Legislature(2009 - 2010)BELTZ 105 (TSBldg)

04/06/2010 09:00 AM Senate STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 73(FIN) Out of Committee
Heard & Held
Moved HJR 53 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 HB 225-STATE PROCUREMENT CODE                                                                              
9:36:29 AM                                                                                                                    
CHAIR MENARD announced the next  order of business to come before                                                               
the committee would be HB 225 [CSHB 225(FIN)(Corrected)].                                                                       
CRYSTAL KINEMAN,  aide to Representative Fairclough,  said HB 225                                                               
makes  numerous changes  to the  procurement  code, allowing  for                                                               
more  consistency   and  efficiency.   HB  225   streamlines  the                                                               
application of  the bidder preferences and  eliminates the vendor                                                               
list as  everything is accessed  online. HB 225 adds  in language                                                               
allowing for  multi-step revised sealed bidding  process which is                                                               
done  mainly  in the  private  sector.  The House  State  Affairs                                                               
committee added a section for  reporting language to see the cost                                                               
savings to  the state.  HB 225  exempts construction  from multi-                                                               
step bidding and adds conforming  language for the (Alaska Energy                                                               
Authority)  AEA  and  Alaska Industrial  Development  and  Export                                                               
Authority (AIDEA) exemption. HB  225 directs procurement officers                                                               
to consider only preferences  in statute, essentially eliminating                                                               
the Alaska  offerors preference which  is set out  in regulation.                                                               
Vendors and bidders who qualify  for the Alaska bidder preference                                                               
also qualify for the Alaska  offerors preference which gives them                                                               
an  additional  10  percent  preference.  HB  225  increases  the                                                               
threshold for  the informal procurement  process from  $50,000 to                                                               
$100,000 for  goods and  services and  from $100,000  to $200,000                                                               
for  construction and  increases  lease  space procurements  from                                                               
3,000  to  7,000 square  feet.  HB  225 consolidates  the  Alaska                                                               
bidder  preference   and  other  related  preferences   into  one                                                               
section.  HB 225  includes  a 5  percent  preference for  Alaskan                                                               
veterans up to $5,000.                                                                                                          
9:40:15 AM                                                                                                                    
HB 225  eliminates the preference  for employers of  persons with                                                               
disabilities. HB 225  adds in a $250 protest filing  fee and adds                                                               
a provision for the procurement  officer to temporarily delay the                                                               
award  of  a  contract  due  to  a protest.  HB  225  adds  in  a                                                               
definition for electronic signature for electronic filing.                                                                      
CHAIR  MENARD asked  about the  renegotiation section,  [page 12,                                                               
Section 27 of  HB 225 amending AS 36.30 by  adding a new section]                                                               
which states the procurement officer  can go back and renegotiate                                                               
the conditions.                                                                                                                 
MS. KINEMAN  replied that  this section has  been added  and Vern                                                               
Jones, chief procurement officer, can explain the reasoning.                                                                    
CHAIR  MENARD  referred  to  Page   1,  Section  1  [amending  AS                                                               
24.55.275], line  13, and the  5 percent preferences  for bidders                                                               
and  said that  getting  preferences to  Alaska  companies is  of                                                               
utmost importance.                                                                                                              
SENATOR  MEYER  asked if  the  sponsor's  bill was  originally  a                                                               
simple veteran's preference.                                                                                                    
MS.  KINEMAN said  the  sponsor introduced  HB  24, the  veterans                                                               
preference, was  then approached by  Mr. Jones, and  thought that                                                               
updating  the  procurement   code  would  be  a   good  piece  of                                                               
legislation to carry.                                                                                                           
SENATOR  MEYER  agreed that  the  procurement  code needs  to  be                                                               
cleaned up and noted some  preferences have been abused. He asked                                                               
how the $5,000 cap for the veteran's preference was settled on.                                                                 
MS.  KINEMAN replied  that  a  good balance  is  needed: to  help                                                               
veterans  without burdening  the state.  Current preferences  are                                                               
"stackable"  and  a qualified  bidder  could  be awarded  several                                                               
preferences up to about 25 percent.                                                                                             
CHAIR MENARD commented that would be ok with her.                                                                               
MS. KINEMAN  said the cost  to the  state has to  be rationalized                                                               
and so a cap of $5,000  was chosen. Projects up to $100,000 would                                                               
qualify for the full 5 percent.                                                                                                 
9:45:21 AM                                                                                                                    
SENATOR MEYER asked if the sponsor  favors the cap of $5,000 even                                                               
though HB 225 gets rid of the offerors and other preferences.                                                                   
MS. KINEMAN replied that the sponsor favors the $5,000 cap.                                                                     
SENATOR   MEYER  confirmed   this  was   true  even   with  other                                                               
