Legislature(2003 - 2004)
12/09/2003 09:12 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
December 09, 2003
9:12 AM
TAPES
SFC-03 # 110, Side A
SFC-03 # 110, Side B
SFC-03 # 111, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:12 AM
in Anchorage.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Ben Stevens
Senator Donny Olson
Also Attending: SENATOR FRED DYSON; JOHN R. SNODGRASS, JR.,
Attorney, General Computer Sales, Inc.; JOHN POWERS, President,
Government Computer Sales, Inc.; MIKE MILLER, Commissioner,
Department of Administration; RAY MATIASHOWSKI, Deputy
Commissioner, Department of Administration; VERN JONES, Chief
Procurement Officer, Department of Administration; BRUCE JAMIESON,
CEO, Government Computer Sales, Inc.; MARY VERDURMEN, Account
Manager for Alaska, Dell Computers; JOHN LAVORATO, Attorney, Dell
Computers; BART MAULDIN, Chief Procurement Officer, Municipality of
Anchorage
Attending via Teleconference: ROBERT CARRIER, Contracts Management
Specialist, State of Arizona
SUMMARY INFORMATION
The Committee conducted an informational meeting concerning the
State of Alaska's procurement code regarding computers and computer
accessories and the five-percent local bidders preference
regulations. No formal action was taken.
Senate Finance Committee Hearing
Anchorage, Alaska
"What's the Cost of doing Business Locally?"
Co-Chair Wilken stated that, while this is a formal Committee
hearing, no action would be taken as the meeting is being conducted
during the interim between the First and Second Sessions of the
Twenty-Third Alaska State Legislature.
Co-Chair Wilken read a prepared statement, dated December 9, 2003
[copy on file] as follows.
WHAT'S THE COST OF DOING BUSINESS LOCALLY?
The purpose of the Senate Finance Committee convening on
th
December 9, 2003 is to publicly discuss the State of Alaska's
new procurement method for purchasing computers and computer
accessories. This hearing will continue what has become a year
of dialogue between a Fairbanks $20M Technology Solutions
business, the State of Alaska, and Senator's Therriault and
Wilken's office.
The remedy sought as a result of this hearing is: (1) a one
year extension to the existing contract between the local
company and the State of Alaska, and (2) a bid/purchase record
be established for the purpose of review and analysis on
November 15, 2004. The purpose of this review is to answer the
question, "What's the cost of doing business locally?"
Since 1992 Government Computer Sales (GCS) has won, through
competitive bids, the right to sell Dell and Gateway computers
to the State of Alaska. Additionally, GCS has made these
contract prices available to all Alaskan municipalities,
school districts, and the University of Alaska.
In 1998 the Western States Contracting Alliance (WSCA) was
created by the State of New Mexico in an attempt to lower the
prices of product purchases by combining the purchasing power
of several states to get large quantity discounts. WSCA is a
non-profit agency based out of New Mexico with all
administrative functions assumed by the National Association
of State Procurement Officials (NASPO). In return for
bargaining and administrative expenses NASPO receives a one-
tenth of one percent of the gross revenue from all WSCA
purchases. As of June 30, 2003 WSCA has sold $3,948,191,809
worth of products for a fee of $3,948,191 paid to NASPO.
In November 2000 the State put WSCA in direct competition with
GCS and other resellers. Applying the 5% Alaska bidders
preference to GCS's proposal, GCS was the lowest qualified
bidder and was issued a non-mandatory contract to supply both
Dell and Gateway computers to the State and all political
subdivisions throughout the state.
In October of 2002 the State sent a notice to GCS that their
contract was to expire on November 16, 2002 and that the State
did not plan to renew it. The intention of the State was to
go direct to the manufacturer using the WSCA contract, thereby
avoiding the 5% local bidders preference and putting 70% of
GCS's business in jeopardy. This loss of business would force
the loss of 7 jobs at GCS in Fairbanks and Anchorage, as well
as several jobs in other Alaskan based technology companies
that support GCS. Senator Therriault and Senator Wilken were
contacted to ask why an Alaskan company, that has historically
provided services to the State, was not allowed to participate
in bidding on any future State technology business through
competitively awarded State contracts.
In November of 2002, Senators Therriault and Wilken contacted
the Department of Administration to request documentation of
the analysis that led to the decision to exclude an Alaskan
company from bidding on the contract. The Department of
Administration, Division of General Services (DGS) supplied
Senators Therriault and Wilken a spreadsheet of their cost-
benefit analysis of WSCA vs. GCS prices and provided GCS with
a one-year extension of their contract to directly compete
against WSCA. The analysis was flawed (Ex. A) and a request
was made of Governor Murkowski to allow further analysis and
an explanation.
DGS then provided the Governor's Legislative Director, Mike
Tibbles, an analysis that showed additional savings above and
beyond that of the previous analysis. Once again this
analysis (Ex. B) was questionable and the savings could not be
substantiated. Senators Therriault and Wilken then requested
newly appointed Commissioner Miller to step in and provide
them with an accurate analysis and explanation.
In June of 2003 DGS provided another analysis (Ex. C) of the
benefits of the WSCA contract that again was built on
questionable data. After three separate analyses, DGS has not
been able to provide a valid analysis of the savings of WSCA
despite repeated suggestions of possible ways to accurately
analyze the situation. After a year of discussion, we remain
unable to answer the basic question: "What does it cost us to
recognize the 5% local bidders preference in the purchasing of
personal computers?
