Legislature(2003 - 2004)

02/18/2003 01:43 PM TRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
            SB  40-CONSTRUCTION OF HIGHWAYS BY DOTPF                                                                        
                                                                                                                                
MR. RICHARD  SCHMITZ, staff to  Chair Cowdery, introduced  SB 40.                                                               
He told members that the  Department of Transportation and Public                                                               
Facilities   (DOTPF)  uses   force  accounts   for  sole   source                                                               
contracts.   These  are usually  small contracts  and enable  the                                                               
work  to be  done  by  temporary state  employees.   Other  state                                                               
departments occasionally use force  accounts for projects costing                                                               
small amounts.                                                                                                                  
                                                                                                                                
SB 40 would  insure that the competitive bid process  be used for                                                               
state road projects. Competitive  bidding allows transparency and                                                               
provides the lowest and best bids.   Force accounts could be used                                                               
for projects  under $250,000 while projects  above $250,000 would                                                               
be  competitively  bid.  An  advantage  of  the  competitive  bid                                                               
process is  that Davis-Bacon wage  determinations are  paid; this                                                               
is the  set union wage  scale.   Under the force  account system,                                                               
temporary state employees do  not necessarily receive Davis-Bacon                                                               
wages.                                                                                                                          
                                                                                                                                
CHAIR COWDERY clarified  that if something was  overlooked in the                                                               
initial bid,  a force  account can  be used to  take care  of the                                                               
unforeseen  problem  rather than  shut  down  the project.  Force                                                               
accounts are  a necessary tool  in the construction  business but                                                               
they have been abused  in the past.  He thought  SB 40 was needed                                                               
to stop the abuse.                                                                                                              
                                                                                                                                
CHAIR  COWDERY said  both rural  and urban  labor on  contract or                                                               
force account  should be paid  the same Davis-Bacon wages.   This                                                               
legislation had support from most  labor unions last year but the                                                               
bill was killed in the House.                                                                                                   
                                                                                                                                
SENATOR OLSON  said last  year the bill  started with  a $250,000                                                               
limit but  was changed  to a  $1 million  limit as  it progressed                                                               
through the  legislative process.  He  asked why SB 40  went back                                                               
to the $250,000 limit.                                                                                                          
                                                                                                                                
CHAIR  COWDERY said,  "The bill  didn't  pass so  we're going  to                                                               
start at  the same  place."   He said  he has  no control  of the                                                               
limit when the bill reaches the Finance Committee.                                                                              
                                                                                                                                
SENATOR LINCOLN addressed  SB 40 and said  the Rural Construction                                                               
Work  Group   had  several   meetings  and   made  a   number  of                                                               
recommendations  as a  result of  the  administrative order  (AO)                                                               
dated  October  1, 2002.  She  wanted  to  hear from  that  group                                                               
because  the members  represent a  very broad  group from  across                                                               
Alaska.                                                                                                                         
                                                                                                                                
CHAIR COWDERY  said the work  group members had been  notified of                                                               
the hearing.                                                                                                                    
                                                                                                                                
SENATOR LINCOLN  asked if anyone  was present to testify  for the                                                               
Rural Construction Work Group.                                                                                                  
                                                                                                                                
CHAIR COWDERY thought there was someone present.                                                                                
                                                                                                                                
SENATOR  LINCOLN said  she would  postpone her  questions because                                                               
the Rural Construction Work Group  would likely cover a number of                                                               
the points she planned to raise.                                                                                                
                                                                                                                                
MR. KEVIN  RITCHIE, Alaska Municipal  League, apologized  for not                                                               
having  submitted  a  letter  but  said one  would  follow.    He                                                               
explained that concerns brought a  broad group of people together                                                               
over the summer  who had a great deal of  discussion. Two obvious                                                               
concerns were apparent:                                                                                                         
                                                                                                                                
   · The level of wages, fairness and competitiveness on the                                                                    
     part of contractors.                                                                                                       
   · The ability to hire and train local people to a greater                                                                    
     extent and the cost of getting the work done on the local                                                                  
     side.                                                                                                                      
                                                                                                                                
The   group   included    contractors,   labor   representatives,                                                               
municipalities and  state agency representatives and  resulted in                                                               
Administrative Order 199 (AO 199).   Mr. Ritchie felt AO 199 is a                                                               
compromise that  addresses ways to  stop abuse, overtime  and new                                                               
wage rates.   Those abuses are  identified as the purpose  for SB
40.  He suggested finding out  if AO 199 is being implemented and                                                               
how it might reflect on the need for SB 40.                                                                                     
                                                                                                                                
