Legislature(2001 - 2002)
02/12/2001 01:37 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 12, 2001
1:37 P.M.
TAPE HFC 01 - 24, Side A
TAPE HFC 01 - 24, Side B
CALL TO ORDER
Co-Chair Mulder called the House Finance Committee meeting
to order at 1:37 P.M.
MEMBERS PRESENT
Representative Eldon Mulder, Co-Chair
Representative Bill Williams, Co-Chair
Representative Con Bunde, Vice-Chair
Representative John Davies
Representative Carl Moses
Representative Richard Foster
Representative John Harris
Representative Bill Hudson
Representative Ken Lancaster
Representative Jim Whitaker
MEMBERS ABSENT
Representative Eric Croft
ALSO PRESENT
Christine Parce, Director, Division of General Services,
Department of Administration; Vern Jones, Chief Procurement
Officer, Division of General Services, Department of
Administration; Pat Davidson, Legislative Auditor,
Legislative Audit Division; Dane Larsen, Division of
Legislative Audit
PRESENT VIA TELECONFERENCE
Mary Marshburn, Director, Division of Motor Vehicles,
Department of Administration.
GENERAL SUBJECT(S):
OVERVIEW: STATE LEASING
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 22nd Legislative Session, contact 465-
2156. After the 22nd Legislative Session they will be
available through the Legislative Library at 465-3808.
LOG SPEAKER DISCUSSION
TAPE HFC 00 - 24
SIDE A
000 Co-Chair Mulder Opened House Finance Committee meeting.
He advised that the discussion would
provide an overview of State leasing by
the Department of Administration.
142 CHRISTINE PARCE, Explained that Department of
DIRECTOR, DIVISION Administration manages the State leasing
OF GENERAL SERVICES, programs. She explained that the mission
DEPARTMENT OF of that agency was to provide for cost
ADMINISTRATION effective and efficient office space for
State agencies in a timely manner. She
added that the leasing component mission
is to provide centralized support
services for all State agencies. Ms.
Parce continued, noting that the goal was
to provide cost effective management of
the State's lease portfolio through:
· Assure efficient use of space in
State leased facilities;
· Provide suitable, economical office
space that meets State agency
needs;
· Replace, in a timely & efficient
manner, expiring State leases where
needed;
· Implement an improved tracking
system to provide better State
agency customer service and
response time.
270 Ms. Parce Listed the key issues for FY2001:
· Deploy an automated lease tracking
& projection data management
system;
· Obtain replacement space for leases
expiring in FY2001 and FY2002;
· Obtain new or additional space for
State agencies as required.
399 Co-Chair Mulder Asked the historical perspective in what
the State has paid for the leases for the
past few years. He questioned if it had
been increasing.
423 Ms. Parce Replied that the last two years have been
flat and commented that it has stayed in
the $33 million dollar bracket. She
offered to provide a ten-year history
comparison.
451 Representative J. Referenced the $1.9 million dollar short
Davies funding and asked what was anticipated
for the new year bidding process.
472 Ms. Parce Stated that the $1.9 was from the FY00
budget. She noted that those obligations
remain and need to be funded through the
2001 year. She acknowledged that the
major new lease was the one in Anchorage
for DMV and would be a replacement for
several Division of Motor Vehicle (DMV)
spots. Ms. Parce elaborated that road
construction happening in that area
extenuates the need for new space.
584 Representative Requested a historical view of the lease
Harris numbers for the Department of Health and
Social Services and why those numbers are
increasing so radically.
637 Ms. Parce Explained that those numbers changed
because of a consolidation for the
Department moving into the Frontier
Building.
675 Representative Addressed the Atwood Building and asked
Hudson the net plus or minus from action taken
last year showing up in this fiscal
year's fiscal budget.
717 Ms. Parce Offered to provide that information. The
reasoning for the action was to leverage
federal and non-general fund dollars into
the State.
746 Representative Asked if it was an increase or decrease
Hudson in the expenditure between the Frontier
and the Atwood buildings.
750 Ms. Parce $1.85 per square foot- Frontier Building
$1.07 per square foot - Atwood Building
845 Co-Chair Mulder Referenced the DMV contract and asked if
it had been anticipated in last year's
budget.