I respectfully request the Department of Administration to
extend the current contract (currently under a one month
extension and due to expire December 15, 2003) until November
15, 2004 and to put in place a simple method by which the
bidding and the purchasing of personal computers by the State
of Alaska can be tracked and analyzed.
Co-Chair Wilken communicated that the State would be purchasing
approximately $15 million worth of computers and computer related
equipment in FY 04, which, he calculated, equates to an expenditure
of approximately $80,000 per week. He voiced that, in addition to
being a significant expenditure of money by the State, it also
represents a significant amount of business for local Alaskan
companies who have been able to compete for this business under the
auspice of the five percent local bidders preference regulations.
He declared that the Legislature, rather than a State agency,
should address the decision of whether or not "to acknowledge" the
local five percent bidders preference statute. He furthered that
were the entire $15 million spent, the cost to the State for
utilizing the five percent local bidders preference would be
between zero dollars and $750,000. He opined that were the bidders
preference negated in this case, out-of-state information
technologists (IT) and service bundlers, rather than local
contacts, would be providing the front-end consultation and service
endeavors. The end result of this scenario, he attested, would be a
web-based relationship. He contended that, while out-of-state
support service might be acceptable when dealing with one or two
computers, the magnitude of the purchases in this case, would
require local support. Moreover, he stated that removal of the
Alaska bidders preference would result in "a fight for life"
situation for GCS and its eight employees in Fairbanks and its two
employees in Anchorage. He stated that the negative affect this
action would have on a business in his hometown of Fairbanks is of
concern to him.
Co-Chair Wilken assured that while the State would never disallow
out-of-state companies such as Dell Computers from doing business
in the State, he declared that the State has the right to support
local businesses by continuing to advocate the five percent local
bidders preference. He asserted that the State could inform Dell
that a local representation would be desirable.
Co-Chair Wilken communicated that the three goals of conducting
State business are: to get the best total value for the State, to
avoid fraud and corruption, and to assist local economies and jobs
opportunities. He stated that these are issues that should be
considered today.
Co-Chair Wilken referred the Committee to a December 8, 2003
Memorandum [copy on file] he had received from Rob Carpenter,
Fiscal Analyst, Division of Legislative Finance, that was developed
in response to a question regarding the potential fiscal impact
that the elimination of approximately seven to ten jobs might incur
in Anchorage and Fairbanks. He stated that the memorandum indicates
that the elimination of these jobs could result in an annual
economic loss of between $975,000 and $1.35 million, dependent upon
which economic multiplier is used. He characterized the issue being
discussed today, and the subsequent decision regarding it, as very
important due to the potential loss of jobs and the corresponding
fiscal impact.
Co-Chair Wilken noted that the Members' packets include three
different economic impact analyses, referenced as Analysis "A,"
"B," and "C" [copies on file]. He noted that these analyses do not
provide "an obvious consensus." He also noted that he, Senate
President Gene Therriault, and the Department of Administration
Commissioner Mike Miller and Department staff have reviewed the
summaries at length. He voiced that the summaries are important as
they would become part of the documentation regarding the issue of
the State's "contact and preference" bidding policy. He defined
"contact" as meaning that local people must be contacted and
"preference" as meaning that some sort of monetary preference must
be given to local Alaskan businesses. He stated that other factors
that should be considered would include the level of service that
would be provided as well as the cost to the State. He reiterated
that this cost could range between zero dollars and $750,000.
Co-Chair Green asked for further clarification regarding the word
"contact."
Co-Chair Wilken responded that, in this process, it means that a
company, or in this case, the State, would be required to contact
local companies, such as GCS, to provide a service.
Co-Chair Wilken communicated that the statutes applicable in this
case, as referenced in the letter [copy on file] to the Committee
from the Department of Administration Commissioner Mike Miller,
dated December 5, 2003, and the letter [copy on file] from Marjorie
Vandor, Assistant Attorney General, Department of Law to
Commissioner Mike Miller, are State Procurement Code Statutes Sec.
36.30.700 and Sec. 36.30.710 that read as follow.
Sec. 36.30.700. Cooperative purchasing authorized.
A public procurement unit may either participate in, sponsor,
conduct, or administer a cooperative purchasing agreement for
the procurement of supplies, services, professional services,
or construction with one or more public procurement units or
external procurement activities in accordance with an
agreement entered into between public procurement units and
open-ended state public procurement units contract that are
made available to local public procurement units.
Sec 36.30.710. Sale, acquisition, or use of supplies by a
public procurement unit.
(a) A public procurement unit may sell to, acquire from,
or use any supplies belonging to another public procurement
unit or external procurement activity independent of the
requirements of AS 36.30.060 and 36.30.100 - 36.30.260.
(b) A public procurement unit may enter into an
agreement, independent of the requirements of AS 36.30.060 and
36.30.100-36.30.260, with another public procurement unit or
external procurement activity for the cooperative use of
supplies or services under the terms agreed upon between the
parties.
Co-Chair Wilken stated that the question is "under what statute
does the Administration believe that they have the ability to just
go to WSCA (Western States Contracting Alliance)? and not recognize
the bidder's preference." He stated that WSCA is a buyers'
cooperative. He stated that the aforementioned letters appear to
have "a difference of opinions" as to which Statute is applicable.
He stated that contrary to the Administration's position which
"hinges on" AS 30.710, he suggested that AS 30.700 rather than AS
30.710 applies to WSCA, as he argued, AS 30.700 "does not
acknowledge, as 710 does, that there is an exemption from the local
bidders preference."