CHAIR COWDERY disclosed  this issue was brought  to his attention                                                               
when a $3.5 million road project  in Saint Mary's went out to bid                                                               
and  was  then  withdrawn  a   couple  of  years  ago.  Fairbanks                                                               
contractors complained  because they  wanted to  bid on  the job.                                                               
DOTPF chose  to hire  people as state  employees, train  them and                                                               
build  the  road with  state  equipment  rather that  conform  to                                                               
Davis-Bacon  Act  wages.   He  was  told  by  DOTPF the  road  is                                                               
excellent, however  SB 40 is needed  to stop this type  of abuse.                                                               
Projects costing over $250,000 should  go through the competitive                                                               
bid process.                                                                                                                    
                                                                                                                                
SENATOR OLSON said  Saint Mary's is in his  district. He reported                                                               
that not  only is  the road  excellent, it  came in  under budget                                                               
thanks  to  city  manager Walton  Smith,  project  engineer  Dave                                                               
Schaffer, and  the rest  of the group  working on it.   It  was a                                                               
very good experience.                                                                                                           
                                                                                                                                
CHAIR COWDERY said  he had not been  out to see the  road but had                                                               
asked for an audit.                                                                                                             
                                                                                                                                
SENATOR LINCOLN  asked if Mr. Ritchie  was a member of  the Rural                                                               
Construction Work Group.                                                                                                        
                                                                                                                                
MR. RITCHIE responded that he was.                                                                                              
                                                                                                                                
SENATOR  LINCOLN  said  representatives of  Native  corporations,                                                               
nonprofit  organizations, private  contractors, organized  labor,                                                               
affected  state  agencies,  the Association  of  Village  Council                                                               
Presidents (AVCP),  Kawerak, the  Tanana Chiefs  Conference, Inc.                                                               
(TCC), and the Bering Straits  Native Corporation (BSNC) were all                                                               
represented in the group. She  understood the group made a number                                                               
or recommendations  that AO  199 closely  follows. She  asked, in                                                               
representing  the Alaska  Municipal League,  whether Mr.  Ritchie                                                               
might have wanted to change anything in AO 99 in hindsight.                                                                     
                                                                                                                                
2:16 p.m.                                                                                                                     
                                                                                                                                
MR. RITCHIE  answered the process was  a good one and,  as far as                                                               
making  major changes,  members  came to  a  good compromise.  It                                                               
creates a more  progressive wage rate for people  hired through a                                                               
force  account;   they  are  hired  at   essentially  Davis-Bacon                                                               
training  wages, which  is  a  good thing.  Part  of the  group's                                                               
philosophy was  to allow  the use of  force accounts  for amounts                                                               
over  $250,000  but to  create  a  competitive situation  between                                                               
force  accounts and  contracting. If  wages approximating  Davis-                                                               
Bacon  wages  are  paid,  then  the  choice  can  be  made  on  a                                                               
completely  competitive basis  and the  laborers win  either way.                                                               
Preserving the concept  of the force account  is really important                                                               
in some rural areas. He said  there might be a number above which                                                               
force  accounts  should not  be  used  but  $250,000 may  be  low                                                               
because of the cost of doing business.                                                                                          
                                                                                                                                
MR.  RITCHIE felt  it made  sense for  the new  administration to                                                               
review AO 199 and see  how it would recommend its implementation.                                                               
He  noted,   "Just  for   the  record,   our  public   works  and                                                               
infrastructure  committee did  review the  bill recently  and did                                                               
recommend that in its present form  to not support the bill, just                                                               
the Municipal League alone."                                                                                                    
                                                                                                                                
MR. RITCHIE  added the Associated  General Contractors  (AGC) was                                                               
also a member of the working group.                                                                                             
                                                                                                                                
CHAIR  COWDERY  noted   he  was  anxious  to  talk   to  the  new                                                               
administration on this issue.                                                                                                   
                                                                                                                                
MR. JOHN  BROWN, field representative, Operating  Engineers Local                                                               
302, pointed out that Alaska's  policy on public construction has                                                               
been to  use the bid process,  which makes sure the  work is done                                                               
in  an efficient  manner.    The people  in  rural Alaska  should                                                               
receive Davis  Bacon wages.   He  said he did  not believe  SB 40                                                               
would  affect the  ability of  rural people  to do  force account                                                               
work.   He explained SB  40 limits  DOTPF to the  competitive bid                                                               
process  to make  sure innovative  methods and  the best  current                                                               
practices are used.                                                                                                             
                                                                                                                                
CHAIR COWDERY  said when  he was in  the contracting  business he                                                               
worked in  rural Alaska and found  it beneficial to hire  as many                                                               
local  people  as   possible  because  he  didn't   have  to  pay                                                               
transportation, per diem, or housing.   When building an airport,                                                               
precise grades  were needed and  workers had to be  imported that                                                               
could  cut   the  grade  required  by   the  specifications.  His                                                               
construction company  paid everyone Davis-Bacon wages.   He hired                                                               
about 60 people  on one project in Kotlik and  had about everyone                                                               
who wanted to, work on the project.                                                                                             
                                                                                                                                