872 VERN JONES, CHIEF Replied that the Division did anticipate
PROCUREMENT OFFICER, replacing the DMV's lease in last year's
DIVISION OF GENERAL budget. An estimate had been included,
SERVICES, DEPARTMENT which was not enough.
OF ADMINISTRATION
894 Co-Chair Mulder Questioned if the lease was not funded,
was there a back out.
912 Mr. Jones Replied that was a standard term of all
leases and that continued occupancy of
the space was contingent upon Legislative
appropriation. In response to Co-Chair
Mulder, Mr. Jones noted that if the
Legislature chooses not to go forward
with the contract, their attorney's agree
that it would be difficult to not fund
just one lease. The practicality of
backing out of a lease would be
addressing damages with the firm awarded
the contract. Another issue would be
dealing with the practicality of what to
do with the DMV. He asked if there would
need to be other emergency space found.
He emphasized that the present location
does not work for the public.
1002 Co-Chair Mulder Understood that the road construction was
being delayed.
1013 Mr. Jones Stated that the road construction was on
schedule and that the Department of
Transportation & Public Facilities would
begin construction during the busiest
season for DMV in April. There are
incentive payments built into the lease
to get them out of that space by April.
1040 Vice-Chair Bunde Commented on past legislative concerns
with that Division.
1070 Co-Chair Mulder Reiterated that there were many issues
regarding the DMV issue. He asked the
justification from the Department's
perspective.
1089 Mr. Jones Outlined the need for leased office
space. General Services does not write
the specifications, instead that is up to
the agency being affected needs. In the
case mentioned, the Department funded
architectural firms & design firms to
help write the needed specifications. He
acknowledged that the space requirements
have increased. They have been in their
current space since the late 1970's and
the employee count has increased since
that time. Their current situation pays
low market price of $1.10 per square foot
into a market rate which has increased
over the last few years dramatically.
Additionally, there exists a timing
requirement which was short to acquire
additional space to move DMV out. These
factors added up to increased costs to
the original lease.
1181 Co-Chair Mulder Emphasized that the proposed lease was an
illogical use of funding dollars.
1195 Mr. Jones Stated that the change would be from
$18,000 per month to $87,000 per month.
1211 Ms. Parce Noted that it was more space and would be
more adequate for the needs of that
agency. More staff would be moved from
other locations. Additionally, the
location would be more convenient for the
customers. She added that at the current
location, the road space for vehicle is
being "borrowed". The new space would be
able to protect that concern.
1295 Co-Chair Mulder Asked the relationship with the current
landlord and if there was a possibility
for an extension in that lease.
1311 Mr. Jones Stated that there was an option for a
renewal. Noted that the role of General
Services was that when customer agencies
need lease space, those specific
specifications of need are determined by
that specific agency.
1357 Representative Asked the difference in square footage
Hudson for the new proposed lease space and the
current space.
1402 Ms. Parce Explained that the difference between the
two would change from 15,500 square feet
(current location) to 17,300 square feet
(proposed location) and would
additionally provide for the testing area
of 24,700 square feet; parking spaces
would go from 130 spaces to 225 spaces.
The new location would provide an
expansion of the testing, office and
parking areas. Square footage space needs
have increased. Ms. Parce added that
there would be an escalator in the space.
She pointed out that there has been an
average of 3% increase in the Consumer
Price Index (CPI) over the years.
1474 Ms. Parce In response to Representative Hudson, Ms.
Parce reiterated that the Department has
not been paying for the testing area to
date but rather "borrowing" it.
1503 Co-Chair Mulder Reiterated the annual increase in lease
costs.
1515 Representative Asked who had the authority to say "no"
Whitaker to a Department's request.
1530 Mr. Jones Replied that this was a dramatic
increase. For years, the State has had
substandard space. The Department did
not realize the full extend of the total
value until the proposals came in. The
Department and General Services could say
no, however, it was a policy decision
that the customer could not stay in the
current location.
1572 Representative Asked if the Department assumed that the
Whitaker Legislature would agree with the
decision.
1588 Mr. Jones Believed that the alternative of moving
forward with the DMV in the current
location was not a situation that could
be continued. He requested that DMV
testify to the consequences of staying in
the present location.