Co-Chair Wilken stated that, at his request, John Snodgrass, the
attorney representing GCS, would further explain these two
statutes.
JOHN R. SNODGRASS, JR., Attorney, Government Computer Sales, Inc.
expressed that the phrase "independent of the requirement of AS
36.30.060 and 36.30.100-36.30.260" as written in AS 36.30.710(a)
and, in particular, AS 36.30.710(b) that Ms. Vandor repeatedly
refers to in her Attorney General opinion, is "the exemption from
the public procurement law, basically, and in particular, 170(b)
the local bidders preference." Continuing, he stated that these
"magic words" provide the exemption from the local bidders
regulation, AS 36.30.170, which reads as follows.
Sec. 36.30.170. Contract award after bids.
(a) Except as provided in (b)-(h) of this section, the
procurement officer shall award a contract based on the
solicited bids with reasonable promptness by written notice to
the lowest responsible and responsive bidder whose bid
conforms in all material respects to the requirements and
criteria set out in the invitation to bid.
(b) The procurement officer shall award a contract based
on solicited bids to the lowest responsive and responsible
bidder after an Alaska bidder preference of five percent, an
Alaska products preference as described in AS 36.30.322 -
36.30.338, and a recycled products preference under AS
36.30.337 have been applied. In this subsection, "Alaska
bidder" means a person who
Mr. Snodgrass reiterated that when reviewing AS 36.30.710(b), which
"Ms. Vandor relies upon consistently," it is stated that the public
procurement unit (PPU) "may enter into an agreement, independent of
the procurement code." He declared that this Statute language is
followed by the phrase "for the cooperative use of supplies." He
declared that these are "the magic words that she [Ms. Vandor]
fails to argue." Therefore, he opined that the only thing that AS
36.30.710(b) "provides for is the cooperative use of supplies," as
he noted, is substantiated in footnote number one in Ms. Vandor's
memorandum.
Mr. Snodgrass continued that, were the State of Alaska
cooperatively using a computer with, for instance, the State of New
Mexico, then AS 36.30.710(b) would come into play and the local
bidders preference regulation could be avoided. However, he
attested that were this cooperative use not occurring, then 710(b)
could not be used. Continuing, he stated that Ms. Vandor could also
have used 710(a) as an argument in that "a PPU may sell, acquire
from, or use any supplies belonging to another PPU or external
procurement activity" ? "independent of the requirements of 36.30;
however, he pointed out that the problem there is that WSCA does
not own the computers or in other words, "these computers do not
belong to WSCA or New Mexico." Therefore, he concluded that 710(a)
would not be applicable.
Mr. Snodgrass continued that because neither AS 36.30.710 (a) or
(b) are applicable, Ms. Vandor argues that AS. 36.30.700 provides
the exemption, even though, he noted, she specifies that "if the
State sponsors or administers a cooperative purchase agreement,
that it must comply with 36.30, including, 36.30.170(b), the
bidder's preference." He opined that, "this is correct, because the
magic words, 'independent of 36.30,' do not exist in 700."
Mr. Snodgrass stated, therefore, that while the State could acquire
computers under AS 36.30.700, that purchase would be subject to the
State's procurement code including the local bidder's preference.
He stated therefore, that Ms. Vandor's letter is "flawed."
Mr. Snodgrass furthered that, separate from and not addressed in
Ms. Vandor's memorandum, is Commissioner Miller's reference to AS
36.30. 850(c), which Mr. Snodgrass opined, does not apply to this
situation. He stated that 850(c) specifies that, "this chapter does
not apply to contracts between two or more agencies, DOT and DOA,
between the State and its political subdivisions, the State and
Anchorage, or the State and other governments, Alaska and New
Mexico." He stated that no language in 850(c) specifies that this
language would apply to the State and Dell or any private company.
Therefore, Mr. Snodgrass concluded that, "Section 850(c) does not
exempt the State, in its dealings with Dell, from the local
bidder's preference."
Co-Chair Wilken interpreted Mr. Snodgrass's comments to imply "at
least the strong suggestion that what's being done here is outside
the State statutes;" notwithstanding, he continued, the Attorney
General's opinion and the Department of Administration's response
to these comments.
MIKE MILLER, Commissioner, Department of Administration, voiced
being "uncomfortable" responding to Mr. Snodgrass's comments
without having a Department of Administration attorney present.
Co-Chair Wilken understood the Department's position and
communicated that he had solicited Mr. Snodgrass's "help" in
further explaining the Statutes.
Co-Chair Wilken noted that the Executive Session as noted on the
agenda would not be conducted.
JOHN POWERS, President, Government Computer Sales, Inc., read the
following prepared statement [copy on file] to the Committee.
Honorable Members of the Senate Finance Committee.
My name is John Powers and I am the President of Government
Computer Sales, Inc., a Fairbanks and Anchorage based computer
technology supplier. We have been serving the technology needs
of state and local governments and educational institutions
since 1989. We currently hold the State Micro Computer
Contract. We are the largest supplier of technology to the
state of Alaska, and we provide, directly and indirectly, many
well-paying Alaska jobs.
Senator Wilken asked the question, what's the cost of doing
business locally? The flip side of that question is, what's
the cost of NOT doing business locally? This second question
is very real to us because we are in danger of being forced
out of business by the Division of General Services (DGS). DGS
wants to terminate our competitively bid contract in favor of
a contract direct with our vendors, through the Western States
Contracting Alliance (WSCA). WSCA provides no Alaska jobs.