MR. BROWN  encouraged Senator Lincoln  and Senator Olson  to talk                                                               
to  the people  in Arctic  Village who  just finished  a project.                                                               
The Operating  Engineers trained people from  the local community                                                               
and the project was force account work.                                                                                         
                                                                                                                                
MS.  EDEN LARSEN,  Executive  Director,  Associated Builders  and                                                               
Contractors,  Inc. (ABC  Alaska), stated  ABC Alaska  supports SB
40.   The state  should not  be in  competition with  the private                                                               
sector.  ABC contractors working  in rural Alaska are looking for                                                               
trained people  who can work on  projects.  The issue  is largely                                                               
one of training  rather than wages.  Contractors  are required to                                                               
pay a  prevailing wage hiring locally  wherever possible provides                                                               
a competitive advantage.                                                                                                        
                                                                                                                                
She said  it is interesting to  see that AO 199  brings the whole                                                               
force account argument  full circle.  Initially  the argument was                                                               
that  force  accounting was  more  cost  effective because  local                                                               
people could  be hired the prevailing  wage would not have  to be                                                               
paid.  That   argument  is  used   to  avoid  federal   open  and                                                               
competitive  bid requirements.  AO 199  now imposes  a prevailing                                                               
wage rate,  which brings  the argument full  circle but  does not                                                               
eliminate  competition  with the  private  sector  or the  people                                                               
directly performing the work.                                                                                                   
                                                                                                                                
MS.  JUDY  MARTINSON,  Northcoast Construction,  said  Northcoast                                                               
Construction  is  a general  contracting  company  that works  in                                                               
northwest  Alaska  villages  and   has  exclusively  hired  local                                                               
workforces for the past 22  years. State DOTPF forces have eroded                                                               
Northcoast Construction's work. The  Saint Mary's project was not                                                               
put out to bid  but was done by DOTPF and  the costs are unknown.                                                               
DOTPF paid less  than the Davis-Bacon wages  that contractors are                                                               
required to pay  and include in their bids. There  is little work                                                               
in  Northwest Alaska  and state  DOTPF forces  were working  when                                                               
private  enterprise was  not. Northcoast  Construction is  making                                                               
payments for  equipment that  sits idle  and gross  revenues have                                                               
gone from a high of $2.5  million down to about $20,000 per year.                                                               
They  are selling  equipment and  letting local  people go  while                                                               
DOTPF  is gearing  up with  more equipment  and more  forces. The                                                               
state  and  city forces  are  getting  stronger and  the  private                                                               
sector is  being put  out of  business.   She concluded,  "We are                                                               
looking at  going to war  to preserve our  democracy." Northcoast                                                               
Construction supports SB 40 to stop this problem.                                                                               
                                                                                                                                
TAPE 03-02, SIDE B                                                                                                            
2:30 p.m.                                                                                                                     
                                                                                                                                
CHAIR COWDERY asked Ms. Martinson  the smallest dollar amount and                                                               
[pay] range  that Northcoast Construction had  ever competitively                                                               
bid on a job.                                                                                                                   
                                                                                                                                
MS. MARTINSON answered  Northcoast has bid jobs from  $1000 to $3                                                               
million.                                                                                                                        
                                                                                                                                
CHAIR COWDERY  asked if  Northcoast was required  to post  a bond                                                               
for the larger jobs.                                                                                                            
                                                                                                                                
MS. MARTINSON said it was.                                                                                                      
                                                                                                                                
CHAIR COWDERY asked if smaller jobs were exempt from bonding.                                                                   
                                                                                                                                
MS. MARTINSON said  some projects require bonds and  some do not,                                                               
it depends  on the  funding. Northcoast  had a  small maintenance                                                               
project  that  was  bonded. Northcoast  hires  and  trains  local                                                               
people and uses anywhere from 80  to 100 percent local forces for                                                               
a project.                                                                                                                      
                                                                                                                                
SENATOR  OLSON asked  her to  mention  some of  the places  where                                                               
Northcoast had done construction projects.                                                                                      
                                                                                                                                
MS.  MARTINSON  said Northcoast  had  been  to just  about  every                                                               
village  out  in  Northwest  Alaska,  Teller,  Brevig,  Savoonga,                                                               
Gamble, Unalakleet,  Kiwalik, Nome,  and Wales  (three additional                                                               
villages were listed that were indiscernible).                                                                                  
                                                                                                                                
SENATOR  LINCOLN appreciated  Ms. Martinson's  testimony and  the                                                               
fact  Northcoast Construction  hires all  local people.   Senator                                                               
Lincoln said she came from  a very small community and represents                                                               
129 communities.   Local people are concerned that  locals do not                                                               
receive the  work when a job  is put out  to bid.    An Anchorage                                                               
contractor  brought all  of his  employees,  food, materials  and                                                               
equipment to  Rampart.   Rampart worked hard  to get  the project                                                               
but received absolutely no benefits in  terms of jobs.  She added                                                               
that many  companies do not  follow the local hire  policy. Local                                                               
people are watching jobs leave  the community and, in some cases,                                                               
leave the state.                                                                                                                
                                                                                                                                