1603 Representative Noted that all leases are subject to
Hudson legislative appropriation, which is a
legislative mandate. He believed that the
Department could re-bid or re-negotiate
with the existing leaseholder. Mr. Jones
noted that there were consequences to
doing that.
1646 Representative Conclusion is that the Department has
Whitaker allocated funds, which is a legislative
mandate.
1659 Representative Asked if the existing landlord would have
Lancaster been willing to upgrade the lease.
1674 Mr. Jones Replied that over the years, the
Department has made numerous attempts to
get that landlord to make appropriate
changes and upgrade the lease. This has
been an on-going issue for many years.
1711 Ms. Parce Spoke to the anticipated savings with the
move. She noted that it would be more
convenient for the customer.
1723 Representative Spoke to the lease agreement and the
Lancaster incentive bonuses included to get the
space ready early. He did not agree that
was appropriate.
1745 Ms. Parce Explained that the bonuses were added for
the contractors to get the space ready
earlier.
1770 Mr. Jones Interjected that those bonus payments
would not be incurred.
1780 Representative Requested that the DMV Director testify.
Davies
st
1839 Co-Chair Mulder Noted that 1 the Division of Audit would
provide an overview of a preliminary
review of the space acquisition for DMV.
1860 PAT DAVIDSON, Explained the history of the memo before
DIRECTOR, DIVISION the Committee. [Copy on file]. She noted
OF LEGISLATIVE AUDIT that Division was requested to look at
the situation to see if there were any
audit issue by Co-Chair Mulder's Office.
That provided the attached review. She
noted that this was not a "full blown"
audit and that the Department was not
given an opportunity to respond.
1908 DANE LARSEN, Addressed how the RFP was evaluated. The
DIVISION OF RFP specified approximately 15,000-16,000
LEGISLATIVE AUDIT, square feet of office space and 2,800
(ANCHORAGE OFFICE square feet of warehouse space. The
MANAGER) space was to be located in mid-Anchorage.
The lease terms were for additional nine
years, with three three-year extensions.
He noted that there were four concerns:
· The RFP stated that the pricing
scores
· The pricing structure allowed the
pricing to change. There could be a
different proposal to evaluate that
industry standard.
· The non-price components were over-
rated in the scoring summary. That
was inconsistent with the stated
RFP.
· The high price of the lease, which
was double what, General Services
had expected.
1982 Mr. Larsen Mentioned the exclusion of the additional
nine years. He stated that the substance
of the RFP was recognizable. The pricing
structure in the RFP had three
st
components. The 1 was the total cost for
the first nine years. He stated that
only years 10-18 were used to evaluate
the lease.
2043 Mr. Larsen Added that the auditors were surprised
that they did not use the normal system.
General Services determined that North
Star was the chosen bidder. Division of
Audit noted that North Star was 33%
higher than the lower bidder.
2087 Mr. Larsen He stated that an item not included in
the memo was that General Services erred
in summarizing the non-price components.
The price (35%) was made up of the
initial annual lease amount less any
reduction for the extension periods.
2121 Mr. Larsen Reiterated concern with the cost of the
lease. He emphasized that this is high
quality space. He thought that there
were more interview rooms than are
necessary for that type business,
acknowledging that was a minor issue.
Mr. Larsen noted that the primary concern
was that the price came in at twice the
going rate. He thought that General
Services encouraged a high bid by the way
it was written.
2170 Mr. Larsen He spoke to North Star as the winner of
the bid. They received a high score in
the function, appearance, and convinence
categories. He stated that General
Services could have cancelled the
contract.
2225 Mr. Larsen Noted that General Services has been
willing to address these concerns in the
future.
2241 Representative Asked if there had been a response made
Davies by the Department.
2250 Co-Chair Mulder Stated that the Division was asked to do
a quick overview and they did not have an
opportunity to respond. He noted that
they had not gone through the full audit
process. They were asked to see if it
met traditional budget review.
2267 Ms. Davidson Stated that the Department had not been
given a formal opportunity to respond.
The conclusion was that an audit would
not be necessary.
