Legislature(2001 - 2002)
02/27/2001 02:55 PM Senate ARR
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
JOINT COMMITTEE ON
ADMINISTRATIVE REGULATION REVIEW
February 27, 2001
2:55 p.m.
HOUSE MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative Jeannette James
Representative Joe Hayes
HOUSE MEMBERS ABSENT
All House members present
SENATE MEMBERS PRESENT
Senator Robin Taylor, Vice Chair
Senator Lyda Green
Senator Georgianna Lincoln
SENATE MEMBERS ABSENT
All Senate members present
COMMITTEE CALENDAR
Review of "Best Value" Procurement under consideration by
University of AK, Fairbanks
PREVIOUS ACTION
No previous action to record
WITNESS REGISTER
WENDY REDMAN, Vice President
University Relations
University of Alaska
PO Box 755000
Fairbanks, Alaska 99775
POSITION STATEMENT: Provided information regarding the
university's procurement practices.
KATHLEEN SCHEDLER, Director
Facility Services
University of Alaska - Fairbanks
PO Box 757390
Fairbanks, Alaska 99775
POSITION STATEMENT: Presented an overview of the best value
procurement process.
BERT BELL, President
Associated General Contractors [of Alaska]
2093 Van Horn
Fairbanks, Alaska
POSITION STATEMENT: Testified that AGC accepts best value
procurement as long as it is done in a fair, open, and
competitive manner.
JEFF ALLING
Alcan Builders, Inc.
PO Box 70752
Fairbanks, Alaska 99707
POSITION STATEMENT: Expressed concerns with best value
procurement.
JACK WILBUR, President
Design Alaska
601 College Road
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of best value
procurement.
DENNIS MICHEL, President
American Mechanical
PO Box 72991
Fairbanks, Alaska
POSITION STATEMENT: Testified that best value procurement is
the way to go for the university.
DICK ENGEBRETSON
Aurora Construction Supply
(No address provided.)
Fairbanks, Alaska
POSITION STATEMENT: Expressed support of the university trying
best value procurement.
JIM LYNCH, Associate Vice President
Finance;
Chief Procurement Officer
University of Alaska
(No address provided.)
POSITION STATEMENT: Offered his assistance on this issue.
DONNA BRADY-ROBERTSON, President
Sun-Air Sheet Metal, Inc.
3250 Easy Street
Fairbanks, Alaska 99701-7734
POSITION STATEMENT: Suggested a task force of interested
parties to work with UAF.
MICHAEL SAMSON, President
Samson Electric, Inc.
3125 N. Van Horn Road
Fairbanks, Alaska
POSITION STATEMENT: Testified in regard to the rights of
subcontractors.
DAN CROSS, US Army Garrison - Alaska
Chair, Source Selection Evaluation Board
(No address provided.)
POSITION STATEMENT: Expressed hope that the legislature would
keep the process moving forward.
DAN FAWCETT, General Manager
Seimens (ph) Building Technologies for Alaska
(No address provided.)
Juneau, Alaska
POSITION STATEMENT: Testified that Seimens (ph) Building
Technologies for Alaska is in support of best value procurement.
BILL WATTERSON, President
Watterson Construction Company
6500 Interstate Circle
Anchorage, Alaska 99518
POSITION STATEMENT: Testified as a best value procurement
contractor.
GARY KLEBS, President
Klebs Mechanical
President, Associated Builders and Contractors, Inc.
2261 Cinnabar Loop
Anchorage, Alaska 99507
POSITION STATEMENT: Testified as a contractor in opposition to
[best value procurement]. On behalf of ABC, he expressed
concerns with best value procurement.
EDEN LARSON, Executive Director
Associated Builders and Contractors, Inc.
3380 C 5th Street, Suite 100
Anchorage, Alaska 99502
POSITION STATEMENT: Expressed concerns with best value
procurement.
ACTION NARRATIVE
TAPE 01-5, SIDE A
Number 001
CHAIR LESIL McGUIRE called the Joint Committee on Administrative
Regulation Review to order at 2:55 p.m. Representatives
McGuire, James, Hayes, and Senator Green were present at the
call to order. Senators Taylor and Lincoln arrived as the
meeting was in progress.
Review of "Best Value" Procurement under consideration by
University of AK, Fairbanks
CHAIR McGUIRE announced that the committee will hear a review of
the "best value" procurement under consideration by the
University of Alaska - Fairbanks.
Number 0123
WENDY REDMAN, Vice President, University Relations, University
of Alaska, informed the committee that some of the university's
people have had difficulty getting to Juneau and thus are in
other locations. She suggested that Kathleen Schedler be
allowed to provide the committee with an overview regarding the
"best value" procurement. Ms. Redman also suggested that it
would probably be most beneficial if the discussion was kept in
general terms. She also indicated that Steve Titus was
available via teleconference.