DGS claims our termination will result in lower prices to the
State, but DGS has repeatedly failed to show any concrete
evidence that WSCA's prices are lower than ours. As Senator
Wilken stated, DGS's cost/benefit analysis is "flawed." The
cost/benefit analysis is flawed for two main reasons. Second,
it fails to show a real benefit. First, it fails to show the
real cost. Some of the costs to Alaska include the termination
of our business and all of our direct jobs. Added to all of
our lost jobs are the economic multiplier effect on the
economy and other lost jobs.
A more technical question for this hearing is whether the
Legislature will allow DGS to avoid both Alaska competition
and the Alaska preference law for the computer contract. DGS
wants to purchase computers solely under the contract through
WSCA with no Alaska competitive bid and no Alaska preference.
When the Dell and Gateway computer contracts were
competitively bid out subject to local preference, we won and
WSCA lost.
We understand that the State's Chief Procurement Officer is
currently negotiating with Dell directly without competition
and without any notice to Alaska bidders. Why would the Chief
PO want to avoid competition? Why would he want to take away
local jobs and to favor a WSCA bidder. Could the fact that he
is the national Chairman of WSCA be a reason? It seems unfair
to us that the Chairman of WSCA terminates our State contract
and then commits the State to a WSCA contract with no
competition or notice to Alaska bidders.
In November 2000, we were awarded the contract for Dell and
Gateway products in a competitive bid against other resellers
and WSCA. Our contract was for one year, with three additional
one-year options. The State extended the contract for the
first year of the option period. Then, in November 2002, DGS
notified us of termination. At that time, DCS apparently
interpreted AS 36.30.700 to allow it to contract directly with
our vendors through WSCA. This reading of Section 700 allows
DGS to bypass both Alaska competition and the Alaska bidders
preference. DGS's new reading is wrong because Section 700,
unlike 710, does not exempt cooperative purchasing from the
Code's competitive requirements set out in AS 36.30.100 - 260.
Similarly, unlike Section 710, Section 700 does not exempt
cooperative purchases from the local bidders preference in
36.30.170.
To the manufacturers, DGS's new reading means that the State
of Alaska wants to bypass local business and wants to deal
direct with outsiders. This interfered with out 12-year
reseller relationships with Dell and Gateway. We protested
DGS's termination. DGS eventually agreed to extend our
contract, but only on the condition that it could add the Dell
and Gateway contracts through WSCA to the State Contract with
equal standing to us. We capitulated and agreed. While DGS's
actions have hurt us, we have continued to provide most of the
computers to the State.
During this last year, agencies were not required to contact
us or to document any purported savings that DGS claims by
purchasing through WSCA instead of us. DGS has refused to
provide any meaningful analysis of purchases during the period
when we and WSCA both supplied Dell and Gateway products, even
though repeatedly asked to d so by Senators Wilken and
Therriault. We request that our contract be extended and an
actual price comparison be mandated.
The damage to our relationship with our manufacturers can be
reversed only by a strong response from the Legislature. We
request that agencies be required to contact the Alaska vendor
where one exists, and apply the Alaska bidder preference in
determining the best price.
WHAT BROUGHT US HERE TODAY:
During the mid-1980's governments and educators across Alaska
started to realize the benefits that PCs could provide, but
the normal bid process was too cumbersome for the rapidly
changing computer industry. Computer specifications were often
obsolete by the time the procurement was completed. Also, many
of the machines the State bought in this manner met all the
specification, but were no equivalent to the leading breads in
quality or compatibility. Realizing that it was not getting
what it wanted through a standard competitive process, the
State of Alaska decided to hold a competitive bid process
among suppliers of a few brands of computers that had
demonstrated long term total value.
In the early 1990's the State introduced a contracting process
which allowed resellers and manufacturers to competitively bid
for the right to supply a specific brand PC product line to
the State for a given period of time. The contract would tie
the provider to a published price list (e.g., manufacturer's
retail) so that when products or prices changed, the contract
holder would pass the benefit to the State. These contracts
were typically for a year or two at a time with optional
renewals at the State's discretion. They were re-bid
periodically, again providing all certified resellers and
manufacturers an opportunity to bid for the right to supply
the brand specified on the contract. We have held successive
versions of this form of State contract for over ten years.
The last time the State re-bid the micro computer contracts in
the summer of 2000, GCS won the right to hold the contracts
for both Dell and Gateway products. The contract allowed only
one provider per manufacturer. The contracts were for one year
with three additional one-year options. The competitive bid
process in 2000 contained a caveat that if no bidder could
offer a price better than that offered through WSCA for a
brand, that the State reserved the right to make an award and
to sign on to the contract through WSCA for those brands. Our
prices were lower than WSCA after applying the Alaska bidder
preference and we got the contract for Dell and Gateway.
As noted earlier, on November 15th, 2002, DGS notified us that
it was terminating our contract. We expected DGS would then
re-bid the contracts, allowing Alaskan technology providers
like us an opportunity to compete for the State's PC business.
We were informed that there was no intention to re-bid the
contract. Instead, DGS decided to use cooperative agreements,
thereby trying to evade both competitive bidding and local
bidder's preference asset out in AS 36.30.100 - 260.
As justification, DGS claimed Alaskan providers offered little
or no value to the public sector, and argued that our prices
were much higher than WSCA offered for the same products.
However, as Senator Wilken stated, and I quote, DGS's
"analysis was flawed," "the savings could not be
substantiated," and DGS has not been able to provide a
detailed analysis of the savings of WSCA."