2283 Representative Stressed that these comments were handled
Davies in a "quick and dirty" way without the
normal response from the agency. He
voiced his concern with the process
noting the normal auditing process for
the agency to respond.
TAPE HFC 01 - 24,
Side B
004 Co-Chair Mulder Stated that the Department had not yet
responded and that his concern was
timing. He pointed out that DMV could
respond at this time.
052 MARY MARSHBURN, Addressed the previous testimony given by
DIRECTOR, DIVISION the Legislative auditor, indicating that
OF MOTOR VEHICLES, she had not received the results of their
DEPARTMENT OF inquiry. The pricing structure and RFP
ADMINISTRATION, evaluation would need to be addressed by
ANCHORAGE (testified General Services. Regardless of using
via teleconference) net present value, North Star was the
successful bidder in the contract.
185 Ms. Marshburn Explained that the process has been
ongoing for four years. She noted that
it would be the consolidation of four
separate spaces. Ms. Marshburn mentioned
the efficiencies that would be achieved
through the move. She noted that
Department of Public Safety had been
"breathing down the neck" of DMV since
they were using a portion of their
facilities. Department of Public Safety
needed all of their spaces. In moving
out of the current facility, there will
greater consolidation and more efficiency
throughout State government.
365 Ms. Marshburn Listed the DMV customers noting that
included commercial customers,
dealerships, fleets, rental car agencies
and others. At this time, DMV is located
in three different facilities, which
means that those business partners must
go to three separate facilities. The
consolidation will affect everyone. She
emphasized that the move would allow DMV
to furnish a better quality of service.
The space at Dowling Road has been used
since 1975. The amount of that lease
reflects the time it was signed, the
quality of the space and the amount of
square footage. Ms. Marshburn pointed
out that the DMV operations have changed
dramatically since 1975.
540 Ms. Marshburn If the agency does not move, the current
costs will still increase. The Dowling
Road construction will begin as soon as
the snow is gone and at that time,
Dowling Road will be a one-lane street.
She acknowledged that there will be costs
in "beefing" up current facilities and
that the Dowling Road facility is
currently for sale.
665 Co-Chair Mulder Inquired who wrote the RFP.
677 Mr. Jones Replied that General Services wrote the
RFP with input from the Division of Motor
Vehicles on specifications. He explained
that there is no standard in the bidding
process. Each case is considered
individually.
725 Co-Chair Mulder Questioned the myth of the low bid.
740 Mr. Jones Replied that this was not a low bid
situation. This was an RFP award
including a number of other factors. He
noted that the Department has found over
the years that the low bid is not always
a good vehicle to go with for lease
space. There have been numerous
complaints with using that system. Six
years ago the agency switched to an
invitation for bid for lease space. It
does not always result in an award for
lowest price but rather the "best value".
822 Mr. Jones Spoke to some points made by the LBA
overview. He did not accept that only
the price was evaluated from years 9-18.
He suggested that the net present value
should be checked into. He did not agree
that the non-price components were
overweighed; however, it is important to
note that if you accept all three of
those allegations that it would not have
changed the award. There was no legal
basis to cancel the award. There are 7
or 8 reasons listed in regulations, which
allow the agency to cancel a reward.
950 Mr. Jones In response to Co-Chair Mulder, Mr. Jones
did not believe that there was any legal
basis to not accept the lease.
977 Co-Chair Mulder Every one agrees with Legislative Audit
that the pricing discount was skewed and
that this was a political decision.
1012 Mr. Jones Repeated that the Division has had yet
had an opportunity to review the audit.
He stated that the price offered was not
significantly higher than the market
rate. This would be class B space; The
current space is very bad and below Class
C.
1049 Co-Chair Mulder Questioned the class space necessary for
DMV.
1064 Mr. Jones Responded that would be determined by the
agency outlining the requirements, this
case DMV.
1086 Co-Chair Mulder Spoke to the "disconnect" happening with
this RFP. He asked who tells the Division
of Motor Vehicles what is necessary. He
asked the check and balance system in
place.
1104 Mr. Jones Noted that there were design firms
helping to write the specifications.
General Services was comfortable with the
specifications that went out.
1125 Co-Chair Mulder Asked if General Services had checked
with anyone in the Legislature regarding
the substantive changes being made.