CHAIR McGUIRE informed everyone that various members of the
committee have been contacted by the companies who have
expressed concern regarding the change [to best value
procurement]. The purpose of this meeting is to provide a
public forum to present the various sides. Furthermore, this
meeting is a chance for the legislature to review what is and is
not included in the procurement statutes. Presently, the
university isn't included in the procurement statutes.
Number 0383
KATHLEEN SCHEDLER, Director, Facility Services, University of
Alaska - Fairbanks, testified via teleconference. Ms. Schedler
explained that when awarding capital construction projects, best
value [procurement] is a source selection. Therefore, the
contractor's qualifications are evaluated, as well as the
mechanical and electrical subcontractors, on the basis of past
experience, technical expertise, and bid price. The basis of
past experience is derived from references provided by the
[contractor or subcontractor]. The use of best value
[procurement] would be determined project-by-project,
specifically depending upon the priorities, complexities, and
size of the project. Ms. Schedler said, "UAF believes that
awarding capital construction projects solely on the basis of
low bid does not necessarily ensure the best value, specifically
as it relates to quality of construction, maximizing the budget,
and assuring timely completion of the construction project."
MS. SCHEDLER informed the committee that the process of best
value has been used by the federal government since 1995.
Furthermore, numerous universities and states across the nation
utilize this process. The use of this system elsewhere has been
studied in order to integrate the best of those processes into
the University of Alaska's process. Ms. Schedler pointed out
that the university has successfully utilized source selection
since 1988, specifically for the purchases of highly technical
equipment. The university also used source selection for the
contractor for the installation and construction of a diesel
engine generator.
MS. SCHEDLER emphasized that the university has not proposed an
extension of the 30-day timeframe to award a construction
project. Nor does the university want to create an excessive
burden on the contractors in responding to solicitations. Ms.
Schedler explained that the desire is to develop a system that
retains the contractor's reference information in order to avoid
the [contractor] being burdened by responding to the same
questions many times. The evaluation criteria is specifically
restricted to the evaluation factors that are articulated in the
bid document. Furthermore, [the university] has expressed
willingness to debrief any contractor requesting a review of any
specific project evaluation.
MS. SCHEDLER informed the committee that in January 2001 the
university advertised the Physical Plant Renewal project as a
best value source selection. This project amounts to about $3.5
million and will renew five maintenance jobs in a building at
UAF that will be fully occupied through the duration of
construction. At this time, this specific project won't be
awarded on the basis of best value but rather will be awarded
solely on low bid. This revision occurred because the project
couldn't be delayed in order to respond to the numerous late-
coming comments and suggestions that have been received.
Therefore, it the university's intent to solicit additional
comments and expressions of concerns from the contracting public
and to finalize a best value process that UAF can use when it
determines necessary.
Number 0728
REPRESENTATIVE JAMES remarked that she doesn't have any problem
with a best value process. However, when the system was changed
so drastically, was any thought given to notifying the
contracting community in the area in order to explain this
before the bid document.
MS. SCHEDLER replied yes and noted that it was explained to the
Associated General Contractors (ACG). She estimated that
approximately 80 people attended that [meeting]. At that time,
many questions were fielded, but no specific concerns were heard
such that would have warranted the university not moving forward
with the process. Several suggestions were taken into account
and incorporated into the specific project.
Number 0809
CHAIR McGUIRE inquired as to what procedure the university
follows since it doesn't fall under the state procurement code.
MS. SCHEDLER answered that the university follows AS 36.30 and
the university regulation 05.06.
CHAIR McGUIRE related her understanding then that the university
has been following the state procurement code, although the
university is not subject to it.
MS. REDMAN pointed out, "When the state procurement code was ...
put in, the language 'substantially equivalent' ... is in effect
meant to be the same."
Number 0947
BERT BELL, President, Associated General Contractors [of Alaska]
(AGC), testified via teleconference. Mr. Bell said, "AGC's
policy toward best value or alternate type procurement is one of
acceptance, provided that the documents are done in a fair,
open, and competitive manner." With regard to the university,
AGC has offered to work with it to bring [the best value
process] into compliance with industry needs. Although the
university made an attempt, [it seems that] some issues were
unanswered or are in question. Mr. Bell pointed out that the
private sector uses best value procurement and one shouldn't
fear it. However, he did mention the need to diffuse the
possibility of [inappropriate awards] to say relatives.
CHAIR McGUIRE inquired as to whether Mr. Bell had a timeline
relating to addressing the fair, open, and competitive issues
for which he has expressed concern.
MR. BELL informed the committee that a number of models are
being used throughout the nation such as that used by the US
Army Corps of Engineers, which is heavier handed than what the
university is proposing. Mr. Bell thought that, with industry
input and review of working systems, a [model] could be up and
running in a few months. That model could then be customized
for specific projects. Mr. Bell remarked, "Every project
doesn't need best value procurement, but there certainly are
some that are in an owner's best interest and in the public's,
by being in the owner's best interest, to have the best team
available do it at the overall least cost."
CHAIR McGUIRE asked if Mr. Bell's last statement meant that
there are some projects that wouldn't be served by the best
value bidding process.