In November 2002, DGS extended our contract for one more year
under significant pressure from many of our public sector
customers around the State. Most of them spelled out the value
that we provided in the form of competitive prices, great
service and overall value. However, in its extension notice,
DGS required us to accept without protest the State's
simultaneous use of the WSCA agreements.
DGS has taken the position that a cooperative purchasing
agreement is exempt from procurement procedures, and can be
used, essentially, as a sole source provider. We requested
that DGS provide instructions to users of the WSCA agreements
that would require agencies to contact the Alaska vendor for
comparative pricing, and apply the 5% Alaska bidder
preference. DGA refused, thereby effectively annulling the
statutory preference that the Legislature has required for
Alaska bidders and Alaska jobs under AS 36.30.170(b). As
further evidence of DGS's anti-Alaska bias, the DGS
procurement manual (AAM 81.060) states "Cooperative Purchasing
Agreements: Competitive quotes, bids or proposals are not
required for goods or services under AS 36.30.700-730." While
the procurement manual may show DGS's interpretation of the
statutes and may be correct for Section 710, it is wrong for
Section 700 and WSCA. Further, DGS's manual does not carry the
weight of law because AS 36.30.870 requires that real
regulations "shall be adopted in accordance with" the
Administrative Procedure Act, which the manual was not.
In November 2003, DGS again notified us that it would
terminate our contract. Once again, it was not going to re-
bid, and it intended to use the contracts through WSCA.
Avoiding a re-bid of our contract, of course, evades Alaska
competition and the Alaska bidder preference.
Apparently DGS simply assumes that because WSCA negotiates
with the manufacturers on behalf of several states, its prices
must be the lowest available. We have asked DGS to have
procurement officers document the prices they are quoted
through WSCA, as well as our prices offered and the
comparative retail list price at the time of purchase. We
believe DGS has refused to do this because it would provide
hard evidence that in-state providers like us are in fact
competitive within the statutory 5% preference. Real-time
documentation is the only way for the State to know for sure
what type of discounts it is actually receiving on purchases.
I am almost finished, but I have one more point before my
short conclusion. The State's Chief Procurement Officer/WSCA
Chairman is negotiating on behalf of the State with Dell. It
is our understanding that the negotiations require the State
have a sole source deal with Dell. BY contract then, the State
would eliminate us. This means that the State will have even
less ability to tell what pricing it is receiving. Further,
the agreement would require Dell to give us worse pricing than
it gives the State. We do not understand why anyone would want
that provision. In addition, we understand that the State must
keep all pricing information confidential. This requirement is
far removed from fair and open competition, and may violate
public disclosure laws. It seems unlikely to us that this
secret-pricing term is in any real WSCA contract because if it
were, no other state would know the price terms of the
cooperative agreement. In short, this new secret deal with
Dell would not be a cooperative purchasing agreement. Thus,
even if the State could buy computers through cooperative
purchasing, the State could not buy them under this agreement.
The question again is, why would the State's Chief Procurement
Officer get this type of deal for the State. We can understand
why the Chairman of WSCA may like this secret deal, but we do
not understand why the State's Chief Procurement Officer would
make a deal like this.
CONCLUSION:
We support the State's desire to find budget savings by
providing the most effective procurement methods. However, we
believe that DGS must follow existing laws, which support
Alaska bidders and Alaska jobs. Our reseller agreements with
manufacturers are based on the expectation that we will
effectively market their products in Alaska. By its recent
actions, DGS appears to be telling Dell and Gateway that
Alaska vendors are no longer preferred. Logically,
manufacturers have a vested interest in minimizing their costs
and they may decide to cut us out of the distribution chain.
The end result will be secret contracts, the loss of local
support services, and the loss of Alaska jobs.
To make it redundantly clear to DGS, we ask the legislature to
amend AS 36.30.700 of the Procurement Code to expressly
require contact with Alaskan businesses that offer the same
products, and applications of the Alaska bidder preference in
determining the best price.
We also ask the State to exercise the third extension option
of our Micro Computer Contract for Dell and Gateway products
through November 15, 2004. The extension will allow DGS time
to do a real comparison of actual prices on actual purchases.
On the other hand, if DGS terminates our contract, then we
will lose the Number One priority set out in the Christmas
Speech by Governor Murkowski, ALASKA JOBS.
Thank you. Do you have any questions?
SENATOR FRED DYSON asked GCS whether the computer products involved
in a large supply contract would be shipped directly to the
consumer or to GCS.
Mr. Powers responded that shipping arrangements are on a case-by-
case basis; however, he allowed that orders are predominantly
shipped to the customer to expedite the customer's receipt of the
product. He stated that products are shipped directly to GCS when
such things as advance configurations must be installed.
Senator Dyson asked the value of the contract that GCS has had with
the State.
Mr. Powers responded that the annual value of the contract with the
State has ranged between eight to ten million dollars. He furthered
that purchases from other public municipalities and education
institutions that can tie in with the State contract would bring
the total amount to approximately $20 million.
Senator Dyson asked the total number of GCS employees.
Mr. Powers stated that GCS has ten employees.
Co-Chair Green asked whether this situation has resulted in an
"antagonistic" or "controversial climate" between GCS and its
suppliers, Dell and Gateway.
Mr. Powers responded that, "the imposition of the WSCA contract in
direct competition with our State contract has hurt us to the tune
of about 30 to 40 percent of our business."
