Legislature(2003 - 2004)
04/27/2004 01:42 PM TRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SCR 25-STATE CONSTRUCTION/MAINTENANCE CONTRACTS The committee took up SCR 25. CO-CHAIR COWDERY, sponsor of SCR 25, said SCR 25 was his effort to address problems due to SB 40, and testified as follows: In order to maintain transparency and to make certain public funds are spent efficiently, statute requires construction and maintenance contracts be awarded on the basis of a competitive bid. In the case of small projects or repairs, law allows the state, for the purpose of efficiency, to fund a project in-house through what's termed a 'force account.' Ideally, these are for projects costing $250,000 or less. The purpose of SCR 25 is to encourage the State of Alaska (primarily DOT&PF) to use day labor, 24-hour call out contracts, competitively bid, in the range of $250,000 to $1,500,000. Contractors employ skilled managers and maintain an inventory of specialized equipment. Therefore, construction work done in the public sector requires similar staffing as well as inventory, thus resulting in increased cost to the ratepayer. Day labor contracts on 24-hour call would be all encompassing, using the competitive bid process to set line item costs for a set of numerous individual tasks, such as replacing a road sign to filling a pothole to grading a gravel runway, and in some places in rural Alaska, boardwalks. Contractors on 24-hour call would use pretty much local labor sources. CO-CHAIR COWDERY questioned if force accounts ever use a competitive bid project if they run into problems that they don't have the money for, and use force accounts to finish the project. MR. MARK O'BRIEN, Chief Contracts Officer for DOT&PF, said yes. In a case where there is an ongoing construction project and they run into an unknown repair, it is fairly typical to use a force account to conduct work that was not previously called for, under the low-bid competitive bid that was put out and awarded under the contract. That needs to be accounted for in a different manner. CO-CHAIR COWDERY asked if the force account was used, in the original conception of force accounts for the purpose just referred to. MR. O'BRIEN replied this was probably the most common use for force account within the department; to pick up and address these issues that were not within the scope of the original hard money bid that was put out and awarded. There are other uses for it too. CO-CHAIR COWDERY asked if the estimated savings on calendar year 2002 force account projects, between $250,000 and $1.5 million was $905,000, or 38 percent. MR. O'BRIEN confirmed this was correct. CO-CHAIR COWDERY said assuming the amount of force account projects remains constant, over the next six years the lost savings would total $5.43 million. MR. O'BRIEN said this was correct. CO-CHAIR COWDERY asked if this referred to contracts that were competitively bid by engineers' estimates. MR. O'BRIEN said these were estimated savings based on the difference between issuing a competitive sealed bid and using in-house force account labor to accomplish the work. Savings are primarily the result of the differential between Davis Bacon wages and the wages paid by the state, a profit that contractors receive that the state does not charge on a project. Cheaper materials are a result of stockpiling materials in advance of the project, and a number of factors determine that for a particular project it was 'x' percent less expensive to do it with a force account. The representative number is an accumulation and average. CO-CHAIR COWDERY said these were never bid out competitively. He asked if this was an estimate of what it would be if it went on the street. MR. O'BRIEN said that was correct. CO-CHAIR COWDERY, suggesting that estimates are guesswork, asked if engineers' estimates were always accurate. MR. O'BRIEN said no, occasionally engineers' estimates are considerably off from the price that comes in from contractors. CO-CHAIR COWDERY said he has bid on jobs where it was as high as 50 percent. For example, bidding on the Port of Anchorage, he came in very low because of "having a better mousetrap or whatever." They did the job but it was about fifty percent less than the engineer's estimate. He said his point was that there's no way to be accurate until you have a competitive bid. He referred to the St. Mary's project, and mentioned that local residents were state employees. He said whether one lives in rural or urban Alaska, the labor force should be paid the same since people work just as hard to finish the project. The wage scale should be on a par with the urban wage scale. This resolution assures that it's competitively bid, that Davis Bacon wages are followed, and so forth. He said he doesn't agree with the fiscal note showing a savings because it's all speculation. MR. O'BRIEN said that some projects are based on competitive bid. For instance, in a year when they did resurfacing in a particular area with a contractor, they knew what those costs were. If they do a force account project on a similar stretch of road, they have accumulated both of those costs to verify that in fact the estimate for savings was verified through actual bid results. CO-CHAIR COWDERY said he didn't understand if a job was put out to bid, the contractor went to the cost of bidding it but then it went to the force account. Until one actually does something, all one has is an educated guess which isn't accurate, he said. MR. O'BRIEN said he meant that if there are two separate projects, one accomplished by a contractor under low bid, and one accomplished by the state under force account, and track the cost for both of those projects, it verifies a cost-savings for the state to use force account for the re-surface job that he referred to earlier. He clarified that it wasn't that they did the project and then