MS. MARTINSON  said after living  in Nome  for 30 years  they are                                                               
compassionate and love the villages  and village people.  Life is                                                               
very  hard; without  funds coming  in  it is  hard to  eat.   She                                                               
suggested  the loss  of jobs  could be  eliminated of  a specific                                                               
number of hours  required for apprentices could be  placed in the                                                               
bidding process.   People need to  be trained on the  job and the                                                               
state participates  and helps with  that through  the competitive                                                               
bidding process and through the union apprenticeship program.                                                                   
                                                                                                                                
Northcoast  has had  a project  agreement  with the  union.   The                                                               
union  came in  and helped  to train  people, and  made sure  the                                                               
people were  happy.  She  thought the bidding process  needs more                                                               
teeth so that village people are accommodated.                                                                                  
                                                                                                                                
CHAIR COWDERY  said he hired  as many locals as  possible because                                                               
it was more  profitable.  Qualified people are needed  to run the                                                               
equipment  to  meet  specifications  when  close  tolerances  are                                                               
required  and these  people  have to  be brought  in.   He  hired                                                               
locals on  erosion control contracts  that were hard  working who                                                               
caught on  fast and worked up  to 12 hours per  day.  Contractors                                                               
will hire locally if they can save money.                                                                                       
                                                                                                                                
CHAIR COWDERY  said Frank Richards  and Chris Kepler are  on line                                                               
in Anchorage to answer questions.                                                                                               
                                                                                                                                
MR.  DENNIS   POSHARD,  Legislative   Liaison/Special  Assistant,                                                               
DOTPF, said Mark O'Brien, Chief  Contracts Officer, is present to                                                               
help answer questions because this is a complex subject.                                                                        
                                                                                                                                
CHAIR COWDERY asked if he had talked to the new heads of DOTPF.                                                                 
                                                                                                                                
MR.  POSHARD said  they were  introduced while  waiting for  this                                                               
hearing  to  start  and  Commissioner   Barton  had  been  acting                                                               
Commissioner for  some time. He  stated DOTPF has no  position on                                                               
SB 40 and explained:                                                                                                            
                                                                                                                                
     We  are currently  reviewing  Administrative Order  199                                                                    
     and this  administration is  trying to  determine their                                                                    
     approach to  dealing with the  issue of  force account.                                                                    
     First though,  I would  like to  clarify a  few things.                                                                    
     One thing, I  think that it's really  important to note                                                                    
     up  front,  is  we  agree  that  we  ought  not  be  in                                                                    
     competition with the private  sector. I mean we believe                                                                    
     the private sector  is a partner with us to  do the job                                                                    
     that  we  need  to  do  to  improve  transportation  in                                                                    
     Alaska. That's why over 97  percent of our current, you                                                                    
     know, construction program ends up getting bid out.                                                                        
                                                                                                                                
CHAIR  COWDERY  asked  how  much   of  the  remaining  3  percent                                                               
represents in dollars.                                                                                                          
                                                                                                                                
MR. POSHARD said a little less  than 3 percent was spent by force                                                               
account in 2002, which totaled about $11.2 million.                                                                             
                                                                                                                                
CHAIR COWDERY asked if that was in all areas of Alaska.                                                                         
                                                                                                                                
MR. POSHARD said yes.  The  lion's share of force account funding                                                               
was for projects  that department maintenance crews  did for line                                                               
item  projects in  the  capital budget.  Some  of those  projects                                                               
include   preventative  maintenance   on   roads,  road   surface                                                               
treatments, crack  sealing and bridge  repair.  The  total amount                                                               
was $11.2  million; about 2.2  percent of the  total construction                                                               
program in 2002.  That included  the projects DOTPF gave to other                                                               
local  agencies such  as the  Bureau of  Indian Affairs  (BIA) or                                                               
other state agencies.  SB 40  is directed at that 2.2 percent and                                                               
not  the $350  to $400  million  that is  contracted every  year.                                                               
DOTPF agrees  it should  not be in  competition with  the private                                                               
sector and  that is  why it  contracts most of  the work  that is                                                               
done.                                                                                                                           
                                                                                                                                
CHAIR COWDERY asked the reason force accounts began.                                                                            
                                                                                                                                
MR.  POSHARD  said  the  answer  depends on  the  type  of  force                                                               
account.   DOTPF  sometimes   force  accounts   roads  to   local                                                               
governments or  agencies such  as the BIA  and the  Indian Health                                                               
Service (IHS) at their request.                                                                                                 
                                                                                                                                
CHAIR  COWDERY asked  if DOTPF  ever uses  force account  when an                                                               
unforeseen  situation  arises  during a  project;  for  instance,                                                               
hydrocarbons  were found  and were  not included  in the  bid but                                                               
DOTPF does not want to stop the job.                                                                                            
                                                                                                                                