MR. BELL answered that in the case of some straightforward
projects [best value procurement would not need to be used].
However, when there are complicated projects or projects that
are located in a heavily used building that can't be closed,
then [the university] would want to look for experience in order
to confirm ahead of time that the bidder can do the work.
Number 1249
JEFF ALLING, Alcan Builders, Inc., testified via teleconference
and noted that he is a member of the Associated Builders and
Contractors, Inc. Mr. Alling informed the committee that his
company, Alcan Builders, began as a small general contractor
approximately 20 years ago. Due to the current free and open
bidding system, his company has been able to grow. Mr. Alling
remarked that he enjoys the current system because it is
objective and doesn't allow for any subjective evaluation. As
long as the low bidder can provide a bond that basically states
that the bidder will complete the project or the bonding company
will pay for some other contractor to complete the project, the
bidder can proceed with the project. He noted that the low
bidder must also have his paperwork in order.
MR. ALLING expressed the following concerns regarding "this
subjective evaluation." He felt that use of best value
procurement results in a loss of freedom. Furthermore, he
didn't feel that best value procurement has served Fairbanks
well. On the military bases there has been much poor evaluation
of bidders, in his opinion. For example, a contractor who bid a
project on Eielson Air Force Base a few years ago didn't receive
the bid because he hadn't done any Department of Defense
contracting for many years. However, this contractor had the
ability to complete this project "with one arm tied behind his
back." That is merely one example of how the process is unfair.
Mr. Alling also expressed concern with accountability as well as
the government locking him into a specific category due to the
size and scope of prior projects, which would not allow growth.
He also expressed concern with tying up bonding, the "black
balling" of subcontractors, cumbersome paperwork, marrying of
contractors and subcontractors, and the "good ole boy" system.
MR. ALLING turned to solutions that the university is facing.
As mentioned earlier, quality is one of the concerns. Also time
is of concern, although there are currently liquidated damages
stipulated that hold contractors to schedules. Mr. Alling
offered to answer questions.
Number 1645
JACK WILBUR, President, Design Alaska, testified via
teleconference in support of best value procurement. He
attributed the concerns surrounding best value procurement to be
because of unfamiliarity with the process. The architectural
and engineering community is very accustom to best value
procurement because that is how their services have been
procured for years. He informed the committee that
architectural and engineering teams are developed. Mr. Wilbur
said that best value procurement does allow firms to grow.
Furthermore, an emerging firm that can demonstrate its
capabilities is likely to grow more quickly than someone
attempting to grow their firm through low bid procurement.
MR. WILBUR informed the committee that he has worked with teams
under best value procurement. From that experience, he has seen
contractors get along much better with the owner and the design
firm. There is the impetus [for the contractor] to work well
[with others] because the next job would be dependent upon
getting along with the owner and doing a good job for the owner.
However, that impetus doesn't exist with low bid procurement. A
contractor who is awarded a contract with low bid procurement
only knows that he can obtain the next project by being the low
bidder and thus there is no incentive to be cooperative.
However, Mr. Wilbur clarified that he wasn't saying that
contractors obtaining jobs through the low bid process aren't
cooperative.
Number 1860
CHAIR McGUIRE inquired as to how many times Mr. Wilbur has bid
under best value procurement and whether any of those bids
resulted in another team besides Mr. Wilbur's being selected for
a university project.
MR. WILBUR, in his 25 years with Design Alaska, said that his
services have been procured through best value procurement for
the university. He pointed out that there was one unfortunate
circumstance in which the university didn't follow [best value
procurement], but that was sorted out. He said that one case
didn't sour him on the [best value] process. Mr. Wilbur
informed the committee that Design Alaska has never been
selected by the university under any other [procurement] process
"or really by any other government sector entity."
CHAIR McGUIRE restated her question: "Has there ever been an
occasion where your company has gone up against another company
in which another company was selected over yours by the
university under the best value system of procurement?"
MR. WILBUR replied yes, many times. In further response to
Chair McGuire, Mr. Wilbur estimated that Design Alaska is
successful in 25 percent of the projects that it attempts with
the university. However, lately Design Alaska's success rate
has been higher than 25 percent.
MR. WILBUR, in response to Senator Taylor, confirmed that
[Design Alaska] is an engineering and architectural [firm].
SENATOR TAYLOR surmised then that Design Alaska isn't bidding on
the construction of anything, but rather is submitting a Request
For Proposals (RFP) for professional or personal services.
Senator Taylor stressed, "That is an entirely, totally different
contract than what we're talking about here that the university
is now moving into for the actual erection or construction of a
building designed by an architect or engineer."
MR. WILBUR agreed, but pointed out that the results have
similarities.
SENATOR TAYLOR agreed that there are similarities in the
results, but pointed out:
As an attorney, I also, in the past, have submitted a
response to a request for proposal from professionals.