told the contractor that they were going to do it with their own forces, but rather that it was a comparison of two similar projects, one accomplished with a contractor and one with state forces. CO-CHAIR COWDERY said, "Granted, the state has equipment, but do they pay taxes like the contractor does? Have overhead?" He said with the St. Mary's project, two contractors spent time bidding on the job and then the bids were cancelled. MR. O'BRIEN said the department did not actually competitively bid the St. Mary's project. CO-CHAIR COWDERY mentioned that contractors went there to see the job. MR. O'BRIEN responded that may be correct. SENATOR OLSON acknowledged that the force account system has done a wonderful job in rural Alaska for some DOT&PF projects. He said a number of the airports done under force account have been a positive factor for those involved with the project. He mentioned the project in Elim in particular where the village and the city were involved, and the project was done under budget. After the project was completed, people took pride in it. He said the force account system has been working well in the past, and asked for the department's opinion of the resolution. MR. O'BRIEN said some concerns about the resolution have been formulated. The resolution intends to encourage the use of as- needed contracts, which are commonly referred to as term contracts where one doesn't have a specific piece of work but has a contractor on board to take on whatever next piece of work comes along. He said the department currently uses term- contracts for various pieces of work, but is usually restricted to individual tasks or individual contracts. He said there should be a list of examples of term-contracts the department currently uses, provided in the packet. He gave the examples of construction inspection, corrosion inspection, cost estimating, and materials testing. Those are examples of "as-needed" contracts that are kept on the maintenance and operation side. MR. FRANK RICHARDS, State Maintenance Engineer for Department of Transportation and Public Facilities (DOT&PF), said that included in the committee packet is an extensive list of contracts currently under maintenance, including specialty work such as brush-cutting, guard rail replacement, electrical repair, and the largest one likely being the snow haul in Anchorage. It's an as-needed, on-call basis for contract repair to remove the snow. One of the other large efforts is the rural highways and airport contracts. There are about 170 contracts essentially on an as-needed basis, primarily to remove the snow on the runways and roads in rural Alaska. Those are worth about $2 million per year, which is a fairly large number. SENATOR OLSON said he was talking about new capital projects as opposed to maintenance and operations projects. MR. O'BRIEN responded that this ties in to the construction contracts because statute and regulations require all of the construction contracts, absent those approved by force account, to be done by competitive sealed bid, to the lowest responsive and responsible bidder. That is different than the way this tool sets that up. If these as-needed contracts were imposed, there is no project for the contractor to bid on when he is responding to the as-needed contract. His only option is to bid hourly rates, equipment costs, and those kinds of figures so they are sitting there when the department is ready to turn on a project. In this case, if an as-needed contract were used, the department would not have a contract low bid price for this work going in; it would be time and materials. Rarely has the department seen a low bid come in that is going to be more expensive than the time and materials contract. Locking the contractor in from day one for the specific construction project is the main concern. If the department used this vehicle to use a contractor who was not locked in, it may result in additional costs to the state. That's the primary concern, he said. CO-CHAIR COWDERY said once when he worked for the mayor of Anchorage, the same problem arose and he developed a day labor contract. Everybody who bid on it, including ABC, liked it. He said he thought that in years past, he had given contract copies of that to DOT&PF. It was put out similar to a job to build a road from Juneau to Skagway, that is, anticipating everything that's needed, whether that be guard rails, signage, glass culvert, or asphalt per ton per mile. It started out at $.5 million dollars with the city of Anchorage and went to a million; it was very competitively bid, and it was understood that "items that you bid may not ever occur. But everybody being on the up and up, the size of the contract was determined by someone to be a fair expectation of the amount of work that was going to be done in that year. In other words, it wouldn't be said that it would be $10 million and then do $10." 2:58 p.m. CO-CHAIR WAGONER referred to Mr. O'Brien's comment about different salaries the state pays versus Davis Bacon wages, saying he doesn't think one could stick to those parameters when figuring the cost of jobs because he has observed that between Kenai and Anchorage, a lot of guard rail is lost every year. He said he had the chance to observe private contractors working with two to three people, whereas the highway department would have a much larger crew doing that type of work. He said it was really difficult to estimate the actual cost unless it was bid out, and then one takes that bid and relates it to the state and looks at the increase in the amount of hours. He said he wasn't saying which was right or wrong, but intangibles were involved regarding figuring prices and jobs. CO-CHAIR WAGONER remarked that this is a good bill. He referenced 1996 when he was running for office and going back and forth between Kenai and Anchorage every day. The state was