MR.  POSHARD said  he thought  Chair Cowdery  was referring  to a                                                               
change order.   If the contractor  is on-site doing the  work and                                                               
an unforeseen situation is discovered  that calls for some change                                                               
to the bid  specifications, DOTPF issues what is  called a change                                                               
order. DOTPF negotiates directly with  the contractor to go ahead                                                               
and complete  the additional work  above and beyond  the original                                                               
specifications in the bid.                                                                                                      
                                                                                                                                
CHAIR COWDERY asked if that is the same as a force account.                                                                     
                                                                                                                                
MR.  POSHARD  asked  Mark  O'Brien, who  reviews  all  the  "best                                                               
interest findings"  and determines  whether or not  force account                                                               
projects can be done, to explain force account because.                                                                         
                                                                                                                                
MR. MARK O'BRIEN, Chief Contracts  Officer, DOTPF, explained that                                                               
two different  definitions of  force accounting  cause confusion.                                                               
He told members:                                                                                                                
                                                                                                                                
     One  is force  account, which  is usually  called 'time                                                                    
     and materials'  and that's where  a contractor  is paid                                                                    
     on a  time and materials  basis.  The  description that                                                                    
     Dennis  gave of  the change  order could  well be  that                                                                    
     that change order  would be done on  time and materials                                                                    
     [basis] so  they would call  that force account.   But,                                                                    
     what the  statute is looking  at in this  definition of                                                                    
     force  account is  where the  department  uses its  own                                                                    
     forces  to  accomplish  the work,  so  it's  different.                                                                    
     Those are the different definitions for force account.                                                                     
                                                                                                                                
CHAIR COWDERY asked how DOTPF budgeted for force accounting.                                                                    
                                                                                                                                
MR. O'BRIEN asked if he was  referring to a force account for the                                                               
contractor under a change order.                                                                                                
                                                                                                                                
CHAIR COWDERY asked if they  had a budget for unforeseen problems                                                               
and asked if that was the same as force account.                                                                                
                                                                                                                                
MR. POSHARD  said that is not  the same type of  force account SB
40 is referring to. DOTPF  builds contingency funds into projects                                                               
and  Chair Cowdery  was referring  to a  force account  due to  a                                                               
change order.   The amount is  not the same on  every project and                                                               
depends  on  the   level  of  certainty  and   comfort  with  the                                                               
information the specifications were based  on. Sometimes it is as                                                               
much as 10 percent and sometimes it is less.                                                                                    
                                                                                                                                
CHAIR COWDERY said  an example would be when  a contract provides                                                               
so much per ton for unusable  excavated material to be hauled off                                                               
and then  an unexpected  peat bog  is encountered  and has  to be                                                               
removed at  additional cost.  He  asked if the unit  price in the                                                               
original  bid  was  standard  for   the  additional  pay  to  the                                                               
contractor.                                                                                                                     
                                                                                                                                
MR. O'BRIEN  said that is correct.   If it was  simply an overrun                                                               
in  quantities for  which there  were unit  prices then  the unit                                                               
prices would continue to apply and  DOTPF would pay for the total                                                               
quantities actually moved.                                                                                                      
                                                                                                                                
CHAIR COWDERY  said if, in fact,  the peat bog proved  to be more                                                               
difficult to  remove than  the original unit  price, a  new price                                                               
would be negotiated.                                                                                                            
                                                                                                                                
MR.  O'BRIEN  said yes,  equitable  adjustment  is allowed  under                                                               
contract   for  circumstances   where   the   contract  did   not                                                               
contemplate the series of events discovered on the project.                                                                     
                                                                                                                                
SENATOR  WAGONER  asked when  the  state  highway maintenance  is                                                               
involved  in a  force account  job  and state  equipment is  used                                                               
against an account, whether that  equipment is billed against the                                                               
account by an hourly charge.                                                                                                    
                                                                                                                                
MR. FRANK  RICHARDS, Statewide Maintenance Engineer,  DOTPF, said                                                               
the question  is how  state equipment  is administered  under the                                                               
force account project done by  DOTPF forces.  The Federal Highway                                                               
Administration allows  DOTPF to  build a  federal usage  rate for                                                               
the cost of equipment usage it  is able to charge to the project.                                                               
Use rates  and costs for  the state equipment fleet  is developed                                                               
on an annual basis.  The  state/federal usage rate goes through a                                                               
federal  audit  and  determines  that  the  cost  associated  and                                                               
charged to  the projects are.   As the  equipment is used,  it is                                                               
being charged at that rate to the project.                                                                                      
                                                                                                                                
SENATOR  WAGONER  asked where  those  funds  revert to  and  what                                                               
account do they go into.                                                                                                        
                                                                                                                                
MR. RICHARDS  said under a  force account  the project is  set up                                                               
with  a   specific  description;   the  personnel   services  and                                                               
equipment costs are charged directly to the project.                                                                            
                                                                                                                                