The cities and boroughs and everybody does it with
consultants, ... architects, and ... engineers. But
when we get the project designed, we don't go out and
then choose willy-nilly among the contractors based
upon ... some discretionary decision process where we
like the color of one guy's trucks better than we do
the other fellow.
MR. WILBUR charged that Senator Taylor was demeaning the process
by his comments. He didn't believe that it would evolve into
such a selection process.
SENATOR TAYLOR related his observance of Fairbanks' history in
which trucks of one color were the correct color for Bill
Sheffield when he decided who would receive a lease of a
building for state offices. Mr. Sheffield was almost indicted
over that and thus the entire procurement code of the state was
changed. Senator Taylor said, "I think I need something a
little more objective within the categories to provide security
to people in the state that those contracts are being let to a
responsive, and that's the key term here, ... low bidder."
Senator Taylor remarked that if Mr. Wilbur feels that [best
value procurement] is such a good system, that perhaps the state
needs to move towards design-build [contracts] in which the
"architects and the engineers [would be] directly in bed with
the contractor and then put the whole thing up for best value."
MR. WILBUR noted that he has also worked on design-build teams
for best value procurement and that is also a good process.
Number 2134
DENNIS MICHEL, President, American Mechanical, testified via
teleconference. He noted that he has been in business in
Fairbanks for 19 years and thus he has been through many of the
bidding processes. He also noted that he is currently working
with the federal government on some design-build procurement,
which seems to be working well. In regard to best value
procurement, Mr. Michel felt that it would potentially work well
for the university because best value procurement would shorten
the timeframe and "time is money." Mr. Michel informed the
committee that the Corps of Engineers is [utilizing] best value
procurement or design-build [for] 90 percent [of its projects].
Best value procurement could be a better bargain for the people
of the State of Alaska. Mr. Michel concluded by saying, "I
firmly believe that this would be the right way for the
university to go."
SENATOR TAYLOR questioned whether the word "responsive" already
provides the discretion that is being sought.
MR. MICHEL replied, "Not necessarily." A responsive bidder in a
low bid system means that there is a bid bond, which doesn't
necessarily guarantee quality and a price-conscientious project
for the owner. He explained:
If you want the job, you can buy a job at a low bid.
And then you have to go back in and fight with the
owner for change orders and claims. And you have
then, a contracting agency spending very valuable time
trying to defend the university's position against a
contractor that went in and bought a job and that's
now trying to make a few bucks. That's the way it is
up here. ... that's not good for the contractors and
that's not good for the owners. The federal
government recognized that; that's why they've gone to
best value and design-build.
SENATOR TAYLOR explained that his concern is drawn from his
experience at the municipal level where even though a person was
a low bidder, that person, due to their past, wasn't considered
to be as responsive a bidder as the next bidder. He
acknowledged that such discretion runs the risk of challenge in
court by the low bidder. Senator Taylor said, "It seems to me
that this, in essence, just carrying word responsive one step
further out to provide some additional criteria for coverage in
exercising what I think people at times have exercised in the
past."
Number 2340
CHAIR McGUIRE related her understanding of the Administrative
Manual [for state procurement] that 40 percent [of the decision]
must be based on cost and 60 percent is subject to the
discretion referred to by Senator Taylor. Therefore, she
questioned whether discretion is already built into the system
by way of only weighing the cost at 40 percent.
MR. MICHEL explained how [procurement] works practically. If a
low bidder doesn't get a job, for whatever reason, then the low
bidder sees an attorney. Then the project is put on hold until
there is a resolution and thus the owner loses. Mr. Michel
didn't believe the guarantees are present because of the legal
system.
Number 2417
REPRESENTATIVE JAMES reiterated her belief that all contracts
should be determined by best value procurement. However, how is
best value defined. She expressed the need for openness in
order to thwart any perception of impropriety. Representative
James then asked how one would get started in the [contracting]
business if one is evaluated on their past work history.
MR. MICHEL noted that when he began contracting, as a minority
contractor, 19 years ago it was tough. He explained that if
subcontractors produce a product for a prime contractor who is
going after a project, the subcontractor bid will be evaluated
based on cost and experience level as well. Therefore, there
will be an avenue for subcontractors to enter the process [by]
building on the prime contractor's reputation. In regard to
prime contractors entering the scene, the bonding capabilities
are there. With regard to past experience, that is something
that people in the business community have to do in the private
sector as well as the government sector.
CHAIR McGUIRE returned to the question she and Senator Taylor
have stated regarding the current procurement code, which allows
60 percent [of the decision] to be subjective and can be based
on past failure of performance or lack of responsiveness.
Number 2563
MS. SCHEDLER explained that the current system is as exactly as
stated by Senator Taylor in that the contractor has to be
responsive and responsible. Responsive addresses whether the
bidder has submitted everything in the proper order.
Responsible addresses whether the bidder has the ways and means
to accomplish the project. Ms. Schedler said, "It takes a great
deal to determine that a contractor is nonresponsible." For
example, a contractor who in a past project had excessive
amounts of change orders and didn't met deadlines could still
not amount to being nonresponsible. Therefore, the current
system doesn't provide what best value procurement does.