preferences being eliminated.                                                                                                   
MS.  KINEMAN  answered yes  but  noted  it  is  the will  of  the                                                               
VERN  JONES,  chief  procurement  officer,  Division  of  General                                                               
Services, Department of Administration,  said a lot of discussion                                                               
went  into  the  $5,000  cap for  the  veteran's  preference.  He                                                               
explained that most  procurements are less than  $100,000 and the                                                               
cap will not come into play  for 80 - 90 percent of procurements.                                                               
The sponsor is sensitive to the cost to the state.                                                                              
9:48:39 AM                                                                                                                    
SENATOR  MEYER asked  if preferences  are nullified  when federal                                                               
money is involved.                                                                                                              
MR. JONES answered yes and  said that federal requirements, which                                                               
come  with some  federal  grants, prevent  the implementation  of                                                               
state  preferences. The  veteran's preferences  would only  apply                                                               
when state funds are involved.                                                                                                  
SENATOR MEYER noted that procurement  also entails services, such                                                               
as  road  building or  hiring  a  consultant. He  confirmed  that                                                               
Alaska  preferences  apply when  doing  big  projects with  state                                                               
MR. JONES  confirmed this and  noted that Alaska will  still have                                                               
ten  accumulative preferences  even if  HB 225  passes. He  noted                                                               
that HB 225 eliminates one of the three disability preferences.                                                                 
9:52:13 AM                                                                                                                    
CHAIR MENARD asked if Mr. Jones likes HB 225.                                                                                   
MR. JONES  responded that he  had a big  hand in drafting  HB 225                                                               
and it is a compellation of things  that need to be fixed. HB 225                                                               
simplifies, streamlines and de-mystifies  procurement; it will be                                                               
good for government and businesses.                                                                                             
CHAIR MENARD asked  if Mr. Jones feels he's had  adequate time to                                                               
work on HB 225 or if another year would see more changes.                                                                       
MR. JONES answered  that he has kept track of  needed changes and                                                               
the procurement code  has not been updated in many  years. He saw                                                               
the current code  enacted in 1987 and watched it  develop. HB 225                                                               
has everything needed to modernize and simplify procurement.                                                                    
SENATOR  PASKVAN asked  for Mr.  Jones'  thoughts on  preferences                                                               
discouraging competitive bidding.                                                                                               
MR.  JONES   responded  that  preferences   can  create   a  non-                                                               
competitive  situation. HB  225 eliminates  the Employers  of the                                                               
Disabled preference, leaving  two disability related preferences.                                                               
The  Employers of  the  Disabled preference,  which  gives a  ten                                                               
point break  on price  if 50  percent or more  of a  workforce is                                                               
disabled,  has benefitted  only  two individuals  who have  taken                                                               
advantage of it.                                                                                                                
9:56:02 AM                                                                                                                    
HB 225  also eliminates the  Alaska offerors preference  which is                                                               
in regulation  but not statute.  The offerors  preference applies                                                               
to Request for  Proposals (RFP) situations when  cost and several                                                               
other  factors are  being evaluated.  Ten  points out  of 100  is                                                               
reserved for the offerors preference  and generally 60 percent is                                                               
allocated to  cost. That leaves  only 30 percent to  evaluate the                                                               
qualifications,  experience, quality  of the  proposal and  other                                                               
factors while picking the best offer for procurements.                                                                          
The Alaska offerors  and bidder preferences can  be achieved when                                                               
a place  of business,  staffed by  the bidder  at least  6 months                                                               
before  the RFP  issuing date,  is  in Alaska.  Companies man  an                                                               
office in Alaska for six months  to get the ten point preference.                                                               
The original intent  of the bidder's preference was  to level the                                                               
playing field  for Alaskan businesses  as costs are  higher here;                                                               
HB  225 does  not  affect  the Alaska  bidder's  preference of  5                                                               
percent on  price. However, the  offerors preference  goes beyond                                                               
that and has nothing to do with price.                                                                                          
9:59:29 AM                                                                                                                    
Several firms have told Mr. Jones  that they did not submit a bid                                                               
because a  competitor opened an office  in Alaska and will  get a                                                               
10 point preference.  The Alaskan preferences are  not being used                                                               
as intended.  He noted that  Legislature never  had a say  in the                                                               
offerors  preference  because it  was  enacted  by the  executive                                                               
SENATOR  PASKVAN said  preferences by  price or  rating structure                                                               
