
     over a governmental  unit's procurement activities with                                                                    
     the  goal of  achieving  savings on  both  the cost  of                                                                    
     goods  and services  purchased as  well  as savings  on                                                                    
     acquisitions costs. The  department believes that there                                                                    
     is potential  for cost  savings. The  administration is                                                                    
     interested  in  exploring  just how  significant  those                                                                    
     savings could be.                                                                                                          
     Any  changes  to  our current  procurement  operations,                                                                    
     even   for  a   pilot   project,   would  require   the                                                                    
     administration to  do several  things. First,  we would                                                                    
     have to study the  organizational structure, the mix of                                                                    
     goods and  services procured by various  state entities                                                                    
     in order to  select an appropriate unit  for the pilot.                                                                    
     We would  also have to  conduct a feasibility  study as                                                                    
     required by  union bargaining  agreements. Any  time we                                                                    
     are  displacing  state employees  we  need  to do  that                                                                    
     under our various contracts.  If that feasibility study                                                                    
     indicates that there are  substantial savings, we would                                                                    
     then likely develop policies  and procedures that would                                                                    
     govern the privatized procurement process.                                                                                 
     Just   exempting   the   contractor  from   our   state                                                                    
     procurement  code, I  think, would  create  a void.  We                                                                    
     would  probably   have  to   have  some   policies  and                                                                    
     procedures  that people  had  some confidence,  insured                                                                    
     fairness  and some  sort of  due process  since we  are                                                                    
     spending  government  money.  We  would  then  have  to                                                                    
     select a  private sector provider to  operate the pilot                                                                    
     program. We would  intend to do that  through our state                                                                    
     procurement process  that's in  place now. If  the bill                                                                    
     becomes  law, those  are the  steps that  we intend  to                                                                    
CHAIR BUNDE  asked if  the agencies  that would  participate have                                                               
been chosen yet,  and whether the commissioner  of the Department                                                               
of  Administration in  collaboration with  Mr. Jones  will decide                                                               
who will participate.                                                                                                           
MR.   JONES  replied   the  selection   of   the  Department   of                                                               
Administration implies  that the  agencies are  going to  be from                                                               
the executive branch.                                                                                                           
SENATOR STEVENS  asked Mr.  Jones to explain  a little  about the                                                               
state procurement process  and whether a bid process  is used. He                                                               
also noted the  sunset date of 2006 and asked  if the procurement                                                               
bid will be awarded for a three-year period.                                                                                    
MR. JONES replied:                                                                                                              
     Yes, the  selection of any contractor  would be subject                                                                    
     to our procurement  code. The bill does  not exempt the                                                                    
     selection   of   the   contractor,   but   rather   the                                                                    
     procurement activities done by the contractor.                                                                             
     Would we do  a bid? We would probably not  do a bid. We                                                                    
     would  probably  do  a   request  for  proposals  [RFP]                                                                    
     whereby we select  the contractor based on  a number of                                                                    
     factors  including  cost.  I'm not  confident  that  we                                                                    
     could  write bid  specifications sufficiently  tight in                                                                    
     order to make  a selection based on low  cost alone. So                                                                    
     we would probably use an RFP.                                                                                              
     The  process that  I've outlined  would  likely take  a                                                                    
     number of  months to accomplish.  I'm not  certain how.                                                                    
     It's  been   a  long  time  since   we've  conducted  a                                                                    
     feasibility study and there's a  give and take with the                                                                    
     unions and  there's the  developing procedures  and the                                                                    
     procurement  process, itself...The  bill  allows for  a                                                                    
     pilot no  longer than  three years and  we feel  with a                                                                    
     sunset date of 2006 - that's possible, at least.                                                                           
SENATOR FRENCH asked  if the executive branch is  involved in all                                                               
electronic  purchasing now  and, if  so, how  this program  would                                                               
MR.  JONES  replied  that  the executive  branch  has  a  limited                                                               
involvement in electronic commerce,  mostly on the reconciliation                                                               
and payment side. He told members:                                                                                              
     It would be  a stretch, though, to say that  we had any                                                                    
     kind  of   a  procurement   system  really,   and  it's                                                                    
     definitely  not an  automated procurement  system. It's                                                                    
     more of  a manual  system. That's  one of  the inherent                                                                    
     problems we  have with efficiency in  state procurement                                                                    
     right now.  The Department of Administration  is trying                                                                    
     to address that through a larger project.                                                                                  
MR. LYNN  JOHNSON, President, Dowland-Bach Corporation,  said his                                                               
company is 28  years old and headquartered in Anchorage.  It is a                                                               
main supplier of  control systems, UL panels  and process control                                                               
systems,  instrumentation products,  stainless  steel piping  and                                                               
sheet metal  fabrication. They have  other business  interests in                                                               
Alaska  including manufacturing  and exporting.  They are  also a                                                               
minor affiliate of Alaska Supply  Chain Integrators. He testified                                                               
that SB  218 is a  great idea and has  the potential to  save the                                                               
state a great deal of money  by reducing costs and automating the                                                               
procurement process.                                                                                                            
SENATOR  FRENCH  thanked  Mr.  Johnson for  taking  the  time  to                                                               
testify today.  He moved to pass  SB 218 from committee  with the                                                               
attached fiscal  note. SENATORS  DAVIS, STEVENS,  SEEKINS, FRENCH                                                               
and BUNDE voted yea; and SB 218 was moved from committee.                                                                       

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