SENATOR TAYLOR related his belief that [best value procurement]
accomplishes the same as the word responsible was intended to
accomplish. However, the word responsive seems to carry about
95 percent of the decision because of the fear of litigation
when exercising the discretionary portion of the statute as
embodied in the word responsible.
MS. SCHEDLER agreed, although she, as the UAF procurement
officer, didn't believe that she is driven by fear in regard to
whether a contractor is responsible or not. However, the burden
of proof is excessive.
Number 2694
SENATOR TAYLOR said that he wasn't certain that the words and
definitions in best value procurement are sufficient to carry
the university beyond the state procurement requirements.
However, he acknowledged that the university, in its somewhat
autonomous existence, may be able to do this type of contracting
while the Department of Transportation & Public Facilities may
not. Senator Taylor guaranteed the university that it will find
itself in court when it makes discretionary decisions, even
under [best value procurement]. Senator Taylor expressed his
fear that the university may be entering into a larger "mess"
than it already feels it has.
MS. SCHEDLER clarified that a bidders past experience is not
drawn from rumors or hearsay but rather comes from the
reference list submitted by the bidder.
CHAIR McGUIRE inquired as to why that can't be done under the
responsible language.
MR. SCHEDLER pointed out that under best value procurement, the
process would be more defined and more out in the open than if
past experience [was reviewed] with a traditional low bid. She
highlighted the fact that under best value procurement, the
bidders are told upfront the specific criteria that are being
evaluated.
Number 2790
MS. REDMAN informed the committee that over the course of
discussion of [best value procurement], better ways to proceed
forward have been discovered. She acknowledged that there are
ways to move forward to provide a more open and objective review
of the subjective analysis. In regard to whether [best value
procurement] is legal under the state procurement code, the
current state procurement code does provide an option for
innovative procurement, which [best value procurement] would
fall under. She recognized that [best value procurement] isn't
a shield against litigation. However, she hoped that this
process and further discussion could result in lowering the
likelihood [of litigation].
SENATOR TAYLOR interpreted this as a way for the university to
protect itself against litigation from a low bidder that wasn't
awarded the bid. "All you're shielding yourself from is the
person who tries to come in and buy a job," he surmised. The
university is seeking a criteria that affords the ability to
turn down a low bidder based on concern with the quality of job
that bidder would do. Senator Taylor said he didn't see [best
value procurement] as providing the university with the type of
basis that will produce a strong defensible position.
Number 2948
MS. REDMAN noted that discussions with AGC and ABC have revealed
that difficulty is created for all good contractors when low
bidders buy jobs.
TAPE 01-5, SIDE B
MS. REDMAN indicated that [best value procurement] may not be
best for all projects. In regard to the "good ole boy" system,
there have been some innovative suggestions one of which was to
take points away from those that have had projects under best
value procurement so that the work is spread around.
Number 2903
SENATOR TAYLOR asked if the university is under constraints,
under state and federal law, to provide a percentage of bid
benefits to minorities under the Indian Self-Determination Act
due to the mixing of federal funds.
MS. SCHEDLER replied no.
CHAIR McGUIRE asked if the university is proposing a repeal of
AS 36.30.005.
MS. REDMAN reiterated that statute includes a provision for
innovative procurement processes.
CHAIR McGUIRE remarked that she wasn't sure that it comported
with the intent of the statute.
MS. REDMAN echoed earlier testimony that best value procurement
is not new to the state agencies or the university or anyone
else who falls under the state procurement code [for
professional services]. She indicated that [best value
procurement] may be new for construction projects.
CHAIR McGUIRE related her understanding that [best value
procurement] is new for construction projects, which is the
issue.
MS. REDMAN noted that she would have the university's general
council, who did review the statutes, communicate directly with
the chair.
CHAIR McGUIRE reiterated that the state procurement code does
specifically exempt the university. However, the aforementioned
provision places the university back in somewhat. The same
applies to the Legislative Council and the court system. What
is being done is precedent setting because this is an issue
relating to the entire state procurement code. Chair McGuire
clarified that the committee isn't opposed to innovation, but
the issue's potential broad implications deserves scrutiny.
MS. REDMAN related the university's belief that [best value
procurement] is covered under the existing procurement code.
Number 2711
DICK ENGEBRETSON, Aurora Construction Supply, testified via
teleconference. Mr. Engebretson related his belief that best
value procurement should be tried at the university. However,
he acknowledged that best value procurement made need some
tweaking.
JIM LYNCH, Associate Vice President, Finance, and Chief
Procurement Officer, University of Alaska, testified via
teleconference. Mr. Lynch informed the committee that the
university is interested in the comments of the contracting
community regarding best value procurement. The university is
also interested in working with the community to develop an
amicable solution to the issues. Mr. Lynch made his services
available to the committee.