adjust the  order of  who wins  and an  imputed price  is created                                                               
that is  lower than the bid  price. He asked what  the difference                                                               
is between bid  prices and imputed prices and how  much the state                                                               
is subsidizing.                                                                                                                 
MR. JONEs said  the procurement system is not  automated and most                                                               
procurements happen  outside his  organization, in  the agencies.                                                               
He does  not have  a mechanism that  tracks that  information but                                                               
can say preferences obviously cost the state money.                                                                             
10:02:14 AM                                                                                                                   
SENATOR PASKVAN he asked for  the "magnitude of the dollars" that                                                               
the  state might  be losing  due  to some  companies saying  they                                                               
cannot compete with those that get Alaska preferences.                                                                          
MR.   JONES  responded   that  a   statewide  systems   placement                                                               
procurement is coming up that  has been estimated between $35 and                                                               
$100 million. Firms  have told him they will not  compete if this                                                               
preference  stays in.  Firms spend  a lot  of money  and time  to                                                               
submit  a proposal  and the  stakes  are high  knowing that  your                                                               
competitor  has  a ten  percent  overall  advantage plus  a  five                                                               
percent  cost  advantage. The  net  result  is a  non-competitive                                                               
10:05:08 AM                                                                                                                   
SENATOR PASKVAN  said the state is  spending potentially millions                                                               
more than it  needs to as the current  structure effectively bars                                                               
bidders  from  entering a  bid.  The  amount  that the  state  is                                                               
subsidizing  is  currently unknown  due  to  lack of  a  tracking                                                               
MR. JONES  responded that  Senator Paskvan  is right.  Some firms                                                               
don't  compete   because  of  the  preferences   which  allow  an                                                               
opportunity to charge more and still win.                                                                                       
SENATOR FRENCH  asked if the  state Chamber of  Commerce supports                                                               
the HB 225.                                                                                                                     
MS.  KINEMAN  replied  that  she  thinks  the  state  chamber  is                                                               
neutral. She said she has put  out emails and phone calls and has                                                               
been waiting  to hear  from those who  may be  affected; pushback                                                               
has only come in the last couple of days.                                                                                       
SENATOR FRENCH said  it would be helpful to see  a one page break                                                               
down of  how preferences  add up  and affect the  state on  a $10                                                               
million  road  project, for  example.  Seeing  how HB  225  would                                                               
reshape  that breakdown  and  result in  better  work and  prices                                                               
would be helpful.                                                                                                               
MR. JONES said he can do that but  noted that a road project is a                                                               
poor example because many receive federal money.                                                                                
SENATOR FRENCH suggested any other sizeable contract.                                                                           
MR. JONES said he can do that.                                                                                                  
10:08:40 AM                                                                                                                   
SENATOR   MEYER  asked   the  difference   between  an   offerors                                                               
preference and a bidder preference.                                                                                             
MR.  JONES  answered  that  the   Alaska  bidder  preference  was                                                               
established  in statute  and is  currently in  AS 36.30.170.  The                                                               
qualification for the 5 percent  cost preference is six months of                                                               
operation prior to  a bid. The Alaska offerors  preference has no                                                               
basis in statute  but was enacted in regulation.  It only applies                                                               
to competitive, sealed  proposals or RFP's. The  preference is 10                                                               
points  out of  100, or  10 percent,  of evaluation  criteria. He                                                               
reiterated that with  RFP's, price and a number  of other factors                                                               
are being evaluated.                                                                                                            
SENATOR MEYER suggested that some  bidders might find it too hard                                                               
to understand the preferences and not submit a bid.                                                                             
MR.  JONES  replied   that  the  higher  the   stakes,  the  more                                                               
sophisticated  the  firms  are,  the  more  they  understand  the                                                               
preferences  and are  able to  take advantage  of them.  That has                                                               
become somewhat of a problem.                                                                                                   
10:11:16 AM                                                                                                                   
SENATOR  MEYER said  he feels  that  the complicated  procurement                                                               
code  has  eliminated  some  small  businesses.  The  procurement                                                               
department  needs to  be updated  and centralized.  Purchase recs                                                               
and  orders should  be done  electronically  and tracked.  Prices                                                               
cannot be negotiated because the  dollar value that the state has                                                               
spent with  various firms is unknown.  The procurement department                                                               