MR.  POSHARD asked  if  the question  was do  the  funds that  go                                                               
towards  equipment  somehow  go  back into  the  highway  capital                                                               
working fund and  offset the annual cost for that  equipment in a                                                               
capital force account project.                                                                                                  
                                                                                                                                
SENATOR WAGONER  said yes,  or an  equipment maintenance  fund of                                                               
some kind.   He said otherwise,  the equipment is being  worn out                                                               
for nothing.                                                                                                                    
                                                                                                                                
MR. POSHARD said essentially the answer is yes. He explained:                                                                   
                                                                                                                                
     When  we purchase  a  piece of  equipment,  we do  that                                                                    
     through the state  equipment fleet.  We have  set up by                                                                    
     statute what's called the  Highway Capital Working Fund                                                                    
     and  it's  a  separate  fund  that's  used  to  acquire                                                                    
     equipment.   And  your lease  rates are  established in                                                                    
     such a way that they  take into account the maintenance                                                                    
     of that  equipment and the  capital acquisition  of new                                                                    
     equipment at  some foreseen point  in the future.   And                                                                    
     so, the capital funding that  goes to pay for equipment                                                                    
     during  the  time  it's being  used  on  that  project,                                                                    
     that's that  much less  general fund  that we  would be                                                                    
     using to  pay for  that equipment  on an  annual basis.                                                                    
     Does that make sense or answer your question?                                                                              
                                                                                                                                
SENATOR WAGONER  said it  did if  DOTPF projects  how much  it is                                                               
going to  have from that  type of income  and puts that  into the                                                               
budget.                                                                                                                         
                                                                                                                                
CHAIR COWDERY asked if a $75  thousand engine blew up in a grader                                                               
on the  Saint Mary's project,  how the cost of  replacement would                                                               
fit in the maintenance budget.                                                                                                  
                                                                                                                                
MR.  POSHARD said  DOTPF used  almost no  state equipment  on the                                                               
Saint Mary's  project.  The  equipment was leased from  the local                                                               
government.                                                                                                                     
                                                                                                                                
CHAIR COWDERY asked if DOTPF used any state equipment.                                                                          
                                                                                                                                
MR. POSHARD said they might have used a piece or two.                                                                           
                                                                                                                                
CHAIR COWDERY  asked how the  replacement cost of a  blown engine                                                               
was accounted for.                                                                                                              
                                                                                                                                
MR. SWARTHOUT,  Regional Director of the  Northern Region, DOTPF,                                                               
explained almost  all of the  equipment used on the  Saint Mary's                                                               
project was leased from the City  of Saint Mary's.  The state had                                                               
a few  pieces of equipment; a  roller and a dump  truck were used                                                               
from time to time. He answered the question as follows:                                                                         
                                                                                                                                
     Some of  that would  depend on what  the cause  of that                                                                    
     engine  being blown  was.   If it  was normal  wear and                                                                    
     tear, there was  some problem with the  engine, we'd go                                                                    
     back  to the  manufacturer, perhaps  where we'd  absorb                                                                    
     that  out of  the  Highway Working  Capital Fund  which                                                                    
     would drive the  rates up in the future  for that piece                                                                    
     of equipment.   If it was an operator  problem where he                                                                    
     over revved  the engine or  we've run it out  of water,                                                                    
     the  Highway Working  Capital Fund  would  not pay  for                                                                    
     that, it  would not come  out of  the project.   I mean                                                                    
     basically it would come out  of our general fund budget                                                                    
     to repair that equipment.                                                                                                  
                                                                                                                                
MR. POSHARD  said the  Saint Mary's project  is complete  and the                                                               
total cost was $2.47 million.                                                                                                   
                                                                                                                                
CHAIR COWDERY  asked for a breakdown  of those costs. He  said he                                                               
had requested an audit earlier.                                                                                                 
                                                                                                                                
MR.  POSHARD   said  DOTPF  would   be  happy  to   provide  that                                                               
information.  He added  this bill  would  affect a  few types  of                                                               
force account projects:                                                                                                         
                                                                                                                                
   · Projects   that   DOTPF   force   accounts   through   local                                                               
     governments or agency partners like the BIA or Indian                                                                      
     Health Service.                                                                                                            
   · The Saint Mary's type project, which is essentially a force                                                                
     account project that DOTPF did.  The department sent its                                                                   
     construction managers to Saint Mary's and hired local                                                                      
     temporary state employees to complete that work.                                                                           
                                                                                                                                
CHAIR COWDERY interjected  and asked if the  employees worked for                                                               
the state prior to the project.                                                                                                 
                                                                                                                                
MR. POSHARD said not to his knowledge.  He continued:                                                                           
                                                                                                                                