Number 2616
DONNA BRADY-ROBERTSON, President, Sun-Air Sheet Metal, Inc.,
testified via teleconference. Sun-Air Sheet Metal has been in
business in Alaska for 25 years. Ms. Brady-Robertson read the
following:
Our company has been contracting for 25 years and my
family has been in the contracting business for over
45 years in Alaska. My background is building
construction and the family background is road
construction. I have seen a deterioration in the
contracting industry due to the low bid system. In
many instances, low bidders have targeted jobs with
problem designs because of the change order
opportunities. Bidders who see obvious problems and
put money in for the problems at time of bid are at a
disadvantage and most likely will not get the job.
The low bidder system mandates that a bidder must only
bid what the prints and specifications show and
further changes must be covered by change orders.
This puts the contractor/owners' rep/designer in an
adversarial position. The contractor must prevail if
he is to stay in business because if the money is not
in his bid he has to recover for changes.
So, in my opinion the low bid system is flawed and we
need to try to improve it. the University of Alaska's
attempt at best value procurement is a step in the
right direction, but the process was not developed to
the point that it was ready to put out to bid. The
opposition to the method is, I believe, a reaction to
the genuine concern that abuse in the selection method
could occur if checks and balances are not in place.
I have been following other bidding methods in other
areas and I know that it is a monumental task to
develop one that meets all of the concerns in the
market and it thus takes considerable time and
resources. I do not believe that we should start from
scratch but that we should take the most evolved
system that appears to be working and start from that
point with customization. Hawaii has had a system in
place that seems to be working very well. It is the
most evolved system that I am aware of and the method
actually puts in-state local contractors in a more
advantageous position relative to mainland contractors
who come for the mini-booms or to cherry pick
particular projects - and doesn't this seem very much
like Alaska's situation at times. Wyoming, Utah, and
Georgia, and private enterprises have also used this
performance-based system successfully on projects.
This method of best value is performance-based
contracting where contractors with the best track
record rise to the top in the performance scores and
that in conjunction with the bid price and the risk of
the project to the owner determines who the best
bidder is, not necessarily the low bidder. On more
complex and time sensitive projects the best
performing contractors are at an advantage. Where
projects are low risk or not time critical the lowest
bidder is advantaged. This is the ultimate desired
state by society. Those who do the best work at the
best price should be the preferred contractors. More
bang for the public buck, better constructed capital
projects, a true win-win situation.
I'm on the Board of Directors of the AGC of Alaska and
we represent a broad cross section of union and
nonunion contractors at all tiers. We are not the
only organization that represents contractors however
and I suggest a task force of interested parties
should work with UAF in investigating and developing a
method that addresses the very real concerns of the
contracting community. I have forwarded to Steve
Titus, of UAF, the information on the performance-
based contracting method.
Number 2408
MICHAEL SAMSON, President, Samson Electric, Inc., testified via
teleconference. Mr. Samson expressed his interest in everyone's
concern about general contractors, who, historically, do a small
percentage of the work on jobs. There doesn't seem to be
concern regarding the subcontractors, who, historically, do 50-
80 percent of the work. Under the current RFP system, there
seems to be a buddy system in which general contractors are
selecting the subcontractors, the ones who do the majority of
the work, for the owners. Mr. Samson expressed concern that
discussion has revolved around the party that provides perhaps
15 percent of the work. Mr. Samson encouraged the university to
review a system that addresses subcontractors. Perhaps review
of a system that bids subcontractors separately could occur.
Number 2270
DAN CROSS, US Army Garrison - Alaska; Chair, Source Selection
Evaluation Board, testified via teleconference. Mr. Cross
informed the committee that he was with the Corps of Engineers
for seven years as a contracting officer in Anchorage. For the
federal government, the design-build capital construction jobs
have allowed [the federal government] to please its customers in
several ways. [The design-build capital construction job]
assures that there is a quality project and provides for an
expedited schedule. Mr. Cross recalled that early on it was
difficult to educate the contractors in regard to the process.
Hearing the discussion today and reviewing the legislative
hearing proposal, he felt that the education is occurring. Mr.
Cross expressed the hope that the legislature would continue to
move [best value procurement] forward.
DAN FAWCETT, General Manager, Seimens (ph) Building Technologies
for Alaska, testified via teleconference. Mr. Fawcett noted
Seimens (ph) Building Technologies for Alaska is in support of
best value procurement because it promotes partnership and
allows the best performers to develop. Mr. Fawcett pointed out
that the discussion has centered on the best value and its
association with the first cost. Best value procurement will
ensure that other aspects of the building will be properly
represented. He referred to a study that evaluated buildings
for over a 40 year life cycle period and all the costs
associated with the buildings were evaluated. The study found
that the first cost of the building amounts to about 11 percent
of the total life cycle cost of the building. Therefore, many
other areas need to be [considered] when selecting contractors
and best value procurement should help that process. Mr.
Fawcett concluded be reiterating that Seimens (ph) Building
Technologies for Alaska is in support of best value procurement
and is confident that obstacles can be overcome.