doing a large seal coat job on the highway, there was continuous traffic and it was all state equipment, state workers. He didn't know how many millions of dollars the job was worth, but it must not have been a job that was bid out. He said he would much rather see state employees working in maintenance-type efforts to keep the good quality of the roads up than seeing them working with equipment that costs several hundreds of thousands of dollars, doing construction work. He said this was a major construction project that he doesn't think was ever bid, although the private sector is there to do the work, and has the equipment. He questioned whether the state should have that type of equipment, because "that's a lot of money sitting around in inventory" although he understands in the winter there is some use for sanding and other functions. CO-CHAIR COWDERY questioned whether the state could do those jobs for less. SENATOR OLSON said he wanted to distinguish between the force account projects on the road system and those not on the road system. He said he was more familiar with the one outside of the Railbelt, or road system in Alaska. He said he knows the state has leased a lot of equipment and it has cut the price down. This was true for the St. Mary's and the Elim project. There has been an addition to the community as opposed to a project that goes on in the community, when everybody comes and then leaves, including a majority of the labor capital. He said from a business perspective, he has concerns regarding equipment being purchased or depreciating, and yet, in looking at the whole picture, he sees the positive effects of force accounts where it has been unfettered by the numbers or the size of the project, especially in construction. From a public policy standpoint, he said DOT&PF's force account system seems to be a positive factor, despite some of the negative sentiments being voiced. He reiterated that there should be a distinction between road and not-on-the-road force account projects. CO-CHAIR COWDERY asked if the marine highway was on the road system. SENATOR OLSON said this wasn't black or white, but a grey area. He said somebody representing the Marine Highway System should comment. CO-CHAIR COWDERY commented that the purpose of SCR 25 on SB 40 would be to give some latitude to the local people. Having been a contractor involved with making money, he said whenever he could, he hired local people. The local people were anxious to work, were good, creative workers, and he paid Davis Bacon wages. SENATOR LINCOLN said she didn't find that SCR 25 would help the villages, as Co-Chair Cowdery was suggesting. She said she has some misunderstanding of the "as needed" contractors and asked, "In the force account projects that you've had in the villages, how much in 2003 would have been provided to force account to villages versus competitive bidding throughout Alaska, or even competitive bidding in the villages?" MR. O'BRIEN said he didn't have those numbers with him today. SENATOR LINCOLN asked, regarding force account, if he could give a percentage, such as 50 or 80 percent of the projects in Alaska. MR. O'BRIEN said no, in terms of the total highway [indisc.] force accounts, for instance, in 2002, force account represented 2.23 percent of the department's funding. SENATOR LINCOLN asked, of that 2.23 percent, were those all in rural, bush communities? MR. O'BRIEN said no they weren't. They reflect two different programs - maintenance and operation programs that Senator Wagoner discussed - with road crews doing jobs in an area. It would also include projects such as King Cove or Soldotna, where there were individual force account projects in those communities. He said it's a mixture of both and he didn't have a breakdown for where those percentages were. SENATOR LINCOLN asked if 97.75 percent of all the projects were done through competitive bidding. MR. O'BRIEN said this was correct. SENATOR LINCOLN asked for an explanation of why 97.75 percent of all the projects in 2002 - and she expressed interest in 2003 - was a concern, when force accounting is 2.23 percent. CO-CHAIR COWDERY asked what the largest contract was in 2002, that is, "What's the dollar value of the largest and the smallest?" MR. O'BRIEN asked if the question was the largest dollar amount of a force account project. CO-CHAIR COWDERY said no, of a project. He reviewed that in 2002, 2.23 percent was in force account, of all the projects. He asked what the high bid was on whatever projects that "you made in to this equation," what the low bid was, and where they were located? MR. O'BRIEN answered that the program for 2002 would have been roughly a $550 million total program, of which the force account approvals represented $11,242,000, reflected in the 2.23 percent. CO-CHAIR COWDERY asked about there being hydrocarbons in the road, and whether the force account would be used to add to the cost of the project, or if the project would be stopped and there would be new funding. MR. O'BRIEN responded that was a different kind of force account. A force account that occurs on a construction project is not a force account that requires approval by statute because the original contract was competitively bid. The department had a project that required that kind of a force account with a contractor, it's not found in these numbers and it's not required for statutory approval. Statutory approval is required when the department conducts a force account with its own employees and does it from the very beginning, so there is no competitive bid for the work itself. SENATOR LINCOLN stated that force accounting is so critical to many small communities. She mentioned the village of Rampart, where none of the employees were local hires in a competitive bid. Men and women watched the project, almost with tears in their eyes. She concurs with Senator