   · The third type is the maintenance work normally done every                                                                 
     year  with  the  DOTPF  capital program.    The  maintenance                                                               
     general  fund budget  has been  cut over  the years.   DOTPF                                                               
     managed to make  up a lot of the  difference by establishing                                                               
     some  types of  maintenance  activities that  can use  DOTPF                                                               
     maintenance employees like  pavement preservation and safety                                                               
     kinds of issues.                                                                                                           
                                                                                                                                
MR. POSHARD clarified that DOTPF  maintenance forces do a portion                                                               
of  the capital  budget line  item projects,  such as  preventive                                                               
maintenance,  road surface  treatment  and  bridge repair.  Every                                                               
spring or  early summer  a number  of maintenance  employees will                                                               
shift  over to  a capital  project.  They are  no longer  plowing                                                               
snow,  they are  out crack  sealing, repairing  bridges or  doing                                                               
whatever their  specialty is.   They  work throughout  the summer                                                               
and in  the fall  get converted to  the general  fund maintenance                                                               
budget.                                                                                                                         
                                                                                                                                
DOTPF  is  concerned that  some  of  those activities  could  not                                                               
continue  if this  bill passes.  Converting  state employees  and                                                               
state maintenance employees  to work on capital  projects for the                                                               
summer  saves a  portion of  DOTPF's general  fund for  personnel                                                               
services that can be used for  overtime in the winter for plowing                                                               
snow and  weather related activities.   If DOTPF is unable  to do                                                               
that,  a management  decision must  be made  to either  stop some                                                               
maintenance activity, bid  it out to the private  sector, lay off                                                               
employees to maintain that small  cushion of overtime or maintain                                                               
those employees  and have less  time to deal with  weather events                                                               
in the winter.                                                                                                                  
                                                                                                                                
CHAIR  COWDERY  asked if  DOTPF  had  a detailed  description  of                                                               
maintenance versus construction work.                                                                                           
                                                                                                                                
MR. POSHARD said  there is a statutory  definition of maintenance                                                               
and construction work.                                                                                                          
                                                                                                                                
CHAIR COWDERY asked if DOTPF owns machines to lay down asphalt.                                                                 
                                                                                                                                
MR. RICHARDS  answered DOTPF  contracts out for  the lay  down of                                                               
asphalt.  DOTPF does not own a lay down machine.                                                                                
                                                                                                                                
MR. POSHARD reiterated that DOTPF does  not have a position on SB
40  but has  concern about  the management  decisions DOTPF  must                                                               
face should  the bill pass.   It  takes away flexibility  to plan                                                               
for  unexpected weather  events  and stretches  its general  fund                                                               
maintenance budget a little further.                                                                                            
                                                                                                                                
SENATOR OLSON  said the  difficulty he  sees is  the polarization                                                               
between the private  sector and the state  through force account.                                                               
This bill uses the amount of  the project as the dividing line to                                                               
try and  separate the two.   The United  States was built  on the                                                               
capitalistic system  and a dislike  of seeing public  moneys used                                                               
against people from the private sector.   He asked if Mr. Poshard                                                               
could see any  other mechanism or way that would  make it less of                                                               
a divisive issue.                                                                                                               
                                                                                                                                
MR.  POSHARD  said  that  was a  difficult  question  to  answer.                                                               
Different  ideas  have  been  tossed  around  but  DOTPF  has  no                                                               
position on the ideas. He explained:                                                                                            
                                                                                                                                
     But other approaches could be  maybe limiting the force                                                                    
     account work that's done by  the department to the work                                                                    
     that's  done with  the existing  state forces.   So  it                                                                    
     would prevent  maybe us from  going out and  hiring new                                                                    
     state employees  to do that  work.  I think  that might                                                                    
     give us  anyway the ability  to continue doing  some of                                                                    
     the  budget   shifting  that  we   do  to   manage  the                                                                    
     maintenances  as effectively  as  possible.   It  might                                                                    
     maybe take away  the ability of the department  to do a                                                                    
     Saint  Mary's type  project, which  is  really the  one                                                                    
     that  seems to  have been  the camel's  nose under  the                                                                    
     tent for  the Associated  General Contractors  and some                                                                    
     of the other agencies or organizations out there.                                                                          
                                                                                                                                
SENATOR  LINCOLN asked  if she  understood  correctly that  three                                                               
percent  of the  overall  budget was  spent  on construction  and                                                               
maintenance force account projects.                                                                                             
                                                                                                                                
MR. POSHARD  answered that is  correct.  Less than  three percent                                                               
of DOTPF's  total capital construction program  actually is force                                                               
accounting.                                                                                                                     
                                                                                                                                
SENATOR LINCOLN asked how much of  the three percent was used for                                                               
BIA and Indian Health Service projects.                                                                                         
                                                                                                                                
MR. POSHARD  said he did not  have that information with  him but                                                               
it could be provided.                                                                                                           
                                                                                                                                
SENATOR LINCOLN asked for an estimate.                                                                                          
                                                                                                                                