1155 Ms. Parce Interjected that the current office space
was way below market. The current space
will be $1.97 per square foot, which is
not that "outrageous" in Anchorage.
1188 Co-Chair Mulder Reiterated that they did not go with the
lowest bid.
1203 Representative Understood the concerns, however, pointed
Davies out that DMV has been in such substandard
conditions for so long. He reiterated
his concerns with the process of the
audit that the Division and General
Services had not yet seen.
1240 Co-Chair Mulder Argued the cost of the increment being
requested. He voiced his anger over the
checks and balances of the process. He
did not perceive that DMV should be using
Class A or B office space. He stressed
that this was not a warranted cost.
1322 Representative Inquired about the procedural problems.
Whitaker He questioned that the Department made a
decision with the lease upgrade and made
a de facto appropriation of $15 million
dollars. He wondered who authorized
that.
1387 Ms. Parce Replied that General Services is charged
with the responsibility to make leasing
decisions for the State.
1414 Representative The reality is that General Services made
Whitaker that determination.
1458 Mr. Jones Interjected that this is the market value
in Anchorage at this time.
1478 Co-Chair Mulder Asked the real issue.
1485 Mr. Jones Noted that what has happened is that they
have gone from a sub market rate to the
current market rate. Mr. Jones mentioned
that the price was determined by the
agency and their needs and
specifications. He acknowledged that
General Services was surprised by the
price.
1538 Mr. Jones DMV could not stay at their current
location with the conditions as they
were.
1596 Co-Chair Mulder Emphasized that they could have gotten a
better deal if they would have attempted
to.
1616 Vice-Chair Bunde Asked about specifics regarding location
and class of office size and other
options.
1646 Ms. Marshburn Emphasized that this was not a matter of
getting out of Dowling Road. The plan
has been under consideration for 2 years.
There has been no lease signed for 10
years and that the landlord was willing
to renew the lease. She stressed that
landlord has been a "non-responsive"
landlord in a substandard space. The
Division looked at the entire Anchorage
area demographics. There were five
responders to the RFP's. The highest
bidder was twice above that of the lowest
bidder.
1745 Vice-Chair Bunde Asked if there was any Class C office
space available.
1821 Ms. Marshburn Stated that the efficiencies were
reflected in the bid.
1844 Vice-Chair Bunde Questioned if that reflected the
Division's position.
1869 Ms. Marshburn Stressed that the Division would remain
in the building for a long time. A
professional space planner was used. The
planner did not recommend any big changes
to the Division's plan.
1894 Co-Chair Mulder Asked about the location.
1906 Ms. Marshburn Described the location.
1914 Co-Chair Williams Questioned if the Department could "live
with" a Class C office space.
1930 Mr. Jones Responded that the definition of Class C
is building space offered at less than
market rate, which can be difficult to
recognize. Class C could be almost
anything, therefore specific
qualifications were used.
1971 Ms. Marshburn Noted that the State does not use a
classifications system. She reiterated
they would be in the building 18 years or
more. The Division's emphasized their
role, which is to serve the public. Ms.
Marshburn reviewed some of the
requirements, emphasizing that the focus
was on the customers.
2041 Co-Chair Mulder Questioned how much value was placed on
the cost, reiterating the large increase.
2059 Ms. Marshburn Replied that 35 points were used for the
cost determination out of a possible 100
points. She noted that bids are
evaluated before the price. Ms.
Marshburn noted that DMV was also
surprised by the cost. She noted that
they were currently paying significantly
below market cost for the current
location.
2130 Representative Asked if lease purchase had been
Hudson considered.
2140 Ms. Parce Replied that lease purchase had not been
considered.
2165 Co-Chair Mulder Noted that the City of Anchorage was
frustrated with lease purchase.
2177 Representative Moses Questioned the square footage comparison.
2189 Ms. Parce Noted that the square footage was a
factor. The parking and testing area is
about double the current size. She
acknowledged that they do not pay for the
testing area in the current location.
2217 Co-Chair Mulder Noted that General Services are supposed
to show savings and reports to the
Legislature. Ms. Parce stated that
General Services had reported that every
year.
ADJOURNMENT
The meeting was adjourned at 3:05 p.m.
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