Olson's comments about pride in projects done by local hire versus projects where there is no idea how it was put together. She then asked for a review of the handouts that were included in the committee packet. MR. O'BRIEN referred to and explained the three handouts, noting that the department currently utilizes as-needed contracts. The difference between those contracts and the contract for a construction bid is what is commonly called, a "hard dollar bid." An as-needed contract, for the purposes of a construction project, is not a hard dollar bid. There is no amount. The amount comes along after the contract is in place with the term contractor. He gave the example of winning a term contract in Anchorage, which entitles one to do various repairs on the road surface. DOT&PF has a $1.5 million project involving changes at an intersection. That contract is already acquired, before the project comes along, so he is paid according to his rates, not on a hard dollar bid. The state doesn't have a bid for the $1.3 million for that job, but has the hourly rate, cost for the equipment, overhead profit; it is not a hard dollar bid. That is primarily the difference between the list of contracts and how the department normally contracts for the competitive awards for construction projects. SENATOR LINCOLN acknowledged that it was probably difficult for Mr. O'Brien to sit in the hot seat and speak honestly about what the effects of this resolution might be, and a reflection on SB 40 as well. She asked if he was representing the department, the administration. MR. O'BRIEN said that was correct. MR. RICHARDS responded to Senator Lincoln's question and referred to the three lists. One was a list of contracts that Mr. O'Brien mentioned and the second was an identification of projects that would not be completed, based on certain dollar value limitations. The third was the fiscal note. He addressed DOT&PF's force account efforts that Co-Chair Wagoner referenced, and said the benefit of utilizing federal funds for preventive maintenance type work is it allows for a continuity of work force. The general fund dollars currently used for operating budgets aren't sufficient to keep folks employed year round; there would be seasonal lay-offs in the summertime to relieve the workforce of those labor costs. The second benefit is of the equipment costs. When the department is able to utilize snowplows, tractors, loaders, and sweepers for preventive maintenance contracts, there is an ability to charge that equipment cost onto the federal project. TAPE 04-20, SIDE A MR. RICHARDS continued that the preventive maintenance programs that have been put into place have been beneficial in preserving the life of the assets that the department is constructing, by utilizing federal highway and aviation dollars. It's not always the best practice to have to reconstruct, once a pavement has failed, and if preventive measures can be done up front during the life of that pavement, there will be a cost savings overall to state and federal programs. SENATOR LINCOLN asked if there have been any major problems with force accounting. MR. O'BRIEN said he has been with the department in this capacity since 1998, and is responsible for proving all of the force account projects; he was not aware of any significant problems. CO-CHAIR COWDERY said this is not about force accounts. He asked, without SB 40, what is the limit regarding somebody who had a finding saying this is in the best interest of the state. MR. O'BRIEN responded the requirement is for cost effectiveness of finding on the individual project and there is no limit on the size of the [project]. CO-CHAIR COWDERY said the purpose of this resolution is to help out rural Alaska, and it addresses SB 40. SENATOR LINCOLN read from the last paragraph of SCR 25 as follows: Be it resolved that the Alaska State Legislature respectfully requests that the governor consider directing the Department of Transportation and Public Facilities and other state agencies to use, when handling construction and maintenance projects between approximately $250,000 and $1,500,000 throughout the state, an approach under which a competitively selected contractor agrees to provide construction and maintenance services on an as-needed basis over a particular period of time to a specific geographical area and on a 24-hour response basis. She asked what this does to force accounting. MR. O'BRIEN replied that it is difficult to answer that question because "be it resolved" is not binding on the department. It requests that the governor consider it. It is difficult to know if the administration would go forward with that request. Assuming they did, projects that fall within that category for all state agencies, not just DOT&PF, would be required to use this approach whereby contractors are identified up-front. It's difficult to say for certain what this would do. The department's concern is since these are not hard-dollar bids, not competitive, there could be an increase in the overall cost to the state for those same groups of projects. That's the primary concern. SENATOR LINCOLN asked if the force accounting would continue as is, under that resolve. MR. O'BRIEN said projects in excess of $1.5 million would continue under the normal force account process unless the law changes as a result of SB 40, in which case it would be restricted to $250,000. The department would be prohibited from doing any project in excess of $250,000 by force account. SENATOR WAGONER moved to report SCR 25 out of committee with individual recommendations and the accompanying fiscal note. SENATOR LINCOLN objected. A roll call vote was taken. Senators Therriault, Wagoner, and Cowdery voted in favor of the motion; Senators Lincoln and Olson voted against it. Therefore, SCR 25 moved from the Senate Transportation Standing Committee by a vote of 3 to 2.