does  more leasing  than  procurement.  The education  department                                                               
wants to  hire their own  procurement officer but that  should be                                                               
done from a  centralized place. He asked if  the same preferences                                                               
come into play with leasing.                                                                                                    
MR.  JONES  replied yes.  He  noted  that  his department  has  a                                                               
central  purchasing  section  and  a leasing  section  with  five                                                               
contract buyers  in each  versus 200 out  in the  agencies. Lease                                                               
procurements apply  all preferences.  HB 225 would  exempt leases                                                               
from  these  preferences  because  the  residency  or  disability                                                               
status of the owner of a building is not relevant.                                                                              
10:14:23 AM                                                                                                                   
SENATOR MEYER  noted that the  Legislature is looking  at leasing                                                               
or  buying the  Chevron Texaco  building.  He asked  if they  are                                                               
considered an Alaskan company.                                                                                                  
MR. JONES  replied that the  code applies for office  space lease                                                               
procurements but not when buying a piece of real estate.                                                                        
SENATOR MEYER  asked if the  company would be  considered Alaskan                                                               
if the building was being leased.                                                                                               
MR. JONES  replied yes, that  building would qualify.  Its owners                                                               
have an operation in Alaska.                                                                                                    
SENATOR  MEYER noted  that the  Legislature is  currently leasing                                                               
the building on  4th Street. He commented that  people have asked                                                               
why AIDEA and AEA are exempt from the procurement code.                                                                         
MR.  JONES replied  that procurement  is  unduly complicated  for                                                               
those entities because they procure  goods and services under his                                                               
authority  and construction  under  Department of  Transportation                                                               
(DOT) authority.  They buy  and procure on  behalf of  the Denali                                                               
Commission under  federal process. They have  four different sets                                                               
of  rules.   In  many  instances   they  are   buying  investment                                                               
instruments  and  looking  at opportunities  for  development  in                                                               
Alaska  and   those  do  not   always  lend  themselves   to  the                                                               
competitive  process. If  HB 225  passes and  they are  exempted,                                                               
they will have to, through  a public process, develop regulations                                                               
to govern their  procurement. They would have  one consistent set                                                               
of rules to follow.                                                                                                             
10:18:05 AM                                                                                                                   
SENATOR MEYER said  we should track how they [AEA  and AIDEA] are                                                               
spending because  it is  state money.  That information  could be                                                               
leverage against  various lenders and  suppliers to get  the best                                                               
MR.  JONES   said  he  hopes  that   his  administrative  systems                                                               
replacement  project  will  facilitate an  automated  procurement                                                               
system to help capture the volume and be a smart consumer.                                                                      
SENATOR  PASKVAN reiterated  that some  reporting or  tracking on                                                               
what  we  are  "giving  away   by  preference"  would  facilitate                                                               
MR. JONES replied "certainly".                                                                                                  
10:20:35 AM                                                                                                                   
CHAIR MENARD opened public testimony.                                                                                           
STEVE BOYD, National Electrical  Contractors Association, said he                                                               
is concerned with Section 6 and  its interface with Section 36 of                                                               
HB 225  which seem to exempt  AIDEA and AEA from  the procurement                                                               
code. He  does not see  a compelling  reason to exempt  AIDEA and                                                               
AEA; they already have some  exemptions and should continue to be                                                               
defined as agencies,  following the rules in  place. He suggested                                                               
[the  offeror preference]  should  be  in statute  if  it is  not                                                               
already. He also felt six months  should not be enough to qualify                                                               
for the Alaska preferences.                                                                                                     
10:23:56 AM                                                                                                                   
CHRIS RUTZ,  procurement officer, AIDEA  and AEA, said  AIDEA and                                                               
AEA are not asking to be  exempt from the procurement code but to                                                               
develop regulations  like other public corporations  in the state                                                               
that are distinct, separate, legal entities.                                                                                    
SENATOR FRENCH  asked for  examples of  how the  regulations that                                                               
Mr. Rutz would adopt would differ from state law.                                                                               
MR.  RUTZ noted  that the  procurements on  behalf of  the Denali                                                               
Commission  were  exempt  from   the  procurement  code  and  his                                                               
organization  developed   internal  policies  to   conduct  those                                                               
procurements. An audit found that  his organization should follow                                                               