MR.  O'BRIEN answered  that it  is a  very small  portion of  the                                                               
amount listed.   In  2002, with  a total  amount of  $11 million,                                                               
$8.8   million  plus   another  $500   thousand  were   spent  on                                                               
maintenance  type activities.   The  other agencies  totaled just                                                               
over $1 million of the $11 million.                                                                                             
                                                                                                                                
SENATOR LINCOLN said ten percent.                                                                                               
                                                                                                                                
MR. O'BRIEN  answered ten  percent of the  amount that  was force                                                               
accounted.                                                                                                                      
                                                                                                                                
SENATOR LINCOLN  said she would appreciate  having the breakdown.                                                               
She  said they  were talking  about  a very  minimal amount  when                                                               
talking about force accounting, three percent.                                                                                  
                                                                                                                                
CHAIR COWDERY said $11 million.                                                                                                 
                                                                                                                                
SENATOR LINCOLN  said 2.2  percent of  the total  capital budget.                                                               
It is  very small in  those terms and  important in terms  of the                                                               
benefits the local  people derive.  She thought they  had to look                                                               
at the  overall big picture.   "I guess  I'm a little  puzzled by                                                               
the 'no  position on the bill'  because isn't this the  same bill                                                               
that we had last year with the exception of the amount?"                                                                        
                                                                                                                                
MR. POSHARD  said this  is essentially  the same  bill as  it was                                                               
introduced  last  year  and the  previous  administration  pretty                                                               
strongly  opposed  the  legislation.     This  administration  is                                                               
reviewing AO 199, which was  the result of the Rural Construction                                                               
Working Group and has yet to  conclude exactly how it is going to                                                               
approach the force account issue.                                                                                               
                                                                                                                                
SENATOR LINCOLN read a statement  from former Governor Knowles in                                                               
regard to AO 199:                                                                                                               
                                                                                                                                
     After the  various agencies  and those  groups involved                                                                    
     in  employment  and  training  for  rural  construction                                                                    
     shall  provide the  Governor with  a  joint report  one                                                                    
     year  from  the  effective  date  of  this  order  that                                                                    
     evaluates the results  to date of this  order and shall                                                                    
     report annually thereafter.                                                                                                
                                                                                                                                
She asked what that meant  now with the new administration coming                                                               
on and looking at AO 199.                                                                                                       
                                                                                                                                
3:05 p.m.                                                                                                                     
                                                                                                                                
MR. POSHARD said  he was not sure exactly  how the administration                                                               
would  approach that  language and  not sure  what that  language                                                               
meant initially because  he had not participated  in the process.                                                               
Mr.  O'Brien participated  and could  possibly explain  what that                                                               
language meant and what was intended.                                                                                           
                                                                                                                                
SENATOR  LINCOLN  said since  Mr.  O'Brien  participated she  had                                                               
another  question.     The  Department  of  Labor   was  in  fact                                                               
represented  on  the Rural  Construction  Working  Group and  the                                                               
recommendations of that  group resulted in AO 199.   She asked if                                                               
that is correct.                                                                                                                
                                                                                                                                
MR. O'BRIEN said that is correct.                                                                                               
                                                                                                                                
SENATOR LINCOLN  asked, "What do  you now find offensive  or that                                                               
you would  report back to  a new administration that  they should                                                               
change?"                                                                                                                        
                                                                                                                                
MR. O'BRIEN  said he  was not  sure it is  an issue  of something                                                               
being offensive.   He  thought at that  point, the  working group                                                               
did  not know  how the  current administration  would handle  the                                                               
particular  requirements   of  AO   199.  Since   it  is   a  new                                                               
administrative  order,  they  do   not  know  how  the  reporting                                                               
requirements are going to be handled.                                                                                           
                                                                                                                                
CHAIR COWDERY said he intended to  hold the bill in committee and                                                               
talk about  it with  the new commissioners  in DOTPF  and perhaps                                                               
they will be present at the next hearing.                                                                                       
                                                                                                                                
MR. RICHARDS  said the cost of  equipment is about 15  percent of                                                               
that 2.2 percent  and the remainder of the money  is spent in the                                                               
private sector  contracting for  aggregate, materials  and rented                                                               
equipment.   This  money does  not  all go  to the  state; it  is                                                               
spread out among the private sector.                                                                                            
                                                                                                                                
CHAIR COWDERY  said he appreciated  that but was  concerned about                                                               
how the state is doing it.                                                                                                      
                                                                                                                                
MS.  MARTINSON said  a  basic democratic  principle  is that  the                                                               
public should not  compete with the private sector.   The City of                                                               
Saint Mary's is  a public organization that  bought the equipment                                                               
for the project  and the state paid the city  for that equipment.                                                               
The  amount of  3  percent might  seem  small but  it  has a  big                                                               
impact.                                                                                                                         
                                                                                                                                
CHAIR COWDERY announced his intent to hold SB 40 until he has an                                                                
opportunity to meet and discuss it with the new people in DOTPF.                                                                

Document Name Date/Time Subjects