BRUCE JAMIESON, CEO, Government Computer Sales, Inc. noted that
GCS's "very good" eleven-year vendor relationship with both Dell
and Gateway has been affected by the State's decision to further a
direct contract with those suppliers, in direct competition with
GCS.
Commissioner Miller commented that, "the question is where do we go
from here." He avowed that the Department has been charged with
saving money and operating more efficiently. He stated that, in
this process, the Department identified Information Technology (IT)
as an area in which further efficiencies and savings could be
developed. As part of the process, he continued, a consultant was
hired to assist in the development of an integrated IT plan for the
State. One part of that plan, he continued, is to further
efficiencies by using four or five types of computers from a single
system vendor. He attested that this approach would provide
significant savings.
Commissioner Miller deferred to the Attorney General's opinion on
the bidder preference regulations concerning WSCA. He stated that,
in moving forward, a few issues should be remembered; one being
that the Governor has been "crystal clear" that only a certain
amount of money would be spent in the budget cycle. He continued
that, as policy makers, the Legislature is dealing with "tough
times" and would have to make "tough decisions." He contended
however, that these decisions must be made within the overall
context of the State budget. He stated that, "if you, as policy
makers, believe that we should be buying computers through a third
party vendor, and should be paying up to five percent more, lets
say $50,000? that is your decision to make." In that case, he
continued, this would be $50,000 that would be unavailable to be
spent on some other government service. He stated that were this to
be the decision that the Legislature makes, then the Legislature
must also decide what other services would be reduced or unfunded.
He stated that rather than being an issue to circumvent GCS, the
issue is to provide the State with "the best service to the State
of Alaska at the best price." He stated that were GCS able to
provide computers at a cheaper price, the Department would buy from
them, as he asserted that the Department is charged with saving the
State money.
SFC-03 # 110, Side B 09:57 AM
Commissioner Miller continued, therefore, that the Legislature
would be required to make the "policy call" regarding whether the
State should spend more than the Department's specified "x" amount
for these services.
Co-Chair Wilken commented that Commissioner Miller, as a small
business owner, is aware of "what is at stake here."
VERN JONES, Chief Procurement Officer, Department of
Administration, stated that contrary to previous testimony,
computer price analyses have been conducted and indicate, were a
WSCA agreement in place, savings ranging from 6.5 to 10.5 percent.
Furthermore, he informed the Committee that the State belongs to a
variety of cooperative consortiums in addition to WSCA, and has
been using cooperative procurements, "legally for many years" to
purchase, for example, hospital supplies, industrial tools, and
laboratory supplies. He stated that this is a long established
practice.
Mr. Jones communicated that were the Alaska bidders preference
required to be applied to every cooperative procurement transaction
conducted by the Division of General Services, the process of
acquiring a quote and applying the five-percent Alaska bidders
preference would result in an extra 28,000 to 30,000 transactions
per year, which he asserted is a "very impractical situation."
Therefore, he attested that in addition to providing the State with
lower product prices, which saves the State millions of dollars a
year, cooperative agreements reduce the labor demands placed on the
Department. He stated that every state uses similar cooperative
agreements to save funds, and he "advocated that it would be a bad
idea to take that tool away"
Co-Chair Green inquired as to the level of estimated savings that
result from these cooperative procurements.
Mr. Jones replied that it ranges between three and four million
dollars each year.
RAY MATIASHOWSKI, Deputy Commissioner, Department of
Administration, expanded on Commissioner Miller's comments by
noting that the State has reviewed the status quo procurement
procedures and has determined, in this "new period of time," the
importance of standardizing desktops and other IT applications. He
stated that the goal of this standardization process is to purchase
large volumes of products and get further price reductions.
Mr. Jones stated that the Department, upon the advice of the
consultants, has determined that the IT procurement methods must
change. He noted that, in addition to standardizing desktops,
efforts are being made to standardize brands and models of
computers within that brand in order to receive the "greatest price
reduction" as a result of volume purchases. He stated that this
process is continuing, and he assured the Committee that no secret
deals are being conducted, and that no commitment has been made to
keep this process confidential.
Senator Dyson, noting that he had arrived after the meeting
started, asked whether legal opinions had been discussed prior to
his arrival.
Co-Chair Wilken stated that applicable statutes were discussed, and
that Mr. Snodgrass, representing GCS, inferred that the process
might "be outside the statutes." He continued that "the
Administration choose to not comment on that." He noted that a copy
of Mr. Snodgrass's interpretation of the applicable State statutes
[copy on file] is included in the Members' packets.
Mr. Jones or Mr. Matiashowski [speaker unidentified] commented that
the Member's packets also contain an opinion from the Attorney
General's office that expresses the Administration's position on
the statutes and the legality of the Department's actions.
MARY VERDURMEN, Dell Account Manager for Alaska, informed the
Committee that documentation [copy not provided] has been provided
to the Committee that explains Dell Computer, Inc.'s business
model. She voiced appreciation for the business that the State of
Alaska has conducted with Dell. She characterized Dell as "a very
unique" $40 billion corporation that maintains WSCA contracts with
27 states, as a vehicle to address State and local government
computer needs, and she clarified that these 27 states purchase
directly from Dell. She noted that Dell Computers strives for "the
highest level of customer satisfaction" and a direct access
relationship with the customer, even when a Dell product is
purchased through a local vendor. She stressed that good service
and good price are important to the company. Furthermore, she
stated that Dell provides a single point of accountability to
customers for such things as warranty and installation services.