something comparable  to the  procurement code.  His organization                                                               
began establishing internal procedures and  he does not see a lot                                                               
of  difference  potential regulations,  such  as  these, and  the                                                               
current procurement code.                                                                                                       
He noted  that now, as a  public corporation, subject to  a board                                                               
of directors,  his organization has  statutes to comply  with and                                                               
two different governing entities:  DOT governing construction and                                                               
DOA   governing   the    non-construction.   In   addition,   his                                                               
organization also has  exceptions when doing things  on behalf of                                                               
other entities.                                                                                                                 
10:27:45 AM                                                                                                                   
He  said his  organization  would develop  procedures similar  to                                                               
those used by DOT for  construction and DOA for non-construction,                                                               
with  the primary  difference being  under  protests, claims  and                                                               
disputes which would come back to the board instead of DOA.                                                                     
RALPH KIBBY, president,  Chatham Electric, said he  is opposed to                                                               
Section 6  and Section 20  of HB 225.  He is opposed  to anything                                                               
that would make  it difficult to put local people  to work. A big                                                               
portion of the  projects that come within his  reach in Southeast                                                               
Alaska and in  the bush communities have  competition from others                                                               
outside  of those  regions and  outside the  state. He  asked the                                                               
committee to remove  Sections 6 and 20 until he  has more time to                                                               
review them; they were not  part of the original legislation. The                                                               
legislation should  be no  less stringent than  [AS] 36  and [AEA                                                               
and AIDEA] should not be exempt.                                                                                                
10:31:34 AM                                                                                                                   
SENATOR PASKVAN asked  how the offerors preference  of 10 percent                                                               
affects his business  and how Mr. Kibby's business  would be hurt                                                               
if  that preference  were removed.  He assumed  Mr. Kibby  agrees                                                               
with Mr.  Boyd who wants  to incorporate the  offerors preference                                                               
into statute.                                                                                                                   
MR. KIBBY said he is not prepared  to speak to that. He felt that                                                               
HB 225 is nebulous and did  not realize the issue was there until                                                               
digging deeper into it in the last  few days. He does not have an                                                               
opinion to share, only that there is cause for concern.                                                                         
WAYNE  STEVENS,  president  and  CEO,  Alaska  State  Chamber  of                                                               
Commerce, said  the procurement officer is  recommending a number                                                               
of  changes to  clean  up  issues and  conflicts  in the  state's                                                               
procurement  process. His  one concern  is that  2 AAC  12.260(e)                                                               
[offerors preference]  is a  regulation but is  not backed  up in                                                               
statute. The preference should be statutorily in place.                                                                         
SENATOR FRENCH  asked if Mr.  Stevens had seen the  letter, dated                                                               
April 3, that Mr. Baldwin had drafted on the topic.                                                                             
MR. STEVENS said has seen it but is not prepared to comment.                                                                    
10:34:14 AM                                                                                                                   
SHELLY  WRIGHT, executive  director,  Southeast Conference,  said                                                               
her organization is a private  membership organization that works                                                               
to   advance  the   collective  interests   of  the   people  and                                                               
communities  of Southeast  Alaska. Southeast  Conference believes                                                               
that hiring  within the  state is necessary  for the  survival of                                                               
communities.  The   state's  procurement  preferences   exist  to                                                               
provide advantages  to Alaska  businesses over  competing outside                                                               
interests.  The removal  of the  Alaska offerors  preference will                                                               
put Alaska companies at a  huge disadvantage in competing against                                                               
outside firms.  She noted that  some smaller companies  are aware                                                               
of  Alaska  preferences  and  take   advantage  of  them  to  get                                                               
procurements and create jobs.                                                                                                   
10:37:00 AM                                                                                                                   
CHAIR  MENARD closed  public testimony.  She announced  she would                                                               
hold HB  225 until  Thursday and encouraged  the bill  sponsor to                                                               
get together  with the state  Chamber of  Commerce and see  if an                                                               
amendment can be made.                                                                                                          
SENATOR  MEYER apologized  to the  sponsor  because the  original                                                               
legislation  was  a  simple  veteran  preference  bill.  He  said                                                               
putting the  offerors preference  in statute  is something  he is                                                               
consistently  hearing. He  suggested  the sponsor  talk with  Mr.                                                               
Jones about that.                                                                                                               

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