Number 2047
BILL WATTERSON, President, Watterson Construction Company,
informed the committee that Watterson Construction has been in
business in Anchorage since 1980. Mr. Watterson also informed
the committee that Watterson Construction is a best value
procurement contractor. Currently, Watterson Construction has
over $65 million of contracts of which $2.5 million are not best
value procurements. Watterson Construction has five active best
value procurements with the Corps of Engineers and two with Fred
Meyer. Although Mr. Watterson said that he loved best value
procurement, he acknowledged that there are problems.
MR. WATTERSON informed the committee that he and his wife are
UAF alumni who make contributions to UAF and have recently had a
scholarship named after them. Although he hoped the
aforementioned wouldn't influence anyone on the committee
dealing with contracts, he wasn't sure. He also informed the
committee that he had worked with one of the employees in UAF's
contracting administration when he started construction, which
could be a problem. Therefore, he wasn't sure how one could get
away from the fact that Fairbanks is a small community.
Furthermore, Mr. Watterson noted that he constantly hears, from
architects and engineers under best value procurement for
professional services, that it is someone else's turn, which he
didn't believe to be the spirit of best value procurement.
Number 1898
MR. WATTERSON recalled earlier testimony regarding the marriage
of contractors. He read the university's proposal to mean that
there will be teams. For example, Watterson Construction is
bidding on a project for the Corps of Engineers under best value
procurement. The project is a two-step proposal for which there
are only three contractors that qualify. Watterson Construction
is the only contractor that takes more than one mechanical and
electrical bid. The other two contractors are teamed up sole
source. He noted that a local electrical company has told
Watterson Construction that without them, the electrical company
wouldn't have the opportunity to bid on such jobs. Therefore,
that is problematic. Mr. Watterson related his belief that the
real crux of the problem is: "contracting methods of the month
are no cure for ineffective contract administration." As a
successful best value procurement contractor, Mr. Watterson said
that he had many questions about the university's proposal.
Number 1767
REPRESENTATIVE JAMES remarked on the perception of bias.
Although she believes that it is merely a perception of bias,
there are those who are bias and thus everyone has to pay the
price. Representative James asked if it would be appropriate
for a board member to excuse him/herself from the decision-
making process when the member has some personal contact with
the contractor.
MR. WATTERSON remarked that although such would be a good idea,
the Fairbanks community is small.
REPRESENTATIVE JAMES expressed the possibility of having a
system that has some sort of point allocation with an appeal
process. Representative James reiterated her belief that all
contracts should be awarded with best value procurement.
However, the issue is how best value is measured. She recalled
being on the planning board, which was subjective and thus
[resulted in] conflict. The situation resulted in the planning
board taking the most troubling [decision] and listing all of
its findings, reasons the decision was made, in order to make
the decision defensible. Perhaps something similar could be
utilized in this process.
MR. WATTERSON returned to Chair McGuire's earlier questions and
estimated that disqualifying [a low bidder] on a conventional
bid occurs less than 5 percent of the time.
Number 1456
CHAIR McGUIRE returned to the "responsive" and "responsible"
language that already exists as a way to move around the cost
issue. She related her understanding that there is no
confidence in the "responsible" language due to the possibility
of legal challenges. Therefore, she questioned why one would
think that a process that is more subjective and open would work
better when the "responsible" language doesn't work.
MR. WATTERSON explained that early on his company decided that
it wouldn't be adversarial and thus when best value procurement
came around, Watterson Construction had a clean record. Mr.
Watterson said that he didn't have an answer.
REPRESENTATIVE JAMES remarked that she has always been troubled
by the low bid process.
Number 1286
GARY KLEBS, President, Klebs Mechanical; President, Associated
Builders and Contractors, Inc. (ABC), informed the committee
that he would first speak as a subcontractor. Mr. Klebs said
that he didn't support [best value procurement], which he viewed
as setting the university up for lawsuits. He pointed out that
in the case of the university, taxpayers' money and private
donations are being used. Therefore, [the ability to] not take
the low bid is not so clear. The low bid process has worked for
years. Mr. Klebs mentioned that the most successful projects
that he has been involved with are those that were very well
laid out and designed. He indicated that perhaps better
planning could be done from the beginning.
MR. KLEBS then spoke as the representative of ABC and expressed
the following concerns that are embodied in a letter from ABC.
The [best value procurement] procedure calls for the
evaluation of bids to occur in private, outside the
public process.
While bids will be reviewed by a committee, the best
value contractor will be identified at the sole
discretion of the contracting officer. This leads to
the possibility or appearance of impropriety. The
procedure must be seen as fair for all bidders.
The process is subjective and does not rely on
measurable, objective criteria.
The process may be in direct conflict with state
procurement code, which calls for objective measure of
bids and public bid openings.
It is inappropriate for an entity that accepts tax
deductible donations from industry to subjectively
evaluate industry when awarding work.
The process, which evaluates prior experience of a
similar scope, runs the risk of locking contractors
into one level of performance, eliminating companies
from growing and expanding their scope of work.