She attested that in its endeavor to be a low cost leader, Dell
uses industry standard technology as well as standards and long-
term product life cycles. She noted that Dell also offers the State
a zero percent leasing program and computer recycling program.
JOHN LAVORATO, Attorney, Dell Computers, stated that Dell has no
issue with GCS and that no adversarial tone exists. He stressed
that Dell focuses on serving its customers who, in this case is the
State of Alaska. He acknowledged that while Dell does not currently
have any employees in the State, it is considering the possibility
of placing employees here and is also contemplating working with
Alaskan Native companies "in a sense that the federal government
has incentive programs for vendors who basically have relationships
with" Alaskan Native companies. He noted that, "it would be
factual" that its "break-fix-warranty third party providers are
employees of other companies in Alaska." He stated that because
Dell is a global company, numerous Dell computer components are
manufactured in the Far East and as part of its logistical network,
these components are transported through Alaska.
Mr. Lavorato specified that from the Dell perspective, cooperative
purchasing agreements allow for reduced procurement cycles, reduced
administrative costs, aggregate buying power for both large and
small governments, and market-driven prices as opposed to arbitrary
prices points. He noted that computer prices are continuing to
decrease. Furthermore, he stated that Dell's broad offerings of
services adequately address customers' specific computer needs, and
he stated that all these factors support Dell's business model. He
declared that this "global company" is market driven and enjoys
competing for business on a daily basis.
Mr. Lavorato summarized that Dell strives to provide its IT
customers with "the best customer experience with lowest total cost
of ownership." He stated that Dell supports and embraces State and
federal policies pertaining to socioeconomic programs, and he
assured that there is no secret deal, and he furthered that, from a
legal and corporate perspective, one of Dell's "basic tenants is to
win with integrity."
Senator Dyson asked whether Dell or GCS personnel currently supply
hardware technical support to the State's staff and employees.
Mr. Powers replied, both.
Ms. Verdurman noted that because GCS is currently supplying the
equipment, they should respond to the question.
Mr. Powers stated that GCS supplies technical support to its
customers. He noted that GCS provides its Alaskan customers with
"localized support layered onto the world-class service that Dell
provides direct."
Ms. Verdurman stated that Dell provides a lifetime warranty on its
systems, and that technical support is provided direct from Dell 24
hours a day, seven days a week.
Senator Dyson asked whether GCS provides telephone help desk
technicians.
Mr. Powers responded yes.
Co-Chair Wilken opined that Dell, as the manufacturer, might
provide GCS, the reseller, with a "better price" than Dell would
provide to the State because, by providing the front-end sales,
end-product determination, and technical contact to the customer,
GCS's contribution eliminates a service that Dell would otherwise
be required to provide. He asked whether the local providers'
front-end contribution is recognized and, as such, is provided "a
deeper discount" than the retail price than Dell would charge the
State were Dell to absorb that responsibility.
Mr. Lavorato voiced understanding of the concept being presented by
Senator Wilken, and stated that price considerations are dependant
on the effort expended by the third party vendor, as exampled by
whether the end user would be ordering a standard IT system or a
more complicated system. He informed the Committee that Dell does
regularly "team" with big companies to develop the end-product
needs.
Ms. Verdurman assured the Committee that Dell staffers currently
travel to Alaska, do consult with Alaskan customers, and, in
addition, consult with GCS on complicated projects, as she noted,
"their customers are our customers." She noted that Dell recognizes
the value of growing its business in Alaska.
Mr. Lavorato observed that sometimes projects get "derailed" when a
lot of people are involved in a process.
Senator Olson assumed that State Government is Dell's biggest
customer in Alaska.
Mr. Lavorato understood that to be the case.
Senator Olson asked whether Dell has encountered this type of
situation before.
Mr. Lavorato responded that, although it has not been a problem,
those of the 27 WSCA states that have considered contracting with
Dell to be their sole IT provider, have worked through the
competitive and socioeconomic issues that Alaska is now addressing.
In addition, he stated that these issues have also arisen in regard
to federal General Services Administration procedures.
Co-Chair Wilken asked how many of the 27 states have contact and/or
preference provisions.
Mr. Lavorato was unsure.
Co-Chair Wilken referred the Committee to the resume of Robert
Carrier [copy on file], a former Alaska Department of
Transportation and Public Facilities Southeast Region Chief
Procurement Officer, who is now employed in a similar capacity in
the State of Arizona.
Co-Chair Wilken asked Mr. Carrier his opinion regarding the
Administration's position that establishing a system and tracking
real-time purchasing data would be "a big project."
ROBERT CARRIER, Contracts Management Specialist III, Department of
Economic Security, State of Arizona, testified via teleconference
from Phoenix, Arizona, and responded that, in his experience with
the Alaska Department of Transportation and Public Facilities (DOT)
"that it would not be a problem to create the data showing
configuration and the price that was paid for the machine, and who
the vendor was." He surmised that while it might not be a major
undertaking, on a statewide basis, it might require the Division of
General Services'(DGS) involvement to consolidate the information.
He noted that DGS acts in this capacity on other reporting issues.
He opined that it is do-able and would not impose undue hardship
either on the agencies and/or DGS.
Co-Chair Wilken asked Mr. Carrier whether he had ever participated
in a process of this type.
Mr. Carrier stated that when he worked at DOT, "this information
was available at the touch of a button." He noted that it is not
unrealistic to obtain more than one quote for comparison purposes.
He acknowledged that acquiring multiple quotes would be more work,
but he stated that it would be do-able.