Again, this allows for the possibility or appearance
of favoritism based on criteria other than merit.
Contract awards should not be viewed as political.
Number 1021
EDEN LARSON, Executive Director, Associated Builders and
Contractors, Inc., began by informing the committee that the
aforementioned concerns of ABC were in reference to the specific
project that the university let as a best value procurement and
thus may not apply to other best value procurements. Ms. Larson
stated that ABC Alaska Chapter has not opposed best value
procurement on its face. The university faces the challenge of
making a subjective process objective. Although there has been
testimony that some are enjoying best value procurement that is
expanding into design-build work, Ms. Larson said that over time
the bidding pool shrinks [under such a system]. Therefore,
there is concern in regard to how dramatically and quickly the
bidding pool is limited. Ms. Larson recognized that there is
concern with those low bidders who aren't able to do the work,
but the solution [being proposed with best value procurement]
reaches more than the 10 percent of low bidders who aren't able
to do the work. Best value procurement runs the risk of
overkill due to the narrowing of the pool and ultimately that
lack of competition will increase costs.
Number 0798
CHAIR McGUIRE asked if Ms. Larson had any suggestions regarding
working with the best value concept by perhaps augmenting it
with some checks and balances.
MS. LARSON answered that personally she had thought of having an
experience rating that would be developed separate from bidding
on the job.
CHAIR McGUIRE reiterated that these deliberations are precedent
setting because these discussions could potentially impact the
way Legislative Council and the court system procures, and even
the state agencies.
CHAIR McGUIRE related a request from Senator Lincoln to have the
university draft responses to the concerns expressed in a letter
by Alcan Builders, Inc., which is included in the committee
packet.
Number 0564
MS. REDMAN clarified that under the current procurement statutes
for the university and all state agencies, those policies do
allow use of the RFP process as opposed to the request for bid
process. The RFP process is used for any purchase, including
construction. Therefore, Ms. Redman pointed out that this is
already happening in many forms.
REPRESENTATIVE JAMES related her understanding that the
discussion has been in regard to a bid process, not an RFP,
under best value procurement.
MS. REDMAN said that what is being discussed is a hybrid. The
RFP differs from a straight invitation to bid, the low bid.
There are two versions of the RFP process. One of which is
source selection that utilizes the qualifications and low price
under a specific quantifiable point system. The other version
is best value, which is what the university is proposing, under
which the contractor's qualifications and experience are
evaluated in a rank order.
TERRY KELLY, Purchasing, University of Alaska - Fairbanks,
testified via teleconference. Mr. Kelly agreed with Ms. Redman
that this isn't really a precedent-setting move because the RFP
process, which includes best value, has been in place prior to
1988. The best value process is an extension of that is more
recently being applied to construction. Mr. Kelly clarified
that best value procurement is not an invitation for bid.
CHAIR McGUIRE asked if [best value procurement] has been used in
the actual construction bidding process.
MR. LYNCH answered that [best value procurement] hasn't been
used in the past nor is it the intent that this would be the
standard for all procurement. [Best value procurement] is
intended to address special needs when dealing with situations
in which the experience and background of the contractor are
important to the institution.
Number 0219
REPRESENTATIVE JAMES recalled that there was a particular RFP
that brought up this issue. She inquired as to why this [best
value procurement] process was chosen for use in that proposal.
MR. LYNCH explained that [best value procurement] was chosen
because the project was large enough to involve the contractors.
REPRESENTATIVE JAMES emphasized that the answer didn't specify
what special qualities this project had that created the need
for a more subjective review.
MS. SCHEDLER explained that the physical plant renewal project
was chosen because there are approximately 150 maintenance
workers in that shop. Furthermore, five maintenance jobs will
be revitalized while the building remains occupied and work
continues. Such a situation creates a higher degree of
scheduling and coordination than any prior project.
REPRESENTATIVE JAMES asked if that specific requirement was
outlined in the RFP.
Number 0003
STEVE TITUS, Director, Design and Construction Department,
University of Alaska - Fairbanks, testified via teleconference.
[From the committee secretary's log notes, Mr. Titus indicated
that the requirement wasn't specifically mentioned.]
TAPE 01-6, SIDE A
Number 0047
CHAIR McGUIRE reiterated her point that this really is precedent
setting with respect to large construction bids. Therefore,
there is reason to further scrutinize this. Chair McGuire noted
that when someone says that a particular process will only be
used when special needs arise, she becomes nervous because it
sounds very subjective. Thus, she suggested that a best value
procurement policy outline what special needs mean and include
that as part of the bid.
MR. TITUS remarked that Chair McGuire's suggestion is excellent.
He clarified that he had not meant to imply that [best value
procurement] isn't precedent setting. He agreed that this is
the first time that [best value procurement] has been used for
construction procurement.
ADJOURNMENT
There being no further business before the committee, the Joint
Committee on Administrative Regulation Review meeting was
adjourned at 4:29 p.m.
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