Mr. Carrier voiced that he perceives this issue to not be exempt
from competition under State statute; however, he continued that
regardless of whether something is exempt or not exempt from
Statute, the awareness must be maintained that the "responsibility
to the public is reasonable and adequate." He voiced uncertainty as
to whether the WSCA contract is reasonable and adequate; however,
he stressed that it is not a mandatory contract. He exampled that
other states, such as New Mexico, have additional contracts beyond
the WSCA agreement that allows businesses to sell computers.
Co-Chair Wilken asked Mr. Carrier if he is aware of other states
that have contact and/or preference regulations pertaining to
computer sales through a WSCA agreement.
Mr. Carrier responded that New Mexico and Arizona do; however, he
noted that Arizona also maintains computer sales independent of its
WSCA agreement.
Co-Chair Wilken asked for clarification regarding whether the
states' regulations specify contact or contact/preference language.
Mr. Carrier responded that he is unsure; however, he stated that
the contract language in New Mexico's agreement specifies that the
agreement is applicable to New Mexico resellers. He opined that
this could be classified as preference language.
Mr. Carrier reiterated that WSCA is not a mandatory contract. He
suggested that one option that might occur is that Dell could
designate GCS as a reseller, and thereby resolve "a lot of the
issues" being raised as this, he continued, would allow the
"information that must be gathered to be gathered." He stated that
another, less desirable, option could be "that the State could
negotiate a permissive agreement with GSC" to provide that service.
He noted that this is a less desirable option because he understood
that these services are limited to $5,000. He stated that rather
than a WSCA agreement, other options are available.
Mr. Carrier commented that the direct purchase agreement that is
outlined in the Memorandum [copy on file] from Dell Computer to
Vern Jones, dated October 30, 2003 identifies Dell as a "sole
source supplier" in its comments. However, he pointed out that sole
source agreement language is not a WSCA requirement. He voiced
confusion as to how Dell or perhaps the State "jumped from a WSCA
contract to a sole source" or single source agreement. He stressed
that a WSCA price agreement that might be signed, "is just that;"
that a product price would be specified. Furthermore, he noted that
the Dell memorandum includes caveats such as that the State would
be required to spend a minimum of $15 million with Dell each year.
Furthermore, he stated that $15 million is double the amount that
the State has traditionally spent with Dell on an annual basis. He
questioned the penalty that might arise were this level not spent.
He reiterated that there are other options to consider.
Co-Chair Wilken commented that both the GSC and WSCA agreements
extend the State's pricing structure to the University of Alaska,
municipalities, and school districts.
BART MAULDIN, Chief Procurement Officer, Municipality of Anchorage,
informed the Committee that, during his 23-years with the
Municipality of Anchorage, he has had numerous opportunities to
work with cooperative agreements. He attested that, at the local
level, the City does attach or "piggyback" onto state contracts as
he attested the City is extended that right as a political
subdivision. He exampled that, in addition to computer purchases
with GCS, Dell, Compact, and IBM, this procedure has been used
approximately 25 times in a variety of instances such as the
leasing and purchasing of vehicles, highway paint and salt
supplies, and road graders. He stated that this arrangement is
attractive and has high value to the City because, in addition to
the pricing being "advantageous," it allows the municipality to
forego such things as the procurement cycle. He allowed that, while
the pricing might not be the lowest, the benefits that are provided
are great.
Co-Chair Wilken asked whether this issue is of concern to the City.
Mr. Mauldin replied that while computer purchasing is the largest
component of this arrangement, concern arises from the fact that
were an agreement not in place, the City would either be required
to carefully watch what the State does in various regards or pursue
its own agreements. He noted that the City's participation in the
program is not mandatory. Therefore, he concluded that the
agreement is only disruptive if a State contract is not in place.
Co-Chair Wilken reminded that the Committee would not be conducting
an Executive Session, as specified on the agenda.
Co-Chair Green inquired as to the types of cooperative agreements
that the State has participated in under the two statutes in
question.
Mr. Jones responded that the State has, for a long time, secured a
cooperative agreement to purchase, on an annual basis,
approximately $3 million in pharmaceuticals/health care supplies.
He noted that the Alaska Pioneers Home has piggybacked on this
cooperative agreement. He stated that other WSCA cooperative
agreements include laboratory and scientific supplies, tools, paper
products, and airfares. He noted that the State has a long history
of cooperative agreements.
Senator Dyson asked the level of human resources that GCS provides.
Mr. Powers responded that GCS predominantly deals with the public
sector, and maintains two full-time first level technical support
staff to assist local governments, schools and State employees. He
stated that, in situations requiring a higher level of technical
assistance, GCS and Dell work together to provide the assistance
required.
SFC 03 #111, Side A 10:40 AM
Mr. Powers stated that beyond the service provided to governments,
GCS has established a joint partnership with Mercury Data Group and
other local small service and technical support providers to
establish an entity known as Alaska Technology Services (ATS). He
stated that five seats of the professional service contract group
that was formed to assist the State in its endeavors to further its
new IT plan were members of ATS. He noted that there is in excess
of fifty people who could provide on-site service support to the
two individuals who man the GCS help desk.
Senator Dyson asked for confirmation that these services are free
to GCS equipment purchasers.
Mr. Powers clarified that additional costs are levied for services
"over and beyond" contract warranty conditions.
Senator Dyson asked whether the assistance of the two staffers who
man the help desk is free of charge.
Mr. Powers confirmed that this service is free.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 10:46 AM
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